Suzy Hollinger - Director of Investor Relations Stan Kuriyama - Chairman and Chief Executive Officer Chris Benjamin - President and Chief Operating Officer George Morvis - Vice President, Corporate Development Paul Ito - Chief Financial Officer David Haverly - Senior Vice President of Leasing, A&B Property.

Sheila McGrath - Evercore Ian Zaffino - Oppenheimer Young Ku - Wells Fargo Steve O'Hara - Sidoti & Company.

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Alexander & Baldwin Earnings Conference Call. My name is Stuart, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will be facilitating a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Suzy Hollinger, Director of Investor Relations. Please proceed..

Aloha, and welcome to Alexander & Baldwin's first quarter 2014 earnings call. On the call with me today are Stan Kuriyama, Chairman and CEO; Chris Benjamin, President and COO; George Morvis, Vice President, Corporate Development; and Paul Ito, CFO.

Also with us today is David Haverly, A&B Property's Senior Vice President of Leasing, who will participate in the question-and-answer portion of the call.

Before we commence, please note that statements in this 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 19 to 32 of the company's 2013 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 in fourth quarter.

In particular, we will be referring to net income opening when discussing leasing segment results and to adjusted EBITDA when discussing Grace Pacific's performance. Included in the appendix of today's presentation slides is a statement regarding our use of these non-GAAP measures and required reconciliation.

Slides from this presentation are available for download at our website, www.alexanderbaldwin.com. Slide 3 provides an agenda for today's presentation, after which we will take your questions. We'll start with Stan who will comment on results and review operational highlights..

Thank you, everyone, for joining us this afternoon. As noted in our earnings release, the company posted earnings for the first quarter of $0.68 a share.

Our Real Estate segments drove these results, with the development and sales segment posting operating profit of $52 million, principally from the sale of Maui Mall, and leasing posting $12 million of operating profit and $20 million of NOI, a 17% increase in NOI compared to the first quarter of last year.

Although performance for both Grace Pacific and our Agribusiness segment was affected by abnormally wet weather patterns, both segments were positive contributors to earnings in the quarter. One of the highlights thus far this year has been a noticeable increase in sales activity at Kukui'ula.

Since the start of the year, we've closed five sales, and another 10 sales are in escrow and under binding contracts. As you may recall, we closed 10 sales in all of 2013. Our commercial portfolio has also been performing well and the assets we acquired last year are performing at or above our expectations.

Grace Pacific had a rough first two months due to unusually poor weather conditions and subcontractor delays, but with improved weather in March and April, Grace produced results in those two months that were in line with our expectations.

Those same poor weather conditions also led to a very low sugar harvest in the quarter, which Chris will discuss in more detail later.

And finally, we are pleased to announce that we have reached an agreement with the Kauai Island Utility Cooperative to make a $27M investment in a 12 megawatt solar facility, which will be the largest solar facility in Hawaii when it's completed later this year.

This is in addition to the very successful 6 megawatt solar facility we completed on Kauai in December of 2012, which is currently the largest facility in the state. A few words now on the Hawaii economy. After four consecutive years of record growth in visitor expenditures and arrivals, we're starting to see a modest pull-back.

Visitor arrivals and expenditures for the quarter both declined by 3%, driven primarily by lower arrivals from the Western US. Increases in room rates statewide coupled with higher air fares and the strong US dollar had been the principal reasons for the decline.

In February of this year, for instance, average revenue per available room was $213, an all-time high for the state, and the average daily room rates were $251, a record high for February. Construction is also starting to ramp up with multiple high-rise projects and the $5 billion light rail project all underway.

The value of statewide construction permits rose 21% in the first quarter compared to last year and Hawaii's contracting tax base and construction jobs are expected to see considerable gains as well. Home prices on Oahu continue to rise with median prices for Oahu homes increasing 9% to $655,000 for the first quarter compared to last year.

Median prices for Oahu condominiums were up 1.5% at $345,000. Oahu retail and industrial vacancies remained low in the first quarter and rents increased compared to last year. Office vacancies and rents have remained relatively stable. The state continues to see positive trends in other economic indicators.

