Alexander and Baldwin: Post spin off analysis and valuation

In my previous article on Alexander and Baldwin, I got into the valuation and analysis of the combined Alexander and Baldwin (ALEX) and Matson (MATX) companies.

In this article I will detail the post spin ALEX, value and analyze the company and, determine if I will be a buyer now.  I will be using newer, and I think better estimates of the land value.

I will also assess and value the non-landholdings of the company.  I will value the buildings they own and their potential value through either sale or rent.  I will also talk about the Agribusiness portion of the company which farms, produces, and sells sugar cane.  The Agribusiness also produces power for some of the land they own.  For a discussion of ALEX in general either view my article listed above or the company website here.

I am now going to detail their individual businesses a bit before the valuations.

Alexander & Baldwin, through its real estate subsidiary A&B Properties Inc., develops and sells real property, primarily in Hawaii, and operates a commercial portfolio comprising nearly 8 million square feet of retail, office and industrial space comprising 45 properties located in Hawaii and in eight states on the U.S. Mainland. A&B Properties also owns over 88,000 acres of land, primarily on the islands of Maui and Kauai.

Much of the landholdings on Maui are farmed by Hawaiian Commercial & Sugar Company (HC&S). On Kauai, McBryde Resources, Inc. leases our 4,000-acre coffee plantation to an international, vertically-integrated coffee company. Both HC&S and McBryde are significant renewable energy producers, generating over 200,000 megawatt hours of electricity from renewable energy in 2011.  Taken from their website here, where you can also go for more information.  Also here is a link for pre-spin ALEX’s annual and quarterly reports.

Valuations done on July 4th 2012.  These valuations are done by me, using my estimates, and are not a recommendation to buy the stock.  Do your own homework.

ALEX own 8,000,000 square feet of commercial, industrial, and retail buildings that I am conservatively valuing at $100 a square foot.  ALEX could also rent out their properties conservatively for $1 a square foot per month.

  • 8,000,000 X 100=$800,000,000 in potential building value through sale.
  • Or 1 X 8,000,000=$8,000,000 in rent per month from renting the properties.  $8,000,000 X 12 months =$96,000,000 per year in potential rents earned.

ALEX also owns 88,000 acres of land.  However, after doing some further research I now know that 36,000 of that is used in the growing, producing, and selling of sugar cane, and at this time would likely not be sold.

Valuing of the land:

  • 88,000 X $6,000=$528,000,000 potential value of all the land.
  • 88,000-36,000=52,000 acres of land after taking out the land for sugar cane production.
  • 52,000 X $6,000=$312,000,000

If you read my previous article you might have noticed that I upped the per acre price from $5,000 to $6,000 per acre.  I did that because Larry Ellison recently bought 88,000 acres of land in Hawaii for approximately $500 million, which comes out to a per acre price of $5,682 per acre.  I upped  it a bit higher than his price per acre because most of the land ALEX owns in on Maui and Kauai, presumably higher priced locations.  However, I left the price per acre pretty low and am still likely undervaluing the land because I am no Hawaiian real estate expert and I want to be as conservative as possible.

  • Number of shares are 42 million.
  • 800,000,000 + 528,000,000=$1.328 billion
  • 1328/42 =$31.62 per share.
  • 800,000,000+ 312,000,00=$1.112 billion
  • 1112/42=$26.48 per share.

The $26.48 per share is not including income from sugar cane acreage, production, and sale.  It is not including power production and sale.  The $26.48 per share is just including the 52,000 acres of land that could be sold and the conservative potential of all buildings.  They also have a conservative potential of $96 million incoming rent from those properties if they keep them.

A more moderate to high valuation.

In place of the $1 per square foot per month that was used in the above valuation now we are going to use $2 per square foot per month X 8,000,000 = $16,000,000 per month.  Times that by 12 months to get $192,000,000 in potential rental income per year.

Replacing the $100 per square foot sale price above, we are now going to assume a $200 per square foot sale price.

  • 8,000,000X200=$1.6 billion

Still leaving out the sugar cane acreage above and using the same dollar amount for that land potential you get.

  • 1.6 billion + 312 million=$1.912 billion
  • 1912/42=$45.52 per share.

Again the $45.52 per share is not including the things talked about at the end of the first valuation.

In my opinion ALEX should either sell off or start developing some more of the 88,000 acres of land.  I also think they should keep leasing their buildings because that is huge potential cash flow every year.

Since I am a very conservative investor I use very conservative numbers in my valuations.  I am most likely undervaluing the land at least a little bit, and the buildings probably a little bit more than I should.  However, since I am no Hawaiian real estate expert I need a good margin of safety.  I usually like at the very least a 30% margin of safety and preferably a 50% margin of safety.  I generally use the lowest value I get as my base case, this time the $26.48 per share.   Thus not getting me the margin of safety I need.

Stating that, I still will not be buying into the post-spin ALEX, especially after the stock is up about 30% in the past three trading sessions.  I will continue to research ALEX and I will be waiting for my opportunity when the price goes down.  I am still very intrigued by the land that they own and the potential rental income from the buildings they own.

I did not talk about margins because I am waiting for the 10Q of the new ALEX before I make any judgements on those.  However, if the company is overpriced, like I think this one currently is, I still would not buy even if the margins are great.

I did not talk about the sugar cane and power production portions of the business much because I do not want to count future, highly uncertain earnings from a commodity type business.  I only want to count things that are a little bit more certain like land prices and building prices into this valuation.  Probably a bit too conservative but I want to be safe.  The rest of the company is just icing on the cake to me.

As always feedback is welcome.

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