Good afternoon, ladies and gentlemen, and welcome to the Alexander & Baldwin Second Quarter Earnings Call. [Operator Instructions] This call is being recorded on Thursday, July 24, 2025. And I would now like to turn the conference over to Cheyne Mench. Thank you. Please go ahead. Cheyne M

Thank you, operator. Aloha, and welcome to Alexander & Baldwin's Second Quarter 2025 Earnings Conference Call. My name is Cheyne Mench, and I'm a Leasing Manager at Alexander & Baldwin. With me today are A&B's Chief Executive Officer, Lance Parker; and Chief Financial Officer, Clayton Chun. We are also joined by Kit Millan, Senior Vice President of Asset Management, who is available to participate in the Q&A portion of the call. During our call, please refer to our second quarter 2025 financial presentation available on our website at investors.alexanderandbaldwin.com/events. Before we commence, please note that the statements in this presentation are not historical facts and are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995 and are involved in a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding possible or assumed future results of operations, business strategies, growth opportunities and competitive positions. Such forward-looking statements speak only as of the date of the statements were made and are not guarantees of future performance. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and timing of certain events to differ materially from those expressed and implied by the forward-looking statements. These factors include, but are not limited to, prevailing market conditions, other factors related to the company's REIT status and the company's business, the evaluation of alternatives by the company related to its remaining legacy assets and the risk factors discussed in Part I, Item 1A of the company's most recent Form 10-K under the heading "Risk Factors", Form 10-Q and other filings with the Securities and Exchange Commission. The information in this presentation shall be evaluated in light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statements. Management will be referring to non-GAAP financial measures during today's call. Please refer to our statement regarding the use of non-GAAP measures and the reconciliations included in our second quarter 2025 supplemental information and presentation materials. Lance will start today's presentation with a highlight of our accomplishments and CRE results, then hand it over to Clayton for a discussion on financial matters. To close, Lance will return to make some final remarks, and we will open up for your questions. With that, let me turn it over the call to Lance.

Thank you, Cheyne. Great job, and aloha to everyone joining us today. I am pleased to say that our portfolio delivered strong results in the second quarter, and the team continued progress on the three priorities for 2025 that I laid out in the beginning of the year, improving our CRE portfolio performance, internal and external growth and streamlining our business and cost structure. We achieved same-store NOI growth of 5.3% for the quarter, driven primarily by a 140 basis point improvement in same-store economic occupancy. From a growth perspective, we continued construction at our build-to-suit on Maui with an anticipated completion date in the first quarter of 2026. We expect annual NOI uplift of $1 million when it is complete. And thanks to Cheyne, we were able to execute another build-to-suit for a 91,000-square-foot building at Komohana Industrial Park on West Oahu and began preconstruction work for that asset, along with another adjacent warehouse. We expect to place the buildings into service in the fourth quarter of 2026 and achieve $2.8 million annual NOI when they are stabilized in the first quarter of 2027. These projects will increase our GLA by more than 150,000 square feet when complete. The transaction market in Hawaii is also starting to open up, and the team is busy. While completing a deal ultimately depends on pricing, we are seeing a number of exciting acquisition opportunities. And finally, we resolved various legacy operations or obligations in our Land Operations segment. Turning to our second quarter CRE highlights. We executed 52 leases in our improved property portfolio, representing approximately 184,000 square feet of GLA and $6.1 million of ABR. Our blended leasing spreads remained strong at 6.8% on a comparable basis. Our leased occupancy was 95.8%, up 40 basis points sequentially and 190 basis points compared to the second quarter of last year. Economic occupancy at quarter end was 94.8%, up 90 basis points from last quarter and 200 basis points from the same period last year. SNO at quarter end was $5.8 million and includes $3.1 million related to our two build-to-suit projects and over $700,000 for our ground lease at Maui Business Park. From where I sit today, I will say that I am confident in our portfolio performance, encouraged about our growth prospects and pleased with our streamlining efforts. As a result, we are raising our 2025 guidance. With that, I'll turn the call over to Clayton to discuss financial results and our improved outlook. Clayton?

