ALEXANDER & BALDWIN, INC. HONOLULU, Oct. 27, 2016 /PRNewswire/ -- Alexander & Baldwin, Inc. (NYSE:ALEX) ("A&B" or "Company") today announced its financial results for the three and nine months ended September 30, 2016.
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"We continued to enjoy solid performance in our Commercial Real Estate segment during the quarter. Our portfolio delivered strong year-over-year growth, with operating profit and net operating income (NOI) up 9.6% and 3.4%(1), respectively, compared to last year's third quarter," said Chris Benjamin, A&B president and chief executive officer. "Development & Sales and Materials & Construction both remain significant contributors to overall earnings. We sold a large agricultural parcel on Maui for $9.5 million, a Kahala Avenue lot and several joint venture units. Materials & Construction adjusted EBITDA for the third quarter was roughly in line with last year's third quarter, and backlog remains robust at $242.5 million(2). Agribusiness operating profit, excluding sugar cessation costs, was a positive $1.9 million in the quarter and has been better than anticipated year to date thanks to a favorable harvest. As a result, we now anticipate that the full-year 2016 pre-tax loss for Agribusiness operations will be closer to the favorable end of the $5-$15 million loss guidance previously provided."
"While our financial performance in the quarter was solid, we are most pleased with our strategic progress. Since redoubling our focus on Hawaii in 2012, we've migrated the capital from 17 mainland commercial properties to Hawaii in a tax efficient manner, significantly enhancing the quality and concentration of the portfolio. Over the same period, we've grown the recurring income stream from our commercial portfolio by over 40% and, today, over 85% of portfolio NOI comes from Hawaii compared to 40% at the beginning of 2012. A&B is now the largest owner of grocery-anchored retail properties in the state. With this concentration comes the opportunity to serve our communities and tenants better, and we are leveraging our development expertise in the redevelopment of existing commercial assets, like the Lau Hala Shops in Kailua and the food court at Pearl Highlands Center."
"As we strategically grow our commercial portfolio in Hawaii, it's important that we assess the optimal structure for the Company going forward and take a serious look at organizing our Company like other large commercial real estate owner/operators. Over the last several months, management has undertaken a preliminary analysis of the potential for conversion to a real estate investment trust (REIT). Based on the findings of this analysis, our Board has approved an in-depth exploration of a conversion to a REIT, which could greatly enhance A&B's ability to pursue its core strategy of investing in Hawaii assets and communities. In particular, the structure could provide A&B with greater ability to compete on a level playing field with out-of-state investors for Hawaii commercial properties, positioning A&B to increase investment in the state and keep more Hawaii properties in local hands."
"As a major developer, quarry operator, infrastructure firm and agricultural enterprise in Hawaii, we also want to ensure that a REIT conversion would not adversely impact these operations. A possible REIT conversion will be evaluated in careful detail before a conclusion about whether or not to convert is reached. In the near term, shareholders can expect to see increased expenses associated with the evaluation, which we will reflect as a separate line item in our income statement."
Quarter Highlights & Recent Activity
Commercial Real Estate (formerly "Leasing")
-- Operating profit was up 9.6% to $13.7 million and NOI increased by 3.4%
to $21.1 million(1) compared to the same period last year.
Development & Sales
-- Construction of The Collection remains on schedule for commencement of
deliveries in November.
-- Sold a 268-acre agriculture parcel to Maui County for $9.5 million and a
lot on Kahala Avenue for $3.0 million.
Materials & Construction
-- Backlog remains healthy at $242.5 million(2).
-- Operating profit was $5.6 million, which included a $1.6 million noncash
write-down of a surplus vacant land parcel held by an unconsolidated
joint venture.
-- Adjusted EBITDA was $9.6 million(1) excluding the aforementioned noncash
write-down.
Agribusiness
-- Final harvest sugar production outlook is toward the higher end of the
expected range, facilitating an improvement in operating loss guidance,
though operational and weather risks still remain.
-- Diversified agriculture plans continued to advance, including crop and
grazing trials, technology research and financial analysis.
-- Expanded grazing lands on Maui based on initial trial results to date.
Commencing conversion of 3,700+ acres of additional working lands to
improved pasture; some with supplemental irrigation for drought
resistance.
Financial/Other
-- The board of directors authorized an increase in the quarterly dividend
and an in-depth evaluation of a REIT conversion.
-- In August 2016, borrowed $60 million of secured debt:
-- 13-year term.
-- 3.135% interest rate fixed by an interest rate swap agreement.
-- Increased weighted average maturity to approximately six years with
only a negligible increase in the weighted average cost of debt.
