Alexander & Baldwin, Inc.

Thank you. Aloha, and welcome to Alexander & Baldwin's Third Quarter 2013 Earnings Call.

On the call with me today are Stan Kuriyama, A&B's Chairman and CEO; Chris Benjamin, A&B's President and COO; and Paul Ito, A&B's CFO. Also with us today are David Haverly, A&B Property Senior Vice President of Leasing; and George Morvis, A&B Vice President, Corporate Development, who will participate in the question-and-answer portion of the call.

Before we commence, please note that statements in the call and presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relative forward-looking statements. Factors that could also cause actual results to differ materially from those contemplated in the statements include, without limitation, those described on Pages 18 to 28 of the company's 2012 Form 10-K.

These forward-looking statements are not guarantees of future performance, and we do not undertake any obligation to update our forward-looking statements.

Management will be referring to non-GAAP financial measures when discussing results for the quarter. In particular, we will be referring to adjusted net income and diluted earnings per share that exclude the impact of Grace Pacific acquisition costs on 2013 results and separation-related expenses on 2012 results.

We will also be referring to net operating income. Included in the appendix of today's slide presentation are reconciliations of GAAP to these non-GAAP financial measures and a statement regarding our use of these measures.

Slides from this presentation are available for download at our website, alexanderbaldwin.com. Slide 3 provides an agenda for today's presentation, after which, we'll take your questions.

We'll start with Stan, who will comment on results and review the third quarter highlights.

Thank you, everyone, for joining us this afternoon. As noted in our press release, the company posted adjusted earnings in the second quarter of $0.13 a share.

Our core real estate operations performed well in the quarter. But for a noncash write-down in connection with our taking control of the shops at Kukui'ula, adjusted EPS for the quarter would have been $0.22 a share.

And we continued to make value-creating investments in the quarter. Our net income also reflects a $7 million decline in agribusiness operating profit compared to last year's third quarter, which was anticipated and resulted primarily from 1 less sugar voyage and lower sugar prices.

Leasing continued its upward trend with operating profit increasing 10% and NOI up 9% for the quarter compared to last year. X the shops at Kukui'ula write down, development and sales posted $11 million of operating profit for the quarter reflecting gains on the sale of a non-core ag parcel to the County of Maui and 2 Mainland commercial property sales that were used to partially fund the acquisition of Pearl Highlands Center, which closed in September.

One of the highlights in the quarter was our purchase of a portfolio of 27 properties along Kahala Avenue on Oahu, one of Hawaii's premier residential neighborhoods. The initial sales response have been favorable and the purchase is illustrative of how our knowledge of the Hawaii real estate market, combined with our local presence, relationships and persistence, can create value for our shareholders.

As mentioned in September, we sold a 209-acre non-core ag zone parcel to Maui County for $5.2 million or $25,000 an acre. We also have the sale of a 24-acre commercial zone parcel adjacent to Maui Business Park to be developed with Maui's first Target store.

That sale is scheduled to close to tomorrow for $40 million or $1,650,000 an acre. Most of the proceeds from these 2 sales will also be reinvested in the acquisition of Pearl Highlands Center.

Finally, on October 1, we closed the acquisition of Grace Pacific. Grace performed well in the third quarter, in line with our expectations, and we expect it to be an important generator of earnings and cash flow for the company.

We also have continuing good news on the Hawaii's economy. Through September, visitor arrivals grew 5% and expenditures 4% off of a record base established in 2012.

While arrivals and expenditures were down modestly in September, due to uncertainty surrounding the federal government sit down and the declining exchange rate for the yen, wholesale travel bookings from December through August of next year are reported to be strong. Through August, the average daily hotel rate in Hawaii was 28% higher than the peak rates achieved in 2008.

Hawaii's unemployment was 4.3% at the end of August compared to 5.7% a year ago. And bankruptcy filings declined by 17% year-to-date through October.

Construction is maintaining its positive momentum with the value of private construction permits through August up by 6% compared to last year, primarily due to a significant increase in the value of residential permits on Oahu.

Oahu's primary housing market also continues its strong performance. Oahu's median single-family resale price reached $675,000 in September, close to the market's record median price of $685,000, which was achieved over 6 years ago in June 2007.

Single-family sales volumes on a trailing 12-month basis are about 30% below peak volumes attained in 2004, indicating we still have room for growth in this market. Similarly, in the condo market, September median prices of $348,000 have already returned to peak levels, while sales volumes remain 40% below peak volumes reached in 2005.

