Suzy Hollinger - Director, Investor Relations Chris Benjamin - President and Chief Operating Officer Paul Ito - Senior Vice President, Chief Financial Officer and Treasurer George Morvis - Vice President, Corporate Development Lance Parker - President.

Sheila McGrath - Evercore Steve O'Hara - Sidoti.

Good day, ladies and gentlemen. And welcome to the 2015 Fourth Quarter and Full Year Earnings Call. My name is Tony, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct 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 Ms. Suzy Hollinger, Director of Investor Relations. Please proceed..

Thank you, Tony. Aloha and welcome to Alexander & Baldwin’s fourth quarter and full year 2015 earnings call. On the call with me today are Chris Benjamin, President and COO; and Paul Ito, Senior Vice President and CFO.

Joining us for the Q&A portion of the call are George Morvis, A&B Vice President, Corporate Development and Lance Parker, President of A&B Properties.

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 relevant forward-looking statements.

Factors that could cause actual results to differ materially from those contemplated in the statements include without limitation those described on pages 17 to 30 of the Company’s 2014 annual report on Form 10-K, and in other subsequent filings with the SEC.

These forward-looking statements are not guarantee 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 today included in the appendix of today’s presentation slides is a statement regarding our use of these non-GAAP financial measures and required reconciliations. Slides from this presentation are available for download at our website, www.alexanderbaldwin.com.

We will start with Chris who will comment on full year performance highlights and provide an update on our operations. Paul will follow with the discussion of the quarter and full year financial performance and metrics. Chris will return for closing remarks and to open it up your questions.

Chris?.

Thank you, Suzy. And good afternoon to our listeners. 2015 was a successful year for A&B as we advanced many important initiatives and had strong results from our real estate and materials and construction segments.

As we described in our January 7, Investor Call, the decision to cease sugar operation was a difficult one but we are progressing in our effort to implement that change and minimize its financial impacts. The earnings guidance we provided on that call remains unchanged and we will be starting our final harvest next week.

We continue to expect the cessation to be cash flow and neutral event and we will be focused on facilitating a smooth transition for our employees.

In addition to successfully managing the final sugar harvest and transitioning the plantation to a diversified Ag model, we have a handful of strategic priorities to continue to guide our actions for 2016. I'll organize my remarks today around these priorities including how we advance them in 2015, and how we'll continue to do so in 2016.

These priorities are first and foremost to increase the value of our commercial real estate portfolio and the recurring streams of income and cash it produces.

To accelerate monetization of our significant development pipeline, to leverage the tremendous market position, assets and backlog of our materials and construction segment to increase earnings from cash flow. And finally to continue to be disciplined about our financial underwriting and balance sheet management.

Starting then with our first goal of increasing the value of our commercial portfolio, 2015 was another successful year. Our leasing segment posted $84 million of net operating income or NOI which was an 8.5% increase over 2014, driven primarily by the strength of the Hawaii economy and our successful migration of assets from the Mainland to Hawaii.

In just three years we have more than doubled our NOI from Hawaii assets. With last month's acquisition of Manoa Marketplace, more than 80% of the commercial portfolio NOI now comes from Hawaii assets, up from just 40% three years ago.

We are now the largest owner of grocery anchored retail centers in Hawaii with 1.8 million square feet of retail space strategically located in key communities throughout the island, particularly on Oahu where we have 1.5 million square feet.

Not only is Oahu home to 70% of the state's population, a retail asking rents for the island climbed 5.5% in the fourth quarter compared to last year. Hawaii NOI was up 11% in 2015, a testament to our selection and management of the assets we acquired in the last three years.

As occupancy for the Hawaii portfolio remain relatively stable in 2015 at 93% compared to 94% in 2014, the majority of NOI growth in the Hawaii portfolio is generated by rent growth. We also benefited from the negotiated early termination of the ground lease at Aikahi Park Shopping Center resulting in our acquisition of the improvements.

We began planning for the repositioning of the Kailua Macy's building, and we laid the ground work for the separate acquisitions of the ground lease interest and 139,000 square feet of lease hold improvements at the Manoa Marketplace which closed in January, 2016.

Looking forward into 2016 and beyond, we are increasingly focused on opportunities to generate organic growth and enhance the value of the assets within our expanded Hawaii portfolio.

This year we are beginning a program of increased investment in existing commercial assets to position them for sustained long-term growth including some minor renovation at Manoa Marketplace, the extension and upgrade of the food court at Pearl Highland Center and the repositioning of the Kailua Macy's building.

