|Shares Out. (in M):||42||P/E||0.0x||0.0x|
|Market Cap (in $M):||2,118||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||537||EBIT||0||0|
I propose a long position in the common stock of Alex & Baldwin ("ALEX" or the "Company") due to the underappreciated quality of its niche transportation business and presence of significant hidden real estate assets. At current levels you are paying for ALEX's real estate holdings while getting the transportation and Ag business for free. Limited sell-side coverage focuses on the transport segment with only cursory detail. All investor presentations have been at logistics conferences. Conservative management seems to play down the SOTP value while investors overlook +$1.5B of value on the real estate side, representing +70% from the current stock price.
Near-term catalysts to value realization include: 1) improved fundamental in the Hawaiian RE market combined with the planned sale of completed projects in 2H'11 - will help expose the market to its underlying real estate holdings and 2) volume growth, rate increases and the recapturing of fuel surcharges in its transport segment. A potential medium-term catalyst is the splitting of the real estate segment into a REIT and the transport operating company into a C-corp. In April Pershing Square filed a 13D likely with such a plan in mind. Though it is hard to handicap how this activism will play out, limited discussion in the media by activists so far is potentially a sign that management has been receptive. The fact that yesterday (7/6) the Company announced it is appointing a veteran GS banker and former external advisor as CFO may also be a positive signal.
ALEX operates in three primary segments: transportation (Matson), commercial real estate and property development (A&B) and to a lesser extent agriculture (primarily HS&TC).
There are three components to the Company's value. The first are the real estate holdings, the details of which are disclosed on the Company website and in the annual supplemental RE file below (the property level valuations performed is at the end of the write-up).
Based on recent transactions this equates to an NAV of $2.5B-$2.9B ($900M for the commercial RE portfolio + $1B for the development projects + $500M for the rural land). Meanwhile all public peers trade at 110-120% of NAV. The second component is the Matson transportation segment valued at $1.6B-$1.7B based on peer multiples and FCF yield. This does not directly include the port assets in HI (5), Guam, LA, Oakland, Portland and Seattle. The last is the Ag business: given the evolving state of this segment no value was assumed. In aggregate this yields an NAV of $3.6B-$4.1M or $87-$98 per share, a +70% premium from the current stock price.
(US$ in Millions)*
Real Estate Assets
Commercial RE Properties
Low end of comps, recent purchases at cost ($840M based on NOI)
Low end of recent sales, unfinished at land cost
Rural & Ag land
$15k/ acre in Base, $10k/ acre in Low for rural land; no value to conservation land in either
Total RE Value
EV (Comp Analysis Ave.)
See detail below
Breakeven business, no value ascribed
Total Asset Value
Total Net Asset Value
Net Asset Value per Share
Premium to Current
*Except per share data
ALEX's current stock price relative to its asset value provides substantial downside protection in and of itself. There are, however, a number of potential additional sources of upside. The most significant are increased cash flow from development sales and continued improved fundamentals on the shipping side, in particular the retroactive recouping of fuel surcharges that will take place over the balance of 2011(increased to 47.5% in June vs. 21.75% in Feb).
