Alexander & Baldwin Q3 2024 Earnings Report

Alexander & Baldwin EPS Results

• Actual EPS: $0.27
• Consensus EPS: $0.33
• Beat/Miss: Missed by -$0.06
• One Year Ago EPS: $0.30

Alexander & Baldwin Revenue Results

• Actual Revenue: $61.94 million
• Expected Revenue: $60.00 million
• Beat/Miss: Beat by +$1.94 million
• YoY Revenue Growth: N/A

Alexander & Baldwin Announcement Details

• Quarter: Q3 2024
• Date: 10/24/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 24, 2024
• Conference Call Time: 5:00PM ET

Founded in 1870 by Samuel T. Alexander and Henry P. Baldwin as a sugarcane plantation on Maui, Alexander & Baldwin (NYSE:ALEX), Inc. (NYSE: ALEX) today operates as a Hawai‘i-focused real estate investment trust headquartered in Honolulu. The company transitioned from its agricultural origins into a diversified real estate owner, operator and developer, completing its conversion to a REIT structure in late 2019 to align its corporate governance with its core property portfolio.

Alexander & Baldwin’s commercial real estate arm spans office, retail, industrial and hospitality properties across the four major Hawaiian Islands. Through its A&B Properties subsidiary, the firm engages in ground leasing, property management and development of mixed-use shopping centers, business parks and multifamily housing projects. The company also pursues strategic joint ventures to enhance asset performance and deliver amenities that reflect Hawaii’s cultural and environmental values.

Beyond its commercial holdings, A&B retains significant agricultural land assets, leveraging its century-old water-management expertise and long-term lease agreements with local growers. These lands support diversified crop production, ranching activities and conservation efforts that contribute to regional sustainability. Guided by a leadership team with deep experience in island economics and community development, Alexander & Baldwin continues to steward natural resources and generate value for shareholders throughout Hawai‘i’s unique real estate landscape.

Alexander & Baldwin Q3 2024 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q3, AMB delivered 4.1% same store NOI growth and executed 71 leases with 15.3% blended spreads, maintaining occupancy around 94.8%.
• Positive Sentiment: The company bolstered its balance sheet by launching a $200 million ATM program and recasting its revolving credit facility to extend maturities to 2028 with 97% fixed-rate debt.
• Positive Sentiment: AMB monetized 81 acres of non-core land and the Waipoli Town Center to fund the $29.7 million off-market acquisition of an 81,500 sq ft industrial asset at a 5.4% cap rate, signaling strong deal pipeline momentum.
• Positive Sentiment: Following Q3 results, AMB raised its full-year guidance, with FFO now expected at $1.27–1.35 and AFFO at $1.05–1.12 per share, alongside a higher same store NOI outlook.
• Negative Sentiment: The company forecasts roughly 63,000 sq ft of Q4 vacancies—50,000 sq ft industrial and 13,000 sq ft office—that may extend into 2025, amid visitor arrivals down 2.2% year-to-date.

Presentation

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the third quarter 2024 Alexander & Baldwin earnings conference call. At this time, all lines are in listen-only mode. 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 zero for the operator. This call is being recorded on Thursday, October 24, 2024. I would now like to turn the conference over to Aja Shimomura, Leasing Manager. Please go ahead.

[Aja Shimomura, Leasing Manager at Alexander & Baldwin]

Thank you, operator. Aloha, and welcome to Alexander & Baldwin's third quarter 2024 earnings conference call. My name is Aja Shimomura, and I am a manager on the A&B Leasing team. 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.

[Aja Shimomura, Leasing Manager at Alexander & Baldwin]

During our call, please refer to our third quarter 2024 supplemental information available on our website at investors.alexanderbaldwin.com/supplement. 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 and involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements.

[Aja Shimomura, Leasing Manager at Alexander & Baldwin]

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. 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.

[Aja Shimomura, Leasing Manager at Alexander & Baldwin]

These factors include, but are not limited to, prevailing market conditions and other factors related to the company's REIT status and the company's business, the evaluation of alternatives by the company related to its non-core 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 Securities and Exchange Commission.

