ALEXANDER & BALDWIN, INC.
Alexander & Baldwin, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)(unaudited)
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1. | DESCRIPTION OF BUSINESS |
Business Overview
1. Background and Basis of Presentation
Description of Business:Alexander & Baldwin, Inc. ("A&B" or the "Company") is a fully integrated real estate investment trust ("REIT") headquartered in Honolulu, Hawai‘i, whose history in Hawai‘i dates back to 1870. Over time, the Company has evolved from a 571-acre sugar plantation on Maui to become one of Hawai‘i's premier commercial real estate companies and the owner of the largest grocery-anchored, neighborhood shopping center portfolio in the state. The Company operates threein two segments: Commercial Real Estate (formerly Leasing);("CRE") and Land Operations (formerly Real Estate Development and Sales and Agribusiness); and Materials & Construction.
On July 10, 2017,Operations. As of March 31, 2024, the Company’s board of directors unanimously approved a plan for the Company to be subject to tax as aCompany's commercial real estate investment trust (a “REIT”) for U.S. federal income tax purposes commencing with the Company’s taxable year ending December 31, 2017 (the “REIT Election”).
Although the Company began operatingportfolio resides entirely in compliance with the requirements for qualificationHawai‘i and taxationconsists of 22 retail centers, 13 industrial assets and four office properties, representing a total of 3.9 million square feet of gross leasable area ("GLA"), as a REIT (the “REIT requirements”) for the taxable year ending December 31, 2017, the Company intendswell as 142.0 acres of commercial land, of which substantially all is leased pursuant to complete a merger that will facilitate the Company’s ongoing compliance with the REIT requirements by ensuring that certain standard REIT ownership limitationsurban ground leases. Throughout this quarterly report on Form 10-Q, references to "we," "our," "us" and transfer restrictions apply"our Company" refer to the Company’s capital stock.
Pursuant to the merger agreement entered into on July 10, 2017 among the Company, Alexander & Baldwin, REIT Holdings, Inc., a Hawaii corporation and a direct, wholly owned subsidiarytogether with its consolidated subsidiaries.
Basis of the Company (“A&B REIT Holdings”), and A&B REIT Merger Corporation, a Hawaii corporation and a direct, wholly owned subsidiary of A&B REIT Holdings (“Merger Sub”), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation. As a result of the merger, A&B REIT Holdings will replace the Company as the Hawaii-based, publicly held corporation through which the Company’s operations are now conducted, and promptly following the merger A&B REIT Holdings will be renamed “Alexander & Baldwin, Inc.”
During the third quarter of 2017, A&B REIT Holdings filed a registration statement on Form S-4 with the Securities and Exchange Commission (“SEC”), which included a preliminary proxy statement/prospectus that provides information regarding the REIT Election, the proposed merger and the special meeting at which the Company’s shareholders were given the opportunity to vote on the holding company merger proposal. The special meeting was held on October 27, 2017, during which A&B shareholders approved the holding company merger proposal pursuant to the registration statement.
Business Segments
Commercial Real Estate: The Commercial Real Estate segment owns, operates and manages retail, office and industrial properties in Hawaii and on the mainland. The Commercial Real Estate segment also leases urban land in Hawaii to third-party lessees.
Land Operations: Primary activities of the Land Operations segment include planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; renewable energy; and diversified agribusiness activities. The Land Operations segment also provides general trucking services, equipment maintenance and repair services, and generates and sells electricity to the extent not used elsewhere in the Company's operations. In December 2016, the Company's sugar plantation on Maui, Hawaiian Commercial & Sugar Company ("HC&S") completed its final harvest and ceased operations (the "Cessation"). See Note 14, "Cessation of Sugar Operations" for further discussion regarding the Cessation and the related costs associated with such exit and disposal activities.
Materials & Construction: The Materials & Construction segment, which primarily includes the results of Grace Pacific ("Grace"), performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells rock and sand aggregate; produces and sells asphaltic concrete and ready-mix concrete; provides and sells various construction- and traffic-control-related products; and manufactures and sells precast concrete products.
2.BASIS OF PRESENTATION
Presentation: The interim condensed consolidated financial statements are unaudited. Because of the nature of the Company’sCompany's operations, the results for interim periods are not necessarily indicative of results to be expected for the year. While these condensed consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated balance sheets as of December 31, 20162023 and 2015,2022, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity and cash flowsredeemable noncontrolling interest for each of the three years in the period ended December 31, 20162023, 2022, and 2021, respectively, and the notes thereto included in the Company’sCompany's Annual Report filed on Form 10-K for the year ended December 31, 20162023 ("20162023 Form 10-K"), and other subsequent filings with the U.S. Securities and Exchange Commission.Commission ("SEC").
Reclassifications: PriorCertain amounts presented in the prior year financial statement amounts arehave been reclassified as necessary to conform to the current year presentation including presentation of results of discontinued operations and reportable operating segments. There was no impact on net income, retained earnings or cash flows as a result of the reclassifications. See Note 17 "Discontinued Operations" and Note 18 "Segment Results"(e.g., captions previously presented in the accompanyingprior years that, in the currently presented periods, are less than five percent of total assets or total liabilities were combined in the current year condensed consolidated financial statementsbalance sheets). Operating lease right-of-use assets, which was previously reported separately on the condensed consolidated balance sheets, is now presented in Prepaid expenses and other assets for additional information.all periods presented. Operating lease liabilities and Liabilities associated with assets held for sale, which were previously reported separately on the condensed consolidated balance sheets, are now presented in Accrued and other liabilities for all periods presented.
Rounding: Amounts in the condensed consolidated financial statements and notes are rounded to the nearest tenth of a million.thousand. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different.result in differences.
New
2. Significant Accounting Pronouncements:Policies
In May 2014, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-09”) which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. ASU 2014-09 will supersede the revenue recognition requirementsThe Company's significant accounting policies are described in FASB Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 provides a five-step analysis of transactions to determine when and how revenue is recognized including (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction priceNote 2 to the performance obligationsconsolidated financial statements included in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In addition, ASU 2014-09 requires disclosureItem 8 of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.Company's 2023 Form 10-K. Changes to the Company's significant accounting policies are included herein.
Recently issued accounting pronouncements
In August 2015,October 2023, the FASB issued ASU No. 2015-14, Revenue from Contracts2023-06 ("ASU 2023-06"), Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with Customers (Topic 606): Deferral of the Effective Date, deferringSEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this standard. As a result, ASU 2014-09 and related amendments will be effective for the Company for its fiscal year beginning January 1, 2018, including interim periods within that fiscal year.not become effective. Early adoption is permitted, but not before August 1, 2017, the original effective date of ASU 2014-09.
In March, April, May, and December 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Consideration (Reporting Revenue Gross Versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively (collectively, the “Amendments”). The Amendments serve to clarify certain aspects of and have the same effective date as ASU 2014-09.
prohibited. The Company is completing its evaluationdoes not expect the amendments of thethis accounting standard update to have a material impact of adopting ASU 2014-09 and the related Amendments (collectively, “Topic 606”) on its consolidated financial statements and disclosures, internal controls and accounting policies. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”). The Company will adopt Topic 606 on January 1, 2018 and intends to apply the Modified Retrospective Method of transition. The Company expects to provide expanded disclosures regarding our revenues from contracts with customers. The Company will continue to monitor and assess the impact of changes to Topic 606 and interpretations as they become available.related disclosures.
In February 2016,November 2023, the FASB issued ASU No. 2016-02, Leases2023-07 (“ASU 2023-07”), Segment Reporting (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the identification of arrangements that should be accounted for as leases by lessees. In general, lease arrangements exceeding a twelve month term must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption.280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustment to all comparative periods presentedamendments in the consolidated financial statements. ASU 2016-02 is effectiveenhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for financial statements issued for fiscal years beginning after December 15, 2018. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statementsentities with a single reportable segment, and footnote disclosures.
In August 2016, the FASB issuedcontain other disclosure requirements. ASU No. 2016-15, Statement of Cash Flows (Topic 230) ("ASU 2016-15"). ASU 2016-15 is an update that addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of cash receipts and cash payments presentation and classification in the statement of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 will require entities to show the changes on the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between these items on the statement of cash flows. The guidance will be applied retrospectively and2023-07 is effective for fiscal years beginning after December 15, 2017, including2023, and interim periods within those fiscal years.years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 provides guidance regarding the definition of a business with the objective of providing guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. ASU 2017-01 should be applied prospectively and early adoption is permitted. The new guidance will result in many real estate transactions being classified as an asset acquisition and transaction costs being capitalized. The Company elected to early adopt FASB ASU No. 2017-01 in the second quarter of fiscal year 2017. The adoption of this standard did not have a material impact on the Company’s financial position or results of operation.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years or interim periods beginning after December 15, 2019. ASU 2017-04 should be applied prospectively and early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will haveupdate on its consolidated financial statements and footnoterelated disclosures.
In March 2017,December 2023, the FASB issued ASU No. 2017-07, Improving2023-09 (“ASU 2023-09”), Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the Presentationtransparency and decision usefulness of Net Periodic Pension Costincome tax disclosures, primarily related to the rate reconciliation and Net Periodic Postretirement Benefit Cost ("income taxes paid information. ASU 2017-07"). ASU 2017-07 provides that entities will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Only the service cost component will be eligible for capitalization in assets. In addition, entities will present the other components of net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. These components will not be eligible for capitalization in assets. ASU 2017-072023-09 is effective for fiscal years or interimannual periods beginning after December 15, 2017 and early2024, on a prospective basis. Early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies when changes to the terms or conditions of a shared-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for financial statements issued for fiscal years beginning after December 15, 2017 and early adoption is permitted. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of this ASU.accounting standard update on its consolidated financial statements and related disclosures.
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3. | COMMITMENTS AND CONTINGENCIES |
Commitments, GuaranteesInterest and Contingencies: Commitmentsother income (expense), net
Interest and other income (expense),net for the three months ended March 31, 2024 and 2023, included the following (in thousands):
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| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Interest income | | $ | 231 | | | $ | 90 | | | | | |
| Post-retirement benefit (expense) | | (107) | | | (176) | | | | | |
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| Gain (loss) on fair value adjustments related to interest rate swaps | | 3,675 | | | — | | | | | |
| Financing charges | | (2,350) | | | — | | | | | |
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| Other income (expense), net | | (182) | | | 6 | | | | | |
| Interest and other income (expense), net | | $ | 1,267 | | | $ | (80) | | | | | |
3. Investments in Affiliates
The Company's investments in affiliates principally consist of equity investments in limited liability companies in which the Company has the ability to exercise significant influence over the operating and financial arrangements not recorded onpolicies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting.
Operating results presented in the Company's condensed consolidated balance sheet, excluding lease commitments that are disclosed in Note 9financial statements include the Company's proportionate share of net income (loss) from its equity method investments. Summarized financial information of entities accounted for by the equity method on a combined basis for the three months ended March 31, 2024 and 2023, is as follows (in thousands):
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| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Revenues | | $ | 39,370 | | | $ | 37,935 | | | | | |
| Operating costs and expenses | | 35,399 | | | 34,434 | | | | | |
| Gross Profit (Loss) | | $ | 3,971 | | | $ | 3,501 | | | | | |
Income (Loss) from Continuing Operations1 | | $ | (700) | | | $ | (1,291) | | | | | |
Net Income (Loss)1 | | $ | (700) | | | $ | (1,291) | | | | | |
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1 Includes earnings from equity method investments held by the investee. |
During the three months ended March 31, 2024 and 2023, Income (loss) related to joint ventures was $0.7 million and $0.4 million, respectively, and return on investment operating cash distributions was $0.7 million and zero, respectively.
4. Fair Value Measurements
Recurring Fair Value Measurements
The following tables present the fair value of those assets and (liabilities) measured on a recurring basis as of March 31, 2024 and December 31, 2023, (in thousands):
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| | | Fair Value Measurements at |
| | | March 31, 2024 |
| Consolidated Balance Sheet Location | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Assets | | | | | | | | | |
| Derivative financial instruments - interest rate swaps | Prepaid expenses and other assets | | $ | 5,829 | | | $ | — | | | $ | 5,829 | | | $ | — | |
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| | | Fair Value Measurements at |
| | | December 31, 2023 |
| Consolidated Balance Sheet Location | | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Assets | | | | | | | | | |
| Derivative financial instruments - interest rate swaps | Prepaid expenses and other assets | | $ | 4,142 | | | $ | — | | | $ | 4,142 | | | $ | — | |
| Liabilities | | | | | | | | | |
| Derivative financial instruments - interest rate swaps | Accrued and other liabilities | | $ | (2,718) | | | $ | — | | | $ | (2,718) | | | $ | — | |
Derivative Financial Instruments: The Company records its interest rate swaps at fair value. The fair values of the Company’s 2016 Form 10-K, includedCompany's interest rate swaps are classified as Level 2 measurements in the following (in millions) as of September 30, 2017:
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Standby letters of credit(a) | $ | 11.8 |
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Bonds(b) | $ | 409.7 |
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(a) Consists of standby letters of credit, issued byfair value hierarchy and are based on the Company’s lenders under the Company’s revolving credit facilities, and relate primarily to the Company’s real estate activities. In the event the letters of credit are drawn upon,estimated amounts that the Company would be obligatedreceive or pay to reimburseterminate the issuercontracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs (refer to Note 6 – Derivative Instruments for fair value information regarding the Company's derivative instruments).
Non-Recurring Fair Value
Certain financial and nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. The Company’s process for identifying and recording impairment is discussed in Note 2 to the consolidated financial statements included in Item 8 of the letterCompany's 2023 Form 10-K.
Impairment of credit. NoneAssets Held for Sale, net: As of March 31, 2024 and December 31, 2023, one CRE improved property met the criteria for classification as held for sale and accordingly, was measured at its fair value less costs to sell, resulting in an impairment charge of $2.2 million recorded during the year ended December 31, 2023. During the three months ended March 31, 2024, the Company recorded no additional fair value adjustment related to assets and liabilities held for sale. The Company classifies these fair value measurements as Level 3 in the fair value hierarchy because they are determined using significant unobservable inputs such as management assumptions about expected sales proceeds from third parties.
The following table presents the fair value hierarchy and quantitative information about the significant unobservable inputs used to determine the fair value of long-lived assets held and used and assets held for sale, net for which a nonrecurring fair value adjustment was recorded (in thousands):
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| | Fair Value Measurements at | | Quantitative Information about |
| | December 31, 2023 | | Level 3 Fair Value Measurements |
| | Total | | Quoted Prices in Active Markets (Level 1) | | Significant Observable Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) | | Total Gains (Losses) | | Valuation Technique/ Unobservable Inputs | | | | Weighted Average Discount Rate |
Assets held for sale, net1,2 | | $ | 14,209 | | | $ | — | | | $ | — | | | $ | 14,209 | | | $ | (2,183) | | | Contract value | | | | N/A |
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| Total | | $ | 14,209 | | | $ | — | | | $ | — | | | $ | 14,209 | | | $ | (2,183) | | | | | | | |
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1 Assets or liabilities are presented in Assets held for sale or Accrued and other liabilities, respectively, in the Condensed Consolidated Balance Sheets. Impairment loss was recorded during year ended December 31, 2023, in Impairment of assets in the Consolidated Statements of Operations. |
2 Assets held for sale of $14.0 million, net, excluding estimated selling costs of $0.3 million. |
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Financial Assets and Liabilities not Measured at Fair Value
Financial assets and liabilities that are not measured at fair value on our condensed consolidated balance sheets include cash and cash equivalents, restricted cash, accounts and notes receivable, net and notes payable and other debt. The fair value of the lettersCompany's cash and cash equivalents, restricted cash, accounts receivable, net and short-term borrowings approximate their carrying values due to the short-term nature of credit have been drawn upon to date.the instruments, which is classified as Level 1 measurement in the fair value hierarchy.
(b) Represents bondsThe fair value of the Company's notes receivable approximated the carrying amount of $11.4 million and $20.8 million as of March 31, 2024 and December 31, 2023, respectively. The fair value of these notes is estimated using a discounted cash flow analysis in which the Company uses unobservable inputs such as market interest rates determined by the loan-to-value and market capitalization rates related to constructionthe underlying collateral at which management believes similar loans would be made, and is classified as a Level 3 measurement in the fair value hierarchy.
At March 31, 2024, the carrying amount of the Company's notes payable and other debt was $457.6 million and the corresponding fair value was $448.1 million. At December 31, 2023, the carrying amount of the Company's notes payable and other debt was $464.0 million and the corresponding fair value was $452.5 million. The fair value of debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company's existing debt arrangements, and is classified as a Level 3 measurement in the fair value hierarchy.
5. Notes Payable and Other Debt
As of March 31, 2024 and December 31, 2023, notes payable and other debt consisted of the following (dollars in thousands):
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| | Interest Rate (%) | | Maturity Date | | Principal Outstanding |
| | | | March 31, 2024 | | December 31, 2023 |
| Secured: | | | | | | | | |
| Laulani Village | | 3.93% | | 2024 | | $ | 57,517 | | | $ | 57,798 | |
| Pearl Highlands | | 4.15% | | 2024 | | 74,570 | | | 75,137 | |
| Photovoltaic Financing | | (1) | | (1) | | 4,000 | | | 4,073 | |
| Manoa Marketplace | | (2) | | 2029 | | 52,254 | | | 52,705 | |
| Subtotal | | | | | | $ | 188,341 | | | $ | 189,713 | |
| Unsecured: | | | | | | | | |
| Series A Note | | 5.53% | | 2024 | | $ | 7,125 | | | $ | 7,125 | |
| Series J Note | | 4.66% | | 2025 | | 10,000 | | | 10,000 | |
| Series B Note | | 5.55% | | 2026 | | 18,000 | | | 27,000 | |
| Series C Note | | 5.56% | | 2026 | | 9,000 | | | 9,000 | |
| Series F Note | | 4.35% | | 2026 | | 9,625 | | | 9,650 | |
| Series H Note | | 4.04% | | 2026 | | 50,000 | | | 50,000 | |
| Series K Note | | 4.81% | | 2027 | | 34,500 | | | 34,500 | |
| Series G Note | | 3.88% | | 2027 | | 17,125 | | | 22,125 | |
| Series L Note | | 4.89% | | 2028 | | 18,000 | | | 18,000 | |
| Series I Note | | 4.16% | | 2028 | | 25,000 | | | 25,000 | |
| Term Loan 5 | | 4.30% | | 2029 | | 25,000 | | | 25,000 | |
| Subtotal | | | | | | $ | 223,375 | | | $ | 237,400 | |
| Revolving Credit Facilities: | | | | | | | | |
| A&B Revolver | | (3) | | 2025 | (4) | 46,000 | | | 37,000 | |
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| Total debt (contractual) | | | | | | $ | 457,716 | | | $ | 464,113 | |
| Unamortized debt premium (discount) | | | | | | $ | 91 | | | $ | — | |
| Unamortized debt issuance costs | | | | | | (233) | | | (149) | |
| Total debt (carrying value) | | | | | | $ | 457,574 | | | $ | 463,964 | |
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| (1) Financing leases have a weighted average discount rate of 4.75% and maturity dates ranging from 2027 to 2028. | | |
| (2) Loan has a stated interest rate of SOFR plus 1.35%. Loan is swapped through maturity to a 3.14% fixed rate. |
| (3) Loan has a stated interest rate of SOFR plus 1.05% based on a pricing grid, plus a SOFR adjustment of 0.10%. |
(4) A&B Revolver has two six-month optional term extensions. |
6. Derivative Instruments
The Company is exposed to interest rate risk related to its variable-rate interest debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
Cash Flow Hedges of Interest Rate Risk
As of March 31, 2024, the Company had three interest rate swap agreements, all three of which were designated as cash flow hedges. The key terms are as follows (dollars in thousands):
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| Effective | | Maturity | | Fixed Interest | | Notional Amount at | | Asset (Liability) Fair Value at |
| Date | | Date | | Rate | | March 31, 2024 | | March 31, 2024 | | December 31, 2023 |
| Interest Rate Swap Agreements | | | | | | | | |
| 4/7/2016 | | 8/1/2029 | | 3.14% | | $ | 52,254 | | | $ | 4,902 | | | $ | 4,142 | |
| Forward Interest Rate Swap Agreements | | | | | | |
| 5/1/2024 | | 12/9/2031 | | 4.88% | | $ | 57,000 | | | $ | 584 | | | $ | (1,144) | |
| 12/9/2024 | | 12/9/2031 | | 4.83% | | $ | 73,000 | | | $ | 343 | | | $ | (1,574) | |
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The asset related to the interest rate swap and forward interest rate swaps as of March 31, 2024, is presented within Prepaid expenses and other assets in the condensed consolidated balance sheets. The asset related to the interest rate swap and liability related to the forward interest rate swaps as of December 31, 2023, are presented within Prepaid expenses and other assets and Accrued and other liabilities, respectively, in the condensed consolidated balance sheets. Changes in fair value of designated cash flow hedges are recorded in Accumulated other comprehensive income (loss) and subsequently reclassified into interest expense as interest is incurred on the related variable-rate debt. Changes in fair value of undesignated cash flow hedges, including de-designated hedges, are recorded in Interest and other income (expense), net.
In 2022, the Company entered into two forward starting interest rate swap agreements with notional amounts of $57.0 million and $73.0 million in order to hedge interest rate fluctuations related to $130.0 million of future financing aligned with the effective and maturity dates listed. The Company designated the hedging relationships of these two forward interest swap agreements as cash flow hedges at their inception. In December 2023, the Company de-designated the forward interest swap agreements as it was determined that underlying cash flows related to the designated hedging relationships were no longer probable of occurring. As a result, for the year ended December 31, 2023, the Company reclassified from Accumulated other comprehensive income (loss) and recognized in Interest and other income (expense), net a $2.7 million loss related to the fair value adjustment of the de-designated hedging relationships. Subsequent changes in fair value of the forward interest rate swaps were recorded in earnings until, on February 29, 2024, the Company re-designated the hedging relationships of both forward interest rate swaps in anticipation of future financing. The Company recorded a gain on forward interest rate swap valuation adjustment of $3.7 million during the three months ended March 31, 2024, that occurred prior to the date of re-designation.
