Suzy Hollinger - Director, IR Chris Benjamin - President & CEO Jim Mead - CFO Paul Ito - SVP, Corporate Finance Lance Parker - President, A&B Properties.

Sheila McGrath - Evercore Steve O'Hara - Sidoti & Company.

Good day, ladies and gentlemen, and welcome to the Alexander & Baldwin 2017 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Suzy Hollinger, Director of Investor Relations. Please go ahead..

Thank you, Charlotte. Aloha, and welcome to our call today to discuss Alexander & Baldwin's third quarter 2017 earnings. With me today are our President and CEO, Chris Benjamin; and Jim Mead, CFO; Paul Ito, Senior Vice President, Corporate Finance; and Lance Parker, A&B Properties' President will be joining us for the Q&A 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 relevant forward-looking statements.

These forward-looking statements include, but are not limited to, statements regarding possible or assumed future results of operations, business strategies, growth opportunities and competitive positions. Such forward-looking statements speak only as of the date the statements were made and are not guarantees of future performance.

Forward-looking statements are subject to a number of risks, uncertainties, assumptions, and other factors that could cause actual results and the timing of certain events to differ materially from those expressed in or implied by the forward-looking statements.

These factors include but are not limited to prevailing market conditions and other factors related to company's REIT status and the company's business just generally discussed in the company's most recent Form 10-K, Form 10-Q, and other filings with the Securities and Exchange Commission.

Information in this call and presentation should be evaluated in light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statements. Management will be referring to non-GAAP financial measures during our call today.

Included in the Appendix of today's presentation slides is a statement regarding our use of these non-GAAP financial measures and reconciliations. Slides from this presentation are available for download at our website, alexanderbaldwin.com.

Chris will open up today's presentation with strategic and performance highlights and then turn it over to Jim, who will discuss financial performance. Chris will return for some closing remarks and then we'll open it up for your questions. With that, let me turn it over to Chris..

Thank you, Suzy, and good afternoon to our listeners. I'm going to focus my remarks today on the continued strong progress we're making in the implementation of our strategic agenda, including important operational steps we've taken to both grow net operating income from our commercial portfolio and monetize development assets.

This is a long road we're on to transform the company's asset mix, geographic concentration, and corporate structure, but I couldn't be happier with the way things are progressing. This process started of course with the separation from Matson and the decision to migrate the portfolio to Hawaii.

I won't go all the way back to the beginning of that migration but I'll highlight some of the more important recent steps. First, there is the continued solid performance of our Hawaii commercial real estate or CRE portfolio driven especially by the assets and ground leases we've acquired over the past few years.

All CRE metrics reflect the strong performance of our portfolio. Same-store cash NOI was higher by 4% compared to the third quarter last year. Same-store occupancy was up 280 basis points at 94.1% and releasing spreads were a positive 8.4%.

Year-to-date through September 30 we renewed or released 146 space leases comprising 768,000 square feet of GLA, at rereleasing spreads of 15.8% on 102 comparable leases. Looking out for the remainder of the year we expect full-year 2017 spreads to be above our previous guidance of about 13%, but below the 15.8% achieved year-to-date.

Ground lease renewals were positive in the quarter as well. Three were renewed at a weighted average increase of 33% highlighting the embedded growth potential within our portfolio. It's important to note that these increases are separate from the space lease renewal spreads I just highlighted.

We look forward to additional ground lease renewals in 2018. On this Slide we've summarized some key commercial real estate performance metrics. Full details are included in our supplement posted on the Investor page of our website. On Slide 6, underlying the strong CRE performance is continued strength in the Hawaii economy.

The unemployment rate has declined to 2.5% and remains one of the lowest in the nation. This has driven steady growth in individual income and retail spending which are supporting not only retail tenant performance, but also the performance of our industrial tenants. People are working, income is increasing, and spending is up.

More broadly, it looks like we're headed for a sixth straight year of record visitor arrivals and expenditures based on year-to-date arrivals and expenditure figures. And other major economic indicators are positive.

For example, the median price for an Oahu single-family home was up 3.4% year-to-date to $757,000 and the value of private building permits was up 5.8% through August compared to the same period last year. So the Hawaii economy continues to perform at a high level.

