Q3 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Alexander <unk> Baldwin 2019 third quarter earnings Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation there'll be a question and answer session to ask this question. During this session you need to press star one on your telephone.
Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Mr., Steve Swett of I see our please go ahead Sir.
Thank you Aloha and welcome to our goal to discuss Elgin involved in 2019 third quarter earnings.
With me today, or ABTS, President and Chief Executive Officer, Chris Benjamin and Brett Brown, Chief Financial Officer. We're also joined today by Lance Parker and these cheap real estate officer, including Jones, Chief Accounting Officer, who will participate in the Q, what a portion of the call.
Before we commence please note that statements in this call and presentations that are not historical facts are forward looking statements within the meaning of the private Securities litigation reform at 1995 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 are 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 the 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 not limited to prevailing market conditions and other factors relating to the company's read status and the company's business as well as the evaluation of alternatives by the company related to its materials and construction business and by the company's joint venture related.
Element Cook, who you're generally discussed in the company's most recent Form 10-K .
Form 10-Q , and other filings with the Securities and Exchange Commission you.
The information in this call and presentation should be evaluated in light of these important risk factors.
We do not undertake any obligation to update the forward looking statements.
Management will be referring to non-GAAP financial measures during our call today.
Included in the appendix of today's presentation slides of the statement regarding our use of these non-GAAP measures and reconciliations.
Slides from this presentation are available for download at our website Alexander <unk> Baldwin Dot com.
Chris will open up today's presentation with a strategic and operational update you will then turn the presentation over to Brett who will discuss financial matters.
Chris will return for some closing remarks, and then we will open up the call for your questions with that let me turn it over to Chris.
Thanks, Steve and good afternoon to our listeners.
Today, I will provide an update on our strategic plan and provide high level comments on our third quarter results.
Brett will then review our financial and operational results in more detail summarize our balance sheet and review our guidance for 2019, which we are maintaining.
Then we will open the call for your questions.
Before I begin I want to welcome Steve and as I see our colleagues to the end be team.
We have partnered with I see our as a part of our efforts to transition the company and rationalize costs, we look forward to benefiting from their deep knowledge of the REIT sector and leveraging their expertise as we move forward.
Our recent strategic planning effort has validated our path toward a Hawaii commercial real estate focused and encouraged us to accelerate on that path, especially as it relates to the simplification of our business model.
I will walk through each of the four elements of our strategy and update you on our progress and expectations.
The first pillar of our strategy is of course to increase in Hawaii from our Hawaii commercial real estate portfolio and we've done that in a significant way this year.
In the third quarter total CRT revenue increased 19% and cash NOI increased 24% compared to the third quarter last year as we continue to capture the benefit of the acquisitions, we completed in the last 12 months.
We now own a portfolio of 3.9 million square feet of operating commercial real estate all of it in Hawaii and 154 acres of income producing Hawaii ground leases.
At quarter end, our total commercial real estate portfolio is 95% occupied the highest quarter end, Hawaii occupancy rate, we have achieved in the past decade.
Our same store portfolio at the end of the third quarter was 94.2% occupied 240 basis points higher than one year ago.
All of this continues to reflect our team's strong execution and the merits of our Hawaii investment strategy.
A significant drivers of these results include strong leasing activity at Pearl Highlands Center on the retail side.
Ended two neighbor island industrial properties Port Allen Industrial and Harbor industrial.
We executed lease with Roger done golf at Pearl Highlands Center to bring occupancy to 99.8%.
An increase in occupancy of 6.7% year over year.
This is a direct result of the repositioning of that asset.
Our leasing activity remains strong as we signed 55 leases in the third quarter for about 114000 square feet of Julie.
For the 77300 square feet of comparable leases signed we recorded an average leasing spread of 6%.
As you know our commercial real estate growth strategy is not just about effective leasing of our portfolio. It also includes value add redevelopment efforts.
We're focused currently on I call You Park shopping center, where we're planning a total capital investment of approximately $18 million.
The plan at this 98000 square foot center in Kailua calls for conversion and repurchasing of an old theater space that has been vacant since we purchased the center.
This creative an adaptive reuse helps us meet the expansion needs of a local tenant and make their old space available for a new tenant.