Unemployment at the end of March was 4.5%, the lowest monthly rate in over five years. This is a very solid accomplishment in light of the fact that Hawaii's labor force grew at the same time to a record 658,000 workers.

Bankruptcy filings for the first quarter were down 18% compared to the same period last year and the overall economic growth in the state is expected to be 2.6% for the year. And with that, I'd like to now ask Chris to update you on our Real Estate and Ag operations..

Thanks, Stan. It has been an incredibly busy year of deal-making in 2013, but A&B Property's team has been equally busy so far in 2014, integrating our new holdings, advancing our pipeline of development projects and continuing the search for attractive investment opportunities.

I'm pleased to have good progress to report on, starting with Kukui'ula, where as Stan indicated sales activity has really picked up. Before I walk through Kukui'ula sales, it's useful to recap the range of product offerings that I'll be referring to within the project.

We've been successful over the past couple of years in broadening the range of product and price points at Kukui'ula, which has helped fuel our recent sales momentum.

This slide summarizes our current offerings for your reference, including lots of built product that ranges from our new club bungalow that starts as well as $1.2 million for one bedroom all the way up to an $8 million spec home soon to be completed and offered for sale.

We continue to work with home builders to expand our product offerings and available inventory. As Stan indicated, we've closed five units so far this year at Kukui'ula, a club bungalow for $2.8 million, a club cottage for $2.7 million and three custom home lots at an average price of $1.5 million each or $74 per square foot of land.

In addition to these type closings, we have 10 additional binding contracts, two for cottages that are scheduled for closing this year at an average price of $2.7 million or over $1,600 per square foot, and eight contracts for club villas and club bungalows that are likely to close in 2015.

That's a total of 15 closings or binding contracts since the 1st of the year. As I mentioned, sales contracts have been signed for six club villas, which is the entire initial release of that product.

The club villas project is being developed in partnership with East West Partners and has been received extremely well, with this space selling out in just a few months. The six units have been sold at an average price of $4.5 million or $1,700 per square foot.

And we've had a total of three club bungalow sales, a one-bedroom, a two-bedroom and a three-bedroom, also in a short time period since the release of that product in December.

The three-bedroom unit pictured here closed in the first quarter and the other two are under binding contracts with delivery and closing expected in 2015, though actual timing will depend on when we hit our presale target. The average price for the three club bungalows sold to date is $2.2 million, nearly $1,900 per square foot.

So again, we're quite pleased by the sales progress year-to-date at Kukui'ula and we have some attractive inventory available for the summer selling season. Moving now to Oahu, as you can see on slide 17, construction has significantly advanced at our 340-unit Waihonua high-rise condo project. Last week, we put the top floor of the tower.

Construction is on budget and on schedule for completion in late 2014 with closings beginning in January 2015. At the year by collection high-rise project, sales of the 397-unit tower are going well, with 235 tower units sold under binding contract at an average price of $775 per square foot.

In light of the success of the tower sales, we're gearing up to release 54 loft units for sale this summer. With our regulatory proceedings behind us, we'll begin to line up our capital partners, secure our project financing, complete our drawings and firm up our construction bids, all with the goal of breaking ground by the end of the year.

At our Kahala Avenue portfolio on Oahu, two lot sales closed in April, including a 25,000 square foot ocean front lot for $350 per square foot and the 13,500 square foot lot on the mountain side of the street for $180 per square foot, bringing the total lots sold to date to 11 and total gross revenue to $55.3 million so far.

The pace of sales has moderated, as we set higher price points for the remaining homes and lots. But the attractiveness of the lots continues to drive interest. At Wailea, we continue to advance our residential condominium project. And in April, we had our first custom home lot sale since the downturn.

Also, as I said last quarter, we actively evaluate a range of monetization strategies for our 170 acres of developable land in the resort, including bulk parcel sales to interested third parties. So I'm pleased to announce today that we've entered into a binding contract to sell a 6.4-acre hotel zone Wailea parcel.