Additional details about Hawaii's economy are included in the Appendix to this slide presentation. As pleased as I am with the financial performance of the portfolio, I'm even more excited about the strategic opportunities we have in our growing Hawaii portfolio.

With high performing retail locations on all major islands A&B is well positioned to be the landlord of choice for new to Hawaii retailers. They want to establish a presence here and capitalize on the strong consumer demographics of the market.

Things like high household incomes, high levels of discretionary spending, and low retail square footage per capita characterize the market. New leases with ULTA Beauty and Drybar reflect that positioning.

We're very excited that ULTA the nation's largest beauty retailer just opened its first stores in Hawaii at two of our centers Pearl Highlands and Kahului Town. The stores who occupy a total of 23,800 square feet and undoubtedly will create excitement and draw shoppers to our centers.

We're also excited to welcome Hawaii's first Drybar, the hair salon franchise specializing in blowouts to our retail space at the collection. We continue to build relationships with other retailers looking to expand their footprint to Hawaii and hope to announce more of these new to Hawaii leases in future quarters.

On the topic of CRE growth, we continue to focus on how we can expand our portfolio both through acquisitions and through development or redevelopment opportunities.

We continue to pursue a number of opportunities and remain hopeful that we'll be in a position to advance our Mainland to Hawaii migration over the next year as we identify attractive acquisition opportunities.

Since the pace of Hawaii acquisitions is always hard to forecast, we continue to advance our redevelopment and development for whole projects which also can provide superior returns. At Pearl Highlands, we recently turned over space to food court tenants who are now building out their improvements to be opened by year-end.

Likewise Regal Cinemas renovation is underway and is expected to be completed in time for the showing of holiday releases. Upon stabilization, these two projects are expected to add $600,000 to annual cash NOI representing a 10% stabilized return on cost.

Construction continues at Lau Hala Shops in Kailua and planning work is advancing at Ho'okele Shopping Center on Maui. We've also had good success recently in accelerating monetization of some of our development assets; much of that success is in the form of binding sales contracts that have not yet closed.

But during the quarter we did sell the Brydeswood development in Kauai for $8.1 million, a vacant land parcel on Maui for $7.9 million, and a commercial lot at Maui Business Park for $1 million.

At our joint ventures, two units of The Collection, three units at Kukui'ula, and four Ka Milo units were closed during the quarter contributing to the $2.9 million in equity of earnings that we reported. On Slide 11, here is a little more detail on a few of our projects. At Kamalani, we're seeing significant increases in sales interest and activity.

I'm very pleased to say that through today 10 units have closed already, 51 are under binding contract, and 18 are under contract but not yet bound. Based on the current construction schedule and a number of down contracts, we expect 38 additional closings in the fourth quarter.

These proceeds from these sales will be recycled and will allow us to continue development of the first increment without additional cash contributions, while we evaluate potential partnerships for future increments.

As expected, these affordable homes and increment one will not generate income, but will fulfil the affordable requirements for the market price portion of the project and provide an additional 55 affordable credits for other Maui development projects.

Keala O Wailea, the 70 unit multifamily joint venture with Armstrong Builders continues to make steady progress in sales and construction.

There are 62 binding contracts and while 20 units have been expected to close this December, 15 of those are likely to slip into January as we had some minor construction delays and we want to ensure the quality of the homes rather than rushing their delivery.

This will not however affect cash flow to A&B as these first unit proceeds will go to pay down the construction loan. We expect an additional 25 closings by the end of the first quarter and expect to sell out the entire project by the end of 2018.

We also look forward to closing The Collection joint venture where we have binding contracts with three town homes.

Closings on the Kahala Avenue where we have one binding contract and some additional interests that I will reference in a moment, and at Maui Business Park where we have one binding contract, and finally at Kukui'ula, where we have four binding contracts all of these we hope to close this year.

As I said, we do have additional strong sales interest at Kahala Avenue as well as Maui Business Park and Wailea. So as you can see, we're making good on our pledge to accelerate development unit and parcel sales and this is helping generate cash flow to support other company priorities.

The next element of our strategy that is advancing is our effort to repurpose our agricultural lands. You'll recall it's been less than a year since we seized our sugar operation on Maui but we're making notable progress in transitioning our former plantation lands to diversified agriculture.