[Aja Shimomura, Leasing Manager at Alexander & Baldwin]

The information in this presentation should be evaluated in light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statements. Management 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 2024 third quarter supplemental information materials. Lance will start today's presentation with an overview of the quarter, then hand it off to Clayton for a discussion of financial matters. To close, Lance will return for some final remarks, and we will open it up for your questions. With that, let me turn the call over to Lance.

[Lance Parker, CEO at Alexander & Baldwin]

Thanks for the introduction, Aja. Great job, and to everyone joining us, Aloha. Last quarter, I highlighted four areas of focus at the company: operational excellence, balance sheet strength and flexibility, streamlining our business and cost structure, and finally, growth. We made progress on all fronts in the third quarter. Operationally, the portfolio performed well. Year over year, FFO was higher, supported by favorable NOI and strong leasing activity. Turning to our balance sheet, we entered into a new ATM program, providing an important tool to access capital when appropriate, and in October, we recast our credit facility, extending the maturity of our revolver to 2028. As we announced on our last call, we closed on the sale of 81 acres of land in July, providing us with additional liquidity and an opportunity to streamline our operations.

[Lance Parker, CEO at Alexander & Baldwin]

From a growth perspective, we closed on the off-market acquisition of an 81,500 sq. ft. industrial asset on Oahu for $29.7 million at a going-in cap rate of 5.4%. The acquisition provided us with an opportunity to recycle capital from Waipouli Town Center, which we sold earlier this week, and other non-income producing assets. As a result of this transaction and the uptick in volume of deals we are seeing, I'm encouraged about our investment prospects going forward. With these accomplishments, we are again raising our full year guidance. Let me share more details from the quarter, starting with our portfolio. Total NOI grew by 4.4%, same-store NOI grew by 4.1%, and same-store NOI, excluding collections of prior year reserves, grew at 4.7%.

[Lance Parker, CEO at Alexander & Baldwin]

Thanks to Aja and the rest of the leasing team, we executed 71 leases in our improved property portfolio, representing more than 182,000 sq. ft. of GLA, with blended spreads of 15.3% on a comparable basis, driven primarily by an anchor renewal at Queens Marketplace. Our same-store leased occupancy was 94.8%, flat from last quarter and eighty basis points lower from the same period last year. Same-store economic occupancy at quarter end was 93.7%, also flat from last quarter and ten basis points lower than the same period last year. SNO at quarter end was $1.9 million, flat compared to last quarter and $1.1 million lower than last year.

[Lance Parker, CEO at Alexander & Baldwin]

I should mention that our SNO does not include about $1 million of ABR related to our build-to-suit at Maui Business Park, which will be added to SNO when we begin construction early next year. On the macroeconomic front, recently published economic data in Hawaii shows personal income growth at 5.5%. Unemployment at the end of August was 2.9%, compared to the national average of 4.2% and the tenth lowest in the country. Looking ahead, Hawaii's GDP growth is forecasted to be 2% in 2025, compared to the US average of 1.8%. August year-to-date visitor arrivals were down 2.2% compared to 2023, driven primarily by the lingering effects of the Maui wildfires and currently at 88% of 2019 levels.

[Lance Parker, CEO at Alexander & Baldwin]

As a reminder, 2019 represented a high watermark in terms of visitor arrivals to Hawaii. With that, I'll turn the call over to Clayton. Clayton?

[Clayton Chun, CFO at Alexander & Baldwin]

Thanks, Lance, and aloha, everyone. Starting with our consolidated metrics for the third quarter. FFO was $28.2 million, or 39 cents per share, as compared to $21.2 million, or 29 cents per share in the same quarter last year. Included within the FFO was 28 cents per share related to CRE and corporate, and that compares to 25 cents per share for the third quarter of 2023. The increase in CRE and corporate-related FFO was driven primarily by stronger CRE performance.

