Kenneth Kan - VP of Capital Markets Chris Benjamin - President and CEO Jim Mead - Chief Financial Officer Lance Parker - Chief Real Estate Officer Clayton Chun - Chief Accounting Officer.

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

Good day, ladies and gentlemen, and welcome to the Alexander & Baldwin 2018 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, today's conference is being recorded.

I would like to introduce your host for today's conference, Mr. Kenneth Kan, VP of Capital Markets. Sir, please go ahead..

Thank you, Aloha, and welcome to our call to discuss Alexander & Baldwin's Third Quarter 2018 Earnings. With me today are our President and CEO, Chris Benjamin; and Jim Mead, our CFO. We are also joined by Lance Parker, Chief Real Estate Officer; and Clayton Chun, our Chief Accounting Officer, who will participate in 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 in 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 of the statements were made and are not guarantees of future performance.

Future 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 the company's REIT status and the company's business as well as the evaluation of alternatives by the company's joint venture related to the development of Kukui'ula, generally discussed in the company's most recent Form 10-K, Form 10-Q and other filings with the Securities and Exchange Commission.

The information in this call and presentation should be evaluated in the 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 the statement regarding our use of these non-GAAP measures and reconciliation. Slides from this presentation are also available for download at our website, alexanderbaldwin.com.

Chris will open up today's presentation with quarterly highlights and a strategic and operational update. He'll then turn the presentation over to Jim, who'll discuss financial matters and guidance. Chris will return for some closing remarks, and then we'll open it up for questions. With that, let me turn it over to Chris..

Thanks, Kenny. Excuse me. While I want to welcome our listeners, I also want to welcome you to your first A&B earnings call and your role as VP of Capital Markets. Kenny who already held the Treasurer role at A&B, has added the Investor Relations role following the departure of Suzy Hollinger, who is now CFO of Hawaii Gas.

Many of you have met Kenny over the past months or so and he will be at REIT world with us next week. We are happy to have him in this new expanded role. I'm very pleased by the continued strong performance of our Commercial Real Estate business, and I'm going to direct most of my comments there.

But I'd like to start by recapping our continued progress with our strategic transformation. While there were many steps taken before 2017, the big step last year was, of course, our REIT conversion.

So far in 2018, we've completed the special distribution and the migration of our assets to Hawaii, built out our property management acquisition, leasing and development teams, and advanced our monetization efforts.

But we’re not done and we'll continue this fallen and into next year working on growing NOI, monetizing more noncommercial real estate assets and charting the best path for our Materials & Construction business. I'll come back to Materials & Construction in a few moments.

But suffice it to say, we were disappointed in its performance last quarter and recognized the challenges that creates not only for our earnings, but for our broader acceptance as a REIT. What the market is telling us is that our story remains complicated.

While we want to be thoughtful about achieving optimal values for all components, we also recognize the importance of achieving greater simplicity and focus.

Our Commercial Real Estate segment produced same-store NOI growth of 5.4% in the third quarter and strong leasing spreads are expected to support continued same-store NOI growth in the final quarter of the year.

While we sit at 3.9% year-to-date, this may moderated a bit in the fourth quarter, lending us around the midpoint of our full year 3% to 4% guidance range. Leasing activity in the quarter was robust with 58 leases signed covering 128,000 square feet of GLA.

By September 30, we had completed 87% of our targeted leases for the year based on ABR at spreads of 8.4%. These numbers reflect the continued strong environment for our commercial real estate portfolio and the excellent efforts of our team.

Given the strength of the Hawaii economy, we believe we can maintain solid leasing spreads over the balance of the year, finishing the year at the high-end of our guidance range. We talk often about the embedded value of our ground leases.

And in the third quarter, we had a nice demonstration of that when the ground leased under an auto dealership in Windward, Oahu, was renewed two years prior to its expiration. The lease was extended for another 30 years at an initial 43% increase to base rent.

While some of our ground leases present opportunities to get back for land and the improvements and potentially redevelop the site, this is an example of a lease that represented highest and best used and where a sizable step-up was achievable through an extension. Commercial Real Estate is, of course, our core business now.

And we believe the continued strong performance of the portfolio is a testament to the validity of our strategy to focus on Hawaii. Thanks to our scale in Hawaii, we've been able to internalize all our key functions from investments in development to leasing and property management.

