Alexander & Baldwin, Inc. PREMIER HAWAII REAL ESTATE COMPANY

Transcription

1 1 Alexander & Baldwin, Inc. PREMIER HAWAII REAL ESTATE COMPANY 1Q17 Earnings Call May 4, 2017

2 Disclosure 2 Statements in this call and presentation that are not historical facts, including potential benefits, consequences and impact of a potential REIT conversion, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. These forward-looking statements include, but are not limited to, the Company s plans regarding (i) the possibility of converting to a REIT and the timing thereof, and (ii) the potential advantages, benefits and impact of, and opportunities created by, converting to a REIT. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions. Additional factors that could cause actual results to differ materially from those contemplated in the forward-looking statements include, without limitation, those described on pages 13 to 24 of the Company's 2016 annual report on Form 10-K, and in other subsequent filings with the SEC. These forward-looking statements are not guarantees of future performance and we do not undertake any obligation to update our forward-looking statements. Management will be referring to non-gaap financial measures when discussing results today. Included in the appendix of today's presentation slides is a statement regarding our use of these non-gaap financial measures and required reconciliations. Slides from this presentation are available for download at our website,

3 Income Available to A&B Shareholders Dollars in Millions, Except Per Share Amounts Net income (loss) Income (loss) from discontinued operations, net of taxes 1Q16 1Q Income from continuing operations, net of taxes Factors affecting 1Q17 results (after-tax) $3.7M, or $0.07 per share, of REIT evaluation costs $1.2M, or $0.02 per share, related to Waihonu tax equity investment write down $2.2M, or $0.05 per share, in income tax benefits from adoption of a new accounting pronouncement Diluted Earnings (Loss) Per Share Available to A&B Shareholders 1Q16 1Q17 Net income (loss) (0.14) 0.14 Income (loss) from discontinued operations, net of taxes (0.22) 0.05 Income from continuing operations, net of taxes

4 Hawaii-Focused CRE Strategy 4 Net Operating Income (Dollars in Millions) Spinoff of Matson; initiation of Hawaii migration strategy 37% Cessation of sugar ops; announcement of REIT evaluation $ % Hawaii Mainland $ % 85% 42% Note: See appendix for a statement on management s use of non-gaap financial measures and required reconciliations.

5 Strategic Initiatives in CRE Building long-term, sustainable value in our commercial real estate portfolio. 5 Bringing asset management in house to enhance: Accountability and coordination Cost-effectiveness More strategic approach to leasing assets Net Operating Income* (Dollars in Millions) 20-35% Pure-play Hawaii commercial real estate $105 - $115 Upgrading technology for process efficiency and to better understand tenant and consumer needs and wants Evaluating redevelopment, new development and acquisition opportunities $63.1M 58% $86.4M 15% 85% 100% 42% * See appendix for a statement on management s use of non-gaap financial measures and required reconciliations. Hawaii Mainland

6 6 Redevelopment & Development for Hold The Company has many repositioning and redevelopment opportunities within its portfolio to increase NOI. As of May 4, 2017 Project Phase In-service Capital Incremental Stabilized NOI Stabilized Yield on Cost Sq. Ft. Pearl Highlands Center Food Court/Regal renovation Construction Late 2017 $6.0M $0.6M % 54,000 Lau Hala Shops (Kailua Macy s) repositioning Construction 2018 $21.0M $ M % 48,400 Ho`okele Shopping Center development for hold Preconstruction Late 2019 $41.9M* $ M % 94,000 Total $68.9M $5.6-$6.6M % 196,400 * Includes land at book value; stabilized yield on cost would be about 100bps lower if included at market value. Note: Complete table, including leasing activity, is included the first quarter 2017 Supplemental Information report.

7 % Re-leasing Spreads in 1Q17 Similar results expected for full-year % Same-store NOI Growth Projected for full-year 2017

8 A&B Hawaii Retail Portfolio A&B Retail Property Locations: 8 $4M Office 5% $73M* Total Hawaii CRE Portfolio NOI in 2016 Retail 64% $47M $12M $11M Commercial ground leases 15% Industrial 16% A&B Retail Portfolio Statistics: 1.8M $27 88% $789 Square feet Retail properties Properties primarily serving tourists * See appendix for a statement on management s use of non-gaap financial measures and required reconciliations. Regional malls owned Hawaii shopping center average ABR psf Percent Hawaii retail ABR from grocery/drug-anchor ed retail Grocer average psf

9 Asset Class Preferences 9 Preference for grocery/drug-anchored shopping center and industrial properties Services primarily local end users Significant supply constraints keep fundamental performance strong Disaggregated ownership provides opportunity $50M budgeted for new commercial property acquisitions in 2017 Manoa Marketplace Komohana Industrial Park