[Clayton Chun, CFO at Alexander & Baldwin]

FFO related to land operations was 11 cents per share during the third quarter of 2024, as compared to 4 cents per share in the same quarter last year. The higher land operations FFO in the quarter is due primarily to the sale of 81 acres of noncore land that Lance noted earlier, and higher income from a legacy joint venture.

[Clayton Chun, CFO at Alexander & Baldwin]

AFFO was $23.4 million, or $0.32 per share for the third quarter of 2024. This compares to $17.4 million, or $0.24 per share in the same period last year. Each of these metrics for the third quarter of 2024 benefited from collections of prior year reserves of approximately $300,000, or $0.01 per share, versus $500,000 in the third quarter of 2023. G&A expenses decreased by $200,000, or 1.7% to $7.4 million as compared to the third quarter of 2023. Last quarter, we indicated that we expected 2024 G&A to be in the range of $29.5 million to $31.5 million.

[Clayton Chun, CFO at Alexander & Baldwin]

As a result of our continued focus and progress made to simplify and streamline our cost structure, we now expect our 2024 G&A to be within a range of $29 million-$30.5 million. Turning to our balance sheet and liquidity metrics. At quarter end, total debt outstanding was $472 million, and we had total liquidity of $446 million, made up of approximately $18 million of cash and $428 million available on our revolving credit facility. Including the effect of our interest rate swaps, 96.8% of our debt was at fixed rates, and we ended the quarter with a weighted average interest rate of 4.58%. Net debt to Adjusted EBITDA was 3.6 times, compared to 4.2 times at 2023 year-end.

[Clayton Chun, CFO at Alexander & Baldwin]

This primarily reflects higher operating profit in land operations and lower G&A over the twelve-month comparable period. With respect to our dividend, we paid a third quarter dividend of $0.2225 per share on October seventh. Consistent with our normal practice, we expect our board to declare a fourth quarter dividend in December. As mentioned in our second quarter earnings call, we put into place a $200 million ATM program in August that replaced our previously existing facility. We did not sell any shares under our new ATM program during the third quarter. The ATM program provides us with the ability to efficiently access the capital markets and together with our existing share authorization, represents an important capital allocation tool in our capital allocation toolkit.

[Clayton Chun, CFO at Alexander & Baldwin]

Last week, we completed a recast of our revolving credit facility, which extends the maturity of our revolver to October 2028, with two six-month extensions, and it provides $450 million of borrowing capacity. Important to note is that we maintain the same pricing grid as our previous agreement. I should also mention that we have a $73 million mortgage secured by Pearl Highlands Center that matures in December. We intend to use availability on our revolver to pay off the mortgage, and we have a seven-year forward starting interest rate swap with a $73 million notional amount that will fix the interest at an effective rate of 4.73%.

[Clayton Chun, CFO at Alexander & Baldwin]

When factoring in the impact of the revolver recast, as well as the planned payoff of the Pearl Highlands mortgage, including the effect of the interest rate swap, we will have 97% of our debt fixed at a weighted average interest rate of 4.7%. We'll have our weighted average maturity extended to 3.9 years, and we will continue to have ample liquidity to fund our internal and external growth activity. As Lance mentioned, based upon our performance in the third quarter and our improved outlook for the remainder of the year, we are again raising our guidance. We now expect our 2024 same-store NOI growth to range between 1.75% and 2.75%, and same-store NOI growth, excluding reserve reversals, to range between 2.25% and 3.15%.

[Clayton Chun, CFO at Alexander & Baldwin]

The increased same-store NOI guidance reflects the impact of leasing activity, tenant performance, and operational efficiencies. It should be noted that also included in our increased same-store NOI guidance is the impact of fourth quarter-related vacancies, including approximately 50,000 sq. ft. within our industrial portfolio and 13,000 sq. ft. within our office portfolio. We are actively pursuing re-leasing and repositioning options for these assets. While we expect these vacancies to continue into 2025, we are encouraged by the prospects. We are also raising our FFO guidance for the year and now expect twenty twenty-four FFO to range between $1.27 per share and $1.35 per share. The improved FFO guidance consists of higher CRE and corporate-related FFO, ranging from $1.07 to $1.11 per share, due primarily to NOI and G&A cost reductions.