We also will be doing a general refresh at the center and creating new outdoor gathering spaces, resulting in a vibrant community center with an excellent mix of dining shopping and service options for area residents and visitors.
Completion is expected in mid 2021, with an anticipated 9% stabilized yield on incremental capital.
This project follows on the successful redevelopment of nearby long haul shops, where we will soon have the grand opening of our final tenant.
The well received 46000 square foot community focused center is fully occupied and will soon be generating the yield of 11% on the total capital investment of approximately $23 million.
At Kelley shopping center, our 66000 square foot center, including the Grand opening of the Safeway gas station and 2400 square foot convenience store with celebrated subsequent to quarter end on October 12.
This project represents another element of our CRT growth strategy, which is ground up development.
The total expected cost for the first phase the project is around $33 million.
When completed we anticipate a stabilized yield of approximately 8% on this phase.
To round out this first pillar of our strategic plan, let me comment on CRT growth through acquisitions, we're extremely proud of our acquisitions earlier this year that fueled the 24% year over year growth in portfolio NOI.
We're pleased not only with the assets, we acquired but the fact, we were able to acquire them with exchange proceeds from the sale of non income producing land. This boost to enter lie is one of the best demonstrations yet of our strategy to convert difficult devalue assets to easier to value commercial real estate.
We will continue to look for this kind of opportunity, but we've sold most of our agricultural land. So future exchanges of this type will likely be on the smaller scale and we plan to augment exchange proceeds with incremental capital when appropriate to fund future acquisitions.
As for this reason that the pace of acquisitions may moderate as we focus on strengthening our balance sheet and simplifying our story. We do however have a healthy pipeline of assets, we are evaluating for future acquisition and will remain opportunistic.
We're often asked if we see enough room for growth in our Hawaii portfolio and the answer is absolutely yes.
We own about 22% of the Hawaii grocery anchored supply and only about 2% of the industrial product. We continue to like both of these asset classes and expect to focus our acquisition activity there.
Let me shift now into the second and equally important pillar of our strategic plan and that is monetization of our non CRT assets, including our remaining for sale developments land assets and Grace Pacific.
And the resulting simplification this will provide our business model.
This is a critical priority for us not only because we believe simplification will make it easier to value our company, but because monetization helps us improve our balance sheet metrics and positions us for additional CRT growth.
Monetization begins with development in land sales and we continue to unlock the capital we have invested in these projects and land assets.
At Maui business Park, our 125 acre commercial development in Central Maui, we closed a halfacre lump for $1 million, but more importantly, we have five contracts in place one of which is binding and expected to close in the fourth quarter for $6 million.
With the other contracts, we have a strong outlook for sales at the project in 2020.
At Kukuiula, we sold 10 developer units for $23.8 million in the quarter and have another eight units currently in escrow.
Momentum at the project remains strong and we have not had to fund any subsidy this year.
We also sold one parcel on coal why for $900000 and we have our last three kahala properties in escrow with one binding and expect to be sold out of that project in the near future.
More broadly we are accelerating efforts to monetize both land and development assets.
These sales are inherently difficult to project, but we will provide more color on our expectations for 2020 early next year.
Turning to Grace Pacific the third quarter was very challenging as we continue to experience project delays and work our way through low margin projects in backlog.
Adding to the challenge is a year over year decline in government solicitations for bids on asphalt paving projects.
Still I have confidence in the work our new management team is doing to rightsize the cost structure and improved the discipline of our operations in bidding.
During the third quarter, we implemented additional cost reductions that when combined with the reductions from the second quarter are expected to yield $3 million in savings on an annualized basis.
By focusing on closing out old projects and collecting receivables, Greece was net cash flow positive in the quarter and our bid win rate ticked up compared to the first quarter Im sorry to the first half of the year.
Of course, the full payback on these operational improvement efforts will take time to realize because there is simply has not been a lot of new work coming up for bid.
As a result of the sharp drop in graces revenue and profitability. This year, we recognized a 49.7 million dollar noncash impairment charge in the quarter to write down the remaining goodwill associated with the paving operation.
As you know we are actively exploring the potential sale of Grace Pacific.
We have a promising list of bidders evaluating our offering memorandum at this time.
We will be critical and evaluating offers as we're committed to finding the right next to owner to move Grace Pacific forward I would expect to be in a position to update you further on our next quarterly call.
