Executive Summary / Key Takeaways

• Alexander & Baldwin has built an unassailable competitive position as Hawaii's largest owner of grocery-anchored retail centers, with a 150-year history that translates into ground lease portfolios and tenant relationships that mainland capital cannot replicate, driving 95.6% leased occupancy despite macro headwinds.

• The company's transformation from a 1870 sugar plantation into a pure-play REIT is culminating in a development pipeline that will add $3.8 million in annual NOI by 2027, while legacy land operations carrying costs have been cut nearly in half to $3.75-4.5 million annually, freeing capital for higher-return CRE investments.

• Financial performance demonstrates remarkable resilience: Q3 2025 CRE NOI grew 1.2% despite 370 basis points of headwinds from prior-year recoveries and isolated bad debt, while leasing spreads on renewals averaged 7.4%, proving pricing power in a needs-based retail portfolio that management describes as "more resilient" to economic fluctuations.

• The balance sheet is notably under-levered at 3.5x net debt/EBITDA versus a 5-6x target, with 89% of debt fixed at 4.67% and $284 million in liquidity, providing both defensive strength and offensive capacity to recycle $24 million in upcoming asset sale proceeds into acquisitions via 1031 exchanges.

• Valuation at $15.41 per share offers a 5.84% dividend yield with an 89% payout ratio that is well-covered by recurring cash flows, while trading at 15.3x earnings— a discount to tourism-exposed peers—presenting an attractive entry point for a business with visible NOI growth and limited downside from interest rate risk.

Setting the Scene: The Hawaii REIT That Time Built

Alexander & Baldwin, incorporated in Hawaii in 1870 as a 571-acre sugar plantation on Maui, represents one of the most deliberate corporate transformations in public real estate. The company officially became a REIT in 2017, but the real metamorphosis began decades earlier as management recognized that Hawaii's limited land supply and unique regulatory environment created barriers that could be monetized through commercial real estate. Today, A&B operates as a vertically integrated REIT headquartered in Honolulu, focusing exclusively on Hawaii commercial real estate with a portfolio that spans 21 retail centers, 14 industrial assets, and four office properties totaling four million square feet of gross leasable area, plus 146 acres of commercial land substantially leased via urban ground leases.

The industry structure ALEX dominates is defined by scarcity. Hawaii's island geography creates a natural moat—new supply is constrained by land availability, permitting processes that require deep local relationships, and construction costs that run 2-3x mainland levels. This is not a market where national REITs can deploy capital at scale; it requires on-the-ground expertise in navigating Native Hawaiian rights, community relationships, and state-specific regulations. ALEX's 150-year history provides an unmatched network of these relationships, translating into a competitive advantage that manifests in two critical ways: a ground lease portfolio that generates stable, escalating income with minimal capex, and a grocery-anchored retail footprint that captures essential consumer spending insulated from tourism volatility.

The Hawaii Moat: How Barriers Become Advantages

The company's evolution from agricultural roots to premier commercial real estate entity is not merely historical trivia—it explains the composition of its asset base today. The 2018-2019 divestiture of 41,000 acres of Maui agricultural land to Mahi Pono Holdings, including a 50% interest in East Maui Irrigation Company, marked the beginning of a strategic simplification that continues to unlock value. By 2025, management had reduced Land Operations carrying costs from a $6-7 million run rate to $3.75-4.5 million annually, while opportunistically selling over 400 acres of non-core landholdings throughout 2024 and an additional 90 acres in Q1 2025. Every dollar of reduced carrying cost flows directly to FFO, and the remaining non-core land bucket of approximately 3,000 acres represents a future source of capital that can be recycled into higher-yielding CRE assets.

Ground leases represent the most defensible portion of ALEX's moat. The 146 acres of commercial land leased via long-term urban ground leases provide inflation-protected income streams with zero tenant improvement costs and minimal ongoing expenses. In March 2025, the company transferred a five-acre lot at Maui Business Park into its ground lease portfolio, securing a 75-year lease for a self-storage development—its first foray into this asset class. This transaction demonstrates the strategic flexibility of the land bank: management can selectively monetize parcels either through sale or by creating new income streams via ground leases, depending on which path generates superior risk-adjusted returns. The self-storage development will deliver approximately 87,000 square feet of net rentable space, and the 75-year lease structure ensures decades of predictable cash flow with no operational responsibilities.

