Suzy Hollinger - Director, IR Stan Kuriyama - CEO Chris Benjamin - President and COO George Morvis - VP, Corporate Development Paul Ito - CFO David Haverly - SVP of Leasing, A&B Property.

Sheila McGrath - Evercore Partners Wilkes Graham - Compass Point Research Steve O'Hara - Sidoti & Company Brendan Maiorana - Wells Fargo Securities.

Good afternoon, ladies and gentlemen and welcome to the Fourth Quarter 2014 Alexander & Baldwin Operating Results Conference Call. My name is Chris and I will be your conference moderator for today. At this time, all participants are in listen-only mode. Later, we will conduct the question-and-answer session.

[Operator instructions] As a reminder, this conference is being recorded for replay purposes. And at this time, I would now like to turn the conference over to your host for today, Ms. Suzy Hollinger, Director of Investor Relations. Ma’am, you may proceed..

Thank you, Chris. Aloha, and welcome to Alexander & Baldwin's fourth quarter and full year 2014 operating results 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, Senior Vice President and 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 presentation that are not historical facts, including statements regarding the anticipated consequences of the Company’s review of its deferred income tax accounts, 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 relevant forward-looking statements.

These forward-looking statements are not guarantees of future performance. Additional factors that could affect the forward-looking statements in this presentation include the impact of any required adjustment of the Company's financial statements relating to the Company's review of its deferred income tax accounts.

This presentation should be read in conjunction with pages 19-32 of Alexander & Baldwin, Inc.’s 2013 Form 10-K and other filings with the SEC through the date of this presentation, which identify important risk factors that could affect the forward-looking statements in this presentation.

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 particular, we will be referring to operating profit before subtracting amounts related to discontinuing operations.

And throughout the presentation, we will refer to this metric as operating results. We will also be referring to NOI when discussing leasing segment results and EBITDA when discussing the performance of the Materials & Construction segment.

Included in the appendix of today's live 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 Web site, 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 highlights..

Thank you, Suzanne. Good afternoon everyone. Operating results for the fourth quarter of 2014 were $26.5 million, bringing operating results for the full year to $147 million, a 45% improvement over 2013.

Significantly better performance from our Real Estate segments, principally from Real Estate sales, combined with a full year of earnings in Grace Pacific, more than offset Agrobusiness operating losses and drove the improved performance in 2014. As noted in our release, the Company will be filing to extend the date for the filing of our 2014 10-K.

As Paul will describe in more detail later, we are nearly complete with our review of our deferred income tax accounts and need additional time to finalize our 10-K. Any adjustments resulting from this review are not expected to be material and will not affect pre-tax operating income or cash taxes.

Turning to recent highlights, increased sales activity across our development projects continues to be the main headline. In the fourth quarter, we closed 12 units at Waihonua and by the end of January all 340 units were closed and delivered to owners.

Buyer feedback has been highly positive and is driving additional interest in our collection project where we now have sold 93% of the 450 units that we have released, 88% under binding contract.

Four sales were closed at Kukui'ula in the fourth quarter bringing total sales closed for the full year to 14 with an additional 10 binding contracts scheduled to close this year.

Sales at Kukui'ula have nearly depleted available built inventory and as a result we are expanding our home construction program which Chris will be discussing in a few minutes. At Maui Business Park, over the last three months we've closed four sales totaling 11 acres at an average price of $2 million an acre.

We've another 13 acres under contract at various stages of buyer due diligence. Maui Business Park is an important long-term project for us and we're very pleased with the pricing and sales volume we've achieved there.

Leasing continues to perform well posting $48 million of operating profit in 2014 and generating $77 million of NOI, a 12% increase over 2013. In December, we acquired the 204,000 square foot Kakaako Commerce Center in light industrial asset near downtown Honolulu which has excellent long-term prospects.

The acquisition will be funded primarily with proceeds from earlier 1031 sales and the future sale of a couple of Mainland properties. When these Mainland sales are completed, about 80% of our total portfolio NOI will be derived from our Hawaii assets.

Finally, we had a strong fourth quarter in our materials and construction segment where we have generated over $10 million of EBITDA compared to $7 million last year due to increased tons paved and material sales. Improvement in Hawaii's economy is providing a positive operating environment for our businesses.