[Clayton Chun, CFO at Alexander & Baldwin]

We are also increasing our land operations FFO guidance to a range of $0.20-$0.24 per share, reflecting earnings from land sales and our legacy joint venture. These are in addition to the 81-acre Kamalani land sale that we mentioned during our second quarter earnings call. Finally, we are also raising our 2024 AFFO guidance to a range of $1.05-$1.12 per share, due primarily to the improvements in FFO. With that, I will turn the call over to Lance for his closing remarks.

[Lance Parker, CEO at Alexander & Baldwin]

Thanks, Clayton. I am pleased with what we accomplished this quarter and the outlook for the remainder of the year. We achieved strong results in our commercial real estate portfolio, closed on an off-market industrial acquisition, and have taken steps to ensure that we have ample access to capital markets through our ATM program and extending the maturity on our revolving credit facility. On that note, we'll now open the call up to questions.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Gaurav Mehta from Alliance Global Partners. Your line is now open. Please go ahead.

[Gaurav Mehta, Analyst at Alliance Global Partners]

Yeah, thank you. I wanted to ask you on your new and renewal rent spreads that came in higher than last few quarters. Just hoping to get some more color on what you were seeing in on that front.

[Kit Millan, Senior Vice President of Asset Management at Alexander & Baldwin]

Sure, no problem. This is Kit Millan here. So our leasing team had a really exceptional quarter, and I think a couple of things that I want to point out related to leasing is, number one, we had 23 new deals, which is the highest we've had in a long time. And that's really pointing to the healthy demand we're seeing for both retail inline space as well as small bay industrial. In terms of our spreads, as Clayton mentioned, you know, a lot of that large spread this quarter was driven by one deal in particular, which was an anchor deal at Queens Marketplace.

[Kit Millan, Senior Vice President of Asset Management at Alexander & Baldwin]

And if you back out the impact of that and one other retail deal, the spreads were more consistent with what we've been seeing for the balance for the earlier part of the year and the last part of last year.

[Gaurav Mehta, Analyst at Alliance Global Partners]

Okay, second question I wanted to ask you was on the guidance. I think you talked about some expected move-outs in Q4, both for industrial and office properties. Hoping to get some more color on those tenants.

[Lance Parker, CEO at Alexander & Baldwin]

Hey, Gaurav, this is Lance. How are you?

[Gaurav Mehta, Analyst at Alliance Global Partners]

Good.

[Lance Parker, CEO at Alexander & Baldwin]

Good. Thanks for joining. It's really three tenants that are sort of driving that the expected move-outs in Q4. So two on the industrial side and one on the office side. On the industrial side, we are expecting to receive back a full floor of our Kaka'ako Commerce Center. So this is a multi-story building that we have in urban Honolulu. I will note that the floor we're getting back is more traditional warehouse space, and so we do have some existing prospects that we're already in dialogue in. Although Clayton did mention that, you know, we need to expect these vacancies to carry through into 2025, we're encouraged by the fact that we're in conversations before we actually recapture the space. The second one is an industrial over in our Komohana property in Kapolei, in West Oahu.

[Lance Parker, CEO at Alexander & Baldwin]

It's about 16,000 sq. ft., so a smaller space.... similarly, we're in discussions for a backfill opportunity, so feel confident about that. And then lastly, we're getting about 13,000 sq. ft. of office space back at our Kahului Office Building on the island of Maui. That was a bank that relocated and built a new facility within our Maui Business Park. We are in conversations with potential backfill tenants there as well. Although, just given the status of the office market, I would expect that there'd be some time for us to backfill that space.

[Gaurav Mehta, Analyst at Alliance Global Partners]

Okay, thank you. That's all I had.

[Operator]

Your next question comes from the line of Rob Stevenson from Janney. Your line is now open. Please go ahead.