As this photograph shows, the parcel is off the beach. It is targeted for development of a hotel in the near term with closing subject only to securing final subdivision approval. And of course, all on Mali, the big earnings driver in the quarter was the sale of our Maui Mall shopping center which closed in January.

Turning now to our commercial portfolio on Slide 21, our portfolio produced $19.6 million of NOI in the first quarter, 17.4% more than the first quarter of last year. Although we expect to late of quarterly growth to moderate over the course of the year, we are increasing our NOI growth guidance for 2014 and 8% to 12% to 10% to 14%.

78% of total portfolio NOI for the quarter came from Hawaii assets, confirmation of the significant progress we've made in migrating the portfolio to Hawaii. As a reminder, the figure for last year, the percentage of NOI from Hawaii a year ago was just 47%.

We believe this migration has resulted in a substantial overall improvement in the quality of our portfolio. The 4.9% sales cap rate for the Maui Mall is indicative of the value of quality of Hawaii real estate. And last, but not least, on the real estate front, our recent Hawaii acquisitions are performing well.

We're off to a good start in Kailua, where we've worked through the initial integration of the portfolio over the past 120 days. Financial results in Kailua so far are in line with our projections and we're achieving targeted rent renewal increases.

Tenant and community response has been positive and we expect favorable results for the balance of the year. And finally on Slide 24, touching on Agribusiness, operating profit for the first quarter of 2014 was $3 million, but this is not indicative of either the full year financial outlook or the underlying operating performance of the business.

Fortunately, sugar prices have improved modestly since the start of the year and we've now forward price to a little over half the 2014 crop at levels higher than we were projecting just a few months ago.

However, extremely wet weather conditions disrupted the start of the sugar harvest, resulting in only 1,400 tons of sugar production in the first quarter compared to 8,200 tons in last year's first quarter. The lower production reduced the amount of loss recorded via a sugar inventory valuation adjustment in the first quarter.

But as we're produce and sell more raw sugar, recognized losses will increase. There are still a lot of moving parts in our financial projections for Agribusiness as we try to make up for the lost production, but our prior guidance of the loss for the year remains unchanged.

Now let me turn it over to George to discuss Grace and our new solar investment..

Thanks, Chris, and good afternoon, everyone.

Grace Pacific's $6.9 million in first quarter adjusted EBITDA or earnings before interest, taxes, depreciation and amortization was lower than projected due to adverse weather conditions and subcontractor delays that reduced the number of available paving crew work days by 25% in the months of January and February.

Improved weather conditions in March and April, however, produced adjusted EBITDA that was more in line with our expectations.

While it will be difficult for Grace to make up the shortfall from projected first quarter EBITDA over the balance of 2014, the longer-term outlook for Grace remains positive, with new contract awards increasing Grace's consolidated backlog to a record $257.4 million at March 31, 2014.

That's 18% higher than at year-end 2013 and 30% higher than March 31, 2013. In addition, nearly all of the city and county of Honolulu, $120 million paving budget for the 2014 fiscal year remains to be bid out.

Turning to our latest solar investment on Slide 28, we're pleased to have reached an agreement with Kauai Island Utility Cooperative to serve as the sole third-party equity investor for the coop's 12 megawatt photovoltaic generation facility in (inaudible) Kauai.

Construction, which as you can see from this photo, is well underway, is expected to be completed in the third quarter of this year. Once in service, the facility will generate sufficient clean energy to meet up our 5% of Kauai's annual electric consumption needs.

And this investment in the project, which will be approximately $27 million, is expected to provide attractive risk-adjusted returns, principally through the utilization of available solar tax credits. This investment reinforces our long-term commitment to generating clean renewable energy for island communities.

With that, I'd like to turn it over to Paul Ito to talk about financial matters.

Paul?.

Thank you, George. Stan covered earnings and the primary drivers earlier. So let me start with our balance sheet on Slide 29, where we compare our balance sheet at the end of March to the balance sheet at the end of 2013.

Debt decreased from year-end due to repayment of $16 million bridge loan for the Kailua portfolio acquisition, but was partially offset by investments in working capital principally related to the production of sugar and continued investment into our real estate developments.