Hawaii's tourism industry posted a third consecutive record year of arrivals and expenditures and is projected to extend that streak in 2015. The hotel industry also experienced record high annual average daily rates and revenue per available room. Construction continues its upward trend.

The value of state-wide private sector construction permits grew 22% in 2014 compared to last year. Tourism and the strengthening construction sector are driving improved performance across the broader Hawaii economy.

Unemployment for example, at the end of the year was 4% compared to 4.7% last year which is notable given that Hawaii's labor force grew 3% to a record 672,000 employees in December compared to last December and is the highest in the state's history. Bankruptcy filings were down 18% compared to the prior year and foreclosures declined by 39%.

Debit and credit card same-store sales activity increased 6% for the year. 2014 also saw record medium sales prices for Oahu homes and condos. For the year the median resale price for an Oahu single-family home was $675,000 and $350,000 for condominium. Low levels of available inventory are supporting these record prices.

At the end of December, housing supply stood at 2.6 months of available inventory for single-family homes and three months for condos. Average days on market also were very low at 23 days for homes and 22 days for condos. Oahu commercial real-estate markets are also performing well.

Retail asking rents climbed 9% in 2014 and vacancy remained low at 4.1%. Vacancy for industrial space was 2.1% and asking rents increased 11% compared to last year, although office occupancy slipped slightly in 2014 rents improved by 6%. And with that, I'd like to now ask Chris to update you on our real-estate and agribusiness segments..

Thank you, Stan and good afternoon to everyone on the call. I'm going start by providing additional color on how we're benefiting from the very strong real-estate market Stan just summarized.

I'll include an update on our advancing development projects a number of projects that we're moving to the pipeline, the increased NOI from our commercial portfolio and how we're targeting growth opportunities for real-estate in 2015. I'll wrap-up with an update and outlook on agribusiness.

First of all with Waihonua we could not be happier with our results at Waihonua. We delivered a superb product that is enhancing A&B's reputation for producing high quality, high value residential real-estate and this is only going to increase interest in the collection in any future projects we might develop.

Waihonua was completed on-time and within budget allowing us to close 12 units in December and the remaining 328 units in January and I can tell you that the buyer reception has been tremendous.

Howard Hughes Corporation’s ONE Ala Moana condominium project also was completed in the fourth quarter and A&B received its investment returns from the project in December. Construction at The Collection is moving along on schedule and we continue to anticipate delivery of units in late 2016.

As Stan indicated, we’ve already presold 93% of the 450 units we’ve released for sale so far, 88% of those binding and at an average price of $770 per square foot and we still have more than a year and a half to go before delivery of the unit, so we’re feeling great about the project and clearly the market is as well.

As I reported last quarter, we finalized our capital stack, retaining 75% equity position in the project with the remaining 25% from equity partners. However, given the timing of our capital contributions, we’re anticipating that we will receive approximately 85% to 90% of the economic returns from the project.

At our Kahala Avenue portfolio on Oahu, three properties closed in the fourth quarter, continuing the strong pace of sales that we’ve experienced over the last year and a half.

Those sales included two lots that comprised of 1.5 acre street-to-beach parcel for $19.4 million, bringing the total units sold to-date to 16 and total gross revenues to 83 million.

Three of the 14 remaining units are now in Escrow under binding contracts that includes a 27,000 square foot mountain site parcel for $4.6 million and a two lot street-to-beach parcel for $15.2 million.

Of the 11 remaining lots, after those two transactions closed, five of the remaining 11 lots will represent 74% of the portfolio’s remaining square footage and those are the higher value oceanfront properties. So, 74% of the remaining land area is the higher value oceanfront land.

Moving onto Kukui'ula, after the advancing home construction at the project with 26 homes planned for construction in 2015 and 20 in 2016, we’re expanding our program with a wide range of price points, styles and locations within the project.

We’ll continue to build custom homes that we expect to sell in the $2.5 million to $8 million price range but also are planning an attached condominium project that will allow us to market homes at a lower price point. This wider range of available product will help us accelerate home and lot sales in 2015 and beyond.