Wrapping up my comments on second pillar of our strategic plan, we're focused on the simplification of our company and are pleased with the progress we have made over the past few years as shown on this slide.
We're not done yet however, and will be seeking to monetize additional assets and generate more cash to reduce our leverage we are fortunate not to be relying on any one transaction.
While selling Grace is an objective we're committed to achieving the best results for our shareholders as we consider any transaction.
The next important element of our strategic plan as organizational streamlining.
This is a process that has been underway for some time and will continue its not going to be an overnight process, but we will make steady progress along with our simplification efforts.
As I, often say, we're transforming a 150 year old conglomerate into a focused commercial real estate company.
That entails shedding many legacy processes and policies and I'm immensely appreciative of the support of our team and that effort.
As an example, we announced this month that we are freezing the last elements of our defined benefit plan, which is an important prerequisite to interventional term and eventual termination of the plan and reduction of both GNS an operating expense.
Other steps have been taken to reduce DNA at both grace in a and B and I expect meaningful progress in this regard for 2020.
As we achieve strategic milestones to further simplify our business, we will be able to simplify our organizational structure in parallel and reduce costs further.
We remain a fairly diversified company working through many legacy issues and we are committed to managing this transition thoughtfully.
The final pillar of our strategic plan is related to SG or environmental social and governance matters and how we operate as a company.
While this is integral to our business activities, we have identified it as a separate work stream for this planning cycles. So that we can convey to all of our stakeholders how important it is to us.
There's no question that it is the right way to do business and completely consistent with a in these values.
Im pleased with the recent engagement, we've had with SG representatives of our top 20 shareholders and welcome the opportunity to tell this side of our story to all our investors.
These themes have been prominent in our communications over the past couple of years and will assume and even more prominent position going forward.
We are focusing our ESG efforts on those areas, we deem to be most material to our industry and our Hawaii home in particular issues of energy efficiency resilience to climate change engagement with our tenants and communities and the culture of our company are all of Paramount importance.
I'm proud of the progress we're making in these areas and pleased to see the pride that our employees are taking in our commitment to these values.
With that I will turn the call over to breadth to discuss our operational and financial results in more detail and then I'll return for some closing thoughts.
Thanks, Chris and good afternoon, everyone.
Beginning with our financial results for the third quarter, we recorded a net loss of $49.8 billion or 69 cents per share compared to net income of $14.8 million or 20 cents per share in the same period of 2018.
The net loss in the third quarter of 2019 includes the impact for the 49.7 million dollar noncash impairment related to Grace Pacific a negative impact of 69 cents per share.
For the first nine months of 2019, we recorded a net loss of $41.6 million for 58 cents per share compared to net income of $64.6 million or 89 cents per share in the same period of 2018.
The net loss in 2019 includes the impact of the $49.7 million noncash goodwill impairment and impact of 69 cents per share in the first nine months of 29 team and the net income in 2018 includes a $49.8 million gain on sale of commercial real estate properties at impact.
69 cents per share in the first nine months of 2018.
Turning to our commercial real estate segment revenues were up 18.9% for $6.8 million over the prior year quarter.
Total portfolio of cash NOI increased $5.3 million or 24.4% for the third quarter 2019 compared to the same period last year, primarily due to new acquisitions as part of the commercial real estate investments. We've made in the last 12 months as well as growth in the same store portfolio.
Year to date revenues are up $13.7 million or 13.1% to $118.6 million.
Total cash portfolio, NOI increased by 18.7% or $12.1 million to $76.7 million, primarily driven by an NOI from 10, 31, and reinvestment acquisitions and strong same store performance.
Same store cash NOI for the third quarter increased by $400000 or 2.2% to $19.3 million.
Year to date.
Same store cash NOI increased by $3 million or 5.3% to $59.2 million.
As Chris mentioned, we anticipated that same store cash NOI growth with slow in the third quarter, two unexpected 3% rate.
In fact growth came in at 2.2% due to a net to a rent reconciliation adjustment with the tenant.
We remain on track to achieve our full year expected range of 4.5% to 5.5%.
Moving onto our land operations segment.
This business unit produced revenue of eight and a half million dollars in the third quarter of 2019, as a result of sales and distributions related to land and development for sale projects, resulting in EBITDA of $3.2 million in the quarter and $17.1 million year to date.