As of March 31, 2014, our available borrowing capacity totaled $208 million and debt to debt plus equity ratio was reduced by 2 percentage points from year-end to 36%.

Turning to the next slide, through March 2014, our growth capital investments totaled $21 million, most of which was for growth capital for active real estate projects, joint ventures and Grace.

Although it's difficult to predict the size and timing of the placement of additional capital, we're continuing with our evaluation of a number of investment opportunities. The solar farm investment George mentioned is expected to be made in July. This will result in a full year effective tax rate below the statutory rate.

For book purposes, however, these cash tax benefits will be partially offset by non-cash reductions to our investment basis as the tax benefits are realized. We'll have more details about the financial impact of the solar farm investment on our next call. With that, I'll now turn the call over to Stan for closing remarks..

Thank you, Paul. Although it's been a relatively quiet quarter in terms of announcements, the company is performing well. We're particularly pleased by the significant increase in sales activity at Kukui'ula and condo sales on Oahu remained strong.

Our commercial portfolio is performing at or above expectations and the integration of our 2013 acquisition is proceeding smoothly. As a result, we've adjusted our guidance on NOI growth for the year. January and February results for Grace were challenged by weather and subcontractor delays.

However, more normalized weather patterns in March and April resulted in earnings that are in line with our expectations. The long-term outlook for Grace remains positive, with the backlog continuing to grow with new contract awards. In Agribusiness, we're encouraged by the recent modest increase in sugar prices.

But due to weather-related impacts on production, full-year results are expected to be consistent with our previous guidance. Finally, our $27 million investment in the new solar farm on Kauai is a solid financial investment for the company, just as our investment in the previous solar farm was.

But equally important, it's also a financial and environmental win for the community, with lower electricity cost for Kauai's residents being generated from clean renewable energy. That concludes our presentation this afternoon. And we'll now be happy to answer your questions..

(Operator Instructions) And our first question comes from the line of Sheila McGrath with Evercore..

Chris or Stan, I was wondering if you could talk about the collection and the sales velocity there.

When did you start selling in the tower and how did the velocity compare to the sell-out at Waihonua?.

I believe we kicked up sales in the late summer last year. And so it's been a little over six months since we began sales there. We're pleased with the pace of sales. There was a period of a bit of slowdown. There were some other projects that were pending release.

And I think some potential buyers were waiting to see what happened with those projects, price points and the like. And just in the last couple of weeks, we've had a nice pickup in sales. The summer the uncertainty about what else was out there was resolved. And so we're very pleased with where we are today.

We're looking forward to releasing the mid-rise product early this summer. And I think overall, we're encouraged and we think the mid-rise and town home products will do well. And we expect to hit our presale requirement..

So if you started construction later this year, would that be 2016 or '17 delivery?.

My development team is probably listening in and they're not going to like it if I say 2016. But certainly that would be our goal, about a two-year construction timeline. It's just going to depend on whether we're able to break ground late this year or early next year.

And then so it's going to be probably another project that will potentially straddle that kind of timeframe. I think officially, we're looking at early 2017, but we'll do everything we can to get that in, in 2016..

And then on Kukui'ula, it's great news to have seen the turn in activity there. I was just wondering could you discuss the profile of buyer and what you think is kind of driving the turn, is it the economy or is it the built product or just give us a little insight there..

Yeah, it's hard to generalize, but I would say certainly the environment, whether it's the economy or the stock market, I don't know what's making people more confident, but there's certainly a lot more confidence I think in the buyers themselves.

I also think that we've got momentum at the project that's giving people more confidence just in the project itself. There are lot more homes being built. For some people, they want to buy built product. But as we mentioned in previous quarter, we've been selling a lot more lots as well.

So it's not just the built product, but I think it's the fact that the homes are going up and people are seeing the momentum and they're more convinced than ever that Kukui'ula is not only a great place, but it's a long-term viable proposition.