Statement of Comprehensive Income (Loss) Derivative Instruments Impact
The following table represents the pre-tax effect of the derivative instruments in the Company's condensed consolidated statements of comprehensive income (loss) during the three months ended March 31, 2024 and 2023, (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2024 | | 2023 |
| Information regarding derivatives designated as hedging instruments | | | | | | | | |
| Amount of gain (loss) recognized in OCI on derivatives | | | | | | $ | 1,202 | | | $ | (3,702) | |
| Impact of reclassification adjustment to interest expense included in Net Income (Loss) | | | | | | $ | (473) | | | $ | (347) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of March 31, 2024, the Company expects to reclassify $2.8 million of net gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months.
7. Commitments and Contingencies
Commitments and other financial arrangements
Bonds related to the Company's real estate activities in Hawaii. Approximately$387.1totaled $18.7 million is related to construction bonds issued by third party sureties (bid, performanceas of March 31, 2024, and payment bonds) and the remainder is related torepresent commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). In the event the bonds areIf drawn upon, the Company would be obligated to reimburse the surety that issued the bond. None of the bonds has been drawn upon to date.
Indemnity Agreements: For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of the bond, reduced for the work completed to date. The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.
The Company is a guarantor of indebtedness for certain of its unconsolidated joint ventures' borrowings with third party lenders, relating
Legal proceedings and other contingencies
Prior to the repaymentsale of construction loans and performanceapproximately 41,000 acres of construction for the underlying project. As of September 30, 2017, the Company's limited guaranteesagricultural land on indebtedness relatedMaui to five of its unconsolidated joint ventures totaled $6.1 million. The Company has not incurred any significant historical losses related to guarantees on its joint venture indebtedness.
Other than the obligations described above and those describedMahi Pono Holdings, LLC ("Mahi Pono") in the Company's 2016 Form 10-K, obligations of the Company’s non-consolidated joint ventures do not have recourse toDecember 2018, the Company, and the Company’s "at-risk" amounts are limited to its investment.
Legal Proceedings and Other Contingencies: A&B ownsthrough East Maui Irrigation Company, LLC ("EMI"), also owned approximately 16,000 acres of watershed lands in East Maui. A&B alsoMaui and held four water licenses to anotherapproximately 30,000 acres owned by the State of HawaiiHawai‘i in East Maui. The sale to Mahi Pono included the sale of a 50% interest in EMI (which closed February 1, 2019), and provided for the Company and Mahi Pono, through EMI, to jointly continue the existing process to secure a long-term lease from the State for delivery of irrigation water to Mahi Pono for use in Central Maui.
The last of these water license agreements expired in 1986, and all four agreements were then extended as revocable permits that were renewed annually. In 2001, a request was made to the State Board of Land and Natural Resources (the "BLNR") to replace these revocable permits with a long-term water lease. Pending the conclusioncompletion by the BLNR of thisa contested case hearing it ordered to be held on the request for the long-term lease, the BLNR has kept the existing permits on a holdover basis. Three parties (Healoha Carmichael; Lezley Jacintho; and Na Moku Aupuni O Ko‘olau Hui) filed a lawsuit on April 10, 2015, (the "4/10/15"Initial Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit askschallenged the BLNR’s decision to continue the revocable permits for calendar year 2015 and asked the court to void the revocable permits and to declare that the renewals were illegally issued without preparation of an environmental assessment ("EA"). In December 2015, the BLNR decided to reaffirm its prior decisions to keep the permits in holdover status. This decision by the BLNR is beingwas challenged by the three parties. In January 2016, the court ruled in the 4/10/15Initial Lawsuit that the renewals were not subject to the EA requirement, but that the BLNR lacked legal authority to keep the revocable permits in holdover status beyond one year.year (the "Initial Ruling"). The court has allowedInitial Ruling was appealed to the parties to make an immediate appealIntermediate Court of this ruling. Appeals ("ICA") of the State of Hawai‘i.
In May 2016, while the Hawaiiappeal of the Initial Ruling was pending, the Hawai‘i State Legislature passed House Bill 2501, which specified that the BLNR has the legal authority to issue holdover revocable permits for the disposition of water rights for a period not to
exceed three years. The governor signed this bill into law as Act 126 in June 2016. Pursuant to Act 126, the first annual authorization of the existing holdover permits was sought and granted by the BLNR in December 2016.2016, November 2017 and November 2018 for calendar years 2017, 2018, and 2019. No extension of Act 126 was approved by the Hawai‘i State Legislature in 2019.
In addition,June 2019, the ICA vacated the Initial Ruling, effectively reversing the determination that the BLNR lacked authority to keep the revocable permits in holdover status beyond one year (the "ICA Ruling"). The ICA remanded the case back to the trial court to determine whether the holdover status of the permits was both (a) "temporary" and (b) in the best interest of the State, as required by statute. The plaintiffs filed a motion with the ICA for reconsideration of its decision, which was denied on July 5, 2019. On September 30, 2019, the plaintiffs filed a request with the Supreme Court of Hawai‘i to review and reverse the ICA Ruling. On November 25, 2019, the Supreme Court of Hawai‘i granted the plaintiffs' request to review the ICA Ruling and, on May 24, 2001, petitions5, 2020, oral argument was held.
On October 11, 2019, the BLNR took up the renewal of all the existing water revocable permits in the state, acting under the ICA Ruling, and approved the continuation of the four East Maui water revocable permits for another one-year period through December 31, 2020. On November 13, 2020, the BLNR approved another renewal of such permits through December 31, 2021.
On March 2, 2022, the Supreme Court of Hawai’i vacated the ICA’s ruling relating to the BLNR's decision to continue the revocable permits for the calendar year 2015, holding that Hawaii Revised Statutes Chapter 343 (the Hawaii Environmental Policy Act) did apply to the permits. The court remanded the matter back to the Circuit Court to determine if any exceptions would apply and, if not, how HRS Chapter 343 should be applied in light of the steps taken by A&B/EMI toward the long-term water lease. The Supreme Court of Hawai’i also determined that the BLNR had the statutory authority to continue the permits for more than one year, but required the BLNR to make findings of fact and conclusions of law determining that the action would serve the best interests of the State. On remand, the Carmichael Plaintiffs filed a motion for partial summary judgment asking the Circuit Court to conclude that the BLNR and A&B/EMI violated HRS Chapter 343 when the BLNR continued the revocable permits for calendar year 2015. On December 21, 2023, the Circuit Court entered its order granting in part and denying in part the motion for partial summary judgment, determining that the BLNR and A&B/EMI had violated HRS Chapter 343 when the BLNR continued the revocable permits for calendar year 2015, but denying the plaintiffs’ request for a declaration that A&B/EMI had no authority to divert any water until a final environmental impact statement had been accepted.
Also on remand, the Carmichael Plaintiffs sought and were granted leave to file an amended complaint asserting a claim for unjust enrichment against A&B/EMI. The plaintiffs assert that they had a superior right to the water diverted by EMI from at least 2015 until September 2021 when BLNR accepted the final environmental impact statement for the long-term water lease, and EMI lacked the authority to divert water during that time period. In December 2023, the Carmichael Plaintiffs filed their amended complaint.
In the companion case brought by Na Moku Aupuni O Ko‘olau Hui challenging the BLNR’s decision to continue the revocable permits for calendar year 2016, Na Moku filed a third party,motion asking for a decision on appeal and requesting that the Commission on Water Resource ManagementCircuit Court limit the current diversion of water pursuant to the revocable permits and order the BLNR to allow Na Moku to intervene in the contested case hearing ordered by the Circuit Court in the Sierra Club litigation addressed below. On January 2, 2024, the Circuit Court entered its order granting Na Moku’s request to invalidate the BLNR’s decision reaffirming the holdover status of the State of Hawaii ("Water Commission") establish interim instream flow standards ("IIFS") in 27 East Maui streams that feed the Company's irrigation system. The Water Commission initially took actionrevocable permits for calendar year 2016 and denying Na Moku’s request to (1) impose a cap on the petitionscurrent amount of water diverted pursuant to the revocable permits, (2) order the BLNR to allow Na Moku to intervene in 2008Sierra Club’s contested case hearing; and 2010, but(3) declare that A&B/EMI had no legal authority to divert water pursuant to then-valid revocable permits. In January 2024, the petitioners requestedcircuit court entered final judgment in this case.
In a separate matter, on December 7, 2018, a contested case request filed by the Sierra Club (contesting the BLNR's November 2018 approval of the 2019 revocable permits) was denied by the BLNR. On January 7, 2019, the Sierra Club filed a lawsuit in the circuit court of the first circuit in Hawai‘i against the BLNR, A&B and EMI, seeking to invalidate the 2019 and 2020 holdovers of the revocable permits for, among other things, failure to perform an EA. The lawsuit also sought to enjoin A&B/EMI from diverting more than 25 million gallons a day until a permit or lease is properly issued by the BLNR, and for the imposition of certain conditions on the revocable permits by the BLNR. The count seeking to invalidate the revocable permits based on the failure to perform an EA was dismissed by the court, based on the ICA Ruling in the Initial Lawsuit. The Sierra Club’s lawsuit was amended to include a challenge to the BLNR’s renewal of the revocable permits for calendar year 2020. After a full trial on the merits held beginning in August of 2020, the court ruled, on April 6, 2021, against the Sierra Club on its lawsuit challenging the 2019 and 2020 revocable permits. On February 17, 2022, the Sierra Club filed its notice of appeal challenging the decision on the August 2020 trial. The court separately considered a lawsuit filed by the Sierra Club appealing the BLNR’s decision to deny it a contested case hearing on the 2021 revocable permits, which were granted by the BLNR on or about November 13, 2020. In that case, on May 28, 2021, the court issued an interim decision that the Sierra Club’s due process rights were violated, ordered the BLNR to challengehold a contested case hearing on the Water Commission's decisions2021 permits, and that the permits would be vacated. On July 30, 2021, the court modified its ruling to say that the permits would not be invalidated, but left in place pending the outcome of the contested case hearing. The contested case hearing was held by the BLNR in December 2021 to address the continuation of the revocable permits for both calendar years 2021 and 2022 and the BLNR issued a decision on certain petitions. The Water Commission deniedJune 30, 2022. On December 27, 2021, while the BLNR’s decision in the contested case hearing request, butwas pending, the petitioners successfullycourt further modified its ruling to allow the permits to remain in place until the earlier of May 1, 2022, the date on which the BLNR renders a substantive decision on the continuation of the permits for calendar year 2022, or further order of the court. On April 26, 2022, the court orally granted an extension of the May 1, 2022 deadline to the earlier of June 15, 2022, or the date on which the BLNR renders a substantive decision on the continuation of the permits for calendar year 2022, or as may be further ordered by the court. On June 1, 2022, the court granted an extension of the June 15, 2022 deadline to the earlier of July 15, 2022 or the date on which the BLNR renders a substantive decision on the continuation of the permits for calendar year 2022 or as may be further ordered by the court. On June 30, 2022, the BLNR issued its final decision on the contested case hearing on the permits for calendar years 2021 and 2022, approving the continuation of the permits through the end of calendar year 2022. The Company and the BLNR appealed the denialcourt’s determination that the Sierra Club was entitled to a contested case hearing on the 2021 revocable permits. At the request of Sierra Club, the Intermediate Court of Appeals held oral argument on the matter on December 13, 2023. On April 12, 2024, the ICA issued its opinion holding that Sierra Club was not entitled to a contested case hearing, the circuit court erred by modifying the permits, and Sierra Club was not entitled to attorneys’ fees and costs. In July 2022, the Sierra Club filed a separate appeal challenging the BLNR’s June 30, 2022 decision on the contested case hearing on the permits for calendar years 2021 and 2022. On March 31, 2023, the court entered its decision on appeal, dismissing the appeal as moot. On January 29, 2024, the court entered final judgment in this case. On February 8, 2024, the Sierra Club filed a notice of appeal with the Hawaii Intermediate Court of Appeals,Appeals.
On November 10, 2022, the BLNR voted to continue the revocable permits for calendar year 2023 and, at that same meeting, denied the Sierra Club’s oral request for a contested case hearing. The Sierra Club subsequently submitted a written request to the BLNR for a contested case hearing on the continuation of the revocable permits, which ordered the Water CommissionBLNR denied on December 9, 2022. On November 29, 2022, the Sierra Club filed an appeal of the BLNR’s decisions to grant the request. The Commission then authorized the appointment ofdeny its oral request for a hearings officer for the contested case hearing and expandedto continue the scoperevocable permits for 2023 and on December 15, 2022, the Sierra Club amended its appeal to also challenge the BLNR’s denial of its written request for a contested case hearing. On June 16, 2023, the Circuit Court entered its Decision on Appeal; and Interim Modification of Permits Pursuant to HRS 91-14(g) in which the court concluded that the Sierra Club was again entitled to a contested case hearing to encompass all 27 petitions for amendmenton the continuation of the IIFSrevocable permits for East Maui streams in 23 hydrologic units.calendar year 2023. The evidentiary phasecourt also modified the BLNR’s decision to continue the revocable permits by reducing the cap to 31.50 million gallons per day. A&B/EMI filed motions to increase the modified cap and for leave to take an immediate appeal. On August 11, 2023, the court entered its order denying A&B/EMI’s motion for leave to take an immediate appeal. On September 8, 2023, the court entered its ruling denying without prejudice A&B/EMI’s motion to increase the modified cap. On August 17, 2023, Sierra Club filed its First Motion to Modify Permits, asking the court to impose conditions on the revocable permits requiring A&B/EMI to determine the water needs of the hearing beforeCounty of Maui Fire Department and to line one reservoir, which the Commission-appointed hearings officer was completed on April 2, 2015. court granted in
part, ordering the parties to meet with the County of Maui Fire Department to discuss the Department’s water needs. In January 2024, the court entered final judgment in this case. In February 2024, A&B/EMI and BLNR filed separate notices of appeal with the Hawaii Intermediate Court of Appeals.
On January 15, 2016,December 8, 2023, the Commission-appointed hearings officerBLNR issued his recommended decision ona new revocable permit to the petitions. The recommended decision would restore waterCompany for calendar year 2024. On that same date, after the BLNR voted to streams in 11 ofgrant the 23 hydrologic units. In March 2016,new revocable permit to the hearings officer orderedCompany, Sierra Club made an oral request for a reopening of the contested case proceedings in light ofhearing and, on December 18, 2023, filed a written request for the Company’s January 2016 announcementsame. The BLNR has not decided on Sierra Club’s requests for a contested case hearing.
In connection with A&B’s obligation to cease sugar operations at HC&Scontinue the existing process to secure a long-term water lease from the State, A&B and EMI will defend against the remaining claims made by the end of the year and to transition to a new diversified agricultural model on the former sugar lands. Sierra Club.
In April 2016, the Company announced its commitment to fully and permanently restore the priority taro streams identified by the petitioners. Re-opened evidentiary hearings occurred in the first quarter of 2017 and a decision is pending. In August 2017, the hearings officer in the reopened evidentiary hearing issued his proposed decision. The Commission heard arguments on the proposed decision in October 2017.
HC&S also used water from four streams in Central Maui ("Na Wai Eha") to irrigate its agricultural lands in Central Maui. Beginning in 2004, the Water Commission began proceedings to establish IIFS for the Na Wai Eha streams. Before the IIFS proceedings were concluded, the Water Commission designated Na Wai Eha as a surface water management area, meaning that all uses of water from these streams required water use permits issued by the Water Commission. Following contested case proceedings, the Water Commission established IIFS in 2010, but that decision was appealed, and the Hawaii Supreme Court remanded the caseaddition to the Water Commission for further proceedings. The parties tolitigation described above, the IIFS contested case settled the case in 2014. Thereafter, proceedings for the issuance of water use permits commenced with over 100 applicants, including HC&S, vying for permits. While the water use permit proceedings were ongoing, A&B announced the cessation of sugar cane cultivation at the end of 2016. This announcement triggered a re-opening and reconsideration of the 2014 IIFS decision. Reconsideration of the IIFS is taking place simultaneously with consideration of the applications for water use permits.
If the Company is not permitted to use sufficient quantities of stream waters, it would have a material adverse effect on the Company’s pursuit of a diversified agribusiness model in subsequent years and the value of the Company’s agricultural lands.
A&B is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of its businesses,businesses. While the outcomes of which,such litigation and claims cannot be predicted with certainty, in the opinion of management after consultation with counsel, the reasonably possible losses would not have a material effect on A&B’s condensedthe Company's consolidated financial statements as a whole.
Further note that certain of the Company's properties and assets may become the subject of other types of claims and assessments at various times (e.g., environmental matters based on normal operations of such assets). Depending on the facts and circumstances surrounding such potential claims and assessments, the Company records an accrual if it is deemed probable that a liability has been incurred and the amount of loss can be reasonably estimated/valued as of the date of the financial statements.
8. Revenue and Contract Balances
| |
4. | EARNINGS PER SHARE ("EPS") |
The Company generates revenue through its Commercial Real Estate and Land Operations segments. Through its Commercial Real Estate segment, the Company owns and operates a portfolio of commercial real estate properties and generates income (i.e., revenue) as a lessor through leases of such assets. Refer to Note 9 – Leases - The Company as a Lessor for further discussion of lessor income recognition. The Land Operations segment generates revenue from contracts with customers. The Company further disaggregates revenue from contracts with customers by revenue type when appropriate if the Company believes disaggregation best depicts how the nature, amount, timing, and uncertainty of the Company's revenue and cash flows are affected by economic factors. Revenue by type for the three months ended March 31, 2024 and 2023, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Revenues: | | | | | | | | |
| Commercial Real Estate | | $ | 48,888 | | | $ | 47,870 | | | | | |
| Land Operations: | | | | | | | | |
| Development sales revenue | | 2,455 | | | — | | | | | |
| Unimproved/other property sales revenue | | 9,625 | | | 850 | | | | | |
| Other operating revenue | | 234 | | | 1,670 | | | | | |
| Land Operations | | 12,314 | | | 2,520 | | | | | |
| Total revenues | | $ | 61,202 | | | $ | 50,390 | | | | | |
| | | | | | | | |
The following table provides a reconciliationinformation about receivables, contract assets and contract liabilities from contracts with customers as of income from continuing operationsMarch 31, 2024 and December 31, 2023 (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Accounts receivable | | $ | 6,218 | | | $ | 7,421 | |
| Allowances (credit losses and doubtful accounts) | | (2,503) | | | (2,888) | |
| Accounts receivable, net of allowance for credit losses and allowance for doubtful accounts | | $ | 3,715 | | | $ | 4,533 | |
| | | | |
Variable consideration1 | | $ | 62,000 | | | $ | 62,000 | |
| Prepaid rent | | 7,067 | | | 4,985 | |
| Other deferred revenue | | 3,393 | | | 3,368 | |
| Deferred revenue | | $ | 72,460 | | | $ | 70,353 | |
| | | | |
1 Variable consideration deferred as of the end of the periods related to amounts received in the sale of agricultural land on Maui in 2018 that, under revenue recognition guidance, could not be included in the transaction price. |
| | | | |
For the three months ended March 31, 2024, the Company did not recognize any revenue related to income from continuing operations available to A&B shareholders (in millions):the Company's variable consideration and other deferred revenue reported as of December 31, 2023.
|
| | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Income from continuing operations | $ | 7.4 |
| | $ | 12.2 |
| | $ | 16.0 |
| | $ | 19.1 |
|
| Less: Income attributable to noncontrolling interest | (0.5 | ) | | (0.5 | ) | | (1.7 | ) | | (1.1 | ) |
| Income from continuing operations attributable to A&B shareholders, net of income taxes | 6.9 |
| | 11.7 |
| | 14.3 |
| | 18.0 |
|
| Undistributed earnings allocated to redeemable noncontrolling interest | 0.5 |
| | 0.4 |
| | 1.2 |
| | 0.9 |
|
| Income from continuing operations available to A&B shareholders, net of income taxes | 7.4 |
| | 12.1 |
| | 15.5 |
| | 18.9 |
|
| Income (loss) from discontinued operations available to A&B shareholders, net of income taxes | (0.8 | ) | | (13.6 | ) | | 2.4 |
| | (28.1 | ) |
| Net income (loss) available to A&B shareholders | $ | 6.6 |
| | $ | (1.5 | ) | | $ | 17.9 |
| | $ | (9.2 | ) |
9. Leases - The Company as a Lessor
The numberCompany leases real estate property to tenants under operating leases. Such activity is primarily composed of operating leases within its CRE segment.
