Alexander & Baldwin Inc.
07/26/2024 | Press release | Distributed by Public on 07/26/2024 04:05
Quarterly Report for Quarter Ending June 30, 2024 (Form 10-Q)
alex-20240630
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________________ to _________________
Commission file number 001-35492
ALEXANDER & BALDWIN, INC.
(Exact name of registrant as specified in its charter)
| Hawaii | 45-4849780 | ||
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
||
|
822 Bishop Street
|
|||
| P. O. Box 3440, | Honolulu, | Hawaii | 96801 |
| (Address of principal executive offices) | (Zip Code) |
(808) 525-6611
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former
fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, without par value | ALEX | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of shares of common stock outstanding as of June 30, 2024: 72,621,777
1
ALEXANDER & BALDWIN, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2024
TABLE OF CONTENTS
| Page | ||
| PART I. FINANCIAL INFORMATION | ||
| Item 1. |
Financial Statements
|
1
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Condensed Consolidated Balance Sheets - As of June 30, 2024 and December 31, 2023
|
1
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Condensed Consolidated Statements of Operations- Three and Six Months Ended June 30, 2024 and 2023
|
2
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|
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Condensed Consolidated Statements of Comprehensive Income (Loss)- Three and Six Months Ended June 30, 2024 and 2023
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3
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|
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Condensed Consolidated Statements of Cash Flows- Six Months Ended June 30, 2024 and 2023
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4
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Condensed Consolidated Statements of Equity and Redeemable Noncontrolling Interest- Three and Six Months Ended June 30, 2024 and 2023
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6
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Notes to Condensed Consolidated Financial Statements
|
8
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| Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
24
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| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
42
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| Item 4. |
Controls and Procedures
|
42
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| PART II. OTHER INFORMATION | ||
| Item 1. |
Legal Proceedings
|
43
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| Item 1A. |
Risk Factors
|
43
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| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
43
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| Item 5. |
Other Information
|
43
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| Item 6. |
Exhibit Index
|
44
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Signature
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45
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands; unaudited)
| June 30, | December 31, | |||
| 2024 | 2023 | |||
| ASSETS | ||||
| Real estate investments | ||||
| Real estate property | $ | 1,610,927 | $ | 1,609,013 |
| Accumulated depreciation | (241,888) | (227,282) | ||
| Real estate property, net | 1,369,039 | 1,381,731 | ||
| Real estate developments | 60,856 | 58,110 | ||
| Investments in real estate joint ventures and partnerships | 6,765 | 6,850 | ||
| Real estate intangible assets, net | 33,312 | 36,298 | ||
| Real estate investments, net | 1,469,972 | 1,482,989 | ||
| Cash and cash equivalents | 29,523 | 13,517 | ||
| Restricted cash | 236 | 236 | ||
|
Accounts receivable, net of allowances (credit losses and doubtful accounts) of $1,591 and $2,888 as of June 30, 2024, and December 31, 2023, respectively
|
4,580 | 4,533 | ||
| Goodwill | 8,729 | 8,729 | ||
|
Other receivables, net of allowances of $3,653 and $3,545 as of June 30, 2024, and December 31, 2023, respectively
|
13,666 | 23,601 | ||
| Prepaid expenses and other assets | 101,204 | 98,652 | ||
| Assets held for sale | 13,999 | 13,984 | ||
| Total assets | $ | 1,641,909 | $ | 1,646,241 |
| LIABILITIES AND EQUITY | ||||
| Liabilities: | ||||
| Notes payable and other debt | $ | 469,804 | $ | 463,964 |
| Accounts payable | 5,241 | 5,845 | ||
| Accrued post-retirement benefits | 8,216 | 9,972 | ||
| Deferred revenue | 71,243 | 70,353 | ||
| Accrued and other liabilities | 85,833 | 93,096 | ||
| Total liabilities | 640,337 | 643,230 | ||
|
Commitments and Contingencies (Note 7)
|
||||
| Equity: | ||||
|
Common stock - no par value; authorized, 225,000,000 shares; outstanding, 72,621,777 and 72,447,510 shares at June 30, 2024, and December 31, 2023, respectively
|
1,809,271 | 1,809,095 | ||
| Accumulated other comprehensive income (loss) | 5,208 | 3,250 | ||
| Distributions in excess of accumulated earnings | (812,907) | (809,334) | ||
| Total shareholders' equity | 1,001,572 | 1,003,011 | ||
| Total liabilities and equity | $ | 1,641,909 | $ | 1,646,241 |
See Notes to Condensed Consolidated Financial Statements.
1
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data; unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Operating Revenue: | ||||||||
| Commercial Real Estate | $ | 49,208 | $ | 49,533 | $ | 98,096 | $ | 97,403 |
| Land Operations | 1,839 | 3,583 | 14,153 | 6,103 | ||||
| Total operating revenue | 51,047 | 53,116 | 112,249 | 103,506 | ||||
| Operating Costs and Expenses: | ||||||||
| Cost of Commercial Real Estate | 25,134 | 25,049 | 50,550 | 49,997 | ||||
| Cost of Land Operations | 4,552 | 1,991 | 9,339 | 5,577 | ||||
| Selling, general and administrative | 7,252 | 9,909 | 14,491 | 18,638 | ||||
| Total operating costs and expenses | 36,938 | 36,949 | 74,380 | 74,212 | ||||
| Gain (loss) from disposals, net | 2,125 | - | 2,148 | 1,117 | ||||
| Operating Income (Loss) | 16,234 | 16,167 | 40,017 | 30,411 | ||||
| Other Income and (Expenses): | ||||||||
| Income (loss) related to joint ventures | 996 | 541 | 1,694 | 929 | ||||
|
Interest and other income (expense), net (Note 2)
|
531 | (61) | 1,798 | (141) | ||||
| Interest expense | (5,929) | (5,857) | (11,439) | (10,898) | ||||
| Income (Loss) from Continuing Operations Before Income Taxes | 11,832 | 10,790 | 32,070 | 20,301 | ||||
| Income tax benefit (expense) | (99) | (2) | (99) | (7) | ||||
| Income (Loss) from Continuing Operations | 11,733 | 10,788 | 31,971 | 20,294 | ||||
| Income (loss) from discontinued operations, net of income taxes | (2,625) | 4,206 | (2,881) | 8 | ||||
| Net Income (Loss) | 9,108 | 14,994 | 29,090 | 20,302 | ||||
| Loss (income) attributable to discontinued noncontrolling interest | - | (1,661) | - | (1,633) | ||||
| Net Income (Loss) Attributable to A&B Shareholders | $ | 9,108 | $ | 13,333 | $ | 29,090 | $ | 18,669 |
| Earnings (Loss) Per Share Available to A&B Shareholders: | ||||||||
| Basic Earnings (Loss) Per Share of Common Stock: | ||||||||
| Continuing operations available to A&B shareholders | $ | 0.16 | $ | 0.15 | $ | 0.44 | $ | 0.28 |
| Discontinued operations available to A&B shareholders | (0.03) | 0.03 | (0.04) | (0.02) | ||||
| Net income (loss) available to A&B shareholders | $ | 0.13 | $ | 0.18 | $ | 0.40 | $ | 0.26 |
| Diluted Earnings (Loss) Per Share of Common Stock: | ||||||||
| Continuing operations available to A&B shareholders | $ | 0.16 | $ | 0.15 | $ | 0.44 | $ | 0.28 |
| Discontinued operations available to A&B shareholders | (0.03) | 0.03 | (0.04) | (0.02) | ||||
| Net income (loss) available to A&B shareholders | $ | 0.13 | $ | 0.18 | $ | 0.40 | $ | 0.26 |
| Weighted-Average Number of Shares Outstanding: | ||||||||
| Basic | 72,615 | 72,617 | 72,580 | 72,583 | ||||
| Diluted | 72,692 | 72,832 | 72,674 | 72,798 | ||||
|
Amounts Available to A&B Common Shareholders (Note 13):
|
||||||||
| Continuing operations available to A&B common shareholders | $ | 11,729 | $ | 10,757 | $ | 31,959 | $ | 20,233 |
| Discontinued operations available to A&B common shareholders | (2,625) | 2,545 | (2,881) | (1,625) | ||||
| Net income (loss) available to A&B common shareholders | $ | 9,104 | $ | 13,302 | $ | 29,078 | $ | 18,608 |
See Notes to Condensed Consolidated Financial Statements.
2
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands; unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Net Income (Loss) | $ | 9,108 | $ | 14,994 | $ | 29,090 | $ | 20,302 |
| Other Comprehensive Income (Loss), net of tax: | ||||||||
| Cash flow hedges: | ||||||||
| Unrealized interest rate derivative gain (loss) | 1,698 | 4,206 | 2,900 | 504 | ||||
| Reclassification adjustment to interest expense included in Net Income (Loss) | (469) | (450) | (942) | (797) | ||||
| Other comprehensive income (loss), net of tax | 1,229 | 3,756 | 1,958 | (293) | ||||
| Comprehensive Income (Loss) | 10,337 | 18,750 | 31,048 | 20,009 | ||||
| Comprehensive (income) loss attributable to discontinued noncontrolling interest | - | (1,661) | - | (1,633) | ||||
| Comprehensive Income (Loss) Attributable to A&B Shareholders | $ | 10,337 | $ | 17,089 | $ | 31,048 | $ | 18,376 |
See Notes to Condensed Consolidated Financial Statements.
