Executive Summary / Key Takeaways

• Hawaii-Focused Resilience: Alexander & Baldwin (ALEX) leverages its deep local expertise and needs-based retail and industrial portfolio in Hawaii to deliver consistent operational performance, demonstrating resilience amidst broader macroeconomic uncertainties.
• Strategic Streamlining & Growth: The company is actively transforming into a pure-play commercial real estate REIT by divesting legacy landholdings and reinvesting in accretive industrial developments and strategic acquisitions, including a new entry into self-storage.
• Strong Financial & Operational Momentum: ALEX reported robust Q2 2025 results with 5.3% Same-Store NOI growth and a significant increase in total FFO, driven by high occupancy, strong leasing spreads, and favorable resolution of legacy obligations.
• Disciplined Capital Allocation: With a healthy balance sheet, low leverage (3.3x net debt to adjusted EBITDA), and ample liquidity, ALEX is well-positioned to fund future growth initiatives and shareholder distributions.
• Positive Outlook with Nuance: Management raised 2025 guidance for Same-Store NOI (3.4%-3.8%) and Total FFO ($1.35-$1.40 per share), reflecting confidence, though Q3 2025 Same-Store NOI growth is expected to moderate due to strong prior-year comparables.

The Island Advantage: A Legacy Transformed

Alexander & Baldwin, Inc. (ALEX) stands as a unique entity in the REIT landscape, rooted in over 155 years of Hawaiian history. Evolving from a vast sugar plantation established in 1870, the company strategically transformed into a Hawaii-focused commercial real estate investment trust (REIT) in 2017. This deep historical presence provides an unparalleled understanding of the local market, its communities, and its unique economic drivers. ALEX's core business now centers on owning, operating, and developing a portfolio of high-quality commercial properties, primarily grocery-anchored neighborhood shopping centers and industrial assets, tailored to the daily needs of Hawaii's residents.

The company's overarching strategy, articulated by CEO Lance Parker, revolves around three pillars: enhancing CRE portfolio performance, pursuing internal and external growth, and relentlessly streamlining its business and cost structure. This strategic clarity is crucial in a market like Hawaii, which, while offering unique supply constraints and demand drivers, also presents distinct challenges. ALEX's operational capabilities, such as its in-house leasing team and real-time tenant health screening, act as key differentiators, enabling responsive management and optimizing portfolio performance. While not a traditional "technology" in the sense of a proprietary software or manufacturing process, these integrated operational approaches provide a competitive moat, allowing for efficient asset management and value creation in its specialized market.

Competitive Positioning in a Unique Market

ALEX operates within a competitive real estate landscape, but its exclusive focus on Hawaii provides a distinct advantage. Compared to national retail REITs like Kimco Realty (KIM) and Federal Realty Investment Trust (FRT), ALEX's deep local market knowledge and community integration allow for more nuanced operational execution. Its TTM Operating Profit Margin of 43.44% demonstrates solid profitability, outperforming Kimco Realty (31%) and Federal Realty (39%), though trailing larger, more diversified players like Simon Property Group (SPG) (52%) and Prologis (PLD) (54%). This suggests strong efficiency within its niche, even if its scale is smaller than national giants.

ALEX's balance sheet strength is a notable competitive edge, with a TTM Debt/Equity ratio of 0.46, significantly lower than Simon Property Group (8.42), Prologis (0.58), Kimco Realty (0.81), and Federal Realty Investment Trust (1.44). This conservative leverage provides substantial financial flexibility for growth and resilience against market fluctuations. While larger industrial REITs like Prologis boast faster growth rates from global logistics hubs, ALEX's strategic focus on Hawaii's supply-constrained industrial market, coupled with its build-to-suit capabilities, allows it to capture strong local demand. The company's ability to identify and execute off-market acquisitions and developments, leveraging its local relationships, further strengthens its competitive standing against broader market players.

Robust Performance and Operational Excellence

ALEX delivered a strong performance in the second quarter of 2025, underscoring the effectiveness of its Hawaii-focused strategy. Commercial Real Estate (CRE) operating revenue increased 3.1% year-over-year to $50.7 million, contributing to a 6.3% rise in total NOI to $33.6 million. Same-Store NOI (SSNOI) grew by an impressive 5.3% for the quarter, largely driven by a 140 basis point improvement in same-store economic occupancy. For the first half of 2025, SSNOI growth stood at 4.7%, reflecting sustained operational momentum.

Leasing activity remained robust, with 52 leases executed in Q2 2025, covering approximately 184,000 square feet of Gross Leasable Area (GLA) and generating $6.1 million in Annualized Base Rent (ABR). Blended leasing spreads on comparable leases were a healthy 6.8% for the quarter and 8.5% for the first half of the year. Overall leased occupancy reached 95.8% as of June 30, 2025, up 190 basis points year-over-year, while economic occupancy improved by 200 basis points to 94.8%. These metrics reflect strong tenant demand and effective property management, with management noting healthy tenant sales and increased foot traffic across its centers.