Thanks, Lance, and aloha, everyone. Our portfolio continued its strong performance in the second quarter, generating $33.6 million of NOI and growing 6.3% over the same period last year. The results were driven by the 5.3% same-store NOI growth that Lance mentioned earlier, reflecting the impact of higher year-over- year occupancy. The strong portfolio performance in turn carried through to the bottom line, where we reported Q2 CRE and Corporate-related FFO per share of $0.29, a 3.6% increase from the same quarter last year. Included in the $0.29 is a $0.01 of non-cash straight-line rent adjustments related to one of our ground lease assets where we're taking back the improvements. FFO for the total company was $0.48 per share for the second quarter or $0.20 higher than Q2 of last year. In addition to the $0.29 from CRE and Corporate previously mentioned, FFO for the second quarter included $0.19 from land operations. The earnings from land operations were primarily driven from the resolution of legacy obligations, a sale of agricultural zoned land and joint venture income. As a result of the activity during the quarter, we've made further progress on simplifying our carrying costs in Land Operations, resulting in our annual run-rate decreasing from a range of $4 million to $5 million to $3.75 million to $4.5 million. G&A was approximately $7 million for the quarter, reflecting a 3.3% decrease as compared to the same period last year. For the full year, we continue to expect G&A to range from flat to $0.01 per share lower as compared to 2024. Turning to our balance sheet and liquidity. At quarter end, we had total liquidity of over $300 million, and our net debt to adjusted EBITDA ratio stood at 3.3x. Approximately 95% of our debt was at fixed rates and our weighted-average interest rate was 4.67%. We paid a second quarter dividend of $0.225 per share on July 9, and our Board declared a third quarter dividend of $0.225 payable on October 7. We are raising our guidance as follows: We now expect same-store NOI to be within the range of 3.4% to 3.8%, an increase of 80 basis points at the midpoint when compared to the previous guidance range. CRE and Corporate FFO is expected to be within the range of $1.12 per share to $1.16 per share. Finally, we expect total FFO of $1.35 to $1.40 per share, up about $0.18 per share at the midpoint from our previous guidance. We feel good about the remainder of the year and expect the portfolio to continue performing at a high level. However, we expect a lower same-store NOI growth rate in the third quarter due to strong Q3 results in 2024. With that, I will turn the call over to Lance for his closing remarks.

Thanks, Clayton. Our portfolio performed well this quarter, in large part due to the quality of our assets and the strength and experience of our team. I am excited about our future outlook. We continue to see healthy demand for our existing portfolio, are actively adding to our industrial asset base with our current developments, and I continue to be optimistic about future acquisitions. With that, I'll turn the call over for questions.

[Operator Instructions] And your first question comes from the line of Gaurav Mehta from Alliance Global Partners.

I want to go back to your comments about improvement in the transaction market. I was hoping if you could provide some color on what you are seeing and where you're seeing the opportunities.

Hi Gaurav, this is Lance. Good afternoon. Thanks for joining the call. Yes, I'll start by saying that we're just consistent with remarks in prior quarters, I feel like the market is starting to open up. We're seeing more opportunities at the top of the funnel. And I wouldn't say that there's any sort of specifics in terms of deal profile. It's really across asset classes. So as we noted last quarter, we did have $0.01 of FFO per share in our guidance. We've already hit that for the year. So while I am optimistic that we'll be able to place additional capital before year-end, I don't think it will have any material earnings impact for 2025.

Okay. Second question, I want to ask you on the comparable leasing spreads of 6.8%, which seems like lower than what you guys did last few quarters. Can you provide some color on the spreads?

Sure. I'd say, in general, I was really pleased with the lease activity. Just in total deal volume, we had a really strong quarter on ABR. GLA was slightly lower, but in line with prior quarters. And I would say really the difference is we just didn't have any major outliers in terms of individual drivers that drove the spread one way or the other. We had some opportunities in prior quarters that gave us the benefit of a bit of a bump. But overall, we still remain very optimistic about the performance of the leasing.

And your next question comes from the line of Rob Stevenson from Janney.