3
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands; unaudited)
| Six Months Ended June 30, | ||||
| 2024 | 2023 | |||
| Cash Flows from Operating Activities: | ||||
| Net income (loss) | $ | 29,090 | $ | 20,302 |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: | ||||
| Loss (income) from discontinued operations | 2,881 | (8) | ||
| Depreciation and amortization | 17,979 | 18,334 | ||
| Deferred income taxes | - | (203) | ||
| Loss (gain) from disposals, net | (2,148) | (1,117) | ||
| Loss (gain) on de-designated interest rate swap valuation adjustment | (3,675) | - | ||
| Share-based compensation expense | 2,388 | 4,260 | ||
| Loss (income) related to joint ventures, net of operating cash distributions | (934) | (914) | ||
| Changes in operating assets and liabilities: | ||||
| Trade and other receivables | (834) | (557) | ||
| Prepaid expenses and other assets | 1,299 | 2,124 | ||
| Development/other property inventory | (675) | (1,499) | ||
| Accrued post-retirement benefits | (1,756) | (15) | ||
| Accounts payable | (983) | 58 | ||
| Accrued and other liabilities | (3,023) | (2,850) | ||
| Operating cash flows from continuing operations | 39,609 | 37,915 | ||
| Operating cash flows from discontinued operations | (1,244) | (28,696) | ||
| Net cash provided by (used in) operations | 38,365 | 9,219 | ||
| Cash Flows from Investing Activities: | ||||
| Capital expenditures for acquisitions | - | (9,464) | ||
| Capital expenditures for property, plant and equipment | (8,011) | (7,170) | ||
| Proceeds from disposal of assets | 41 | 2,953 | ||
| Payments for purchases of investments in affiliates and other investments | (124) | (120) | ||
| Distributions of capital and other receipts from investments in affiliates and other investments | 1 | - | ||
| Investing cash flows from continuing operations | (8,093) | (13,801) | ||
| Investing cash flows from discontinued operations | 15,000 | 1,335 | ||
| Net cash provided by (used in) investing activities | 6,907 | (12,466) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds from issuance of notes payable and other debt | 60,000 | - | ||
| Payments of notes payable and other debt and deferred financing costs | (74,303) | (19,300) | ||
| Borrowings (payments) on line-of-credit agreement, net | 20,000 | 54,000 | ||
| Cash dividends paid | (32,631) | (48,233) | ||
| Repurchases of common stock and other payments | (2,332) | (2,392) | ||
| Financing cash flows from continuing operations | (29,266) | (15,925) | ||
| Financing cash flows from discontinued operations | - | (5,190) | ||
| Net cash provided by (used in) financing activities | (29,266) | (21,115) | ||
| Cash, Cash Equivalents, Restricted Cash, and Cash included in Assets Held for Sale | ||||
| Net increase (decrease) in cash, cash equivalents, restricted cash, and cash included in assets held for sale | 16,006 | (24,362) | ||
| Balance, beginning of period | 13,753 | 34,409 | ||
| Balance, end of period | $ | 29,759 | $ | 10,047 |
4
| Six Months Ended June 30, | ||||
| 2024 | 2023 | |||
| Other Cash Flow Information: | ||||
| Interest paid, net of capitalized interest, for continuing operations | $ | 10,447 | $ | 11,641 |
| Interest paid, net of capitalized interest, for discontinued operations | $ | - | $ | 374 |
| Income tax (payments)/refunds, net | $ | (4) | $ | 44 |
| Noncash Investing and Financing Activities from continuing operations: | ||||
| Capital expenditures included in accounts payable and accrued and other liabilities | $ | 2,555 | $ | 690 |
| Dividends declared but unpaid at end of period | $ | 16,670 | $ | 431 |
| Increase (decrease) in escrow and other receivables from dispositions | $ | - | $ | 298 |
| Noncash Investing and Financing Activities from discontinued operations: | ||||
| Capital expenditures included in liabilities associated with assets held for sale | $ | - | $ | 61 |
| Reconciliation of cash, cash equivalents, restricted cash, and cash included in assets held for sale: | ||||
| Beginning of the period: | ||||
| Cash and cash equivalents | $ | 13,517 | $ | 33,262 |
| Restricted cash | 236 | 998 | ||
| Cash included in assets held for sale | - | 149 | ||
| Cash, cash equivalents, restricted cash, and cash included in assets held for sale | $ | 13,753 | $ | 34,409 |
| End of the period: | ||||
| Cash and cash equivalents | $ | 29,523 | $ | 8,162 |
| Restricted cash | 236 | 236 | ||
| Cash included in assets held for sale | - | 1,649 | ||
| Cash, cash equivalents, restricted cash, and cash included in assets held for sale | $ | 29,759 | $ | 10,047 |
See Notes to Condensed Consolidated Financial Statements.
5
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTEREST
For the Three Months Ended June 30, 2024 and 2023
(amounts in thousands, except per share data; unaudited)
| Total Equity | |||||||||||
| Common Stock |
Accumulated Other Comprehensive Income (Loss) |
(Distribution in Excess of Accumulated Earnings) Earnings Surplus |
Total |
Redeemable Non- Controlling Interest |
|||||||
| Shares | Stated Value | ||||||||||
| Balance, April 1, 2023 | 72,593 | $ | 1,807,610 | $ | (2,242) | $ | (785,364) | $ | 1,020,004 | $ | 7,613 |
| Net income (loss) | - | - | - | 13,333 | 13,333 | 1,661 | |||||
| Other comprehensive income (loss), net of tax | - | - | 3,756 | - | 3,756 | - | |||||
|
Dividend on common stock ($0.22 per share)
|
- | - | - | (16,070) | (16,070) | - | |||||
| Share-based compensation | - | 2,684 | - | - | 2,684 | - | |||||
| Shares issued (repurchased), net | 32 | - | - | - | - | - | |||||
| Balance, June 30, 2023 | 72,625 | $ | 1,810,294 | $ | 1,514 | $ | (788,101) | $ | 1,023,707 | $ | 9,274 |
| Total Equity | |||||||||||
| Common Stock |
Accumulated Other Comprehensive Income (Loss) |
(Distribution in Excess of Accumulated Earnings) Earnings Surplus |
Total |
Redeemable Non- Controlling Interest |
|||||||
| Shares | Stated Value | ||||||||||
| Balance, April 1, 2024 | 72,592 | $ | 1,808,009 | $ | 3,979 | $ | (805,662) | $ | 1,006,326 | $ | - |
| Net income (loss) | - | - | - | 9,108 | 9,108 | - | |||||
| Other comprehensive income (loss), net of tax | - | - | 1,229 | - | 1,229 | - | |||||
|
Dividend on common stock ($0.2225 per share)
|
- | - | - | (16,353) | (16,353) | - | |||||
| Share-based compensation | - | 1,262 | - | - | 1,262 | - | |||||
| Shares issued (repurchased), net | 30 | - | - | - | - | - | |||||
| Balance, June 30, 2024 | 72,622 | $ | 1,809,271 | $ | 5,208 | $ | (812,907) | $ | 1,001,572 | $ | - |
See Notes to Condensed Consolidated Financial Statements
6
ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTEREST
For the Six Months Ended June 30, 2024 and 2023
(amounts in thousands, except per share data; unaudited)
| Total Equity | |||||||||||
| Common Stock |
Accumulated Other Comprehensive Income (Loss) |
(Distribution in Excess of Accumulated Earnings) Earnings Surplus |
Total |
Redeemable Non- Controlling Interest |
|||||||
| Shares | Stated Value | ||||||||||
| Balance, January 1, 2023 | 72,463 | $ | 1,808,401 | $ | 1,807 | $ | (774,503) | $ | 1,035,705 | $ | 7,986 |
| Net income (loss) | - | - | 18,669 | 18,669 | 1,633 | ||||||
| Other comprehensive income (loss), net of tax | - | (293) | - | (293) | - | ||||||
|
Dividend on common stock ($0.44 per share)
|
- | - | (32,258) | (32,258) | - | ||||||
| Distributions to noncontrolling interest | - | - | - | - | - | (345) | |||||
| Share-based compensation | 4,260 | - | - | 4,260 | - | ||||||
| Shares issued (repurchased), net | 162 | (2,367) | - | (9) | (2,376) | - | |||||
| Balance, June 30, 2023 | 72,625 | $ | 1,810,294 | $ | 1,514 | $ | (788,101) | $ | 1,023,707 | $ | 9,274 |
| Total Equity | |||||||||||
| Common Stock |
Accumulated Other Comprehensive Income (Loss) |
(Distribution in Excess of Accumulated Earnings) Earnings Surplus |
Total |
Redeemable Non- Controlling Interest |
|||||||
| Shares | Stated Value | ||||||||||
| Balance, January 1, 2024 | 72,448 | $ | 1,809,095 | $ | 3,250 | $ | (809,334) | $ | 1,003,011 | $ | - |
| Net income (loss) | - | - | - | 29,090 | 29,090 | - | |||||
| Other comprehensive income (loss), net of tax | - | - | 1,958 | - | 1,958 | - | |||||
|
Dividend on common stock ($0.445 per share)
|
- | - | - | (32,543) | (32,543) | - | |||||
| Share-based compensation | - | 2,388 | - | - | 2,388 | - | |||||
| Shares issued (repurchased), net | 174 | (2,212) | - | (120) | (2,332) | - | |||||
| Balance, June 30, 2024 | 72,622 | $ | 1,809,271 | $ | 5,208 | $ | (812,907) | $ | 1,001,572 | $ | - |
See Notes to Condensed Consolidated Financial Statements
7
Alexander & Baldwin, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 in two segments: Commercial Real Estate ("CRE") and Land Operations. As of June 30, 2024, the Company's commercial real estate portfolio resides entirely in Hawai'i and consists 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 well as 142.0 acres of commercial land, of which substantially all is leased pursuant to urban ground leases. Throughout this quarterly report on Form 10-Q, references to "we," "our," "us" and "our Company" refer to Alexander & Baldwin, Inc., together with its consolidated subsidiaries.
Basis of Presentation: The interim condensed consolidated financial statements are unaudited. Because of the nature of the Company'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, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and equity and redeemable noncontrolling interest for each of the three years ended December 31, 2023, 2022, and 2021, respectively, and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K"), and other subsequent filings with the U.S. Securities and Exchange Commission ("SEC").
Reclassifications: Certain amounts presented in the prior year have been reclassified to conform to the current year presentation (e.g., captions previously presented in the prior 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 balance 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 assetsfor all periods presented. Operating lease liabilities andLiabilities associated with assets held for sale, which were previously reported separately on the condensed consolidated balance sheets, are now presented in Accrued and other liabilitiesfor all periods presented.
