Alico Land Sell-Off Picking Up Pace

In my very first newsletter published at the beginning of last November I had written about a citrus farming company called Alico, Inc. (NASDAQ: ALCO). I had recommended the stock as the share price had recently been beat down after Hurricane Milton and a continuously disappointing harvest recovery from Hurricane Ian. While the future of citrus farming is very uncertain due to a disease called Citrus Greening as well as from the increasing severity Florida’s hurricanes. The value that lay in Alico’s stock however was not connected with the company’s agricultural operations. It is instead connected to the fact that Alico owns a ton of land in areas where that land is worth so much, especially when entitled for residential use.

At the time I had not yet explained to my readers how companies can potentially have hidden assets that would dramatically increase their net asset value. Even without taking any of Alico’s hidden assets into account, the company’s net asset value still sat at $35.70 per share, a 42% upside from the stocks $25.07 price tag at the time. Alico is actually worth much more than that though as the company has been working with Land Colliers to get their land entitled for higher more profitable uses than merely farming on it. This dramatically increases the company’s potential land value as some of this land is worth much more than the $5,000 to $9,000 an acre that Alico has it estimated it to be worth.

Alico's Corkscrew grove located in Collier County, Florida is an example of a company property that would be worth a lot more should that land be repurposed. This particular grove is located just 35 minutes away from the city of Fort Myers, which happens to be the fastest growing city in the United States. With Fort Myers expanding so rapidly, there can be little doubt that future housing will need to expand with it. The Fort Myers area does have a geographical problem when it comes to expanding to the south however. There just so happens to be a huge swamp south of the city that inhibits building. Alico owns groves just north of this swamp and has one of the few chunks of land that could still be developed into future housing within a 40-minute drive of Fort Myers. Anyone living in housing built south of this swamp has to double their drive time to get into Fort Myers.

Land in this area can usually sell at a price range of $40,000 per acre all the way to well over $100,000 an acre. Alico's Corkscrew grove is made up of 4,500 acres of land. Last year, Alico completed preliminary work for a multi-year entitlement process on this property. If this grove can get sold off for housing, the value that would be unlocked from this property could drastically change Alico's net asset valuation. By changing the value of this 4,500 acres from agricultural usage to being zoned for housing at $50,000 an acre (while subtracting 21% of this value for taxes), we get a $177.8 million valuation for this piece of property. This would bump up Alico’s net asset value to $389.8 million or $51.13 per share. That’s a 62.9% increase from the current share price of $31.39.

Alico’s share price jumped up 30% at one point yesterday as investors got news that Alico is indeed continuing to take steps to prepare to sell off large parts of its citrus groves. Their 8-K released January 6th, 2025 said this.

“On January 3, 2025, Alico, Inc. (the “Company”) delivered a notice (the “Notice”) to Tropicana Manufacturing Company, Inc. (“Tropicana”) in accordance with the Orange Purchase Agreement No. R641, dated April 11, 2024 (the “Agreement”), between the Company and Tropicana, under which the Company agrees to sell, and Tropicana agrees to purchase, oranges from the groves identified therein. The Agreement grants the Company the right to remove certain acreages from the contract if, in the Company’s best judgment, such acreages are no longer economically viable, provided that Tropicana consents, which consent shall not be unreasonably withheld or delayed.

As detailed in the Notice, the Company’s Board of Directors (the “Board”) has determined that certain of the acreage specified in the Agreement is no longer economically viable for orange cultivation. As a result, the Company has provided the Notice to Tropicana seeking Tropicana’s consent for the removal of such acreage, effective at the end of the 2024/2025 crop year. Consequently, if Tropicana consents, its purchase obligations under the Agreement with respect to such acreage are expected to conclude upon the completion of the 2024/2025 crop year.”

Alico - 8-K released January 6th, 2025

“On January 3, 2025, the Board approved a reduction in the Company’s current workforce by up to 172 employees, effective on or about January 6, 2025 with respect to up to 135 employees, and effective on or about April 1, 2025 with respect to up to 37 employees (the “Workforce Reduction”). The Board’s decision is part of cost-reduction initiatives aimed at providing investors with a greater return on capital that includes the benefits and stability of a conventional agriculture investment, with the optionality that comes with active land management. This decision is associated with a strategic transformation in the Company’s business focus, to wind down its Alico Citrus division, which holds the Company’s citrus production operations, to focus on its long-term diversified land usage and real estate development strategy, due to increasing financial challenges from citrus greening disease and environmental factors for many seasons.”

Alico - 8-K released January 6th, 2025

CEO John Kiernan is also eligible for commission bonuses based on land sales during Alico’s fiscal 2025 as described in an 8-K dated December 23, 2024.

“Mr. Kiernan will be eligible to earn a real estate commission bonus with respect to the 2025 fiscal year in accordance with the specific performance metrics set forth in the Bonus Agreement.

In addition, pursuant to the Bonus Agreement, on December 23, 2024 the Company and Mr. Kiernan also entered into a Performance-Based Restricted Stock Unit Award Agreement under the Company’s Stock Incentive Plan of 2015, pursuant to which Mr. Kiernan is eligible to earn up to 38,000 performance-based restricted stock units (the “PSUs”), 5,000 of which will be earned if the average 30 day closing per share price of Company shares (the “trailing price”) exceeds $35 per share, 12,500 of which will be earned if the trailing price exceeds $40 per share and 20,500 of which will be earned if the trailing price exceeds $45 per share, in each case prior to September 30, 2027.”

Alico - 8-K released December 23, 2024

As you can see, it looks pretty evident that Alico’s management is moving their pieces into place to finally exit the citrus industry and realize the full value of their properties through other means including real estate development. Mr. Kiernan also has a very attractive bonus incentives to not only get this land sold off but to also increase the price of Alico’s shares.

The Alico appeal is a fairly simple one. The company is in an industry that they need to exit due to a combination of Citrus Greening and because of the increased threats of hurricanes in Florida. Their properties would be worth a lot more currently should they be used for something other than agriculture. Management has been strongly incentivized to realize this value through real estate sales commissions and target share price bonuses. When management’s incentives line up with value creation for investors there’s likely money to be made. I am already heavily invested in Alico myself but I would urge my readers to take a look at the company and decide for themselves if the stock is still worth buying at these new prices. I suspect there will be more share price increases for Alico coming in 2025 as they make headway selling off their unproductive citrus groves.

Disclosure: I am long Alico (ALCO) and will buy or sell my shares anytime following this article. This is not financial advice. I am not a financial advisor. Do your own research.