[Rob Stevenson, Analyst at Janney]

Hi, good afternoon, guys. Lance, can you talk a little bit about the proceeds from the, I'm gonna butcher this, Waipouli Town Center Disposition? And was there any notable expense drag, given the vacancy there that now goes away and positively impacts you in addition to the proceeds there?

[Lance Parker, CEO at Alexander & Baldwin]

Hey, Rob, thanks for the question. And first off, you nailed the pronunciation, so great job on Waipouli. I will say, you know, that was, I think, a unique opportunity for us to recycle out of that asset. It was underperforming, place it into a very strategic off-market industrial deal, so it was a good use of the proceeds. And I guess with regards specific to your question, I'll kick this over to Kit on if there was any drag on the expenses.

[Kit Millan, Senior Vice President of Asset Management at Alexander & Baldwin]

So what I would say is, given the occupancy at that property, obviously there was quite a bit of CAM leakage since we lost our major anchor there a couple of years ago. So in that sense, it does eliminate some of the drag on the overall portfolio.

[Rob Stevenson, Analyst at Janney]

I guess, Clayton, was that—is that material? Is that something that positively impacted the increase in guidance, or was it sort of non-material, given that asset?

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah, so as far as Waipouli itself, the way that we had viewed, the disposition was that it was tied to our acquisition that we had announced earlier, the cold storage industrial facility. And so effectively, this was a recycling of capital opportunity for us that we viewed, at the end of the day, it was accretive, and so that was part of our thesis for doing that deal.

[Rob Stevenson, Analyst at Janney]

Okay. What does the acquisition pipeline look like today? Are you guys seeing any pickup in people willing to sell assets across the islands? Is it, you know, still hunting for needles in the haystack? How are you guys sort of viewing the transactional market these days relative to where it's been?

[Lance Parker, CEO at Alexander & Baldwin]

Yeah, I'd say specific to the points you raised, it's a little bit of both, Rob, but I'm certainly more encouraged by the looks that we're getting. You know, I made some comments earlier last quarter about the fact that we were seeing more deals at the top of the funnel. That has continued through Q3. We were obviously able to execute on the 82,000 sq. ft. industrial deal that we did. And while I would say that our improved guidance for the remainder of the year does not contemplate any additional acquisitions, I remain encouraged that just based on what we're seeing at the top of the funnel, that we'll be able to find some opportunities, if not this year, heading into next year.

[Rob Stevenson, Analyst at Janney]

Okay. And then, on the leasing front, at this point, are there any meaningful 2025 leases that are known move-outs that we need to be thinking about as we update models following earnings here?

[Lance Parker, CEO at Alexander & Baldwin]

No, we did, you know, we did want to provide just the visibility into the move-outs that we expect to occur this quarter and head into 2025, but as we look into the year, you know, just we have all this information in our supplement. We've got about 10% of rollover anticipated from a GLA basis, and about the same on an ABR basis. That's including the comments we made about those three vacancies. We've got, you know, we've got an overall weighted of about six years on the portfolio, so feeling pretty good about 2025.

[Rob Stevenson, Analyst at Janney]

Okay. And then I guess last one. On the 35,000 sq. ft. of new leases in the quarter, what, how should we be thinking about when the bulk of that sort of starts producing revenue when you get a tenant in there? Is that a, sort of thinking about it as like a six-month lag, a nine-month lag? How should we be thinking of that, you know, in terms of build-out or anything else that you have to do before those tenants can take over that space and start paying revenue?

[Kit Millan, Senior Vice President of Asset Management at Alexander & Baldwin]

That's a very good question, and let me start with the industrial side, because the industrial side is a lot easier to predict, so industrial build-outs don't tend to take very long. Not a lot of permit work in general. We can often turn on industrial right away, but within six months is the typical timeframe. Retail, it really depends on the type of space. If it's a restaurant space with quite a bit of work, quite a bit of permitted work, it can actually take up to three quarters of a year or 12 months to turn on the rent, so it really just depends on the retail side. If it's a regular inline retail with a minor build-out, in some cases, we can turn on the rent in three to six months.