Financial Performance
Third Quarter 2016
The Company reported a net loss for the third quarter of 2016 of $1.9 million, or $0.03 per diluted share, which included a $9.6 million after-tax loss from the Agribusiness segment, or $0.20 per diluted share, principally related to the previously disclosed cessation of sugar operations at Hawaiian Commercial & Sugar Company (HC&S). Earnings for the third quarter of 2015 were $6.7 million, or $0.11 per diluted share, and included after-tax losses from the Agribusiness segment of $5.6 million, or $0.11 per diluted share.
Revenue for the third quarter of 2016 was $138.7 million, compared to revenue of $144.7 million for the third quarter of last year. Revenue declined primarily due to lower development sales revenue.
Segment and other results:
Commercial Real Estate operating profit increased 9.6% in the third quarter from $12.5 million in 2015 to $13.7 million in 2016, primarily due to improved same store performance. Leasing NOI increased in the third quarter compared to last year by 3.4%(1). Portfolio occupancy was lower at 92% compared to 95% in 2015. Hawaii occupancy remained stable at 93%, however, mainland occupancy fell from 96% to 90% due to a large industrial tenant downsizing in July.
Development & Sales reported operating profit of $6.6 million in the third quarter of 2016 due primarily to the sale of a 268-acre agricultural parcel to the County of Maui for $9.5 million, and a Kahala lot sale for $3.0 million, but also included joint venture closings of a unit at Kukui'ula and six units at Ka Milo. Operating profit from Development & Sales in the third quarter of 2015 was $11.2 million and primarily included the sale of 11.0 acres at Maui Business Park to Lowe's, and joint venture sales of five units at Kukui'ula and seven units at Ka Milo.
The Materials & Construction segment contributed $5.6 million of operating profit in the third quarter of 2016, net of a $1.6 million noncash write-down of a surplus vacant land parcel held by an unconsolidated joint venture, compared to $7.5 million in last year's third quarter. EBITDA for the third quarter, adjusted to exclude the previously described $1.6 million write-down, was $9.6 million(1) compared to $10.2 million(1) last year. Segment performance for the quarter compared to last year's third quarter was also impacted by lower materials sales and lower paving revenues per ton, but was partially offset by lower quarry costs. Wet weather and delays in notices to proceed affected both periods under comparison. The percentage of rained out crew days in these two quarters were materially higher than the average over the preceding three years. However, additional crews were added midway through the third quarter of 2016, which helped increase tons paved by 18.7% compared to last year.
Total Agribusiness operating losses for the third quarter of 2016 were $15.7 million and included $17.6 million of sugar cessation-related expenses. Agribusiness operating profit excluding sugar cessation expenses was $1.9 million in the third quarter of 2016, compared to a loss of $9.0 million in the third quarter of 2015. The improvement primarily was due to lower sugar production costs, partially offset by lower power margin. As a result of favorable experience so far this year, full-year pre-tax operating losses and cessation costs are expected to be at the favorable end of their previously provided ranges--$(5)-$(15) million and $(75)-$(90) million, respectively.
Corporate finance and other:
-- Interest expense decreased slightly to $6.4 million for the third
quarter of 2016 from $6.5 million for the third quarter of 2015.
-- General corporate expenses increased to $5.5 million for the third
quarter of 2016 from $4.8 million for the third quarter of 2015,
primarily due to increased professional fees and other expenses.
-- Professional fees and other expenses associated with the evaluation of a
potential REIT conversion amounted to $1.9 million for the third quarter
of 2016.
-- The Company reported an income tax benefit of $2.4 million in the
quarter due to a net loss before taxes resulting primarily from
Agribusiness losses for the quarter.
Year-To-Date
The Company reported a net loss for the first nine months of 2016 of $10.1 million, or $0.19 per diluted share, which included a $30.4 million after-tax loss from the Agribusiness segment, or $0.62 per diluted share, principally related to the cessation of sugar operations at HC&S. Earnings for the first nine months of 2015 were $41.8 million, or $0.82 per diluted share, and included after-tax losses from the Agribusiness segment of $7.4 million, or $0.15 per diluted share.
Revenue for the first nine months of 2016 was $350.2 million compared to revenue of $449.1 million for the first nine months of last year. Revenue declined principally due to lower development sales, and lower paving and asphalt revenue.