And we built a great team supplementing our internal talent with some key external hires. The team is critical to our growth plans. And our third quarter and year-to-date results demonstrate the progress we continue to make in the effective management and leasing of our commercial portfolio.

This is the first of the five levers of growth in value creation we often reference. With the other four being redevelopment and repositioning of existing assets, ground-up development of new assets, 1031 exchanges from land and property sales, and acquisitions using our balance sheet or equity.

As I said the first lever effective management of the existing portfolio is helping drive our continued same-store NOI growth.

Moving on to the second and third levers that I referenced a moment ago, I’d like to summarize the Commercial Real Estate development and -- redevelopment and development projects we're advancing, which are increasingly going to be a source of NOI growth. They will also deliver attractive financial returns in the coming quarters and years.

I'll start by recapping the success story Pearl Highlands Center. The upgrades of the cinema and the food court have not only generated the direct net benefits we had underwritten, but they've enhanced the customer experience at the center, enabling us to attract other great tenants.

ULTA is opened and doing very well, while a Guitar Center will open in early 2019. We will be 98% leased once Guitar Center is economic, and we have strong interest from a national tenant for the remaining 5,600 square-foot space.

It's hard to quantify the broader uplift, but I can assure you our investment in the Pearl Highland is generating returns beyond the 10% return on costs of the specific improvements. Our next success story will be Lau Hala Shops in Kailua, where we are currently 89% preleased and 57% of the space is set to open this month.

This asset, which reverted to the company in 2016 when Macy's chose not to exercise its option for a ground leased extension, will now provide an exciting blend of dining, fitness, grocery and other retail options for the Kailua community.

In the fourth quarter of 2018, UFC Gym, Maui Brewing Company; and Goen Dining and Bar by Roy Yamaguchi will open and contribute to NOI growth.

Based on our leasing timeline, we expect incremental stabilized cash NOI of about $2.5 million per year, which translates to a stabilized yield on project cost of roughly 11%, again without the consideration of the benefits to our adjacent assets.

Our next repositioning or redevelopment project will be Aikahi Park Shopping Center, a property that we acquired in two stages. First, the ground lease with the acquisition of the Kailua portfolio in 2013, and then the leasehold improvements in 2015 at a 25% cap rate.

The improvements were in poor condition upon purchase, and we've been prepping the center for redevelopment. We have an LOI with Safeway for a lease extension and they plan to upgrade their store. Meanwhile, we are advancing discussions with a number of tenants to extend their leases in anticipation of a renovation.

We are finalizing the renovation plans for the center, and we will share more information with you as we complete the plans, and after we roll them out to the local community. The last development I want to talk about is for Ho`okele Shopping Center on Maui, which is an example of the third lever of growth, ground-up development.

This center is 64% preleased, and we are in discussions with various potential tenants to fill the rest of the space. We broke ground in March and construction is on schedule for a 2020 opening. I do want to acknowledge some challenges in filling midbox spaces on Maui.

At Ho`okele, we have the ability to defer construction of the midbox space, so we will evaluate that option, while at nearby Pu'unene Shopping Center, we conservatively underwrote the acquisition with an assumption that we would not fill our final box, a 25,500 square-foot space, until 2021. So we have some cushion there.

Redevelopment and new development continue to be a source of growth for us, and we expect more redevelopment opportunities to come from our improved properties and our ground leased portfolio. While we once felt that Lahaina Square on Maui presented a redevelopment opportunity, we decided instead to sell the property.

We received an offer that exceeded the residual land value of our development models. And so we will capitalize on the opportunity to exit the property, and increase NOI through a reinvestment years earlier than if we had pursued redevelopment. We actually closed on this sale today, and I want to thank everyone on our team that made that possible.

As you can see, we are pulling several levers in our efforts to grow NOI, with the only exception really being number five the use of our balance sheet or equity for acquisitions. The reasons we have discussed previously those sources of growth will likely need to await the completion of our strategic transformation.

Wrapping up with a couple more slides on Commercial Real Estate, this slide shows the continued strength of our retail asset with our occupancy at nearly 93% in leasing spreads remaining favorable.

