June 2018 VALUE PROPOSITION

Transcription

1 1 ALEXANDER & BALDWIN F i n a n c i a l C o m m u n i t y P r e s e n t a t i o n June 2018 VALUE PROPOSITION 2 High-quality CRE portfolio in robust market with embedded growth opportunities Underappreciated non-cre assets available for monetization and conversion to CRE Management team with proven track record of strategic execution Manoa Marketplace 1

2 STRATEGIC FOCUS 3 Grow recurring cash flows from 100%-Hawaii commercial real estate portfolio Consistent solid performance from Hawaii CRE portfolio Leverage strong market fundamentals and platform to grow NOI Capitalize on embedded growth opportunities Improve and simplify the Company Monetize development-for-sale units and parcels Enhance performance of M&C business Strengthen the balance sheet using internally generated sources Reduce leverage as monetization efforts advance Well-laddered debt maturities Target debt/ebitda of 5.5x 4 GROW COMMERCIAL REAL ESTATE NOI 2

3 PORTFOLIO OVERVIEW AS OF AND FOR THE TRAILING TWELVE MONTHS ENDED MARCH 31, NOI = $85.2M Hawaii Ground 14% Mainland* 13% Hawaii Office 5% Hawaii Industrial 14% Hawaii Retail 54% No. of Assets GLA Cash NOI (mils) Occupancy At 3/31/18 ABR PSF At 3/31/18 Hawaii retail M $ % $29.05 Hawaii industrial 8 1.0M $ % $13.85 Hawaii ground acres $12.1 N/A N/A Hawaii office 4 0.1M $ % $32.01 Total Hawaii M+ $ % $24.87 Mainland* - - $9.5 N/A N/A Total portfolio M+ $ % $24.87 Note: See appendix for a statement on management s use of non-gaap financial measures and reconciliations. * Mainland portfolio was sold in the first quarter of 2018 and proceeds were exchanged for the Terramar Hawaii Portfolio assets acquired in 2/18. HAWAII IS A HIGH-PERFORMING MARKET WITH SUBSTANTIAL BARRIERS TO ENTRY 6 $80 $75 $70 Solid Economic Fundamentals Steady Hawaii Real GDP Growth ($ in billions) $75B Lengthy & Complex Entitlement & Permitting Process 3-5 YEARS 3-5 YEARS County General Plan inclusion State Land Use urban designation $65 $ * YTD July 2017 Source: State of Hawaii Department of Business, Economic, Development & Tourism (DBEDT) ** As of July 31, YEARS County urban zoning 9 to 15 YEARS 3

4 HAWAII IS A TIER-1 CRE MARKET 7 Hawaii Calif. New York Median HH Income $72,000 $63,800 $60,700 Retail Sales Per Capita % Sales to HH Income 2017 Personal Income Growth Unemployment at 12/31/17 $13,600 $12,700 $12, % 19.9% 21.1% 3.1% 4.1% 2.9% 2.1% 4.5% 4.7% Source: U.S. Census Bureau and Bureau of Economic Analysis; no endorsement implied. The Shops at Kukui`ula STRONG CRE MARKET FUNDAMENTALS 8 Low Strip Retail SF Per Capita Low Internet Sales Penetration 4

5 STRONG PORTFOLIO CHARACTERISTICS ALEX Peer* Range 3-Mile Trade Area Population 55K K 3-Mile Median HH Income $80K $67-100K Percent neighborhood centers 77% 2-57% % of ABR 20% 15% 10% 5% 0% LOW EXPOSURE TO AT RISK RETAILERS Peer* average ROICALEX REG FRT AKR WRI BRX AAT UE KIM RPAI DDR FUNDAMENTALS DRIVE PERFORMANCE $29.05 A&B 1Q18 RETAIL ABR PSF vs $789 A&B 2017 AVERAGE GROCER SALES PSF $ Q18 PEER* AVERAGE RETAIL ABR PSF * Green Street Advisors, Company disclosures; comparative data set represents strip retail peers under Green St. coverage (AKR, AAT, BRX, DDR, FRT, KIM, REG, ROIC, RPAI, UE, WRI) At Risk retailers are those most likely to close stores or seek lower rents upon lease expirations as defined by Green St. in their 4/20/18 Strip Center Sector report. Data provided for informational purposes only; no endorsement implied. 9 SOLID PORTFOLIO PERFORMANCE 10 Performance Q18 4Q17 3Q17 2Q17 1Q17 Metric Est. Same-store cash NOI growth 2.8% 5.5% 4.0% 4.8% 4.6% 3-4% Leasing spreads 10.2% 6.9% 8.4% 19.8% 13.3% % % Occupancy 3/31/18 3/31/18 ABR/sf Retail 93.1 $29.05 Industrial 89.3 $13.85 Office 90.1 $32.01 Total 91.8 $24.87 Note: See appendix for a statement on management s use of non-gaap financial measures and reconciliations. Manoa Marketplace 5