Investment Considerations & Risks
Segment Financials & Valuation
Matson Segment Financial Summary & Valuation
(US$ in Millions)
Rev./ unit ($s)
Peer EV/ EBITDA Multiple
Implied Matson EV
Peer FCF Yield
Implied Matson EV
*Includes $10M in annual corp expense
Note: Peers consist of domestic marine operator/ intermodal KEX, HUBG, JBHT (similar business mix and return profiles)
A&B Segment Financial Summary & Valuation
(US$ in Millions)
Rate (Rev/ Sq Ft)
Development & Sales
Peer EV/ NOI Multiple
Implied A&B EV
Peer Cap Rate
Implied A&B EV
Note: Peers consist of AMB, DCT, DLR, EGP, OFC, FSP, CLI and EQY; CAD cannot be estimated due to lack of capex detail
|Property||Location||Type||Comm. Space (Sq. ft)||Acreage||Low Case PSF||Base Case PSF||Low Case Value||Base Case Value||Notes|
|Commercial Portfolio - Oahu|
|Judd Building||Downtown Honolulu - Merchant St and Fort St Mall||Office||20,200||0.1||300.0||400.0||6.1||8.1|
|Kaneohe Bay Shopping Center||Kam Highway||Retail||127,500||9.8||113.0||125.0||14.4||15.9||Recent comp @ 113/sq ft|
|Komohana Industrial Park||Kapolei, West Oahu||Industrial||238,300||35.0||140.0||159.4||33.4||38.0||Acq. 6/10 for $38M|
|Kunia Shopping Center||Waipahu||Retail||60,600||4.4||150.0||200.0||9.1||12.1|
|Stangenwald Building||Downtown Honolulu - Merchant St||Office||27,100||0.1||300.0||400.0||8.1||10.8|
|Waipio Industrial||Waipahu||Industrial||158,400||6.7||155.0||176.8||24.6||28.0||Acq. 2/09 for $28M|
|Waipio Shopping Center||Waipahu - Waipio community||Retail||113,800||14.0||250.0||269.0||28.5||30.6||Acq.8/09 for $31M|
|Commercial Portfolio - Maui|
|Apex Building||Kahului - Dairy Road and Hana Highway||Retail||28,100||2.3||172.0||180.0||4.8||5.1||Being sold|
|Kahului Building||Central Kahului||Office||57,700||1.6||250.0||350.0||14.4||20.2|
|Kahului Office Center||Central Kahului||Office||32,900||1.9||200.0||250.0||6.6||8.2||HI mean|
|Kahului Shopping Center||Central Kahului||Retail||18,600||16.8||125.0||131.0||2.3||2.4|
|Lono Center||Central Kahului||Office||13,100||0.6||200.0||250.0||2.6||3.3||HI mean|
|Maui Clinic Building||Central Kahului||Office||16,600||1.3||300.0||350.0||5.0||5.8|
|Maui Mall||Central Kahului||Retail||186,300||25.4||175.0||190.0||32.6||35.4|
|P&L Building||Kahului industrial area||Industrial||104,100||4.0||130.0||140.0||13.5||14.6||HI mean|
|Wakea Business Center II||Kahului industrial park - near airport||Industrial||61,500||4.4||130.0||140.0||8.0||8.6||HI mean|
|Commercial Portfolio - Kauai|
|Port Allen Center I||Port Allen||Industrial||28,000||1.3||130.0||140.0||3.6||3.9|
|Port Allen Center II||Port Allen||Industrial||13,300||1.3||130.0||140.0||1.7||1.9|
|Port Allen Marina Center||Port Allen||Retail||23,600||1.7||200.0||225.0||4.7||5.3|
|Steel Warehouse||Port Allen||Industrial||22,700||3.6||130.0||140.0||3.0||3.2|
|Commercial Portfolio - Big Island|
|Lanihau Marketplace||Kailua-Kona center||Retail||88,300||9.7||250.0||256.0||22.1||22.6||Acq. 4/10 for $22.5M|
|Commercial Portfolio - Mainland|
|Concorde Commerce Center||Northwest submarket of Phoenix, Arizona||Office||140,700||9.4||200.0||220.0||28.1||31.0|
|Deer Valley Financial Center||Northwest submarket of Phoenix, Arizona||Office||126,600||9.7||200.0||220.0||25.3||27.9|
|Activity Distribution Center||Industrial submarket of San Diego||Industrial||252,300||15.1||60.0||65.0||15.1||16.4||National average|
|Firestone Boulevard Building||La Mirada, CA, a submarket of Los Angeles||Office||28,100||0.4||200.0||220.0||5.6||6.2|
|Gateway Oaks||Outside Sacramento||Office||58,700||1.0||200.0||220.0||11.7||12.9|
|Midstate 99 Distribution Center||Logistics park - Visalia, CA||Industrial||790,400||43.3||60.0||65.0||47.4||51.4|
|Northpoint Industrial||Industrial park in North Orange County||Industrial||119,400||7.4||60.0||65.0||7.2||7.8|