Rounding: Amounts in the condensed consolidated financial statements and notes are rounded to the nearest thousand. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may result in differences.
2. Significant Accounting Policies
The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of the Company's 2023 Form 10-K. Changes to the Company's significant accounting policies are included herein.
8
Recently issued accounting pronouncements
In October 2023, the FASB issued ASU No. 2023-06 ("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 the SEC'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 ASU will not become effective. Early adoption is prohibited. The Company does not expect the amendments of this accounting standard update to have a material impact on its consolidated financial statements and related disclosures.
In November 2023, the FASB issued ASU No. 2023-07 ("ASU 2023-07"), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosuresto improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal 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 this accounting standard update on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvement to Income Tax Disclosuresto enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements and related disclosures.
Interest and other income (expense), net
Interest and other income (expense), net for the three and six months ended June 30, 2024 and 2023, included the following (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Interest income | $ | 512 | $ | 103 | $ | 743 | $ | 193 |
| Post-retirement benefit (expense) | (106) | (169) | (213) | (345) | ||||
| Gain (loss) on fair value adjustments related to interest rate swaps | - | - | 3,675 | - | ||||
| Financing charges | - | - | (2,350) | - | ||||
| Other income (expense), net | 125 | 5 | (57) | 11 | ||||
| Interest and other income (expense), net | $ | 531 | $ | (61) | $ | 1,798 | $ | (141) |
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 policies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting.
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Operating results presented in the Company's condensed consolidated financial 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 and six months ended June 30, 2024 and 2023, is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Revenues | $ | 45,666 | $ | 40,694 | $ | 85,036 | $ | 78,629 |
| Operating costs and expenses | 39,288 | 35,669 | 74,687 | 70,103 | ||||
| Gross Profit (Loss) | $ | 6,378 | $ | 5,025 | $ | 10,349 | $ | 8,526 |
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Income (Loss) from Continuing Operations1
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$ | 1,751 | $ | 464 | $ | 1,051 | $ | (827) |
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Net Income (Loss)1
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$ | 1,751 | $ | 464 | $ | 1,051 | $ | (827) |
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1Includes earnings from equity method investments held by the investee.
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During the six months ended June 30, 2024 and 2023, Income (loss) related to joint ventureswas $1.7 million and $0.9 million, respectively, and return on investment operating cash distributions was $0.8 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 June 30, 2024 and December 31, 2023, (in thousands):
| Fair Value Measurements at | |||||||||
| June 30, 2024 | |||||||||
| Consolidated Balance Sheet Location | Total | Quoted Prices in Active Markets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
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| Assets | |||||||||
| Derivative financial instruments - interest rate swaps | Prepaid expenses and other assets | $ | 7,046 | $ | - | $ | 7,046 | $ | - |
| 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) |
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| 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 interest rate swaps are classified as Level 2 measurements in the fair value hierarchy and 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 (refer to Note 6 - Derivative Instruments for fair value information regarding the Company's derivative instruments).
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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 Company's 2023 Form 10-K.
Impairment of Assets Held for Sale, net:As of June 30, 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 $2.2 million recorded during the year ended December 31, 2023. During the three and six months ended June 30, 2024, the Company recorded no additional fair value adjustment related to assets and liabilities held for sale. The Company classifies these fair value measurements as Level 3 in the fair value hierarchy because they are determined using significant unobservable inputs such as management assumptions about expected sales proceeds from third parties.
The following table presents the fair value hierarchy and quantitative information about the significant unobservable inputs used to determine the fair value of long-lived assets held and used and assets held for sale, net for which a nonrecurring fair value adjustment was recorded (in thousands):
| Fair Value Measurements at | Quantitative Information about | |||||||||||
| December 31, 2023 | Level 3 Fair Value Measurements | |||||||||||
| Total | Quoted Prices in Active Markets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total Gains (Losses) | Valuation Technique/ Unobservable Inputs | Weighted Average Discount Rate | ||||||
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Assets held for sale, net1,2
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$ | 14,209 | $ | - | $ | - | $ | 14,209 | $ | (2,183) | Contract value | N/A |
| Total | $ | 14,209 | $ | - | $ | - | $ | 14,209 | $ | (2,183) | ||
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1 Assets or liabilities are presented in Assets held for saleor 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.
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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 Company'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 the instruments, and are classified as Level 1 measurement in the fair value hierarchy.
The fair value of the Company's notes receivable approximated the carrying amount of $10.0 million and $20.8 million as of June 30, 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 the 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 June 30, 2024, the carrying amount of the Company's notes payable and other debt was $469.8 million and the corresponding fair value was $459.8 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.
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5. Notes Payable and Other Debt
As of June 30, 2024 and December 31, 2023, notes payable and other debt consisted of the following (dollars in thousands):
| Interest Rate (%) | Maturity Date | Principal Outstanding | ||||
| June 30, 2024 | December 31, 2023 | |||||
| Secured: | ||||||
| Laulani Village | 3.93% | 2024 | $ | - | $ | 57,798 |
| Pearl Highlands | 4.15% | 2024 | 74,004 | 75,137 | ||
| Photovoltaic Financing | (1) | (1) | 3,929 | 4,073 | ||
| Manoa Marketplace | (2) | 2029 | 51,802 | 52,705 | ||
| Subtotal | $ | 129,735 | $ | 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 | ||
| Series M Note | 6.09% | 2032 | 60,000 | - | ||
| Term Loan 5 | 4.30% | 2029 | 25,000 | 25,000 | ||
| Subtotal | $ | 283,375 | $ | 237,400 | ||
| Revolving Credit Facilities: | ||||||
| A&B Revolver | (3) | 2025 | (4) | 57,000 | 37,000 | |
| Total debt (contractual) | $ | 470,110 | $ | 464,113 | ||
| Unamortized debt premium (discount) | $ | 79 | $ | - | ||
| Unamortized debt issuance costs | (385) | (149) | ||||
| Total debt (carrying value) | $ | 469,804 | $ | 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.
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(2) Loan has a stated interest rate of SOFR plus 1.35%. Loan is swapped through maturity to a 3.14% fixed rate.
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(3) Loan has a stated interest rate of SOFR plus 1.05% based on a pricing grid, plus a SOFR adjustment of 0.10%. Beginning May 1, 2024, $57.0 million is swapped through maturity to a 4.78% fixed rate.
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(4) A&B Revolver has twosix-month optional term extensions.
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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 the Prudential Agreement, and used proceeds from the note to pay off the debt secured by Laulani Village that matured on May 1, 2024. The Series M Note has a coupon rate of 6.09%, paid semiannually, and matures in full on April 15, 2032.
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.
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Cash Flow Hedges of Interest Rate Risk
As of June 30, 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):
| Effective | Maturity | Fixed Interest | Notional Amount at | Asset (Liability) Fair Value at | ||||
| Date | Date | Rate | June 30, 2024 | June 30, 2024 | December 31, 2023 | |||
| Interest Rate Swap Agreements | ||||||||
| 4/7/2016 | 8/1/2029 | 3.14% | $ | 51,802 | $ | 4,848 | $ | 4,142 |
| 5/1/2024 | 12/9/2031 | 4.88% | $ | 57,000 | $ | 1,136 | $ | (1,144) |
| Forward-Starting Interest Rate Swap Agreement | ||||||||
| 12/9/2024 | 12/9/2031 | 4.83% | $ | 73,000 | $ | 1,062 | $ | (1,574) |
The asset related to the interest rate swaps and forward interest rate swap as of June 30, 2024, is presented within Prepaid expenses and other assetsin the condensed consolidated balance sheets. The asset related to the interest rate swap and liabilities related to the interest rate swap and forward interest rate swap as of December 31, 2023, are presented within Prepaid expenses and other assetsand 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 six months ended June 30, 2024, that occurred prior to the date of re-designation. Cash settlements related to the $57.0 million notional amount interest rate swap began on May 1, 2024. As of June 30, 2024, there was one forward-starting interest rate swap remaining.
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 and six months ended June 30, 2024 and 2023, (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Information regarding derivatives designated as hedging instruments | ||||||||
| Amount of gain (loss) recognized in OCI on derivatives | $ | 1,698 | $ | 4,206 | $ | 2,900 | $ | 504 |
| Impact of reclassification adjustment to interest expense included in Net Income (Loss) | $ | (469) | $ | (450) | $ | (942) | $ | (797) |
As of June 30, 2024, the Company expects to reclassify $3.1 million of net gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months.
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7. Commitments and Contingencies
Commitments and other financial arrangements
Bonds related to the Company's real estate activities totaled $18.7 million as of June 30, 2024, and represent commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). If drawn upon, the Company would be obligated to reimburse the surety that issued the bond for the amount of the bond, reduced for the work completed to date.
Legal proceedings and other contingencies
Prior to the sale of approximately 41,000 acres of agricultural land on Maui to Mahi Pono Holdings, LLC ("Mahi Pono") in December 2018, the Company, through East Maui Irrigation Company, LLC ("EMI"), also owned approximately 16,000 acres of watershed lands in East Maui and held four water licenses to approximately 30,000 acres owned by the State of Hawai'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 completion by the BLNR of a 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 "Initial Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit challenged 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 was challenged by the three parties. In January 2016, the court ruled in the Initial 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 (the "Initial Ruling"). The Initial Ruling was appealed to the Intermediate Court of Appeals ("ICA") of the State of Hawai'i.