The grocery-anchored retail portfolio is what management calls "needs-based," and the data proves the point. While tourism-dependent retail struggled through Hawaii's recovery, ALEX's centers maintained 95.6% leased occupancy as of September 30, 2025—160 basis points higher than the prior year. Economic occupancy reached 94.3%, up 130 basis points year-over-year. These are not vanity metrics; they reflect a tenant base anchored by essential retailers like Foodland and Safeway that generate consistent foot traffic regardless of economic cycles. Management reported that customer traffic in Q2 was up 3.9% and tenant sales remained strong, with the company exceeding percent rent goals for both Q1 and Q2. This resilience directly supports the dividend, which at 5.84% yield represents one of the most attractive payouts in the shopping center REIT space.

Financial Performance: Resilience in a Volatile Market

Third quarter 2025 results reveal a business performing exactly as a defensive REIT should in uncertain times. CRE revenue of $50.2 million grew 1.7% year-over-year, while NOI of $32.8 million increased 1.2%. Same-store NOI growth of 0.6% appears modest until management explains the 370 basis points of headwinds from tenant move-outs that have since been backfilled, one-time recoveries in Q3 2024, and higher bad debt expense from a few isolated tenants. Without these temporary factors, same-store NOI would have grown in line with the first half of the year's stronger performance. This demonstrates the underlying health of the portfolio—management is not relying on accounting adjustments to generate growth, but rather on real leasing activity and rent increases.

Leasing spreads tell a more complete story. In Q3 2025, blended leasing spreads on a comparable basis increased 4.4%, with 19 renewal leases averaging 7.4% base rent increases. The six comparable new leases showed a 2.8% average decrease, but this was driven by one specific lease rather than a market-wide trend. For context, full-year 2024 blended spreads were 11.7%, and Q1 2025 spreads reached 10.2%. This pricing power is remarkable in an environment where many retail REITs are struggling to maintain occupancy, let alone push rents. The ability to raise rents on renewals while maintaining 95%+ occupancy indicates that ALEX's properties are not just filling space but commanding premium pricing due to their locations and tenant mix.

The Land Operations segment's Q3 revenue of $35 thousand—a 99.7% decline from the prior year's $12.6 million—might appear alarming at first glance. But this is actually evidence of the simplification strategy working. The company deliberately chose not to sell any land parcels in Q3, focusing instead on reducing the cost structure. The $298,000 operating loss was primarily legacy carrying costs offset by $1.6 million in equity earnings from joint ventures. More importantly, the nine-month operating profit of $18.5 million was driven by gains from contract modifications and favorable resolution of prior land sale obligations, demonstrating that the remaining land holdings still contain value that can be monetized opportunistically. Management's guidance assumes Land Operations will contribute $0.02 to $0.04 per share in FFO for 2025, reflecting modest land sales margins and joint venture income—a conservative assumption that leaves room for upside if market conditions improve.

General and administrative expenses decreased 18.2% year-over-year in Q3 to $6.1 million, and are down 8.4% year-to-date to $20.1 million. This reduction reflects process streamlining, automation, and personnel adjustments that are structural improvements, not one-time cuts. For a company of ALEX's size, every dollar of G&A savings flows directly to FFO, and management has guided for full-year G&A to be flat to $0.01 per share lower than 2024. This operational discipline is critical for a REIT that must fund both its dividend and its development pipeline from operating cash flows.

Development Pipeline: The Growth Engine

ALEX's development pipeline provides visible NOI growth that is rare for a REIT of its size. The 30,000 square foot build-to-suit industrial asset at Maui Business Park remains on schedule for completion in Q1 2026 and will generate approximately $1 million in annual NOI. More significantly, the Komohana Industrial Park project in West Oahu—comprising a 91,000 square foot warehouse pre-leased to Lowe's (LOW) and a 30,000 square foot speculative building—broke ground in Q3 2025 and will be placed into service in Q4 2026, generating $2.8 million in annual NOI when stabilized in Q1 2027. These are not speculative numbers; the Lowe's building is pre-leased, and the speculative component is sized to match demonstrated market demand.

The Kakaako Commerce Center transaction exemplifies management's capital recycling strategy. A tenant exercised its option to purchase three floors for $24.1 million, with closing expected in Q1 2026. Rather than treating this as a one-time gain, management plans to recycle the proceeds through a 1031 exchange into an acquisition property that has not yet been identified. This approach allows ALEX to redeploy capital from non-strategic office assets (the office portfolio represents only 4% of NOI) into higher-yielding retail or industrial properties, maintaining the portfolio's focus on needs-based retail while improving overall returns. The transaction also highlights the value embedded in existing assets—three floors of office space generating a $24 million sale price demonstrates the underlying worth of the real estate that is not fully reflected in current earnings.