The 60,000 square feet of lease hold improvements in the center of Kailua that will be vacated by Macy's in April. Over the next several years, this reinvestment program will extend to other renovation, repositioning and redevelopment opportunities in our portfolio. Total portfolio NOI growth in 2016 is likely to be modest.

Likely in the 1% to 2% range. As we pursue the first of these repositioning opportunities and continue the migration of Mainland commercial assets to Hawaii. However, we believe these steps are warranted as we focused on longer-term growth and NOI and portfolio value. Same store Hawaii NOI growth is expected to remain strong at above 5%.

On the development front 2015 saw the closings of 329 high rise condo units at the very successful Waihonua project in January. Just a mile away at The Collection we had secured binding contracts for all 450 high rise and mid rise units by September 2015, more than a year before delivery.

These units average $775 per square foot making this an attractive project for local buyers. Fully 85% of contracted sales are to local residence. And this mid price locally oriented segment of the high rise market is proving so far to be the deepest and most resilient consist with our expectations when we designed the project three years ago.

Construction remains on schedule and is expected to be completed in November. We just poured the 34th floor of the tower in the lower floor unit interiors are being built out. We remain positive on the mid price segment of the local condo market targeted at local buyers.

Cycles do warrant caution however and we restructure our latest investment with that in mind. In October, we committed to $35 million of B-note financing for the development of Keauhou Place, a 423 unit high rise project located two blocks from The Collection.

The B-note structure offers attractive equity like-returns but at a much lower level of risk given our higher priority in the capital stock. Shifting over to Maui. Maui Business Park achieved strong results in 2015, driven by its great location as well as the opening of Maui's first target store in March last year.

18.4 acres were sold at the project last year for an average price of $42 per square foot which includes 11 acres sold to Lowe's. Groundbreaking for the new 167,000 square foot Lowe's store is expected to commence this year, and we expect them to be another strong anchor for the Business Park.

While much of the initial pent-up demand at the Business Park has been satisfied, we do expect continued but slower absorption in 2016. We are particularly pleased to be launching a primary residential project on Maui.

Last month we held a groundbreaking ceremony for the first phase of Kamalani, a 630 unit master planned residential community in North Kihei Maui. This community will comprise a mix of market and affordable town homes and single family homes and will bring much needed workforce housing to Maui.

Construction of the affordable component which is about one fourth of the homes in the project will commence in the first quarter and we expect to deliver the first unit in late 2017.

Also on Maui at KEALA O WAILEA, our planned 70 unit condominium joint venture in Wailea resort, 30 of the 50 units released for sale are sold already under binding contract in an average price of $800 per square foot. On the strength of these presales we commenced construction of 30 units in December and expect to begin closing units in mid 2017.

Turning to Kauai and Kukui`Ula on Slide 13, 12 custom lots and 10 homes sold in 2015 for a total of 22 closings. The average price for a custom lot was $1.2 million while the homes average $3.5 million. Home building activity at Kukui`Ula continues to be positive.

They currently have 13 members with homes under construction and there are 26 additional developer homes under construction through our various building initiatives. On top of the 22 units we sold last year, we've had two closings year-to-date and there currently are seven units under binding contract.

In our Materials and Construction segment, we achieved strong growth in 2015 despite wet weather condition for much of the year. EBITDA rose 8% to $41 million. Grace's backlog remains robust at $227 million as of December 31, 2015.

Grace should benefit also from significant pending government contracts and most likely an expansion in private development work. The late December 2015 final zoning approval for a master plan community on the West side should trigger infrastructure work that will boost the segment's material sales this year.

Barring weather challenges the materials and construction segment is positioned for continued growth in 2016.

As far our fourth strategic objective of prudent financial management, the $84 million of NOI from our commercial portfolio in 2015 and strong cash flows from real estate projects in materials and construction enabled us to reduce debt levels by $118 million or 17% in 2015 despite continued investments.

This strengthens our balance sheet as we head into 2016 and positions us for continued investment while enhancing our resilience should market condition slow. We will continue to be disciplined in our underwriting of investments.

To be clear, we believe there are good investment opportunities to be found but they take effort and require that we leverage our relationships and local market knowledge, just as we did with Manoa Marketplace. Rest assured we won't relax our underwriting discipline in order to secure deals.

With that overview of our 2015 progress and our 2016 priorities, I'd like to turn the call over now to Paul to discuss financial matters..

Thanks, Chris. On Slide 17 we have a snapshot of fourth quarter results. The company reported a loss of $12.2 million, or $0.29 per diluted share.

These results included $26.2 million after tax loss or $0.54 per diluted share in Agribusiness segment principally arising from operating losses at HC&S and cost related to the plan 2016 cessation of sugar operations.