Monetization activity for the third quarter includes closing a halfacre lot of Maui business Park, a parcel of land oncology and 10 developer unit sales at Kukuiula.
Results from our materials and construction segments were driven by our Grace Pacific subsidiary, which continues to be challenging as Chris mentioned.
In the third quarter, we incurred the $49.7 million in noncash impairment charge to write down the carrying value of goodwill.
Grace Pacific's adjusted EBITDA was negative $4.4 million compared to a positive $5.6 million in the third quarter of last year.
In the consolidated financial statements, excluding the non cash impairment charge operating costs and expenses decreased by 16.4% from the third quarter of 2018 due to lower operating expenses in the land operations and materials and construction segments.
Selling and DNA expenses decreased 8.9% to $13.3 million in the third quarter of 2019 compared to $14.6 million in the third quarter of 2018 due to lower costs incurred in the materials and construction segment and a corporate as a result of efforts to simplify the company and streamline operations.
I have to say I've been pleased to work with Chris and the rest of our team this year on firming up our strategic direction of setting priorities for the next few years.
From a financing treasury perspective, we need to support future CRB growth and it's essential we have the capital necessary to do so.
Maintaining a strong balance sheet of course is a key strategic focus for the company and will support our growth plans over the near and long term.
As we continue to execute our portfolio simplification plan the sale of our non CRT assets and the use of after tax proceeds to pay down debt should result in net debt to EBITDA commensurate with our repairs. In addition, we're working with our existing lenders to enhance our covenant structure reduced amortization and extend maturities.
Finally, as a reminder, we are structured as an umbrella partnership and believe there will be opportunities to utilize opie units as a currency for acquisitions in the future.
There are many potential multi generational property owners here in Hawaii that may benefit from a tax deferred transaction structure and we have engaged with several to share the potential benefits of an LP unit deal.
Together, we believe these steps to de lever manage our credit facilities and position ourselves to leverage LP units will all helped lay the groundwork for future CRB growth.
Moving onto guidance as you will note we added a table to our earnings release that summarizes the relevant metrics. We've provided as a part of our outlook for our commercial real estate segment.
At this time, we are not revising any of our expectations and remain on track to achieve our full year guidance.
Finally, as previously stated our dividends philosophy is to distribute and amount that approximates re taxable income.
We declared a 19 cents per share dividend for the fourth quarter. Following two quarters in which we increased our dividend by an aggregate of 4.5 cents per share or an approximate 31% increase from the first quarter dividends.
With this distribution, we will have distributed 69 cents per share for the full year 29 team and our fourth quarter run rate implies a full year annual dividend of 76 cents per share.
With that I'll turn the call backs, Chris for closing remarks.
Thanks, Brett in closing, it's been a very busy and productive year at a and B and I'm very proud of the accomplishments of our team.
We're making positive strides in executing our strategic plan markets remain healthy and supportive of our efforts to monetize assets and we will continue to unlock incremental capital to continue this strategic shift.
Theres no doubt that further work lies ahead, but we have the right team in place and the right attitude envision.
On January Onest 2020, we will Mark our 150 of anniversary as a company.
As I recently pointed out to our employees, we were founded a century and a half ago in an industry sugar that no longer exists in Hawaii are very survival as a company as a testament to our ability to adapt to and thrive in new businesses and we are demonstrating that once again.
I'm immensely proud of our progress and equally cognizant that we are not yet at our destination I hope our investors continue to see both our results to date and our commitment to completing our strategic evolution.
As we look to 2020 and beyond.
Im extremely excited about the opportunities we have and look forward to providing additional updates in the new year.
With that we'll open it up for your questions.
Thank you as a reminder to ask a question you wanting to press Star and then one on your telephone to withdraw your question. Please press the pound team. Please standby will be compiled the Q any roster.
And our first question comes from Sheila Mcgrath from Evercore. Your line is now open.
I guess I'm, Chris Cooley, a lot of its doing so much better than it has historically and you mentioned it self sustaining that you're not having to put any capital until it right now.
Can you tell us what's driving the improves metric.
Where are the end buyers from and does this change your long term plans there to potentially hang on to that asset.
Thanks, Sheila Yeah, great questions. So first of all I think the thing that the two things that are driving that really are.