In May 2016, while the appeal 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 annual authorization of the existing holdover permits was sought and granted by the BLNR in December 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 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 5, 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
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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 motion asking for a decision on appeal and requesting that the Circuit 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 revocable permits for calendar year 2016 and denying Na Moku's request to (1) impose a cap on the current amount of water diverted pursuant to the revocable permits, (2) order the BLNR to allow Na Moku to intervene in Sierra Club's contested case hearing; and (3) declare that A&B/EMI had no legal authority to divert water pursuant to then-valid revocable permits. In January 2024, the circuit 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 hold a contested case hearing on the 2021 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 June 30, 2022. On December 27, 2021, while the BLNR's decision in the contested case hearing was pending, the court 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 court's determination that the Sierra Club was entitled to a contested case hearing on the 2021 revocable permits. At the request of the 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 the Sierra Club was not entitled to a contested case hearing, the circuit court erred by modifying the permits, and the Sierra Club was not entitled to attorneys' fees and costs. The Sierra Club filed an application with the Hawaii Supreme Court for a writ of certiorari challenging the ICA's opinion. That application is still pending. 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.
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 the BLNR denied on December 9, 2022. On November 29, 2022, the Sierra Club filed an appeal of the BLNR's decisions to deny its oral request for a contested
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case hearing and to continue the revocable 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 on the continuation of the revocable permits for calendar year 2023. The court 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 County of Maui Fire Department and to line one reservoir, which the 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 December 8, 2023, the BLNR issued a new revocable permit to the Company for calendar year 2024. On that same date, after the BLNR voted to grant the new revocable permit to the Company, Sierra Club made an oral request for a contested case hearing and, on December 18, 2023, filed a written request for the same. The BLNR has not decided on Sierra Club's requests for a contested case hearing.
In connection with A&B's obligation to continue 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 Sierra Club.
In addition to the litigation described above, the Company is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of its businesses. While the outcomes of 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 the 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.
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8. Revenue and Contract Balances
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 and six months ended June 30, 2024 and 2023, was as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Revenues: | ||||||||
| Commercial Real Estate | $ | 49,208 | $ | 49,533 | $ | 98,096 | $ | 97,403 |
| Land Operations: | ||||||||
| Development sales revenue | 1,681 | - | 4,136 | - | ||||
| Unimproved/other property sales revenue | - | 3,200 | 9,625 | 4,050 | ||||
| Other operating revenue | 158 | 383 | 392 | 2,053 | ||||
| Land Operations | 1,839 | 3,583 | 14,153 | 6,103 | ||||
| Total revenues | $ | 51,047 | $ | 53,116 | $ | 112,249 | $ | 103,506 |
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers as of June 30, 2024 and December 31, 2023 (in thousands):
| June 30, 2024 | December 31, 2023 | |||
| Accounts receivable | $ | 6,171 | $ | 7,421 |
| Allowances (credit losses and doubtful accounts) | (1,591) | (2,888) | ||
| Accounts receivable, net of allowance for credit losses and allowance for doubtful accounts | $ | 4,580 | $ | 4,533 |
|
Variable consideration1
|
$ | 62,000 | $ | 62,000 |
| Prepaid rent | 5,848 | 4,985 | ||
| Other deferred revenue | 3,395 | 3,368 | ||
| Deferred revenue | $ | 71,243 | $ | 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 and six months ended June 30, 2024, the Company did not recognize any revenue related to the Company's variable consideration and other deferred revenue reported as of December 31, 2023.
17
9. Leases - The Company as a Lessor
The Company 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 June 30, 2024, and December 31, 2023, were as follows (in thousands):
| June 30, 2024 | December 31, 2023 | |||
| Leased property - real estate | $ | 1,615,031 | $ | 1,607,919 |
| Less: accumulated depreciation | (243,329) | (228,714) | ||
|
Property under operating leases - net1
|
$ | 1,371,702 | $ | 1,379,205 |
|
1Property under operating leases as of June 30, 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 and six months ended June 30, 2024 and 2023, relating to lease payments and variable lease payments were as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Lease payments | $ | 33,565 | $ | 34,034 | $ | 67,177 | $ | 67,128 |
| Variable lease payments | 16,102 | 15,423 | 31,751 | 31,067 | ||||
| Revenues deemed uncollectible, net | (385) | 224 | (597) | (500) | ||||
| Total rental income | $ | 49,282 | $ | 49,681 | $ | 98,331 | $ | 97,695 |
Contractual future lease payments to be received on non-cancelable operating leases as of June 30, 2024, were as follows (in thousands):
| June 30, 2024 | ||
| 2024 | 65,822 | |
| 2025 | 122,701 | |
| 2026 | 108,982 | |
| 2027 | 96,277 | |
| 2028 | 80,498 | |
| 2029 | 62,794 | |
| Thereafter | 512,584 | |
| Total future lease payments to be received | $ | 1,049,658 |
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 and six months ended June 30, 2024 and 2023, (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Operating lease cost | $ | 471 | $ | 473 | $ | 948 | $ | 1,069 |
| Finance lease cost: | ||||||||
| Amortization of right-of-use assets | 73 | 50 | 144 | 85 | ||||
| Interest on lease liabilities | 47 | 38 | 95 | 52 | ||||
| Total lease cost - operating and finance leases | $ | 591 | $ | 561 | $ | 1,187 | $ | 1,206 |
18
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 of common stock authorized to be 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 six months ended June 30, 2024, the Company granted approximately 353,700 of restricted stock unit awards with a weighted average grant date fair value of $17.71. During the six months ended June 30, 2023, the Company granted approximately 345,100 of restricted stock unit awards with a weighted average grant date fair value of $22.01.
The fair value of the Company's time-based and performance-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 thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Share-based expense: | ||||||||
| Time-based and market-based restricted stock units | $ | 1,262 | $ | 2,684 | $ | 2,388 | $ | 4,260 |
12. Income Taxes
The Company has been organized and operates in a manner that enables it to qualify, and management believes it will continue to qualify, as a REIT for federal income tax purposes.
As of June 30, 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 calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated 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.
19
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 June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Income (loss) from continuing operations | $ | 11,733 | $ | 10,788 | $ | 31,971 | $ | 20,294 |
| Distributions and allocations to participating securities | (4) | (31) | (12) | (61) | ||||
| Income (loss) from continuing operations available to A&B shareholders | 11,729 | 10,757 | 31,959 | 20,233 | ||||
| Income (loss) from discontinued operations | (2,625) | 4,206 | (2,881) | 8 | ||||
| Exclude: Loss (income) attributable to discontinued noncontrolling interest | - | (1,661) | - | (1,633) | ||||
| Net income (loss) available to A&B common shareholders | $ | 9,104 | $ | 13,302 | $ | 29,078 | $ | 18,608 |
The number of shares used to compute basic and diluted earnings per share is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| Denominator for basic EPS - weighted average shares outstanding | 72,615 | 72,617 | 72,580 | 72,583 |
| Effect of dilutive securities: | ||||
| Restricted stock unit awards | 77 | 215 | 94 | 215 |
| Denominator for diluted EPS - weighted average shares outstanding | 72,692 | 72,832 | 72,674 | 72,798 |
The number of anti-dilutive securities, excluded from the calculation of diluted earnings per common share, consisted of the following (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||
| 2024 | 2023 | 2024 | 2023 | |
| Number of anti-dilutive securities | 190 | 57 | 202 | 57 |
14. Accumulated Other Comprehensive Income (Loss)
For the six months ended June 30, 2024, other comprehensive income (loss) principally includes unrealized interest rate hedging gains and losses and associated reclassification adjustments to interest expense. The components of Accumulated other comprehensive income (loss), net of taxes, were as follows as of June 30, 2024, and December 31, 2023, (in thousands):
| June 30, 2024 | December 31, 2023 | |||
| Post-retirement plans | $ | (133) | $ | (150) |
| Non-qualified benefit plans | (48) | (31) | ||
| Interest rate swaps | 5,389 | 3,431 | ||
| Accumulated other comprehensive income (loss) | $ | 5,208 | $ | 3,250 |
20
The changes in Accumulated other comprehensive income (loss) by component for the six months ended June 30, 2024, were as follows (in 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
|
- | 2,900 | 2,900 | |||
|
Amounts reclassified from accumulated other comprehensive income (loss)1
|
- | (942) | (942) | |||
| Other comprehensive income (loss), net of taxes | - | 1,958 | 1,958 | |||
| Balance, June 30, 2024 | $ | (181) | $ | 5,389 | $ | 5,208 |
1 Amounts reclassified from Accumulated other comprehensive income (loss)related to interest rate swap settlements are presented as an adjustment to Interest expensein 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), netin 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 and six months ended June 30, 2024 and 2023, is summarized below (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Operating Revenue: | ||||||||
| Commercial Real Estate | $ | 49,208 | $ | 49,533 | $ | 98,096 | $ | 97,403 |
| Land Operations | 1,839 | 3,583 | 14,153 | 6,103 | ||||
| Total operating revenue | 51,047 | 53,116 | 112,249 | 103,506 | ||||
| Operating Profit (Loss): | ||||||||
|
Commercial Real Estate1
|
22,611 | 22,680 | 44,592 | 43,557 | ||||
| Land Operations | 168 | 1,699 | 8,099 | 1,607 | ||||
| Total operating profit (loss) | 22,779 | 24,379 | 52,691 | 45,164 | ||||
| Interest expense | (5,929) | (5,857) | (11,439) | (10,898) | ||||
| Corporate and other expense | (5,018) | (7,732) | (9,182) | (13,965) | ||||
| Income (Loss) from Continuing Operations Before Income Taxes | $ | 11,832 | $ | 10,790 | $ | 32,070 | $ | 20,301 |
|
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.
|
||||||||
21
16. Held for Sale and Discontinued Operations
Held for Sale
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 saleas of June 30, 2024, and December 31, 2023. Liabilities associated with assets held for sale are presented in Accrued and other liabilities, as of June 30, 2024, and December 31, 2023.
The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, (in thousands):
| June 30, 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 | 136 | 121 | ||
| Less: Impairment recognized on classification as held for sale | (2,183) | (2,183) | ||
| Total Assets held for sale | $ | 13,999 | $ | 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 liabilitieson the Condensed Consolidated Balance Sheets for all periods presented.
|
Discontinued Operations
Income (loss) from discontinued operations for the three and six months ended June 30, 2023, primarily relates to Grace Pacific and the Company-owned quarry land on Maui (collectively, the "Grace Disposal Group"), which was sold in November 2023. Income (loss) from discontinued operations for the three and six months ended June 30, 2024, primarily relates to the resolution of cessation related claim liabilities associated with the Company's former sugar operations in the amount of $2.6 million and $3.1 million recognized during the three and six months ended June 30, 2024, respectively.
