Q2 2024 Alexander & Baldwin Inc Earnings Call

Good day and welcome to the 2nd Quarter 2024 Alexander & Baldwin Earnings Conference Call. At this time, all lines are in listen-only mode.

Operator: At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Please be advised that this call is being recorded today, 25th July 2024. I would now like to hand the conference over to Brandon Meyers, Investments Manager. Please go ahead.

Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker Change: Please be advised that this call is being recorded today, 25th of July 2024.

Speaker Change: I would now like to hand the conference over to Brandon Myers, Investments Manager. Please go ahead.

Brandon Meyers: Thank you, operator. Aloha, and welcome to Alexander & Baldwin's second quarter 2024 earnings conference call. My name is Brandon Meyers, and I'm the manager on the A&B investment. With me today are A&B's Chief Executive Officer, Lance Parker, and Chief Financial Officer, Clayton Chun.

Brandon Myers: Thank you, Operator. Aloha, and welcome to Alexander & Baldwin's second quarter 2024 Earnings Conference Call. My name is Brandon Myers, and I'm the Manager on the A&B Investments Team.

Speaker Change: With me today are A&B's Chief Executive Officer, Lance Parker, and Chief Financial Officer, Clayton Chun.

Brandon Meyers: During our call, please refer to our second quarter 2024 supplemental information available on our website at investors.alexanderbaldwin.com forward slash supplemental. Before we commence, please note that statements in this presentation 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-

Speaker Change: During our call, please refer to our second quarter 2024 supplemental information available on our website at investors.alexanderbaldwin.com forward slash supplements.

Brandon Meyers: 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 statement.

Speaker Change: Before we commence, please note that statements in this presentation that are not historical facts

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Such forward-looking statements speak only as of the date the statements were made and are not guarantees of future performance.

Speaker Change: 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.

Brandon Meyers: 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 the risk factors discussed in the company's most recent Form 10-K, Form 10-Q, and other filings with the Securities and Exchange Commission. The information in this presentation should be evaluated in light of these important risk factors.

Speaker Change: 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.

Speaker Change: The Evaluation of Alternatives by the Company Related to its Non-Core Assets in Business

Speaker Change: And the risk factors discussed in the company's most recent form, 10-K, Form 10-Q , and other filings with the Securities and Exchange Commission.

Speaker Change: The information in this presentation should be evaluated in light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statements.

Brandon Meyers: We do not undertake any obligation to update the company's forward-looking statement. Management will be referring to non-GAAP financial measures during our call today. Please refer to our statement regarding the use of these non-GAAP measures and reconciliations included in our 2024 second quarter supplemental information material.

Speaker Change: Management will be referring to non-GAAP financial measures during our call today. Please refer to our statement regarding the use of these non-GAAP measures and reconciliations included in our 2024 Second Quarter Supplemental Information Materials.

Brandon Meyers: Lance will start today's presentation with an overview of the quarter, then hand it off to Clayton for a discussion of financial management. To close, Lance will return for some final remarks, and then we will open it up for your questions. With that, I will turn the call over to Lance.

Speaker Change: Lance will start today's presentation with an overview of the quarter, then hand it off to Clayton for a discussion of financial matters.

Speaker Change: To close, Lance will return for some final remarks, and then we will open it up for your questions.

Lance K. Parker: Thank you, Brandon. Great job on the introduction, and congratulations again on closing the land sale that we'll mention later in the call. To everyone joining us, aloha. Throughout this year, our team has focused on four objectives. First, operational excellence, which includes providing the best commercial real estate platform that enables our tenants to thrive and, in turn, will create results for our shareholders. Second, we grow our commercial real estate portfolio through internal development and external investment opportunities. Thirdly, is to maintain a strong and flexible balance sheet to support that growth. And lastly, is to further streamline our business and cost structure.

Speaker Change: With that, let me turn the call over to Lance.

Lance K. Parker: Thank you, Brandon. Great job on the introduction and congratulations again on closing the land sale that we'll mention later in the call. To everyone joining us, aloha.

Lance K. Parker: Throughout this year, our team has focused on four objectives.

Lance K. Parker: First is operational excellence, which includes providing the best commercial real estate platform that enables our tenants to thrive and in turn will create results for our shareholders.

Lance K. Parker: Second, is to grow our commercial real estate portfolio through internal development and external investment opportunities.

Lance K. Parker: Third, is to maintain a strong and flexible balance sheet to support that growth. And last, is to further streamline our business and cost structure.

Lance K. Parker: With the help of employees like Brandon, I am happy to report that we have made progress in each area, and we are raising our guidance to reflect our year-to-date results and improved outlook for the year. Clayton will discuss guidance in more detail on our call, but first, let me share some highlights from the quarter, starting with our portfolio. Total NOI grew by 1.1%, and same store NOI grew by 0.9%. The same store NOI, excluding collections of prior year reserves, grew 1.7%.

Speaker Change: With the help of employees like Brandon, I am happy to report that we have made progress in each area, and we are raising our guidance to reflect our year-to-date results and improved outlook for the year.

Speaker Change: Clayton will discuss guidance in more detail on our call, but first, let me share some highlights from the quarter, starting with our portfolio.

Clayton K. Y. Chun: Total NOI grew by 1.1%.

Clayton K. Y. Chun: Same store NOI grew by 0.9%, and same store NOI excluding collections of prior year reserves grew 1.7%.

Lance K. Parker: As we indicated on our last call, we expect our quarterly results to fluctuate, and this quarter was an example of that. NOI growth was impacted by the renewal of the Windward City Shopping Center ground lease during the second quarter last year, which provided an AVR increase of $1.1 million. We continue to have a positive outlook on the leasing environment in Hawaii and have executed 47 leases in our improved property portfolio and achieved blended spreads of 7.3% on a comparable basis.

Clayton K. Y. Chun: As we indicated on our last call, we expect our quarterly results to fluctuate, and this quarter was an example of that.

Clayton K. Y. Chun: NOI growth was impacted by the renewal of the Windward City Shopping Center ground lease during the second quarter last year, which provided an ABR increase of $1.1 million.

Clayton K. Y. Chun: We continue to have a positive outlook on the leasing environment in Hawai'i and executed 47 leases in our improved property portfolio and achieved blended spreads of 7.3% on a comparable basis.

Lance K. Parker: Our same store lease occupancy was 94.8%, 50 basis points lower than the same period last year due primarily to a move out in the first quarter of 2024. Same store economic occupancy at quarter end was 93.7%, up 50 basis points from the same period last year and up 40 basis points from last quarter. Turning to internal growth, we are focused on unlocking value within our portfolio. Pre-construction work has progressed in our industrial build-a-suit at Maui Business Park. We expect construction to begin in early 2025 and anticipate $1 million of additional ABR when it becomes economically viable late next year. We also have five photovoltaic projects in various stages of development.

Clayton K. Y. Chun: Our same store lease occupancy was 94.8%, 50 basis points lower than the same period last year, due primarily to a move out in the first quarter of 2024.

Clayton K. Y. Chun: Same store economic occupancy at quarter end was 93.7%, up 50 basis points from the same period last year, and up 40 basis points from last quarter.

Clayton K. Y. Chun: Turning to internal growth, we are focused on unlocking value within our portfolio.

Clayton K. Y. Chun: Pre-construction work has progressed at our Industrial Build-a-Suit at Maui Business Park. We expect construction to begin in early 2025 and anticipate $1 million of additional ABR when it becomes economic late next year.

Clayton K. Y. Chun: We also have five photovoltaic projects in various stages of development.

Lance K. Parker: Combined, these projects are expected to add between $400,000 and $600,000 of incremental NOI as they come online in the next 18 months, in addition to these internal opportunities. I am encouraged by the volume of investments we are seeing externally. Although pricing remains challenged with wide bid-ask spreads, we will be opportunistic with capital recycling to make accretive acquisitions. Clayton will speak to the strength of our balance sheet, so let me provide an update on our streamlining efforts.

Clayton K. Y. Chun: Combined, these projects are expected to add between $400,000 and $600,000 of incremental NOI as they come online in the next 18 months.

Clayton K. Y. Chun: In addition to these internal opportunities, I am encouraged by the volume of investments we are seeing externally.