In the quarter however or leasing and materials and construction segment's operating profit and cash flow performances were particularly strong. Leasing operating profit for the fourth quarter was $13.5 million, a 16.4% increase compared to the fourth quarter of 2014, and net operating income was $21.2 million, an 11.6% increase.

Accordingly the improvement in both operating profit and NOI was principally attributable to same store performance with same store NOI up 9.4%. Occupancy remain stable at 94% quarter-over-quarter. Materials and construction operating profit for the fourth quarter was $9.2 million, or up 7% compared to the fourth quarter of 2014.

And EBITDA was $11.7 million, a 12.5% increase over the fourth quarter of 2014. Improved performance was due principally to increase tons paid construction and material sales as well as earnings from joint ventures partially offset by lower asphalt sales margin.

Development and sales segment operating profit of $7.5 million for the quarter was driven mainly by parcel sales in Maui and Kauai. And earnings from the sales of nine joint venture units. In 2014, operating profit included 7.2 acres at Maui Business Park and three Keauhou lots.

As anticipated the agribusiness segment reported an operating loss for the fourth quarter of $40.1 million which included $22.6 million of pretax sugar cessation related costs.

For the full year, the company reported earnings of $29.6 million or $0.54 per diluted share which includes after tax cessation and operating losses for the agribusiness segment of $33.9 million, or $0.69 per diluted share.

The solid full year performance in our real estate and materials and construction segment that Chris described is reflected in these operating profit numbers on Slide 20. Leasing operating profit was up 11.8% year-over-year principally driven by same store performance from our Hawaii properties and the timing of acquisitions and dispositions.

Real estate development operating profit was $65 million compared to $85.7 million for 2014.

Although development operating profit in 2015 was lower than in 2014, the quality of those earnings improved substantially as 2015 results were driven by sales of development pipeline units and parcels, while 2014 operating profit included a large sale of the single commercial asset, the proceeds from which were reinvested into the Kailua portfolio acquisition.

Materials and constructions operating profit improved 19.3% from $25.9 million in 2014 to $30.9 million in 2015 despite lower asphalt sales margins resulting from the year-over-year decline in oil prices. Increasing paving, pouring and material sales as well as earnings from joint ventures drove the increase in operating profit.

Operating profit for the agribusiness segment for the year were at $51.9 million and included $29.3 million of losses from operations and $22.6 million of pretax sugar cessation related cost in line with guidance provided on our prior investor call announcing the cessation of sugar operations at HC&S. Turning to Slide 21.

We compare our balance sheet at the end of 2015 to 2014. As Chris mentioned strong operating performance and cash flows from our real estate and materials and construction businesses helped us lower our debt levels by nearly 17% during 2015. Our debt to debt plus equity ratio stood at 32% at the end of 2015 compared to 37% at the end of 2014.

In December, we amended our credit facility agreement with the consortium of banks and also drew $50 million on a long-term basis under our credential sale facility. These financing steps will result in several benefits to the company.

A reduction in the cost of short-term debt and increase in the company's unsecured borrowing capacity and increase in the weighted average maturity of debt and a decrease in our exposure to floating rate debt. These actions position us well to take advantage of future growth opportunities.

Moving on to Slide 23, of the $71 million in net capital expenditures in 2015, we invested $46 million of capital. The majority of which was for active real estate projects and joint ventures such as Kukui`Ula particularly at Kamalani, Maui South, The Collection and Maui Business Park. The remaining $25 million was for maintenance capital.

For 2016, we are targeting $175 million in net capital expenditures including $129 million for development projects, undesignated investment in new projects and commercial real estate renovation and repositioning, $13 million for tax advantage solar farm investments prior to tax benefits, $108 million for commercial property and undesignated acquisitions which we anticipate will be funded through 1031 exchanges.

And finally $24 million of routine maintenance capital. As in past years our budget includes capital for opportunistic investments. The size and timing of which of course is unpredictable. So with that let me turn the call back to Chris for closing remarks. .

Thanks, Paul. Hawaii's economy remains strong heading into 2016. Visitor arrivals and expenditures set a record for the fourth consecutive year in 2015 and construction activity picked up significantly as well. The value of state wide private sector construction permit was nearly $4 billion exceeding 2006, the previous record year.

And as I mentioned earlier, the Oahu commercial real estate markets continue to perform well. We've included a number of slides in the appendix to this presentation that further reinforce the strong performance of the Hawaii economy.

All of this positive economic activity provides a strong operating backdrop for our businesses which are well positioned for success.