General.
Optimism.
On the strength of the economy, the fact that.
Kalei has been I.
I think generally gaining traction.
There's been I don't know what and it's entirely attributable to of course or is that hurt there was the volcano activity on the Big Island last year, there with the floods and our sharp Kalei last year I.
I think both of those have helped drive more people to the south shore of Kalei, which is not been subject to either of those so I think we've been in a kind of a good environment. The economy has been strong the market has been strong it's been a good backdrop, but then the thing that really made the sales possible was the fact that weve.
Invested.
The important but modest amount of money in developing inventory at all price points at the projects we've got.
Our premier lots available with spectacular ocean views in the higher price range of five to 10 plus million dollars, but we also have developed product at the lower price points. Both lost in just under 1 million and homes and in the million and a half range, which for a price.
Direct of that nature are.
On the more affordable and as a spectrum. So I think having that breadth of inventory available having more lots available. While also benefiting from just the general movement towards the south shore of Kalei has been very very positive we've had questions in the past about whether opportunities owned purchases.
Driven that I think we've had seen a handful or maybe a little less than a handful of of opportunities on driven deals I think it's really more just around the general.
Optimism and momentum that the project has gained and the fact that we've had more available inventory.
Shifting to what does that mean for the future and our outlook for.
Holding onto the project I would say that this still falls in the category of those noncore assets that long term, we would like to monetize.
We're not actively marketing the project now, but I think if there were an opportunity to to pull some equity out of the project we would be open to that it's part of the reason that we.
We took the impairment in the project last year in revalue that.
And I think we continue to to be opportunistic in thinking about pulling some money out having said that we're very happy that we're not having to subsidize. The project there may be some more inventory development that we do going forward. So there may be some some capital going into the project, but it's not going in.
Two.
Subsidizing the day to day operation, So Thats, a nice I shift for us.
Okay and then another question on Maui business Park on you mentioned there was the land sale in the quarter I'm just wondering.
How you think that project will play out in terms of and mix on a land sales first is development to owned.
Yes, So let me give a little.
Context, there and then add asked Lance to elaborate the first thing that I would say about my business Park is that the activity there of late and of course, we only had one sale in the quarter, but we've got more teed up for.
The next quarter and next year.
Is a direct result of the fact that once we've got the reinvestment of the land sale proceeds done in the first half of this year are.
Investments team really shifted its focus to more of our dispositions of both development product and some of our noncore assets and I think this shift of those resources and the attention that they've been able to pay to Maui business Park has been directly responsible for the uptick in sales activity. So we do feel good.
About that.
And as I said in my prepared remarks, we would expect.
Some good results from nine business Park over the next quarter in the next year.
With respect to the long term balance of build for hold at Maui business Park versus land sales a lot of that is going to be driven by what the prospective tenants want if certainly if we've got tenants that are willing to do a build to suit or a ground lease.
And we can retain the land and possibly the improvements and generate space rent.
We will certainly do that book as we've discussed in the past a lot of our tenants really almost insist on.
On fee simple ownership of their space and so that's going to be an ongoing.
Evaluation, we are looking at future development opportunities, there and I would be.
I would assume and expect that we will do some more vertical development, but what the balances.
Yes, it's hard to predict so let's see if I left anything from Lance to add to our.
Bye.
No I would just add that because of the opportunity to self develop and AD product to our CRM portfolio, We do view Maui business Park as strategic in the long term.
Other large project cyclically low.
So recent examples of our ability to take land within the park and turn it into income producing long term assets whole Kelly, where we just opened the Safeway and more recently the gas in C store that was part of that lease that we did with them.
And as Chris indicated while we've talked in the past about the potential for industrial build to suits. We've taken a more active marketing approach, where we've actually done some free work in terms of design and taking that to market to see if we can find some interest.
Okay, Great and one last one on a great. If you could just update us on the interest level, how far along in the process. This sale process are you and what is the carrying value that you're now carrying grace Pacific at.
So I'll start and then I'll, let Clayton jump in with the the answer on the carrying value.
We've been very pleased with the.
Process and the progress so far.
The current status is that we have sent.
Offering memorandums out by the way, we're working with FMC capital, which is the leading.
Banking advisory group in the construction industry, they're very well.
