Executive Summary / Key Takeaways

• Alexander & Baldwin (ALEX) is Hawaii's premier commercial real estate REIT, uniquely focused on grocery-anchored retail and industrial assets, leveraging deep local market expertise and a vertically integrated model.
• The company delivered strong financial performance in Q3 2025, exceeding expectations and leading to a third consecutive FFO guidance raise, driven by robust portfolio performance and effective expense management.
• Strategic internal growth initiatives, including significant industrial build-to-suits and a new self-storage ground lease, are set to add substantial annual NOI in 2026 and 2027, while opportunistic asset recycling provides capital for future acquisitions.
• ALEX maintains a strong balance sheet with low leverage (3.5x net debt to adjusted EBITDA) and high fixed-rate debt, providing financial flexibility for growth and resilience against macroeconomic uncertainties.
• While facing risks from geographic concentration and potential construction cost inflation, ALEX's needs-based retail portfolio and strategic asset management position it for continued long-term value creation in a supply-constrained market.

The Aloha Advantage: A Century and a Half of Hawaiian Real Estate Mastery

Alexander & Baldwin, Inc. (ALEX) stands as a distinctive entity in the real estate investment trust landscape, exclusively dedicated to Hawaii's commercial real estate market. With a rich history spanning over 155 years, evolving from a Maui sugar plantation in 1870, ALEX has strategically transformed into the state's largest owner of grocery-anchored, neighborhood shopping centers. This deep-rooted presence and intimate understanding of the local economy form the bedrock of its investment thesis, positioning it as a vertically integrated operator with unparalleled regional expertise.

ALEX's core strategy revolves around a Hawaii-focused, asset-diverse approach, concentrating on high-quality commercial properties, primarily retail and industrial, alongside urban ground leases. This strategy is underpinned by a commitment to operational excellence, balance sheet strength, and continuous streamlining of its business. The company's portfolio encompasses 21 retail centers, 14 industrial assets, and four office properties, totaling four million square feet of gross leasable area (GLA), complemented by 146 acres of commercial land, predominantly under urban ground leases. This integrated model, from property management and in-house leasing to development and acquisitions, allows ALEX to create places that enhance the lives of Hawaii residents and foster tenant success.

The Hawaiian commercial real estate market presents a unique competitive landscape. For smaller, lower-priced assets, ALEX primarily competes with local buyers and family offices. In larger transactions exceeding $100 million, mainland capital, typically private equity, enters the fray. ALEX's competitive edge against these larger players stems from its local presence, deep market knowledge, and established relationships, which often translate into superior underwriting and operational execution. In the mid-range of $70 million to $100 million, competition tends to be less intense, an area where ALEX actively seeks opportunities.

Compared to national retail REITs like Simon Property Group (SPG) or Kimco Realty Corporation (KIM), ALEX's geographic concentration in Hawaii is both a strength and a potential vulnerability. While SPG and KIM benefit from broader diversification and economies of scale, ALEX's exclusive focus allows for specialized market penetration and customer loyalty. ALEX's operational efficiency in tenant retention and cost control within its single region can be significantly greater than that of its national peers. However, ALEX may lag in innovation speed compared to SPG, which often invests in mixed-use developments with modern amenities, or KIM, which might expand faster into emerging retail trends nationally. Federal Realty Investment Trust (FRT), with its focus on high-quality mixed-use properties in densely populated suburban areas, offers a different comparison. ALEX's vertically integrated model, including its ground leases and renewable energy assets, could lead to materially lower operating costs in its region compared to FRT's potentially higher-maintenance, diversified portfolio.

ALEX's "technological differentiation" is not in a proprietary product but rather in its integrated operational model and strategic asset management within a unique, supply-constrained market. Its vertical integration, encompassing development, property management, and in-house leasing, acts as a significant moat. This allows for tailored tenant relationships, efficient property operations, and a deep understanding of local market dynamics, which are difficult for external competitors to replicate. The company's ownership of renewable energy assets, while not a core technology product, positions it to potentially capitalize on broader industry trends, such as the increasing energy demands from AI-driven data centers, offering qualitative opportunities for its energy infrastructure. This strategic foresight in asset diversification, even within its niche, underscores its long-term value creation approach.

Financial Strength and Strategic Momentum

ALEX's financial performance in the third quarter of 2025 underscored its operational effectiveness and strategic focus. The company reported net income available to common shareholders of $14.3 million, or $0.20 per diluted share, and Commercial Real Estate (CRE) operating profit of $22.7 million. Funds From Operations (FFO) stood at $21.4 million, or $0.29 per diluted share, with CRE and Corporate FFO at $21.7 million, or $0.30 per diluted share. This strong showing led to a third consecutive FFO guidance raise for the full year.

For the nine months ended September 30, 2025, total operating revenue decreased by $18.5 million, or 10.6%, to $155.7 million, primarily due to lower revenues from the Land Operations segment's unimproved and development land sales. However, CRE operating revenue increased by 3.1% to $152 million for the same period, driven by higher rental revenue, notably from the acquisition of Waihona Industrial in September 2024 and a sales-type lease initiated in Q1 2025. Operating profit for the CRE segment increased by 1.4% to $68.4 million for the nine months ended September 30, 2025.