We've recognized the importance of executing and are focused on a successful final harvest on Maui, completion of the collection, capitalizing on Grace's backlog and repositioning and growth within our commercial portfolio. At the same time, we realized we must be prepared for all market scenarios.

We continue to have growth orientation but will be prudent in our underwriting of both new opportunities and organic expansion. We remain focused on creating value at all times and realizing it when the market allows. That concludes or presentation this afternoon. And we'd now be happy to answer your questions. Thank you..

[Operator Instructions] Your first question comes from the line of Ms. Sheila McGrath of Evercore. Please proceed. .

Yes. Hi, Chris.

I was wondering on the Manoa shopping center if you could give us a little bit more detail on sourcing that transaction and how we can think about pricing in terms of a cap rate?.

Sure. Love to talk about that one, Sheila. That was a phenomenal deal and I am going to let Lance give you the details but just the context there was you know that we have a number of ground lease assets in our portfolio in Hawaii.

Some that have been longstanding and some that we acquired in Kailua and we have been very pleased with the nature of these assets. Not only are they very secured assets with very secure income streams but they provide long term the opportunity to get back improvements and to significantly grow NOI.

And so as a result of some of the success we've had with existing ground leases, we decided that an asset class that we can look to as for new investments is also ground leases. And so that really was what attracted us to the Manoa Marketplace deal was first and foremost to try to secure the ground lease.

In that case however once we had secured the ground lease and Lance can give you a little bit more background on that. We were then able to approach the ground lessee and acquired the improvement.

So it's phenomenal asset one that frankly was sort of in our dreams that we could break it loose and the team did a phenomenal job and I think it's going to be very strong and well performing asset for us for years to come. So Lance do you want to give any more background on it. .

Yes. Thanks, Chris. Hi, Sheila. This is Lance. So as Chris indicated I mean this both the leased fees as well as the leased hold portion of the acquisition were both sourced off market. We started really with the relationship that we were able to establish with a long time family here in the island that owned the property for a number of years.

It took us over a year to get to the position to actually close on the deal. But I like to think about this deal in terms of what we try to do best. We look for this sort of unique opportunities on off market transactions where we can step in and sort of leverage our knowledge here locally to pull it off.

So as Chris indicated once we are able to secure that portion of the deal, it really gave us the position to go to the lessee to have that conversation and really takes that other piece down. It's probably one of the strongest, urban centered grocery anchored centers in Honolulu. So it's a great addition to our portfolio.

In terms of pricing, we typically on the acquisition side sort of do a 12 month forward look and so in terms of our underwriting this was at about 5.3 cap..

And that includes the land acquisition as well right?.

That is a blended cap rate for both the leased fees as well as the leased hold. .

And maybe you can provide some context Lance for cap rates and comparable. .

Sure. So we are seeing, if you were to go back maybe say year and year and half ago, I think we would have said cap rates in this range would have been from low 4s up through maybe 6 depending on quality of assets and location.

Although if you look at some of the more recent retail transactions in the state, they have been treating sub five and so we were pleased where we ended up on pricing with this asset. .

That's great. And then I had a question on Macy's.

When does that lease expire and is that going to have significant impact on NOI? How should we just think about that asset in terms of the step down and then repositioning?.

Yes. So fortunately Sheila, since that currently a ground lease, it's relatively modest contributor, it's actually fairly longstanding ground lease. I think it's only a couple hundred thousand dollars of NOI currently. So when we take it offline we will get the asset back I think in early April, Macy's will vacate.

So there won't be a significant hit to NOI when we take it offline for repositioning. But there is tremendous NOI growth opportunity. Maybe you can talk briefly Lance about our concept anyway for that asset. .

Yes. So we are looking at -- as we do with all of the -- our spaces in Kailua making sure that the future uses are sort of complimentary to the community and really give the residence there so the retail options that they are looking for.

With that said we are taking the approach of the building and demising into smaller base so we could have a greater variety of both restaurants and tenants. And so as Chris indicated we will likely get that back in the next month or so. And then plan to be able to put the asset back online toward the end of 2017..

Okay, thanks. One last quick one.

Just Chris now that your leverage is much lower just curious how -- what your thoughts are on stock buyback?.

Yes. So Sheila let me - I'll let Paul address that. I think that the thing that I always like to emphasis is that we've got to look at stock buyback -- it's an allocation of capital and our job first and foremost is to be making investments into our -- strategic investments into our core businesses.

Just from the recent transaction that we did the fact that we continue to look at other investments. My general bias is that we got great opportunities to continue to invest in our businesses. But I can let Paul elaborate if he like -- if I left anything for you to say. .