|Prospect Park Center||Rancho Cordova near Sacramento||Office||162,900||9.1||200.0||220.0||32.6||35.8|
|Rancho Temecula Town Center||Temecula, CA - SW Riverside County||Retail||165,500||20.0||295.0||295.0||48.8||48.8||Acq. 10/10 for $48M|
|Broadlands Marketplace||Broomfield, a northern suburb of Denver||Retail||103,900||12.4||150.0||165.0||15.6||17.1|
|Meadows on the Parkway||Boulder, CO||Office/ Retail||216,400||18.6||200.0||220.0||43.3||47.6|
|Wilshire Center||Greeley, CO||Retail||46,500||4.6||150.0||165.0||7.0||7.7|
|Savannah Logistics Park||Georgia Ports, Savannah Logistics Park, GA||Industrial||1,035,700||62.9||60.0||65.0||62.1||67.3|
|Sparks Business Center||Sparks, Nevada, near Reno||Industrial||396,100||20.7||60.0||65.0||23.8||25.7|
|Arbor Park Shopping Center||San Antonio, TX||Retail||139,500||14.3||150.0||165.0||20.9||23.0|
|Heritage Business Park||Five miles from the Dallas/Fort Worth Airport||Industrial||1,316,400||107.7||60.0||65.0||79.0||85.6|
|Preston Park||Plano, TX||Office||198,600||12.1||200.0||220.0||39.7||43.7|
|Republic Distribution Center I||Port of Houston||Industrial||312,500||17.9||60.0||65.0||18.8||20.3|
|Royal MacArthur Center||Las Collinas, Dallas||Retail||44,000||8.4||150.0||165.0||6.6||7.3|
|San Pedro Plaza||San Antonio, TX||Office||163,800||2.8||200.0||220.0||32.8||36.0|
|Centennial Plaza||Five min. from Salt Lake City Airport||Industrial||244,000||14.6||60.0||65.0||14.6||15.9|
|Little Cottonwood Center||Salt Lake City suburbs||Retail||141,600||20.5||145.0||145.0||20.5||20.5||Acq. 9/10 for $20.4M|
|Ninigret Office Park||Five min. from Salt Lake City Airport||Office||185,200||20.2||200.0||220.0||37.0||40.7|
|TOTAL: Operating RE Assets||7,829,500||599.1||892.7||980.6|
|Property||Location||Type||Comm. Space (Sq. ft)||Acreage||Units||PSF/Per Acre*||Value||Status|
|Development - Hawaii|
|Honolulu Condominium||Ala Moana Center and downtown Honolulu||Residential||1.7||330||19.0||Planning (TBD), land at cost|
|Keola La'i||Near downtown Honolulu||Residential||2.7||352||0.0||Complete, sold units|
|'Aina O Kane||Central Kahului, Maui||Resi/ Comm.||19,800||3.9||103||175||3.5||Incomplete, selling units|
|Bluffs at Wailea||Wailea coast, Wailea Resort area, Maui||Residential||8.0||12||10.0||Complete, selling units|
|Grove Ranch Maui||Haiku less than 10 miles from Kahului, Maui||Residential||5.5||9||0.0||Selling lots|
|Haliimaile||Slopes of Haleakala in Upcountry Maui||Residential||63.0||170||0.0||Permitting|
|Kahului Town Center||Central Maui||Resi/ Comm.||300,000||20.0||442||175||52.5||Incomplete, selling units|
|Kai Malu at Wailea (50% interest)||Wailea's Blue Golf Course, Maui||Residential||25.0||150||0.0||Complete, sold units|
|Maui Business Park II||Central Kahului, Maui||Industrial||179.0||750||134.3||Planning, selling in 2H'11|
|The Ridge at Wailea||Wailea, Maui||Residential||6.7||9||200||27.0||Under construction|
|Wailea||Wailea Resort, Maui||Resi/ Comm.||200||1,200||500||100.0||Planning, selling lots-see 2009 sales sheet|
|Kukui'ula (50% interest)||Southern coast of Kauai, adjacent to Poipu resort||Residential||1,000||1,000||630.0||Largely complete, selling units|
|Ka Milo at Mauna Lani||Mauna Lani Resort, Kohala Coast, Big Island||Residential||30.5||137||50.0||Incomplete, selling units|
|Waiawa (50% interest)||Waiawa, Oahu||Residential||1,000||0.0||Planning|
|Development - Mainland|
|Bridgeport Marketplace (50%)||Valencia, CA||Retail||127,000||15.4||165||10.5||Operating|
|Crossroads Plaza (50%)||Valencia, CA||Retail||105,700||13.0||166||8.8||Operating|
|Centre Pointe Marketplace (50%)||Valencia, CA||Retail||56,000||6.5||167||4.7||Operating|
|Palmdale Trade Ctr.||Palmdale, CA||Office/ Ind.||315,000||18.2||0.0||Planning|