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED INDUSTRY SEGMENT DATA, NET INCOME (LOSS)
(In Millions, Except Per Share Amounts, Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
Revenue:(3) 2016 2015 2016 2015
---------- ---- ---- ---- ----
Real Estate:
Commercial Real Estate $32.9 $33.0 $102.3 $100.5
Development & Sales 12.8 19.9 74.1 108.8
Reconciling item4 - - (60.7) (21.0)
Materials &
Construction 52.1 51.0 144.8 165.3
Agribusiness 40.9 40.8 89.7 95.5
---- ----
Total revenue $138.7 $144.7 $350.2 $449.1
------ ------ ------ ------
Operating Profit (Loss):
------------------------
Real Estate:
Commercial Real Estate $13.7 $12.5 $42.6 $39.6
Development & Sales 6.6 11.2 7.8 57.5
Materials &
Construction 5.6 7.5 18.5 21.7
Agribusiness:
Agribusiness
operations 1.9 (9.0) 1.7 (11.8)
HC&S cessation costs (17.6) - (51.6) -
----- --- ----- ---
Total operating profit 10.2 22.2 19.0 107.0
Interest expense (6.4) (6.5) (20.1) (20.2)
General corporate
expenses (5.5) (4.8) (16.0) (15.7)
REIT evaluation costs (1.9) - (3.8) -
Reduction in solar
investments (0.2) (0.1) (9.7) (1.7)
---- ---- ---- ----
Income (loss) before
income taxes (3.8) 10.8 (30.6) 69.4
Income tax expense
(benefit) (2.4) 3.8 (21.6) 26.4
---- --- ----- ----
Net income (loss) (1.4) 7.0 (9.0) 43.0
Income attributable to
noncontrolling
interest (0.5) (0.3) (1.1) (1.2)
---- ----
Net income (loss)
attributable to A&B
shareholders $(1.9) $6.7 $(10.1) $41.8
===== ==== ====== =====
Earnings (Loss) Per Share:5
---------------------------
Basic -Net income
(loss) available to
A&B shareholders $(0.03) $0.11 $(0.19) $0.83
====== ===== ====== =====
Diluted -Net income
(loss) available to
A&B shareholders $(0.03) $0.11 $(0.19) $0.82
====== ===== ====== =====
Weighted Average Number of Shares
Outstanding:
---------------------------------
Basic 49.0 48.9 49.0 48.8
Diluted 49.0 49.4 49.0 49.3
Cash Dividends Per
Share $0.06 $0.05 $0.18 $0.15
===== ===== ===== =====
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(In Millions, Unaudited)
September 30, December 31,
2016 2015
-------------- -------------
Assets
Current
assets $144.6 $152.5
Investments
in
affiliates 430.8 416.4
Real
estate
developments 192.6 183.5
Property,
net 1,256.1 1,269.4
Intangible
assets,
net 55.8 54.4
Goodwill 102.3 102.3
Other
assets 42.0 63.8
---- ----
$2,224.2 $2,242.3
======== ========
Liabilities & equity
Current
liabilities $181.5 $184.7
Long-
term
debt,
non-
current
portion 523.9 496.6
Deferred
income
taxes 184.2 202.1
Accrued
pension
and
post-
retirement
benefits 58.6 59.7
Other
non-
current
liabilities 49.6 60.5
Redeemable
noncontrolling
interest 11.6 11.6
Equity 1,214.8 1,227.1
$2,224.2 $2,242.3
======== ========
ALEXANDER & BALDWIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW TABLE
(In Millions, Unaudited)
Nine Months Ended September 30,
-------------------------------
2016 2015
---- ----
Cash flows
from
operating
activities: $48.4 $115.3
Cash flows from investing
activities:
Capital
expenditures
for
property,
plant and
equipment (105.3) (34.9)
Capital
expenditures
related to
1031
commercial
property
transactions (6.2) (1.3)
Proceeds
from
disposal of
property
and other
assets 11.4 5.1
Proceeds
from
disposals
related to
1031
commercial
property
transactions 59.3 25.2
Payments for
purchases
of
investments
in
affiliates
and
investments (36.0) (22.5)
Proceeds
from
investments
in
affiliates 6.0 37.6
Change in
restricted
cash
associated
with 1031
transactions 16.2 (2.7)
---- ----
Net cash
provided by
(used in)
investing
activities $(54.6) $6.5
------ ----
Cash flows from financing
activities:
Proceeds
from the
issuance of
long-term
debt $222.0 $71.0
Payments of
long-term
debt and
deferred
financing
costs (191.1) (182.1)
Payments
under line-
of-credit,
net (11.8) (0.4)
Dividends
paid (8.8) (7.4)
Distributions
to non-
controlling
interests (0.5) (1.1)
(Tax
withholding
payments)
proceeds
from
issuance of
capital
stock and
other, net 0.9 (0.5)
Net cash
provided by
(used in)
financing
activities $10.7 $(120.5)
----- -------
Net increase
in cash and
cash
equivalents $4.5 $1.3
Cash and cash
equivalents, beginning
of period 1.3 2.8
--- ---
Cash and
cash
equivalents,
end of
period $5.8 $4.1
==== ====
USE OF NON-GAAP FINANCIAL MEASURES
