A&B puts ag land sale proceeds to commercial projects

Company closed last 800 acres in first quarter

Alexander & Baldwin has put all of the proceeds from the sale of 41,000 acres of Maui agricultural land toward commercial ventures in Hawaii, the company announced Thursday.

A&B said 100 percent of its Maui land sale proceeds have been either reinvested or committed to binding commercial real estate acquisitions in Hawaii that are expected to close before mid-June.

“Our simplification efforts continued in the first quarter, with the previously announced sale of development lands at Wailea, the continued buildout and closing of units at Kamalani and the closing of the final tranche of the Maui ag land sale,” A&B President and Chief Executive Officer Chris Benjamin said Thursday during the company’s first quarter earnings call.

A&B reported that its total operating revenue from commercial real estate, land operations and materials and construction was $129.4 million, compared to $113.3 million in the first quarter of 2018.

The company’s net income available to shareholders was $9 million, and diluted earnings were 12 cents per share for the first quarter, as compared to $47.3 million and 66 cents per share in the same quarter of last year.

Benjamin said that “the successful reinvestment of nearly $260 million of proceeds” from the Maui land sale would help fuel the growth of the company’s net operating income.

“To date, we have closed on $149.1 million of reinvestments, including two west Oahu industrial assets and two Oahu ground lease assets,” Benjamin said. “The remaining $109.3 million will be invested in two Neighbor Island grocery-anchored retail centers that complement our existing retail portfolio and expand our geographic coverage.”

Using proceeds from the Maui land sale, A&B purchased the ground lease under the Home Depot warehouse store in central Honolulu for $42.4 million, the newly constructed Kapolei Enterprise Center in west Oahu for $26.5 million and the ground lease under the Kapolei Business Park West Lot 31 (commonly known as the Honolulu Authority for Rapid Transportation precast yard) for $41.1 million.

A&B also generated revenue of $49 million from land and development sales in the first quarter, including the closing of a bulk sale of 42 acres in Wailea for $23.6 million on Feb. 12, the final 800 acres of agricultural land to Mahi Pono for $6.7 million and 22 units at the Kamalani affordable housing project in Kihei and a parcel in Kahala for a total of $11.2 million.

A&B saw a $12.6 million operating profit in land operations for the first quarter, as compared to a $5.4 million loss in the first quarter of 2018.

In materials and construction, the company sustained a $4.5 million operating loss in the first quarter, as compared to a $200,000 profit in the first quarter of 2018.

Benjamin also announced that as of April 24, Jerrod Schreck was appointed the new president of Grace Pacific, an A&B subsidiary and Hawaii’s largest construction materials company and paving contractor. Schreck will continue to serve as A&B’s senior vice president for land stewardship; he had been involved in transitioning some of A&B’s former sugar lands to diversified agriculture before the sale.

Benjamin said Thursday that A&B expects an increase of just over $14 million in net operating income due to the Maui land sale, more than the $12 million increase he had predicted earlier.

“Back in December, we announced that we would get two primary benefits from the Maui land sale,” Benjamin said. “One would be net operating income from the reinvestment of the proceeds into commercial properties, and we estimated that that would be roughly $12 million. We also said that we would expect to get about $8 million a year of operating savings from not having to maintain those lands in the plantation, security, environmental, operational costs, etc.”

However, A&B now expects a little more in annual income “based on a combination of better cap rates, higher cap rates at which we’re buying these assets, and also the fact that we have kind of budgeted a little bit of capital for nonincome-producing land, development land, I should say.”

“And we are going to be earning a yield on everything that we buy,” Benjamin said. “So that takes that $12 million up to about $14 million. The $8 million cost savings number is still a good long-term kind of stabilized number.”

Meanwhile, the Ho’okele Shopping Center in Kahului is on track to open in mid-2019, Benjamin reported. The 94,000-square-foot complex will be anchored by a 57,400-square-foot Safeway grocery store and Safeway fuel station. The second phase of the project, which includes about 27,000 square feet of additional retail space, will begin construction as the leases are executed.

* Colleen Uechi can be reached at cuechi@mauinews.com.

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