|Panama Grove||Bakersfield, California||Retail||575,000||57.3||0.0||Planning|
|TOTAL: Development RE Assets||1,498,500||2,656.4||1,050.1|
|*PSF ($s), PSA ($000s)|
|Real Estate-Entitlement Activity|
|Property||Location||Type||Comm. Space (Sq. ft)||Acreage||Units||Price/ Acre ($000s)||Value||Status|
|Kihei Residential||Kihei, Maui||Residential||95||600||0.0||Plan filed in 2010|
|Waiale Community||Central Maui||Residential||765||3,000||0.0||Env. study filed in 2010|
|Eleele Community||Eleele, Kauai||Residential||800||NA||0.0||Planning phase|
|HC&S: Maui sugar plantation||Central Maui||Agriculture||51,480||15,000||772.2|
|Kauai Coffee: plantation||Southern Kauai||Agriculture||7,070||15,000||106.1|
|Maui conservation land||Northern Maui||Conservation||15,880||0.0|
|Kauai conservation land||Central Kauai||Conservation||13,320||0.0|
|TOTAL: Entitlement & Rural RE Assets||89,410.0||878.3|
|Subject||RE: Why now?|
|Entry||07/11/2011 01:47 PM|
Ndn86- Thank you for the questions. I have been following ALEX for some time and believe now is an appealing point to invest for the following reasons that do not appear to be priced into the stock:
- Matson segment reported weaker Q1 EBIT as a result of higher fuel expenses and ALEX subsequently sold off, yet these costs (~$20M in Q1) are being recouped and will lead to a significant pick-up in profitability for the segment in Q2-Q4. At 6/1/11, the fuel surcharge rate was 47.5% versus 21.8% in February (please see article below for more detail).
- Unlike many shippers, Matson's rates are publicly disclosed and can be tracked and compared to historical levels on the site below. Based on the information provided Matson base rates (excluding fuel surcharges) were up 10-13% Y/Y in Q2 while total WC container volumes increased 5.1% in both April and May according to PIERS. None of these near-term positives seem to be reflected in the stock price.
- Within the real estate segment the market should begin to more fully appreciate the value of the development projects as sales accelerate during the second half of this year. Several of the larger properties have been recently completed and the Company has indicated it intends to harvest these assets now that the local market has improved. The prices used in the valuation were at historically depressed levels from the last two years. The long thesis here is not predicated on a break-up for even if you ascribe no value to the rural land, the stock conservatively still has +40% of upside.
Handicapping the chance of an outright break-up is as you noted is challenging and qualitative. I can't say I have any unique information regarding the current events surrounding Pershing and the Company, but I do know that prior attempts by Weinberg in 1985 and another suitor in the 1970s were pursued in a very hostile fashion that threatened to reduce local agriculture jobs. As a result Weinberg was presented as a raider and vilified during what was a different age of shareholder activism. Since then agriculture in Hawaii and for ALEX itself has become insignificant (Dole and Del Monte have moved to the Philippines and Latin America, ALEX employs a fraction of what it once did in ag). Breeden on the other hand just had bad timing and came in when the market was rolling over.
The main social and political pushback has been the potential reduction of the A&B Foundation, yet one could argue that the Foundation may benefit from a separation. Both entities would still be largely focused on Hawaii as before and management could be comprised of most of the same people that currently run ALEX.
Overall you are getting two solid franchises at a significant discount, downside protection in the real estate and favorable near-term catalysts regardless of how the Pershing story plays out.