[Rob Stevenson, Analyst at Janney]

Okay, that's helpful. Thanks, guys. Appreciate the time tonight.

[Lance Parker, CEO at Alexander & Baldwin]

Thanks, Rob.

[Operator]

Your next question comes from the line of Alexander Goldfarb from Piper Sandler. Your line is now open. Please go ahead.

[Alexander Goldfarb, Analyst at Piper Sandler]

... Hey, I guess good day. Good. I think it's still good morning out there. So just two questions. First, sort of circling back to Rob's question. As we think about the ATM, it doesn't sound like you're using the ATM for balance sheet purposes, because you didn't talk about it to be used for the Pearl Highlands, you know, to pay that off. And it also sounds like, you know, the acquisition market remains tough. So, you know, just patience seems to be the message. So how do we think, or how do you guys think about the ATM? Is this something that you would use, like, 20 million at a pop?

[Alexander Goldfarb, Analyst at Piper Sandler]

Or is this more of, you know, an implement that if you were to come across, let's say, a large portfolio, you would use the ATM, but otherwise, you know, one-off acquisitions are probably gonna be funded via asset sales or land sales or something of that sort?

[Clayton Chun, CFO at Alexander & Baldwin]

Yep. Hi, Alex, it's Clayton. So for the ATM, you're right that we did not draw on the ATM or utilize the ATM for the third quarter, and that includes for purposes of our refinancing activities that occurred as well. The way that we look at the ATM, it's effectively a tool in our capital allocation toolkit. And so to the extent that there's opportunities in the market that arise, we will consider the ATM as a source of financing. But, you know, we're gonna evaluate the different options, which includes financing it by way of debt. To the extent that our stock is trading at a level where it makes sense for us to utilize the ATM, we're not gonna hesitate to do so.

[Alexander Goldfarb, Analyst at Piper Sandler]

Okay. And then the second question is, you know, everyone, every analyst fun question around this time of year is 2025. Obviously, you've been bringing up numbers this year. Looking at the core business, let's call it $1.10 to use an even number. Is $1.10 sort of the base that we should think about 2025, and then obviously some expectation of growth? Or should we be assuming that there will be some element of land in next year such that I don't know if it's $0.05, $0.10, maybe it's more, I don't know. But how do we think about next year from sort of a base, operations and then the above and beyond?

[Alexander Goldfarb, Analyst at Piper Sandler]

Because I also think you guys have spoken previously, that if you exit land entirely, there's like $4 million-$5 million of G&A that goes away that's associated with land, which would also sound like that would be a benefit to the base FFO, if you will.

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. So I'll take that. This is Clayton again. So with respect to the 2025 guidance, Alex, we're not in a position to provide guidance on this call. I think the comment that you are bringing up with respect to land operations and the fact that it is influenced by episodic land sales, that does continue to remain true. And so, you know, I guess I'll leave it at that, but we're not providing guidance on this call for either land operations or any parts of the company's results.

[Alexander Goldfarb, Analyst at Piper Sandler]

Okay, but Clayton, I guess as you sit here today, looking till the end of the year, it doesn't sound like you're gonna exit land, so there will still be some land in next year, is what it sounds like. It doesn't sound like you're fully exiting by this year. It sounds like there will be some carryover into next year that should generate some sort of contribution.

[Clayton Chun, CFO at Alexander & Baldwin]

So the way that we've reported our results for land operations, if we were to exit it, it would be presented in our financial statements as discontinued operations, which it's not. And so, from that perspective, it's, you know, we're not planning at this point to have an exit of that entire part of the business.

[Lance Parker, CEO at Alexander & Baldwin]

So one way to think about it, Alex, might be, is that there will continue to be a land ops heading into 2025, and therefore there could be opportunity from an FFO perspective. But again, we're gonna stop short of signaling or providing any guidance in terms of what we expect that to be like for next year.