Clayton K. Y. Chun: Although pricing remains challenged with wide bid-ask spreads, we will be opportunistic with capital recycling to make accretive acquisitions.

Clayton K. Y. Chun: Clayton will speak to the strength of our balance sheet, so let me provide an update on our streamlining efforts.

Lance K. Parker: We ended the quarter under contract to sell 81 acres of non-core land. The sale closed in July at a price of $10.5 million and enables us to continue improving our cost structure going forward. In addition to these results, our improved outlook is also supported by other indicators. The unemployment rate in Hawaii at the end of June was 2.9%, compared to the national average of 4.1%. And although May year-to-date visitor arrivals were down 4.1%, primarily due to the lingering impact of the Maui wildfires, foot traffic at our retail centers grew by 3.3%. With that, I'll turn the call over to Clayton. Clayton?

Clayton K. Y. Chun: We ended the quarter under contract to sell 81 acres of non-core land.

Clayton K. Y. Chun: The sale closed in July at a price of $10.5 million and enables us to continue improving our cost structure going forward.

Clayton K. Y. Chun: In addition to these results, our improved outlook is also supported by other indicators.

Speaker Change: The unemployment rate in Hawaii at the end of June was 2.9%, compared to the national average of 4.1%.

Speaker Change: And although May year-to-date visitor arrivals were down 4.1%, primarily to the lingering impact of the Maui wildfires, foot traffic at our retail centers grew by 3.3%.

Unknown Executive: With that, I'll turn the call over to Clayton.

Clayton Chun: Clayton? Thanks, Lance, and Aloha, everyone. Starting with our consolidated metrics for the second quarter.

Clayton K. Y. Chun: Thanks, Lance, and aloha, everyone. Starting with our consolidated metrics for the second quarter. Net income available to shareholders was $9.1 million, or $0.13 per diluted share. Income from continuing operations available to shareholders was $11.7 million, or 16 cents per diluted share, up 8% from last year. Loss from discontinued operations was $2.6 million, or three cents per share, reflecting the resolution of a liability related to our legacy operation.

Clayton K. Y. Chun: With that, I'll turn the call over to Clayton. Clayton? Thanks, Lance, and aloha, everyone. Starting with our consolidated metrics for the second quarter, net income available to shareholders was $9.1 million, or $0.13 per diluted share.

Clayton Chun: Net didn't come available to shareholders was $9.1 million or $13 per diluted share. Income from continuing operations available to shareholders was $11.7 million or $16 per diluted share, about 8% from last year.

Clayton K. Y. Chun: Income from continuing operations available to shareholders was $11.7 million, or $0.16 per diluted share, up 8% from last year.

Clayton Chun: Lost from this continued operations was $2.6 million, or $3 per diluted share, reflecting the resolution of a liability related to our legacy operations. Total company FFO was $20.6 million or $28 per diluted share, as compared to $19.8 million or $27 per diluted share in the same quarter last year. Included within total company FFO was 28 cents per share of seary and corporate related FFO, which effectively comprised the entirety of our total company FFO for the quarter. In comparison, our seary and corporate related FFO for the second quarter of 2023 was 25 cents per share. And the three cents were 12% increased from the prior year quarter was due primarily to lower G&A.

Clayton K. Y. Chun: Loss from discontinued operations was $2.6 million, or $0.03 per dilution share, reflecting the resolution of a liability related to our legacy operations.

Clayton K. Y. Chun: Total company FFO was $20.6 million or $0.28 per diluted share, as compared to $19.8 million or $0.27 per diluted share in the same quarter last year. Included within total company FFO was $0.28 per share of CRE and corporate related FFO, which effectively comprised the entirety of our total company FFO for the quarter. In comparison, our CRE and corporate related FFO for the second quarter of 2023 was $0.25 per share, and the $0.03 or 12% increase from the prior year quarter was due primarily to lower G&A. FFO related to land operations was negligible during the second quarter of 2024 as compared to two cents per share in the same quarter last year when the segment benefited from a 3.2 million dollar land sale.

Clayton K. Y. Chun: Total company FFO was $20.6 million or $0.28 per diluted share.

Clayton K. Y. Chun: As compared to $19.8 million or $0.27 per diluted share in the same quarter last year.

Clayton K. Y. Chun: Included within total company FFO was $0.28 per share of CRE and corporate related FFO, which effectively comprised the entirety of our total company FFO for the quarter.

Clayton K. Y. Chun: In comparison, our CRE and corporate-related FFO for the second quarter of 2023 was $0.25 per share, and the $0.03, or 12% increase from the prior year quarter, was due primarily to lower G&A.

Clayton Chun: FFO related to land operations was negligible during the second quarter of 2024 as compared to two cents per share in the same quarter last year when the segment benefited from a $3.2 million land sale. FFO was $16.9 million, or 23 cents per diluted share, for the second quarter of 2024. This compares to $18 million or 25 cents per diluted share in the same period last year.

Clayton K. Y. Chun: FFO related to land operations was negligible during the second quarter of 2024 as compared to $0.02 per share in the same quarter last year when the segment benefited from a $3.2 million land sale.

Clayton K. Y. Chun: AFFO was $16.9 million, or $0.23 per diluted share, for the second quarter of 2024. This compares to $18 million, or $0.25 per diluted share, for the same period last year. The decrease in year-over-year AFFO was due primarily to higher maintenance cap expense and reflects timing. Additionally, each of these metrics for the second quarter of 2024 benefited from collections of prior year reserves of approximately $400,000 or a penny per diluted share versus $600,000 in the second quarter of 2023.

Clayton K. Y. Chun: AFFO was $16.9 million, or $0.23 per diluted share, for the second quarter of 2024.

Clayton K. Y. Chun: This compares to $18 million, or $0.25 per diluted share, in the same period last year.

Clayton Chun: The decrease in year-over-year FFO was due primarily to higher maintenance capex been and reflects timing differences. Each of these metrics for the second quarter of 2024 benefited from collections of prior year reserves of approximately $400,000, or a penny per diluted share, versus $600,000 in the second quarter of 2023.

Clayton K. Y. Chun: The decrease in year-over-year AFFO was due primarily to higher maintenance CAPEX spend and reflects timing differences.

Clayton K. Y. Chun: Each of these metrics for the second quarter of 2024 benefited from collections of prior year reserves of approximately $400,000 or a penny per diluted share.

Clayton K. Y. Chun: versus $600,000 in the second quarter of 2023.

Clayton Chun: G&A expenses decreased by $2.7 million or 26.8% to $7.3 million as compared to $9.9 million in the second quarter of 2023, largely reflecting achievements and cost reductions due to our simplification and streamlining efforts. As a result, we are expecting our 2024 G&A to be in the range of $29.5 million to $31.5 million.

Clayton K. Y. Chun: G&A expenses decreased by $2.7 million, or 26.8%, to $7.3 million, as compared to $9.9 million in the second quarter of 2023, largely reflecting achievements in cost reduction due to our simplification and streamlining efforts. As a result, we are expecting our 2024 GMA to be in the range of $29.5 million to $31.5 million.

Clayton K. Y. Chun: G&A expenses decreased by $2.7 million or 26.8% to $7.3 million.

Clayton K. Y. Chun: as compared to $9.9 million in the second quarter of 2023.

Clayton K. Y. Chun: Largely reflecting achievements and cost reductions due to our simplification and streamlining efforts.

Clayton K. Y. Chun: As a result, we are expecting our 2024 GMA to be in the range of $29.5 million to $31.5 million.

Clayton Chun: Turning to our balance sheet and liquidity metrics. At quarter end, total debt outstanding was $470 million, and we had total liquidity of $473 million made up of approximately $30 million of cash and $443 million available on a revolving credit facility. We issued an eight-year unsecured private placement note in April with a stated rate of 6.09% and use the proceeds from that note to repay a mortgage that matured during the second quarter. In addition, we used one of our two board-starting interest rates to hedge the floating interest rate on a revolving debt when it became effective in May.

Clayton K. Y. Chun: Turning to our Balance Sheet and Liquidity Method, at quarter end, total debt outstanding was $470 million, and we had total liquidity of $473 million, made up of approximately $30 million of cash and $443 million available on a revolving credit facility. We issued an 8-year unsecured private placement note in April with a stated rate of 6.09%, and used the proceeds from that note to repay a mortgage that matured during the second quarter

Clayton K. Y. Chun: Turning to our Balance Sheet and Liquidity Metrics.