The historical cost of, and accumulated depreciation on, leased property as of March 31, 2024, and December 31, 2023, were as follows (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Leased property - real estate | | $ | 1,610,830 | | | $ | 1,607,919 | |
| Less: accumulated depreciation | | (236,004) | | | (228,714) | |
Property under operating leases - net1 | | $ | 1,374,826 | | | $ | 1,379,205 | |
1Property under operating leases as of March 31, 2024, and December 31, 2023, includes leased property included in Assets held for sale. |
Total rental income (i.e., revenue) under these operating leases during the three months ended March 31, 2024 and 2023, relating to lease payments and variable lease payments were as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Lease payments | | $ | 33,612 | | | $ | 33,094 | | | | | |
| Variable lease payments | | 15,649 | | | 15,644 | | | | | |
| Revenues deemed uncollectible, net | | (216) | | | (724) | | | | | |
| Total rental income | | $ | 49,045 | | | $ | 48,014 | | | | | |
Contractual future lease payments to be received on non-cancelable operating leases as of March 31, 2024, were as follows (in thousands):
| | | | | | | | |
| | March 31, 2024 |
| 2024 | | 97,815 | |
| 2025 | | 120,052 | |
| 2026 | | 106,642 | |
| 2027 | | 94,345 | |
| 2028 | | 79,135 | |
| 2029 | | 62,174 | |
| Thereafter | | 509,979 | |
| Total future lease payments to be received | | $ | 1,070,142 | |
10. Leases - The Company as a Lessee
There have been no material changes from the Company's leasing activities as a lessee described in Note 13 to the consolidated financial statements included in Item 8 of the Company's 2023 Form 10-K. The following table provides information about the Company's operating lease costs and finance lease costs recognized during the three months ended March 31, 2024 and 2023, (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Operating lease cost | | $ | 477 | | | $ | 596 | | | | | |
| Finance lease cost: | | | | | | | | |
| Amortization of right-of-use assets | | 71 | | | 35 | | | | | |
| Interest on lease liabilities | | 48 | | | 14 | | | | | |
| Total lease cost - operating and finance leases | | $ | 596 | | | $ | 645 | | | | | |
11. Share-based Payment Awards
The 2022 Incentive Compensation Plan ("2022 Plan") allows for the granting of stock options, stock appreciation rights, stock awards, restricted stock units, dividend equivalent rights, and other awards. The shares usedof common stock authorized to compute basicbe issued under the 2022 Plan are to be drawn from the shares of the Company's authorized but unissued common stock or from shares of its common stock that the Company acquired, including shares purchased on the open market or private transactions.
During the three months ended March 31, 2024, the Company granted approximately 310,100 of restricted stock unit awards with a weighted average grant date fair value of $17.91. During the three months ended March 31, 2023, the Company granted approximately 310,200 of restricted stock unit awards with a weighted average grant date fair value of $22.36.
The fair value of the Company's time-based and diluted earnings per shareperformance-based awards was determined using the Company's stock price on the grant date. The fair value of the Company's market-based awards was estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation. The Monte Carlo simulation was performed with the following weighted-average assumptions:
| | | | | | | | | | | | | | |
| | 2024 Grants | | 2023 Grants |
| Volatility of A&B common stock | | 27.4% | | 49.1% |
| Average volatility of peer companies | | 29.9% | | 48.2% |
| Risk-free interest rate | | 4.0% | | 3.8% |
The Company recognizes compensation cost net of actual forfeitures of time-based or market-based awards. A summary of compensation cost related to share-based payments is as follows (in millions)thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Share-based expense: | | | | | | | | |
| Time-based and market-based restricted stock units | | $ | 1,126 | | | $ | 1,576 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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12. Income Taxes
|
| | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Denominator for basic EPS – weighted-average shares outstanding | 49.2 |
| | 49.0 |
| | 49.1 |
| | 49.0 |
|
| Effect of dilutive securities: | |
| | |
| | | | |
| Non-participating stock options and restricted stock unit awards | 0.4 |
| | 0.4 |
| | 0.5 |
| | 0.4 |
|
| Denominator for diluted EPS – weighted-average shares outstanding | 49.6 |
| | 49.4 |
| | 49.6 |
| | 49.4 |
|
As of March 31, 2024, tax years 2020 and later are open to audit by the tax authorities. Management believes the result of any potential audits will not have a material adverse effect on its results of operations, financial condition, or liquidity.
13. Earnings Per Share ("EPS")
Basic earnings per common share excludes dilution and is computedcalculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding duringfor the period. Diluted earnings per common share is computedcalculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards as well as adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive
The following table provides a reconciliation of income (loss) from continuing operations to net income (loss) from continuing operations available to A&B common shareholders and net income (loss) available to A&B common shareholders (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Income (loss) from continuing operations | | $ | 20,238 | | | $ | 9,506 | | | | | |
| | | | | | | | |
| | | | | | | | |
| Distributions and allocations to participating securities | | (8) | | | (30) | | | | | |
| Income (loss) from continuing operations available to A&B shareholders | | 20,230 | | | 9,476 | | | | | |
| Income (loss) from discontinued operations | | (256) | | | (4,198) | | | | | |
| Exclude: Loss (income) attributable to discontinued noncontrolling interest | | — | | | 28 | | | | | |
| Net income (loss) available to A&B common shareholders | | $ | 19,974 | | | $ | 5,306 | | | | | |
The number of shares of common stock include non-qualified stock optionsused to compute basic and restricted stock units.diluted earnings per share is as follows (in thousands):
There were no
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Denominator for basic EPS - weighted average shares outstanding | | 72,545 | | | 72,549 | | | | | |
| Effect of dilutive securities: | | | | | | | | |
| Restricted stock unit awards | | 121 | | | 80 | | | | | |
| | | | | | | | |
| Denominator for diluted EPS - weighted average shares outstanding | | 72,666 | | | 72,629 | | | | | |
The number of anti-dilutive securities, outstanding duringexcluded from the quarter and ninecalculation of diluted earnings per common share, consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Number of anti-dilutive securities | | 100 | | | 38 | | | | | |
14. Accumulated Other Comprehensive Income (Loss)
For the three months ended September 30, 2017. During the quarterMarch 31, 2024, other comprehensive income (loss) principally includes unrealized interest rate hedging gains and nine months ended September 30, 2016, anti-dilutive securities totaled 0.4 million shares.
| |
5. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
losses and associated reclassification adjustments to interest expense. The fair valuescomponents of receivables and short-term borrowings approximate their carrying values due to the short-term natureAccumulated other comprehensive income (loss), net of the instruments. The Company’s cash and cash equivalents, consisting principallytaxes, were as follows as of cash on deposit, may from time to time include short-term money market funds. The fair values of these money market funds, based on market prices (Level 2), approximate their carrying values due to their short-maturities. The carrying amount and fair value of the Company’s long-term debt at September 30, 2017 was $625.8 million and $642.0 million, respectively, and $515.1 million and $529.3 million at DecemberMarch 31, 2016, respectively. The fair value of long-term debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company’s existing debt arrangements (Level 2).
Materials & Construction segment inventory, including materials and supplies, are stated at the lower of cost (principally average cost, first-in, first-out basis) or market value. Sugar inventories are stated at the lower of cost (first-in, first-out basis) or market value.
Inventories at September 30, 20172024, and December 31, 20162023, (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| Post-retirement plans | | $ | (133) | | | $ | (150) | |
| Non-qualified benefit plans | | (48) | | | (31) | |
| Interest rate swap | | 4,160 | | | 3,431 | |
| Accumulated other comprehensive income (loss) | | $ | 3,979 | | | $ | 3,250 | |
The changes in Accumulated other comprehensive income (loss) by component for the three months ended March 31, 2024, were as follows (in millions)thousands, net of taxes):
| | | | | | | | | | | | | | | | | | | | |
| | Employee Benefit Plans | | Interest Rate Swap | | Total |
| Balance, January 1, 2024 | | $ | (181) | | | $ | 3,431 | | | $ | 3,250 | |
| Other comprehensive income (loss) before reclassifications, net of taxes of $0 | | — | | | 1,202 | | | 1,202 | |
Amounts reclassified from accumulated other comprehensive income (loss)1 | | — | | | (473) | | | (473) | |
| | | | | | |
| Other comprehensive income (loss), net of taxes | | — | | | 729 | | | 729 | |
| Balance, March 31, 2024 | | $ | (181) | | | $ | 4,160 | | | $ | 3,979 | |
1 Amounts reclassified from Accumulated other comprehensive income (loss) related to interest rate swap settlements are presented as an adjustment to Interest expense in the Condensed Consolidated Statements of Operations. Amounts reclassified from Accumulated other comprehensive income (loss) related to employee benefit plan items are presented as part of Interest and other income (expense), net in the Condensed Consolidated Statements of Operations.
15. Segment Results
Operating segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (its Chief Executive Officer) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. The Company operates and reports on two segments: Commercial Real Estate and Land Operations.
Reportable segment information for the three months ended March 31, 2024 and 2023, is summarized below (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Operating Revenue: | | | | | | | | |
| Commercial Real Estate | | $ | 48,888 | | | $ | 47,870 | | | | | |
| Land Operations | | 12,314 | | | 2,520 | | | | | |
| Total operating revenue | | 61,202 | | | 50,390 | | | | | |
| Operating Profit (Loss): | | | | | | | | |
Commercial Real Estate1 | | 21,981 | | | 20,877 | | | | | |
| Land Operations | | 7,931 | | | (92) | | | | | |
| Total operating profit (loss) | | 29,912 | | | 20,785 | | | | | |
| | | | | | | | |
| Interest expense | | (5,510) | | | (5,041) | | | | | |
| Corporate and other expense | | (4,164) | | | (6,233) | | | | | |
| Income (Loss) from Continuing Operations Before Income Taxes | | $ | 20,238 | | | $ | 9,511 | | | | | |
| | | | | | | | |
1 Commercial Real Estate segment operating profit (loss) includes intersegment operating revenue, primarily from the Land Operations segment that is eliminated in the consolidated results of operations. |
|
|
|
| | | | | | | | |
16. Held for Sale and Discontinued Operations
In November 2023, the Company entered into a disposition agreement with an unrelated third party for the sale of Waipouli Town Center, a retail property within the Commercial Real Estate segment. The transaction is structured to qualify under section §1031 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to allow time for the Company to identify suitable replacement property, the Company has up to one year from the agreement execution date to close the transaction, at its option. The Company determined that the property met the criteria to be classified as held for sale as of the agreement execution date of November 15, 2023, but would not be considered discontinued operations as it neither represents a strategic shift, nor will it have a material impact on the Company's operations and financial results. Assets associated with Waipouli Town Center are presented in the Condensed Consolidated Balance Sheets as Assets held for sale as of March 31, 2024, and December 31, 2023. Liabilities associated with assets held for sale are presented in Accrued and other liabilities, as of March 31, 2024, and December 31, 2023.
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| Sugar inventories | $ | — |
| | $ | 17.5 |
|
| Asphalt | 10.1 |
| | 7.4 |
|
| Processed rock, Portland cement, and sand | 13.3 |
| | 12.6 |
|
| Work in progress | 3.1 |
| | 3.0 |
|
| Construction-related retail merchandise | 2.0 |
| | 1.7 |
|
| Parts, materials and supplies inventories | 1.6 |
| | 1.1 |
|
| Total | $ | 30.1 |
| | $ | 43.3 |
|
| |
7. | SHARE-BASED PAYMENT AWARDS |
The time-based restricted stock units vest ratably over 3 yearsIncome (loss) from discontinued operations for the three months ended March 31, 2023, primarily relates to Grace Pacific and the performance share units cliff vest over 3 years, provided thatCompany-owned quarry land on Maui (collectively, the total shareholder return“Grace Disposal Group”), which was sold in November 2023. Income (loss) from discontinued operations for the three months ended March 31, 2024, relates to the Company's former sugar operations.
The following table summarizes income (loss) from discontinued operationsincluded in the Condensed Consolidated Statements of Operations for the Company’s common stock over the relevant period meets or exceeds pre-defined levels of relative total shareholder returns of the Standard & Poor’s MidCap 400 Indexthree months ended March 31, 2024 and the Dow Jones U.S. Real Estate Index.2023, (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| | | | | | | | |
| Revenue | | $ | — | | | $ | 36,849 | | | | | |
Cost of sales1 | | 149 | | | (37,429) | | | | | |
| Selling, general and administrative | | (405) | | | (3,583) | | | | | |
| | | | | | | | |
| Gain (loss) on disposal of non-core assets, net | | — | | | (24) | | | | | |
Operating income (loss) from discontinued operations1 | | (256) | | | (4,187) | | | | | |
| Income (loss) related to joint ventures | | — | | | (79) | | | | | |
| | | | | | | | |
| Interest and other income (expense), net | | — | | | 264 | | | | | |
| Interest expense | | — | | | (196) | | | | | |
Income (loss) from discontinued operations before income taxes1 | | (256) | | | (4,198) | | | | | |
| Income tax benefit (expense) attributable to discontinued operations | | — | | | — | | | | | |
Income (loss) from discontinued operations1 | | (256) | | | (4,198) | | | | | |
| Loss (income) attributable to discontinued noncontrolling interest | | — | | | 28 | | | | | |
Income (loss) from discontinued operations attributable to A&B Shareholders1 | | $ | (256) | | | $ | (4,170) | | | | | |
1For both of the three month periods ended March 31, 2024 and March 31, 2023, the Company recognized $0.1 million in income due to the favorable resolution of liabilities related to the Company’s former sugar operations. |
The following table summarizespresents information related to the Company's stock option activity during 2017major classes of assets and liabilities that were classified as held for sale in the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, (in thousands, except weighted average exercise price and weighted average contractual life)thousands):
|
| | | | | | | | | | | | |
| | 2012 Plan | | Weighted-
Average
Exercise
Price | | Weighted-
Average
Contractual
Life | | Aggregate
Intrinsic
Value |
| Outstanding, January 1, 2017 | 903.5 |
| | $ | 17.78 |
| | | | |
| Exercised | (230.9 | ) | | $ | 16.45 |
| | | | |
| Outstanding, September 30, 2017 | 672.6 |
| | $ | 18.24 |
| | 3.0 years | | $ | 18,947 |
|
| Vested or expected to vest | 672.6 |
| | $ | 18.24 |
| | 3.0 years | | $ | 18,947 |
|
| Exercisable, September 30, 2017 | 672.6 |
| | $ | 18.24 |
| | 3.0 years | | $ | 18,947 |
|
| | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | | | |
| Real estate investments | | | | |
| Real estate property | | $ | 17,556 | | | $ | 17,556 | |
| Accumulated depreciation | | (1,817) | | | (1,817) | |
| Real estate property, net | | 15,739 | | | 15,739 | |
| Real estate intangible assets, net | | 307 | | | 307 | |
| Real estate investments, net | | 16,046 | | | 16,046 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Prepaid expenses and other assets | | 141 | | | 121 | |
| Less: Impairment recognized on classification as held for sale | | (2,183) | | | (2,183) | |
| Total Assets held for sale | | $ | 14,004 | | | $ | 13,984 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Accrued and other liabilities | | 55 | | | 55 | |
Total Liabilities associated with assets held for sale1 | | $ | 55 | | | $ | 55 | |
1Liabilities associated with assets held for sale is presented in Accrued and other liabilities on the Condensed Consolidated Balance Sheets for all periods presented. |
The following table summarizes 2017 non-vested restricted stock unit activity (in thousands, except weighted-average grant-dateDuring the three months ended March 31, 2024, the Company recorded no additional fair value amounts):
|
| | | | | | |
| | 2012 Plan
Restricted
Stock Units |
| Weighted-
Average
Grant-date
Fair Value |
| Outstanding, January 1, 2017 | 293.5 |
| | $ | 33.81 |
|
| Granted | 139.1 |
| | $ | 37.41 |
|
| Vested | (96.3 | ) | | $ | 37.20 |
|
| Canceled | (17.4 | ) | | $ | 35.03 |
|
| Outstanding, September 30, 2017 | 318.9 |
| | $ | 34.29 |
|
The fair value of the Company’s time-based awards is determined using the Company's stock price on the date of grant. The fair value of the Company's market-based awards is estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted-average assumptions:
|
| | | |
| | 2017 Grants | | 2016 Grants |
| Volatility of A&B common stock | 24.1% | | 26.3% |
| Average volatility of peer companies | 25.6% | | 27.7% |
| Risk-free interest rate | 1.6% | | 1.1% |
A summary of compensation costadjustment related to share-based payments is as follows (in millions):assets and liabilities held for sale.
|
| | | | | | | | | | | | | | | |
| | Quarter Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Share-based expense: | | | | | | | |
| Time-based and market-based restricted stock units | $ | 1.2 |
| | $ | 1.0 |
| | $ | 3.4 |
| | $ | 3.1 |
|
| Total recognized tax benefit | (0.5 | ) | | (0.5 | ) | | (1.3 | ) | | (1.1 | ) |
| Share-based expense (net of tax) | $ | 0.7 |
| | $ | 0.5 |
| | $ | 2.1 |
| | $ | 2.0 |
|
| |
8. | RELATED PARTY TRANSACTIONS |
Construction ContractsRelated Party Transactions within Discontinued Operations and Material Sales. TheHeld for Sale: Related to the Grace Disposal Group, the Company entered into contracts in the ordinary course of business, as a supplier, with affiliatesaffiliate entities that required accounting under the equity method due to the Company's financial interests in such entities and also with affiliate parties that are members in entities in which the Company also iswas a member. Revenuesmember and held a controlling financial interest. For the three months ended March 31, 2023, during which such relationships existed, revenues earned and expenses recognized from transactions with affiliates totaled approximately $5.5were $3.9 million and $1.8$1.4 million, respectively. Due to the sale of the Grace Disposal Group in November 2023, these relationships no longer exist and consequently, for the quartersthree months ended September 30, 2017 and 2016, respectively. RevenuesMarch 31, 2024, there were no revenues earned or expenses recognized from transactions with affiliates totaled approximately $15.4 million and $6.0 million for the nine months ended September 30, 2017 and 2016, respectively. Receivables from these affiliates were $4.0 million and $2.1 million at September 30, 2017 and December 31, 2016, respectively. Amounts due to these affiliates were $0.5 million and $0.2 million at September 30, 2017 and December 31, 2016, respectively.
Commercial Real Estate. The Company entered into contracts in the ordinary course of business, as a lessor of property, with unconsolidated affiliates in which the Company has an interest, as well as with certain entities that are owned by a director of the Company. Revenues earned from these transactions were $1.4 million and $4.0 million for the quarter and nine months ended September 30, 2017, respectively, and immaterial for the quarter and nine months ended September 30, 2016. Receivables from these affiliates were immaterial as of September 30, 2017 and December 31, 2016.
During the quarters ended September 30, 2017 and 2016, the Company recorded developer fee revenues of approximately $0.5 million and $0.2 million related to management and administrative services provided to certain unconsolidated investments insuch affiliates. Developer fee revenues recorded for the nine months ended September 30, 2017 and 2016 were $2.1 million and $0.7 million, respectively. Receivables from these affiliates were immaterial as of September 30, 2017 and December 31, 2016.
The components of net periodic benefit cost recorded for the quarters ended September 30, 2017 and 2016 were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Post-retirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | $ | 0.7 |
| | $ | 0.8 |
| | $ | — |
| | $ | — |
|
| Interest cost | 2.0 |
| | 2.2 |
| | 0.1 |
| | 0.2 |
|
| Expected return on plan assets | (2.3 | ) | | (2.5 | ) | | — |
| | — |
|
| Amortization of net loss included in net periodic pension cost | 1.0 |
| | 1.9 |
| | (0.1 | ) | | — |
|
| Amortization of prior service credit included in net periodic pension cost | (0.2 | ) | | (0.3 | ) | | — |
| | — |
|
| Curtailment gain | — |
| | (0.2 | ) | | — |
| | — |
|
| Settlement loss | 1.4 |
| | — |
| | — |
| | — |
|
| Net periodic benefit cost | $ | 2.6 |
| | $ | 1.9 |
| | $ | — |
| | $ | 0.2 |
|
The components of net periodic benefit cost recorded for the nine months ended September 30, 2017 and 2016 were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Post-retirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Service cost | $ | 2.2 |
| | $ | 2.4 |
| | $ | 0.1 |
| | $ | 0.1 |
|
| Interest cost | 6.2 |
| | 6.7 |
| | 0.3 |
| | 0.4 |
|
| Expected return on plan assets | (7.1 | ) | | (7.5 | ) | | — |
| | — |
|
| Amortization of net loss included in net periodic pension cost | 3.3 |
| | 5.5 |
| | — |
| | 0.1 |
|
| Amortization of prior service credit included in net periodic pension cost | (0.7 | ) | | (0.8 | ) | | — |
| | — |
|
| Curtailment gain | (0.3 | ) | | (0.7 | ) | | — |
| | — |
|
| Settlement loss | 1.4 |
| | — |
| | — |
| | — |
|
| Net periodic benefit cost | $ | 5.0 |
| | $ | 5.6 |
| | $ | 0.4 |
| | $ | 0.6 |
|
Manoa Marketplace Acquisition. The Company applies the provisions of FASB ASC Topic No. 805, Business Combinations, ("ASC 805") to acquisitions that constitute a business, as defined. Under ASC 805, assets acquired and liabilities assumed are recorded at fair value. The excess of the purchase price over the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The fair values of assets acquired and liabilities assumed are determined through the market, income or cost approaches, and the valuation approach is generally based on the specific characteristics of the asset or liability. Under the market approach, value is estimated using information from transactions in which other participants in the market have paid for reasonably similar assets that have been sold within a reasonable period from the valuation date. Adjustments are made to compensate for differences between reasonably similar assets and the item being valued. Under the income approach, the future cash flows expected to be received over the life of the asset, taking into account a variety of factors, such as long-term growth rates and the amount and timing of cash flows, are discounted to present value using a rate of return that accounts for the time value of money and investment risk factors. Under the cost approach, the Company estimates the cost to replace the asset with a new asset taking into consideration a variety of factors such as age, physical condition, functional obsolescence and economic obsolescence. The fair value of liabilities assumed is calculated as the net present value of estimated payments using prevailing market interest rates for liabilities with similar credit risk and terms.
On January 29, 2016, the Company consummated the purchase of the leasehold and leased fee interests in Manoa Marketplace, a multi-tenant neighborhood shopping center in Honolulu for $82.4 million through a 1031 transaction.
The allocation of purchase price to assets acquired and liabilities assumed is as follows (in millions):
17. Subsequent Events
|
| | | |
| Assets acquired: | |
| Land | $ | 40.5 |
|
| Building | 36.8 |
|
| In-place leases | 7.0 |
|
| Favorable leases | 1.3 |
|
| Total assets acquired | 85.6 |
|
| | |
| Total liabilities assumed | 3.2 |
|
| | |
| Net assets acquired | $ | 82.4 |
|
The finite-lived intangible assets related to in-place leases and favorable leases are amortized over their respective lease terms. As of the acquisition date, the weighted-average remaining lives of the in-place leases and favorable leases were approximately 5 and 3 years, respectively.