Very well regarded very well connected and these led a very strong process from my perspective.
We finished the operating memorandum.
About a few weeks ago month ago reached out to a long list of prospects and.
I don't know that I can disclose exactly how many but let's just say dozens of interested parties have signed and deejays and have received offering materials. So we've been very encouraged by that.
We are awaiting the initial responses, which will come sometime in November and then from those responses. We will decide on next steps in terms of narrowing the field.
But pleased with the process. So far pleased with the process that semi is leading and.
I think Thats your question other than the carrying value of the carrying value that we have as of 934 for graces. The whole is about 217 million.
Okay, great. Thank you.
Yep.
Thank you and as a reminder, ladies and gentlemen, if you would like to ask a question. At this time you May press star and in the number one key on your Touchtone telephone.
And our next question comes from Alexander Goldfarb from Sandler O'neill. Your line is now open.
Oh, Hey.
Right.
I don't even know if it's good morning, or good afternoon out there so to say allow.
So just a few questions first just going to the materials. Obviously good to hear that you guys are considering selling at the 217 carrying value is that like I thoroughly vetted fully impaired number or when you go to market Thats your expectation would be that the proceeds or let's just say net proceeds.
Net of any debt or associated liabilities would be materially less than that.
I don't think we can speculate on on market valuations were too early in the process.
So I think really we can opine on that it's a it's a value.
It's evaluation process that we went through at the end of the quarter.
Based on the fact that quite frankly, even though we had done evaluation at the end of last year, we've had a material change in the performance of the business this year largely because of.
Market conditions, but also frankly, because our new management team. There I think is doing a very good job of kind of cleaning up some of the.
Backlog of work that we've had trying to collect cash.
Close out some jobs and in the process of doing that they've they've had to take some painful actions.
To get US pass some of those jobs. So I think that that the performance. This year is indicative of not only have a challenging market, but also of some positive steps to move move the company forward.
That will.
The reflected in the marketing process and hopefully, we'll we'll get good value, but it's really too early to opine on what kind of value again.
Okay and then this strategic yeah. The reviewed the you guys keep going through makes sense, obviously that could be you.
Forgive my pronunciation, but cookie Lou I mean, thats just a massive housing project Thats certainly doesn't seem like something that needs to be with you guys given the opportunity with the shopping centers and and industrial but you mentioned opportunities out is all of that considered opportunities around or there's a portion of it that's considered opportunities out.
No interestingly enough the entire project does fall within an opportunities now that doesn't need most of that project is intended for individuals to buy homes and live in them and enjoy them and that doesnt fit and opportunities on project. There are parcels within the project.
That may be well suited to developing income producing assets whether its.
Hotel asset or rental properties.
But for the most part the project is attracting homeowners who want to.
Live in and enjoy their homes and that Doesnt give them and opportunities zone.
Investment opportunity so.
But that does off within an upturn zone.
No I mean, it wasn't just struck me as a as an area that would have qualified for it but I guess each state had their own ability to do that so it's pretty good and then finally Chris.
As you guys consider the holistic transfer you know you guys are our rate.
But you don't reported FFO what are the consideration to you noted converting to FFO as it reporting metric Howard Hughes reports efforts are there others with somewhat complicated business is that do that would seem to be an advantage.
To make the full conversion.
Yes, and I'll, let Brett elaborate on us.
But.
We definitely talk about that often we're definitely focused on doing that at the right time. The reason we haven't done. It today is really because of the non dairy businesses that we have and the fact that we can be fulfilled metrics would be.
A little bit misleading.
In light of those but we're looking at.
Some possibilities maybe that you can elaborate no degree, Chris and Alex as we look at that.
Spot on with the.
The businesses that are noncore and so as we look going forward as we have more clarity on the.
Simplification plans and we'll be in a position than to be able to report b.
And have photos are reported number for for the company.
Okay, Yes, I mean, we can calculate your any be that's got to use and certainly the market's pretty good it determining high multiple versus low multiple businesses. So yes, I wouldn't let where your AFFO would fall drive it but it would definitely.
Be an advantage and make you guys easier to compare to add to your peers.
Great.
Thank you.
Thanks, Alex.
Thank you and our next question comes from Steve O'hara from Sidoti and company. Your line is now open.
Hi, good afternoon.
Hi, just.