Oahu's industrial and retail markets remain strong with a 2.6% industrial vacancy rate and a 4.1% retail vacancy rate and office vacancies remain stable at 12.9%.

I would like to now ask Chris to update you on our operations.

Thanks, Stan, and good afternoon and evening to everyone listening in. Well, as Stan noted, it was a busy quarter.

There was some exciting investments, a lot of good progress in our development pipeline and some important sales plus another one that we'll be closing tomorrow. Overall, it's been a very active time for the company as we look to create value through Hawaii investments.

To this end, since separation, we've been focused on building our development and investment pipeline in Hawaii and migrating our Mainland commercial portfolio to Hawaii. We've done well on both fronts.

In development, we've been advancing our Maui and Kauai projects and identifying new opportunities on Oahu, where most of the Hawaiian population resides. Expanding our investment on Oahu not only helps diversify and balance our pipeline geographically across the state, since our historic landholdings are concentrated on Maui and Kauai, but it also increases our exposure to the largest and fastest-growing sector of Hawaii's real estate market.

As Stan mentioned, the highlight of the quarter was the acquisition of the Kahala Avenue portfolio. Our primary focus since the acquisition in early September has been on cleaning up the properties and readying them for sale.

Through today, we've sold 4 of the 27 lots, achieving our expected returns and are evaluating offers received on several other lots with a few sales in various stages of contracting. Overall, we're off to a good start in Kahala.

Many of our active development projects on Oahu are located in urban Honolulu, including the Waihonua high-rise condominium project, which is sold out under binding contracts; our $20 million investment in Howard Hughes' ONE Ala Moana project, which also is sold out under binding contracts; and the collection of 467-unit mix of high-rise condo, low-rise product and townhome units targeted at the midmarket. Both Waihonua and ONE Ala Moana are under construction and are on schedule for their targeted closing dates of early 2015 and late 2014, respectively.

Presales of the collection are progressing well with nearly half the towers sold under binding contracts. The timing of construction, of course, will depend on a variety of factors.

Outside of Honolulu's core in Mililani, a west Oahu suburb, our Gateway center continues to expand. Construction of new a 16,000-square-foot building commenced in June and planning for an additional 18,000-square-foot expansion has begun.

These 2 phases would bring the total GLA of this project to 71,600 square feet. Now as a reminder, this was a retail office asset with 24,500 square-feet of improvements and additional developable land when we bought it with 1031 proceeds.

We're in the process of nearly tripling its GLA.

Moving to the neighbor islands for a moment. At Kukui'ula, we closed 2 custom home lots in the third quarter and another in October.

Through today, we've sold 6 custom home lots this year at an average price of $1.1 million or $65 per square-foot, and 2 cottages at an average price of $2.8 million. 13 homes currently under construction being built by 6 different homebuilders.

This activity will introduce a variety of home styles and price points to the marketplace, and is serving to catalyze buyer interest in custom lots.

Sales and construction activity also are increasing at the 137-unit Ka Milo joint venture development with Brookfield Homes on the Island of Hawaii. Ten units have closed in 2013, including 4 in the third quarter.

Three additional units are under binding contracts with closings scheduled through December. As this market continues to recover, we continue to increase prices gradually.

Turning to Maui. Year-to-date, we've sold 6 units at the 150-unit Ka Milo joint venture with Brookfield -- I'm sorry, with Armstrong Builders, which is at Wailea on Maui, at prices ranging from $1 million to $1.4 million.

Currently, we have 4 units available for sale at Kai Malu. To increase our available inventory at Wailea, we're advancing our plans for our next project.

We're seeking county regulatory approval for a 70-unit condominium project once again in partnership with Armstrong Builders. We also have the ability to bring on quickly another 75-unit project if we see demand for higher price product ramping up.

Although the Hawaii resort residential market is not close to being fully recovered, the positive sales activity and the prices we've been able to achieve at resort projects so far this year is encouraging.

Turning now to our commercial portfolio. Year-to-date, we've invested $191 million in 3 assets in Hawaii.

These acquisitions will have been funded with $112 million of 1031 exchange proceeds, the last of which will come from tomorrow's sale of land to Safeway on Maui, which Stan mentioned earlier. And the assumption of $79 million of mortgage debt.