The following table summarizes income (loss) from discontinued operations included in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023, (in thousands):
22
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Revenue | $ | - | $ | 72,865 | $ | - | $ | 109,714 |
|
Cost of sales1
|
23 | (60,917) | 172 | (98,346) | ||||
|
Selling, general and administrative1
|
(2,648) | (6,270) | (3,053) | (9,853) | ||||
| Gain (loss) on disposal of assets, net | - | 16 | - | (8) | ||||
|
Operating income (loss) from discontinued operations1
|
(2,625) | 5,694 | (2,881) | 1,507 | ||||
| Income (loss) related to joint ventures | - | (1,107) | - | (1,186) | ||||
| Interest and other income (expense), net | - | (186) | - | 78 | ||||
| Interest expense | - | (195) | - | (391) | ||||
|
Income (loss) from discontinued operations before income taxes1
|
(2,625) | 4,206 | (2,881) | 8 | ||||
| Income tax benefit (expense) attributable to discontinued operations | - | - | - | - | ||||
|
Income (loss) from discontinued operations1
|
(2,625) | 4,206 | (2,881) | 8 | ||||
| Loss (income) attributable to discontinued noncontrolling interest | - | (1,661) | - | (1,633) | ||||
|
Income (loss) from discontinued operations attributable to A&B Shareholders1
|
$ | (2,625) | $ | 2,545 | $ | (2,881) | $ | (1,625) |
|
1For the three and six months ended June 30, 2024, the Company recognized $2.6 million and $3.1 million, respectively, in costs related to the resolution of cessation related claim liabilities related to the Company's former sugar operations. For the six months ended June 30, 2023, the Company recognized $0.1 million, in income due to the favorable resolution of liabilities related to the Company's former sugar operations, none of which was recognized during the three months ended June 30, 2023.
|
During the six months ended June 30, 2024, the Company recorded no additional fair value adjustment related to assets and liabilities held for sale.
Related Party Transactions within Discontinued Operations and Held for Sale:Related to the Grace Disposal Group, the Company entered into contracts in the ordinary course of business, as a supplier, with affiliate 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 was a member and held a controlling financial interest. Related to the periods during which such relationships existed, revenues earned from transactions with such affiliates were $4.2 million for the three months ended June 30, 2023, and $8.1 million for the six months ended June 30, 2023. Expenses recognized from transactions with such affiliates were $2.1 million for the three months ended June 30, 2023, and $3.5 million for the six months ended June 30, 2023. Due to the sale of the Grace Disposal Group in November 2023, these relationships no longer exist and consequently, for the three and six months ended June 30, 2024, there were no revenues earned or expenses recognized from transactions with such affiliates.
17. Subsequent Events
On July 3, 2024, the Company completed the disposition of an 81-acre residential-zoned parcel on Maui for approximately $10.5 million. In connection with the sale, the Company received cash proceeds of $10.4 million and recognized margin of approximately $5.2 million.
On July 23, 2024, the Company's Board of Directors declared a cash dividend of $0.2225 per share on outstanding common stock, payable on October 7, 2024, to shareholders of record as of the close of business on September 20, 2024.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated financial condition and results of operations of Alexander & Baldwin, Inc. ("A&B" or the "Company") and its subsidiaries 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's Annual Report on Form 10-K for the year ended December 31, 2023, ("2023 Form 10-K") filed with the U.S. Securities and Exchange Commission ("SEC").
Throughout this quarterly report on Form 10-Q, references to "we," "our," "us" and "our Company" refer to Alexander & Baldwin, Inc., together with its consolidated subsidiaries.
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated 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 Company's most recent Form 10-K, Form 10-Q and other filings with the SEC. The information in this Form 10-Q should be evaluated in light of these important risk factors. We do not undertake any obligation to update the Company's forward-looking statements.
Introduction and Objective
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides additional material information about the Company's business, recent developments and financial 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 from operations and from outside sources; and how certain accounting principles, policies and estimates affect its financial statements. MD&A is organized as follows:
•Business Overview:This section provides a general description of the Company's business, as well as recent developments that management believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
•Consolidated Results of Operations:This section provides an analysis of the Company's consolidated results of operations for the three and six months ended June 30, 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 the Company's results of operations by business segment for the three and six months ended June 30, 2024, as compared to the corresponding period of the preceding fiscal year.
•Use of Non-GAAP Financial Measures:This section provides a discussion of the 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 results of operations and, to the extent material, describes additional purposes for which the Company uses the non-GAAP financial measures.
•Liquidity and Capital Resources:This section provides a discussion of any 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, 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.
24
•Other Matters: This section identifies and summarizes other matters to be discussed in Item 2 of this report including any changes in 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.
Amounts in the MD&A are rounded to the nearest thousand. Accordingly, a recalculation of totals and percentages, if based on the reported data, may be slightly different.
Business Overview
Reportable segments
The Company operates two segments: Commercial Real Estate and Land Operations. A description of each of the Company's reporting segments is as follows:
•Commercial Real Estate ("CRE") - This segment functions 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 for the three and six months ended June 30, 2023 and cash flows for the six months ended June 30, 2023. Related to the Land Operations segment, during the six months ended June 30, 2024, the Company completed the sale of approximately 330 acres of land holdings on Maui and Kauai for $9.6 million.
25
Consolidated Results of Operations
The following analysis of the consolidated financial condition and results of operations of the Company and its subsidiaries should be read in conjunction with the condensed consolidated financial statements and related notes thereto.
Financial results - Second quarter of 2024 compared with 2023
| (amounts in thousands, except percentage and per share data; unaudited) | Three Months Ended June 30, | 2024 vs 2023 | ||||||
| 2024 | 2023 | $ | % | |||||
| Operating revenue | $ | 51,047 | $ | 53,116 | $ | (2,069) | (3.9) | % |
| Cost of operations | (29,686) | (27,040) | (2,646) | (9.8) | % | |||
| Selling, general and administrative | (7,252) | (9,909) | 2,657 | 26.8 | % | |||
| Gain (loss) from disposals, net | 2,125 | - | 2,125 | - | % | |||
| Operating income (loss) | 16,234 | 16,167 | 67 | 0.4 | % | |||
| Income (loss) related to joint ventures | 996 | 541 | 455 | 84.1 | % | |||
| Interest and other income (expense), net | 531 | (61) | 592 | NM | ||||
| Interest expense | (5,929) | (5,857) | (72) | (1.2) | % | |||
| Income tax benefit (expense) | (99) | (2) | (97) | 49X | ||||
| Income (loss) from continuing operations | 11,733 | 10,788 | 945 | 8.8 | % | |||
| Income (loss) from discontinued operations (net of income taxes) | (2,625) | 4,206 | (6,831) | NM | ||||
| Net income (loss) | 9,108 | 14,994 | (5,886) | (39.3) | % | |||
| (Income) loss attributable to discontinued noncontrolling interest | - | (1,661) | 1,661 | 100.0 | % | |||
| Net income (loss) attributable to A&B | $ | 9,108 | $ | 13,333 | $ | (4,225) | (31.7) | % |
| Basic Earnings (Loss) Per Share of Common Stock: | ||||||||
| Basic earnings (loss) per share - continuing operations | $ | 0.16 | $ | 0.15 | $ | 0.01 | 6.7 | % |
| Basic earnings (loss) per share - discontinued operations | (0.03) | 0.03 | (0.06) | NM | ||||
| $ | 0.13 | $ | 0.18 | $ | (0.05) | (27.8) | % | |
| Diluted Earnings (Loss) Per Share of Common Stock: | ||||||||
| Diluted earnings (loss) per share - continuing operations | $ | 0.16 | $ | 0.15 | $ | 0.01 | 6.7 | % |
| Diluted earnings (loss) per share - discontinued operations | (0.03) | 0.03 | (0.06) | NM | ||||
| $ | 0.13 | $ | 0.18 | $ | (0.05) | (27.8) | % | |
| Continuing operations available to A&B common shareholders | $ | 11,729 | $ | 10,757 | $ | 972 | 9.0 | % |
| Discontinued operations available to A&B common shareholders | (2,625) | 2,545 | (5,170) | NM | ||||
| Net income (loss) available to A&B common shareholders | $ | 9,104 | $ | 13,302 | $ | (4,198) | (31.6) | % |
|
Funds From Operations ("FFO")1
|
$ | 20,619 | $ | 19,835 | $ | 784 | 4.0 | % |
|
Adjusted FFO1
|
$ | 16,942 | $ | 17,978 | $ | (1,036) | (5.8) | % |
| FFO per diluted share | $ | 0.28 | $ | 0.27 | $ | 0.01 | 3.7 | % |
|
Weighted average diluted shares outstanding (FFO/Adjusted FFO)2
|
72,692 | 72,832 | ||||||
|
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 34.
|
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|
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 causes of material changes in the condensed consolidated statements of operations for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, are described below or in the Analysis of Operating Revenue and Profit by Segment sections below.
Operating revenue during the second quarter ended June 30, 2024, decreased 3.9%, or $2.1 million, to $51.0 million, due primarily to lower revenues from the Land Operations segment's unimproved and other land sales partially offset by the sale of one development lot at Maui Business Park in the second quarter of 2024.
26
Cost of operations during the second quarter ended June 30, 2024, increased 9.8%, or $2.6 million, to $29.7 million, due primarily to charges related to increased estimated remediation work for legacy business operations in the amount of $2.2 million in the Land Operations segment in the current quarter and Land Operations segment's higher cost of sales associated with higher cost basis of development sales.
Selling, general and administrativeduring the second quarter ended June 30, 2024, decreased 26.8%, or $2.7 million, to $7.3 million, due to lower personnel-related expenses primarily related to the Chief Executive Officer transition that occurred in 2023.