Clayton K. Y. Chun: At quarter end, total debt outstanding was $470 million, and we had total liquidity of $473 million, made up of approximately $30 million of cash.

Clayton K. Y. Chun: and $443 million available on a revolving credit facility.

Clayton K. Y. Chun: We issued an 8-year unsecured private placement note in April with a stated rate of 6.09% and used the proceeds from that note to repay a mortgage that matured during the second quarter.

Clayton K. Y. Chun: In addition, we used one of our two forward starting interest rate swaps to hedge the floating interest rate on our revolving debt when it became effective in May. As a result, all of our debt at quarter end was at fixed rates, and we ended the quarter with a weighted average interest rate of 4.75%.

Clayton K. Y. Chun: In addition, we used one of our two forward starting interest rate swaps to hedge the floating interest rate on a revolving debt when it became effective in May.

Clayton Chun: As a result, all of our debt at quarter-end was at fixed rates, and we ended the quarter with a weighted average interest rate of 4.75%. Net debt to adjusted EBITDA was 3.7 times compared to 4.2 times at 2023-year-end, primarily reflecting the impact of non-core land sales that occurred in the first quarter of 2024, as well as lower GNA.

Clayton K. Y. Chun: As a result, all of our debt at quarter end was at fixed rates, and we ended the quarter with a weighted average interest rate of 4.75%.

Clayton K. Y. Chun: Net debt to adjusted EBITDA was 3.7 times compared to 4.2 times at 2023 year-end, primarily reflecting the impact of non-core land sales that occurred in the first quarter of 2024 as well as lower G&A. With respect to our dividend, we paid a second quarter dividend of 22 and a quarter cents per share on July 8. And our board declared a third quarter dividend of 22.25 cents per share that is payable on October 7th.

Clayton K. Y. Chun: Net debt to adjusted EBITDA was 3.7 times

Clayton K. Y. Chun: compared to 4.2 times at 2023 year-end, primarily reflecting the impact of non-core land sales that occurred.

Clayton K. Y. Chun: in the first quarter of 2024, as well as lower G&A.

Clayton Chun: With respect to our dividend, we paid a second quarter dividend of 22 and a quarter-sense per share on July 8, and our board declared a third quarter dividend of 22 and a quarter-sense per share that is payable on October 7. In the coming weeks, we will be establishing a new at-the-market program to replace the existing ATM facility that expires in August. The ATM program provides efficient access to capital markets, and together with our existing share of repurchase authorization, enables us to have the necessary tools in our capital allocation toolkit as we evaluate opportunities to maximize shareholder value.

Clayton K. Y. Chun: With respect to our dividend, we paid a second quarter dividend of 22.25 cents per share on July 8th, and our board declared a third quarter dividend of 22.25 cents per share that is payable on October 7th.

Clayton K. Y. Chun: In the coming weeks, we will be establishing a new at-the-market program to replace the existing ATM facility that expires in August. The ATM program provides efficient access to capital markets and, together with our existing share repurchase authorization, enables us to have the necessary tools in our capital allocation toolkit as we evaluate opportunities to maximize shareholder value.

Clayton K. Y. Chun: In the coming weeks, we will be establishing a new at-the-market program to replace the existing ATM facility that expires in August .

Clayton K. Y. Chun: The ATM program provides efficient access to capital markets and, together with our existing share repurchase authorization, enables us to have the necessary tools in our capital allocation toolkit as we evaluate opportunities to maximize shareholder value.

Clayton K. Y. Chun: As Lance mentioned, based upon our performance in the second quarter and our improved outlook for the remainder of the year, we are again raising our guidance. We now expect same store NOI growth in the range of 1.25% to 2.25%, and we are maintaining our guidance for same store NOI growth, excluding collections of prior year reserves, at 2.1% to 3.1%. We are also raising our FFO guidance and now expect 2024 total company FFO in the range of $1.17 per share to $1.26 per share.

Clayton Chun: As Lance mentioned, based upon our performance in the second quarter and our improved outlook for the remainder of the year, we are again raising our guidance. We now expect same-store and OI growth in the range of 1.25% to 2.25%, and we are maintaining our guidance for same-store and OI growth excluding collections of prior year reserves at 2.1% to 3.1%. We are also raising our FFO guidance and now expect 2024 total company FFO in the range of $1.17 per share to $1.26 per share. The improved FFO guidance consists of higher-series and corporate-related FFO per share, where we are now guiding to a range of $1.4 to $1.8 per share, due primarily to NOI improvements in G&A cost reductions.

Clayton K. Y. Chun: As Lance mentioned, based upon our performance in the second quarter and our improved outlook for the remainder of the year, we are again raising our guidance.

Lance K. Parker: We now expect same-store NOI growth in the range of 1.25% to 2.25%, and we are maintaining our guidance for same-store NOI growth excluding collections of prior year reserves at 2.1% to 3.1%.

Lance K. Parker: We are also raising our FFO guidance and now expect 2024 total company FFO in the range of $1.17 per share to $1.26 per share.

Clayton K. Y. Chun: The improved FFO guidance consists of higher CRE and corporate-related FFO per share, where we are now guiding to a range of $1.04 to $1.08 per share, due primarily to NOI improvements and G&A cost reduction. Total Company FFO is also comprised of Land Operations FFO, where we are increasing our guidance to a range. $0.13 per share to $0.18 per share. As Lance previously mentioned, we closed on the sale of 81 acres of non-core land in the third quarter, which generated a margin of approximately $5.2 million.

Lance K. Parker: The improved FFO guidance consists of

Lance K. Parker: IRCRE and corporate-related FFO per share, where we are now guiding to a range of $1.04 to $1.08 per share, due primarily to NOI improvements and G&A cost reductions.

Clayton Chun: Total company FFO also comprised of land operations FFO, where we are increasing our guidance to a range of 13 cents per share to 18 cents per share.

Lance K. Parker: Total Company FFO also comprised of Land Operations FFO where we are increasing our guidance to a range

Lance K. Parker: of $0.13 per share to $0.18 per share.

Clayton Chun: As Lance previously mentioned, we closed on the sale of 81 acres of non-core land from the third quarter, which generated a margin of approximately $5.2 million. Our increased guidance related to land operations reflects the impact of the sale, improvements to a cost structure, and our improved outlook for our legacy joint venture. Got it, got it.

Lance K. Parker: As Lance previously mentioned, we closed on the sale of 81 acres of non-core land in the third quarter, which generated a margin of approximately $5.2 million.

Clayton K. Y. Chun: Our increased guidance related to land operations reflects the impact of this sale, improvements to our cost structure, and our improved outlook for our legacy joint venture. Finally, we're also raising our 2024 AFFO guidance to a range of 99 cents per share to $1.08 per share, due primarily to the improvements in FFO. With that, I will turn the call over to Lance for his closing remarks. Thanks, Clayton.

Lance K. Parker: Our increased guidance related to land operations reflects the impact of this sale, improvements to our cost structure, and our improved outlook for our legacy joint ventures.

Lance K. Parker: Finally, we are also raising our 2024 AFFO guidance to a range of 99 cents per share to $1.08 per share, due primarily to the improvements in AFFO.

Lance K. Parker: With that, I will turn the call over to Lance for his closing remarks.

Lance K. Parker: Thanks, Clayton. I'm pleased with what we accomplished in the first half of the year and how we are positioned for the remainder of 2024. Our assets are performing well. We're making progress and finding opportunities to grow our portfolio, have the balance sheet capability to support those investments, and continue to become more efficient as we further streamline our business. On that note, we'll now open up the call to questions.

Lance K. Parker: Thanks, Clayton. I'm pleased with what we've accomplished in the first half of the year and how we are positioned for the remainder of 2024.

Lance K. Parker: Our assets are performing well. We're making progress and finding opportunities to grow our portfolio.

Speaker Change: have the balance sheet capability to support those investments.

Speaker Change: and continue to become more efficient as we further streamline our business.

Speaker Change: On that note, we'll now open up the call to questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key. Your first question is from the line of Alexander Goldfarb from Piper Sandler. Your line is now open.