[Alexander Goldfarb, Analyst at Piper Sandler]

Yeah, no, I understand we have to wait, but I'm just trying to think about how you guys are positioned heading into next year. In addition, you have funding, you have funding potential from continued land sales. Thank you.

[Lance Parker, CEO at Alexander & Baldwin]

I will add that, you know, remains a priority for us because we do recognize, you know, while there is opportunity remaining in that section of the business, there are also costs embedded in that section of the business. And so this is not something that's a back burner issue for us. We will continue to monetize and provide liquidity for reinvestment, but also, quite frankly, driving down the cost structure.

[Alexander Goldfarb, Analyst at Piper Sandler]

Thank you.

[Clayton Chun, CFO at Alexander & Baldwin]

Hi, operator, do we have any other questions on the line?

[Operator]

Your next question comes from the line of Mitch Germain from Citizens JMP. Your line is now open. Please go ahead.

[Mitch Germain, Analyst at Citizens JMP]

Thanks. Lance, congrats on the deal this quarter. When you look at your pipeline, does it look similar to what you acquired, i.e., like, your last couple deals have been industrial, or are you seeing some opportunities in the shopping center arena as well?

[Lance Parker, CEO at Alexander & Baldwin]

... Hey, Mitch. I'd say the additional encouraging part for me is that we're seeing a little bit of everything. And I would also add that, you know, similar to comments that we've shared in the past, we don't have a specific allocation or target across our specific asset classes. It's really gonna be opportunistic. And so just the fact that we're getting more looks over the last two quarters, again, I think is a good sign. We're starting to see, not just for us, but there has been additional activity in the market. So, you know, these are all positive indicators heading or looking forward.

[Mitch Germain, Analyst at Citizens JMP]

Okay, that's super helpful. Last one for me, everything else has been asked. When I consider your same store, you're referencing three move-outs, but, you know, if I kinda think you guys are three-ish% of the year, you know, seems like there's some conservatism baked into that number, or will those move-outs have that meaningful impact on same store growth in the fourth quarter?

[Lance Parker, CEO at Alexander & Baldwin]

You know, I would, I'll answer this at a high level and then open it up to either Clayton or Kit if they wanna provide some additional color. We stated at the end of, or I should say, at the beginning of the year, that we were expecting some episodic results in CRE quarter to quarter, and that we were really trying to focus on full year guidance. So implied in the numbers would suggest a bit of a slowdown for Q4, and that's consistent with our expectations. But again, given full year to date performance, you know, we felt comfortable enough to raise full year guidance.

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. And if I could just add on. Hi, Mitch, this is Clayton. The same-store NOI guidance for the fourth quarter, it's also taking into account the results from last year's fourth quarter, where there were some, I guess, non-recurring type of benefits that contributed to our overall same-store NOI expectations going into Q4.

[Mitch Germain, Analyst at Citizens JMP]

Got you. Got you.

[Clayton Chun, CFO at Alexander & Baldwin]

But-

[Mitch Germain, Analyst at Citizens JMP]

And then, Clayton-

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah, I did wanna... Yep, go ahead. Sorry.

[Mitch Germain, Analyst at Citizens JMP]

No, I was gonna. That's perfect. That's exactly what I needed. And then, how should I consider, like, a clean FFO number for the quarter, you know, kinda backing out, like, the what we characterize to be somewhat non-recurring items in the land bucket? You know, what's kind of a clean FFO number for the quarter here?

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. So, Mitch, when we think about FFO, we've been intentional in presenting the bifurcation of our FFO between the CRE corporate and land operations, recognizing that the land operations business has episodic results. And so for purposes of stripping out those one-time FFO related to land sales itself, you would get to the CRE corporate where we did. And I guess that's the way to think about it in terms of you know, consistent FFO going forward.

[Mitch Germain, Analyst at Citizens JMP]

Gotcha. I guess I was kind of thinking your full year number included some land contributions, so, you know, I was almost thinking, you know, taking that into account, how much other contribution, you know, was gain related, if you know what I mean?