The March 2025 self-storage ground lease at Maui Business Park represents strategic optionality. This is ALEX's first investment in the self-storage sector, an asset class with proven recession resilience and strong demand in land-constrained Hawaii. The 75-year lease structure provides long-term income without operational complexity, and the company retains an opportunity for equity participation in the development. This transaction shows that management can creatively monetize its land bank while diversifying into new asset classes that complement the core grocery-anchored retail strategy.

Capital Structure: Under-Levered and Flexible

As of September 30, 2025, ALEX carried $475.5 million in total debt with a weighted average interest rate of 4.67%, and critically, 89% of this debt was fixed-rate. Only $18.3 million is due in the next twelve months, and the company has $284.3 million in total liquidity. The net debt to adjusted EBITDA ratio stands at 3.5x, well below management's stated target range of 5-6x. This provides both defensive strength and offensive capacity. In a rising rate environment, ALEX's fixed-rate debt profile protects margins, while the under-levered balance sheet provides dry powder for acquisitions.

The company has been proactive in refinancing, having converted $130 million of mortgage debt to unsecured fixed-rate debt in Q4 2024 and extended its revolving credit facility to October 2028. In December 2024, ALEX paid off a $73 million mortgage secured by Pearl Highlands Center, further unencumbering the asset base. This financial flexibility is a competitive advantage when pursuing off-market deals that require certainty of closing—a strength that management emphasizes when competing against mainland capital that lacks local relationships.

The June 2025 termination agreement with Mahi Pono, while requiring $55.3 million in payments over four years, actually reduces balance sheet uncertainty. The agreement settled legacy water rights obligations and transferred the remaining 50% interest in East Maui Irrigation Company, eliminating a long-standing contingent liability. As of Q3, $45.3 million remains outstanding, but management has reserved appropriately and the payments are structured over time, preserving liquidity for core operations.

Competitive Landscape: Local Knowledge vs Scale

ALEX competes in a bifurcated market. On one side are diversified REITs like American Assets Trust (AAT), which owns high-quality Hawaii assets but lacks ALEX's scale and focus. AAT's mixed-use properties in Waikiki are tourism-dependent, exposing it to the volatility that ALEX's grocery-anchored portfolio avoids. AAT's Q3 2025 FFO per share declined 31% year-over-year to $0.49, while ALEX's CRE and Corporate FFO increased 7.1% to $0.30, demonstrating the relative resilience of needs-based retail.

On the other side are niche players like Maui Land & Pineapple (MLP), with 22,000 acres concentrated on Maui. MLP's recent recovery is impressive—Q3 revenue up 49% year-over-year—but its scale is a fraction of ALEX's, and its heavy concentration in resort-adjacent properties creates different risk exposures. The 2023 Lahaina fires highlighted the vulnerability of Maui-centric land holdings, while ALEX's diversified portfolio across four islands provides geographic balance.

Simon Property Group (SPG) represents the national scale threat, with premium outlets in Hawaii that compete for tourist dollars. However, SPG's 750,000 square feet in the state is a small fraction of its 250 million square foot global portfolio, limiting its focus on the nuances of the Hawaii market. ALEX's local team can underwrite deals faster and manage properties more efficiently than any mainland competitor, a difference that shows up in occupancy rates and leasing spreads.

Management is actively pursuing acquisition opportunities, noting that three large portfolios are currently being marketed in Hawaii. The company expects pricing in the 5-6% cap rate range, with ground leases commanding premium valuations and value-add deals trading at higher yields. ALEX's competitive edge lies in its ability to underwrite local market dynamics—understanding which tenants will succeed, which locations have long-term value, and how to navigate the regulatory environment. This local knowledge is not replicable by mainland buyers, creating a persistent advantage in deal flow and pricing.

Risks and Asymmetries

The most material risk to the thesis is geographic concentration. Hawaii's economy remains tied to tourism, and any prolonged downturn in visitor arrivals would eventually impact tenant sales and rent growth. However, ALEX's needs-based portfolio provides a buffer—people still buy groceries and visit drugstores regardless of tourist volumes. The company's real-time tenant health metrics show no signs of slowing, with parking lots full and collections consistent with prior quarters, but investors must monitor tourism data as a leading indicator.

