(By Mani) Alexander & Baldwin Inc.
) is expected to enhance shareholder returns with a stable leasing portfolio and improved agribusiness that supports a strong development pipeline.
Alexander & Baldwin (A&B) is a Hawaiian real estate development and agribusiness company. The company owns over 88,000 acres and 7.9 million square feet of leasable, commercially improved space. The company's agribusiness operates the only remaining sugar plantation in Hawaii and produces over 160,000 tons of sugar each year.
The company regularly sells portfolio properties when it believes it can realize the full value. After a sale, the company reinvests the proceeds to acquire "like-kind" properties to qualify for favorable tax treatment.
A&B's sweet spot is in the $10 million to $50 million range as it is large enough to approach deals that local investors may be unable to finance, but small enough to leverage its local market knowledge when competing with large out-of-state investors.
A&B generated $60.8 million in cash net operating income (NOI) in 2011, compared to $55.7 million in 2010. Given the improving Hawaiian economy, the company expects consistent occupancy rates in 2012 and a modest rate increases.
"We estimate 2012E cash NOI of $62.6M, vs. $60.8M in 2011," Oppenheimer analyst Ian Zaffino said in a note to clients.
Meanwhile, the agribusiness segment accounts for 60 percent of A&B's revenues. Hawaiian Commercial & Sugar Company ("HC&S"), A&B's sugar subsidiary, is the only producer of raw sugar in Hawaii.
The HC&S sugar plantation occupies 43,300 acres in central Maui, of which 35,500 are actively cultivated. The agribusiness has benefited over the past two years from record sugar prices. Sugar prices were relatively steady for 30 years, but moved 100 percent higher over the past two years.
"We estimate sugar production contributed ~$100M of the segment's $160M in revenues in 2010 and 2011. Though sugar prices have pulled-back, we expect similar results in 2012 as A&B has locked in prices on ~75% of its 2012 crop at levels similar to 2011," Zaffino said.
Further, the company also has forward price agreements for about 50 percent of its 2013 production at 2011 prices. If costs can be lowered for biofuel technology, A&B could look to secure a long-term military contract for renewable jet fuel and further de-risk the agribusiness.