6 11 Lau Hala Shops Repositioning Lau Hala Shops Lau Hala Shops Rendering ADVANCING FOR-HOLD PROJECTS As of March 31, 2018 Project Phase Target Stabilization Capital Incremental Stabilized NOI Stabilized Yield on Cost Sq. ft. Pearl Highlands Center Food court/ Regal Stabilization 2Q18 $6.0M $0.6M % 54,000 renovation* Lau Hala Shops (Kailua Macy s) repositioning Construction 1Q19 $21.0M $ M % 50,500 Ho`okele Shopping Center development for hold Pre-leasing 2Q20 $41.9M** $ M % 94,000 Total $68.9M $ M % 198,500 * Includes $3M of tenant improvement capital to Regal Entertainment for their renovations that provide a 10.3% stabilized yield on cost. ** Includes land at book value Note: Complete table, including leasing activity, is included in the quarterly Supplemental Information report. GROUND LEASE PORTFOLIO BENEFITS Costs of ownership is passed to tenant; minimal landlord ownership and operating expenses No capital expenditure or tenant improvement costs, or depreciation expense Minimal property management required Rent resets based on percentage of fair market value of land leased to tenant $1.6M buyout of Kaiser Permanente Aikahi Park Shopping Center FMV reset 17% cash NOI at 25% cap rate increase Sold 3/18 for a 3.75% cap 2016 Redevelopment of Macy s will increase cash NOI to $2.2M-$2.7M (from $0.2M) with investment of $21M 6

7 GROUND LEASE PORTFOLIO WITH EMBEDDED OPPORTUNITY TOP 10 GROUND LEASES GROUND LEASES LOCATION ACRES PROPERTY TYPE EXP. YEAR NEXT RENT STEP STEP TYPE A BR ($ in $000) 1 Kaneohe 15.4 Grocery-Anchored FMV Reset $2,800 2 Honolulu 2.8 Grocery-Anchored FMV Reset 1,344 3 Kailua 3.4 Grocery-Anchored Fixed Step Pu unene 52.0 Heavy Industrial FMV Reset Kailua 3.7 Retail 2020 Option FMV Reset Kailua 1.6 Retail - MTM Kailua 2.2 Retail Fixed Step 485 SECURE INCOME STREAM WITH GROWTH 85%+ GROUND LEASE ABR EXPIRING OR RESETTING BY Honolulu 0.5 Retail Fixed Step Honolulu 0.5 Parking Fixed Step Kailua 1.2 Retail ADVANCING STRATEGIC INITIATIVES 7

8 SIGNIFICANT PROGRESS TOWARD BECOMING A HAWAII COMMERCIAL REAL ESTATE COMPANY 15 12/31/11 ASSETS 3/31/18 Other $76.7M Hawaii CRE $209.8M Development $451.4M Ag + Other $162.6M Mainland CRE $561.1M Matson $1.2B Materials & Construction $375.4M Land Operations Hawaii (Development CRE + $17.1MAg) $587.2M Matson Hawaii CRE $79.1M $1.3B MAJOR STRATEGIC MILESTONES 16 Migration of commercial portfolio to Hawaii HC&S shutdown Scale-back of for-sale development Ramp-up of for-hold development REIT Conversion 8

9 2012MIGRATION OF PORTFOLIO 17 $61.8M 57% 43% CASH NET OPERATING INCOME 57 % 37% 13% 87% Pro Forma Post Terramar Exchanges Hawaii $84.8M Mainland 100% Began process in 2012 Invested $956M in highly strategic Hawaii assets Mainland dispositions of $600M were the primary funding source Benefits: Concentrated portfolio geographically and by asset class Traded into higher-quality assets Note: See appendix for a statement on management s use of non-gaap financial measures and reconciliations. 2012MIGRATION OF PORTFOLIO 18 Pearl Highlands Center Kailua Town Kaka`ako Commerce Center Manoa Marketplace Terramar Hawaii Retail Mainland Assets Sold Republic Distribution Center Centennial Plaza Issaquah Office Center Broadlands Marketplace Meadows on the Parkway Rancho Temecula Town Center Activity Distribution Center Heritage Business Park Savannah Logistics Park San Pedro Plaza Wilshire Center Prospect Park Gateway Oaks Ninigret Office Park Midstate 99 Distribution Center Concord Commerce Center Deer Valley Financial Center Preston Park Little Cottonwood Center Royal MacArthur Center Sparks Business Center 9