Since the sugar shutdown A&B has worked with local farmers and ranchers, energy companies and the County of Maui in pursuit of what we hope will be a patchwork of farms covering a wide range of agricultural uses on our former Sugarland. To-date, we've converted 4500 of the 36,000 acres of former sugar care lands into these uses.

Additionally, we've been engaging with the County of Maui to expand its Ag Park by 900 acres and are in active negotiations for leases to other Ag users that could take our total repurposing of our land to more than half of the old sugar lands in a relatively short time. The largest of these potential users is intending to grow energy crops.

We're simultaneously focused on completing these potential leases and adding to the pipeline. We originally had assumed a very long timeframe for repurposing of these lands, so the pace at which we're identifying uses and tenants is quite encouraging.

I should point out however that signing a lease is only the first step and it could still take some time before crops are planted and lease rents ramp up. Another important strategic focus for us of course is improving the performance of the materials and construction segment.

Financial results did improve in the quarter last year -- the quarter compared to last year with the segment generating $9.1 million of adjusted EBITDA despite continued margin compression from price competition for patent jobs.

We're focused on increasing paving volumes to offset margin compression and we're pleased with a 30.7% increase in paving tonnage in the quarter compared to last year. We've hired a new Chief Operating Officer at Grace Pacific, Pike Riegert who is overseeing all aspects of the vertically integrated paving business from the quarry to the roads.

Pike comes to us from Zachry Construction where he was Southeast Regional Manager. Among other things he's been charged with implementing a performance improvement plan resulting from a comprehensive study conducted in conjunction with FMI, a leading consultant to the engineering, construction, and infrastructure industries.

And on Slide 16, the final strategic agenda item I want to highlight is of course the reconversion and its related elements.

I'm very proud and appreciative of our teams' efforts to convert a 147-year-old CCorp to a REIT while simultaneously transitioning out a sugar bringing property management in-house and advancing all the other strategic priorities I just described.

While Jim will shed light on several aspects of the financial steps we're taking to complete the conversion, I can report that our shareholders resoundingly approved of the steps we're taking to enhance our governance practices, facilitate the REIT conversion, and ensure our continued compliance with the REIT rules.

On October 27, a special meeting of shareholders was held at which 99.7% of the shares voted approved our holding company merger. The merger facilitates our compliance with REIT requirements by establishing certain standard ownership limitations and transfer restrictions on A&B common stock.

As part of the holding company merger, we've also eliminated the classified structure of our board and acted majority voting for all directors in uncontested elections and adopted other shareholder friendly governance changes. While the REIT conversion has been successful and well received that hasn't been inexpensive.

Total conversion costs are expected to be between $25 million and $27 million which is within our previous estimated range. This estimate doesn't include of course the shareholder distribution associated with the earnings and profits purge.

In addition to the conversion costs that we're incurring we're making important investments in technology and people to ensure that we're a fully functioning REIT and can operate cost effectively as we grow.

Most conversion related consulting expenses have or will soon ramp down and we expect that by the end of next year, we'll have completed our organizational initiatives, fill the few remaining open positions, and gotten to a new steady state of corporate operations that will allow us to rely less on consultants and get our corporate expenses in line with similar organizations.

We'll be in a position to shed more light on this outlook on our year-end call. With that, let me turn it over to Jim to discuss financial matters..

Thanks Chris. Net income for continuing operations available to A&B shareholders was $7.4 million or $0.15 per diluted share for the third quarter. This compares with $12.1 million or $0.24 per diluted share for the prior year.

Results included the discontinued operations of HC&S totaling $0.8 million or $0.02 per diluted share of after-tax losses for the third quarter and $13.6 million or $0.27 per diluted share of after-tax losses for the prior year. This next slide shows the key drivers for the quarter.

Operating income improved year-over-year by $3.6 million and reflected improvements in all of our operating segments. However these were offset by REIT conversion costs and increased G&A related to some additional transition costs.

Slide 20 shows the drivers of the G&A variances for the quarter and I would like to use this to provide some thoughts on our run rate for the company. But before I get into run rate, while I think this analysis is indicative, it's also based on just one quarter results, so the number may change a bit quarter-to-quarter.