While the pace of sales did slow somewhat in the fourth quarter, impart due to the lack of built product, we’ve had four new sales at the project in the first two months of 2015, including two binding sales, a lot and a cottage, and two non-binding sales of a lot and a villas unit, the first of the second phase of villas that we recently released.

And those are in Escrow. At Maui Stan summarized the success of Maui Business Park and we feel the projects momentum is only going to improve with the opening this week of Maui’s first target store.

In addition to target, Maui Business Park will soon be home to several tenants that recently bought parcels from A&B, including American Savings Bank, BMW, Servco Lexus and Servco Subaru, as well as the County of Maui.

We’re also happy to report that some of the sales interest as we’ve mentioned has translated into contracts, including a binding contract for a 2.4 acre parcel that’s scheduled to close in the second quarter. In November, we received the last regulatory approval for our Keala 'O Wailea project on a 7 acre parcel in Wailea.

The multi-family project, which is planned for 70 units and 7 low rise buildings, will be developed in partnership with local builder Armstrong Builders. We’ve previously partnered with Armstrong at our successful Kai Lani and Kai Malu projects. Presales are expected to commence this month and unit prices will range from $700,000 to $1.8 million.

In addition to these and other previously announced projects that we’re advancing, we continue to add properties to our development pipeline and our commercial portfolio.

We had a relatively quiet year on this front in 2014 focusing on advancing our development projects and integrating the significant number of commercial properties that we had acquired in 2013.

But throughout the year, we were actively underwriting a number of development and commercial properties and are increasingly optimistic that we’ll be successful in expanding our Hawaii footprint in 2015. Turning now to our commercial portfolio on Slide 18, our full year 2014 NOI growth rate was 12%.

Most of the growth came from expansion of the portfolio but improved same-store performance at our Mainland office properties also contributed. We expect further NOI growth in 2015 of approximately 6% to 8% due to the projected improvements in portfolio occupancy and retail rent growth.

Not only has NOI grown but the quality of that income has improved considerably with the attractive Hawaii retail and ground lease assets we added to the portfolio in 2013. Retail now comprises 60% of our Hawaii portfolio GLA and across the state retail properties have been trading at cap rates of between 4% and 6%.

Ground leases which are among the most secure sources of rental income in our portfolio generated $12.2 million of NOI in 2014 or about 16% of total NOI. And as we have previously mentioned one of the attractive features of our ground lease portfolio is the potential to acquire overtime the ground leases interest in the property.

This is usually prompted by a lease rent renegotiation or near-term lease expiration. Right now we're finalizing an agreement to acquire an 8 acre property in our Kailua portfolio which has improved with 102,000 square foot Safeway-Anchored neighborhood retail center.

The opportunity to acquire the ground leases interest in this property arose following a rent reset.

With a closing date targeted for March the property would be acquired 9 years prior to the lease termination date thereby accelerating the financial benefits associated with ownership of the improvements and allowing us to directly manage the center for long-term success.

By the end of May we expect to have completed additional Mainland asset sales to fund the reverse 1031 exchange on our Kakaako Commerce Center investment which Stan talked about.

As I mentioned, we continue to see good Hawaii properties that will allow us to further migrate our Mainland portfolio to Hawaii and we have a few prospects currently under consideration.

Finally turning to agribusiness on Slide 21, although a combination of improved production and sugar prices allowed the company to achieve cumulative agribusiness operating profit of $60 million from 2010 to 2013, the segment incurred an $11.8 million operating loss in 2014 due primarily to low sugar prices and extremely wet weather conditions that led to a significant reduction in production.

Prospects for this segment in 2015 have improved modestly as pricing has increased compared to last year. To-date we have priced a little more than a quarter of our 2015 crop at prices higher than 2014.

If we were able to achieve similar pricing levels for the remainder of the crop and reach our full year production targets, we would generate a lower level of losses than we incurred in 2014. However it's too early to predict production and pricing and we will provide updates as the year progresses.

With that, let me turn the call over to George to discuss our materials and construction results..