In connection with the Manoa Marketplace transaction, the Company incurred approximately $1.1 million of acquisition-related expenses during the nine months ended September 30, 2016. The costs are included in selling, general and administrative costs in the accompanying condensed consolidated statements of operations and are reported in the Commercial Real Estate segment for segment reporting purposes.
| |
11. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2017 were as follows (in millions, net of tax):
|
| | | | | | | | | | | |
| | Employee Benefit Plans | | Interest Rate Swap | | Total |
| Beginning balance, January 1, 2017 | $ | (45.0 | ) | | $ | 1.8 |
| | $ | (43.2 | ) |
| Unrealized interest rate hedging loss, net of taxes of $0.3 | — |
| | (0.5 | ) | | (0.5 | ) |
| Amounts reclassified from accumulated other comprehensive loss, net of taxes of $1.5 and $0.2 for employee benefit plans and interest rate swap, respectively | 2.5 |
| | 0.2 |
| | 2.7 |
|
| Ending balance, September 30, 2017 | $ | (42.5 | ) | | $ | 1.5 |
| | $ | (41.0 | ) |
The reclassifications of other comprehensive income components out of accumulated other comprehensive loss for the quarters and nine months ended September 30, 2017 and 2016 were as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Quarter Ended September 30, | | Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Reclassification adjustment for interest expense included in net income (loss) | | $ | 0.1 |
| | $ | 0.2 |
| | $ | 0.4 |
| | $ | 0.2 |
|
| Amortization of defined benefit pension items reclassified to net periodic pension cost: | | | | — |
| | | | — |
|
| Prior service credit | | (0.2 | ) | | (0.3 | ) | | (0.7 | ) | | (0.8 | ) |
| Net loss | | 1.0 |
| | 1.9 |
| | 3.3 |
| | 5.6 |
|
| Settlement loss | | 1.4 |
| | — |
| | 1.4 |
| | — |
|
| Total reclassifications before income tax | | 2.3 |
| | 1.8 |
| | 4.4 |
| | 5.0 |
|
| Income taxes related to reclassifications of other comprehensive income | | (0.9 | ) | | (0.8 | ) | | (1.7 | ) | | (1.9 | ) |
| Total reclassifications of other comprehensive income components, net of tax | | $ | 1.4 |
| | $ | 1.0 |
| | $ | 2.7 |
| | $ | 3.1 |
|
The Company's effective tax rate was higher for the nine months ended September 30, 2017 compared to the same period in 2016 primarily due to the 2016 recognition of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities, discussed below.
In 2016, the Company invested $15.4 million in Waihonu Equity Holdings, LLC ("Waihonu"), an entity that operates two photovoltaic facilities with a combined capacity of 6.5 megawatts in Mililani, Oahu. The Company accounts for its investment in Waihonu under the equity method. The investment return from the Company's investment in Waihonu is principally composed of non-refundable federal and refundable state tax credits. The federal tax credits are accounted for using the flow through method, which reduces the provision for income taxes in the year that the federal tax credits first become available. During 2016, the Company recognized income tax benefits of approximately $8.7 million related to the non-refundable tax credits, $2.9 million related to the refundable state tax credits in Income Tax Receivable, as well as a corresponding reduction to the carrying amount of its investment in Waihonu, recorded in Investments in Affiliates in the accompanying condensed consolidated balance sheets.
For the quarter and nine months ended September 30, 2017, the Company recorded reductions to the carrying value of its Waihonu and KIUC Renewable Solutions Two ("KRS II") investments of $0.4 million and $2.6 million, respectively, in Reduction in Solar Investments, net in the accompanying condensed consolidated statements of operations. For the quarter and nine months ended September 30, 2016, the Company recorded reductions to the carrying value of its Waihonu and KRS II investments of $0.2 million and $9.7 million, respectively, in Reduction in Solar Investments, net in the accompanying condensed consolidated statements of operations.
The Company recognizes accrued interest on income taxes in income tax expense. As of September 30, 2017, accrued interest was not material. As of September 30, 2017, the Company has not identified any material unrecognized tax positions.
| |
13. | NOTES PAYABLE AND LONG-TERM DEBT |
Revolving Credit Facility Amendment: On SeptemberApril 15, 2017, the Company entered into a Second Amended and Restated Credit Agreement ("A&B Revolver") with Bank of America N.A., as administrative agent, First Hawaiian Bank, and other lenders party thereto, which amended and restated its existing $350 million committed revolving credit facility ("Revolving Credit Facility"). The A&B Revolver increased the total revolving commitments to $450 million, extended the term of the Revolving Credit Facility to September 15, 2022, amended certain covenants (see below), and reduced the interest rates and fees charged under the Revolving Credit Facility. All other terms of the Revolving Credit Facility remain substantially unchanged.
Private Shelf Facility Amendment: On September 15, 2017,2024, the Company entered into an amendment ("Pru Amendment"agreement (the "Prudential Agreement") of its Second Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 10, 2015, with Prudential Investment Management,PGIM, Inc. and certainits affiliates (individually("Prudential") for an unsecured note purchase and collectively with “Prudential”), which amended certain covenants (see below). Additionally, the Pru Amendment included a provision for a contingent incremental interest rate increase of 20 basis points on all outstanding notes unless, following the Company's planned earnings and profits purge, the maximum ratio of debt to total adjusted asset value is equal to or less than 0.35 to 1.00 with respect to any fiscal quarter ending on or before September 30, 2018. The contingent interest rate adjustment, if triggered, will continue until such timeprivate shelf facility that the Company's ratio of debt to total adjusted asset value declines to 0.35 to 1.00 or below. If the contingent interest rate adjustment is not triggered on September 30, 2018, or if triggered, but subsequently the Company's ratio of debt to total adjusted asset value declines to 0.35 to 1.00 or below, the contingent interest rate adjustment shall have no further force or effect.
Changes to Revolver Amendment and Pru Amendment Covenants: The principal amendments under the A&B Revolver and the Pru Amendment are as follows:
An increase in the maximum ratio of debt to total adjusted asset value from 0.50:1.0 to 0.60:1.0.
An increase in the aggregate maximum amount of priority debt at any time from 20 percent to 25 percent.
Allowsenables the Company to consummateissue notes in an aggregate amount up to $300.0 million, less the holding company mergersum of all principal amounts then outstanding on any notes issued by the Company or any of its subsidiaries to adopt certain governance changesPrudential and facilitate the Company's ongoing compliance with REIT requirements.
Setsamounts of any notes that are committed under the minimum shareholders' equity amount to be $850.6 million plus 75 percentPrudential Agreement for a period of three years from execution of the net proceeds received from equity issuances, less non-recurring costs related to the REIT conversion, among other additions and subtractions.
Allows for the payment of minimum dividends required to maintain REIT status and other dividends in any amount so long as no event of default shall then exist or would exist after giving effect to such dividends.
New Unsecured Term Debt - Rate Locks: On October 10, 2017,agreement. In addition, on April 15, 2024, the Company entered intoissued a rate lock commitment to draw $50$60.0 million under its Second Amended and Restated Note Purchase and Private Shelf Agreement, as amended, with Prudential (“Prudential Shelf Facility”). Under the commitment, the Company will draw $50 million on November 21, 2017 and will use the proceeds for general corporate purposes. The note bears interest at 4.04 percent and matures on November 21, 2026. Interest only is paid semi-annually and the principal balance is due at maturity.
On October 30, 2017, the Company entered into a second rate lock commitment to draw $25 million(the "Series M Note") under its Prudential Shelf Facility. Under the commitment, the Company will draw $25 million on December 8, 2017 and will use the proceeds for general corporate purposes.Agreement. The note bears interest at 4.16 percentSeries M Note has a coupon rate of 6.09%, paid semiannually, and matures in full on DecemberApril 15, 2032.
On April 23, 2024, the Company's Board of Directors declared a cash dividend of $0.2225 per share on outstanding common stock, payable on July 8, 2028. Interest only is paid semi-annually and the principal balance is due at maturity.
At September 30, 2017 and December 31, 2016, notes payable and long-term debt consisted2024, to shareholders of record as of the following (in millions):close of business on June 14, 2024.
|
| | | | | | | |
| | 2017 | | 2016 |
| Revolving credit facilities: | | | |
| Wells Fargo GLP Revolver, matures in 2018 (a) | — |
| | — |
|
| A&B Revolver, matures in 2022 ($283.0 million available) (b) | 155.2 |
| | 14.9 |
|
| Term loans: | | | |
| 6.38%, payable through 2017, secured by Midstate Hayes | — |
| | 8.2 |
|
| 1.85%, payable through 2017, unsecured | 0.5 |
| | 2.5 |
|
| 2.00%, payable through 2018, unsecured | 0.3 |
| | 0.8 |
|
| 3.31%, payable through 2018, unsecured | 1.5 |
| | 2.8 |
|
| 5.19%, payable through 2019, unsecured | 5.1 |
| | 6.5 |
|
LIBOR plus 2.00%, payable through 2019 (c)
| 9.4 |
| | 9.4 |
|
| 6.90%, payable through 2020, unsecured | 48.8 |
| | 65.0 |
|
| LIBOR plus 1.00%, payable through 2021, secured by asphalt terminal (d) | 5.1 |
| | 6.1 |
|
| 3.15%, payable through 2021, second mortgage secured by Kailua Town Center III | 4.9 |
| | — |
|
| LIBOR plus 1.50%, payable through 2021, secured by Kailua Town Center III (e) | 10.9 |
| | 11.2 |
|
| 5.53%, payable through 2024, unsecured | 28.5 |
| | 28.5 |
|
| 3.90%, payable through 2024, unsecured | 65.9 |
| | 68.1 |
|
| 4.15%, payable through 2024, secured by Pearl Highlands Center | 87.5 |
| | 88.8 |
|
| 5.55%, payable through 2026, unsecured | 46.0 |
| | 46.0 |
|
| 5.56%, payable through 2026, unsecured | 25.0 |
| | 25.0 |
|
| 4.35%, payable through 2026, unsecured | 22.0 |
| | 22.0 |
|
| 3.88%, payable through 2027, unsecured | 50.0 |
| | 50.0 |
|
| LIBOR plus 1.35%, payable through 2029, secured by Manoa Marketplace (f) | 60.0 |
| | 60.0 |
|
| Total debt (contractual) | 626.6 |
| | 515.8 |
|
| Unamortized debt premium (discount) | 0.4 |
| | 0.5 |
|
| Unamortized debt issuance costs | (1.2 | ) | | (1.2 | ) |
| Total debt (carrying value) | 625.8 |
| | 515.1 |
|
| Less current portion | (41.6 | ) | | (42.4 | ) |
| Long-term debt | $ | 584.2 |
| | $ | 472.7 |
|
(a) Loan has a stated interest rate of LIBOR plus 1.50%.
(b) Loan has a stated interest rate of LIBOR plus 1.65%, based on pricing grid.
(c) Loan is secured by a letter of credit.
(d) Loan has a stated interest rate of LIBOR plus 1.00%, but is swapped through maturity to a 5.98% fixed rate.
(e) Loan has a stated interest rate of LIBOR plus 1.50%, but is swapped through maturity to a 5.95% fixed rate.
(f) Loan has a stated interest rate of LIBOR plus 1.35%, but is swapped through maturity to a 3.14% fixed rate.
| |
14. | CESSATION OF SUGAR OPERATIONS |
A summary of the pre-tax costs and remaining costs associated with the Cessation is as follows (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, 2017 | | Cumulative Amount Recognized as of September 30, 2017 | | Remaining to be Recognized | | Total |
| Employee severance benefits and related costs | | $ | 0.3 |
| | $ | 22.1 |
| | $ | — |
| | $ | 22.1 |
|
| Asset write-offs and accelerated depreciation | | — |
| | 71.3 |
| | — |
| | 71.3 |
|
| Property removal, restoration and other exit-related costs | | 2.1 |
| | 9.2 |
| | 1.2 |
| | 10.4 |
|
| Total Cessation-related costs | | $ | 2.4 |
| | $ | 102.6 |
| | $ | 1.2 |
| | $ | 103.8 |
|
A rollforward of the Cessation-related liabilities during the nine months ended September 30, 2017 is as follows (in millions):
|
| | | | | | | | | | | | |
| | Employee Severance Benefits and Related Costs | | Other Exit Costs1 | | Total |
| Balance at December 31, 2016 | | $ | 13.7 |
| | $ | 5.4 |
| | $ | 19.1 |
|
| Expense | | 0.3 |
| | 2.1 |
| | 2.4 |
|
| Cash payments | | (14.0 | ) | | (2.5 | ) | | (16.5 | ) |
| Balance at September 30, 2017 | | $ | — |
| | $ | 5.0 |
| | $ | 5.0 |
|
1Includes asset retirement obligations.
The Cessation-related liabilities were included in the accompanying condensed consolidated balance sheets as follows (in millions):
|
| | | | | | | | | | |
| | | Classification on Balance Sheet | | September 30, 2017 | | December 31, 2016 |
| Employee severance benefits and related costs | | HC&S cessation-related liabilities | | $ | — |
| | $ | 13.7 |
|
| Other exit costs | | HC&S cessation-related liabilities | | 5.0 |
| | 5.4 |
|
| Total Cessation-related liabilities | | | | $ | 5.0 |
| | $ | 19.1 |
|
| |
15. | INVESTMENTS IN AFFILIATES |
The Company's investments in affiliates consist principally of equity investments in limited liability companies in which the Company has the ability to exercise significant influence over the operating and financial policies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting.
Operating results include the Company's proportionate share of net income from its equity method investments. A summary of combined financial information related to the Company's equity method investments for the quarters and nine months ended September 30, 2017 and 2016 is as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Quarter Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues | $ | 52.4 |
| | $ | 46.4 |
| | $ | 136.6 |
| | $ | 142.5 |
|
| Gross Profit | $ | 8.5 |
| | $ | 7.5 |
| | $ | 23.2 |
| | $ | 24.5 |
|
| Income from Continuing Operations* | $ | 4.0 |
| | $ | (0.2 | ) | | $ | 10.6 |
| | $ | 8.7 |
|
| Net Income (Loss)* | $ | 3.8 |
| | $ | (0.5 | ) | | $ | 10.2 |
| | $ | 8.1 |
|
| * Includes earnings from equity method investments held by the investee. | | |
| |
16. | DERIVATIVE INSTRUMENTS |
The Company is exposed to interest rate risk related to its floating rate interest debt. The Company balances its cost of debt and exposure to interest rates primarily through its mix of fixed and floating rate debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
Cash Flow Hedges of Interest Rate Risk
During 2016, the Company entered into an interest rate swap agreement with a notional amount of $60.0 million which was designated as a cash flow hedge. The Company structured the interest rate swap agreement to hedge the variability of future interest payments due to changes in interest rates with regards to the Company's long-term debt. A summary of the key terms related to the Company's outstanding cash flow hedge as of September 30, 2017 is as follows (dollars in millions):
|
| | | | | | | | | | | | | | | |
| | | | | Notional Amount at | | Fair Value at | Classification on |
| Effective Date | Maturity Date | Interest Rate | | September 30, 2017 | | September 30, 2017 | | December 31, 2016 | Balance Sheet |
| 4/7/2016 | 8/1/2029 | 3.14% | | $ | 60.0 |
| | $ | 2.4 |
| | $ | 2.8 |
| Other assets |
The Company assessed the effectiveness of the cash flow hedge at inception and will continue to do so on an ongoing basis. The effective portion of the changes in fair value of the cash flow hedge is recorded in accumulated other comprehensive loss and subsequently reclassified into interest expense as interest is incurred on the related-variable rate debt. When ineffectiveness exists, the ineffective portion of changes in fair value of the cash flow hedge is recognized in earnings in the period affected.
Non-designated Hedges
As of September 30, 2017, the Company has two interest rate swaps that have not been designated as cash flow hedges whose key terms are as follows (dollars in millions):
|
| | | | | | | | | | | | | | | |
| | | | | Notional Amount at | | Fair Value at | Classification on |
| Effective Date | Maturity Date | Interest Rate | | September 30, 2017 | | September 30, 2017 | | December 31, 2016 | Balance Sheet |
| 1/1/2014 | 9/1/2021 | 5.95% | | $ | 10.9 |
| | $ | (1.1 | ) | | $ | (1.3 | ) | Other non-current liabilities |
| 6/18/2008 | 3/1/2021 | 5.98% | | $ | 5.1 |
| | $ | (0.3 | ) | | $ | (0.5 | ) | Other non-current liabilities |
| Total | | | | $ | 16.0 |
| | $ | (1.4 | ) | | $ | (1.8 | ) | |
The following table represents the pre-tax effect of the derivative instruments in the Company's condensed consolidated statement of comprehensive income (loss) (in millions):
|
| | | | | | | | | | | | | | | | |
| | | Quarter Ended September 30, | | Nine Months Ended September 30, |
| Derivatives in Designated Cash Flow Hedging Relationships: | | 2017 | | 2016 | | 2017 | | 2016 |
| Amount of (gain) loss recognized in OCI on derivatives (effective portion) | | $ | 0.2 |
| | $ | — |
| | $ | 0.8 |
| | $ | 2.8 |
|
| Amounts of (gain) loss reclassified from accumulated OCI into earnings under "interest expense" (ineffective portion and amount excluded from effectiveness testing) | | $ | (0.1 | ) | | $ | (0.2 | ) | | $ | (0.4 | ) | | $ | (0.2 | ) |
The Company records gains or losses related to interest rate swaps that have not been designated as cash flow hedges in interest expense in its condensed consolidated statements of operations, and the amounts were immaterial during each of the quarters ended September 30, 2017 and 2016.
The Company measures all of its interest rate swaps at fair value. The fair values of the Company's interest rate swaps (Level 2) are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs.
| |
17. | DISCONTINUED OPERATIONS |
In December 2016, HC&S completed its final harvest and the Company ceased its sugar operations.
The historical results of operations have been presented as discontinued operations in the condensed consolidated financial statements and prior periods have been recast.
The revenue, operating loss, gain (loss) on asset dispositions, income tax (expense) benefit and after-tax effects of these transactions for the quarters and nine months ended September 30, 2017 and 2016 were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| | Quarter Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Sugar operations revenue (Land Operations) | $ | 0.4 |
| | $ | 35.7 |
| | $ | 22.9 |
| | $ | 73.7 |
|
| | | | | | | | |
| Operating loss before income taxes | $ | (1.1 | ) | | $ | (17.1 | ) | | $ | (2.2 | ) | | $ | (51.2 | ) |
| Gain (loss) on asset dispositions, net | (0.2 | ) | | — |
| | 6.0 |
| | — |
|
| Income (loss) from discontinued operations before income taxes | (1.3 | ) | | (17.1 | ) | | 3.8 |
| | (51.2 | ) |
| Income tax (expense) benefit | 0.5 |
| | 3.5 |
| | (1.4 | ) | | 23.1 |
|
| Income (loss) from discontinued operations | $ | (0.8 | ) | | $ | (13.6 | ) | | $ | 2.4 |
| | $ | (28.1 | ) |
| | | | | | | | |
| Basic earnings (loss) per share | $ | (0.02 | ) | | $ | (0.28 | ) | | $ | 0.04 |
| | $ | (0.58 | ) |
| Diluted earnings (loss) per share | $ | (0.02 | ) | | $ | (0.27 | ) | | $ | 0.05 |
| | $ | (0.57 | ) |
There was no depreciation and amortization related to discontinued operations for the quarter and nine months ended September 30, 2017. Depreciation and amortization related to discontinued operations was $12.6 million and $47.3 million for the quarter and nine months ended September 30, 2016, respectively.
Segment results were as follows (in millions):
|
| | | | | | | | | | | | | | | |
| Quarter Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Revenue: | | | | | | | |
| Commercial Real Estate | $ | 33.9 |
| | $ | 32.7 |
| | $ | 101.4 |
| | $ | 102.0 |
|
| Land Operations | 22.6 |
| | 18.1 |
| | 45.7 |
| | 29.6 |
|
| Materials & Construction | 55.0 |
| | 52.1 |
| | 155.7 |
| | 144.7 |
|
| Total revenue | 111.5 |
| | 102.9 |
| | 302.8 |
| | 276.3 |
|
| Operating Profit (Loss): | | | | | | | |
Commercial Real Estate1 | 13.6 |
| | 13.5 |
| | 41.3 |
| | 41.3 |
|
Land Operations2 | 10.4 |
| | 7.8 |
| | 9.7 |
| | (7.3 | ) |
| Materials & Construction | 6.5 |
| | 5.6 |
| | 18.8 |
| | 18.5 |
|
| Total operating profit | 30.5 |
| | 26.9 |
| | 69.8 |
| | 52.5 |
|
| Interest expense | (6.1 | ) | | (6.4 | ) | | (18.5 | ) | | (20.1 | ) |
| Gain on the sale of improved property | — |
| | 0.1 |
| | 3.0 |
| | 8.1 |
|
| General corporate expenses | (8.9 | ) | | (5.5 | ) | | (20.5 | ) | | (16.0 | ) |
REIT evaluation/conversion costs3 | (4.4 | ) | | (1.9 | ) | | (11.4 | ) | | (3.8 | ) |
| Income From Continuing Operations Before Income Taxes | 11.1 |
| | 13.2 |
| | 22.4 |
| | 20.7 |
|
| Income tax expense | (3.7 | ) | | (1.0 | ) | | (6.4 | ) | | (1.6 | ) |
| Income From Continuing Operations | 7.4 |
| | 12.2 |
| | 16.0 |
| | 19.1 |
|
| Income (loss) from discontinued operations, net of income tax | (0.8 | ) | | (13.6 | ) | | 2.4 |
| | (28.1 | ) |
| Net Income (Loss) | 6.6 |
| | (1.4 | ) | | 18.4 |
| | (9.0 | ) |
| Income attributable to noncontrolling interest | (0.5 | ) | | (0.5 | ) | | (1.7 | ) | | (1.1 | ) |
| Net Income (Loss) Attributable to A&B Shareholders | $ | 6.1 |
| | $ | (1.9 | ) | | $ | 16.7 |
| | $ | (10.1 | ) |
1 Commercial Real Estate operating profit includes intersegment operating revenue, primarily from our Materials & Construction segment, and is eliminated in our consolidated results of operations.