Lance, can you talk about where there's potentially below market lease expirations coming up over the next 6 to 12 months that could continue this same-store growth role that you guys have been on recently?

I wouldn't point to anything -- well, first, Rob, thanks for the question. Good to hear from you. I would say I wouldn't point to anything specifically in terms of real mark-to-market opportunities in the portfolio per se. I would ascribe really the growth that we're seeing just the fundamentals in the market in terms of retail performance, job growth here has been led by retail from 2025 over 2024. From a tenant perspective, we continue to see strong sales. Foot traffic is up year-to-date. And so it's really the fundamentals that continue to drive that. We, of course, do have some individual opportunities embedded in the portfolio, and we'll take advantage of that, but that's really not what's driving the spreads.

Okay. And then you guys have put out the ABR from signed not open leases at $5.8 million as of the end of June. How much of that are you expecting to get over the back half of 2025 versus stuff that comes in, in '26 and '27?

So I'll start with maybe a general comment and then maybe ask Clayton if we've got the actual breakdown for back half of 2025. The SNO, we did add a couple of our build-to-suits on the industrial side into that SNO pipeline. So the first is the 30,000 square foot at Maui Business Park, which we anticipate will go economic in Q1 of 2026. So no 2025 impact there. The other that we just added was the Lowe's build-to-suit here on Oahu. That won't go economic in all likelihood until maybe early 2027, potentially late 2026. So no 2025 impact there. And Clayton do you have any insight into 2025 opportunities?

So we didn't lay out specifically SNO and when that comes online for purposes of our income. But in general, what happens with the SNO pipeline is that we expect that to occur over the next 12 to 18 months that these eventually make their way into our NOI and FFO.

Okay. And then lastly, if I remember correctly, there's a large Sam's Club TI. Is that still going to impact second half AFFO to a meaningful extent? How should we be thinking about that as we model the back half of this year?

Yes, I'll take that, Rob. This is Clayton again. So we do have that large TI that will be paid out. And so that is expected to occur sometime in the third quarter. For purposes of your modeling and AFFO, however, it is not considered our recurring maintenance CapEx, and so that should not be factored into how you calculate the AFFO.

Okay. So it's stuff that you'll fund that will come out of cash but won't go through AFFO?

Correct.

Okay. And what is the -- what is the rough dollar amount there that we're talking about?

It's about $20 million. So what we typically incorporate into for adjustments for AFFO, it would be adding in maintenance, recurring maintenance CapEx. And so this is atypical.

And your next question comes from the line of Mitch Germain from Citizens Capital Markets.

Congrats on the quarter, guys. Lance, you obviously have the termination agreement with Mahi Pono. And I don't -- I'm pretty comfortable with that, but I'm curious if there are any more of these kind of legacy issues that could continue to transpire over the course of the next couple of years?

Well, I'd start with maybe just a brief comment on Mahi Pono and just kind of reinforce that from our perspective, this is a really good outcome. It provides certainty, allowed us to reduce the balance sheet exposure and the payments over time will have a meaningful impact to us from a cash perspective. But as we've talked about, whether it was Mahi Pono specific or other legacy obligations, we do feel comfortable that we're fully reserved on the balance sheet. And so that was kind of first and foremost and important to us. And so as you look at the balance sheet specific to Land Ops, we do still have some liabilities associated with that operating segment. And I will say that while we don't expect anything material in the near term, that's why we always kind of say that it's kind of hard to guide to it. It is important to us, both from an asset disposition perspective as well as a liability mitigation perspective that we continue to clean up that portion of the business.

Great. That's super helpful. I'm curious, obviously, you've talked about a lot of opportunities that are starting to come up. And I recognize that you source a number of your deals direct. But I am curious about the competitive landscape in the market with regards to the investment sales. And have you -- are you seeing a return from some of your competition? Or are they still somewhat on the sidelines?