And the other thing that's happening and let's get close to the buyer profile, we're having a lot more of our members bringing in friends and family to buy in the project. And that is a nice thing, because you're getting more and more people bringing again friends and family and which helps quite a bit. So we're still getting walk-ins.

We're still getting good results from a lot of our advertising activity, but we're also getting more, what I call, affinity buyers that have friends and family in the project. So it's kind of a little bit of everything..

And it continues to be kind of a West Coast buyer profile?.

Yeah, in terms of that, West Coast of the US, West Coast of Canada and fairly similar in terms of geographic, but we're certainly not in the Asian buyer, any Asian national buyers..

Just one question on Grace Pacific, could you just remind us again what the share lock-up? Your shares were particularly weak and I was just wondering if perhaps it had something to do with a lock-up expiring?.

In terms of the lock-up, it was a six month lock-up and it did expire on April 1. Certainly as it relates to the two individuals who would be Section 16 insiders, we don't have any evidence of their selling and we would know that. There is a third individual involved. I don't have any insight as to whether he is selling or not.

But in terms of what we're seeing in the market, we don't think that that's a primary driving cause of what's happening with the stock..

Our next question comes from the line of Ian Zaffino from Oppenheimer..

Question will be on the Kauai solar facility.

Do you have any contracts with the end customer, or is this going to be complete merchant production?.

In terms of this facility, the contract is between the entity that owns the facility, which is basically an entity that's owned by Kauai Island Utility Cooperative and us as the investor, and that entity has a contract with Kauai Island Utility Cooperative to provide the energy. So it's basically a utility customer.

So our partners, KIUC and our customer is also KIUC..

And can you tell us how long that contract lasts for?.

That particular contract is a 20-year PPA..

And then on Grace, is there an opportunity to maybe bring on a little bit more headcount to complete the backlog or is that not just feasible there?.

Well, in terms of the backlog, the primary reason that it's going to be challenging for us to make up is that these are jobs that are scheduled months in advance based upon the expected timing of the work and crew's ability to perform the work.

And it's sometimes impractical to simply just add another crew to an existing job if you have encountered weather delays or are behind a little bit.

The real manner in which we can catch up is for the government agencies in this case, that generally are overseeing these contracts to issue notices to proceed on the contracts at a faster rate than we originally anticipated or planned. And so far this year, we just haven't seen that happen..

And then the final question would be on just sort of how are you viewing Hawaiian economies in general and I know that we saw the pickup initially on Oahu and we've always talked about or I guess that's always been our understanding that the outer islands recover later.

Is sort of the sales trend that you're seeing in Kukui'ula indicative of like an outer island recovery, or is that just something specific going on with that project?.

Essentially I wouldn't extrapolate the recent success of Kukui'ula to the broader Kauai economy..

I think as you know, there are two very distinct residential markets here, the local primary housing market and then the resort residential market. And the local housing market is doing extremely well. I think we're sort of at the upturn of economic cycle here. And so we expect it to continue to do well for a few years.

We had not seen that similar recovery in the resort residential, which is why Kukui'ula is so particularly pleasing for us that we finally seemed to have turned the corner this year with sales. But yeah, it still lags the primary housing market and as Chris said, yeah, it can extrapolate too much into the Kukui'ula results..

Our next question comes from the line of Young Ku with Wells Fargo..

Maybe this question is for Chris. You guys increased the NOI growth forecast for 2014.

How much of that is related to your new investment opportunities versus how much is same-store?.

It's pretty much the same answer as last quarter. We didn't break it down, but I think we said that vast majority of it was the new investment activity.

David, do you have any update on that?.

The same-store growth is passing 9% of the total NOI growth. So you can say it's a part of it. But the real driving factor is the acquisitions we've had..

So you're saying that the investment opportunity for new properties has increased?.

The same-store growth is 9%, but overall growth is 17%. So by far the biggest driver of the 17% growth is the new acquisition activity..

Are you talking about opportunities for pending acquisitions as well?.

Yeah, I mean because you guys increased the growth forecast and I wondered if it has changed or hasn't changed too much. So I would think that it would be mostly due to kind of new investments maybe..