2 For the quarter and nine months ended September 30, 2017, Land Operations segment operating profit includes non-cash reductions of $0.4 million and $2.6 million, respectively, related to the Company's solar tax equity investments. For the quarter and nine months ended September 30, 2016, Land Operations segment operating profit included non-cash reductions of $0.2 million and $9.7 million, respectively. The non-cash reductions are recorded in Reductions in solar investment, net on the condensed consolidated statement of operations.
| |
3
| Costs related to the Company's in-depth evaluation of and conversion to a REIT. |
ITEM 2. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the condensed consolidated financial condition and results of operations of Alexander & Baldwin, Inc. ("A&B" or the "Company") and its subsidiaries (collectively, the "Company") should be read in conjunction with the condensed consolidated financial statements and related notes thereto included in Item 1 of this Form 10-Q and the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20162023, ("2023 Form 10-K") filed with the U.S. Securities and Exchange Commission ("SEC").
FORWARD-LOOKING STATEMENTS
Throughout this quarterly report on Form 10-Q, references to "we," "our," "us" and "our Company" refer to Alexander & Baldwin, Inc. ("A&B" or the "Company"), from time to time, may make or may have made certaintogether with its consolidated subsidiaries.
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts are forward-looking statements whether orally or in writing, such as forecasts and projectionswithin the meaning of the Company’s future performance or statements of management’s plans and objectives. These statements are "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, SEC filings, such as the Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press releases made by the Company, the Company’s web sites (including web sites of its subsidiaries), and oral statements made by the officers of the Company. Except for historical information contained in these written or oral communications, such communications contain forward-looking statements. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results1995 and involve a number of risks and uncertainties that could cause actual results to differ materially from those projectedcontemplated 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 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 the timing of certain events to differ materially from those expressed in or implied by the forward-looking statements. These factors include, but are not limited to, prevailing market conditions and other factors related to the Company's REIT status and the Company's business, the evaluation of alternatives by the Company related to its non-core assets and business, and the risk factors discussed in the statements, including the Company’s 2016 Annual Report onCompany's most recent Form 10-K, Form 10-Q and other filings with the SEC. The Company isinformation in this Form 10-Q should be evaluated in light of these important risk factors. We do not required, and undertakes noundertake any obligation to revise or update the Company's forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this report.statements.
INTRODUCTIONIntroduction and Objective
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is a supplement to the accompanying condensed consolidated financial statements and provides additional material information about A&B’sthe Company's business, recent developments and financial condition,condition; its results of operations at a consolidated and segment level; its liquidity and capital resources including an evaluation of the amounts and certainty of cash flows results offrom operations and from outside sources; and how certain accounting principles, policies and estimates affect A&B’sits financial statements. MD&A is organized as follows:
•Business Overview: This section provides a general description of A&B’sthe Company's business, as well as recent developments that A&Bmanagement believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
Critical Accounting Estimates: This section identifies and summarizes those accounting policies that significantly impact A&B’s reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.
•ConsolidatedResults of Operations: This section provides an analysis of A&B’sthe Company's consolidated results of operations for the quarters and ninethree months ended September 30, 2017 and 2016.
March 31, 2024, as compared to the corresponding period of the preceding fiscal year.•Analysis of Operating Revenue and Profit by Segment: This section provides an analysis of A&B’sthe Company's results of operations by business segment.
segment for the three months ended March 31, 2024, as compared to the corresponding period of the preceding fiscal year.Liquidity and Capital Resources:•Use of Non-GAAP Financial Measures: This section provides a discussion of A&B’sthe Company's non-GAAP financial measures included in this report and presents quantitative reconciliations between the non-GAAP financial measures and the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. It also describes why management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the Company's financial condition and an analysisresults of A&B’s cash flowsoperations and, to the extent material, describes additional purposes for which the nine months ended September 30, 2017Company uses the non-GAAP financial measures.
•Liquidity and 2016, as well asCapital Resources: This section provides a discussion of A&B’sany material changes in the Company's liquidity, financial condition and cash flows, including a discussion of any material changes in the Company's ability to fund its future commitments and ongoing operating activities in the short-term (i.e., over the next twelve months from the most recent fiscal period end) and in the long-term (i.e., beyond the next twelve months) through internal and external sources of capital.capital, as compared to the end of preceding fiscal year ended December 31, 2023. It includes an evaluation of the amounts and certainty of cash flows from operations and from outside sources.
Quantitative and Qualitative Disclosures about Market Risk:•Other Matters: This section discusses how A&B monitorsidentifies and manages exposuresummarizes other matters to potential gains and losses associated withbe discussed in Item 2 of this report including any changes in interest rates.
the significant judgments or critical accounting estimates on the part of management in preparing the Company's consolidated financial statements that may materially impact the Company's reported results of operations and financial condition from the end of the preceding fiscal year ended December 31, 2023, the potential impact of recently issued accounting pronouncements and other miscellaneous matters as needed.Rounding:Amounts in the MD&A are rounded to the nearest tenth of a million.thousand. Accordingly, a recalculation of totals and percentages, if based on the reported data, and may be slightly different.
BUSINESS OVERVIEW
A&B, whose history dates back to 1870, is headquartered in Honolulu andThe Company operates through three reportable segments: Commercial Real Estate; Land Operations; and Materials & Construction. The Company's three reportable segments reflect an internal reorganization of the operations and reporting structure that the Company completed in the fourth quarter of 2016 to facilitate operational efficiencies and enhance the execution of the Company’s businesses. Prior to October 1, 2016, the Company operated under four reportabletwo segments: Commercial Real Estate Real Estate Development and Sales, Materials & Construction, and Agribusiness. As a resultLand Operations. A description of each of the segment reorganization, the Company’s former Real Estate Development and Sales and AgribusinessCompany's reporting segments have been combined into the new Land Operations reportable segment. Additionally, the following items were realigned in connection with the segment changes: (1) agricultural leases that previously were included in the is as follows:
•Commercial Real Estate ("CRE") - This segment were reclassifiedfunctions as a vertically integrated real estate investment company with core competencies in property management and in-house leasing (i.e., executing new and renegotiating renewal lease arrangements, managing its properties' day-to-day operations and maintaining positive tenant relationships); investments and acquisitions (i.e., identifying opportunities and acquiring properties); and construction and development (i.e., designing and ground-up development of new properties or repositioning and redevelopment of existing properties). The Company's preferred asset classes include improved properties in retail and industrial spaces, and also urban ground leases. Its focus within improved retail properties, in particular, is on grocery-anchored neighborhood shopping centers that meet the daily needs of Hawai‘i communities. Through its core competencies and with its experience and relationships in Hawai‘i, the Company seeks to create special places that enhance the lives of Hawai‘i residents and to provide venues and opportunities that enable its tenants to thrive. Income from this segment is principally generated by owning, operating, and leasing real estate assets.
•Land Operations - This segment includes the Company's legacy landholdings, assets, and liabilities that are subject to the Company's simplification and monetization effort. Financial results from this segment are principally derived from real estate development and land sales, and joint venture activity.
Simplification strategy
As a REIT focused on Hawai‘i commercial real estate, the Company has pursued the monetization and disposition of legacy, non-core assets and landholdings in order to simplify its business and allocate its capital resources to commercial real estate. In November 2023, the Company completed the sale of its interests in Grace Pacific, a materials and construction company, and Company-owned quarry land on Maui (collectively, the "Grace Disposal Group"), marking the last major step in the Company's simplification efforts that began in 2016. The financial results associated with the Grace Disposal Group are classified as discontinued operations in the consolidated statements of operations and cash flows for the three months ended March 31, 2023. Related to the Land Operations segment, (2) certain industrial leases that previously were included induring the former Agribusiness segment were reclassified to the Commercial Real Estate segment, (3) sales of commercial properties that previously were included in the former Real Estate Development and Sales segment were reclassified to the Commercial Real Estate segment, and (4) the Company's solar energy investments that previously were presented as Corporate investments were reclassified to Land Operations. The financial information for all prior periods has been recast to correspond to these segment changes.
On July 10, 2017, the Company’s board of directors unanimously approved a plan forthree months ended March 31, 2024, the Company to be subject to tax as a real estate investment trust (a “REIT”)completed the sale of approximately 330 acres of land holdings on Maui and Kauai for U.S. federal income tax purposes commencing with$9.6 million.
Consolidated Results of Operations
The following analysis of the Company’s taxable year ending December 31, 2017 (the “REIT Election”).
Although the Company began operating in compliance with the requirements for qualificationconsolidated financial condition and taxation as a REIT (the “REIT requirements”) for the taxable year ending December 31, 2017, the Company intends to complete a merger that will facilitate the Company’s ongoing compliance with the REIT requirements by ensuring that certain standard REIT ownership limitations and transfer restrictions apply to the Company’s capital stock.
Pursuant to the merger agreement entered into on July 10, 2017 among the Company, Alexander & Baldwin REIT Holdings, Inc., a Hawaii corporation and a direct, wholly owned subsidiaryresults of operations of the Company (“A&B REIT Holdings”), and A&B REIT Merger Corporation, a Hawaii corporation and a direct, wholly owned subsidiary of A&B REIT Holdings (“Merger Sub”), Merger Sub willits subsidiaries should be merged with and into the Company,read in conjunction with the Company continuing as the surviving corporation. As a result of the merger, A&B REIT Holdings will replace the Company as the Hawaii-based, publicly held corporation through which the Company’s operations are now conducted,condensed consolidated financial statements and promptly following the merger A&B REIT Holdings will be renamed “Alexander & Baldwin, Inc.”related notes thereto.
During the thirdFinancial results - First quarter of 2017, A&B REIT Holdings filed a registration statement on Form S-42024 compared with the Securities and Exchange Commission (“SEC”), which included a preliminary proxy statement/prospectus that provides information regarding the REIT Election, the proposed merger and the special meeting at which the Company’s shareholders were given the opportunity to vote on the holding company merger proposal. The special meeting was held on October 27, 2017, during which A&B shareholders approved the holding company merger proposal pursuant to the registration statement.2023
Commercial Real Estate | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands, except percentage and per share data; unaudited) | | Three Months Ended March 31, | | 2024 vs 2023 |
| 2024 | | 2023 | | $ | | % |
| Operating revenue | | $ | 61,202 | | | $ | 50,390 | | | $ | 10,812 | | | 21.5 | % |
| Cost of operations | | (30,203) | | | (28,534) | | | (1,669) | | | (5.8) | % |
| Selling, general and administrative | | (7,239) | | | (8,729) | | | 1,490 | | | 17.1 | % |
| | | | | | | | |
| Gain (loss) on disposal of non-core assets, net | | 23 | | | 1,117 | | | (1,094) | | | (97.9) | % |
| Operating income (loss) | | 23,783 | | | 14,244 | | | 9,539 | | | 67.0 | % |
| Income (loss) related to joint ventures | | 698 | | | 388 | | | 310 | | | 79.9 | % |
| | | | | | | | |
| | | | | | | | |
| Interest and other income (expense), net | | 1,267 | | | (80) | | | 1,347 | | | NM |
| Interest expense | | (5,510) | | | (5,041) | | | (469) | | | (9.3) | % |
| Income tax benefit (expense) | | — | | | (5) | | | 5 | | | 100.0 | % |
| Income (loss) from continuing operations | | 20,238 | | | 9,506 | | | 10,732 | | | 112.9 | % |
| Income (loss) from discontinued operations (net of income taxes) | | (256) | | | (4,198) | | | 3,942 | | | 93.9 | % |
| Net income (loss) | | 19,982 | | | 5,308 | | | 14,674 | | | 3X |
| (Income) loss attributable to discontinued noncontrolling interest | | — | | | 28 | | | (28) | | | (100.0) | % |
| Net income (loss) attributable to A&B | | $ | 19,982 | | | $ | 5,336 | | | $ | 14,646 | | | 3X |
| | | | | | | | |
| Basic Earnings (Loss) Per Share of Common Stock: | | | | | | | | |
| Basic earnings (loss) per share - continuing operations | | $ | 0.28 | | | $ | 0.13 | | | $ | 0.15 | | | 115.4 | % |
| Basic earnings (loss) per share - discontinued operations | | — | | | (0.06) | | | 0.06 | | | 100.0 | % |
| | $ | 0.28 | | | $ | 0.07 | | | $ | 0.21 | | | 3X |
| Diluted Earnings (Loss) Per Share of Common Stock: | | | | | | | | |
| Diluted earnings (loss) per share - continuing operations | | $ | 0.28 | | | $ | 0.13 | | | $ | 0.15 | | | 115.4 | % |
| Diluted earnings (loss) per share - discontinued operations | | — | | | (0.06) | | | 0.06 | | | 100.0 | % |
| | $ | 0.28 | | | $ | 0.07 | | | $ | 0.21 | | | 3X |
| | | | | | | | |
| Continuing operations available to A&B common shareholders | | $ | 20,230 | | | $ | 9,476 | | | $ | 10,754 | | | 113.5 | % |
| Discontinued operations available to A&B common shareholders | | (256) | | | (4,170) | | | 3,914 | | | 93.9 | % |
| Net income (loss) available to A&B common shareholders | | $ | 19,974 | | | $ | 5,306 | | | $ | 14,668 | | | 3X |
| | | | | | | | |
| | | | | | | | |
Funds From Operations ("FFO")1 | | $ | 29,205 | | | $ | 18,568 | | | $ | 10,637 | | | 57.3 | % |
Adjusted FFO1 | | $ | 25,530 | | | $ | 16,012 | | | $ | 9,518 | | | 59.4 | % |
| | | | | | | | |
| FFO per diluted share | | $ | 0.40 | | | $ | 0.26 | | | $ | 0.14 | | | 53.8 | % |
Weighted average diluted shares outstanding (FFO/Adjusted FFO)2 | | 72,666 | | | 72,629 | | | | | |
| | | | | | | | |
1 For definitions of capitalized terms and a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures, refer to page 30. |
2 May differ from figure used in the consolidated statements of operations based on differing dilutive effects for net income (loss) versus FFO/Adjusted FFO. |
The Commercial Real Estate segment owns, operates and manages retail, industrial, and office propertiescauses of material changes in Hawaii and on the mainland. The Commercial Real Estate segment also leases urban land in Hawaii to third-party lessees.
Land Operations
The Land Operations segment actively manages the Company's land and real estate-related assets and deploys these assets to their highest and best use. Primary activitiescondensed consolidated statements of the Land Operations segment include planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; renewable energy; and diversified agribusiness activities. As a result of the previously mentioned segment realignment, the Company has reclassified the HC&S sugar operations, which completed its final harvest and ceased operations in December 2016, to the Land Operations segment and also presented the operations as discontinued operations for all periods.
Materials & Construction
The Materials & Construction segment performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells basalt aggregate; produces and sells asphaltic and ready-mix concrete; provides and sells various construction- and traffic-control-related products and manufactures and sells precast concrete products.
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated – Third quarter of 2017 compared with 2016
|
| | | | | | | | | | | | |
| | Quarter Ended September 30, |
| (dollars in millions, except per-share amounts) | 2017 | | 2016 | | $ Change | | Change |
| Operating revenue | $ | 111.5 |
| | $ | 102.9 |
| | 8.6 |
| | 8.4% |
| Operating costs and expenses | 99.7 |
| | 83.8 |
| | 15.9 |
| | 19.0% |
| Operating income | 11.8 |
| | 19.1 |
| | (7.3 | ) | | (38.2)% |
| Other expense, net | (0.7 | ) | | (5.9 | ) | | 5.2 |
| | (88.1)% |
| Income tax expense | (3.7 | ) | | (1.0 | ) | | (2.7 | ) | | 270.0% |
| Income from continuing operations | 7.4 |
| | 12.2 |
| | (4.8 | ) | | (39.3)% |
| Discontinued operations (net of income taxes) | (0.8 | ) | | (13.6 | ) | | 12.8 |
| | (94.1)% |
| Net income (loss) | 6.6 |
| | (1.4 | ) | | 8.0 |
| | NM |
| Income attributable to noncontrolling interest | (0.5 | ) | | (0.5 | ) | | — |
| | —% |
| Net income (loss) attributable to A&B | $ | 6.1 |
| | $ | (1.9 | ) | | 8.0 |
| | NM |
| | | | | |
| | |
| Basic earnings per share - continuing operations | $ | 0.15 |
| | $ | 0.25 |
| | (0.10 | ) | | (40.0)% |
| Basic earnings (loss) per share - discontinued operations | (0.02 | ) | | (0.28 | ) | | 0.26 |
| | (92.9)% |
| Net income (loss) available to A&B shareholders | $ | 0.13 |
| | $ | (0.03 | ) | | 0.16 |
| | NM |
| | | | | | | | |
| Diluted earnings per share - continuing operations | $ | 0.15 |
| | $ | 0.24 |
| | (0.09 | ) | | (37.5)% |
| Diluted earnings (loss) per share - discontinued operations | (0.02 | ) | | (0.27 | ) | | 0.25 |
| | (92.6)% |
| Net income (loss) available to A&B shareholders | $ | 0.13 |
| | $ | (0.03 | ) | | 0.16 |
| | NM |
The Company's consolidated operating revenue increased $8.6 million, or 8.4%, to $111.5 million for the third quarter of 2017three months ended March 31, 2024, as compared to the third quarter of 2016, reflecting an increase in revenue for Land Operations of $4.5 million, and an increase in Materials & Construction revenue of $2.9 million.
Consolidated operating costs and expenses for the third quarter of 2017 increased $15.9 million, or 19.0%, to $99.7 million compared to the third quarter of 2016. The reasons for the operating cost and expense changesthree months ended March 31, 2023, are described below by business segment,or in the Analysis of Operating Revenue and Profit by Segment. Segment sections below.
Operating costsrevenue during the first quarter ended March 31, 2024, increased 21.5%, or $10.8 million, to $61.2 million, due primarily to higher revenues from the Land Operations segment's unimproved and expenses forother land sales, as well as the thirdsale of two development parcels at Maui Business Park in the first quarter of 2017 also included $4.42024.
Cost of operations during the first quarter ended March 31, 2024, increased 5.8%, or $1.7 million, to $30.2 million, due primarily to the Land Operations segment's higher cost of sales associated with unimproved and other land sales and Maui Business Park development parcel sales.
Selling, general and administrative during the first quarter ended March 31, 2024, decreased 17.1%, or $1.5 million, to $7.2 million, due primarily to lower personnel-related expenses.
Gain (loss) on disposal of non-core assets, net of $1.1 million during the first quarter ended March 31, 2023, was due primarily to the sale of the Company's ownership interest in a legacy trucking and storage business on Maui in 2023.
Income (loss) related to joint ventures duringthe Company's evaluation and conversionfirst quarter ended March 31, 2024,increased 79.9%, or $0.3 million, to a REIT.
The Company's other expenses, net were $0.7 million in the third quarter of 2017 compared to $5.9 million in the third quarter of 2016. The change in other income (expense) wasdue primarily due to higher incomeearnings from the Company's equity method investments,unconsolidated investment in a materials company.
Interest and other income (expense), net of$1.3 million for three months ended March 31, 2024, was due primarily to a gain on the fair value adjustment for two forward interest rate swaps, partially offset by a higher non-cash reduction to solar investments, net inone-time financing charge.
Interest expense during the third quarter of 2017 as compared to the third quarter of 2016.
The Company recorded an income tax expense of $3.7 million on pre-tax income of $11.1 million for the third quarter of 2017, and an income tax expense of $1.0 million on pre-tax income of $13.2 million for the third quarter of 2016. The Company's effective tax rate was higher for thefirst quarter ended September 30, 2017, comparedMarch 31, 2024, increased 9.3%, or $0.5 million, to the same period in 2016, primarily$5.5 million due to the 2016 recognitionhigher borrowings and higher interest rate on variable rate debt.
Loss from discontinued operations (net of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities.
Consolidated – First nine months of 2017 compared with 2016
|
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (dollars in millions, except per-share amounts) | 2017 | | 2016 | | $ Change | | Change |
| Operating revenue | $ | 302.8 |
| | $ | 276.3 |
| | 26.5 |
| | 9.6% |
| Operating costs and expenses | 273.5 |
| | 239.0 |
| | 34.5 |
| | 14.4% |
| Operating income | 29.3 |
| | 37.3 |
| | (8.0 | ) | | (21.4)% |
| Other expense, net | (6.9 | ) | | (16.6 | ) | | 9.7 |
| | (58.4)% |
| Income tax expense | (6.4 | ) | | (1.6 | ) | | (4.8 | ) | | 300.0% |
| Income from continuing operations | 16.0 |
| | 19.1 |
| | (3.1 | ) | | (16.2)% |
| Discontinued operations (net of income taxes) | 2.4 |
| | (28.1 | ) | | 30.5 |
| | NM |
| Net income (loss) | 18.4 |
| | (9.0 | ) | | 27.4 |
| | NM |
| Income attributable to noncontrolling interest | (1.7 | ) | | (1.1 | ) | | (0.6 | ) | | 54.5% |
| Net income (loss) attributable to A&B | $ | 16.7 |
| | $ | (10.1 | ) | | 26.8 |
| | NM |
| | | | | | | | |
| Basic earnings per share - continuing operations | $ | 0.32 |
| | $ | 0.39 |
| | (0.07 | ) | | (17.9)% |
| Basic earnings (loss) per share - discontinued operations | 0.04 |
| | (0.58 | ) | | 0.62 |
| | NM |
| Net income (loss) available to A&B shareholders | $ | 0.36 |
| | $ | (0.19 | ) | | 0.55 |
| | NM |
| | | | | | | | |
| Diluted earnings per share - continuing operations | $ | 0.31 |
| | $ | 0.38 |
| | (0.07 | ) | | (18.4)% |
| Diluted earnings (loss) per share - discontinued operations | 0.05 |
| | (0.57 | ) | | 0.62 |
| | NM |
| Net income (loss) available to A&B shareholders | $ | 0.36 |
| | $ | (0.19 | ) | | 0.55 |
| | NM |
The Company's consolidated operating revenue increased $26.5 million, or 9.6%, to $302.8 million forincome taxes) during the first nine monthsquarter ended March 31, 2024, of 2017 as compared$0.3 million relates to the first nine months of 2016, reflecting an increase in revenue for Land Operations of $16.1 million, and an increase in revenue for Materials & Construction of $11.0 million.