[Clayton Chun, CFO at Alexander & Baldwin]

I wasn't quite following that.

[Mitch Germain, Analyst at Citizens JMP]

I know we had-

[Clayton Chun, CFO at Alexander & Baldwin]

We had.

[Mitch Germain, Analyst at Citizens JMP]

Yeah.

[Clayton Chun, CFO at Alexander & Baldwin]

Okay.

[Mitch Germain, Analyst at Citizens JMP]

Thanks.

[Clayton Chun, CFO at Alexander & Baldwin]

Thanks, Mitch.

[Lance Parker, CEO at Alexander & Baldwin]

Okay.

[Operator]

As a reminder, if you wish to ask a question, please press Star, followed by the number one. So your next question comes from the line of Brendan McCarthy from Sidoti. Your line is now open. Please go ahead.

[Brendan McCarthy, Analyst at Sidoti]

Great. Thanks. Hey, Clayton. Hey, Lance. Thanks for taking these questions. Just wanted to ask if you can provide some additional color on that legacy joint venture that had an impact in the land ops segment this quarter?

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. Hi, Brendan, it's Clayton. So the joint venture is an investment that was made a while back, going on like ten years or so. So this is before we had converted to a REIT. And so it's a passive investment that we have, and frankly, at this point, it's really not requiring much in the way of management time, nor has it resulted in any contributions from a cash flow perspective.

[Brendan McCarthy, Analyst at Sidoti]

Got it. Thanks, Clayton. I guess looking at the updated 2024 guidance, that guidance obviously assumes very minimal, if any, benefit from that investment in Q4.

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. So for the fourth quarter guidance that or the full year guidance, it does incorporate the fourth quarter for which, for land operations as a whole, we were expecting that to be break even, more or less.

[Brendan McCarthy, Analyst at Sidoti]

Okay. Okay, and I wanted to look at SG&A. Can you just remind us where these efficiency improvements have come from? And I guess what really drove the expected change for the total amount for 2024.

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. So as we had mentioned on previous calls, G&A, as well as our overall cost structure, continues to remain a priority, and we've been focusing on seeking improvements to enable us to lower our overall run rate, G&A and otherwise. And so what we're seeing is the benefits of the implementation of various process improvements and frankly, the simplification of the overall company itself. So it's a combination of a number of different types of cost categories, whether that's personnel, consultants, and the like.

[Brendan McCarthy, Analyst at Sidoti]

Great. Thanks for that. That's helpful. And I'll ask one more question, just on the Pearl Highlands asset, the mortgage coming due. Can you walk us through the decision to kind of utilize the revolver there? And was that always the plan, or were there kind of different financing conversations had?

[Clayton Chun, CFO at Alexander & Baldwin]

Yeah. So as we were considering the Pearl Highlands mortgage that's maturing in December, we were evaluating different options. Ultimately, we had settled with utilizing the revolver to refinance it, and it was taking into account a forward starting interest rate swap that we have. And so our strategy was to utilize the swap that had a notional amount of, or has a notional amount of $73 million, and it effectively enables us to lock in the interest rate at a fixed rate of 4.73%. So we feel comfortable about utilizing the revolver to match that up with the swap. And so that's effectively how we got to the conclusion.

[Brendan McCarthy, Analyst at Sidoti]

Great. Thanks, Clayton. That's all for me. Thanks, everybody.

[Clayton Chun, CFO at Alexander & Baldwin]

Thanks, Brendan.

Participants

Executives

• Lance Parker, CEO
• Aja Shimomura, Leasing Manager
• Clayton Chun, CFO
• Kit Millan, Senior Vice President of Asset Management

Analysts

• Gaurav Mehta, Analyst at Alliance Global Partners
• Brendan McCarthy, Analyst at Sidoti
• Mitch Germain, Analyst at Citizens JMP
• Alexander Goldfarb, Analyst at Piper Sandler
• Rob Stevenson, Analyst at Janney