In terms of the.
Read asset classes that you're in within the state.
Are there.
No other asset classes that you think you would.
Maybe one or need to get into in terms of.
Maybe you identifying opportunities or improving diversification.
Or do you think you're kind of set in terms the asset classes your end.
Hey, Steve This is lance.
Chris referenced in his earlier comments are.
Market share of both the retail and industrial sectors in Hawaii, both of which fundamentally we feel very good about and as we look at where we are relative to the remainder of the opportunity set we feel like focusing on that gives us sufficient opportunity to grow the business in the near term.
Okay. Okay.
And then just maybe on.
On Grace.
And the results of the quarter I missed some of the commentary but.
Hi, I guess is.
What.
Most of the issue with the quarter I think it looks like kind of an adjusted if I take out the write down it looks like about $8 million.
Operating loss.
Worst in the last couple of quarters, I guess and I'm just wondering it seems like there was some things that worked through the quarter.
Some contracts that were unprofitable et cetera that we're working through the quarter.
Or is it.
Is this more of a.
This is the way it looks going forward for little while until we repair it or was it kind of.
We work through that some of the more the issues in this quarter and maybe things are are directionally get get better maybe not suite to an operating profit but.
Yes, Steve Good question. This is Chris so.
I think it's up I think it's a little bit of both I think that we've taken some pain in the quarter that was necessary to take and I think we can move past at and what I mean by that is we had a number of of jobs that were.
Bid in prior years that were.
Unprofitable as we got into delivering them and we had some recognition of that in some of our work in process estimation during the quarter. So I think some of that is paying that was onetime.
And we've we've moved past that.
I think that what the team is doing now is very very positive in terms of.
Quality of the work the cost effectiveness of the were some of the Gionee reductions that we've undertaken I think we're improving our cost structure I think we're improving our bidding process I think that this all sets us up well for improvement having said that the recent level of bid activity.
By both the state and county has been very low and we have expectations that it will increase in the near term and I think that when it does we're well positioned not only to win bids but also to deliver them.
Over the work profitably.
But until that were dead and that work is there and these more favorable jobs are in our backlog, it's tough to it's tough to turn the profitability around significantly so I.
I think the answer is a little bit of both I don't expect.
Continuation of the kind of.
Negative margins on hold jobs that we experienced in the quarter, but we're still somewhat dependent on an improving bidding environment to really turn the tide in terms of the profitability of the business just because we've got a lot of fixed costs and not the volume of work that we'd like to have right now too.
To the cover those and generates and profit.
Okay.
Thanks for that that color and then just maybe within land operations.
I think you said you number units to close excluding ULA and or baby dove developer parcels or something.
And then there was a couple of things that closed within Maui business Park, I think and other.
Areas and I'm, just wondering in terms of.
I guess.
Yes.
The the flow through to operating profit.
Hi, I think there's 2.8 million or so and I'm just wondering.
In terms of the value these.
Properties.
And maybe the cash flow attached to them as opposed the operating profit.
Those are big difference between the cash flow from these in the operating profit.
Or is it more.
Within the JV youre only recognize certain period certain amount of certain time cetera.
I think a lot of that Steve has to do with the lifecycle of the project and the percentage of completion in the project I.
I think that when we sell properties as Maui business Park for for example.
The margin recognition is greater because the level of completion of that project is greater.
Whereas Q.
Well, obviously, we've been in the project for quite a while the percentage of completion of that project is still lower.
Then it is at Maui business Park. So what happens is some of the profits.
On a particular loss are not fully recognize because of the percentage of completion model.
You also do have as you pointed out the fact that it's a JV and we only own we own a majority, but not 100% of the JV for this.
Some muting of the.
Impact there, but I can say that on Maui business Park, the cash flow and the profitability are both generally pretty attractive and thats why im glad that sales are picking up there and why it's been a focus for us and cool.
You know the we're not putting any cash out right now, but the benefit of these increased sales is we're also not having to put any cash again, which is which has been positive at least not for operating subsidies.
And Atlanta, Okay.
No okay.
And then maybe just lastly in terms of the.
The land.
You.
Highly on ticket table 20 of the supplement.
Can you just yes, I don't know if you've done this yet or maybe it's.
Coming but in terms of the the land that.
You know is developable with infrastructure et cetera.