Thanks, Chris and good afternoon everyone. Our materials and construction segment had a strong fourth quarter reporting $8.6 million of operating profit and $10.4 million of earnings before interest, taxes, depreciation and amortization or EBITDA compared to $2.9 million of operating profit and $6.8 million of EBITDA for the fourth quarter of 2013.

The improvement in results was primarily due to increasing paving volumes in construction material sales. For the year, the segment's operating profit was $25.9 million and EBITDA was $38.0 million.

The segment began to see increases in material and construction and traffic control related product sales as state-wide construction activity grew over the year. Consolidated backlog at the end of December was $219 million leveled with our backlog at the end of 2013.

As we have previously reported, the city and county of Honolulu's annual paving budget was approved at $120 million for the 2013-'14 fiscal year and $132 million for 2014-'15.

Performance in 2015 will largely be dictated by the percentage of the backlog we can complete in the coming year by the amount of city bids issued, won and completed by Grace and to a lesser degree by prevailing weather conditions.

The segment's longer-term prospects remain very positive, particularly as and when construction commences on major residential projects planned for Honolulu Central and Leeward suburbs in the next several years. With that, I will turn it over to Paul to talk about financial matters.

Paul?.

Thank you, George. As Stan mentioned, we are nearing completion of our review of our deferred income tax accounts. In the course of preparing the Company's financial statements for the year ended December 31, 2014 we determined that adjustments related to certain deferred tax accounts would be required.

Adjustments resulting from this review are not expected to be material, do not affect pretax operating income and would not require any cash payment of taxes.

I would also note that the issues under review do not relate to operations and are unrelated to the application of tax law to pass transactions under Sections 1031 and 1033 of the internal revenue code.

In an abundance of caution, the Company will be filing for an extension of its 10-K filing date as we place the greatest importance on the integrity and accuracy of our financial statements.

Moving onto Slide 26, debt increased modestly in 2014 as compared to the end of 2013 due to the January 2014 repayment of $60 million bridge loan for the Kailua portfolio acquisition partially offset by continued investment in our real-estate development projects.

At year-end, our debt to debt plus equity ratio was 37% slightly lower than at the end of 2013. In December, we refinanced a $59 million loan we assumed with the Pearl Highlands Center acquisition, the original loan bore interest at 5.89% and was set to mature in 2016.

Due to the refinance, we lowered the rate to 4.15% extended the term to 2024 and increased our unsecured debt capacity by nearly $34 million. Turning to Slide 28, we placed $157 million of investment capital in 2014 the majority of which was for active real-estate projects and joint ventures.

Our solar farm investment on Kauai and the Kakaako Commerce Center acquisition in December another $27 million was for maintenance capital.

In 2015, we're targeting $176 million for investment capital expenditures including $126 million for development projects and undesignated investment in new projects a $50 million placeholder for commercial property acquisitions which we anticipate will be funded through 1031 exchanges and $29 million of maintenance capital.

As in past years our budget includes capital for opportunistic investments, the size and timing of which is of course unpredictable. With that, let me turn it over to Stan for closing remarks..

Thank you, Paul. 2014 was a solid financial year for the Company as we began to realize value from past strategic investments.

We expect to see continued good sales results in 2015 at some of our key projects and we will continue to build our development pipeline to take advantage of the current upturn in the Hawaii real estate cycle and in laying the ground work for the next cycle.

Much of 2014 was spent on integrating into the Company the major acquisitions we made the year before and we therefore expect 2015 to be a more active year of new investments in Hawaii. Our commercial portfolio was a solid reliable performer in 2014 and we expect growth to continue in 2015.

Our migration of our Mainland properties to Hawaii remains a priority and the pace of that migration will be dictated by the pace at which we are able to secure superior replacement properties in Hawaii. Abnormally bad weather in 2014 had a major impact on sugar production resulting in the higher than anticipated Agrobusiness loss for the year.

While the quarter of the crop we have priced for 2015 exceeds prices we received in 2014, it is far too early in the year to reliably predict 2015 results. We will update you on our forecast as we begin to see our production and pricing results throughout the year.

Our Materials & Construction segment ended the year positively with over $10 million of EBITDA for the quarter and $38 million for the year. Grace has a robust backlog of work and remains well positioned to capitalize over the long run on the further growth in Hawaii’s economy and real estate markets.