Same-store Net Operating Income (NOI) for the CRE portfolio increased by 0.6% in Q3 2025, reaching $31.9 million, and by 3.3% for the nine months ended September 30, 2025, reaching $97.0 million. This growth, while modest in Q3 due to prior tenant move-outs (since backfilled) and one-time recoveries in Q3 2024, reflects the underlying strength of its needs-based retail assets. Leased occupancy for improved properties stood at 95.6% as of September 30, 2025, a 160 basis point improvement year-over-year. Blended leasing spreads on comparable leases remained robust, increasing by 4.4% in Q3 2025 and 7.6% for the nine months ended September 30, 2025.

The Land Operations segment, while a smaller and non-core part of the business, contributed an operating profit of $18.5 million for the nine months ended September 30, 2025. This was largely driven by a significant gain from a contract modification and favorable resolution of rights and obligations from a prior-year land sale, as well as equity earnings from joint ventures, including a release of reserves. The segment's annual carrying costs have been effectively streamlined, now ranging from $3.75 million to $4.5 million.

ALEX's balance sheet remains robust, providing ample liquidity and flexibility. As of September 30, 2025, the company reported total liquidity of $284.3 million, with a net debt to adjusted EBITDA ratio of 3.5x, well below its target range of 5x to 6x. Approximately 89% of its debt is at fixed rates, with a weighted average interest rate of 4.7%, mitigating interest rate risk. The $450 million revolving credit facility had $267 million of available capacity. This strong financial position supports its capital allocation strategy, prioritizing growth investments while maintaining consistent dividends.

Growth Initiatives and Strategic Asset Recycling

ALEX is actively pursuing both internal and external growth opportunities to enhance its portfolio and drive long-term shareholder value. A key internal growth driver is the development pipeline at Komohana Industrial Park in West Oahu, where the company broke ground on two new buildings: a 91,000 square foot warehouse pre-leased to Lowe's (LOW) and a 30,000 square foot speculative build. These projects are expected to be in service by Q4 2026 and generate $2.8 million in annual NOI when stabilized in Q1 2027. Similarly, vertical construction at a build-to-suit project at Maui Business Park is on schedule for Q1 2026 completion, projected to add $1 million in annual NOI.

Strategic asset recycling is another core component of ALEX's growth strategy. In September 2025, a tenant at Kaka'ako Commerce Center exercised an option to purchase three floors, a transaction expected to close in Q1 2026 and generate $24.1 million in proceeds. These funds are earmarked for recycling into an acquisition property via a 1031 exchange, demonstrating a disciplined approach to capital deployment. This transaction, while unique to the Kaka'ako building, highlights the team's creative solutions to extract value and enhance occupancy.

The company's entry into the self-storage asset class, through a 75-year ground lease for a 4.70-acre parcel at Maui Business Park, is a notable strategic move. This initiative not only converts non-income-producing land into long-term recurring FFO (contributing nearly a penny in 2025) but also provides an opportunity for an equity investment in the development and operation of the self-storage facility. This aligns with ALEX's Hawaii-focused, asset-diverse strategy, expanding its footprint into complementary property types.

Outlook, Guidance, and Risk Considerations

ALEX's management remains optimistic about the full-year outlook for 2025, raising its total FFO guidance for the third consecutive quarter. The company now expects full-year total FFO to be between $1.36 and $1.41 per share. CRE and Corporate FFO guidance has also been raised to a range of $1.13 to $1.17 per share, primarily due to lower-than-expected interest expense. Full-year same-store NOI growth is reaffirmed at 3.4% to 3.8%, with an anticipated strong Q4 performance implying 4.4% growth at the midpoint.

This positive outlook is supported by strong tenant health metrics, including consistent customer traffic, robust tenant sales, and stable collections. Management expects full-year G&A to range from flat to $0.01 per share lower than 2024, reflecting continued cost management efforts. Contributions from Land Operations are projected to be modest, ranging from $0.02 to $0.04 per share, reflecting assumed land sales margin and joint venture income.

Despite the positive outlook, ALEX acknowledges several risks. Geographic concentration in Hawaii exposes the company to local economic downturns, although its needs-based retail portfolio offers a degree of resilience. Macroeconomic uncertainties, including potential inflationary pressures and trade disputes, could impact operating results. Specifically, tariffs have already led to increased construction costs, which ALEX mitigates through strategies like forward-pricing materials and conservative underwriting. The company also manages legacy obligations from its Land Operations segment, though management is confident in its balance sheet reserves.

Conclusion

Alexander & Baldwin, Inc. is a compelling investment proposition, rooted in its unique position as Hawaii's leading commercial real estate REIT. Its strategic evolution from a sugar plantation to a diversified property owner, coupled with a deep understanding of the local market, forms a robust competitive moat. The company's consistent financial performance, marked by rising FFO and strong occupancy, reflects effective operational execution and a disciplined approach to asset management.

ALEX's commitment to internal growth through strategic developments and opportunistic asset recycling, alongside a strong balance sheet, provides a clear pathway for future value creation. While geographic concentration and broader macroeconomic headwinds present inherent risks, the company's focus on needs-based retail and its proactive management of costs and development pipeline position it for enduring success. For discerning investors seeking exposure to a resilient, high-quality real estate portfolio with a distinct regional advantage, ALEX offers a compelling narrative of stability and growth.