Meanwhile, our industrial portfolio generally remains very strong as well that we are continuing to show lower occupancy than we historically have because of one large vacancy at Komohana Industrial Park. That one vacancy accounts for 4.6% of our industrial portfolio space.

We're being patient in our releasing efforts because we see -- as we seek to fill the space with the right tenant, especially in light of the strong 16.7% industrial releasing spreads we achieved for the quarter.

At Kaka`ako Commerce Center, six leases were executed in the third quarter of 2018, to bring occupancy to 91.1%, a 9.3% occupancy increase year-over-year. Additionally, Honokohau Industrial achieved 100% occupancy with the execution of three leases in the third quarter at an aggregate comparable leasing spread of 30%.

Moving beyond our Commercial Real Estate business, we're advancing efforts to improve the performance of and simplify the other parts of our business. Starting in Land Operations, we have advanced our monetization efforts with the sale of individual condos and homes as well as land parcels and even our interest in one development joint venture.

For the third quarter, we closed 22 units at Kamalani and 24 units at Keala O Wailea on Maui, the latter of which produced an $8.6 million JV distribution. During the quarter, we also monetized our remaining interest in the KaMilo joint venture projects on the Big Island for $5.5 million.

The cash proceeds from these three residential developments totaled $16.9 million for the quarter. With the KaMilo sale in early October closing of the last unit at Keala O Wailea, we have closed out two development projects in the last couple of months. For the rest of the year, we expect to continue selling through residential inventory.

This concludes closing the remaining three units at the collection and 21 of the 67 remaining units at Kamalani increment one. At Kukui'ula, we've seen a very nice increase in activity, closing five lots in the third quarter totaling $5.9 million in revenue.

And for the fourth quarter, we have four lots totaling more than $10 million in revenue either already closed for under binding contract to close before year-end. Across the board, we're advancing our efforts to simplify the company as a REIT by deemphasizing capital investments required for development for sale projects.

We're doing this by exploring JVs, recapitalization or even a sale for our Wailaya, Kukui'ula and Kamalani project. While we're working through the process of evaluating options with interested parties, we're not able to share any updates at this time.

Finally, in Land Operations, we continue to advance our diversified ag efforts on Maui, including the recent expansion of grass-fed beef operations, and good progress in identifying viable farming uses for the former sugarcane lands on Maui. We also continue to work on selling parcels of land where appropriate.

We closed the sale of a 313 acre ag parcel on Maui to the state of Hawaii in the third quarter for $8.6 million. The potential sale of 219 acres of -- to the County at Maui for the expansion of the Maui Ag Park, is working its way through the necessary approval steps, and we expect to make more progress on that soon.

As I mentioned Materials & Construction earnings for the quarter were disappointing. And we clearly are not going to achieve our full-year earnings goals. Adjusted EBITDA for the quarter was $5.6 million, a decline of 38% from last year, and for the full-year, our adjusted EBITDA is trailing 2017 by more than 40%.

We have been making some operational changes in recent months and saw improved results from our paving operations where revenue and margins increased in the quarter. Offsetting that, however, reported results at our quarry operation, where we've made some operational changes but aren't yet seen the benefits.

This is proving to be a more challenging process than we had appreciated, but I believe the right steps are in motion, including revamping our financial systems to better understand the economics of every component of the business and continuing to implement operational process improvements.

Looking forward, we won some favorable new contracts over the past couple of months and we expect various operational changes to bear fruit in future quarters where some operational improvements may bring additional short-term pain. So we are not prepared to provide an outlook for the balance of the year.

As we finalize our plans for next year, we will share both more details of the steps we're taking and how they will position us for 2019. With that strategic and operational context, let me turn the call over to Jim to discuss third quarter earnings drivers, our outlook and our balance sheet..

Great. Thanks, Chris, and good afternoon. Our total company earnings improved year-over-year, driven mostly by results in our Commercial Real Estate portfolio, and a modest increase in monetization activities during the quarter versus last year. Diluted earnings increased to $0.20 per share for the quarter.

Chris reviewed the continued outperformance of our commercial real estate portfolio. I want to point out that not only is our total NOI and same-store NOI growing, the quality of our NOI is also increasing. Last year, at this time, we owned an assortment of commercial properties on the mainland.