10 TERRAMAR HAWAII ACQUISITION COMPLETES MIGRATION 19 Acquired Terramar Hawaii assets for $256.7M in February Expanded Hawaii retail presence into two new, strategic locations Completed funding in March principally with 1031 exchange proceeds Focused on integration of acquired assets into the portfolio Hokulei Village Laulani Village TODAY AS OF AND FOR THE TRAILING TWELVE MONTHS ENDED MARCH 31, Other $76.7M Assets Operating Profit* Materials & Construction $375.4M Materials & Construction $16.6M Land Operations $587.2M Hawaii CRE $1.3B Land Operations $11.2 Hawaii CRE $51.6M* Mainland CRE $6.4M * Adjusted to exclude $22.4M of impairments of CRE assets sold in 1Q18. Gains on sales of CRE portfolio properties sold in 1Q18 are not included in operating profit. 10

11 TODAY: PREMIER HAWAII REIT INVESTMENT OPPORTUNITY years in Hawaii Deep knowledge of Hawaii real estate and track record of execution Unique assets with embedded opportunity for growth Access to all Hawaii CRE opportunities Actively transitioning to greater focus on recurring cash generation from CRE portfolio Generation of internally-sourced capital 22 UNIQUE ASSETS THROUGHOUT HAWAII 11

12 23 IMPROVING & SIMPLIFYING THE BUSINESS IMPROVING AND SIMPLIFYING NON-REIT BUSINESSES 24 Focus on improving Materials & Construction business Minimize capital going into and/or pull capital out of development-forsale projects Kukui`ula 12

13 MATERIALS & CONSTRUCTION 25 Fundamentally strong business Appointed Pike Riegert as president of Grace in March Performance improvement initiatives underway to advance strategic priorities: Enhance sales efforts to increase volume of third-party aggregate sales Optimize labor management to reduce costs of paving operations Implement new information systems to improve cost management and contract bidding Position for anticipated increases in state and federal contracts later in 2018 LAND OPERATIONS PRIORITIES Increase monetization of development units and parcels Actively market and sell available development inventory Monetize development assets when appropriate Entitle certain Hawaii lands to respond to market demand while meeting community needs Undertake opportunistic development of fully entitled land while limiting investment risk and capital commitment Emphasize short-term developments 26 Kahala Avenue Kamalani 13

14 ACTIVE DEVELOPMENT-FOR- SALE PIPELINE 27 PROJECT LOCATION TYPE PLANNED UNITS/ ACRES A&B NET BV 3/31/18 STATUS CLOSING TIMING K A H A L A A V E Honolulu, Oahu Residential 17 acres $19M Sales THE COLLECTION Honolulu, Oahu Primary residential 465 units $18M Sales KEALA O WAILEA Wailea, Maui Resort residential 70 units $7M Development/ Sales KAMALANI Kihei, Maui Primary residential 170 units $27M Development/ Sales K A M I L O Kona, Hawaii Resort residential 137 units $3M Development/ Sales THE RIDGE AT WAILEA Wailea, Maui Resort residential 5 acres $8M Sales MAUI BUSINESS PARK II Kahului, Maui Light industrial 125 acres $38M Development/ Sales K U K U I U L A Poipu, Kauai Resort residential 640 acres $307M+20M Development/ Sales URBAN-ZONED LAND 28 A&B URBAN-ZONED LAND (ACRES) NOT IN ACTIVE DEVELOPMENT/USE MAUI KAUAI TOTAL Developable, with full or partial infrastructure Developable, with limited or no infrastructure Other Total

15 LAND OPERATIONS PRIORITIES 29 Advance diversified agriculture on our former plantation lands through JVs leases or sales Progress on parcel sales Kula Ag Park expansion Kahului Airport expansion AG-RELATED LAND 30 FROM 1Q18 SUPPLEMENT TABLE 22 PGS MAUI KAUAI OAHU TOTAL CATEGORY ACRES Higher use potential 13,611 2, ,943 Core agricultural 31,588 4,145-35,733 Supporting and conservation 18,772 13, ,806 63,971 19, ,482 15