The items that are related to our transition to a fully integrated REIT and certain consulting costs required to convert internal processes and systems that are not in the REIT reconversion cost line item and personnel transition and recruiting related costs altogether totaled about $3.7 million for the quarter.

In addition, certain pension costs will be removed from G&A in 2018 as a result of accounting changes and I'll speak to pension costs in a moment but to get a run rate I will back those out as well.

The underlying public cost of the company including all of the senior executives and unallocated activities of the company were approximately $4.8 million during the quarter. To add to that, the commercial real estate $1.7 million run rate gives a quarterly run rate of $6.5 million or $26 million annualized.

This number is most representative of the company's G&A if it were entirely a commercial real estate operation has about 90 basis points of our total capitalization. The remaining G&A components separately support materials in construction and land operations. As it should be in any company G&A is a continuing focus.

As you can see in our quarterly results, the largest immediate improvements in our G&A will come with the completion of the REIT conversion and exiting of consultants that are here as a result of our conversion.

So that is our current priority to fully staff internal functions and to complete systems that have changed as a result of the REIT conversion. Looking at the bottom of the slide, we are right on track with our REIT conversion cost guidance of approximately $26 million. This quarter represented an increase year-over-year but we were expecting that.

Looking forward to the fourth quarter these expenses should be about $5 million. I spoke about the pension contribution we made at our Analyst Day last September but let me give you a few more of the details.

Our funding of $48 million was time to permit to offset taxes we paid a couple of years ago in addition to creating a current year taxable event.

So we benefited on a number of fronts that reduced our payment after-taxes by $19 million and enabled us to reduce the cash portion of the special distribution related to our REIT conversion by $6.5 million. So in total as a result of great tax planning by our team at A&B, our $48 million contribution only cost us $22.5 million in cash.

The additional benefit is that we're now 96% funded in our qualified pension obligations that has enabled us to match fund our assets and liabilities to reduce or we hope almost eliminate the volatility of the plan and to also substantially reduce the costs related to administering the plan which in total should eliminate an additional $1 million from our run rate G&A.

These benefits will begin with our new plan year at the start of 2018. The special distribution is expected to be declared in mid-November and paid in January 2018. As a reminder, the majority of the dividend about 90% relates to the E&P Purge and will be taxable for 2017 as a qualified dividend.

The portion related to 2017 distributable REIT income also will be taxable for 2017, but as a non-qualified dividend and amounts related to 2018 will also be considered non-qualified and will be taxable for 2018. Additional details of the release -- of this will be released later this month.

Our special distribution will require us to fund about $159 million of cash at the midpoint of the last slide. So as we look toward that event and in the context of continuing low interest rates and a strong lending market we elected to increase the size of our revolving line of credit and to take on additional term fixed rate debt.

We are fortunate to have a supportive lending group and enabled us to increase our line of credit to a total of $450 million capacity while at the same time reducing the rate and modifying certain covenants to create more flexibility.

Reflective of our change and focus to commercial real estate and the REIT conversion, we're also very fortunate to have a strong long-term relationship with Prudential to provide the highly effective private note shelf we have used to fund long-term efficiently priced unsecure debt.

Last month, we locked rates on a forward funding of $75 million with Prudential. A couple of notes on the commercial portfolio activity that will affect future quarters. The first relates to the sale of Midstate 99 Distribution Center in Visalia, California.

Earlier this year we received an unsolicited offer to purchase the property and we expect to close on the sale later this month. Since the sale was opportunistic, we have not fully solidified the other side of the 10/31 but are now working on that.

The second note relates to the 139,000 square foot Concord Commercial Center in Phoenix, Arizona, where a tenant occupying 108,000 square feet has given notice that it will vacate 64,000 square feet at year-end and the remaining 44,000 square feet at the end of April next year.

Earnings for 2017 and 2018 will include lease terminations fees and a vacancy will have a negative impact on same-store cash NOI beginning next year. Let me finish off with a couple of highlights on our financial condition and note that we've made the stats pro forma for the forward-fundings that are locked in.

We will have about $358 million available on our line of credit when our new Prudential loans fund later this month and in December. Our net debt to EBITDA at 5.2 times took a little bump as a result of the pension funding and because the tax benefits are still ahead of us.