Gain from disposals, netof $2.1 million was due to the favorable resolution of contingent liabilities related to the sale of a legacy business in a prior year.
Income (loss) related to joint venturesduring the second quarter ended June 30, 2024, increased 84.1%, or $0.5 million, to $1.0 million, due primarily to higher earnings from the Company's unconsolidated investment in a materials company.
Interest and other income (expense), netduring the second quarter ended June 30, 2024, increased $0.6 million, to $0.5 million due to higher interest income on cash balances and notes receivables.
Loss from discontinued operations (net of income taxes) during the second quarter ended June 30, 2024, of $2.6 million relates to the resolution of cessation related liabilities associated with the Company's former sugar operations.Loss from discontinued operations (net of income taxes) during the second quarter ended June 30, 2023, of $4.2 million primarily relates to operations of the Grace Disposal Group, which was sold in November 2023.
27
Financial results - First six months of 2024 compared with 2023
| (amounts in thousands, except percentage data and per share data; unaudited) | Six Months Ended June 30, | 2024 vs 2023 | ||||||
| 2024 | 2023 | $ | % | |||||
| Operating revenue | $ | 112,249 | $ | 103,506 | $ | 8,743 | 8.4 | % |
| Cost of operations | (59,889) | (55,574) | (4,315) | (7.8) | % | |||
| Selling, general and administrative | (14,491) | (18,638) | 4,147 | 22.3 | % | |||
| Gain (loss) from disposals, net | 2,148 | 1,117 | 1,031 | 92.3 | % | |||
| Operating income (loss) | 40,017 | 30,411 | 9,606 | 31.6 | % | |||
| Income (loss) related to joint ventures | 1,694 | 929 | 765 | 82.3 | % | |||
| Interest and other income (expense), net | 1,798 | (141) | 1,939 | NM | ||||
| Interest expense | (11,439) | (10,898) | (541) | (5.0) | % | |||
| Income tax benefit (expense) | (99) | (7) | (92) | 13X | ||||
| Income (loss) from continuing operations | 31,971 | 20,294 | 11,677 | 57.5 | % | |||
| Income (loss) from discontinued operations (net of income taxes) | (2,881) | 8 | (2,889) | NM | ||||
| Net income (loss) | 29,090 | 20,302 | 8,788 | 43.3 | % | |||
| (Income) loss attributable to discontinued noncontrolling interest | - | (1,633) | 1,633 | 100.0 | % | |||
| Net income (loss) attributable to A&B | $ | 29,090 | $ | 18,669 | $ | 10,421 | 55.8 | % |
| Basic Earnings (Loss) Per Share of Common Stock: | ||||||||
| Basic earnings (loss) per share - continuing operations | $ | 0.44 | $ | 0.28 | $ | 0.16 | 57.1 | % |
| Basic earnings (loss) per share - discontinued operations | (0.04) | (0.02) | (0.02) | (100.0) | % | |||
| $ | 0.40 | $ | 0.26 | $ | 0.14 | 53.8 | % | |
| Diluted Earnings (Loss) Per Share of Common Stock: | ||||||||
| Diluted earnings (loss) per share - continuing operations | $ | 0.44 | $ | 0.28 | $ | 0.16 | 57.1 | % |
| Diluted earnings (loss) per share - discontinued operations | (0.04) | (0.02) | (0.02) | (100.0) | % | |||
| $ | 0.40 | $ | 0.26 | $ | 0.14 | 53.8 | % | |
| Continuing operations available to A&B common shareholders | $ | 31,959 | $ | 20,233 | $ | 11,726 | 58.0 | % |
| Discontinued operations available to A&B common shareholders | (2,881) | (1,625) | (1,256) | (77.3) | % | |||
| Net income (loss) available to A&B common shareholders | $ | 29,078 | $ | 18,608 | $ | 10,470 | 56.3 | % |
|
Funds From Operations ("FFO")1
|
$ | 49,824 | $ | 38,403 | $ | 11,421 | 29.7 | % |
|
Adjusted FFO1
|
$ | 42,472 | $ | 33,990 | $ | 8,482 | 25.0 | % |
| FFO per diluted share | $ | 0.69 | $ | 0.53 | $ | 0.16 | 30.2 | % |
|
Weighted average diluted shares outstanding (FFO/Adjusted FFO)2
|
72,674 | 72,798 | ||||||
|
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 34.
|
||||||||
|
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 causes of material changes in the condensed consolidated statements of operations for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, are described below or in the Analysis of Operating Revenue and Profit by Segment sections below.
Operating revenue for the six months ended June 30, 2024, increased 8.4%, or $8.7 million, to $112.2 million, primarily due to higher revenues from the Land Operations segment's unimproved and other land sales, as well as the sale of three development lots at Maui Business Park in the current period compared to none in the prior year period.
Cost of operations for the six months ended June 30, 2024, increased 7.8% or $4.3 million, to $59.9 million, primarily due to the Land Operations segment's higher cost of sales associated with unimproved and other land sales and Maui Business Park development lot sales.
28
Selling, general and administrativefor the six months ended June 30, 2024, decreased 22.3%, or $4.1 million, to $14.5 million, due to lower personnel-related expenses primarily related to the Chief Executive Officer transition in the prior year.
Gain from disposals, netof $2.1 million for the six months ended June 30, 2024 is related to the favorable resolution of contingent liabilities related to the sale of a legacy business in a prior year. Gain from disposals, net of $1.1 million for the six months ended June 30, 2023, was primarily due to the sale of the Company's ownership interest in a legacy trucking and storage business on Maui.
Income (loss) related to joint ventures for the six months ended June 30, 2024, increased 82.3%, or $0.8 million, to $1.7 million, due primarily to higher earnings from the Company's unconsolidated investment in a materials company.
Interest and other income (expense), net of $1.8 million for six months ended June 30, 2024, was due primarily to a gain on the fair value adjustment for two forward interest rate swaps, partially offset by a one-time financing charge.
Loss from discontinued operations (net of income taxes) for the six months ended June 30, 2024, of $2.9 million relates to the resolution of cessation related liabilities associated with the Company's former sugar operations.
29
Analysis of Operating Revenue and Profit by Segment
The following analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto.
Commercial Real Estate
Financial results - Second quarter of 2024 compared with 2023
Results of operations for the second quarter ended June 30, 2024 and 2023, were as follows:
| (amounts in thousands, except percentage data and acres; unaudited) | Three Months Ended June 30, | 2024 vs 2023 | ||||||
| 2024 | 2023 | $ |
%
|
|||||
| Commercial Real Estate operating revenue | $ | 49,208 | $ | 49,533 | $ | (325) | (0.7) | % |
| Commercial Real Estate operating costs and expenses | (25,134) | (25,049) | (85) | (0.3) | % | |||
| Selling, general and administrative | (1,510) | (1,874) | 364 | 19.4 | % | |||
|
Intersegment operating revenue, net1
|
7 | 7 | - | - | % | |||
| Interest and other income (expense), net | 40 | 63 | (23) | (36.5) | % | |||
| Commercial Real Estate operating profit (loss) | $ | 22,611 | $ | 22,680 | $ | (69) | (0.3) | % |
|
Net Operating Income ("NOI")2
|
$ | 31,632 | $ | 31,296 | $ | 336 | 1.1 | % |
|
Same-Store Net Operating Income ("Same-Store NOI")2
|
$ | 31,454 | $ | 31,171 | $ | 283 | 0.9 | % |
| Gross leasable area ("GLA") in square feet ("SF") for improved properties at end of period | 3,933 | 3,938 | (5) | - | % | |||
|
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 34.
|
Commercial Real Estate operating revenue decreased 0.7% or $0.3 million, to $49.2 million for the second quarter ended June 30, 2024, as compared to the second quarter ended June 30, 2023. Operating profit decreased 0.3%, or $0.1 million, to $22.6 million for the second quarter ended June 30, 2024, as compared to the second quarter ended June 30, 2023. The decrease in operating revenue and operating profit from the prior year period was due primarily to lower rental revenue.
Financial results - First six months of 2024 compared with 2023
Operating results for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, were as follows:
| Six Months Ended June 30, | 2024 vs 2023 | |||||||
| (amounts in thousands, except percentage data; unaudited) | 2024 | 2023 | $ |
%1
|
||||
| Commercial Real Estate operating revenue | $ | 98,096 | $ | 97,403 | $ | 693 | 0.7 | % |
| Commercial Real Estate operating costs and expenses | (50,550) | (49,997) | (553) | (1.1) | % | |||
| Selling, general and administrative | (3,066) | (3,940) | 874 | 22.2 | % | |||
|
Intersegment operating revenue, net1
|
13 | 30 | (17) | (56.7) | % | |||
| Interest and other income (expense), net | 99 | 61 | 38 | 62.3 | % | |||
| Commercial Real Estate operating profit (loss) | $ | 44,592 | $ | 43,557 | $ | 1,035 | 2.4 | % |
|
Net Operating Income ("NOI")2
|
$ | 63,396 | $ | 61,723 | $ | 1,673 | 2.7 | % |
|
Same-Store Net Operating Income ("Same-Store NOI")2
|
$ | 63,001 | $ | 61,484 | $ | 1,517 | 2.5 | % |
|
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 a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures, refer to page 34.
|
Commercial Real Estate operating revenue increased 0.7% or $0.7 million, to $98.1 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. Operating profit increased 2.4%, or $1.0 million, to $44.6 million for
30
the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase in operating profit from the prior year was primarily driven by lower selling, general, and administrative expenses in the current year.
Commercial Real Estate portfolio additions, transfers, and dispositions
During the three and six months ended June 30, 2024, the Company had no additions, transfers, or dispositions of commercial real estate properties.