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2.

Alexander David Goldfarb: Sorry, the mute button. It's a new feature.

Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker Change: Your first question is from the line of Alexander Goldfarb from Piper Sandler. Your line is now open.

Alexander David Goldfarb: I'm just getting started to learn it. So I apologise about that. Aloha out there, Aloha.

Alex: Hey Alex, you there?

Alexander David Goldfarb: Sorry, the mute button, it's...

Speaker Change: a new feature I'm just getting to learn, so.

Alexander David Goldfarb: Hey, so just, you know, a few questions here, you know, certainly a good quarter, you know, things are going well. You guys have worked hard over the past, well, for many years, but certainly everything coming together in the past few years. So just a few questions on what we should expect. You know, first, and this is a topic that I've asked before, but just want to get a better handle on.

Speaker Change: Apologies about that. Aloha. Aloha.

Alexander David Goldfarb: Thank you. Bye.

Speaker Change: So just a few questions here. Certainly, good quarter. Things are going well. You guys have worked hard over the past, well, for many years, but certainly everything coming together in the past few years. So just a few questions on what we should expect. First, and this is a topic that

Alexander David Goldfarb: Your rent spreads and, certainly, over the trailing four quarters, you know, around 8%. It's definitely lower than what we see from the mainland competitors. But also, my understanding is you guys are more akin to federal in that your portfolio has embedded bumps annually. So can you just sort of break out, you know, when we see an 8.3 average or 7.3 in this quarter versus what we see double digits from the mainland peers? Can you just walk a bit more through that?

Speaker Change: I've asked before, but just want to get a better handle on.

Speaker Change: Your rent spreads and certainly over trailing four quarters, you know, around 8%.

Speaker Change: It's definitely lower than what we see from the mainland competitors. But also my understanding is you guys are more akin to federal in that you have more your portfolio has embedded bumps annually. So

Speaker Change: Can you just sort of break out, you know, when we see an 8.3

Speaker Change: average or you have 7.3 in this quarter.

Lance K. Parker: Because certainly, the demand for your real estate out there is quite strong, and presumably, you know, there's not excess supply. So you have pricing power. But, you know, when we look at the rent spreads, it doesn't necessarily reflect that. So maybe just parse through more of what's going on with rents and how much you guys just remind us how much you guys get on the annual bump.

Speaker Change: versus what we see double digits from the mainland peers.

Speaker Change: Can you just walk a bit?

Speaker Change: More through that because certainly the demand for your real estate out there is quite strong.

Speaker Change: and presumably, you know, there's not excess supply, so you have pricing power. But, you know, when we look at the rent spreads, it doesn't necessarily reflect that. So, maybe just parse through more of what's going on with rents and how much you guys, just remind us how much you guys get on annual bumps.

Lance K. Parker: Yeah, so I would respond by saying, you know, I think it would be hard for me to draw an exact comparison to our peers in the mainland, but what I can say is that our portfolio is consistently resilient. And so, you know, to your point, we typically on a contractual basis will see 3% annual increases, particularly for a lot of our inline tenants. In addition to that, we'll get percentage rent clauses on many of them, but you know as we've also talked about in the past We don't have as many larger or mainland Retailers here in the islands and so we view that certainly from a from a long-term growth Perspective as an opportunity as we continue to court people into what is a high-performing market But what we also haven't seen is some of the negatives that come with that and particularly on bankruptcies and watchlist tenants, And so well, you know, those converting some of those more lower rent to higher cut up opportunities may exist in other portfolios, they don't typically exist within our

Speaker Change: Yeah, so I would respond by saying, you know, I think it would be

Speaker Change: Hard for me to draw an exact comparison to our peers in the mainland, but what I can say

Speaker Change: is that our portfolio is consistently resilient. And so, you know, to your point,

Speaker Change: We typically, on a contractual basis, will see 3% annual increases, particularly for a lot of our in-line tenants.

Speaker Change: In addition to that, we'll get percentage rent clauses on many of them.

Speaker Change: But, you know, as we've also talked about in the past, we don't have as many.

Speaker Change: larger or mainland retailers here in the islands. And so we view that certainly from a

Speaker Change: From a long-term growth perspective as an opportunity, as we continue to court people into what is a high-performing market. But what we also haven't seen is some of the negatives that come with that, and particularly on bankruptcies and watchlist tenants.

Speaker Change: And so while, you know, those converting some of those more lower rent to higher cut-up opportunities may exist in other portfolios, they don't typically exist within ours.

Alexander David Goldfarb: Okay, okay, cool. Next is the land business. Certainly good to see you guys continue to wind that down. But you know, you've spoken in the past about the legacy cost, both liabilities, I think pension, and there's some other overhead. So I think the number was something like six or 7 million annually. I think it was something like that. You just walk us through, you know, this land sale that you did in July, how much that goes towards, you know, removing that legacy overhead expense that's associated with the land business.

Speaker Change: Okay, okay, cool. Next is on the land business. Certainly good to see you guys continue to wind that down.

Speaker Change: But, you know, you've spoken in the past about the legacy cost.

Speaker Change: both liabilities, I think pension, and there's some other overhead.

Speaker Change: So, I think the number was something like six or seven million annually, I think it was something like that. Can you just walk us through, you know, this land sale that you did in July , how much that goes towards, you know, removing that?

Speaker Change: legacy overhead expense that's associated with the lab business. And, you know, this accelerates

Alexander David Goldfarb: And, you know, this accelerates the expectation that that could be, you know, something that may be, you know, cease to exist in the next six to 12 months. Or if you would advise us that, hey, don't get too carried away, that legacy expense is probably going to be with the company for a few more years.

Speaker Change: you know, expectation that that could be, you know, something that may be, you know, cease to exist in the next six to 12 months. Or if you would advise us that, hey, don't get too carried away, that legacy expense is probably going to be with the company for a few more years.

Clayton K. Y. Chun: Hey Alex, it's Clayton.

Speaker Change: Yep.

Speaker Change: Hey Alex, it's Clayton. Happy to take that question. So let me just start off by reiterating the fact that

Alex: We're out.

Speaker Change: One of our priorities for the company is to continue to simplify.

Speaker Change: The remaining non-core assets and liabilities and with that comes an opportunity to continue to streamline the cost structure itself.

Clayton K. Y. Chun: I'm happy to take that question. So, let me just start off by reiterating the fact that one of our priorities for the company is to continue to simplify the remaining non-core assets and liabilities, and with that comes an opportunity to continue to streamline the cost structure itself. We have had some success this past year with – in the first quarter, we had a sale of some non-core lands, and you mentioned, and we referenced during our prepared remarks that we had completed another land sale in the third quarter.

Speaker Change: We have had some success this past year with

Speaker Change: In the first quarter, we had a sale of some non-core lands, and we referenced

Speaker Change: during our prepared remarks that we had completed.

Clayton K. Y. Chun: That did provide us with the ability to effectuate some additional cost efficiencies, which we're going to be able to benefit from from this point forward. And so our current expectation is that our overall carrying costs for the segment itself will be at a run rate of $4 to $5 million on an annualized basis. Timing for the completion of us being able to simplify the segment is difficult, and the land sales themselves are episodic, but I just want to emphasize the fact that this does remain a priority for us.

Speaker Change: Another landfill in the third quarter.

Speaker Change: That did provide us the ability to

Speaker Change: effectuate some additional cost

Speaker Change: Our current expectation is that our overall carrying costs for the segment itself will be at a run rate of $4-5 million on an annualized basis.

Speaker Change: Timing for the completion of us.

Speaker Change: Being able to simplify the segment is, I would just say that it's timing is difficult and the land sales itself are episodic, but I just want to emphasize the fact that this does remain a priority for us.

Alexander David Goldfarb: Okay, so okay, so that's cool. So we'll go down, I think before was what six or 7 million now goes down to four to five, or an annualized run rate. Okay, okay.

Speaker Change: Okay, so, okay, so that's cool. So we'll go down, I think before is what, six or seven million, now it goes down to four to five.

Speaker Change: or an annualized run rate. Yes.

Lance K. Parker: And just, the final element is it almost sounded like you guys are seeing more external investment opportunity. And what we've always been accustomed to in Hawaii, things take a lot longer. One, not as deep of an investment pool. Two, you know, there may be an asset, or whether it's a building or ground lease or something that's already sitting there that takes time, or that owners just are hesitant to sell.