In short we continue to seek investments to enhance our financial profile and provide attractive returns to our shareholders and our strong financial position allows us to continue to invest for growth in 2015 and beyond. And that concludes our presentation this afternoon. And we’d now be happy to answer your questions..

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from the line of Sheila McGrath with Evercore. You may proceed..

My first question is related to the kind of 10-K delay. As we filled out our model, the only missing variable was the income tax expense.

And I am -- if we’re trying to kind of arrive at where potentially the bottom-line would be should we -- would it be appropriate for us to assume that at the top-end the corporate tax rate would be 37.5% or it’s more likely something lower than that because of the solar investments? Is that a reasonable range for the tax rate for the quarter?.

Yes hi Sheila, this is Paul. Yes given the Kauai solar investment for the full year effective tax rate expected from continuing operations we are projecting somewhere in the low single-digits..

Okay, that’s on the full year?.

On the full year, correct..

And is this component missing -- is the question related to the tax treatment of the solar investment is that the question that’s delaying things?.

No, no it’s unrelated to the solar tax investment..

Okay..

So this is related to our deferred tax assets and liabilities. And again we don’t expect any material adjustment to result from that..

And then on the Kailua shopping center, that sounded like a very interesting transaction.

I was wondering if you could give us a little bit more detail on that in terms of pricing and also, are you able to use Mainland asset sales to fund that acquisition of the improvements there?.

Thanks Sheila. This is Chris. And yes we’re excited about the transaction. I can’t give a lot more detail right now because we haven’t closed on the transaction but once we have I think probably next quarter we could provide more detail. We’re not able to use 1031 proceeds for that acquisition for esoteric reasons that are escaping me right now.

But David do you want to jump in on that?.

Sure Chris the reason we can’t use 1031 funds as relates to the term of the lease 1031 requirements require the leasehold interest to have at least 10 years remaining of term for us to be able to use 1031 funds and unfortunately this property has nine years of term remaining..

But Sheila this is not a large investment, so it wouldn’t be….

Okay….

I will say that it’s attractive to us we’ve talked in the past about the fact these ground leases do -- can potentially present these kinds of opportunities obviously our first objective is always to renew leases or to achieve the rent step ups, but where that's not possible it can create opportunities like this which actually I think ends up being a win-win for both the seller and us as well as the community because we'll be able to improve the center because we're getting it back nine years earlier than we otherwise would have..

Just real quick on the ONE Ala Moana you got repaid on that how is that reflected in the income statement or where does that come through?.

Yes Sheila the return of the investment will come through in the other income expense section of the income statement..

Okay, thank you..

Now just to clarify, that was the GAAP income statement, it will show up in the segment results for development sales in the segment section of the year 10-K..

And our next question comes from the line of Wilkes Graham. You may proceed..

Just a couple of questions one Chris on Kukui'ula correct if I'm wrong but I think there were 10 lot sales in 2013-'14 last year, we entered this year with 10 under contract, there's 26 homes under construction.

I'm curious if any of those homes that are under construction could be sold this year or is the assumption that whatever is under construction this year would lead to 2016 sales?.

No thanks for the question Wilkes, first of all your numbers that you started with were correct.

As far as homes that are under construction that could be sold this year that are not already under contract and included in the 10, there are three additional bungalows that will be completed this year that can be sold I believe there are three additional cottages that will be completed either are completed or will soon be complete that could be sold this year.

And then there will be both some of course always lot sale opportunities as well as potentially a couple more spec homes that could be sold and closed this year, so there is more inventory for closing this year of course a lot of lot inventory and we are developing some nice new view lots as part of this program that were not in the counts that I mentioned, but these lots will also provide some attractive inventory.

So we're hopeful that we will have additional closings and be able to continue the upward trend in terms of closings that we've been achieving the couple of years..

I'm curious if you can comment off hand as to the -- I don’t know the buyer behavior between lot sales and home sales of late?.

Yes I mean I think so our standard answer is that people are preferring to buy finished product, but having said that, we have had I think we had about a half a dozen lots last year, we've got a couple under contract already this year.