Strategic Growth and Streamlining Initiatives

ALEX is actively pursuing both internal and external growth opportunities to expand its high-quality CRE portfolio. The company initiated pre-construction on two new Class A industrial buildings totaling approximately 121,000 square feet at Komohana Industrial Park on West Oahu. This includes a 91,000 square foot build-to-suit pre-leased to Lowe's (LOW), expected to be in service by Q4 2026 and contribute $2.8 million in annual NOI when stabilized in Q1 2027. Additionally, a 30,000 square foot industrial build-to-suit on Maui is anticipated for completion in Q1 2026, projected to add $1 million in annual NOI. These projects will collectively increase ALEX's GLA by over 150,000 square feet, demonstrating a clear commitment to expanding its high-demand industrial footprint.

A significant strategic move in Q1 2025 was the transfer of a five-acre lot at Maui Business Park from Land Operations to a 75-year ground lease with a self-storage developer. This transaction not only converted non-income-producing land into immediately recurring FFO (contributing nearly $0.01 per share in 2025) but also marked ALEX's strategic entry into the self-storage asset class, with an opportunity for a 20% equity investment in the development. This exemplifies ALEX's "asset diverse" approach within its Hawaii-focused strategy.

Simultaneously, ALEX continues its multi-year effort to streamline its legacy Land Operations segment. In Q2 2025, a termination agreement with Mahi Pono Holdings, LLC, resolved remaining rights and obligations from a prior agricultural land sale, transferring ALEX's remaining 50% interest in East Maui Irrigation Company, LLC. This significantly reduces balance sheet exposure and further simplifies the company's operations, leading to a reduction in the annual run-rate carrying costs for Land Operations from a range of $4 million-$5 million to $3.75 million-$4.5 million. While Land Operations still contributes episodically to earnings (Q2 2025 FFO contribution of $0.19 per share, driven by legacy obligation resolution and land sales), the long-term focus remains on monetizing non-core holdings while strategically retaining core land assets like Maui Business Park for future CRE development.

Financial Health and Outlook

ALEX maintains a robust financial position, providing significant flexibility for its strategic initiatives. As of June 30, 2025, the company boasted over $300 million in total liquidity, including $8.6 million in cash and $299 million available on its revolving credit facility. Its net debt to adjusted EBITDA ratio stood at a conservative 3.3x, well below its target range of 5x-6x, indicating substantial capacity for future debt-funded growth. Approximately 95% of its debt is fixed-rate, with a weighted-average interest rate of 4.64%, providing stability in a volatile interest rate environment.

Management raised its 2025 guidance, reflecting confidence in the company's trajectory. Same-Store NOI growth is now expected to be between 3.4% and 3.8%, an 80 basis point increase at the midpoint from previous guidance. CRE and Corporate FFO is projected to be $1.12 to $1.16 per share, while total FFO guidance was raised to $1.35 to $1.40 per share, up approximately $0.18 per share at the midpoint. This revised outlook incorporates strong first-half performance and anticipated contributions from land operations.

However, the outlook is not without its nuances. A large, non-recurring Sam's Club tenant improvement of approximately $20 million is expected to be paid out in Q3 2025, which, while not impacting AFFO (as it's considered atypical for recurring maintenance CapEx), will affect cash flow. Furthermore, a lower SSNOI growth rate is anticipated for Q3 2025 due to strong comparable results in Q3 2024, which included favorable retroactive rent and property tax appeals. Despite these factors, management expects Q4 SSNOI growth to align more closely with the first half of the year.

Risks and Mitigation

While ALEX's Hawaii-focused strategy offers unique advantages, it also carries inherent risks. Geographic concentration exposes the company to localized economic downturns, changes in tourism patterns, and natural disasters like the Maui wildfires, which impacted visitor arrivals in 2024. Macroeconomic uncertainties, including inflationary pressures, supply chain constraints, and potential trade disputes (tariffs), also pose challenges, particularly impacting construction costs (e.g., an 8% increase in steel prices due to tariffs).

ALEX actively mitigates these risks through proactive strategies. The company pre-purchases tariff-impacted materials and employs conservative underwriting with larger contingencies for development projects. Real-time tenant health metrics, including weekly letters of intent, tenant sales, and foot traffic, are continuously screened to enable responsive management. The company's needs-based retail portfolio, focused on daily community needs, offers a degree of resilience against broader market fluctuations. Furthermore, management is actively pursuing backfill and repositioning options for known industrial and office vacancies, expecting these to carry into 2025 but with strong prospects for re-leasing.

Conclusion

Alexander & Baldwin is executing a compelling transformation, shedding its legacy agricultural past to emerge as a focused and resilient Hawaii-centric commercial real estate REIT. Its core investment thesis is underpinned by a unique competitive moat derived from deep local market expertise, a diversified portfolio of needs-based retail and industrial assets, and a disciplined approach to operational excellence and capital allocation. The company's strategic shift towards converting non-income-producing land into recurring FFO, coupled with its expansion into new asset classes like self-storage, demonstrates a forward-thinking growth strategy.

Despite macroeconomic headwinds and the inherent risks of geographic concentration, ALEX's strong financial performance in the first half of 2025, marked by robust Same-Store NOI growth and increased FFO, validates its strategic direction. The raised 2025 guidance, supported by a healthy balance sheet and ample liquidity, signals management's confidence in continued operational strength and accretive growth initiatives. For investors seeking exposure to a high-quality, resilient real estate portfolio with a unique island advantage and a clear path to streamlined growth, Alexander & Baldwin presents a compelling opportunity.