I hope I was able to address your questions sufficiently.
|Subject||RE: Real estate taxes|
|Entry||09/26/2011 03:28 PM|
Siren- The book value of A&Bs land holdings on the balance sheet are on average very low. As a matter of practice, they typically undertake a 1031 exchange when they sell a property. This enables them to defer cap gains. Of course in the event of an outright liquidation there would be cap gains.
|Entry||12/02/2011 07:46 AM|
looks like they finally decided breakup - only took three tries! nice work.
|Subject||RE: split-up announced|
|Entry||12/02/2011 11:54 AM|
I have not listened to entire call, but I have seen no mention of the real estate entity being converted into a REIT. Have I missed something or does anyone have any insights here? Does the ag ops prevent it from becoming a REIT?
|Subject||RE: RE: split-up announced|
|Entry||12/02/2011 12:31 PM|
Sorry, they did address a REIT structure on the call. Due to high development activity, they saw no advantage to REIT structure.
So I am a bit confused as to how to think about taxes and valuation. Over time, as they develop more and more of their property, converting to a REIT might make sense.
But until then, they are going to be a tax inefficient real estate company, no? It seems like this must be part of the valuation that is not taken into account in the write-up.
|Subject||RE: RE: RE: split-up announced|
|Entry||12/07/2011 12:14 PM|
Sorry for the delayed response. You are correct, for now they are going to structure the A&B entity as a c-corp. While this is not an ideal development, the decision to split up the two businesses obviously demonstrates that management is focused on unlocking value for shareholders. I see this as the first of what will likely be several steps in this process. As larger, existing development projects mature and get sold over the next 1-2 years (particularly Kukui'ula, Maui Business Park and potentially additional rural land), they will be in a logical position to convert to a REIT. Management has acknowledged that the c-corp structure is less tax efficient and don’t forget that the present commercial portfolio will be generating about $50M of NOI itself.
The separation should be relatively seamless given the company’s structure. Incremental overhead expenses once separated should be muted by existing cost cutting initiatives ($2M/q of cost reductions now that rich payout packages have been modified). The Matson entity is pretty straight forward, worth $1.3-1.4B or $25 per share in a flat shipping environment (though fundamentals improving and rates already set to increase 3% in 2012). This implies a value of less than $700M for A&B or 70% of my base case NAV of the commercial real estate alone. So at the current price, you are getting the commercial RE at a discount and all the development projects, land and Ag assets for free. How management handles A&B will largely determine how much value current investors realize. For what it’s worth I believe the upside is substantial.
|Subject||RE: Any updates?|
|Entry||02/16/2012 03:18 PM|
Declines rates in its China lane hit transports margins pretty hard, but the core Hawaii string continued to perform well in Q4. I don’t see a replacement for Horizon in the Guam trade in the near-term so this will provide an incremental boost for Matson in 2012. Should Chinese rates improve, 2012 will be very good. An acquisition of Horizon’s Alaska business by Matson could potentially be a great fit at the appropriate price.
On the real estate leasing side, fundamentals remain strong and are improving across the portfolio. Property sales were almost non-existent in the quarter. General Hawaii residential real estate activity has ticked up a bit in 2012 so far. This part of the business obviously has a longer tail, but a great deal of long-term value.
The market seemed to have overacted to the low level of property sales and weakness in the China lane in Q4. The split-up remains on course for Q3. I view Matson as a high quality business that should command a valuation similar to KEX. The A&B real estate segment holds a lot of underappreciated assets, but until it can start to more rapidly monetize them and convert to a REIT it will probably remain overlooked.
|Entry||06/19/2013 08:47 AM|
deerwood, vandelay, mojoris, anyone else:
This has worked out very well. At $2bn TEV (before the 85% stock merger announced), we are getting to the ballpark of base case valuation for the non-MATX pieces. Any updated thoughts on land valuation?
It seems to me that the Grace Pacific merger means they are moving further away from a REIT structure. As well, I am not sure how I feel about their using their equity to buy operating companies like Grace Pacific. On the other hand, they become increasingly politically powerful as they combine their land with infrastructure assets. Thoughts on new developments (esp Grace Pacific, but also Pearl Highlands)?
|Subject||RE: Author Exit Recommendation|
|Entry||08/01/2013 11:01 AM|
ALEX hit my price target. The actual return adjusted for the MATX spin was +48%. I hope others have benefited from this idea as well.