No, there is -- look, part of the reason we have the Hawaii-focused investment thesis is because we fundamentally believe in the long- term value creation of Hawaii real estate. I don't think we're the only ones that share that perspective. So I will say that there is active capital in addition to us looking to source opportunities in the islands. To your point, it is why we have a dedicated team, and we continue to work our relationships and try to find those opportunities off market to be more competitive. And then I would say, just as a reminder, when we think about our competitive landscape, it's some of those smaller deals that we compete typically against local buyers where we think our platform and our balance sheet strength give us sort of an advantage. And then on the larger deals, it's really our local knowledge and understanding the real estate that sets us apart, and then in the middle range, call it, the $70 million to $100 million or so, sometimes there's a little bit less competition in that size range, and that's typically where we like to play. But yes, it does remain a competitive market here in Hawaii.

Got you. And then last one for me. Same-store, obviously, year-to-date, you're still tracking significantly ahead of where your revised guidance is. What's the dynamic for the back half of the year that could create some sort of deceleration?

I'll take that. Hi Mitch, it's Clayton. Yes. So our portfolio delivered solid results in the first half of the year, where we produced year- to-date same-store NOI growth of 4.7%, and that's inclusive of the 5.3% Q2 performance. But as I mentioned in the prepared remarks, we are feeling good about the second half of the year. We expect the portfolio to continue to produce at a high level. It's just that when we look at the expected NOI growth for the third quarter, the math requires us to take into account the Q3 2024 strong performance that we had, and that incorporated some favorable renewal that included retroactive rent and the favorable property tax appeal that was incorporated into that Q3 2024 result. So it's really just a function of that. When you look at the fourth quarter, we're expecting the same-store NOI growth rate to be more in line with what we saw for the first half of the year.

[Operator Instructions] And your next question comes from the line of Alexander Goldfarb from Piper Sandler.

Just a few questions. First, I just want to go back to Rob's question on that Sam's Club, the $20 million. You guys are excluding it from AFFO, but it doesn't sound like this is a first-generation improvement. It sounds like this is a normal leasing work letter as part of a renewal or something like that. So can you just clarify because AFFO, I mean, a lot of companies have outsized TIs or et cetera, that come in from time to time. I mean Torino had one a number of years ago. I mean the office guys have them constantly. So I just want to understand why you guys would exclude this unless it literally is like first-gen space.

Hi Alex, it's Clayton. Yes, I'll start off. And really the way that we think about the Sam's Club TI is it was really in connection with long-term extension of that lease. And so it's atypical for us as part of how our maintenance CapEx typically runs. And so as a result, we deemed that for purposes of our AFFO computation to be nonrecurring in nature. And so as a result, we don't have that factored into that calculation. But I do recognize the fact that, look, when you try to compare AFFOs across different companies, people have different interpretations, and that's just the way that we looked at it.

Yes. But it's a cost of doing business, like it shouldn't be excluded, that's not representative. It's not a onetime thing because this could happen next year in a few years. And as I say, other companies have these outsized items. TheStreet understands that it may not be every quarter, we get that, but large TIs are part of operating real estate, especially large format real estate that has a lengthy lease.

Yes. I would just say, Alex, from -- certainly from a business perspective, I acknowledge that perspective, and that's kind of how we view it. I mean Sam's Club is our largest individual tenant within our portfolio, and we did what we thought was the right thing to do from a business perspective and taking them long and creating stable occupancy at Pearl Highlands Center. But to Clayton's point, just maybe a disparity in practice, but we certainly appreciate your perspective.

Okay. I mean it's something that -- and kudos to Rob for asking that. But yes, that is -- it's not nonrecurring, that is recurring. Second question is, on your guidance, you did improve the same-store, but the FFO guidance for the real estate part of the business only came up $0.01 at the bottom end. So given the improved same-store guidance, why don't we see more of this flowing through to the CRE, FFO guidance range?

Yes. So Alex, the difference is primarily driven by the non-cash straight-line adjustment that I mentioned in the prepared remarks. And so really, what that related to was a lease, a ground lease in which we're taking back the improvements. And so as a result, you had some straight-line rent adjustment that flows through FFO, but it doesn't affect NOI. And when you exclude that, CRE and Corporate FFO would have been $0.01 higher on both ends of the guidance. So we would have gotten to a range of $1.13 to $1.17. -- so about [indiscernible] at the midpoint. So I think that's what will reconcile that delta that you're looking at.