Well, first of all, the outlook of 10% to 14% for the full year is based on the existing portfolio. It makes no assumptions about any new acquisition activity.

Okay?.

And maybe this is for Paul.

The $21 million of CapEx spent in Q1, where is that run-through in your cash flow statement?.

It's really run through two sections of the cash flow depending on the nature. So for typical acquisitions like maintenance CapEx, commercial property CapEx, that's run through the investing section of the cash flow. Any CapEx related to real estate development inventory are in the operating section of the cash flow..

The cash flow from operating activities in Q1 was negative $21 million. I would have thought it would have been pretty close to positive. Just wondering if you can help me reconcile what the biggest driver of that was..

The biggest driver, I would say, is typically in the first quarter of the year where we're not selling sugar. We're putting money into harvesting, planting crops, et cetera. And that working capital need is pretty large, pretty substantial in excess of $20 million. So that would be the biggest driver of the negative in the quarter.

But as I mentioned, we also have our real estate development CapEx in that line as well. And I think we had in the range of $5 million to $10 million this quarter..

Paul, what's the cash position as it stands today?.

Well, at the end of the quarter, I think we're about $2 million..

And so I would take that remaining CapEx with low [ph] CEB put on the line of credit, right?.

I apologize. The cash at the end of the quarter was about $5.5 million..

As the year goes on and we go from not selling much sugar in the first quarter to selling sugar more in the second, third and fourth quarters, that does generate cash flow. And so that temporary working capital imbalance in the sugar or the Agribusiness segment of the business tends to work itself out over the course of the year.

And so we would expect to have a different and more seasonal operating cash flow that traditionally has been negative in the first quarter for that line of business and positive throughout the remainder of the year..

Our next question comes from the line of Steve O'Hara from Sidoti & Company..

In terms of the opportunity outlook versus where you were last year, where do you valuations? Do you see them as attractive, less attractive? And I guess maybe can you talk about where you think we are in the cycle in general?.

Steve, I think you have to look at the different market segments. But generally, if you look at where we are in the cycle and compare it to the two previous cycles we've had in the last 30 years, I would say that you're sort of at the front-third of the upcycle.

So if you compare it to at least historical cycles, you probably have another four or five years of that upcycle left before it begins to moderate. In terms of valuations, I think valuations here are consistent with what we saw last year. So I think you still have low cap rates that are driving strong values in our real estate.

And we continue to look for opportunities, as we mentioned. I mean part of our strategy is to continue to migrate the remaining Mainland assets to Hawaii. So we continue to search for good opportunities here. We're optimistic that we're going to be able to secure some during the course of the year..

And then in terms of maybe asset value there for the Mainland portfolio, what's the market value of that or what type of transactions are possible just from that basis? And then maybe if you could talk about how much of the leasing portfolio comes up for renewal this year in terms of the leasing rates and next year? Is this a heavier than normal year or a couple of years here?.

I think we'd prefer leave it to you to assess what's the value of the portfolio, as I think we provide information on the book value of the portfolio. But there is no doubt that there is still a significant amount of value in our real estate on the Mainland, even though we moved a big chunk of it back.

So we do have, if you will, resource there that we can move back when we find the right opportunity. And as Stan said, we are actively looking at opportunities in Hawaii and hope to be able to continue that migration. And I think we have asset values on the Mainland that we could move here for the right deal..

Steve, as I recall, if I recall correctly, I think the book value of our Mainland properties was about $240 million..

Steve, in terms of rollover, we have approximately 8% of the GLA rolling over in 2014 and that was pretty typical to 2013. Going forward basis, we do see some increases in rollover for the next two years getting up to 15% to 18% range..

At this time, we have no further questions in the queue. So that will end the question-and-answer portion of today's call, ladies and gentlemen. Now I'd like to turn the call back over to Suzy Hollinger for closing remarks..

Hi, everyone. Thanks for being on the call today. If you have any questions, you can call me at area code 808-525-8422. Thanks..

Thank you, everyone..

Ladies and gentlemen, that concludes today's conference. Thank you all for your participation. You may all now disconnect. Have a wonderful day..