Speaker Change: Okay, okay. And just, uh...

Speaker Change: The final, final element is

Speaker Change: It almost sounded like you guys are seeing more external investment opportunity. And what we've always been accustomed to is, in Hawaii, just things

Lance K. Parker: But Lance, in your comments, it almost sounded like stuff was freeing up a lot sooner and that maybe we'd see an acceleration of your investment pace. So can you just let us know if that was, if that was just specific to one or two deals, or if it's describing the overall environment?

Speaker Change: Take a lot longer.

Speaker Change: One Nottice.

Speaker Change: Deep of an Investment Pool

Speaker Change: to, you know, there may be an asset or whether it's a building or ground lease or something started sitting there that takes time, or that owners just are hesitant to sell. But, Lance, in your comments, it almost sounded like

Lance K. Parker: stuff was freeing up a lot sooner and that maybe we'd see a acceleration of your investment pace. So can you just let us know if it was if that was just specific to one or two deals or if it's describing the overall environment?

Lance K. Parker: Yeah, I want to...

Speaker Change: I want to be transparent but also cautious because we don't guide acquisition activity.

Lance K. Parker: Yeah, I want to. I want to be transparent but also cautious because we don't guide acquisition activity. But I will say that it is fair to say that we are seeing more opportunities at the top of the funnel. And so really, that's movement from where we were, you know, call it maybe six months ago, where everybody, the market was more frozen, potential sellers were really on the sidelines. We're seeing people, you know, sort of move off the sidelines.

Speaker Change: But I will say that it is fair to say that we are seeing more opportunities at the top of the funnel.

Speaker Change: And so really, that's movement from where we were, you know, call it maybe six months ago, where everybody, the market was more frozen.

Lance K. Parker: Now, it's not to say that seller expectations in terms of pricing have moved, and that's really what needs to happen next. But we're starting to see some thawing of those first steps. And so I wanted to articulate that. And again, without guidance, but it would not surprise me if you start to see some potential opportunities before the end of the year. Okay.

Speaker Change: Potential sellers are really on the sideline.

Speaker Change: We're seeing people, you know, sort of move off the sideline. Now it's not to say that seller expectations in terms of pricing has moved, and that's really what needs to happen next, but we're starting to see some following of those first steps.

Speaker Change: And so I wanted to articulate that, and again, without guiding, but it, you know, it would not surprise me if you start to see some potential opportunities before the end of the year.

Alexander David Goldfarb: Okay, and then just sorry, one more apologies. You said you're going to reauthorize the ATM, and just looking at our NAB, you and your peers are still, you know, at some healthy discounts, double digit discounts to NAB, you know, on our numbers, you know, 25% or so. Can you just talk about ATM issuance relative to NAB? Is it, would you wait until the stock is back at NAB? Is it something like, how do we think about that? Because you're looking to renew it, and yet, from an NAB perspective, you know, you're still below where it would be attractive to issue.

Speaker Change: Okay, and then just sorry, one more apologies. You said you're going to reauthorize the ATM and just looking at least on our NAB, you know, you and your peers are still, you know, at some healthy discounts.

Speaker Change: Double digit discounts to NAB, you know, on our numbers, you know, 25% or so.

Speaker Change: Can you just talk about ATM issuance relative to NAV, is it, would you wait until the stock is back to NAV? Is it something like, how do we think about that? Because you're looking to renew it and yet from an NAV perspective, you know, you're still below where it would be accretive to issue.

Lance K. Parker: Yeah, you know, as Clayton remarked in his comments, we view the ATM as an important tool. And so, really, to sort of bookend both ends of where our stock may be trading, whether it's stock repurchases, which we did some modest amounts back late last year, or potential equity issuance. And so the ATM was not to signal that there is any, you know, imminent equity issuance, but it was to make sure that we did have that tool available to us.

Speaker Change: As Clayton remarked in his comments, we view the ATM as an important tool.

Speaker Change: And so really the sort of bookend both ends of where our stock may be trading, whether it's stock repurchases, which we did some modest amounts back late last year, or potential equity issuance. And so the ATM was not to signal that there is any, you know, imminent equity issuance.

Speaker Change: But it is to make sure that we do have that tool available to us.

Lance K. Parker: And as we think about opportunities in the market, you know, we're always looking for accretion. And so, you know, we would look for, you know, to make sure that, in, I guess, philosophical terms, at or above NAV, but it's really more about accretion in the opportunity. And I guess that's probably how we would think about any potential equity issuance. Okay, great. Thank you.

Speaker Change: And as we think about opportunities in the market, you know, we're always looking for accretion. And so, you know, we would look for, you know, to make sure that in

Speaker Change: I guess philosophical terms at or above NAV, but it's really more about accretion in the opportunity. And I guess that's probably how we would think about any potential equity issuance.

Speaker Change: Okay, great, thank you.

Speaker Change: Thanks, folks.

Operator: Your next question is from the line of Rob Stevenson from Janey. Please go ahead.

Speaker Change: Your next question is from the line of Rob Stevenson from Janey. Please go ahead.

Robert Chapman Stevenson: Good afternoon, guys. Clayton, I just want to make sure that I understand the guidance increase of 10 to 12 cents, the land sale gain of seven, and the other three to four in the commercial real estate portfolio are the cost structure savings and the JVs that you mentioned at the end of the comments. Or is that the other sort of half penny in land operations? How should I be thinking about that three to four cents in the commercial real estate portfolio? And what's driving that?

Robert Chapman Stevenson: Good afternoon guys. Clayton, I just want to make sure that I understand the guidance increase 10 to 12 cents

Speaker Change: The land sale gain is seven.

Robert Chapman Stevenson: The other three to four in the commercial real estate portfolio, is that the cost structure savings and the JVs that you mentioned at the end of the comments, or is that the other sort of half penny in land operations? How should I be thinking about that three to four cents in the commercial real estate portfolio and what's driving that?

Clayton K. Y. Chun: Thank you, Rob, for the question. So the answer to that is the land operations are separate from the commercial real estate. So the comments with respect to the land sales do not pertain to the three to four cents that you're referencing. And so the three to four is a function of just our outlook with respect to the commercial real estate performance overall on the NOI in addition to cost efficiencies with respect to our corporate overhead. And so that's what was intended to be reflected with that guidance adjustment. Okay.

Speaker Change: Thank you, Rob, for the question.

Speaker Change: So the answer to that is the land operations is separate from the commercial real estate so the comments with respect to the land sales does not pertain to the three to four cents that you're referencing.

Speaker Change: And so the three to four is a function of just our outlook with respect to the commercial real estate performance overall on the NOI front, in addition to cost efficiencies.

Speaker Change: with respect to our corporate overhead and so that's what was intended to be reflected with that guidance.

Robert Chapman Stevenson: Okay, that's helpful. And did the proceeds from the land sale just pay down the line, or did it go to something else?

Speaker Change: adjustment. Okay, that's helpful. And proceeds from the land sale just pay down the line or did it go to something else?

Clayton K. Y. Chun: The proceeds from the third quarter land sale are what I think you're referencing. And so we have received the cash proceeds as it's being applied to debt. And ultimately, as we have indicated in the past, our strategy would be to ultimately recycle that into investment opportunities as they arise.

Speaker Change: The proceeds for the third quarter land sale is what I think you're referencing.

Speaker Change: We had received the cash proceeds as being applied to debt, and ultimately, as we had indicated in the past, our strategy would be to ultimately recycle that into investment opportunities as they arise.

Lance K. Parker: And I would just add to that, Rob, you know, to Clayton's point about recycling. This would be a great opportunity, really, where we take proceeds from non-income-producing land and have the opportunity to look for opportunities to turn those assets into income-producing assets. And so, you know, to my remarks and to Alex's question really about the market and being a little bit more opportunistic on capital recycling, this, this could be a good opportunity to use it.

Speaker Change: And I'll just add to that, Rob, you know, to Clayton's point about recycling.

Robert Chapman Stevenson: This would be a great opportunity, really, where we take proceeds from non-income producing land.

