ALEX - Alexander & Baldwin

[thepupil]

I have followed ALEX for about 9 years, having successfully followed Pershing Square and Marcato in the name when they bought it at a steep discount to SOTP and separated ALEX from Jones Act shipper Matson, then sold it once the easiest juice had been squeezed. it's taken a long time to get here, but ALEX is now a pure play Hawaii commercial real estate company (excepting some dribs and drabs leftover from its more ambitious conglomerate/developer days: namely Grace Pacific and Kukuila). it's slowly been turning into a boring and understandable REIT that deserves to exist.

 

Here's a recent VIC writeup

https://www.valueinvestorsclub.com/idea/ALEXANDER_andamp%3B_BALDWIN_INC/5614153932

 

It gets to a moderately aggressive NAV of $26.50 at a 5% cap rate (stock at $18). I probably wouldn't be a buyer there, but the stock is down 15% YTD, 25% in the past two years, and is continuing to drop. low leverage, long term leases, blah blah blah, you either get it or don't care by now.

 

I think owning grocery anchored retail on an island with high construction costs and a glacial entitlement/development process will probably work out. there's also substantial long term ground leases here which is a very attractive thing to own when the 30 year is at 1.6%.

 

I don't want to start a topic for every discounted real estate company that is well-capitalized and owns good assets (or every stock with Alexander in its name :) ), particularly when i've done little value added research...even i am getting tired of my own voice by now and that is really saying something.

 

but whatever, I think stuff like this is the antidote to an uncertain world: long lived cash flows, significant barriers to entry, low debt, 4% and rising dividend yield etc.

 

as stocks i own go down i always am looking to sell some portion of them and swap into similar plays and realize tax losses (then double down on the loss name in non-taxable accounts once wash sale ends), so incremental names help even id not necessarily more compelling than what i already own.

 

I will hope for further declines.

 

 

[Foreign Tuffett]

Is the leverage low, though? Q4 IR presentation has them at 7.4X Net Debt to Consolidated Adjusted TTM EBITDA

 

[thepupil]

i would regard it as low.

 

call it $105mm of NOI, $700mm of debt. 15% debt yield and 30% LTV at a 5% cap rate 45% LTV at a 7% cap, not counting any quick deleveraging from sale of Kukuiula properties/other non-core.

 

REIT dedicated folks prefer 6x or lower and they'll get it there within 12-24 mo's (spitball guess: 0.4 a turn / year from just cash flow, plus asset sales)

 

most recent transcript:

 

So our goal is to improve our debt to EBITDA ratio and we've indicated our goal of about five to six times and so we would obviously if you can sell something at a good price that is generating no income, that's a no-brainer. But in selling any income producing assets, we would be very mindful of the relationship there and make sure that it is accretive to our leverage metrics.

 

Anything else, Brett, do you want to add in terms of total debt reduction targets.

 

A - Brett Brown {BIO 5067938 <GO>}

We continue to target our debt-to-EBITDA number. Alex, to be in the five to six range, by year-end we were at 7.4 and so, we'll continue with monetization as we mentioned to pay that down and we believe that over time here will be able to get it down in that range with the combination of debt reduction, but also with earnings increase, you're right. We do sell, some we have to be mindful of the income that goes away with that, but we're also improving income in various areas, specifically with Grace and then with the improvements at the CRE level. So we're attacking on our both fronts, reducing the numerator and increasing the denominator and getting us to those levels.

[thepupil]

down another 8% today and starting to look worthwhile depending on how one views the non-core assets.

 

VIC writeup gets to $500mm non-core. At $500mm that would create the real estate at an 8% cap rate for an asset base that is 15% long term ground leases and 15% industrial on hawaii (low cap assets) with the remainder being grocery anchored strip centers.

 

what do you think the right cap rate for a low LTV ground lease with escalators that goes out to 2030+ is in this rate environment? I think it's 3.5-4.5%.

 

At $0mm of non-core whole thing is at more of a 6% cap rate.

 

no position yet because have to wrap my head around the retail which includes some tenant concentration in names i don't love.

 

 

[thepupil]

selling my first bought lot of ALEX today for a 17% loss, realizing some tax losses. my March 23rd lot is up 48%.

 

what glorious volatility for some ground leases, industrial real estate, and grocery anchored strip centers on hawaii.

 

very small position.

 

humuhumunukunukapua-a!

[thepupil]

I sold the entirety of the position at the close for a a meager 10% profit (last lots at 48% gain, 1st lots at 17% loss). Hawaii has lost the most jobs/capita of any state. this was a low conviction starter position, and I was disappointed in the industrial not holding up as much I thought as some of it was deemed non-essential. they suspended dividend completely (which I applaud). this is probably very cheap long term, just focusing on other things.

[longterminvestor]

was your investment horizon 2 months after you watched for 9 years for an entry point?

[thepupil]

well, the first time around when I owned ALEX when it spun off MATX was much more profitable and I held longer [it was a much different thesis where activists were going to finally win as ALEX was an old line Hawaiian company that had failed to been broken up several times before in the 80's/90's], so following the company hasn't been for naught and we may get another opportunity.

 

I follow lots of companies for a long time, the vast majority of which are never bought.

 

I said it was kind of sort of maybe getting interesting at $18...starting to look worthwhile at $15...bought a small position a couple days later...then kept buying in increments on the way down..keeping it small because of low conviction/retail...it fell to $8/9...it bounced hard to $12 and change and fundamentals don't seem all that great...move on and wait for better price or more clear fundamentals. If 100% of tenants were groceries, that be fine but that's not the case.

 

this was the smallest position in the real estate bucket and I don't have conviction to add. I think the leverage is low relative to long-term real estate value [particular if they blew out of the non-core assets], but it's tougher to de-lever when you are giving all these risky dink shops and restaurants rent assistance and tons of people are losing their jobs.

 

I think other companies I'm buying are more resilient and am moving on and will continue to monitor.

 

For example, I think ALX's is less risky than ALEX

 

ALEX is up 5% in the past 5 days, ALX is down 20%+ (and the enterprise value is down more since ALX has 30% of its market cap in cash). a few days ago*, I said ALX wasn't super interesting, then it fell nicely and is incrementally more interesting. when the most important assets are cash and bloomberg triple net leased office building, 15-20% goes a long way and changes the risk/reward.

 

*stock at $300-$310

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/alx-alexander's/msg412754/#msg412754

 

bought a good bit at $248 today, part of that is it's trading ex divvy but that's only 1.5% of it.

 

I followed ALX ever since I’d walk by Le Cirque and 731 Lex’s gorgeous motorcourt from 2011-2013 when I lived in NYC.

 

I have lusted for that building for a long time.

 

Now I can buy it for like 6-7% cash on cash assuming their retail is worthless and 10% cash on cash with the retail.