As a result of these 3 acquisitions and the acquisition of control of the shops at Kukui'ula, which formerly was held in a joint venture, we've increased our Hawaii GLA by 79% just this year.

49%

What did I say? Sorry.

79%. Wishful thinking, I guess.

So we've increased our Hawaii GLA by 49%. Thanks.

In the process, we've also become the second-largest retail landlord in Hawaii behind General Growth Properties. The largest of the acquisitions is the Pearl Highlands Center, which closed in September.

We were able to purchase the center in an off-market transaction with an acquisition cap rate of 6.3%, which is a very good rate given the strength of the Hawaii retail market, where Class A properties will trade in the 5 %cap range.

Looking at the overall portfolio, occupancy for Hawaii properties was 93% in the quarter. Overall occupancy for our Mainland portfolio was 96% for the quarter, which is 3 percentage points higher than the third quarter of 2012.

NOI grew 10% in the quarter, due primarily to the addition of Waianae Mall in February, Napili Plaza in May and the Pearl Highlands Center.

Finally, wrapping up on Slide 21, before I hand it over to Paul, let me touch on agribusiness, where, as expected, operating profit in the quarter was lower than last year, due primarily to lower sugar deliveries at lower prices. In September, Matson suspended shipments of molasses from Hawaii due to a molasses spill at Honolulu Harbor.

As a result, we've had to utilize alternative methods to ship our molasses to buyers, which will result in lower margins for the fourth quarter. While we hope to identify a better long-term shipping solution, in the near term, this solution will have a modestly negative impact on agribusiness results.

Partially for this reason, but primarily because of low sugar pricing, we continue to expect that agribusiness will generate an operating loss in the fourth quarter of 2013, resulting in roughly breakeven performance for the second half of 2013.

The company is forward priced approximately 22% of the 2014 crop at prices below breakeven but above the current market. Sugar prices have increased modestly since the beginning of the third quarter from $0.191 per ton at June 28, 2013, to $0.216 at November 5.

The company can price sugar up until the time of each delivery to the buyer, which for a typical crop is spread between May and December. So given recent trends in pricing, we expect to be patient in pricing additional volumes and remain hopeful that prices will continue to trend upward between now and the time we must begin to price.

With myriad financial -- with myriad variables affecting agribusiness profitability, it's always difficult to project future earnings, but we expect to provide an update of our expectations for 2014 on our Q4 earnings call in early February.

And with that, I'd like to turn it over to Paul to talk about financial matters

Thanks, Chris. Stan covered earnings earlier, so let me start with our balance sheet on Slide 22, where we compare our balance sheet at the end of September to the balance sheet at the end of 2012.

Debt at September increased from year end due to assumed mortgage debt for Pearl Highlands, Waianae Mall and the shops at Kukui'ula. Financing for the Kahala portfolio and the cash portion of the Pearl Highlands acquisition is increasing working capital for our sugar business and investments in our various real estate projects.

Debt levels have already been reduced since quarter end with the receipt of proceeds from the sales of the Issaquah and Centennial properties; the sale of Republic Distribution, an industrial facility in Houston that closed in early October; and a completed sugar shipment.

And when the 24-acre Maui parcel sale closes tomorrow, the debt will be further reduced. Based on the receipt of all of these proceeds, our pro forma debt-to-debt plus equity ratio would be 35% and our borrowing capacity $180 million.

These pro forma numbers exclude the impact of Grace, which closed on October 1. But Grace will generally have a favorable impact on our debt capacity.

Cash flow generated by operating activities, excluding $115 million in capital expenditures for real estate development inventory, was $6 million for the first 9 months of the year. The bottom of this slide provides a reconciliation of capital expenditures shown on the cash flow statement to total capital expenditures, including amounts invested in joint venture projects and real estate developments.

Through September 2013, our gross capital investments totaled $355 million, most of which was for growth capital, for active real estate projects, joint ventures and investments, such as the $142 million reverse 1031 purchase of Pearl Highlands; $98 million invested in our Kahala Avenue portfolio; $19 million for the ONE Ala Moana investment; and $49 million for the acquisitions of Waianae Mall and Napili Plaza. For the balance of the year, we've penciled in about $30 million of capital but with the receipt of 1031 proceeds previously mentioned, our net capital expenditures for the full year should decrease approximately $59 million from September levels.

I will now turn the call over to Stan for closing remarks.

Thank you, Paul. Overall, we continue to make excellent progress in building value in our company.