No, if I could just add a remark to that, Alex. Obviously, the straight line is non-cash. So it's a non-cash impact and accounting one for us. But more importantly, we've already executed leases to backfill 2/3 of that space. So from a business operations perspective, we're feeling good about that going long term.

Okay. And just a final question. Here in New York, some discussion of foreign tourists dropping off impacting some of the more tourist areas. Obviously, for you guys, I don't think the Japanese tourists ever recovered from the pre-pandemic levels, but -- and I realize that you guys are local, not tourists, but still Hawaii is driven in part by tourism. Are you seeing any negative impact of foreign tourists that would ripple through the economy or whatever is going on, on the foreign tourist side of the leisure, if you will, is not sufficient to really impact the Hawaii, the economic growth of the state overall.

So specific to tourism, Alex, I'd say the tourism numbers that we have through May are still strong. For the month of May, we're up 1% total visitation numbers. And then year-to-date, we're up 2.8%. Now to your point, that continues to be led by U.S. West Coast, which is up pretty materially year-to-date over 5%. And we are seeing a slight decline in the Japanese visitors year-to-date and month compared to 2024. And then maybe more importantly, Canadian, which was down about 8% for May and down a little bit over 6% year-to-date. But we've been able to more than sort of make up for that just with West Coast and East Coast domestic visitors are also up year-to-date for the month.

And your next question comes from the line of Michael [indiscernible] from Sidoti & Company.

Congratulations on a great quarter, you guys. Coming to my questions, you paid down about $24 million in debt last quarter that left you with debt standing at 3.3x EBITDA. Do you foresee continuing to pay down debt that aggressively? And do you have a target level for debt-to-EBITDA ratio?

Michael, this is Clayton. So answering the last question first, our target leverage, we're trying to shoot for a range of 5x to 6x net debt to adjusted EBITDA. So currently, where we stand at 3.3x as of the end of the second quarter, that's well below that target range. And so that kind of leads me into answering the first part of the question, which is as we -- to the extent that we have additional cash proceeds, whether that be from monetization of other assets and the like, our goal would be to effectively deploy that for growth capital purposes. But it's really part of just overall how we look at capital allocation in general. And so we'll look at what's happening in the business. And to the extent that there's opportunities to pay down debt, we may do that, but it's really looking at the totality of what's available out there, and that's how we would proceed with respect to that.

Great. Earlier, you guys described that your tenants described foot traffic being up year-to-date. Your occupancy stats have improved a lot. Is there anything that makes you doubt the health of your tenants, anything you're worried about?

This is Kit. I'll take this question. Obviously, we're paying very close attention to tenant health and focusing on customer traffic trends, tenant sales, collections, and of course, the economic environment is still uncertain, but really, there are no signs of slowing in our portfolio. Our parking lots are full. Customer traffic in Q2 was up 3.9%. Tenant sales have remained really strong, and we exceeded our percent rent goal for both Q1 and Q2. And then collections overall have been very consistent with what we've been seeing for the past several quarters. So no signs of overall trouble.

Very good. Just regarding your build-to-suit operations, have tariffs had any impact on your construction costs?

I would say that just overall inflation, quite frankly, has had impacts on our construction costs, and we look to sort of mitigate that risk as best we can. So to the extent that we can forward price materials, I think last quarter, I cited an example with one of our build-to- suits, the Lowe's over in West Oahu, where we forward price steel before tariffs went into effect, and we were able to mitigate some of that cost inflation there. But it's something that we deal with and whether it's through just being a little bit more conservative in our underwriting and carrying a larger contingency or just reinforcing with the team that speed to execution is paramount. That's really what we do to just try to keep the costs in check and be just more realistic about what those impacts are going to be.

And there are no further questions at this time. I will now hand the call back to Mr. Clayton Chun for any closing remarks.

Thank you, operator, and thank you all for joining us today. If you have any follow-up questions, please feel free to call us at (808) 525-8475 or e-mail us at investorrelations@abhi.com. Aloha, and have a great day.

This concludes today's call. Thank you for participating. You may all disconnect.