Leasing activity
During the second quarter ended June 30, 2024, the Company signed 8 new leases and 39 renewal leases for its improved properties across its retail, industrial, and office asset classes, covering 96,300 square feet of GLA. The 8 new leases consist of 17,400 square feet with an average annual base rent of $20.80 per-square-foot. Of the 8 new leases, 4 leases with a total GLA of 10,900 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 4 leases, resulted in an 1.9% average base rent increase over comparable expiring leases. The 39 renewal leases consist of 78,900 square feet with an average annual base rent of $32.49 per square foot. Of the 39 renewal leases, 35 leases with a total GLA of 69,300 square feet were considered comparable and resulted in an 7.9% average base rent increase over comparable expiring leases. The Company signed no new ground lease renewals during the second quarter ended June 30, 2024.
Leasing activity summarized by asset class for the three and six months ended June 30, 2024, were as follows:
| Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | |||||||||||
| Leases | GLA (SF) |
ABR2,4/SF
|
Rent Spread3
|
Leases | GLA (SF) |
ABR2,4/SF
|
Rent Spread3
|
|||||
| Retail | 32 | 52,196 | $ | 40.81 | 7.7 | % | 65 | 127,108 | $ | 41.40 | 8.6 | % |
| Industrial | 12 | 40,760 | $ | 16.89 | 7.6 | % | 23 | 177,848 | $ | 16.07 | 5.7 | % |
| Office | 3 | 3,362 | $ | 32.10 | (1.5) | % | 3 | 3,362 | $ | 32.10 | (1.5) | % |
| Subtotal - Improved properties | 47 | 96,318 | $ | 30.38 | 7.3 | % | 91 | 308,318 | $ | 26.69 | 7.3 | % |
| Ground | - |
N/A1
|
N/A | N/A | - |
N/A1
|
$ | - | 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).
|
||||||||||||
|
4Current ABR, in millions, is presented for ground leases
|
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 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 Point Change | |
| June 30, 2024 | June 30, 2023 | ||
| Leased Occupancy | 93.9% | 94.4% | (50) |
| Physical Occupancy | 93.4% | 93.5% | (10) |
| Economic Occupancy | 92.8% | 92.4% | 40 |
31
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 category of properties that were owned and operated for the entirety of the prior calendar year and current period, to date ("Same-Store" as more fully described below) - as of June 30, 2024 and 2023, were as follows:
| Leased Occupancy | |||
| As of | As of | Basis Point Change | |
| June 30, 2024 | June 30, 2023 | ||
| Retail | 92.8% | 94.0% | (120) |
| Industrial | 97.1% | 95.9% | 120 |
| Office | 84.2% | 86.7% | (250) |
| Total Leased Occupancy | 93.9% | 94.4% | (50) |
| Economic Occupancy | |||
| As of | As of | Basis Point Change | |
| June 30, 2024 | June 30, 2023 | ||
| Retail | 91.2% | 91.8% | (60) |
| Industrial | 97.1% | 94.2% | 290 |
| Office | 82.8% | 86.7% | (390) |
| Total Economic Occupancy | 92.8% | 92.4% | 40 |
| Same-Store Leased Occupancy | |||
| As of | As of | Basis Point Change | |
| June 30, 2024 | June 30, 2023 | ||
| Retail | 94.0% | 95.3% | (130) |
| Industrial | 97.0% | 95.8% | 120 |
| Office | 87.8% | 90.6% | (280) |
| Total Same-Store Leased Occupancy | 94.8% | 95.3% | (50) |
| Same-Store Economic Occupancy | |||
| As of | As of | Basis Point Change | |
| June 30, 2024 | June 30, 2023 | ||
| Retail | 92.4% | 93.0% | (60) |
| Industrial | 97.0% | 94.1% | 290 |
| Office | 86.3% | 90.6% | (430) |
| Total Same-Store Economic Occupancy | 93.7% | 93.2% | 50 |
Land Operations
Trends, events and uncertainties
The asset class mix of Land Operations segment real estate sales in any given period can be diverse and may include developable subdivision lots, undeveloped land, or property sold under threat of condemnation. Further, the timing of property or parcel sales can significantly affect operating results in a given period.
Operating profit reported in each period 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.
As a result, direct year-over-year comparison of the Land Operations segment results 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.
32
Financial results - Second quarter of 2024 compared with 2023
Results of operations for the second quarter ended June 30, 2024 and 2023, were as follows:
| Three Months Ended June 30, | ||||
| (amounts in thousands; unaudited) | 2024 | 2023 | ||
| Development sales revenue | $ | 1,681 | $ | - |
| Unimproved/other property sales revenue | - | 3,200 | ||
|
Other operating revenue1
|
158 | 383 | ||
| Total Land Operations operating revenue | 1,839 | 3,583 | ||
| Land Operations operating costs and expenses | (4,552) | (1,991) | ||
| Selling, general and administrative | (318) | (458) | ||
| Gain (loss) from disposals, net | 2,125 | - | ||
|
Intersegment operating charges, net2
|
(6) | (104) | ||
| Earnings (loss) from joint ventures | 996 | 541 | ||
| Interest and other income (expense), net | 84 | 128 | ||
| Total Land Operations operating profit (loss) | $ | 168 | $ | 1,699 |
|
1 Other operating revenue includes revenue related to licensing and leasing of non-core legacy agricultural lands during the three months ended June 30, 2024 and 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.
|
Second quarter of 2024: Land Operations revenue of $1.8 million during the second quarter ended June 30, 2024, was primarily related to the sale of one development lot at Maui Business Park.
Operating costs and expenses during the second quarter ended June 30, 2024, were primarily composed of charges related to increased estimated remediation work for legacy business operations in the amount of $2.2 million and cost of sales associated with development sales. The gain from disposals is due to the favorable resolution of contingent liabilities related to the sale of a legacy business in a prior year.
Second quarter of 2023: Operating revenue of $3.6 million was primarily related to the sale of unimproved land on the island of Maui.
Land Operations operating profit of $1.7 million during the second quarter ended June 30, 2023, was primarily composed of the margin from unimproved land sales, partially offset by the carrying costs of landholdings.
33
Financial Results - First six months of 2024 compared with 2023
| Six Months Ended June 30, | ||||
| (amounts in thousands; unaudited) | 2024 | 2023 | ||
| Development sales revenue | $ | 4,136 | $ | - |
| Unimproved/other property sales revenue | 9,625 | 4,050 | ||
|
Other operating revenue1
|
392 | 2,053 | ||
| Total Land Operations operating revenue | 14,153 | 6,103 | ||
| Land Operations operating costs and expenses | (9,339) | (5,577) | ||
| Selling, general and administrative | (638) | (930) | ||
| Gain (loss) on disposal of assets, net | 2,148 | 1,117 | ||
|
Intersegment operating charges, net2
|
(18) | (145) | ||
| Earnings (loss) from joint ventures | 1,694 | 929 | ||
| Interest and other income (expense), net | 99 | 110 | ||
| Total Land Operations operating profit (loss) | $ | 8,099 | $ | 1,607 |
|
1 Other operating revenue includes revenue related to licensing and leasing of non-core legacy agricultural lands during the six months ended June 30, 2024 and 2023. Other revenue also includes trucking and storage operations during the six months ended June 30, 2023.
|
||||
|
2Intersegment operating charges primarily from CRE that are eliminated in the consolidated results of operations.
|
First six months of 2024: Land Operations revenue during the six months ended June 30, 2024, was $14.2 million and included revenue from unimproved land sales on the islands of Maui and Kauai as well as the sale of three development lots at Maui Business Park.
Operating costs and expenses during the six months ended June 30, 2024, were primarily composed of charges related to increased estimated remediation work for legacy business operations in the amount of $2.2 million and cost of sales associated with development sales. The gain from disposals during the six months ended June 30, 2024, is due to the favorable resolution of contingent liabilities related to the sale of a legacy business in a prior year. Earning from joint ventures increased during the six months ended June 30, 2024, due primarily to higher earnings from the Company's unconsolidated investment in a materials company.
First six months of 2023:Land Operations revenue was $6.1 million and included the sale of unimproved land on the islands of Maui and Kauai. Revenue also included other operating revenues related to the Company's legacy business activities in the Land Operations segment (primarily licensing and leasing of non-core legacy lands, and trucking services).
Land Operations operating profit of $1.6 million during the six months ended June 30, 2023, was composed of the margins resulting from unimproved land sales and legacy business activities noted above, as well as the gain on disposal of the Company's ownership interest in a legacy trucking and storage business on Maui and equity in earnings from the Company's unconsolidated investment in a materials company, partially 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, (2) gains and losses 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
34
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 supplemental measure to net income calculated in 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 CRE 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 Company has been executing a simplification strategy to focus on the growth and expansion 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 certain 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.
35
Reconciliations of net income (loss) available to A&B common shareholders to FFO and Adjusted FFO for the three and six months ended June 30, 2024 and 2023, are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Net Income (Loss) available to A&B common shareholders | $ | 9,104 | $ | 13,302 | $ | 29,078 | $ | 18,608 |
| Depreciation and amortization of commercial real estate properties | 8,890 | 9,078 | 17,865 | 18,170 | ||||
| (Income) loss from discontinued operations, net of income taxes | 2,625 | (4,206) | 2,881 | (8) | ||||
| Income (loss) attributable to discontinued noncontrolling interest | - | 1,661 | - | 1,633 | ||||
| FFO | $ | 20,619 | $ | 19,835 | $ | 49,824 | $ | 38,403 |
| Add (deduct) Adjusted FFO defined adjustments | ||||||||
|
(Gain)/loss on sale of legacy business1
|
(2,125) | - | (2,125) | (1,117) | ||||
|
Non-cash changes to liabilities related to legacy operations2
|
2,193 | 245 | 2,193 | 595 | ||||
|
Legacy joint venture (income)/loss3
|
(996) | (541) | (1,694) | (929) | ||||
| (Gain)/loss on fair value adjustments related to interest rate swaps | - | - | (3,675) | - | ||||
| Non-recurring financing charges | - | - | 2,350 | - | ||||
| Amortization of share-based compensation | 1,262 | 2,684 | 2,388 | 4,260 | ||||
|
Maintenance capital expenditures4
|
(3,224) | (1,659) | (5,242) | (2,971) | ||||
| Leasing commissions paid | (223) | (522) | (538) | (816) | ||||
| Straight-line lease revenue | (712) | (2,033) | (1,304) | (3,368) | ||||
| Amortization of net debt premiums or discounts and deferred financing costs | 248 | 242 | 491 | 481 | ||||
| Amortization of above and below-market leases, net | (100) | (273) | (196) | (548) | ||||
| Adjusted FFO | $ | 16,942 | $ | 17,978 | $ | 42,472 | $ | 33,990 |
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1 Primarily related to the favorable resolution of contingent liabilities related to the sale of a legacy business in a prior year
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2 Primarily related to environmental reserves associated with legacy business activities in the Land Operations segment
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3 Includes joint ventures engaged in legacy business activities within the Land Operations segment
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4 Includes ongoing maintenance capital expenditures only
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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 the properties (e.g., indirect selling, general, administrative and other expenses, as well as lease termination income). Management believes the exclusion of these items from operating profit (loss) is useful because the resulting 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 the property); and impairment of commercial real estate assets.