Speaker Change: and have the opportunity to to look for opportunities into income producing assets and so you know to my remarks and to Alex Alex's question really about the market and being a little bit more opportunistic on capital recycling this this could be a good opportunity to use it

Robert Chapman Stevenson: All right, that's helpful. And then, any incremental known move-outs of consequence at this point? And how should we be thinking about the net FFO addition when you put the least but not commenced against any of the potential move-outs over the next, you know, six to 12 months?

Alex: All right, that's helpful. And then any incremental known move-outs of consequence at this point?

Speaker Change: And how should we be thinking about the net FFO addition when you put the least but not commenced against any of the potential move-outs over the next, you know, 6 to 12 months?

Lance K. Parker: Um, I don't think there's anyone from a major rent role perspective that we're too concerned about. You know, I think the team's done a really good job of laddering out our weighted average lease terms. And so, as we look at least in the near term, I'm feeling pretty confident about the performance of the portfolio.

Speaker Change: I don't think there's anyone from a major rent role perspective that we're too concerned about. I think the team's done a really good job of laddering out our weighted average lease terms. And so as we look, at least in the near term,

Speaker Change: Feeling pretty confident about the performance of the portfolio.

Robert Chapman Stevenson: Okay, and then just two quick ones. What's the incremental solar opportunity beyond the five projects that you have in progress? I mean, how many additional projects do you think you might start as those come to completion?

Speaker Change: Okay, and then just two quick ones. What's the incremental solar opportunity beyond the five projects that you have in progress? I mean, how many additional projects do you think you might start as those come to conclusion?

Lance K. Parker: You know, Rob, I'd say we really haven't scaled those yet. I mean, these are, you know, great investments for us, obviously, first from an ESG perspective, but maybe, as, if not more importantly, from a financial perspective. And so we were conscious of starting with, you know, our largest assets where we had the most economies of scale, and we were able to drive the biggest benefit. And so the example is, you know, our first two generating almost a million dollars in NOI.

Speaker Change: You know, Rob, I'd say we really haven't scaled those yet. I mean, these are, you know, great investments for us, obviously, first from an ESG perspective, but maybe as, if not more importantly, from a financial perspective.

Speaker Change: And so we were conscious in starting with, you know, our largest assets where we had the most economies of scale and we were able to drive

Speaker Change: the biggest benefit. And so the example being, you know, our first two generating almost a million dollars in NOI. So as we think about the rest of the portfolio, I think we'll be able to provide some of that visibility. But that's really, you know, what we're focused on right now are the five that I articulated. And I will say that this is a priority for for our team.

Lance K. Parker: So as we think about the rest of the portfolio, I think we'll be able to provide some of that visibility. But really, you know, what we're focused on right now are the five that I articulated. And I will say that this is a priority for our team. Okay.

Robert Chapman Stevenson: Okay, and then last one for me, is there any update on the 40% leased retail property in Kauai? I'm going to butcher the name, but Waipoloi? Web Holy, that's pretty good.

Speaker Change: Okay, and then last one for me, is there any update on the 40% lease retail property in Kauai? I'm going to butcher the name, but Waipoloi?

Lance K. Parker: So, there are no, no, no updates to provide as of the end of Q2, but it is it is a priority for us. Okay. Thanks, guys. Appreciate the time.

Speaker Change: Why, Paulie, that's pretty good.

Speaker Change: So nothing, no updates to provide as of the end of Q2, but it is a priority for us as well.

Robert Chapman Stevenson: Okay, thanks guys, I appreciate the time. Okay, thanks, bro.

Speaker Change: Okay, thanks guys, appreciate the time. Okay, thanks Rob.

Operator: Your next question is from the line of Mitch Germain from Citizen's Jump. Please go ahead.

Speaker Change: Your next question is from the line of Mitch Germain from Citizen's Jump. Please go ahead.

Mitchell Bradley Germain: Hope you guys are well. So, Lance, thank you. Taking your comment about the acquisition markets or investment markets, what is driving the kind of change to you becoming a bit more constructive about the level of activity you're doing?

Speaker Change: Hope you guys are well. So let's- Hey Mitch, thanks, you too.

Mitchell Bradley Germain: Taking your comment about the acquisition markets or investment markets, what is driving, you know, kind of the change to you becoming a bit more constructive about the level of activity you're seeing?

Lance K. Parker: Great question. And I'm not sure that, you know, we probably don't have more insight into the buyer side of the equation than we do into the seller side. But that being said, you know, there is no lack of interest for buyers. And so I think, you know, just given the fact that we have not seen a lot of trades in our market, I think, you know, sellers can construe that as having a little bit of pent-up demand and having a willingness to really come out and test the market.

Speaker Change: It's a great question, and I'm not sure that, you know, we're not...

Lance K. Parker: probably have more insight into the buyer side of the equation than we do into the seller side but but that being said you know there is no lack of interest for buyers and so I think you know just given the fact that we have not seen a lot of trades in our market

Lance K. Parker: I think, you know, sellers can construe that to having a little bit of pent-up demand and having a willingness to really come out and test the market.

Lance K. Parker: You know, interest rates are still high, but there's a lot less questions around the availability of capital; it's really more about the cost of capital. And so I think part of that is leading to, you know, again, sellers sort of coming off the sidelines and at least seeing if there are any, if they can narrow that bid-ask spread that we have seen over the last couple of weeks.

Lance K. Parker: You know, interest rates are still high, but there's a lot less.

Lance K. Parker: you know, questions around the availability of capital. It's really more about the cost of capital. And so I think part of that is leading to, you know, again, sellers sort of coming off the sideline and at least seeing if there are, you know, if they can narrow that bid-ask spread that we have seen over the last couple of years.

Mitchell Bradley Germain: Great. And sales for the year.

Lance K. Parker: Great.

Mitchell Bradley Germain: Have you changed your mind?

Speaker Change: Sales on the Year

Speaker Change: Have you changed your...

Speaker Change: You know, looking to accelerate the sale of these parcels.

Speaker Change: Is it, you know, is it a pricing mechanism in terms of what your, you know, kind of, you kind of reduce kind of what your ask is? Like, what is, what's causing this activity to now accelerate here?

Mitchell Bradley Germain: You broke up for just a minute. I want to make sure that we got the question right. Are you asking about the land? No, no, I'm asking about why the land sales appear to be accelerating a bit here. Is it a function of your cost expectation maybe coming down a bit?

Speaker Change: You broke up for just a minute. I want to make sure that we got the question right. Are you asking about the lamb?

Lance K. Parker: Or have you changed the methodology and how you're marketing or who you're marketing this to? You know, it seems like there is clearly a shift because we have gone, you know, a decent stretch without any major land sales. And now, for two quarters, we're providing results that we did not guide to.

Speaker Change: I was asking about why the land sales appear to be accelerating a bit here. Is it a function of your cost expectation maybe has come down a bit, or have you changed the methodology in how you're marketing or who you're marketing this to?

Speaker Change: You know, it, I mean, it seems like there is clearly a shift because we had gone, you know, a decent stretch without any major land sales and now two quarters, you know, we're providing results that we did not guide to. And so I can certainly appreciate that perspective.

Mitchell Bradley Germain: And so I can certainly appreciate that perspective. You know, as we shared last quarter, there was the 300 acre sale. You know, that deal came together so quickly; it really, from start to finish, was a matter of, and it was because we had an existing relationship with the buyer. And so we were very opportunistic; it was less about us changing our methodology or pricing expectations. And I would say that this most recent 81 acre project, in some ways, it was a little bit longer in terms of the process that we were going through, but it came together very quickly at the end.

Speaker Change: You know, as we shared last quarter with the 300-acre sale, you know, that deal came together so quickly. It really, from start to finish, was in a matter of weeks.

Speaker Change: And it was because we had an existing relationship with the buyer, and so we were very opportunistic. It was less about us changing our methodology or pricing expectations.

Mitchell Bradley Germain: And there's also, you know, a lot of them. For land deals, whether it's the availability of financing, just questions around potential entitlements or other things, you know, there's more risk in closing these deals. And that's why they tend to be more episodic and more difficult for us to guide to. So I don't think there's anything different, different from our perspective. And as Clayton indicated, you know, this remains a priority for us. So it always has been.