And so there's very definitely a portion of the market that is looking to come build a spectacular custom home and certainly if you look at the hill side at Kukui'ula you're seeing more custom homes, you're seeing the few spec homes that we've built, but you're also seeing a lot of other homes where buyers are buying lots and building custom homes so it's hard to characterize I'd say in general we feel that it's important to continue the flow of built product because that feels like a little bit deeper segment of the market, but without a doubt there are custom home lots moving and there is a lot of interest in people to come build spectacular homes of their own..

So also Chris you made a comment that while we didn’t see a lot of sort of additions to the development pipeline in 2014 the Company was working hard to underwrite new projects, I'm curious I think you alluded that we might see some new projects hit the pipeline in 2015.

Should we expect all of those to come from existing land or do you foresee land purchases in order to grow the pipeline?.

Yes so as far as anything from the existing pipeline those things are probably all pretty well identified in our real-estate supplement for example the Kihei project which we're advancing the project that we're advancing at Wailea any new development projects from existing land assets are obviously that they would have had to have been in the entitlement process for some time so there won't be any surprises there other than advancing the things that we've already identified.

What I'm referring to in terms of expanding our footprint and our pipeline in Hawaii relates to the acquisition of new land either outright acquisition or potentially forming joint ventures and we're looking at a wide range of land assets we've made it known in the past that we're interested in primary residential activity on Oahu and we're looking at both properties in the urban core as well as suburban master planned opportunities, but we're also open to and considering either mixed use or commercial opportunities as well.

But I would say our single greatest focus is in primary residential and on Oahu, but it could be a wide range of opportunities that we pursue..

And then George just a quick question on Grace the -- I am curious if any of the bids of $129 million in contracts for 2014 have been bid out yet and when is the deadline for this?.

In terms of the 2014 bid we did see finally a break in sort of the logjam at the city and county and they have already this year put out and awarded three bids and we won, Grace won one of those three bids and so that was a positive.

There is also over the next couple of months slated for bid another five or six large paving projects on Oahu from the city and county. So we feel pretty good about the pace of that. In terms of how much of that comes from the 2015-2014 bucket and how much comes from the 2014-2015 bucket I haven’t really done that math yet.

But suffice to say that we’re pleased to see that that those bids and awards are flowing again..

Just last question I am curious if just order of magnitude how big is the bid usually?.

So these ones that have come out so far this year of the three, they’re all in the range of anywhere from $8 million to about $12 million.

The ones that are slated for bid and again these are necessarily the bid numbers on the ones that are slated for bid these are just the city and county estimates of what the bid amount will be and historically that’s been low. They average about $10 million.

So there is a substantial amount of paving work coming to bid over the next couple of quarters on a planned basis. Now having said that, from time-to-time the city will put a bid out and then because of contractor questions about the bids, specs and qualifications, the bid itself will be delayed.

So while they’re slated for these timeframes that’s no guarantee that they’re going to be bid in those timeframes. Bids have been delayed up to 12-14 times and up to over a year and lengthened stuff.

But again relative to the paucity of bid activity in the second half of the last fiscal year -- last calendar year, 2014, we’re very pleased to see the pace of bids resuming..

And next question comes from the line of Steve O'Hare. You may proceed..

I was just curious in terms of the NOI for the leasing portfolio can you just I mean 60% seems like pretty good growth.

I mean how much of that is expansion of the portfolio and kind of how much is kind of a same-store -- would a same-store sales growth look like?.

Yes Steve I’ll let David comment on that the reality is that that these assumptions with the exception of the Aikahi Park addition to the portfolio the balance of the portfolio is fairly stable so it’s not a lot of it’s certainly not making assumptions about adding new assets that we have and already brought into the portfolio.

But David do you want to comment on same-store?.

Steve I think the real estate supplement goes through our same-store growth from 2014 and you will see that in -- we expect in 2015 that over 60% of our NOI growth will come from same-store in Hawaii and the balance of that Mainland so without giving you the exact numbers that you’re seeing strong growth in Hawaii, it’s primarily the retail side and in addition to some continued Mainland office growth that we reported from 2014..

And then can you just talk about energy costs and I mean what -- you hear those pretty bullish about what that means for Hawaii in general and I guess more specifically for businesses more than the average consumer maybe.