10 Development Sales 10 Monetizing pipeline through sales of existing inventory and select development parcel sales Favorable 1Q17 momentum Six closed sales in 1Q17 $9.6M gross revenue The Collection (2), Ka Milo (2), MBP II (1), Land (1) 16 new binding contracts in 1Q17 $25.6M gross revenue Kamalani (6), Keala o Wailea (5), Kukui ula (3), Ka Milo (1), Land (1)

11 Diversified Agriculture 11 Diversified ag efforts progressing Not expected to be a driver of near-term profitability Modest net expenses to repurpose former sugar lands Objective is to deploy former sugar plantation lands in viable agricultural uses as quickly as possible

12 Materials & Construction Performance 12 1Q17 performance Operating profit of $5.6M Adjusted EBITDA of $7.9M* Impacts on segment in 1Q17 Lower effective productivity Lower volume of aggregate sales Lower paving margins Competitive pricing environment Increased mix of lower margin projects Comprehensive organizational efficiency initiative underway * See appendix for a statement on management s use of non-gaap financial measures and required reconciliations.

13 Evaluation of Potential REIT Structure Completed Next Steps 13 Received favorable private letter ruling from IRS allowing distribution of up to 80% of the aggregate accumulated earnings and profits (E&P) in stock Estimated E&P purge is large due to long history Finalize the E&P purge, capital structure and dividend policy Modify and enhance IT infrastructure and internal accounting processes Complete evaluation by mid summer Completed the allocation and transfer of assets between entities that could constitute the REIT and taxable REIT subsidiary (TRS) Modeled, forecasted and tested pro forma REIT compliance

14 14 Financial Update

15 1Q17 Segment Operating Profit, Performance Metrics Dollars in Millions Q16 1Q Commercial Real Estate Land Operations Materials & Construction Total Operating Profit Commercial Real Estate Same-Store NOI* M&C Adjusted EBITDA* * See appendix for a statement on management s use of non-gaap financial measures and required reconciliations.

16 Liquidity & Debt Metrics As of March 31, 2017 Capital Structure As of March 31, Liquidity $264M of committed capacity on revolver $161M of uncommitted capacity on private placement shelf 20% Net Debt $545M Net debt/ebitda of 4.8x Net debt/tev of 19.9% Debt/debt + equity of 31.6% $2.8B TEV Fixed-rate debt 85.1% Unsecured debt 66.4% Weighted-average maturity 5.8 years Weighted-average interest rate 4.3% Common Equity $2.2B 80% Note: See appendix for a statement on management s use of non-gaap financial measures and required reconciliations.

17 Q&A 17

18 Appendix 18

19 Key Hawaii Economic Indicators 19 Indicator (percent change) Real Gross Domestic Product F 2018F 2019F DBEDT DBEDT DBEDT UHERO DBEDT UHERO DBEDT UHERO DBEDT Visitor Arrivals* Visitor Expenditures (1.9) 4.0 (0.7) 3.7 Real Personal Income Unemployment Rate Sources: University of Hawaii Economic Research Organization (UHERO), State Forecast Update May Hawaii Department of Business, Economic Development & Tourism (DBEDT), Outlook for the Economy 1Q Data provided for informational purposes only; no endorsement implied. * UHERO forecasts of visitor arrivals consider visitor arrivals by air only. DBEDT forecasts consider air and cruise ship arrivals.

20 Visitor Arrivals & Expenditures 20 Visitor Arrivals (in Millions) Q 2017 v. 1Q 2016 Arrivals: 3.1% Expenditures: 10.4% Visitor Expenditures ($ in Billions) F 2018F 2019F Visitor Expenditures Visitor Arrivals 6 Source: DBEDT, Outlook for the Economy 1Q Hawaii Tourism March 2017 Visitor Highlights Data provided for informational purposes only; no endorsement of forecast implied.

21 Hawaii & U.S. Unemployment Rate 21 Percent Hawaii Average Unemployment March % March % F 2018F 2019F Hawaii U.S. Sources: DBEDT, Outlook for the Economy 1Q Federal Reserve Forecast as of March 2017; State of Hawaii Department of Labor and Industrial Relations; Data provided for informational purposes only; no endorsement of forecast implied.

22 Hawaii Real Estate Overview 1Q17 Residential Real Estate Resales 22 County Single Family Homes Condominiums Sales % Change from YTD 3/31/16 Median Price % Change Sales % Change from YTD 3/31/16 Median Price % Change Hawaii 548 (1.1) $355, % $365, Kauai $660, % $407, Maui 230 (4.6) $699, % $475, Oahu $750, , % $390, Total 1,680 1,869 Source: Title Guaranty Statewide Housing Statistics report, March Data provided for informational purposes only; no endorsement implied.

23 Hawaii Real Estate Overview Oahu Oahu Single Family Homes & Condo Resales (Quarterly Data) ,000 2,500 Median Price ($) 700, , , , , ,000 2,000 1,500 1, Sales Volume 100, Oahu- SFH Median Price Oahu- Condo Median Price Oahu - SFH Sales Volume Oahu- Condo Sales Volume Source: Title Guaranty Statewide Housing Statistics report, Honolulu Board of Realtors March Data provided for informational purposes only; no endorsement implied.