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The Company reports NOI and Occupancy on a Same-Store basis, which includes the results of properties 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 Same-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 other 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 three and six months ended June 30, 2024 and 2023, are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| CRE Operating Profit | $ | 22,611 | $ | 22,680 | $ | 44,592 | $ | 43,557 |
| Depreciation and amortization | 8,890 | 9,078 | 17,865 | 18,170 | ||||
| Straight-line lease adjustments | (712) | (2,033) | (1,304) | (3,368) | ||||
| Favorable/(unfavorable) lease amortization | (100) | (240) | (196) | (515) | ||||
| Termination fees and other | (527) | - | (528) | - | ||||
| Other (income)/expense, net | (40) | (63) | (99) | (61) | ||||
| Selling, general, administrative and other expenses | 1,510 | 1,874 | 3,066 | 3,940 | ||||
| NOI | 31,632 | 31,296 | 63,396 | 61,723 | ||||
| Less: NOI from acquisitions, dispositions, and other adjustments | (178) | (125) | (395) | (239) | ||||
| Same-Store NOI | $ | 31,454 | $ | 31,171 | $ | 63,001 | $ | 61,484 |
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Liquidity and Capital Resources
Overview
The Company's principal sources of liquidity to meet its business requirements and plans both in the short-term (i.e., the next twelve months from June 30, 2024) and long-term (i.e., beyond the next twelve months) have generally been cash provided by operating activities; available cash and cash equivalents; and borrowing capacity under its credit facility. The Company's primary liquidity needs for its business requirements and plans have generally been supporting its known contractual obligations and also funding capital expenditures (including recent commercial real estate acquisitions and real estate developments); 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 the Company's notes payable and other debt arrangements. The Company was in compliance with its financial covenants for all outstanding balances as of June 30, 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 a material adverse impact on the Company's financial condition.
As of June 30, 2024, after the effects of interest rate swaps, the Company had $469.8 million of fixed rate debt with a weighted average interest rate of 4.8% and no variable rate debt. Of this amount, $115.2 million 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 provided by operating activities; available cash and cash equivalent balances; borrowing capacity under its credit 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 June 30, 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 description of material contractual commitments is contained 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 debtand 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 June 30, 2024, there were no material changes in the Company's known contractual obligations from the end of the preceding fiscal year ended December 31, 2023, with the exception of the issuance of a $60.0 million unsecured note and the maturity and repayment of the $57.5 million Laulani Village mortgage. Refer to Note 5 - Notes Payable and Other Debt in this report for further discussion.
Further, a description of other commitments, contingencies and off-balance sheet arrangements is contained in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the 2023 Form 10-K. As of June 30, 2024, there have been no material changes in the Company's other commitments, contingencies and off-balance sheet arrangements from the end of the preceding fiscal year ended December 31, 2023. Refer to Note 7 - Commitments and Contingencies in this report for further discussion.
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Sources of liquidity
As noted above, one of the Company's principal sources of liquidity has been operating cash flows from continuing operations. For the six months ended June 30, 2024, operating cash flows from continuing operations of $39.6 million was primarily driven by cash generated by the Commercial Real Estate segment (the Company's core business). The Company's operating cash flows from continuing operations for the six months ended June 30, 2024, represents an increase of $1.7 million from $37.9 million for the six months ended June 30, 2023, due primarily to higher cash proceeds from unimproved land and development sales as well as 2024 collections on note receivables related to prior year land sales. Total cash flows in future periods may be subject to variation from the Land Operations segment due to the varying activity in completing sales on remaining non-core assets as part of 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 $29.5 million as of June 30, 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 June 30, 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 June 30, 2024, the Company had $57.0 million of borrowings outstanding, no letters of credit issued against, and $443.0 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 June 30, 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 used in investing activities for continuing operations was $8.1 million for the six months ended June 30, 2024, as compared to $13.8 million for the six months ended June 30, 2023. Cash used in investing activities for continuing operations during the six months ended June 30, 2024, was primarily driven by capital expenditures of $8.0 million. Net cash used in investing activities for continuing operations during the six months ended June 30, 2023, was primarily driven by capital expenditures of $16.6 million, including $9.5 million in capital expenditures for commercial real estate property acquisitions, partially 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):
•Ongoing Maintenance Capital Expenditures:Costs necessary to maintain building value, the current income stream, and position in the market.
•Discretionary Capital Expenditures:Property acquisition, development and redevelopment activity, and tenant improvements to generate income and cash flow growth.
•Capitalized Indirect Costs:Certain costs related to the development and redevelopment of real estate properties, including: pre-construction costs; real estate taxes; insurance; construction costs; attributable interest expense; and salaries and related costs of personnel directly involved.
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Capital expenditures for the respective periods for all segments were as follows (dollars in thousands, unaudited):
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
| 2024 | 2023 | 2024 | 2023 | |||||
| Capital expenditures for real estate | ||||||||
| Ongoing maintenance capital expenditures | ||||||||
| Building/area improvements | $ | 1,352 | $ | 934 | $ | 2,516 | $ | 1,662 |
| Tenant space improvements | 1,872 | 725 | 2,726 | 1,309 | ||||
| Total ongoing maintenance capital expenditures for real estate | 3,224 | 1,659 | 5,242 | 2,971 | ||||
| Discretionary capital expenditures | ||||||||
| Property acquisitions | - | 9,464 | - | 9,464 | ||||
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Development and redevelopment1
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376 | 1,967 | 1,398 | 3,023 | ||||
| Tenant space improvements - nonrecurring | - | - | - | 7 | ||||
| Total discretionary capital expenditures for real estate | 376 | 11,431 | 1,398 | 12,494 | ||||
| Capitalized indirect costs | 649 | 500 | 1,315 | 1,117 | ||||
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Total capital expenditures for real estate1
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4,249 | 13,590 | 7,955 | 16,582 | ||||
| Corporate and other capital expenditures | 16 | 26 | 56 | 52 | ||||
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Total Capital Expenditures1
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$ | 4,265 | $ | 13,616 | $ | 8,011 | $ | 16,634 |
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 tables above.
Cash used in financing activities for continuing operations was $29.3 million for the six months ended June 30, 2024, as compared to $15.9 million for the six months ended June 30, 2023. During the six months ended June 30, 2024, the Company's net cash outlays related to financing activities were due primarily to cash dividend payments totaling $32.6 million and repayments of secured and unsecured notes payable and other debt of $74.0 million, partially offset by cash proceeds of $60.0 million from the Series M Note and net borrowings of $20.0 million on the Company's revolving credit facility. During the six months ended June 30, 2023, the Company's net cash outlays related to financing activities were due primarily to cash dividend payments totaling $48.2 million and repayments of secured and unsecured notes payable and other debt of $19.3 million, partially offset by net borrowings of $54.0 million on the Company's revolving credit facility.
The Company's Board of Directors authorized the Company to repurchase up to $100.0 million of its common stock between January 1, 2024 and December 31, 2025. During the three and six months ended June 30, 2024, the Company did not repurchase any shares of its common stock.
Other capital resource matters
The Company frequently utilizes §1031 and §1033 of the Internal Revenue Code of 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 resulting proceeds are reinvested in replacement properties within the required time period. Proceeds from potential tax-deferred sales under §1031 of the Code 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 if eligibility for tax-deferral treatment based on the required time period lapses. The proceeds from involuntary conversions under §1033 of the Code are held by the Company until the funds are redeployed.
During the six months ended June 30, 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 June 30, 2024, no funds from tax-deferred sales or involuntary conversions were available for use and had not yet been reinvested under §1031 or §1033 of the Code.
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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
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which Management'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 the Company's financial statements were described in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company'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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is incorporated herein by reference to Item 7A of the Company's Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes in the quantitative and qualitative disclosures about market risk since December 31, 2023.
ITEM 4. 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 Exchange 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 June 30, 2024, the Company's disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
There have not been any changes in the Company's internal control 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 second quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under the "Legal Proceedings and Other Contingencies" section in Note 7 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
ITEM 1A. RISK FACTORS
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
There 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 Directors 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 June 30, 2024, the Company repurchased no shares of its common stock. As of June 30, 2024, $100.0 million remains available under the stock repurchase program.
ITEM 5. OTHER INFORMATION
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 June 30, 2024.
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ITEM 6. EXHIBITS
EXHIBIT INDEX
10. Material Contracts
31.1 Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
101 The following information from Alexander & Baldwin, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023; (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2024 and 2023; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023; (v) Condensed Consolidated Statements of Equity and Redeemable Noncontrolling Interest for the three and six months ended June 30, 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).
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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. | |
| July 26, 2024 | By: /s/ Clayton K.Y. Chun |
| Clayton K.Y. Chun | |
| Executive Vice President, Chief Financial Officer and Treasurer | |
| July 26, 2024 | By: /s/ Anthony J. Tommasino |
| Anthony J. Tommasino | |
| Vice President and Controller |
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