So far this year, we've increased our Hawaii GLA by 49% and in the process, became the second-largest retail owner in the state. And we continue to evaluate opportunities to migrate the Mainland portfolio to Hawaii.

The 209-acre sale to Maui County that closed in September, and the 24-acre sale for a Target-anchored center, which is expected to close tomorrow. And last but not least, we acquired a great company in Grace Pacific, which will strengthen us financially and strategically over the years ahead.

That concludes our presentation this afternoon and we'd now be happy to answer your questions.

I just want to -- Chris, actually you have migrated your income portfolio dramatically to Hawaii this year. I was just wondering if you could give us some insight on how the pipeline looks for additional potential Hawaii acquisition.

Well, as you know, Sheila, it's always hard to predict because we do have a number of things that we're looking at, we've had a very active year in terms of what we've already closed and we've always got more things in the pipeline. But it's really impossible until transactions close to say with any confidence.

I would say the best thing to comment on is just the fact that we've got a number of things we're looking at and feel good about the possibility of bringing most of that but until we consummate transactions, it's really hard to project.

Okay. And then are there currently Mainland U.S.

assets on the market just so that you would be able to kind of do a rotation or are you just waiting until you identify...

So yes, that's the tricky thing because in anticipation of possibly pacing capital in Hawaii, we always want to be ready to sell when appropriate, but we don't want to sell things until we're sure. So we are sort of testing the market in certain areas and marketing some assets.

But it's both sides of the transaction has to come through. So it's hard to say whether we will sell anything on the Mainland.

We would only on the Mainland, most likely, if we find something in Hawaii.

Okay. And then, fourth quarter is going to be the first quarter with Grace Pacific in the combined reporting.

I just was wondering if you could touch on any seasonality in this business that we should be aware of this fourth quarter. Is there anything a typical, kind of unnatural [ph].

Sure, Sheila. This is George Morvis.

Due to the impact of the things like inclement weather and holidays on available paving days, Grace typically exists -- exhibits sort of seasonal heights and lows in its operating results, with the first and fourth quarters in each calendar year posting modestly lower results as compared to the second and third quarters. Based on Grace's prior results, we would anticipate approximately 20% to 25% of annual EBITDA generation occurring in each of the first and fourth calendar quarters, with 26% to 30% occurring in each of the second and third calendar quarters.

Okay, that's helpful. Last question.

We have in our fourth quarter -- we've assumed that, that transaction at Maui or next to Maui Business Park closes. Is there any update on that pending land sale?

Yes, Sheila, that will be closing tomorrow.

Just staying with Grace Pacific for a little bit, you guys closed on October 1, and it looks like Q3 performance was in line with expectation. Could you kind of give us an early read on what kind of EBITDA growth, if any, we should be expecting for 2014?

Sure. Young, this is George again.

I think in terms of the EBITDA projections, we're comfortable with the projections as previously provided on Page 69 of the S-4. And so we aren't providing any update as to those projections at this time.

Okay, great. That's helpful.

And Chris, so it sounds like sugar price have come up a little bit, you guys forward price 22% of 2014. But still kind of the price is under breakeven levels.

How much higher would the sugar price have increase to get to breakeven?

Well, Young, as we said before is that first of all, there are a lot of variables. So I've always got to caveat the answer with production is a big driver, energy prices, a lot of different variables factor into this.

But in general, think about our breakeven on sugar pricing being in the mid $0.20 range. So spot prices right now for the months that we're going to be selling sugar next year, range from high the $0.21 to the mid to high $0.22 range.

So sugar prices would probably have to increase a few cents to get us to breakeven levels. But again, a lot of the -- so, yes.

Okay. Right, okay.

And on your dispositions during the quarter, it looks like the Issaquah office property was sold at kind of a high cap rate, kind of close to 10%. How should we think about kind of the quality of that asset versus rest of your Mainland kind of office portfolio?

This is David Haverly. The Issaquah office building was a single tenant office building in Washington.

I think it's kind of unique in our overall office portfolio. It's one of the few single-tenant properties we have.

The majority of our portfolio is multi-tenant, and I think you'd see lower cap rates as it relates to that when you look at an investment where the single tenant is the real driver.

Thanks for everyone for being on the call. Just one point of clarification on the Issaquah Office Center cap rate, it was done at a 7.8% cap rate.

If you have any further questions, please call me at (808) 525-8422. Thank you.

Thank you, everyone.