24 Oahu Commercial Real Estate 24 Property Type Vacancy Rate for the Quarter Ended March 31, 2017 Vacancy Rate for the Quarter Ended March 31, 2016 Percentage Point Change Average Asking Rent Per Square Foot Per Month for the Quarter Ended March 31, 2017 Average Asking Rent Per Square Foot Per Month for the Quarter Ended March 31, 2016 Percent Change Retail 9.2% 4.6% 4.6 $4.07 $ % Industrial 1.5% 1.5% -- $1.19 $ % Office 12.4% 12.2% 0.2 $1.70 $ % Source: Colliers International Hawaii. Data provided for informational purposes only; no endorsement implied.

25 Debt Maturities As of March 31, Wtd. Avg. Interest Rate ($ in millions) Revolver Renewal Pearl Highlands Center Manoa Marketplace & Beyond Unsecured term loans Secured notes payable Unsecured revolving credit

26 Capital Expenditures Dollars in Millions Q17 Actual Budget Actual Investment capital Commercial property acquisitions, redevelopment & develop-for-hold Land operations Materials & Construction Subtotal Less: 1031 proceeds/temporary debt (91) (50) -- Total Maintenance capital Commercial Real Estate Land Operations Materials & Construction Total Net capital expenditures

27 Use of Non-GAAP Financial Measures 27 The Company calculates NOI as CRE operating profit, less depreciation and amortization, straight-line lease adjustments and general, administrative and other expenses. NOI is considered by management to be an important and appropriate supplemental performance metric because management believes it helps both investors and management understand the ongoing core operations of the Company's properties excluding corporate and financing-related costs and noncash depreciation and amortization. NOI is an unlevered operating performance metric of the Company's commercial properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from GAAP income (loss) from operations or net income (loss). NOI should not be considered as an alternative to GAAP net income (loss) as an indicator of the Company's financial performance or as an alternative to cash flow from operating activities as a measure of the Company's liquidity. Other real estate companies may use different methodologies for calculating NOI, and accordingly, the Company's presentation of NOI may not be comparable to other real estate companies. The Company also presents same-store NOI, which represents NOI generated by properties that were owned throughout the entire duration of both periods under comparison, including stabilized properties, and Hawaii NOI. The Company believes that the CRE segment's operating profit is the most directly comparable GAAP measurement to NOI, same-store NOI and Hawaii NOI. Reconciliation of CRE operating profit to CRE segment NOI, same-store NOI and Hawaii NOI are on the following slides:

28 Reconciliation of GAAP to Non-GAAP Measures 28 Dollars in Millions Three Months Ended March 31, % Change CRE operating profit Depreciation and amortization Straight-line lease adjustments (0.5) (0.5) General, administrative and other expenses CRE NOI (0.9)% Acquisition/disposition and other adjustments (1.6) (2.3) CRE same-store NOI % Note: Additional information about NOI is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at

29 Reconciliation of GAAP to Non-GAAP Measures 29 Dollars in Millions Year Ended December 31, % Change CRE operating profit Depreciation and amortization Straight-line lease adjustments (2.1) (3.6) General, administrative and other expenses CRE NOI % Mainland CRE NOI (13.1) CRE Hawaii NOI 73.3 Note: Additional information about NOI is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at

30 Use of Non-GAAP Financial Measures 30 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: Dollars in Millions Trailing Twelve Months Ended March 31, 2017 Consolidated net income 5.6 Depreciation & amortization expense Interest expense 25.6 Income tax benefit 19.7 Consolidated EBITDA Note: Additional information about EBITDA is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at

31 Use of Non-GAAP Financial Measures 31 The Company presents Adjusted EBITDA for the Materials & Construction segment, which is a non- GAAP measure. The Company uses Adjusted EBITDA when evaluating operating performance for the Materials & Construction segment because management believes that it provides insight into the segment s core operating results, future cash flow generation, and/or the underlying business trends affecting performance on a consistent and comparable basis from period to period. The Company provides this information to investors as an additional means of evaluating the segment s 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 believes that Materials & Construction operating profit is the most directly comparable GAAP measurement to the segment's Adjusted EBITDA. Reconciliation of the Materials & Construction segment's operating profit to Adjusted EBITDA is on the following slide:

32 Reconciliation of GAAP to Non-GAAP Measures 32 Dollars in Millions Three Months Ended March 31, % Change Materials & Construction operating profit Depreciation & amortization expense Income attributable to non-controlling interest (0.7) (0.5) Materials & Construction Adjusted EBITDA (24.0)% Note: Additional information about Materials & Construction EBITDA is included in the Company s quarterly Supplemental Information report, which is furnished to the SEC and available at