Our debt leverage is at 22% of our total capitalization, and importantly, as we move forward into an uncertain interest rate environment, we are now 86% fixed rate for an average 6.2 year term. So our balance sheet is in a very healthy condition. Thank you and now I will turn the call back to Chris for closing remarks..

Thanks Jim. I want to close by kind of acknowledging all of the things that we've referenced today in terms of the progress that we're making as a company.

Just listening to Jim talk about the pension funding strategy that was developed by the team, the refinancing steps we've taken, the leasing progress that I referenced earlier, the diversified Ag progress, a lot of other things that frankly I can't talk about yet because we're not ready to disclose them.

I'm incredibly excited about where the company is going and I want to acknowledge our team for all the progress they're making. There are many reasons to invest in a company and certainly our assets, our businesses, and land excuse me our land are all spectacular but our team is what makes us a compelling Hawaii investment opportunity.

Whether it's our real estate staff who are among the most well respected and connected in the local industry or our diversified Ag team on Maui or our Grace Pacific estimators or our new VPs of Tax and Technology we have unique skills sets that set us apart and as the past few years have shown these people have a work ethic that defies any image you may have of a laid back Hawaii, our team knows how to create value while making our communities in Hawaii better and they're committed to doing it.

I think that shows the results that they’re producing each day. So I want to thank them and I want to also thank everyone who's listening in. We look forward to many -- to seeing many of you next week at REIT World in Dallas and now we're happy to answer your questions..

[Operator Instructions]. Our first question comes from the line of Sheila McGrath from Evercore. Your line is now open..

Good afternoon. Chris, I was wondering if you could just go back to the advancing the diversified Ag. If we look at the results in the quarter and then kind of the metrics you said that were almost at 50%. We can't take when we look at this result looking forward to next year, you can't really take it as a run rate.

I was wondering if there's any kind of guidance you can give us just not even numbers but how you expect this kind of ramping on the Ag to leases to kind of play out over the next couple of years?.

Yes, it's a good question but it's also a tough question to answer.

Let me start, Sheila with sort of the big picture messages that we're very encouraged by the pace at which we're identifying users and uses of the land and that's the most important thing because when we start trigger operations, we have this concept of a patchwork of new uses but quite frankly other than a very conceptual chart.

We didn't have names and crops and a lot of the specifics and I think what's most encouraging for us right now is that, if our lease discussions negotiations with perspective tenants all pan out, we could in a few months find ourselves having leased or directly repurposed more than half the land. So that's the primary takeaway I want you to have.

I did make the point though that just because we lease a land, let's say we leased 10,000 acres to someone who wants to grow energy crops.

They then have a process to undertake get their permits, get their facilities in place, get their farming equipment begin to plant, all of those kinds of things will take some time and so some of these leases we are structuring such that there's a ramp up in their rent as consistent with a logical ramp up in their farming activities.

So I can't really comment on exactly what will happen to the run rate going next year. I think that we could probably commit to shedding some more light on that in our next call when we give an outlook for 2018.

But I would say that the -- we certainly do hope as a result of both addressing some of these pension costs and beginning to generate more revenue from our Ag lands to get to our goal of either breakeven or modest profitability from our Ag operations over the next couple of years and then beyond that, I think I'll defer it to our next call..

Thanks Chris. And my point there is it's just because that part of it it's difficult for all of us to project to that, it's super helpful and I look forward to it being much easier, it's better than sugar.

But and then back on Jim, just on the G&A you did a good job simplifying that first but when you got back down to the kind of run rate for the year that was just for CRE, so what should we look when we look forward at 2018 just directionally from this year on G&A back to that slide, how should we think about G&A for the company?.

So in total, this year obviously you're seeing included in the G&A number, a lot of costs that are just highly unusual for a steady state operation of a business. And as I said, those costs are really the ones that we're focused on getting rid of right now and of course we have all of our operations a view on how to become more efficient over time.

But I would say that the biggest transition going into next year would be the elimination of all or maybe most of the transition costs that are in the numbers today. Again I think we'll give you better view next quarter, in next quarter's call on the outlook for G&A next year.

I think that we're taking a very fine finally fine approach to all the elements of G&A in the company but I want to make sure that you understand and others understand that I think we're running the basic part of the company, the CRE part of the company pretty efficiently and I think that when we get these consulting costs out, we will see that the basic underlying support of costs are pretty efficiently run.