16 31 STRENTHENING THE BALANCE SHEET 1Q18 FINANCING ACTIVITIES 32 $156.6M cash portion of Special Distribution Assumption of a $62M mortgage for the purchase of Laulani Village (Terramar Acquisition) $50M term loan facility maturing in 2023 with interest at LIBOR plus a margin determined using a leverage-based pricing grid The Shops at Kukui`ula 16

17 CAPITAL STRUCTURE SPECIAL DISTRIBUTION & 1Q18 FINANCINGS DOLLARS IN MILLIONS 33 Dec. 31, Q18 Change Mar. 31, 2018 Total debt Shareholders equity ,325.2 Net debt to EBITDA 7.0x (0.3x) 6.7x Change in Long-Term Debt 1Q18 Activity Cash portion of Special Distribution Assumption of Laulea loan 62.0 $50M term loan maturing Repayments of borrowings, net (61.2) Q18 Change in Shareholders Equity Activity Shares issued in Special Distribution Net income 47.4 Share-based compensation 1.3 Noncontrolling interest-related and other, net (1.0) Note: See appendix for a statement on management s use of non-gaap financial measures and reconciliations. CAPITAL STRUCTURE AS OF 3/31/18 34 Debt $838.6M Market value of equity $1,664.3M Liquidity $295.3M Net debt/ttm EBITDA 6.7x Debt/Total capitalization 33.5% Fixed-charge coverage ratio 3.8x Fixed-rate debt to total debt 71.5% Unencumbered CRE assets as a percent of total CRE assets (gross 70.2% book value) Unsecured debt 72.8% Weighted-average remaining term 5.6 years Weighted-average interest rate 4.16% 17

18 RECENT FINANCING ACTIVITIES 35 In April refinanced Series E note with three new fixed-rate financings: $10M at 4.66% maturing in 2025 $34.5M at 4.81% maturing in 2027 $18M at 4.89% maturing in 2028 The Shops at Kukui`ula 2018 GUIDANCE DOLLARS IN MILLIONS 36 Metric Full-year 2018 Guidance 1Q18 Actual CRE Leasing spreads % 10.2% Same-store NOI growth 3-4% 2.8% Maintenance cap ex $9 $1.4 Growth cap ex $35 $6.1 Materials & Construction EBITDA ~$30 $3.1 Total company G&A ~$60 $15.0 Note: See appendix for a statement on management s use of non-gaap financial measures and reconciliations 18

19 37 ALEXANDER & BALDWIN F i n a n c i a l C o m m u n i t y P r e s e n t a t i o n June APPENDIX 19

20 STATEMENT ON USE OF NON-GAAP FINANCIAL MEASURES 39 The Company presents certain non-gaap financial measures in this presentation. The Company uses these 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. The Company s methods of calculating non-gaap measures may differ from methods employed by other companies and thus may not be comparable to such other companies. Required reconciliations of these non-gaap financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP are set forth in the following slides. CRE CASH NET OPERATING INCOME 40 Cash Net Operating Income (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 is calculated as total Commercial Real Estate operating revenues less direct property-related operating expenses. Cash NOI excludes straight-line rent adjustments, amortization of favorable/unfavorable leases, amortization of lease incentives, general and administrative expenses, impairment of commercial real estate assets, lease termination income and depreciation and amortization (including amortization of maintenance capital, tenant improvements and leasing commissions). The Company s methods of calculating non-gaap measures may differ from methods employed by other companies and thus may not be comparable to such other companies. The Company reports Cash NOI on a same-store basis, which includes the results of properties that were owned and operated for the entirety of the prior calendar year. The same-store pool excludes properties under development or redevelopment and also excludes properties acquired or sold during the comparable reporting periods. While there is management judgment involved in classifications, 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. The Company provides guidance on the projected growth in same-store Cash NOI for While it is not practicable to provide a reconciliation of the Commercial Real Estate operating profit to same-store Cash NOI for 2018, the Company believes that the differences between the Commercial Real Estate operating profit and same-store Cash NOI for 2018 would be similar to the items included in the 2017 reconciliation. 20

