Alexander & Baldwin's Untapped Value

Value comes in many forms. Often, it's in a stock price that's low relative to future earnings or cash flows. But sometimes it's hidden deep within the balance sheet.

This is the case with Hawaii-based Alexander & Baldwin (Nasdaq: ALEX). The company's history stretches back more than 100 years to its origins as a small sugar cane plantation. It has since evolved into one of Hawaii's largest and most successful conglomerates, operating businesses in ocean transportation, food production, and real estate.

Alexander & Baldwin carries approximately $120 million in property on the balance sheet, a large portion of which is undeveloped land on the islands of Maui and Kauai -- an inheritance from the company's plantation days. And what, you may ask, is the average carrying cost per acre for this undeveloped land? Would you guess $5,000? $10,000?

The answer is $150. Don't blink, you read it correctly. The company owns around 90,000 acres in Hawaii, with an average cost per acre less than the price of an expensive dinner for two.

Incredibly, Alexander & Baldwin's real estate division has barely begun to unlock the value of its historic landholdings, yet the segment is already highly profitable. In 2003, Alexander & Baldwin Properties generated $61 million in operating profit -- 17% higher than 2002 -- on $144 million in revenue.

While revenues from the segment represent only 12% of overall sales, its operating profit is more than 42% of the total. Much of its earnings were attributable to the purchase and resale/lease of commercial and residential properties, with only a small portion coming from the undeveloped property.

Of course, all silver linings have a cloud (or something like that). Roughly 30,000 acres of the company's Hawaii landholdings are designated as either watershed or conservation areas, so the effective commercial value of this land is near nothing. However, that still leaves more than 60,000 acres of mostly agricultural land worth substantially more than the stated cost.

Alexander & Baldwin is taking a deliberately steady approach to developing its landholdings, and it will be some time before the company's property value is realized. Patience is a virtue, as the adage goes, and in this case it could be lucrative as well.

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Chris Mallon is a Motley Fool contributor and owns shares of Alexander & Baldwin through his private investment partnership.