The Company calculates NOI as Commercial Real Estate operating profit from continuing operations, and adjusted for general and administrative expenses, straight-line rental adjustments, interest income, interest expense, depreciation and amortization, and gains on sales of interests in real estate. 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 our properties excluding corporate and financing-related costs and noncash depreciation and amortization. NOI is an unlevered operating performance metric of our 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, 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 believes that the Commercial Real Estate segment's operating profit from continuing operations is the most directly comparable GAAP measurement to NOI. A reconciliation of the Commercial Real Estate segment operating profit to Commercial Real Estate segment NOI is as follows:
Three Months Ended September 30,
--------------------------------
(dollars in millions) 2016 2015
---- ----
Commercial Real Estate
segment operating
profit $13.7 $12.5
Adjustments:
Depreciation and
amortization 7.0 7.4
Straight-line lease
adjustments (0.4) (0.8)
General, administrative
and other expenses 0.8 1.3
--- ---
Commercial Real Estate
segment NOI $21.1 $20.4
===== =====
Percent change over
prior comparative
period 3.4%
===
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 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. A reconciliation of segment operating profit to Adjusted EBITDA follows:
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(dollars in millions) 2016 2015 2016 2015
---- ---- ---- ----
Operating profit $5.6 $7.5 $18.5 $21.7
Depreciation & amortization
expense 2.9 3.0 8.8 8.8
Income attributable to
noncontrolling interest (0.5) (0.3) (1.1) (1.2)
Noncash write-down of a
surplus vacant land parcel
held by an unconsolidated
affiliate 1.6 - 1.6 -
Adjusted EBITDA $9.6 $10.2 $27.8 $29.3
==== ===== ===== =====
Percent change over
comparative period (5.9)% (5.1)%
===== =====
__________________________________________
(1) This is a non-GAAP disclosure. See
above for a discussion of
management's use of non-GAAP
financial measures and required
reconciliations from GAAP to non-
GAAP measures.
(2) Backlog represents the amount of
revenue that the Grace Pacific and
Maui Paving, LLC, a 50-percent-
owned unconsolidated affiliate,
expect to realize on contracts
awarded or government contracts in
which Grace Pacific has been
confirmed to be the lowest bidder
and formal communication of the
award is perfunctory. Backlog
primarily consists of asphalt paving
and, to a lesser extent, Grace's
consolidated revenue from its
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,
2016 and 2015 was $19.1 million and
$18.9 million, respectively.
(3) Inter-segment revenue during the
each of the three and nine month
periods ended September 30, 2016 and
2015 were immaterial.
4 Represents commercial property sales
that are classified as "Gain on sale
of improved property" in the
Condensed Consolidated Statements of
Income, but reflected as revenue for
segment reporting purposes.
5 Earnings per share available to A&B
shareholders reflect $0.4 million of
undistributed earnings allocated
from redeemable noncontrolling
interests for the third quarter of
2016 and $0.9 million for the first
nine months of 2016. Undistributed
losses allocated from redeemable
noncontrolling interests for each of
the three and nine month periods
ended September 30, 2015, amounted
to $1.3 million.
ABOUT ALEXANDER & BALDWIN
Alexander & Baldwin, Inc. is a Hawaii-based public company, with interests in commercial real estate, real estate development, agriculture, materials and infrastructure construction. With ownership of 87,500 acres in Hawaii, A&B is the state's fourth largest private landowner, and one of the state's most active real estate investors. The Company manages a portfolio comprising 4.7 million square feet of leasable space in Hawaii and on the U.S. Mainland and is the largest owner of grocery-anchored retail assets in the state. A&B is also Hawaii's largest materials company and paving contractor. Additional information about A&B may be found at www.alexanderbaldwin.com.
FORWARD-LOOKING STATEMENTS
Statements in this press release 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 are not guarantees of future performance. This release should be read in conjunction with pages 17-29 of Alexander & Baldwin, Inc.'s 2015 Form 10-K and other filings with the SEC through the date of this release, which identify important factors that could affect the forward-looking statements in this release. We do not undertake any obligation to update our forward-looking statements.
Contact:
Suzy Hollinger
808.525.8422
shollinger@abinc.com
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SOURCE Alexander & Baldwin, Inc.
