By Chris Katje
A&B has a huge amount of commercial, residential and agricultural land in Hawaii. With high tourism dollars and disposable income of residents, the economy of Hawaii continues to thrive. Investors should consider following Alexander & Baldwin into Hawaii to capitalize on rich land assets and one of the strongest real estate portfolios available.
On June 29, Matson (MATX) - Get Matson, Inc. Report completed the spin-off of Alexander & Baldwin. The break-up split up a company founded in 1870 into two unique companies. One company (Matson) deals with the transportation business, while the other (Alexander & Baldwin) maintains the real estate and land assets. Alexander & Baldwin operates its A&B Properties real estate segment along with several construction and natural reserve assets.
A&B Properties has 87,000 acres of properties and over eight million square feet of retail space. Real estate assets are spread out across Hawaii, Arizona, California, Colorado, Georgia, Nevada, Texas, Utah and Washington. A&B's current push is towards acquiring and developing properties in Hawaii.
Alexander & Baldwin's real estate segment has been on an acquisition spree, which should cause investors to take note. Since the separation from Matson, the company has spent over $1 billion on deals. Here is a look at some of the larger deals done by the company:
- Alexander & Baldwin acquired Pearl Highlands, a West Oahu retail property with over 400,000 square feet. The property is anchored by retailers including Sams Club, Pier One Imports (PIR) - Get Pier 1 Imports, Inc. Report, and Buffalo Wild Wings (BWLD) . The acquisition, priced at $141.5 million closed on Sept. 17. The acquisition increased Hawaii's commercial portfolio square footage by 25% at the time. The deal made Alexander & Baldwin the second-largest owner of retail properties in the state.
- On Sept. 10, Alexander & Baldwin acquired a residential portfolio that consists of some premium properties in Hawaii. The company is paying $97 million for the portfolio highlighted by 27 properties located on Kahala Avenue. The street is near the Kahala Hotel & Resort and Waialeee Country Club and is one of the premier residential areas in the state. Included in the purchase was agricultural and preservation zoned land as well. Amazingly enough, the land only value of the acquired properties is $117.6 million. Investors should note the company plans to reposition, refurbish, and resell in the next three to five years.
- The company's most recent acquisition was from the Kaneohe Ranch and Harold K.L. Castle Foundation. Alexander & Baldwin spent $373 million to acquire a large portfolio of retail and light industrial properties. The acquisition also comes with 585 acres of preservation-zoned land and 76 acres of agriculture zoned land.
Another key growth item for Alexander & Baldwin is its focus on creating communities. On April 9, the company announced its plans for a unique community in Kakaako. Through a partnership with Kamehameha Schools, which owns the land, Alexander & Baldwin is creating a property called "The Collection." Prices of apartments range from $300,000 (one bedroom) to $700,000 (three bedrooms). The 43-story building will also have retail properties and townhomes. Alexander & Baldwin maintains an option to buy the property outright from Kamehameha Schools.
Through acquisitions and build-outs, the company should have an exciting several years ahead as it begins to monetize its properties. Here are things to watch:
- Waihonua high-rise condos to open 2015. Property was acquired in 2010 with an expected 340 units. All of the units have been sold as of October 1st.
- ONE Ala Moana to open late 2014. With average prices of $1.6 million, all 206 properties have sold.
- New Hawaii Island joint venture with Brookfield Homes, 10 of 137 units have sold already
Aside from its real estate assets, the company's natural materials segment continues to look promising. In October, Alexander & Baldwin acquired Grace Pacific. The acquisition connects the company to the largest asphalt paving contractor in Hawaii and will strengthen Alexander & Baldwins dominance in the island state market.
The company's natural materials segment consists of:
- Hawaii Commercial & Sugar Company, 36,000 acres of sugar and molasses in Maui
- Maui Brand sugar
- Hawaii's only precast concrete building materials manufacturer
- Coffee assets of 4,000 acres, which are currently leased
- Hawaii's leading infrastructure company
- seven hot-mix asphalt plants, maintains a 60% market share in the state
- 50% market share in asphalt paving for Hawaii
Alexander & Baldwin's fields are among some of the highest yielding agricultural assets in the country. Sugar prices legged in 2012 and 2013, but are beginning to look stronger going forward. Hawaii is increasing its spending on infrastructure and roads. The states roads rank bad compared to other states and Alexander & Baldwin should be the clear winner in any progress made on improvements to roads across the state.
Shares of Alexander & Baldwin closed at $37.64 Monday. The current stock price is around the mid-point of the last 52 weeks ($27.94 to $46.23). Shares are now up 26% in 2013 and 43% since the spin-off from Masco in June 2012. The spin-off was done to unlock value. While investors have sent shares up, I believe there is plenty more upside left.
In fact, Alexander & Baldwin could increase its share price further by splitting up its real estate business from its commercial assets. The series of acquisitions, along with several new project to open in the next three years, and a construction boom in Hawaii provide plenty of upside.
At the time of publication the author held no positions in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Chris Katje has been fascinated with the stock market since a young age. That passion turned into a freelance writing career that began in 2008. Mr. Katje has seen his work appear on Seeking Alpha, the Motley Fool, The Street, and Variety. Chris's annual top ten stock picks list continues to beat the market and grow in popularity. You can follow Chris on Twitter (@chriskatje).