Construction cost inflation presents a near-term challenge. Tariffs have increased steel prices by approximately 8%, and while management has mitigated this by pre-purchasing materials for the Komohana Industrial Park project, sustained inflation could pressure development yields. The risk is manageable given the pre-leased nature of the largest project and the company's ability to share costs with tenants, but it bears watching as the development pipeline expands.

Interest rate risk is mitigated but not eliminated. While 89% of debt is fixed, the company still faces refinancing risk on the remaining 11% and on the revolving credit facility. More importantly, higher rates reduce the attractiveness of ALEX's dividend yield relative to risk-free alternatives. At 5.84%, the dividend remains attractive, but a further rise in long-term Treasury yields could pressure the stock price regardless of operational performance.

Execution risk on the development pipeline is the key swing factor. The $3.8 million of annual NOI from current projects represents a meaningful increase over the LTM CRE NOI of approximately $130 million, but any construction delays or cost overruns would reduce the incremental yield. The company's track record at Maui Business Park provides confidence, but industrial development in Hawaii faces unique challenges, including material shipping delays and labor availability.

The upside asymmetry comes from acquisitions. With $284 million in liquidity and a target leverage ratio of 5-6x, ALEX has capacity for $150-200 million of additional investments without exceeding its target. If the company can acquire properties at 6-7% cap rates while its cost of capital remains near 4.7%, each acquisition would be immediately accretive to FFO. The Kakaako sale proceeds provide additional dry powder, and management's active pursuit of the three marketed portfolios suggests a pipeline of actionable opportunities.

Valuation Context

At $15.41 per share, ALEX trades at 15.3 times trailing earnings and 1.11 times book value. The price-to-free-cash-flow ratio of 24.8 implies a free cash flow yield of approximately 4.0%, which compares favorably to the 4.67% weighted average cost of debt and supports the 5.84% dividend yield. The enterprise value to EBITDA multiple of 13.7x sits in line with American Assets Trust at 13.3x and well below Simon Property Group at 20.6x, despite ALEX's superior same-store NOI growth trajectory.

The dividend payout ratio of 89% appears high but is supported by recurring cash flows from a 95%-occupied portfolio with minimal near-term lease expirations. Management has raised guidance for three consecutive quarters, reflecting confidence in the durability of earnings. The company's under-levered balance sheet—3.5x net debt/EBITDA versus a 5-6x target—provides a margin of safety and capacity for growth investments that is not reflected in the current valuation.

Relative to peers, ALEX offers a unique combination of defensive characteristics and growth potential. AAT's 6.97% dividend yield comes with exposure to tourism-dependent hotel assets and office properties facing occupancy pressures. SPG's premium outlets command higher multiples but lack the essential-retail stability that defines ALEX's portfolio. MLP's turnaround story is compelling but lacks scale and diversification. ALEX's valuation reflects neither the scarcity value of its Hawaii moat nor the visible NOI growth from its development pipeline, creating an attractive entry point for long-term investors.

Conclusion

Alexander & Baldwin has transformed from a legacy sugar plantation into Hawaii's premier commercial real estate REIT by turning the islands' natural barriers into competitive fortresses. The company's 150-year history manifests in ground leases that generate stable, escalating income and tenant relationships that maintain 95%+ occupancy through economic cycles. The development pipeline adds visible NOI growth of $3.8 million by 2027, while the simplified Land Operations segment has cut carrying costs nearly in half, freeing capital for higher-return investments.

The balance sheet provides both defensive strength and offensive capacity, with 89% fixed-rate debt, $284 million in liquidity, and a net debt/EBITDA ratio of 3.5x that sits well below the 5-6x target. This financial flexibility positions ALEX to recycle $24 million in upcoming asset sale proceeds into accretive acquisitions, leveraging local knowledge that mainland competitors cannot match.

The investment thesis hinges on two factors: execution of the development pipeline on time and budget, and maintenance of the grocery-anchored retail moat in the face of macro uncertainty. The company has demonstrated operational excellence through three consecutive quarters of raised guidance and has mitigated key risks through fixed-rate debt, pre-purchased construction materials, and a needs-based tenant mix. At $15.41 per share, the valuation does not fully reflect the scarcity value of Hawaii's largest grocery-anchored portfolio or the visible growth from development, offering an attractive risk-adjusted return for investors seeking both income and capital appreciation in an increasingly volatile market.