I am just wondering your thoughts on that and maybe how does that change the dynamics of the PV if at all and then how does that change the dynamics for some of the biodiesel or the biofuel that you generated or bio-energy whatever you want to call it, that you generate as well?.

In terms of that answer Steve I think we’re going to break that up in a couple of different sections, I’ll handle the part about certainly the PV.

Our PV arrangements are generally under fixed-priced contracts and so they are susceptible to changes in the prices of fossil fuels and in addition some of our hydroelectric contracts are also delinked from fossil fuel pricing. And so there should be some stability in those rates.

In terms of the fuel issue, there is a couple of places where we’re consumers of fuel and so that will definitely help a little bit in those places to the extent that it’s in big margins already at Grace or what not. Grace operates a large fleet of heavy equipment, most of which is diesel fuel and at HCNS we have a similar fleet of heavy equipment.

So I think we should see some modest benefit from that in those type of things but one of the things that fuel pricing in Hawaii especially transportation fuel pricing has always been very downward sticky and so you don’t really see the drastic drops that you see in the price of oil translate into equivalent percentage drops in the price of gasoline and what not.

I think certainly on the secondary outputs things like fertilizer and other things that we use that tend to follow changes in oil commodity prices over the long-term, I'm not sure we have seen significant relief in those prices yet. I don’t know Chris if you want to comment any further on that..

No there is certainly a lag first of all it depends on how much inventory you hold as to how often you're buying and second of all even if you're buying regularly there is some stickiness on the downside.

I think overall Steve I would just say it's a mixed bag for us, we certainly do benefit in some areas where we're a user of fuel as George indicated on the power contracts on Kauai we’re not affected because we have fixed price contracts and so they don’t fluctuate, but on Maui, where we sell power to Maui Electric our reimbursement rate or our payment rate is determined by their avoided cost which does go down when their source of fuel cost goes down.

The cost of their source of fuel goes down, so I don’t think we've recently analyzed the net economic impact. I would say it's a mixed bag.

I do think anything that helps consumers feel more confident and boost the economy is a good thing for us as a real-estate developer, so overall I think we would view it as positive, but we haven’t really calculated a net economic impact of the recent trend..

And our next question comes from the line of Brendan Maiorana. You may proceed..

Paul just first for you just timing with respect to the deferred income taxes why did that pop up now as oppose it sounds like maybe it was something that was not a new issue if I was sort of infer in correctly from some of the commentary, so what caused that to pop out then for the 2014 tax as opposed to prior year’s?.

Hi Brendan yes in the normal course of closing our books it happened late in the process but we did determine that there were some adjustments that were necessary as we reviewed our inventory of deferreds and we have quite a significant amount of line items of deferred accounts there were a limited number where we had issues where there are adjustments of course the timing was unfortunate but we are planning to ensure that we look at our process and enhance it so that these late issues don’t pop up as far as late in the process of our closing our books and finalizing our financial statements..

So Slide 28 talks about the CapEx outlook you guys have 123 million of projects and other investments expected with proceeds from Waihonua Maui business for some of the other projects that you expect to get this year, your capital coming in from sales is that expected to be higher than what you're going to spend on development projects at least kind of what's in the plan as of now?.

Currently for Waihonua the return plus the Maui business part I believe our total CapEx spend will exceed what we will get from proceeds from those investments. We do have a lot of aspirational capital that we hope and expect to place, but again it all depends on a lot of uncertain variables..

So if you guys find some of the bigger projects that are out there what would you think in terms of how to fund those if they do pop up?.

Yes there'd be a project on a case-by-case basis we would look at first seizing or revolver if it's a large acquisition we would look at specific financing bridge financing for example and then also of course the proceeds from the sales that we expect this year, so it's hard to answer with any sort of precision it really depends on the circumstance..

George, it looked like rates had a good fourth quarter which I think tends to -- Q4 tends to seasonally get a little bit flow and I think you guys mentioned in the slides the outlook for '15 is dependent on weather and maybe bids that come up and what not but if we were to assume a normal weather year what kind of growth do you think from EBITDA can we expect from Grace in 2015?.