21 CRE CASH NET OPERATING INCOME RECONCILIATION OF GAAP TO NON-GAAP MEASURES DOLLARS IN MILLIONS 41 1Q18 4Q17 3Q17 2Q17 1Q17 CRE Operating Profit $15.5 $(6.9) $13.6 $13.4 $14.3 Plus: Depreciation and amortization Less: Straight-line lease adjustments (0.1) (0.3) (0.3) (0.5) (0.5) Less: Favorable/(unfavorable) lease amortization (0.6) (0.7) (0.6) (0.8) (0.8) Less: Termination income (1.1) (1.7) Less: Other (income)/expense, net Plus: Impairment of real estate assets Plus: Selling, general, administrative and other expenses CRE Cash NOI $21.8 $21.0 $21.2 $21.4 $21.4 Acquisition/dispositions and other adjustments (3.0) (2.2) (1.8) (1.6) (3.1) CRE Same-Store Cash NOI $18.8 $18.8 $19.4 $19.8 $18.3 Change in Same-Store Cash NOI from same quarter in the prior year 2.8%* 5.5% 4.0% 4.8% 4.6% Change calculated on non-rounded amounts. Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at CRE CASH NET OPERATING INCOME RECONCILIATION OF GAAP TO NON-GAAP MEASURES DOLLARS IN MILLIONS 42 Year Ended Dec. 31, Year Ended Dec. 31, Change* CRE Operating Profit $34.4 $54.8 Plus: Depreciation and amortization Less: Straight-line lease adjustments (1.6) (2.1) Less: Lease incentive amortization Less: Favorable/(unfavorable) lease amortization (2.9) (3.3) Less: Termination income (1.7) (0.1) Less: Other (income)/expense, net Plus: Impairment of real estate assets Plus: Selling, general, administrative and other expenses CRE Cash NOI $84.8 $ % Acquisition/dispositions and other adjustments (9.2) (10.8) CRE Same-Store Cash NOI $75.6 $ % Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at 21

22 CRE CASH NET OPERATING INCOME RECONCILIATION OF GAAP TO NON-GAAP MEASURES DOLLARS IN MILLIONS 43 Year Ended Dec. 31, Year Ended Dec. 31, Change* CRE Operating Profit $34.4 $41.6 Plus: Depreciation and amortization Less: Straight-line lease adjustments (1.6) (3.6) Less: Lease incentive amortization Less: Favorable/(unfavorable) lease amortization (2.9) (1.1) Less: Termination income (1.7) (0.2) Less: Other (income)/expense, net 0.3 (0.3) Plus: Impairment of real estate assets Plus: Selling, general, administrative and other expenses CRE Cash NOI $84.8 $ % Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at EBITDA EBITDA is presented for the Company on a consolidated basis. EBITDA represents the Company s consolidated net income adjusted to exclude the impact of depreciation and amortization, interest expense and income taxes. The Company provides this information to investors as an additional means of evaluating the performance of the Company s operations and should be not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP. A reconciliation of consolidated net income to EBITDA follows: 44 Dollars in Millions Trailing 12 Months Ended Mar. 31, 2018 Year ended Dec. 31, 2017 Net income $270.9 $230.5 Depreciation and amortization Interest expense Income tax expense (benefit) (220.3) (216.9) EBITDA $119.5 $80.6 Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at 22

23 EBITDA DOLLARS IN MILLIONS 45 Other discrete items impacting EBITDA Year Ended Dec. 31, 2017 Year ended Dec. 31, 2017 Income attributable to noncontrolling interests $(1.6) $(2.2) Income from discontinued operations before interest, income taxes and depreciation and amortization 0.3 (3.7) REIT evaluation/conversion costs Reduction in solar investments, net Impairment of real estate assets Net gain on sales of improved property (55.9) (9.3) Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at MATERIALS & CONTRUCTION EBITDA EBITDA is presented for the Materials & Construction segment by adjusting segment operating profit, which excludes interest and tax expenses), by adding back depreciation and amortization. Adjusted EBITDA is calculated by adjusting for income attributable to noncontrolling interests from EBITDA. The Company provides this information to investors as an additional means of evaluating the performance of the segment s operations and should be not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP. A reconciliation of segment operating profit to EBITDA and Adjusted EBITDA follows: Dollars in Millions Three months ended Mar. 31, Net income $0.2 $22.0 $23.3 Depreciation and amortization EBITDA $3.2 $34.2 $35.0 Income attributable to noncontrolling interests (0.1) (2.2) (1.8) Adjusted EBITDA $3.1 $ Note: Additional information is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at 23