And then the land within that's actually entitled.
How much of this is your way to kind of bucket.
How much of this is.
Land that could be converted within the confines CRT.
For that would have to be.
I don't know transferred into the CRT or how do you think about.
You know process, where you do something similar to what you did with the AG Lance earlier or I guess late last year.
Were you either sell to convert.
That into the right into the read or.
Developing hold how much of that.
Let's say land bucket is.
Available for del develop and hold on kind of a tax efficient basis.
Yes, I'd say that most of the land in the for the top half of that table. The urban land is within the taxable REIT subsidiary because it is projects that have been intended for for sale.
And so.
I believe that's the case Mccalip can correct me, if among but the most of that land would be more development for sale kind of Len.
We do within some of our developments for sale projects for example in Wailea we have.
A.
A parcel that is.
Zone commercial and would be intended longer term for development for hold so that parcel sits in the.
In the the read but most of that land was that in the taxable REIT subsidiary the the land on the the lower half of the table will tend to sit in the right. Because it is has been held historically for agricultural purposes.
Some of it is lease.
But it is not.
Meant for development for sale, so that would tend to sit in the re.
Okay, Alright, thank you very much.
Thank you and your next question comes from Sheila Mcgrath from Evercore. Your line is now open.
I guess a couple of quick last question on Mahalla shops out what percent is at least now and when will all tenants beeping I'm cash rents.
Just full stabilization of that asset.
So we are 100% leased Sheila and our expectation is that our last tenant will open in go economic later in November So we're really pleased to.
The with the bring that entirely online.
For the residents and community of handler.
And that's 11% return on cost correct that's correct.
And then Unparallel Highlands that was a successful redevelopment I was just wondering if you.
Had available what kind of return on cost did you achieve on that redevelopment.
I'd have to go back and look I know, we had as disclosed.
When it was still on our redevelopment table and the number is escaping the we'll have to get back to you on that but my recollection is it was consistent with some of the other redevelopments that we're doing so I think in that case. It was it was high single digits I think it was high single digits.
Maybe when we were in the early stages. It was about 10, but I think it may have additive icing on the but it was certainly.
Consistent with or higher than I think I call, he and what we're expecting there yes.
Okay, Great and then.
That that is a.
That was great project, because actually it was not a significant redevelopment. There was it was of course, we purposely and freshening up of the food Court and the theater.
But just those two changes alone and a little bit of cosmetic were really helped us.
Get some re tenanting going and get some very positive momentum at that center. So.
It's a you know as we as we measure the return on that I think we just measure the direct rent of those spaces that we improved but if you look at the positive impact on the rest of the center and the fact that we've been able to get it fully tenanted I think actually the returns would be would be north of what we're talking yes. So clayton.
Just showing me I think where we close out on that Sheila was was at 10% return on that that incremental spend incremental NOI.
Okay, Great and then Chris you mentioned accelerating noncore landfills.
With that include any AG land sales or could they include that you would be able to redeploy in a tax efficient manner. As you did with that other large land sale.
It could Sheila yes, we have we certainly have additional add glands. We don't have the kind of contiguous footprint that we that we had when we sold the lens last year, so they would be smaller transactions, but.
I would expect that.
We would have probably some continuing modest act land sales that we would tend 31.
And there's the potential for some larger transactions, but.
But but not nearly not not a nine figure kind of transaction potentially.
Low to mid eight figure kind of transaction might be possible, but those are lands that are tough there's not a deep buyer universe for that but but we certainly will look for more opportunities to convert some of our remaining lands.
Always with the objective of frankly getting them into the hands of people, who can do more with them than weekend were not a firming company anymore and a lot of these lands have great potential to be growing crops and the helping Hawaii's energy in food sustainability and so just as with the land sale last year.
Obviously, we'll also financially attractive deal for US. It's also an opportunity to give some of these lands.
Back in the aggregate active agriculture, which I think there's a good thing for the state.
Okay, great. Thank you.
Thank you and I'm showing no further questions at this time I'd like to turn the conference back over to Steve Swett for any closing remarks.
Thank you Candice. Thank you all for joining us today.
If you have any follow up questions. Please feel free to cause at eight away.
Five to 58475 or email us at Investor Relations at AB HR Dotcom, along great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
Yes.