Sure, let me sort of answer that indirectly with just a couple of factors that are playing a role. Certainly we think that Grace has a pretty solid backlog going in the next year and so I think we feel pretty good about their ability to get through a substantial portion of that backlog.

The notion of this what we call bid win do work which is work that you bid in the current year win it and are able to do some of it in the current year will play a large role in determining the overall growth for Grace and the Grace EBITDA I think one of the things that it's interesting to look at Brendan overtime is that since the second quarter of 2014 when we got our primary -- our finished plans at the Grace Quarry into service we’ve seen a pretty descent jump in our EBITDA margins and what not and because we’re still vertically integrated at higher throughputs our margins tend to increase and you could even see that in some of our quarterly numbers as when our revenues go over certain amounts the margins tend to increase with that amount.

So it’s tougher for me to give a sort of spot forecast on EBITDA. But I think it’s fair to say that to the extent that we’re able to increase revenues and get more throughput through the system this year that we would expect that to disproportionately go to the EBITDA margin line over the course of the year..

Last one Stan or maybe whoever wants to build time, so acquisitions I think you mentioned maybe there is a few more things that are out there. We’ve seen prices in gateway markets in the Mainland really move up in terms of commercial properties.

And so is that more on the market but how is pricing coming out and is it, is pricing challenging even if there is more products available?.

Yes Brendon this is Chris. And I’ll try to and I am going to see if I can work through the word paucity into my answer somewhere just to keep up with George here. No, I guess there is an increasing paucity of commercial real estate opportunity and then pricing has certainly gone up on the commercial property side.

But we continue to look for off market deals. We look for value added deals where we think that we can generate sufficient growth in the asset to warrant that.

And I think that certainly Kakaako Commerce is an example, Kailua is an example where those were not bargains from the standpoint of historical cap rates but we think that they are going to be great investments and we continue to look at that.

I would say that my focus or I should say our focus has been a little bit more on the development acquisition side looking for land assets, potentially existing commercial assets that have redevelopment potential.

So you are really not underwriting on the basis of just the cap rate you are underwriting on the basis of the development opportunity and residual land value for that development and that’s where you start to find some interesting opportunities because while the cap rate if it’s commercial asset maybe very low from a traditional investment standpoint if you can identify ways to either zoning modifications or I shouldn’t say modifications taking advantage of existing zoning and looking at development opportunities for residential projects for example in the urban core then you can begin to go after some of these assets that otherwise from a pure cap rate standpoint would not be attractive.

So yes, it’s getting harder but I think our team is doing a tremendous job of kind of looking under the covers and figuring out what the redevelopment potential is and what we can do with these assets to make them attractive..

I just might add Brendon that you are right of course cap rates are very low but one of the things that I think we pride ourselves on is our discipline in our underwriting.

But we’ve been here, we’ve seen the cycle, we’ve seen the up cycles and the down cycles and we factor that into our underwriting and as a result we often end up not successful in securing a particular piece of property.

But the other factor to consider for us is usually we’re funding these commercial property acquisitions by selling something on the Mainland.

So for us the critical part of that equation is making sure that the Hawaii property we buy in our opinion has a better chance of upside potential or better prospect for appreciation or performance than the Mainland property we’re selling.

And so as we look at that exchange equation and migrating properties from the Mainland that’s an important consideration for us..

Do you feel like Stan or Chris, do you guys feel like the pricing on your Mainland portfolio has moved up as just more broadly as we’ve seen cap rates kind of just downward over the past couple of years?.

Brendon, this is David. I think we see Mainland cap rates again lower and the values coming up but you’ve got to remember that the portfolio we have is in a gateway market so there is more stabilized cap rate that you are seeing.

The value definitely has gone up to some of the overall investment activity you are seeing and the number of interested buyers you have in a property we take out to market. So we’re getting strong interest in that side of value from that piece..

[Operator Instructions] And we have no questions at this time. I will now turn the call back over to Suzy for any closing remarks..

Thanks everyone for being on the call. If you have any questions related to the earnings release that we issued today, or the presentation, please call me at 808-525-8422. Thank you..

Ladies and gentlemen, that concludes today’s conference. Thank you so much for your participation. You may now disconnect. Have a great day..