Consolidated operating costs andcessation expenses for the first nine monthsCompany's former sugar operations which primarily relates to resolution of 2017 increased $34.5 million, or 14.4%, to $273.5 million compared tocessation-related liabilities. Loss from discontinued operations (net of income taxes) during the first nine monthsquarter ended March 31, 2023, of 2016. The reasons for$4.2 million primarily relates to operations of the operating cost and expense changes are described below, by business segment,Grace Disposal Group, which was sold in the November 2023.
Analysis of Operating Revenue and Profit by Segment. Operating costsSegment
The following analysis should be read in conjunction with the condensed consolidated financial statements and expensesrelated notes thereto.
Commercial Real Estate
Financial results - First quarter of 2024 compared with 2023
Results of operations for the first nine months of 2017 also included $11.4quarter ended March 31, 2024 and 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (amounts in thousands, except percentage data and acres; unaudited) | | Three Months Ended March 31, | | 2024 vs 2023 |
| 2024 | | 2023 | | $ | | % |
| Commercial Real Estate operating revenue | | $ | 48,888 | | | $ | 47,870 | | | $ | 1,018 | | | 2.1 | % |
| Commercial Real Estate operating costs and expenses | | (25,416) | | | (24,948) | | | (468) | | | (1.9) | % |
| Selling, general and administrative | | (1,556) | | | (2,066) | | | 510 | | | 24.7 | % |
Intersegment operating revenue, net1 | | 6 | | | 23 | | | (17) | | | (73.9) | % |
| | | | | | | | |
| | | | | | | | |
| Interest and other income (expense), net | | 59 | | | (2) | | | 61 | | | NM |
| Commercial Real Estate operating profit (loss) | | $ | 21,981 | | | $ | 20,877 | | | $ | 1,104 | | | 5.3 | % |
| | | | | | | | |
Net Operating Income ("NOI")2 | | $ | 31,764 | | | $ | 30,427 | | | $ | 1,337 | | | 4.4 | % |
| | | | | | | | |
Same-Store Net Operating Income ("Same-Store NOI")2 | | $ | 31,547 | | | $ | 30,313 | | | $ | 1,234 | | | 4.1 | % |
| Gross leasable area ("GLA") in square feet ("SF") for improved properties at end of period | | 3,932 | | | 3,905 | | | 27 | | | 1 | % |
| | | | | | | | |
1 Intersegment operating revenue, net for Commercial Real Estate is primarily from the Land Operations segment and is eliminated in the consolidated results of operations. |
2 For a discussion of management's use of non-GAAP financial measures and the required reconciliation of non-GAAP measures to GAAP measures, refer to page 30. |
Commercial Real Estate operating revenue increased 2.1% or $1.0 million, related to the Company's evaluation of a REIT conversion.
The Company's other expenses, net, were $6.9 million in the first nine months of 2017 compared to $16.6 million in the first nine months of 2016. The change in other income (expense) was primarily due to a lower reduction in solar investments, net, partially offset by lower gains on sales of improved property.
The Company recorded an income tax expense of $6.4 million on pre-tax income of $22.4$48.9 million for the first nine months of 2017, and an income tax expense of $1.6quarter ended March 31, 2024, as compared to the first quarter ended March 31, 2023. Operating profit increased 5.3%, or $1.1 million, on pre-tax income of $20.7to $22.0 million for the first nine months of 2016. The Company's effective tax rate was higher for the first nine monthsquarter ended September 30, 2017March 31, 2024, as compared to the samefirst quarter ended March 31, 2023. The increase in operating revenue and operating profit from the prior year period in 2016was due primarily to the 2016 recognition of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities.higher rental revenue and lower net bad debt expense.
ANALYSIS OF OPERATING REVENUE AND PROFIT BY SEGMENT
Commercial Real Estate – Thirdportfolio additions, transfers, and dispositions
During the three months ended March 31, 2024, the Company had no additions, transfers, or dispositions of commercial real estate properties.
Leasing activity
During the first quarter ended March 31, 2024, the Company signed 12 new leases and 32 renewal leases for its improved properties across its retail, industrial, and office asset classes, covering 212,000 square feet of 2017 comparedGLA. The 12 new leases consist of 27,800 square feet with 2016an average annual base rent of $27.10 per-square-foot. Of the 12 new leases, 8 leases with a total GLA of 21,200 square feet were considered comparable (i.e., renewals, for the same units, or new leases executed for units that have been vacated in the previous 12 months for comparable space and comparable lease terms) and, for these 8 leases, resulted in an 11.8% average base rent increase over comparable expiring leases. The 32 renewal leases consist of 184,200 square feet with an average annual base rent of $24.69 per square foot. Of the 32 renewal leases, 26 leases with a total GLA of 103,200 square feet were considered comparable and resulted in an 7.2% average base rent increase over comparable expiring leases. The Company signed no new ground lease renewals during the first quarter ended March 31, 2024.
Leasing activity summarized by asset class for the three months ended March 31, 2024, were as follows:
|
| | | | | | | | | |
| | Quarter Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Commercial Real Estate segment operating revenue | $ | 33.9 |
| | $ | 32.7 |
| | 3.7% |
| Commercial Real Estate segment operating costs and expenses | (19.2 | ) | | (19.3 | ) | | (0.5)% |
| Selling, general and administrative | (1.9 | ) | | (0.4 | ) | | 375.0% |
Intersegment operating revenue2 | 0.8 |
| | 0.6 |
| | 33.3% |
| Other income (expense), net | — |
| | (0.1 | ) | | (100.0)% |
| Commercial Real Estate operating profit | $ | 13.6 |
| | $ | 13.5 |
| | 0.7% |
| Operating profit margin | 40.1 | % | | 41.3 | % |
| |
Cash Net Operating Income ("Cash NOI")1 | | | | |
|
| Hawaii | $ | 18.5 |
| | $ | 17.6 |
| | 5.2% |
| Mainland | 2.7 |
| | 2.6 |
| | 2.4% |
| Total | $ | 21.2 |
| | $ | 20.2 |
| | 4.8% |
Same-Store Cash Net Operating Income ("Same-Store Cash NOI")1 | | | | | |
| Hawaii | $ | 16.7 |
| | $ | 16.1 |
| | 3.5% |
| Mainland | 2.7 |
| | 2.5 |
| | 7.2% |
| Total | $ | 19.4 |
| | $ | 18.7 |
| | 4.0% |
| Gross Leasable Area ("GLA") (million sq. ft.) - Improved, end of period | | | | | |
| Hawaii | 3.0 |
| | 2.9 |
| | |
| Mainland | 1.8 |
| | 1.8 |
| | |
| Total improved | 4.8 |
| | 4.7 |
| | |
| Hawaii ground leases (acres) | 117 |
| | 115 |
| | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | |
| Leases | GLA (SF) | ABR2,4/SF | Rent Spread3 | | | | | |
| Retail | 33 | 74,912 | | $ | 41.82 | | 9.1 | % | | | | | |
| Industrial | 11 | 137,088 | | $ | 15.82 | | 4.6 | % | | | | | |
| Office | — | — | | N/A | N/A | | | | | |
| Subtotal - Improved properties | 44 | 212,000 | | $ | 25.01 | | 7.8 | % | | | | | |
| Ground | — | N/A1 | N/A | N/A | | | | | |
1 Not applicable for ground leases as such leases would not be comparable from a GLA (SF) perspective |
2Annualized Base Rent ("ABR") is the current month's contractual base rent multiplied by 12. Base rent is presented without consideration of percentage rent that may, in some cases, be significant. |
3 Rent spread is calculated for comparable leases, a subset of the total population of leases for the period presented (described above). |
4 Current ABR, in millions, is presented for ground leases |
1Refer
Occupancy
The Company reports three types of occupancy: "Leased Occupancy," "Physical Occupancy," and "Economic Occupancy."
The Leased Occupancy percentage calculates the square footage leased (i.e., the space has been committed to page by a lessee under a signed lease agreement) as a percentage of total available improved property square footage as of the end of the period reported.
The Physical Occupancy percentage calculates the square footage leased and commenced (i.e., measured when the lessee has physical access to the space) as a percentage of total available improved property space at the end of the period reported.
The Economic Occupancy percentage calculates the square footage under leases for which the lessee is contractually obligated to make lease-related payments (i.e., subsequent to the rent commencement date) to total available improved property square footage as of the end of the period reported.
| | | | | | | | | | | | | | | | | | | | |
| | As of | | As of | | Basis Points |
| | March 31, 2024 | | March 31, 2023 | |
| Leased Occupancy | | 94.0% | | 93.9% | | 10 |
| Physical Occupancy | | 93.5% | | 93.3% | | 20 |
| Economic Occupancy | | 92.3% | | 92.4% | | (10) |
For further context, the Company's Leased Occupancy and Economic Occupancy metrics for its improved portfolio summarized by asset class – and the corresponding occupancy metrics for a discussioncategory of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
2Intersegment operating revenue for Commercial Real Estate is primarily from our Materials & Construction segment, and is eliminated in our consolidated results of operations.
Commercial Real Estate revenue for the third quarter of 2017 and 2016 was $33.9 million and $32.7 million, respectively. The increase was primarily attributable to the increases in Hawaii same-store rents. "Same-store" refers to properties that were owned and operated for the entirety of the prior calendar year. The same-store pool excludes properties under development or redevelopmentyear and also excludes properties acquired or sold during the comparable reporting periods, including stabilized properties. New developments and redevelopments are moved into the same-store pool upon one full calendar year of stabilized operation, which is typically upon attainment of market occupancy.
Operating profit and cash net operating incomecurrent period, to date ("Cash NOI") for the third quarter of 2017 increased by 0.7% and 4.8%, respectively, compared to the third quarter of 2016. The period-over-period increase in operating profit was primarily due to performance of the Hawaii properties, including higher Hawaii same-store rents, offset by an increase in general and administrative expenses. The higher general and administrative expenses reflect the Company’s strategic shift to focus on the growth of the commercial real estate portfolio through acquisition, development and redevelopment, which resulted in the alignment of certain personnel and related costs to the Commercial Real Estate segment,Same-Store" as well as costs incurred related to transitioning existing third-party property management and leasing functions internally. The period-over-period increase in Cash NOI was primarily due to performance of the Hawaii portfolio, including higher Hawaii same-store rents. Same-Store Cash NOI for the third quarter of 2017 increased by 4.0% compared to the third quarter of 2016, primarily due to an increase in same-store rents.
Tenant improvement costs were $2.5 million and $0.6 million for the quarter ended September 30, 2017 and 2016, respectively. Leasing commissions were $1.0 million and $0.6 million for the quarter ended September 30, 2017 and 2016, respectively.
The Company's commercial portfolio's occupancy percentage summarized by geographic location and property typemore fully described below) – as of September 30, 2017 wasMarch 31, 2024 and 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Leased Occupancy |
| | As of | | As of | | Basis Points |
| | March 31, 2024 | | March 31, 2023 | |
| Retail | | 93.2% | | 93.6% | | (40) |
| Industrial | | 96.8% | | 95.2% | | 160 |
| Office | | 83.9% | | 87.1% | | (320) |
| Total Leased Occupancy | | 94.0% | | 93.9% | | 10 |
| | | | | | | | | | | | | | | | | | | | |
| Economic Occupancy |
| | As of | | As of | | Basis Point Change |
| | March 31, 2024 | | March 31, 2023 | |
| Retail | | 91.2% | | 91.7% | | (50) |
| Industrial | | 95.7% | | 94.6% | | 110 |
| Office | | 83.3% | | 86.5% | | (320) |
| Total Economic Occupancy | | 92.3% | | 92.4% | | (10) |
| | | | | | | | | | | | | | | | | | | | |
| Same-Store Leased Occupancy |
| | As of | | As of | | Basis Point Change |
| | March 31, 2024 | | March 31, 2023 | |
| Retail | | 94.4% | | 94.9% | | (50) |
| Industrial | | 96.8% | | 95.2% | | 160 |
| Office | | 87.4% | | 91.0% | | (360) |
| Total Same-Store Leased Occupancy | | 95.0% | | 94.8% | | 20 |
| | | | | | | | | | | | | | | | | | | | |
| Same-Store Economic Occupancy |
| | As of | | As of | | Basis Point Change |
| | March 31, 2024 | | March 31, 2023 | |
| Retail | | 92.4% | | 93.0% | | (60) |
| Industrial | | 95.6% | | 94.6% | | 100 |
| Office | | 86.7% | | 90.3% | | (360) |
| Total Same-Store Economic Occupancy | | 93.3% | | 93.4% | | (10) |
Land Operations
|
| | | |
| Percent occupancy | Hawaii | Mainland | Total |
| Retail | 92.5% | 96.0% | 92.9% |
| Industrial | 94.2% | 99.2% | 97.0% |
| Office | 91.9% | 87.5% | 88.8% |
| Total | 93.0% | 95.9% | 94.1% |
The Company's commercial portfolio's quarter end same-store occupancy asasset class mix of September 30, 2017 was 94.1% as compared to 91.3% as of September 30, 2016.
The table below identifies sales and acquisitions between December 31, 2016 and September 30, 2017:
|
| | | | | | | | | | | | |
| Dispositions | | Acquisitions |
| Date | | Property | | Leasable sq. ft. | | Date | | Property | | Leasable sq. ft. |
| 1/17 | | The Maui Clinic Building | | 16,600 |
| | 6/17 | | Honokohau Industrial | | 73,200 |
|
| | | Total dispositions | | 16,600 |
| | | | Total improved acquisitions | | 73,200 |
|
The table below identifies sales and acquisitions between December 31, 2015 and December 31, 2016:
|
| | | | | | | | | | | | |
| Dispositions | | Acquisitions |
| Date | | Property | | Leasable sq. ft. | | Date | | Property | | Leasable sq. ft. |
| 6/16 | | Ninigret Office Park | | 185,500 |
| | 12/16 | | 2927 East Manoa Road (Ground Lease) | | N/A |
|
| 6/16 | | Gateway Oaks | | 59,700 |
| | 1/16 | | Manoa Marketplace | | 139,300 |
|
| 6/16 | | Prospect Park | | 163,300 |
| | | | | | |
| | | Total dispositions | | 408,500 |
| | | | Total improved acquisitions | | 139,300 |
|
Commercial Real Estate – First nine months of 2017 compared with 2016
|
| | | | | | | | | |
| | Nine Months Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Commercial Real Estate segment operating revenue | $ | 101.4 |
| | $ | 102.0 |
| | (0.6)% |
| Commercial Real Estate segment operating costs and expenses | (56.9 | ) | | (60.1 | ) | | (5.3)% |
| Selling, general and administrative | (5.1 | ) | | (2.3 | ) | | 121.7% |
Intersegment operating revenue2 | 2.1 |
| | 1.9 |
| | 10.5% |
| Other income (expense), net | (0.2 | ) | | (0.2 | ) | | —% |
| Commercial Real Estate operating profit | $ | 41.3 |
| | $ | 41.3 |
| | —% |
| Operating profit margin | 40.7 | % | | 40.5 | % | | |
Net Operating Income ("Cash NOI")1 | | | | | |
| Hawaii | $ | 55.5 |
| | $ | 52.5 |
| | 5.8% |
| Mainland | 8.3 |
| | 10.5 |
| | (21.6)% |
| Total | $ | 63.8 |
| | $ | 63.0 |
| | 1.2% |
Same-Store Net Operating Income ("Same-Store Cash NOI")1 | | | | | |
| Hawaii | $ | 50.7 |
| | $ | 48.6 |
| | 4.3% |
| Mainland | 8.2 |
| | 7.9 |
| | 4.5% |
| Total | $ | 58.9 |
| | $ | 56.5 |
| | 4.3% |
1Refer to page 28 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
2Intersegment operating revenue for Commercial Real Estate is primarily from our Materials & Construction segment, and is eliminated in our consolidated results of operations.
Commercial Real Estate revenue for the first nine months of 2017 was 0.6% lower than the first nine months of 2016, primarily due to the timing of sales and acquisitions during 2016, partially offset by an increase in Hawaii same-store rents.
Operating profit for the first nine months of 2017 was consistent with the same period last year, while Cash NOI increased by 1.2%. Operating profit did not change period-over-period, which reflected an increase in operating profit related to same-store properties as described above, offset by an increase in general and administrative expenses. The general and administrative expenses reflect the Company’s strategic shift to focus on the growth of the commercial real estate portfolio through acquisition, development and redevelopment, which resulted in the alignment of certain personnel and related costs to the Commercial Real Estate segment, as well as costs incurred related to transitioning existing third-party property management and leasing functions internally. The period-over-period increase in Cash NOI was primarily due to increases in same-store rents, partially offset by the impact of acquisitions and dispositions between the reported periods. Same-Store Cash NOI for the first nine months of 2017 increased by 4.3% compared to the first nine months of 2016. The period over period increase in Same-Store Cash NOI was primarily due to an increase in same-store rents throughout the Hawaii and Mainland portfolios.
Tenant improvement costs were $4.0 million and $3.0 million for the nine months ended September 30, 2017 and 2016, respectively. Leasing commissions were $4.6 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Use of Non-GAAP Financial Measures
Cash net operating income ("Cash NOI") is presented for the Commercial Real Estate segment, and is calculated by adjusting segment operating profit for depreciation and amortization, straight-line lease adjustments, and general, administration and other expenses. Other real estate companies may use different methodologies for calculating Cash NOI, and accordingly, the Company's presentation of Cash NOI may not be comparable to other real estate companies.
Cash NOI is a non-GAAP measure used by the Company in evaluating the CRE segment’s operating performance as it is an indicator of the return on property investment, and provides a method of comparing performance of operations, on an unlevered basis, over time. Cash NOI should be not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In connection with the Company's decision to convert to a REIT in 2017, the Company has revised its definition of NOI to adjust Operating Profit for termination income, lease incentive amortization, and favorable/unfavorable lease amortization. We refer to amounts reported in this MD&A under our new definition as "Cash NOI" to distinguish from the amounts previously reported under our prior definition. While there is no standard industry definition of NOI, the Company believes its revised definition is more closely aligned with current practices of other REITs.
A reconciliation of Commercial Real Estate segment operating profit to Commercial Real Estate segment Cash NOI is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended September 30, | | Nine Months Ended September 30, |
| (dollars in millions) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| Commercial Real Estate Operating Profit | | $ | 13.6 |
| | $ | 13.5 |
| |
| | $ | 41.3 |
| | $ | 41.3 |
| |
|
| Adjustments: | | | | | |
| | | | | | |
| Depreciation and amortization | | 6.6 |
| | 7.0 |
| |
| | 19.7 |
| | 21.7 |
| |
|
| Straight-line lease adjustments | | (0.3 | ) | | (0.4 | ) | |
| | (1.3 | ) | | (1.6 | ) | |
|
| Lease incentive amortization | | — |
| | — |
| |
| | — |
| | 0.1 |
| |
|
| Favorable/(unfavorable) lease amortization | | (0.6 | ) | | (0.9 | ) | |
| | (2.2 | ) | | (2.6 | ) | |
|
| Termination income | | — |
| | — |
| |
| | — |
| | (0.1 | ) | |
|
| Other (income)/expense, net | | — |
| | 0.1 |
| |
| | 0.2 |
| | 0.2 |
| |
|
| Selling, general, administrative and other expenses | | 1.9 |
| | 0.9 |
| |
| | 6.1 |
| | 4.0 |
| |
|
| Commercial Real Estate Cash NOI | | 21.2 |
| | 20.2 |
| | 4.8% | | 63.8 |
| | 63.0 |
| | 1.2% |
| Acquisitions/disposition and other adjustments | | (1.8 | ) | | (1.5 | ) | |
| | (4.9 | ) | | (6.5 | ) | |
|
| Commercial Real Estate Same-Store Cash NOI | | $ | 19.4 |
| | $ | 18.7 |
| | 4.0% | | $ | 58.9 |
| | $ | 56.5 |
| | 4.3% |
Land Operations – Third quarter of 2017 compared with 2016
Effect of Property Sales Mix on Operating Results: Direct year-over-year comparison of the Land Operations segment results may not provide a consistent, measurable indicator of future performance because results from period to period are significantly affected by the mix and timing of property sales. Operating results, by virtue of each project’s asset class, geography and timing are inherently variable. Earnings from joint venture investments are not included in segment revenue, but are included in operating profit. The mix of real estate sales in any year or quartergiven period can be diverse and canmay include developed residential real estate, developable subdivision lots, undeveloped land, andor property sold under threat of condemnation. The saleFurther, the timing of undeveloped land and vacant parcelsproperty or parcel sales can significantly affect operating results in Hawaii generally provides higher margins than does the sale of developed property, due to the low historical cost basis of the Company’s Hawaii land. Consequently, Land Operations revenue trends, cash flows from the sales of real estate, and the amount of real estate held for sale on the Company's balance sheet do not necessarily indicate future profitability trends for this segment. Additionally, the operatinga given period.