The other sides of the business each deserve their own G&A because there are just different activities right, we wouldn't have those, if we didn't have pieces of business, we wouldn't have those elements of G&A and we wouldn't be much larger in G&A in the company as a commercial real estate company, so strategically its long-term important for us to steward this land to the highest and best use and so we need those people strategically it's important to run most efficiently at Grace and our materials and construction business.

So we need those operating costs. So they’re going to be around, they're not going anywhere but we will obviously will be looking at ways to make those operations much more efficient and I think we'll have more to say about that when we get to the next quarter..

Okay, great. I will get back in the line..

Thank you. [Operator Instructions]. Our next question comes from the line of Steve O'Hara from Sidoti & Company. Your line is now open..

Yes hi, can you just going back to diversified Ag. Can you just talk about the I mean it seems like you made very good progress and I mean over 10% of it is I guess leased at this point or are awaiting lease. And what's the cost of that? I don't know project or business is the right word, what's the carrying cost of that entity at this point..

Steve, its Chris. I'm actually looking to Jim and Paul they've good way to characterize it. It's a little bit complicated as you got legacy cost still in there from the old sugar operation and then you've got of course the actual operation costs of the new operation. I don't know there is a good way to boil that down..

Yes. So Steve I'm not sure if you're referring just to diversified Ag or the land operations segment in total which also includes development are you referring just..

I mean, I guess -- I'm sorry, so I guess I mean the diversified Ag as a unit I guess so, I assume some of it is in discontinued ops. I figure that's not right. But just what is the cost of that because I assume leasing out 4,500 acres you're not running a profit right now.

I mean wouldn't expect you to be, but I mean I guess what kind of a drag is that of the operation right now. And may be what's the -- when does it become maybe breakeven? What type of a, let's say make rate on the land you have to get to before it starts become breakeven at that potentially profitable down the road..

I think look these are all they're really good questions and I understand I think you're looking at in a constructive way that is looking at the Ag business as a separate standalone, how much is the cost to operate and what’s the breakeven to carry forward their operation. Look I don't think we have the specific answer for you today.

I think we're going to be more thoughtful again after we finish our budgets and we come into the next year. I would tell you that, I think most of the operating costs related to Ag's property tax. But Land Operations is property taxes.

We don't have much of that in Ag but we do have, I think it's very fairly sparsely here we've got security and things like that but I think it's very fairly sparsely..

Yes, we have the water systems. I think that in general if you just took the Ag component of the land operation segment we would be operating at a relatively modest negative right now. Our belief is that once we get these land -- all these lands leased out we will put that to a positive.

It's never going to be a significant driver of profitability for the company but it's a very important objective for us because these land holdings are so important to us doing the right thing for the state which is repurposing these land is very important to us and we believe that will also have the benefit of turning what’s right now probably a modest negative into a relatively modest but nonetheless a positive going forward.

So again that's something we'll try to shed some more light on in an upcoming call..

Okay and then thank you. And then just on the improvement in -- I'll say vacancy for the lack of a better word, but within the CRE can you just, what drove that I mean I guess it seemed like you would drop back into may be drop back a little bit with the tenant leaving in fourth quarter and I guess following at that with 2Q 2018.

And can you talk about may be the impact of that and the potential I mean you assume this is going to be a tougher space to fill? And maybe your thoughts there..

Yes, so Steve I'll have Lance jump in with some of the particulars. I think the overall story of the portfolio is that it’s performing extremely well and certainly we're getting very good traction.

We do have I think I assume you're referring to the upcoming vacancy that we're going to have and Lance can talk a bit more about that that shouldn't be a significant driver for our portfolio performance but it is something that we wanted to get out there before it hit..

Yes, so just additional color Steve. What drove the occupancy for the quarter was the strong performance in the assets. It's important to note that the tenant that Jim referenced is actually economically and physically they were occupied through the end of 2017.

So we're just highlighting that as of 2018 but it won't have any impact on occupancy or NOI for the year..

Thank you. Our next question comes from the line of Sheila McGrath from Evercore. Your line is now open..

Yes. Chris I thought it was pretty good news about the ULTA. I'm just wondering if you could give us a little bit more detail on how that opportunity came about and have you seen more tangible benefits of concentrating the portfolio in retail that more kind of tenants are looking towards you as the -- a primary opportunity to expand into Hawaii..