Speaker Change: And I would say that this most recent 81 acre, in some ways, I mean, it was a little bit longer in terms of the process that we were going through, but it came together very quickly at the end. And there's also, you know, a lot of.

Speaker Change: For land deals, whether it's availability of financing, just questions around potential entitlements or other things, you know, there's more risk in closing these deals, and that's why they tend to be more

Speaker Change: episodic and more difficult for us to guide to. So I don't think there's anything different from our perspective.

Mitchell Bradley Germain: And when we do get the opportunity to get close, you know, we're going to definitely move to close that gap and strike because, you know, it is nice to be able to make additional progress in trying to narrow this portion of our business.

Speaker Change: And as Clayton indicated, you know, this remains a priority for us. So it always has been. And when we do get the opportunity to get close, you know, we're going to definitely move to close that gap and strike because, you know, it is it is nice to be able to make additional progress in trying to narrow this portion of our business.

Speaker Change: Great. Thank you.

Mitchell Bradley Germain: Okay. Thanks, Mitch.

Operator: Your next question is from the line of Brendan McCarthy from Sidoti. Please go ahead.

Speaker Change: Your next question is from the line of Brendan McCarthy from CIDODI. Please go ahead.

Brendan Michael McCarthy: Hey, good afternoon, everybody. Thanks for taking my question. Hey, Brendan. Hey.

Brendan Michael McCarthy: Hey, good afternoon, everybody. Thanks for taking my question. Hey, Brendan.

Brendan Michael McCarthy: I just wanted to start out looking at the capital allocation framework. I know you mentioned the acquisition opportunities out there look a little more promising at the top of the funnel, but then you also mentioned the recent land sale, and the proceeds went towards debt pay-down. I'm just wondering if you could provide some insight on how you rank your capital allocation priorities at this point in time.

Brendan Michael McCarthy: [inaudible]

Brendan Michael McCarthy: I just just wanted to start out looking at the capital allocation framework you know I know you mentioned the acquisition opportunities out there look a little more promising at the top of the funnel

Speaker Change: But then you also mentioned the recent land sale, the proceeds went towards debt pay down. I'm just wondering if you could provide some insight on how you rank your capital allocation priorities at this point in time.

Clayton K. Y. Chun: Yeah, happy to take that question Brendan, Clayton. So as far as that capital allocation goes, we evaluate each investment opportunity based upon the return that's expected to be provided and want to ensure that we get an appropriate risk-adjusted return. And so with that in mind, you know, we look at opportunities, whether it's acquisitions, whether it's, you know, shares even if we were to be issuing equity. And so I think for us, the key is ensuring that we're going to get the appropriate risk-adjusted return. And so that's the lens through which we view it.

Speaker Change: Yeah, I'm happy to take that question, Brendan, Clayton.

Clayton K. Y. Chun: So, as far as that capital allocation goes, we evaluate each investment opportunity based upon the return that's expected to be provided, and we want to ensure that we get an appropriate risk-adjusted return.

Clayton K. Y. Chun: And so with that in mind, you know, we look at opportunities, whether it's acquisitions, whether it's, you know, share of purchases,

Clayton K. Y. Chun: even if it even if we were to be issuing equity and so I think for us the key is ensuring that that we're going to get the appropriate risk-adjusted return and so that's the lens in which we view it.

Lance K. Parker: And Brendan, maybe I would add to that, you know. I would say that as we survey the market, we have an appetite for all of our existing food groups. So it's not like we have a specific allocation that we're trying to achieve and saying, you know, we like the fundamentals of retail, there are specific assets that we really want and ones that work; we will pursue the same for industrial, same for ground leases.

Clayton K. Y. Chun: And Brendan, maybe I would add to that, you know, I would say that as we survey the market,

Brendan: We have an appetite really for all of our existing food groups.

Speaker Change: So it's not like we have a specific allocation that we're trying to achieve and saying, you know, we like the fundamentals of retail, there are specific assets that we really want and ones that work, we will pursue, same for industrial, same for ground leases.

Lance K. Parker: And so to Clayton's point, you know, it really does come down to risk-adjusted returns. And not to say that we're completely agnostic, but in many ways, we are. We're really looking at, you know, just opportunities from a holistic perspective, as opposed to more specific allocation.

Brendan: And so to Clayton's point, you know, it really does come down to risk-adjusted returns, and not to say that we're completely agnostic, but in many ways we are, we're really looking about, you know, just opportunities from a holistic perspective, as opposed to more specific allocations.

Brendan Michael McCarthy: Great, great. Thanks, Lance. Thanks, Clayton. I wanted to take a step back, look at the big picture. I know that you mentioned, Lance, I think you mentioned foot traffic growth was healthy in the second quarter. Can you provide some insight on what you saw from a tourism perspective?

Speaker Change: Great, great. Thanks Lance. Thanks Clayton.

Speaker Change: I wanted to take a step back looking at the big picture. I know that you mentioned, Lance, I think you mentioned foot traffic growth was healthy in the second quarter. Can you provide some insight on what you saw from a tourism perspective?

Lance K. Parker: So tourism numbers, you know, year to date are down; we've never fully recovered from 2019 pre-pandemic numbers, but maybe more important to call it pre-pandemic, 29, also represented an all-time high for the state in terms of visitor arrivals to Hawaii. And so we got, you know, sort of the high 90s back to fully recovering.

Speaker Change: Yeah

Speaker Change: So tourism numbers, you know, year to date are down. We've never fully recovered from 2019 pre-pandemic numbers, but maybe more important to call it pre-pandemic. Twenty-nine also represented an all-time high for the state in terms of visitor arrivals to Hawaii.

Lance K. Parker: If you compare 2024 year to date to 2023, we are down about 4%. And I would say that's led almost entirely by Maui. You know, some of the islands are down a little bit. Some are up a little bit.

Speaker Change: And so we got, you know, sort of high 90s back to fully recovering. If you compare 2024 year-to-date to 2023, we are down about 4%.

Speaker Change: And I would say that's led almost entirely by by Maui. You know, there's some of the islands are down a little bit. Some are up a little bit, but the impacts of the Lahaina wildfires in August of last year, you know, continue to flow through the market. Maui specifically is down almost twenty five percent.

Lance K. Parker: But the impacts of the Lahaina wildfires in August of last year, you know, continue to flow through the market. Maui, specifically, is down almost 25%. And so, you know, I want to reiterate just, you know, as significant as it was for the island and the impact that we're seeing in the state, we were very fortunate in that none of our employees or none of our assets were specifically impacted by that.

Speaker Change: And so, you know, I want to reiterate just, you know, as significant as that was for the island and the impact that we're seeing in the state.

Speaker Change: You know, we were very fortunate in that none of our employees or none of our assets were specifically impacted by that. And so we don't necessarily see those impacts at the property level, but across, you know, the state from a tourism perspective, you do.

Lance K. Parker: And so we don't necessarily see those impacts at the property level, but across the state from a tourism perspective, you do. And so really, my comments on the foot traffic were intended to, you know, not necessarily counterbalance that, but I think to reinforce a point that we've made in the past about the fact that our portfolio really is more need-based. It's more neighborhood based. We are not entirely dependent upon the tourism industry to drive our retail sales. Of course, tourism is, you know, a major driver of our overall economy. And so that does help, but we're not, we're not dependent on it.

Speaker Change: And so really my comments on the foot traffic was intended to, you know, not necessarily counterbalance that, but I think to reinforce a point that we've made in the past about the fact that

Speaker Change: Our portfolio really is more need-based. It's more neighborhood-based. We are not entirely dependent upon the tourism industry to drive our retail sales.

Speaker Change: Of course, tourism is, you know, a major driver of our overall economy. And so that does help, but we're not, we're not dependent on it.

Brendan Michael McCarthy: Got it, got it. One more question from me, just looking at the updated guidance. What are some of the main factors that you think might... You know, provide further upside or downside looking at the rest of this year? Obviously, I assume, you know, further land sales would be one of them. But what, uh, what are some of the other factors there? Yeah, sure.

Brendan Mccarthy: One more question for me, just looking at the updated guidance. What are some of the main factors that you think might provide further upside or downside looking at the rest of this year? Obviously, I assume further land sales would be one of them, but what are some of the other factors there?

Speaker Change: Got it, got it. One more question for me, just looking at the updated guidance.