Operating profit reported in each quarterperiod for the Land Operations segment does not necessarily follow a percentage of sales trend because the cost basis of property sold can differ significantly between transactions. For example, the sale of undeveloped land and vacant parcels in Hawai‘i may result in higher margins than the sale of developed property due to the low historical cost basis of the Company's legacy landholdings.
|
| | | | | | | |
| | Quarter Ended September 30, |
| (dollars in millions) | 2017 | | 2016 |
| Development sales revenue | $ | 1.5 |
| | $ | 3.3 |
|
| Unimproved/other property sales revenue | 15.4 |
| | 9.5 |
|
| Agribusiness revenue | 5.6 |
| | 5.2 |
|
| Other operating revenues | 0.1 |
| | 0.1 |
|
| Total Land Operations segment revenue | $ | 22.6 |
| | $ | 18.1 |
|
| Operating expenses | (16.4 | ) | | (11.2 | ) |
| Earnings from joint ventures | 2.9 |
| | 0.6 |
|
| Reductions in solar investments, net | (0.4 | ) | | (0.2 | ) |
| Interest and other income | 1.7 |
| | 0.5 |
|
| Total Land Operations operating profit | $ | 10.4 |
| | $ | 7.8 |
|
Third quarter 2017: Land Operations operating revenue and operating profit were $22.6 million and $10.4 million, respectively. Operating results forAs a result, direct year-over-year comparison of the Land Operations segment includedresults may not provide a consistent, measurable indicator of future performance. Further, Land Operations revenue trends, cash flows from the sales of real estate, and the amounts of real estate developments for sale on the Company's condensed consolidated balance sheet do not necessarily indicate future profitability trends for this segment.
Financial results - First quarter of 2024 compared with 2023
Results of operations for the first quarter ended March 31, 2024 and 2023, were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| (amounts in thousands; unaudited) | | 2024 | | 2023 |
| Development sales revenue | | $ | 2,455 | | | $ | — | |
| Unimproved/other property sales revenue | | 9,625 | | | 850 | |
Other operating revenue1 | | 234 | | | 1,670 | |
| Total Land Operations operating revenue | | 12,314 | | | 2,520 | |
| Land Operations operating costs and expenses | | (4,787) | | | (3,586) | |
| Selling, general and administrative | | (320) | | | (472) | |
| Gain (loss) on disposal of assets, net | | 23 | | | 1,117 | |
| | | | |
Intersegment operating charges, net2 | | (12) | | | (41) | |
| Earnings (loss) from joint ventures | | 698 | | | 388 | |
| | | | |
| Interest and other income (expense), net | | 15 | | | (18) | |
| Total Land Operations operating profit (loss) | | $ | 7,931 | | | $ | (92) | |
| | | | |
1 Other operating revenue includes revenue related to licensing and leasing of non-core legacy agricultural lands during the three months ended March 31, 2024 and 2023. Other revenue also includes trucking and storage operations during the three months ended March 31, 2023. |
2 Intersegment operating charges for Land Operations are primarily from the Commercial Real Estate segment and are eliminated in the consolidated results of operations. |
First quarter of 2024: Land Operations revenue of $12.3 million during the first quarter ended March 31, 2024, was primarily related to unimproved and other land sales on the islands of Maui and Kauai, as well as sales of two development parcels at Maui Business Park.
Land Operations operating profit of $7.9 million during the first quarter ended March 31, 2024, was composed of the margins from unimproved and other and development land sales and equity in earnings primarily from the Company's unconsolidated investment in a 293-acre parcelmaterials company.
First quarter of 2023: Operating revenue of $2.5 million primarily consisted of revenue related to the Company's legacy business activities in Haiku, Maui, a 273-acrethe Land Operations segment (primarily trucking and storage services and licensing and leasing of non-core legacy land), as well as the sale of an unimproved land parcel on the island of Kauai,Kauai.
Land Operations operating loss of $0.1 million during the first quarter ended March 31, 2023, was composed of the margins resulting from the real estate sale and legacy business activities noted above, the gain on disposal of the Company's ownership interest in a 1.5-acre parcel atlegacy trucking and storage business on Maui, Business Park II, as well asand equity in earnings primarily from the Company's unconsolidated investment in a materials company, offset by the carrying costs of landholdings.
Use of Non-GAAP Financial Measures
The Company uses non-GAAP measures when evaluating operating performance because management believes that they provide additional insight into the Company's and segments' core operating results, and/or the underlying business trends affecting performance on a consistent and comparable basis from period to period. These measures generally are provided to investors as an additional means of evaluating the performance of ongoing core operations. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.
Funds from Operations and Adjusted Funds From Operations
Funds from operations (“FFO”) is a widely used supplemental non-GAAP financial measure of REITs' operating performance. FFO is computed in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”) and is calculated as follows: net income (loss) available to A&B common shareholders (calculated in accordance with GAAP), excluding (1) depreciation and amortization related to real estate, development-related joint ventures(2) gains and investments. The segment results also included segment operating expenses of $16.4 million and non-cash reductions in the carrying value of the Company's tax equity solar investments of $0.4 million.
Third quarter 2016: Land Operations operating revenue and operating profit were $18.1 million and $7.8 million, respectively. Operating results included sales of a 267-acre parcel in Haiku, Maui, a Kahala lot, as well as earnings from the Company's real estate development-related joint ventures and investments, partially offset by operating expenses of the segment and a $0.2 million non-cash reduction in the carrying value of the Company’s tax equity solar investments.
Land Operations – First nine months of 2017 compared with 2016
|
| | | | | | | |
| | Nine Months Ended September 30, |
| (dollars in millions) | 2017 | | 2016 |
| Development sales revenue | $ | 6.1 |
| | $ | 3.3 |
|
| Unimproved/other property sales revenue | 21.4 |
| | 10.1 |
|
| Agribusiness revenue | 18.0 |
| | 16.0 |
|
| Other operating revenues | 0.2 |
| | 0.2 |
|
| Total Land Operations segment revenue | $ | 45.7 |
| | $ | 29.6 |
|
| Operating expenses | (40.7 | ) | | (29.3 | ) |
| Earnings from joint ventures | 3.6 |
| | 1.0 |
|
| Reductions in solar investments, net | (2.6 | ) | | (9.7 | ) |
| Interest and other income | 3.7 |
| | 1.1 |
|
| Total Land Operations operating profit (loss) | $ | 9.7 |
| | $ | (7.3 | ) |
First nine months of 2017: Land Operations operating revenue and operating profit were $45.7 million and $9.7 million, respectively. Operating results for the Land Operations segment included sales related to a 293-acre parcel in Haiku, Maui, a 273-acre parcel on the island of Kauai, a 3-acre parcel in Wailea, Maui, a 6-acre parcel in Haliimaile, Maui, two lots at Maui Business Park, and a 0.8-acre vacant, urban parcel on Maui, as well as earnings from the Company's real estate development-related joint ventures and investments. The segment results also included a $2.6 million non-cash reduction in the carrying value of the Company's Solar Investment.
First nine months of 2016: Land Operations operating revenue and operating loss were $29.6 million and $7.3 million, respectively. Operating results included a $9.7 million non-cash reduction in the carrying value of the Company’s Solar Investments, segment operating expenses, partially offset by revenuelosses from the sale of certain real estate assets, (3) gains and losses from change in control, (4) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, and (5) income (loss) from discontinued operations related to legacy business operations.
Management believes that FFO serves as a 267-acre parcelsupplemental measure to net income calculated in Haiku, Maui, a Kahala lot, nine Ka Milo units,accordance with GAAP for comparing its performance and operations to those of other REITs because it excludes items included in net income that do not relate to or are not indicative of the Company’s operating and financial performance, such as depreciation and amortization related to real estate, which assumes that the value of real estate assets diminishes predictably over time instead of fluctuating with market conditions, and items that can make periodic or peer analysis more difficult, such as gains and losses from the sale of electricity generated by the Company's renewable energy assets.
Discontinued OperationsCRE properties, impairment losses related to CRE properties, and income (loss) from discontinued operations. Management believes that FFO more accurately provides an investor an indication of our ability to incur and service debt, make capital expenditures and fund other needs.
The revenue, operating loss,Company has been executing a simplification strategy to focus on the growth and after-taxexpansion of its commercial real estate portfolio in Hawai‘i by monetizing its legacy assets and operations. The sale of Grace Pacific, LLC and the Company-owned quarry land on Maui in 2023 marked the culmination of the Company’s simplification strategy. Although the Company has some remaining legacy assets that will continue to be monetized, investors and analysts now view the Company as a pure-play REIT. In order to enhance comparability to other REITs, the Company will provide an additional performance metric, Adjusted FFO, to further adjust FFO to exclude the effects of discontinuedcertain items not related to ongoing property operations. Management believes Adjusted FFO is a widely recognized measure of the property operations of REITs and may be more useful than FFO in evaluating the operating performance of the Company’s properties over the long term, as well as enabling investors and analysts to assess performance in comparison to other real estate companies
Adjusted FFO is an additional supplemental non-GAAP measure of REITs' operating performance. It is calculated by adjusting FFO to exclude share-based compensation, straight-line lease revenue and other non-cash adjustments, such as amortization of market lease adjustments, debt premium or discount and deferred financing cost amortization, maintenance capital expenditures, leasing commissions, and other non-comparable and non-operating items, including certain gains, losses, income, and expenses related to the Company’s legacy business operations and assets.
FFO and Adjusted FFO do not represent alternatives to net income calculated in accordance with GAAP and should not be viewed as more prominent measures of performance than net income (loss) or cash flows from operations prepared in accordance with GAAP. In addition, FFO and Adjusted FFO do not represent and should not be considered alternatives to cash generated from operating activities determined in accordance with GAAP, nor should they be used as measures of the Company’s liquidity, or cash available to fund the Company’s needs or pay distributions. FFO and Adjusted FFO should be considered only as supplements to net income as a measure of the Company’s performance.
The Company presents both non-GAAP measures and reconciles FFO to the most directly-comparable GAAP measure, Net Income (Loss) available to A&B common shareholders, and FFO to Adjusted FFO. The Company's FFO and Adjusted FFO may not be comparable to such metrics reported by other REITs due to possible differences in the interpretation of the current Nareit definition used by such REITs.
Reconciliations of net income (loss) available to A&B common shareholders to FFO and Adjusted FFO for the quarter and ninethree months ended September 30, 2017 March 31, 2024and 2016 were2023, are as follows (in millions)thousands):
|
| | | | | | | | | | | | | | | |
| | Quarter Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Sugar operations revenue (Land Operations) | $ | 0.4 |
| | $ | 35.7 |
| | $ | 22.9 |
| | $ | 73.7 |
|
| | | | | | | | |
| Operating loss before income taxes | $ | (1.1 | ) | | $ | (17.1 | ) | | $ | (2.2 | ) | | $ | (51.2 | ) |
| Gain (loss) on asset dispositions | (0.2 | ) | | — |
| | 6.0 |
| | — |
|
| Income (loss) from discontinued operations before income taxes | (1.3 | ) | | (17.1 | ) | | 3.8 |
| | (51.2 | ) |
| Income tax (expense) benefit | 0.5 |
| | 3.5 |
| | (1.4 | ) | | 23.1 |
|
| Income (loss) from discontinued operations | $ | (0.8 | ) | | $ | (13.6 | ) | | $ | 2.4 |
| | $ | (28.1 | ) |
| | | | | | | | |
| Basic earnings (loss) per share | $ | (0.02 | ) | | $ | (0.28 | ) | | $ | 0.04 |
| | $ | (0.58 | ) |
| Diluted earnings (loss) per share | $ | (0.02 | ) | | $ | (0.27 | ) | | $ | 0.05 |
| | $ | (0.57 | ) |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| Net Income (Loss) available to A&B common shareholders | | $ | 19,974 | | | $ | 5,306 | | | | | |
| Depreciation and amortization of commercial real estate properties | | 8,975 | | | 9,092 | | | | | |
| | | | | | | | |
| | | | | | | | |
| (Income) loss from discontinued operations, net of income taxes | | 256 | | | 4,198 | | | | | |
| Income (loss) attributable to discontinued noncontrolling interest | | — | | | (28) | | | | | |
| FFO | | $ | 29,205 | | | $ | 18,568 | | | | | |
| Add (deduct) Adjusted FFO defined adjustments | | | | | | | | |
| | | | | | | | |
| (Gain)/loss on sale of legacy business | | — | | | (1,117) | | | | | |
Non-cash changes to liabilities related to legacy operations1 | | — | | | 350 | | | | | |
| | | | | | | | |
Legacy joint venture (income)/loss2 | | (698) | | | (388) | | | | | |
| (Gain)/loss on fair value adjustments related to interest rate swaps | | (3,675) | | | — | | | | | |
| Non-recurring financing charges | | 2,350 | | | — | | | | | |
| Amortization of share-based compensation | | 1,126 | | | 1,576 | | | | | |
Maintenance capital expenditures3 | | (2,018) | | | (1,312) | | | | | |
| Leasing commissions paid | | (315) | | | (294) | | | | | |
| Straight-line lease revenue | | (592) | | | (1,335) | | | | | |
| Amortization of net debt premiums or discounts and deferred financing costs | | 243 | | | 239 | | | | | |
| Amortization of above and below-market leases, net | | (96) | | | (275) | | | | | |
| Adjusted FFO | | $ | 25,530 | | | $ | 16,012 | | | | | |
| | | | | | | | |
1 Primarily related to environmental reserves associated with legacy business activities in the Land Operations segment |
2 Includes joint ventures engaged in legacy business activities within the Land Operations segment |
3 Includes ongoing maintenance capital expenditures only |
Third quarter 2017: Loss from discontinued
Net Operating Income and Same-Store Net Operating Income
NOI is a non-GAAP measure used internally in evaluating the unlevered performance of the Company's Commercial Real Estate portfolio. Management believes NOI provides useful information to investors regarding the Company's financial condition and results of operations because it reflects only the contract-based income and cash-based expense items that are incurred at the property level. When compared across periods, NOI can be used to determine trends in earnings of the Company's properties as this measure is not affected by non-contract-based revenue (e.g., straight-line lease adjustments required under GAAP); by non-cash expense recognition items (e.g., the impact of depreciation and amortization expense or impairments); or by other income, expenses, gains, or losses that do not directly relate to the Company's ownership and operations of $0.8 million during the third quarter of 2017 reflected exit related costs,properties (e.g., indirect selling, general, administrative and other expenses, as well as property removal and restoration costs. See Note 14, "Cessationlease termination income). Management believes the exclusion of Sugar Operations" for further discussion regardingthese items from operating profit (loss) is useful because the cessationresulting measure captures the contract-based revenue that is realizable (i.e., assuming collectability is deemed probable) and the direct property-related expenses paid or payable in cash that are incurred in operating the Company's Commercial Real Estate portfolio, as well as trends in occupancy rates, rental rates and operating costs. NOI should not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
NOI represents total Commercial Real Estate contract-based operating revenue that is realizable (i.e., assuming collectability is deemed probable) less the direct property-related operating expenses paid or payable in cash. The calculation of NOI excludes the impact of depreciation and amortization (e.g., depreciation related to capitalized costs for improved properties, other capital expenditures for building/area improvements and tenant space improvements, as well as amortization of leasing commissions); straight-line lease adjustments (including amortization of lease incentives); amortization of favorable/unfavorable lease assets/liabilities; lease termination income; interest and other income (expense), net; selling, general, administrative and other expenses (not directly associated with such exitthe property); and disposal activities.impairment of commercial real estate assets.
Third quarter 2016: Loss from discontinued operations of $13.6 million during the third quarter of 2016 reflected sugar operations cessation costs, partially offset by results of the sugar operations. The cessation charges included accelerated depreciation, employee severance benefitsCompany reports NOI and related costs, and property removal, restoration and other exit-related costs.
First nine months of 2017: Income from discontinued operations of $2.4 million during the first nine months of 2017 reflected the gainOccupancy on asset dispositions anda Same-Store basis, which includes the results of operations relatedproperties that were owned, operated, and stabilized for the entirety of the prior calendar year and current reporting period, year-to-date. The Same-Store
pool excludes properties under development, and properties acquired or sold during either of the comparable reporting periods. The Same-Store pool may also exclude properties that are fully or partially taken out of service for the purpose of redevelopment or repositioning. Management judgment is involved in the classification of properties for exclusion from the same-store pool when they are no longer considered stabilized due to redevelopment or other factors. Properties are moved into the final sugar voyage, partially offsetSame-Store pool after one full calendar year of stabilized operation.
Management believes that reporting on a Same-Store basis provides investors with additional information regarding the operating performance of comparable assets separate from other factors (such as the effect of developments, redevelopments, acquisitions or dispositions).
To emphasize, the Company's methods of calculating non-GAAP measures may differ from methods employed by cessation-related costs. Duringother companies and thus may not be comparable to such other companies. Reconciliations of Commercial Real Estate operating profit to Commercial Real Estate NOI for the first ninethree months ended September 30, 2017, the Company sold mobile equipment assets,March 31, 2024 and 2023, are as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | | | |
| CRE Operating Profit | | $ | 21,981 | | | $ | 20,877 | | | | | |
| Depreciation and amortization | | 8,975 | | | 9,092 | | | | | |
| Straight-line lease adjustments | | (592) | | | (1,335) | | | | | |
| Favorable/(unfavorable) lease amortization | | (96) | | | (275) | | | | | |
| Termination income | | (1) | | | — | | | | | |
| Other (income)/expense, net | | (59) | | | 2 | | | | | |
| | | | | | | | |
| Selling, general, administrative and other expenses | | 1,556 | | | 2,066 | | | | | |
| NOI | | 31,764 | | | 30,427 | | | | | |
| Less: NOI from acquisitions, dispositions, and other adjustments | | (217) | | | (114) | | | | | |
| Same-Store NOI | | $ | 31,547 | | | $ | 30,313 | | | | | |
Liquidity and Capital Resources
Overview
The Company's principal sources of liquidity to meet its bulk sugar transportation vesselbusiness requirements and factory equipment, which resulted in a total gain of $6.0 million. Additionally, the Company recognized revenue and operating profit during the first nine months of 2017, primarily related to the final delivery of sugar inventory, which occurred in January 2017. The cessation charges included costs related to employee severance and benefits, as well as property removal, restoration and other exit-related costs. See Note 14, "Cessation of Sugar Operations" for further discussion regarding the cessation and the related costs associated with such exit and disposal activities.
First nine months of 2016: Loss from discontinued operations of $28.1 million during the first nine months of 2016 reflected sugar operations cessation costs, partially offset by results of the sugar operations. The cessation charges included accelerated depreciation, employee severance benefits and related costs, and property removal, restoration and other exit-related costs.
MATERIALS & CONSTRUCTION
Materials & Construction -Third quarterof 2017 compared with 2016
|
| | | | | | | | | |
| | Quarter Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Revenue | $ | 55.0 |
| | $ | 52.1 |
| | 5.6% |
| Operating profit | $ | 6.5 |
| | $ | 5.6 |
| | 16.1% |
| Operating profit margin | 11.8 | % | | 10.7 | % | | |
| Depreciation and amortization | $ | 3.1 |
| | $ | 2.9 |
| | 6.9% |
| Aggregate used and sold (tons in thousands) | 179.7 |
| | 158.1 |
| | 13.7% |
| Asphaltic concrete placed (tons in thousands) | 165.8 |
| | 126.9 |
| | 30.7% |
Backlog1,2 at period end | $ | 211.3 |
| | $ | 242.5 |
| | (12.9)% |
| |
1
| Backlog represents the total of (1) the amount of revenue that Grace Pacific and Maui Paving, LLC, a 50-percent-owned unconsolidated affiliate, expect to realize on contracts awarded and (2) government contracts in which Grace Pacific has been confirmed to be the lowest bidder and formal communication of the award is perfunctory ($31.8 million as of September 30, 2017). Backlog primarily consists of asphalt paving and, to a lesser extent, Grace Pacific’s consolidated revenue from its Prestress and construction-and traffic control-related products. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders. The length of time that projects remain in backlog can span from a few days for a small volume of work to 36 months for large paving contracts and contracts performed in phases. Maui Paving's backlog at September 30, 2017 and 2016 was $12.9 million and $19.1 million, respectively. |
| |
2
| As of September 30, 2017 and 2016, the backlog included contractual revenue with related parties of $1.0 million and $1.8 million, respectively. |
Materials & Construction revenue for the third quarter of 2017 increased $2.9 million, or 5.6%, as compared to the third quarter of 2016, primarily due to higher paving and Prestress volumes and a bulk sale of imported aggregates, partially offset by lower average prices per unit sold in paving, Prestress and GLP, as well as lower sales volumes for hot mix and liquid asphalt. Revenue during the third quarter of 2017 reflected approximately 179.7 thousand tons of aggregate used and sold and 165.8 thousand tons of asphaltic concrete placed, as compared to 158.1 thousand tons of aggregate used and sold and 126.9 thousand tons of asphaltic concrete placed during 2016. Backlog at the end of September 30, 2017 was $211.3 million compared to $242.9 million as of December 31, 2016. The decrease in backlog from the fourth quarter of 2016 is primarily due to the amount of work completed and billed work during the period and the lack of major bids offered by governmental entities during the first nine months of 2017 compared to first nine months 2016. Backlog reasonably expected to be filledplans both in the current fiscal year is approximately $153.0 million.
Operating profit increased $0.9 million, or 16.1%short-term (i.e., in the third quarter of 2017, as compared tonext twelve months from March 31, 2024) and long-term (i.e., beyond the third quarter of 2016, primarily due to higher earnings from unconsolidated affiliatesnext twelve months) have generally been cash provided by operating activities; available cash and Prestress, partially offset by lower paving margins resulting from competitive pricing pressures.