Yes, Sheila I'm happy to address that. But I'll let Lance talk a little bit more specifically about that opportunity. But I'll say just in general we've been very pleased with two things.

One is the extent to which we're gaining sufficient critical mass in our Hawaii portfolio as a result of our migration back to Hawaii to enable things like this, to enable us to have multi asset, multi location discussions with tenants, and that has been very helpful in a number of cases.

Even if the tenant may not ultimately need multiple locations although most of them when they come in they want multiple locations from day one which is very helpful, just the knowledge that they can expand with us down the road is very helpful.

The other thing that I've been very happy with and I know Lance shares this is just the quality of the leasing engagement that we have with our new in-house team.

I know you've met a number of those folks, Leslie and Larissa, they've been doing a tremendous job we've had a more significant presence at the various ICSC meetings and I think it's really getting us a lot of attraction. So now I'll let Lance talk more specifics about ULTA..

Yes.

So specific to ULTA, I think this was a combination of two things, so quality of our portfolio and geographic coverage within the state so ULTA had a minimum number of spaces that they needed to open in order to make market entry we were able to really leverage that ask into two locations and we actually had them look at a couple of others and fortunately we were able to secure those but I think that just speaks to the quality of our portfolio.

The other driver Chris mentioned Leslie, Leslie Brown, our Head of Leasing. She had an existing relationship with the people there. She's very well versed with in the retail industry and similarly we can leverage that to get multiple locations and to secure new tenants in the state.

So, Chris referenced the fact that we do have others that were in discussions with and we're hopeful that in the near future we can make similar announcements to this..

Okay. And Lance also I have wanted to see if you could give us an update on the Lau Hala Shops. What percent leased is that? And I think you were looking to try to get a exercise or a gym there, and were you able to secure that tenant..

We are very close to securing that deal. So our percentage of leases executed has not changed from our last supplement, Sheila. But we continue to make very good progress on the construction front and so on schedule towards turning over first units and in January to some of our initial tenants..

Okay, great. And then Jim I was wondering if you could tell us what the net debt to EBITDA goes to after the purge. And also the net debt to EBITDA seems somewhat penal for Alexander & Baldwin because you have -- you're asset rich but some of those assets aren't throwing up a ton of cash off.

I'm just wondering how your lenders will they look to the other metrics for leverage for Alexander & Baldwin..

Yes. I mean you're really talking to the reason why our debt leverage is around 20 something to low 20% and our debt EBITDA is five times. So $160 million of borrowing is a little more than one time debt to EBITDA.

Again I can't tell you the number that we're going to because we're it depends on some of the activities that we have going into the first quarter of the year. But that's a roughly it's probably 1.2 times debt to EBITDA impact from result.

And again remember we're at a 5.2 times today in part because we haven't received the tax benefit from the pension funding that we did. As far as how lenders look at us, so we've got lenders that are reorienting themselves with our conversion to a REIT and with the continued focus on growing their commercial real estate side of the business.

Our lenders have been reorienting themselves to look at us more like a REIT and how they were looking at us in prior times more as a diversifying company. And with that they were quite supported in adopting more REIT like terms and conditions in our credit facilities that we just put in place.

And while they've got elements to look at different ways of looking for example materials and construction because it's not traditional REIT business and different ways of looking at development, well the development is a traditional business for the homebuilders it's not typically traditional for the REIT world.

They've given us some I think what I would call very good credit towards debt capacity on those items.

So I think that they are being very supportive [indiscernible] they're also being fairly realistic about their limits of their understanding of certain parts of the business that they're giving us a lot of credit for the experience that we have and the history we have in and being successful at the development side and also in managing materials and construction sale.

So I was very pleased with their reorientation of their credit facility to make it look much more like a REIT than it was before..

Thank you. At this time I’m not showing any further questions and would like to turn the call back over to Suzy Hollinger for any closing remarks..

Thanks everyone for being on the call today. If you have any further questions please call me at (808) 525-8422. Again thanks for being on the call..

Ladies and gentlemen, thank you for participating in today's conference. That does conclude the program, and you may all disconnect. Everyone, have a great day..