Speaker Change: What are some of the main factors that you think might provide further upside or downside looking at the rest of this year? Obviously, I assume further land sales would be one of them, but what are some of the other factors there?

Clayton K. Y. Chun: Yeah, sure, Brendan. So I guess if you think about it from the low end of the range, bad debt expense clearly could be, actually, a positive or negative in terms of the guidance and pushing and pulling where we end up. I would also say, just looking at our tenants, the delayed occupancy, so to the extent that we're able to lease up or get additional delays on commencements, that could potentially push us towards the lower end, and the inverse holds true as well. But all in all, you know, we felt comfortable that where we stand, and what we're seeing, we felt comfortable increasing our guidance overall.

Clayton Chun: Yeah, sure, Brendan.

Clayton Chun: I guess if you think about it from the low end of the range, bad dead expense, clearly could be a, well, actually bad dead expense could be a positive or negative in terms of the guidance and pushing and pulling where we end up. I would also say just looking at our tenants, the delayed occupancy. So, to the extent that we're able to lease up or get additional delays on commencement, that could potentially push us towards the lower end. And the inverse holds true as well.

Speaker Change: Yeah, sure, Brendan. So, I guess if you think about it from the low end of the range, bad debt expense clearly could be a, well, actually bad debt expense could be a positive or negative in terms of

Speaker Change: the guidance and pushing and pulling where we end up.

Speaker Change: I would also say just looking at our tenants the delayed occupancy so to the extent that we're able to lease up or get additional delays on commencements that could potentially push us towards the lower end and

Clayton Chun: So, but all in all, you know, we felt comfortable that where we stand, what we're seeing, we felt comfortable increasing our guidance overall.

Speaker Change: The inverse holds true as well. So, but all in all, you know, we felt comfortable that where we stand what we're seeing, we felt comfortable increasing our guidance overall.

Brendan Mccarthy: Great, great thanks, Clayton.

Brendan Michael McCarthy: Great, great. Thanks, Clayton.

Brendan Mccarthy: One more question, if I may, just looking at NLI at the asset class level. Yeah, obviously, office is down through the first half of the year; retail a little bit more flat and solid growth in industrial. Can you just talk about the trends that you're seeing in industrial versus retail?

Speaker Change: Great. Great. Thanks, Clayton. One more question, if I may. Just looking at NOI at the asset class level.

Brendan Michael McCarthy: One more question, if I may, just looking at NOI at the asset class level. Yeah, obviously, offices are down through the first half of the year, retail a little bit more flat, and solid growth in industrial. Can you just talk about the trends that you're seeing in industrial versus retail?

Speaker Change: Yeah, obviously offices is down through the first half of the year, retail a little bit more flat and solid growth in industrial. Can you just talk about the trends that you're seeing in industrial versus retail?

Clayton Chun: Yeah, you know, I would say overall retail remains strong. Really, what was sort of what is driving our performance there is. Is recovery from prior years, and that's, you know, that kind of reflected in the way that we, the nuanced, you know, increase in the same store NLI with our guidance going forward. And as we indicated, I mean, we did on a year-over-year basis, you know, have some fluctuations in the portfolio, some one-time events that. And sort of caused that, as well as some bad debt recovery.

Lance K. Parker: Yeah, um, you know, I would say overall, retail remains strong. Really, what is sort of driving our performance there is recovery from prior years. And that's, you know, that kind of reflected in the way that we have a nuanced, you know, increase in the same star NOI with our, our guidance going forward. And as we indicated, I mean, we did, on a year over year basis, you know, have some fluctuations in the portfolio, some one-time events that, Unknown Speaker That sort of caused that, as well as some bad debt recovery.

Speaker Change: Yeah, you know, I would say overall.

Speaker Change: Retail remains strong really what was sort of for what is driving our

Speaker Change: Our performance there is is recoveries from prior years and that's you know that kind of reflected in the way that we the nuanced you know increase in the same star NOI with our our guidance going forward.

Speaker Change: And as we indicated, I mean, we did on a year over year basis, you know, have some fluctuations in the portfolio, some one time events that

Lance K. Parker: And then on the industrial side, I would say just just good performance, you know, the market continues to remain strong. Vacancy rates are still, you know, at, if not the lowest in the country, very close to the bottom. It did tick up a little bit, but, you know, we're talking about going from 80 basis points to 110 basis points. I mean, that just to give you some sense of the tightness of our industry.

Clayton Chun: And then on the industrial side, I would say just good performance. You know, the market continues to remain strong. Vacancy rates are still, you know, if not the lowest in the country, you know, very close to the bottom. It did tick up a little bit, but, you know, we're talking about going from 80 basis points to 110 basis points. I mean, that just to, you know, give you some sense of the tightness of our industrial market here.

Speaker Change: that sort of caused that, as well as some bad debt recovery. And then on the industrial side, I would say just just good performance, you know, the market continues to remain strong. Vacancy rates are still, you know, at

Speaker Change: If not the lowest in the country, you know, very close to the bottom. It did tick up a little bit But you know, we're talking about going from 80 basis points to 110 basis points I mean that just to you know, give you some some sense of the tightness of our industrial market here

Brendan Mccarthy: I think we're bringing, we're bringing this. It's Brendan. If I could just add on, is, is a fact that when you take a step back looking at our guidance, we've, number one, we increased our guidance with respect to NLI. And number two is, we had made comments earlier in the year that one should expect that there's going to be, I guess, a straight line or consistency throughout the year quarter to quarter. And so, as we said in the prepared remarks, this is an example of it with respect to the second quarter, but we're happy with the results.

Clayton K. Y. Chun: I think Brendan, if Brendan, if I could just add on the fact that when you take a step back, looking at our guidance, we've number one, increased our guidance with respect to NOI, and number two is that we had made comments earlier in the year that one shouldn't expect that there's going to be, I guess, a straight line or consistency throughout the year, quarter to quarter. And so, as we said in the prepared remarks, this is an example of that with respect to the second quarter. But we're happy with the results. And at the end of the day, we felt comfortable given the performance and the outlook that we had raised in our guidance.

Speaker Change: I think the main critique, Brendan, if I could just add on is the fact that

Speaker Change: When you take a step back looking at our guidance, we've, number one, we increased our guidance with respect to NOI, and number two is, is we had made comments earlier in the year that

Brendan: One shouldn't expect that there's going to be.

Brendan: I guess a straight line or consistency through throughout the year quarter to quarter and so as we said in the prepared remarks

Brendan: This is an example of it with respect to the second quarter, but we're happy with with the results and at the end of the day, we felt comfortable given the performance and the outlook that we raised our guidance.

Clayton Chun: And at the end of the day, we felt comfortable given the performance and the outlook that we've raised our guidance.

Brendan Mccarthy: Thanks. That's helpful.

Brendan Michael McCarthy: That's helpful. Thanks, everybody.

Unknown Executive: Thanks, everybody.

Unknown Executive: All right, thanks, Brennan.

Speaker Change: That's helpful. Thanks everybody.

Brennan: All right. Thanks, Brennan.

Unknown Executive: There are no further questions at this time, so I'll hand a call over back to Clayton Chun for closing remarks. Please go ahead. Thank you, operator, and thank you all for joining us today. If you have eight, four, seven, five, or email us at investorrelations@abhi.com.

Operator: There are no further questions at this time, so I'll hand the call over to Clayton Chun for closing remarks. Please go ahead.

Brennan: There are no further questions at this time, so I'll hand the call over back to Clayton Chun for closing remarks. Please go ahead.

Clayton K. Y. Chun: Thank you, Operator, and thank you all for joining us today. If you have any follow-up questions, please feel free to call us at 808-525-8475 or email us at InvestorRelations at abhi.com. Aloha, and have a great day.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.

Clayton K. Y. Chun: Thank you, Operator, and thank you all for joining us today. If you have any follow-up questions...

Clayton K. Y. Chun: Please feel free to call us at 808-525-8475 or email us at InvestorRelations at abhi.com. Aloha and have a great day.

Clayton Chun: Aloha, and have a great day.

Unknown Executive: This concludes today's conference. Thank you for your participation.

Unknown Executive: You may now disconnect.

Speaker Change #101: This concludes today's conference. Thank you for your participation. You may now disconnect.