Materials & Construction -First nine months of 2017compared with 2016
|
| | | | | | | | | |
| | Nine Months Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Revenue | $ | 155.7 |
| | $ | 144.7 |
| | 7.6% |
| Operating profit | $ | 18.8 |
| | $ | 18.5 |
| | 1.6% |
| Operating profit margin | 12.1 | % | | 12.8 | % | | |
| Depreciation and amortization | $ | 9.2 |
| | $ | 8.8 |
| | 4.5% |
| Aggregate used and sold (tons in thousands) | 526.3 |
| | 500.8 |
| | 5.1% |
| Asphaltic concrete placed (tons in thousands) | 442.9 |
| | 331.7 |
| | 33.5% |
Materials & Construction revenue for the first nine months of 2017 increase $11.0 million, or 7.6%, as compared to the first nine months of 2016, primarily due to higher pavingcash equivalents; and Prestress volumes, a bulk sale of imported aggregates and higher levels of construction-related services, partially offset by lower average prices per unit sold in paving, Prestress product and liquid asphalt, as well as lower sales volumes for hot mix and liquid asphalt. Revenue during the first nine months of 2017 reflected approximately 526.3 thousand tons of aggregate used and sold and 442.9 thousand tons of asphaltic concrete placed, as compared to 500.8 thousand tons of aggregate used and sold and 331.7 thousand tons of asphaltic concrete placed during 2016.
Operating profit increased $0.3 million, or 1.6%, in the first nine months of 2017, as compared to the first nine months of 2016, primarily due to higher volumes in paving and Prestress products, an improved mix of Roadway higher margin work, lower unit inventory costs for liquid asphalt, and lower hot mix asphalt production cost per ton partially offset by paving work completed that were bid at lower margins due to competitive pricing pressures and lower volumes of hot mix asphalt and third party aggregate sales.borrowing capacity under its credit facility. The Company expects the competitive pricing and market conditions that have impacted the segment financial performance to persist.
LIQUIDITY AND CAPITAL RESOURCES
Overview: A&B'sCompany's primary liquidity needs have historically been to support working capitalfor its business requirements and fundplans have generally been supporting its known contractual obligations and also funding capital expenditures (including recent commercial real estate acquisitions and real estate developments. A&B’s principal sourcesdevelopments); shareholder distributions; and working capital needs.
The Company's ability to retain outstanding borrowings and utilize remaining amounts available under its revolving credit facility will depend on its continued compliance with the applicable financial covenants and other terms of liquiditythe Company's notes payable and other debt arrangements. The Company was in compliance with its financial covenants for all outstanding balances as of March 31, 2024, and intends to operate in compliance with these covenants or seek to obtain waivers or modifications to these financial covenants to enable the Company to maintain compliance in the future. However, due to various uncertainties and factors outside of Management's control, the Company may be unable to continue to maintain compliance with certain of its financial covenants. Failure to maintain compliance with its financial covenants or obtain waivers or agree to modifications with its lenders would have beena material adverse impact on the Company's financial condition.
As of March 31, 2024, the Company had $411.6 million of fixed rate debt (after the effects of interest rate swaps) and $46.0 million of variable-rate debt with weighted average interest rates of 4.2% and 6.5%, respectively, including $163.2 million that will become due in the next twelve months. Other than in default, the Company does not have an obligation, nor the option in some cases, to prepay its fixed-rate debt prior to maturity and, as a result, interest rate fluctuations and the resulting changes in fair value would have little impact on the Company’s financial condition or results of operations unless the Company was required to refinance such debt.
Based on its current outlook, the Company believes that funds generated from cash flows provided by operating activities,activities; available cash and cash equivalent balances, andbalances; borrowing capacity under its various credit facilities.facility; and proceeds from debt financings will be sufficient to meet the needs of the Company's business requirements and plans both in the short-term (i.e., the next twelve months from March 31, 2024) and long-term (i.e., beyond the next twelve months).
On April 15, 2024, the Company entered into an agreement (the "Prudential Agreement") with PGIM, Inc. and its affiliates ("Prudential") for an unsecured note purchase and private shelf facility that enables the Company to issue notes in an aggregate amount up to $300.0 million, less the sum of all principal amounts then outstanding on any notes issued by the Company or any of its subsidiaries to Prudential and the amounts of any notes that are committed under the Prudential Agreement for a period of three years from execution of the agreement. In addition, on April 15, 2024, the Company issued a $60.0 million note (the "Series M Note") under its Prudential Agreement. The Series M Note has a coupon rate of 6.09%, paid semiannually, and matures in full on April 15, 2032.
Known contractual obligations
A&B’s operating income description of material contractual commitments is generated by its subsidiaries. Therecontained in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the 2023 Form 10-K, and relates to the Company's Notes payable and other debt and Accrued post-retirement benefits. In addition, a description of other material cash requirements, including capital expenditures, is provided in Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of the 2023 Form 10-K, and includes contractual interest payments for Notes payable and other debt as well as amounts to be spent on contractual non-cancellable purchase obligations (that specifies all significant terms, including fixed or minimum quantities to be purchased, pricing structure and approximate timing of the transaction that are not recorded as liabilities in the consolidated balance sheet).
As of March 31, 2024, there were no material restrictions onchanges in the abilityCompany's known contractual obligations from the end of A&B’s wholly owned subsidiariesthe preceding fiscal year ended December 31, 2023. Refer to pay dividends or makeNote 5 – Notes Payable and Other Debt in this report for further discussion.
Further, a description of other distributionscommitments, contingencies and off-balance sheet arrangements is contained in the Notes to A&B. A&B regularly evaluates investment opportunities, including development projects, commercial real estate acquisitions, joint venture investments, share repurchases, business acquisitionsConsolidated Financial Statements included in Part II, Item 8 of the 2023 Form 10-K. As of March 31, 2024, there have been no material changes in the Company's other commitments, contingencies and other strategic transactionsoff-balance sheet arrangements from the end of the preceding fiscal year ended December 31, 2023. Refer to increase shareholder value. A&B cannot predict whether or when it may make investments or what impact any such transactions could have on A&B’s resultsNote 7 – Commitments and Contingencies in this report for further discussion.
Sources of operations, cash flows or financial condition. A&B’sliquidity
As noted above, one of the Company's principal sources of liquidity has been operating cash flows from continuing operations. For the three months ended March 31, 2024, operating cash flows from continuing operations borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described inof $16.5 million was primarily driven by cash generated by the section entitled "Risk Factors"Commercial Real Estate segment (the Company's core business). The Company's operating cash flows from continuing operations for the three months ended March 31, 2024, represents an increase of the Company’s 2016 Annual Report on Form 10-K.
Cash Flows: Cash flows used in operating activities totaled $45.2$3.8 million from $12.7 million for the ninethree months ended September 30, 2017March 31, 2023, due primarily to higher cash proceeds from unimproved land and development sales in 2024 as compared to 2023. Total cash flows provided by operating activities of $48.4 million forin future periods may be subject to variation from the nine months ended September 30, 2016. The decrease in cash flows from operating activities is primarily attributed to cash outlays for working capital purposes, including a discretionary pension contribution and employee severance payments relatedLand Operations segment due to the cessationvarying activity in completing sales on remaining non-core assets as part of HC&S sugar operations.the Company's continued execution on its simplification strategy and development property sales.
The Company's other primary sources of liquidity include its cash on-hand of $15.7 million as of March 31, 2024, and the Company's revolving credit and term facilities, which provide liquidity and flexibility on a short-term (i.e., the next twelve months from March 31, 2024), as well as long-term basis. With respect to the $500.0 million A&B Revolver available for general A&B purposes, as of March 31, 2024, the Company had $46.0 million of borrowings outstanding, no letters of credit issued against, and $454.0 million of available capacity. This credit facility has a term through August 29, 2025, plus two six-month optional extensions.
On August 13, 2021, the Company entered into an at-the-market equity distribution agreement, or ATM Agreement, pursuant to which it may sell common stock up to an aggregate sales price of $150.0 million. Sales of common stock, if any, made pursuant to the ATM Agreement may be sold in negotiated transactions or transactions that are deemed to be “at the market” offerings, as defined in Rule 415 of the Securities Act of 1933, as amended. Actual sales will depend on a variety of factors including market conditions, the trading price of the Company's common stock, capital needs, and the Company's determination of the appropriate sources of funding to meet such needs. As of March 31, 2024, the Company has not sold any shares under the at-the-market offering program, nor has any obligation to sell shares under the at-the-market offering program.
Other uses (or sources) of liquidity
The Company may use (or, in some periods, generate) cash through various investing activities or financing activities. Cash flows used in investing activities totaled $38.0for continuing operations was $3.7 million duringfor the first ninethree months of 2017,ended March 31, 2024, as compared to $54.6$1.5 million duringfor the first ninethree months of 2016. The period-to-period change in cash flowsended March 31, 2023. Cash used in investing activities for continuing operations during the three months ended March 31, 2024, was primarily due todriven by capital expenditures of $3.7 million. Net cash outlaysused in investing activities for continuing operations during the three months ended March 31, 2023, was primarily driven by capital expenditures of $82.4$3.0 million, relatedpartially offset by cash proceeds from the sale of the Company's legacy trucking and storage business in the Land Operations segment.
As it relates to the CRE segment, the Company differentiates capital expenditures as follows (based on management's perspective on discretionary versus non-discretionary areas of spending for its CRE business):
•Growth Capital Expenditures: Property acquisition, of Manoa Marketplacedevelopment and redevelopment activity to generate income and cash flow growth.
•Maintenance Capital Expenditures: Activity necessary to maintain building value, the current income stream and position in the first quarter of 2016.market.
Capital expenditures for the third quarter of 2017 and 2016 was $10.3 million and $5.5 million, respectively. Capital expendituresrespective periods for the first nine months of 2017 totaled $33.7 million as compared to $105.3 million for the first nine months of 2016. Net cash flows used in investing activities for capital expendituresall segments were as follows:follows (dollars in thousands, unaudited):
| | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2024 | | 2023 | | |
| Capital expenditures for real estate | | | | | | |
| Ongoing maintenance capital expenditures | | | | | | |
| Building/area improvements | | $ | 1,164 | | | $ | 728 | | | |
| Tenant space improvements | | 854 | | | 584 | | | |
| Total ongoing maintenance capital expenditures for real estate | | 2,018 | | | 1,312 | | | |
| Discretionary capital expenditures | | | | | | |
| | | | | | |
Development and redevelopment1 | | 1,022 | | | 1,056 | | | |
| Tenant space improvements - nonrecurring | | — | | | 7 | | | |
| Total discretionary capital expenditures for real estate | | 1,022 | | | 1,063 | | | |
| Capitalized indirect costs | | 666 | | | 617 | | | |
Total capital expenditures for real estate1 | | 3,706 | | | 2,992 | | | |
| Corporate and other capital expenditures | | 40 | | | 26 | | | |
Total Capital Expenditures1 | | 3,746 | | | 3,018 | | | |
|
| | | | | | | | | |
| | Quarter Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Commercial real estate property acquisitions/improvements | $ | 5.6 |
| | $ | 1.6 |
| | 250.0% |
| Tenant improvements | 2.5 |
| | 0.6 |
| | 316.7% |
| Quarrying and paving | 1.1 |
| | 1.7 |
| | (35.3)% |
| Agribusiness and other | 1.1 |
| | 1.6 |
| | (31.3)% |
Total capital expenditures1 | $ | 10.3 |
| | $ | 5.5 |
| | 87.3% |
| | | | | | |
| | Nine Months Ended September 30, |
| (dollars in millions) | 2017 | | 2016 | | Change |
| Commercial real estate property acquisitions/improvements | $ | 22.0 |
| | $ | 88.1 |
| | (75.0)% |
| Tenant improvements | 4.0 |
| | 3.0 |
| | 33.3% |
| Quarrying and paving | 5.1 |
| | 7.1 |
| | (28.2)% |
| Agribusiness and other | 2.6 |
| | 7.1 |
| | (63.4)% |
Total capital expenditures1 | $ | 33.7 |
| | $ | 105.3 |
| | (68.0)% |
1 Excludes capital expenditures for real estate developments to be held and sold as real estate development inventory, which are classified in the condensed consolidated statement of cash flows as operating activities and are excluded from the tabletables above.
Cash flows provided byused in financing activities for continuing operations was $25.2 million for the three months ended March 31, 2024, as compared to $27.4 million for the three months ended March 31, 2023. During the three months ended March 31, 2024, the Company's net cash outlays related to financing activities were $94.3due primarily to cash dividend payments totaling $16.4 million for the first nine monthsand repayments of 2017, as compared to $10.7 million during the first nine monthssecured and unsecured notes payable and other debt of 2016. The change from the prior year was primarily due to higher repayment amounts made on the Company's long term debt, offsetting the higher amounts borrowed under the Company's revolving senior credit facility during the nine months ended September 30, 2016.
The Company believes that funds generated from results of operations, available cash and cash equivalents, and available borrowings under credit facilities will be sufficient to finance the Company’s business requirements for the next fiscal year, including working capital, capital expenditures, and potential acquisitions and stock repurchases. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that it will be able to maintain its ability to borrow under its available credit facilities.
Other Sources of Liquidity: Additional sources of liquidity for the Company consisted of cash and cash equivalents, trade and income tax receivables, contracts retention, and inventories, that totaled $114.3 million at September 30, 2017, an increase of $13.9 million from December 31, 2016. This net increase is primarily due to an increase in cash and cash equivalents of $11.1 million, income tax receivables of $15.3$15.4 million, partially offset by a decrease in sugar inventoriesnet borrowings of $17.5$9.0 million as a resulton the Company's revolving credit facility. During the three months ended March 31, 2023, the Company's net cash outlays related to financing activities were due primarily to cash dividend payments totaling $32.0 million and repayments of secured and unsecured notes payable and other debt of $18.0 million, partially offset by net borrowings of $25.0 million on the cessationCompany's revolving credit facility.
The Company's Board of Directors authorized the sugar operations.Company to repurchase up to $100.0 million of its common stock between January 1, 2024 and December 31, 2025. During the three months ended March 31, 2024, the Company did not repurchase any shares of its common stock.
Other capital resource matters
The Company also has revolving creditfrequently utilizes §1031 and term facilities that provide additional sources§1033 of liquidity for working capital requirements or investment opportunities on a short-term as well as longer-term basis. On September 15, 2017, the Company entered into a Second Amended and Restated Credit Agreement ("A&B Revolver") with Bank of America N.A., as administrative agent, First Hawaiian Bank, and other lenders party thereto, which amended and restated its existing $350 million committed revolving credit facility ("Revolving Credit Facility"). The A&B Revolver increased the total revolving commitments to $450 million, extended the term of the Revolving Credit Facility to September 15, 2022, amended certain covenants, and reduced the interest rates and fees charged under the Revolving Credit Facility. All other terms of the Revolving Credit Facility remain substantially unchanged.
Total debt as of September 30, 2017 was $625.8 million compared to $515.1 million as of December 31, 2016. The increase in debt of 21.5% during the first nine months of 2017 was primarily attributed to net borrowings of $108.9 million, inclusive of net draws on the A&B Revolver of $140.3 million and a new second mortgage of $5.0 million related to Kailua Town Center, offset by amortization and other repayments of the Company's term loans. As of September 30, 2017, available capacity under the unsecured, committed credit facility totaled $283.0 million.
Balance Sheet: The Company has a working capital surplus of $110.2 million as of September 30, 2017, which is an increase of $137.0 million, from a $26.8 million deficit as of December 31, 2016. The change in the working capital surplus is primarily due to an increase in prepaid and other assets, cash, real estate held for sale, and income tax receivables.
At September 30, 2017, the Company believes it was in compliance with all of its covenants under its credit facilities. While there can be no assurance that the Company will remain in compliance with its covenants, the Company expects that it will remain in compliance.
Tax-Deferred Real Estate Exchanges:
Sales & Purchases- During the third quarter of 2017, the Company had no sales that qualified for tax-deferral treatment under Internal Revenue Code Section 1031. Duringof 1986, as amended (the "Code"), to obtain tax-deferral treatment when qualifying real estate assets are sold or become subject to involuntary conversion and the second quarter of 2017,resulting proceeds are reinvested in replacement properties within the Company utilized $10.1 millionrequired time period. Proceeds from potential tax-deferred sales to acquire Honokohau Industrial Park under a reverse 1031 exchange transaction. During the first quarter of 2016, the Company acquired both the leasehold and leased fee interests of Manoa Marketplace, a retail center on Oahu for $82.4 million. The proceeds from the sales§1031 of the three Mainland properties that were completed during the second quarter of 2016 were applied to the Manoa Marketplace acquisition under a reverse 1031 transaction that qualifies for tax-deferral treatment under Internal Revenue Code 1031.
Proceeds from 1031 tax-deferred sales are held in escrow (and presented as part of Restricted cash on the consolidated balance sheets) pending future reinvestment or are returned to the Company for general use to purchase new real estate assets.if eligibility for tax-deferral treatment based on the required time period lapses. The proceeds from 1033 condemnationsinvoluntary conversions under §1033 of the Code are held by the Company until the funds are redeployed.
During the three months ended March 31, 2024, the Company did not complete any transactions that would give rise to cash proceeds from sales or involuntary conversion activity that qualified under §1031 or §1033 of the Code. As of September 30, 2017, there were approximately $3.6 millionMarch 31, 2024, no funds from tax-deferred sales or condemnations thatinvoluntary conversions were available for use and had not yet been reinvested.
Commitments, Contingencies and Off-balance Sheet Arrangements: A description of other commitments, contingencies, and off-balance sheet arrangements at September 30, 2017, and herein incorporated by reference, is included in Note 3 to the condensed consolidated financial statements of Item 1 in this Form 10-Q.
OTHER MATTERS
Significant Accounting Policies: The Company’s significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8reinvested under §1031 or §1033 of the Company’s 2016 Form 10-K.Code.
Trends, events and uncertainties
General economic conditions and consumer spending patterns can negatively impact our operating results. Unfavorable local, regional, national, or global economic developments or uncertainties, including market volatility, supply chain and labor constraints, inflationary pressures, travel restrictions, war, natural disasters or effects of climate change, or a prolonged economic downturn could adversely affect our business. The impact of the rapid increase in the federal funds rate, has resulted in a tightening of credit and contributed to volatility in the banking, technology, and housing industries. The ultimate extent of the impact that these trends and events will have on the Company's business, financial condition, results of operations and liquidity and capital resources will largely depend on future developments, including the resulting impact on economic growth/recession, the impact on travel and tourism behavior and the impact on consumer confidence and discretionary and non-discretionary spending, all of which are highly uncertain and cannot be reasonably predicted.
Other Matters
Critical Accounting Estimates:accounting estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which the Management’sManagement's Discussion and Analysis is based, requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material. The most significant accounting estimates inherent in the preparation of A&B’sthe Company's financial statements were described inManagement’sManagement's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2016Company's 2023 Form 10-K.
New accounting pronouncements
Refer to Notes to Consolidated Financial Statements, included in Part 1, Item 1 of this report, for a full description of the impact of recently issued accounting standards, which is incorporated herein by reference, including the expected dates of adoption and estimated effects on the Company's results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is incorporated herein by reference to Item 7A of the Company’sCompany's Form 10-K for the fiscal year ended December 31, 2016.2023. There hashave been no material changechanges in the quantitative and qualitative disclosures about market risk since December 31, 2016.2023.
ITEM 4. CONTROLS AND PROCEDURES
| |
(a) | Disclosure Controls and Procedures |
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the "Exchange Act")Act) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, the end of such period, the Company'sCompany’s disclosure controls and procedures arewere effective.
(b) Changes in Internal Control Over Financial Reporting
There have not been noany changes in the Company's internal controlscontrol over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's fiscal first quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under the "Legal Proceedings and Other Contingencies" section in Note 37 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
There have been no material changes to the risk factors previously disclosed in Item 1A. "Risk Factors" in the Company's most recent annual report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer PurchasesThere were no equity securities sold by the Company during the period covered by this report that were not registered under the Securities Act.
In October 2023, the Company's Board of Equity SecuritiesDirectors authorized the Company to repurchase up to $100.0 million of its common stock beginning on January 1, 2024, and ending on December 31, 2025.
During the quarter ended March 31, 2024, the Company repurchased no shares of its common stock. As of March 31, 2024, $100.0 million remains available under the stock repurchase program.
|
| | | | |
Period | Total number of shares purchased1 | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs |
| July 1-31, 2017 | 60 | $42.19 | — | — |
| August 1-31, 2017 | 16,954 | $43.53 | — | — |
| September 1-30, 2017 | 3,025 | $43.68 | — | — |
| |
1
| Represents shares accepted in satisfaction of tax withholding obligations arising upon option exercises. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulations S-K (17 CFR 229.104) is included in Exhibit 95 to this periodic report on Form 10-Q.
ITEM 5. OTHER INFORMATION
None.None of the Company’s directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408 of Regulation S-K) during the quarter ended March 31, 2024.
ITEM 6. EXHIBITS
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31.1 | Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 | Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 | The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the nine months ended September 30, 2017 and September 30, 2016, (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, (v) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2017 and September 30, 2016, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
EXHIBIT INDEX
10. Material Contracts
101 The following information from Alexander & Baldwin, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023; (ii) Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2024 and 2023; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023; (v) Condensed Consolidated Statements of Equity and Redeemable Noncontrolling Interest for the three months ended March 31, 2024 and 2023; and (vi) Notes to Condensed Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
SIGNATURES
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| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | |
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| | ALEXANDER & BALDWIN, INC. |
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| April 26, 2024 | | | (Registrant)By: /s/ Clayton K.Y. Chun |
| | | Clayton K.Y. Chun |
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Date: | November 8, 2017 | | /s/ James E. Mead |
| | | James E. Mead |
| | | Chief Financial Officer |
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Date: | November 8, 2017 | | /s/ Paul K. Ito |
| | | Paul K. Ito |
| | | SeniorExecutive Vice President, Finance and Treasurer
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EXHIBIT INDEX
| and Treasurer |
| 32 | |
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| April 26, 2024 | |
| By: /s/ Anthony J. Tommasino |
| 101 | The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and September 30, 2016, (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, (v) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2017 and September 30, 2016 and (vi) the Notes to the Condensed Consolidated Financial Statements.
| Anthony J. Tommasino |
| 95 | Vice President and Controller |