Yes. I mean I don't have much to add. I mean certainly our stock is at a low level. Any buyback decision as Chris mentioned is a capital allocation decision. There are other factors to consider, the most -- probably most important of which is what is the alternative set of investment opportunities available to us.

And I think we feel good about that alternative set. There is also other considerations, what are the capital needs or ongoing businesses, what do we want our balance sheet to look like et cetera, et cetera. And so that certainly weighs on our decision but we do feel pretty positive about the future investment opportunities that may lie ahead for us. .

I think also as you look at the capital budget that Paul laid out in the slide, we do have a lot of ongoing activity both in our existing development pipeline and our acquisition expectations.

And fortunately increasingly although it's going to be relatively modest this year, hopefully growing a months of reinvestment into our existing portfolio as well..

Thank you for your question. Your next question comes from the line of Mr. Steve O'Hara of Sidoti Company. Please proceed. .

Yes. Hi. I apologize if you touched it already but could you just go through what drivers worked at Grace performance in the quarter and then maybe kind of the moving pieces for leasing portfolio. It sounded like asking rents moved higher but then you expected kind of bit more improvement in NOI. Thank you..

Yes. So let me I just kick that off and then I have both George and Lance jump in Steve. On the Grace side, certainly as we've indicated in the past we are subject to some extent weather and I think as George will elaborate we had better conditions in the fourth quarter than previously.

Then on the leasing front, it is important to note we do continue to expect good NOI growth, same store NOI growth in Hawaii so the fundamentals of the market remain strong.

The reason for the overall lower NOI growth is really a result of the fact that we are doing some other repositioning of the portfolio both in terms of migration and in terms of asset specific actions that will take some NOI offline. Let me let George first elaborate on Grace situation and then Lance can elaborate on leasing. .

So Steve as it relates to Grace, it was very solid quarter for them.

I think one of the factors that is sort of might be masking things little bit is the change in business mix in terms of revenue mix because we've had sort of our lower margin asphalt troubling business, the revenues there have dropped, whereas our higher margin business lines in paving and materials were not, their relative revenues -- their revenues overall have increased.

So the relative revenues have also increased and so a lot of what you are seeing in terms of margin growth at Grace is being driven by that changing mix in business which is partially attributable to the lower oil prices.

I think the other thing that's going on there as Chris alluded too, although that the first part of the fourth quarter for us in El Nino year was sort of abnormally wet, the second half of the fourth quarter was extremely dry and so we had a much better end to the quarter and a much -- frankly better start to this year than you would traditional expect with regards to just normal weather pattern.

And so I think that's basically driving Grace from a micro perspective. I think from a macro perspective what you're seeing is that our investment pieces of the increasing need for infrastructure construction in Hawaii playing out. And so we are very pleased with that.

And we think Grace is well positioned and materials and construction segment is well positioned as we head into the rest of this year.

Lance?.

Yes. Thanks, George. Yes, So Steve I will just start in terms of Hawaii performance toward the second half of last year. And on an NOI basis there are couple of lease expirations, we had tenant relocation and we had actually some timing of percentage rent that was really in 2015 that ended up slipping to 2016.

And so that is sort of the reason for the decline in same store NOI in the second half of the year as compared to the first half of the year. And as Chris indicated the guidance for the 1% to 2% growth for 2016 really is driven in part as we really reposition these assets for long-term growth.

The other half of that story of course the continued migration strategy as we increase the quality of our assets by moving them back here to Hawaii and that process of repositioning is going to position us long term for better growth. But you see the effects of it this year in terms of the timing. .

Okay. Thank you. And then just quickly one more. I heard you talking about a family that owned a ground lease or part of the ground lease. Were you referring to the Macy's transaction or is there any movement there because my understanding was there was a family that own part of that building or parking lot or something.

Just wanted to know if there is any update on that. Thank you. .

Yes. Steve, so no, first of all the answer to your question is we were not referring to Macy's at the time. We were referring to Manoa Marketplace and a family that own that ground lease.

I think what you are referring to is that in Kailua near the Macy's and actually a piece of the parking lot for the Macy's has for a long period of time than owned by a family in Kailua.

I am pleased to report that I believe early next we will be closing on the acquisition of that parcel, and that will be -- it is relatively small transaction but it's important to us in the sense that we will now can fully control the land around Macy's and in that parking area which gives us more flexibility as we look to do things down the road. .

[Operator Instructions] There are no further questions in the queue at the moment, sir. .

Thank you very much, Tony. And thanks to our listeners. Suzy, you want to --.

Yes. If there anyone who has questions regarding earnings for the year or for the quarter, please call me at 808-525-8422. Thank you..