As you will recall, we sold those properties early this year and reinvested into three high quality retail assets in Hawaii. So our Hawaii NOI, which is more highly valued than the mainland NOI we traded out of, is almost 20% larger now than it was a year ago.

This is a table recapping where we are on our land operations activities; our Keala O Wailea sale development project is sold out. The final closings have been occurred in October. The Kamalani affordable housing project is almost through its first phase, and we're expecting to close out sales at the collection during the next couple of quarters.

We are also working to accelerate the remaining Kahala lot sales. During the quarter, we sold our joint venture interest in the KaMilo development on the Big Island of Hawaii and monetize 313 acres of land on Maui and the sales of the state for expansion of their report.

Chris referred to the fore sale residential projects, which are undergoing reviews the Kukui'ula project on Hawaii, our remaining lands in Maui and the remaining two development increments of our Kamalani affordable housing development. We will give you updates on our progress in future quarters. Turning to Materials & Construction.

On prior earnings calls, we spoke about headwinds in the market with a pause in federal, state and local contracting. Nevertheless, during the third quarter, we had a year-over-year improvement in revenues as a result of both building from our backlog and an unexpected contract on the Big Island.

However, the improved top line was weighed down by increasing unit costs in our quarry. We lowered our production levels to reduce inventories, and because it is a high fixed cost business, unit costs increased with a decrease in production. We do not expect to meet our EBITDA goals for the year.

And from a market side, in early REIT of next year's Hawaii paving market makes us increasingly confident that the total market opportunity is returning to the levels we saw in years prior to this year. We are on track for the guidance metrics we provided at the beginning of the year as shown on the slide.

On the Commercial Real Estate side, we are projecting releasing spreads towards the top end of our 6.5% to 7.5% range, and same store NOI growth in the middle or at about 3.5% for the year. I've added to guidance of goal to reduce the company's total debt by $100 million from the end of Q1.

You will recall, we made a dividend in Q1 for our reconversion of which $156 million was cash. We said at the beginning of the year that our balance sheet goal is to reduce our indebtedness and make a substantial repayment of that distribution during the year.

Since March, we reduced $61 million in the company's total debt and have a $100 million debt reduction goal for the year-end 2018. Finally, we remain well-capitalized with low corporate leverage and healthy credit statistics. So now let me turn the call back to Chris for closing remarks..

Thank you lot Jim. Before I share my closing remarks, let me thank Jim for his contributions to A&B.

Jim arrived at a critical time for the company when we were in the midst of our reconversion and he brought deep knowledge of the REIT industry, helping us reshape everything from our financial reporting and credit facilities, to our information systems and investment strategies. He has helped us immensely in our REIT journey.

Meanwhile, Diana Laing is now onboard and has had the opportunity to work with Jim and the team over the past few weeks, facilitating a smooth transition. Not only will Diana add great value in her interim CFO role here, but she gives us the luxury of time in conducting a thorough national search for our next CFO.

I want to thank both Jim and Diana for their leadership and thank the outstanding finance team supporting both of them, and me. In closing, I'm very proud of what we've accomplished as a company, but it's no secret that we're not yet realizing the benefit of these successes in our stock price.

There are many forces at play in the market right now, but we have to focus on those that we can control and foremost among them is the size and complexity of our non-Commercial Real Estate businesses. As we've demonstrated, we're working to monetize assets, and we have more such efforts in the queue.

We absolutely value simplification, but are not in fire sale mode, we will be thoughtful about each asset. And while I fully expect more progress in simplification over the next six months, we'll be disciplined about the process.

Most importantly, I can assure you that these simplification efforts will not attract from our focus on growing our core commercial portfolio where I expect to continue to see great results. That concludes our prepared remarks. And we're happy to take questions..

[Operator Instructions] Our first question comes from the line of Steve O'Hara with Sidoti & Company. Your line is open. Please go ahead..

Just a question about the -- you had mentioned the highlights in the press release about the development for hold. Have you talked about the expected impact on NOI for -- I assume it 2019 openings.

Is there -- have you given any guidance on that or you plan to?.

We haven't given the exact timing guidance beyond the fact that we did talk a little bit about the fact that Pearl Highlands is pretty much stabilized now, and that Lau Hala will be stabilizing over the course of -- well, starting in the fourth quarter, but probably by mid-2019. So that gives you a sense of how those will come into earnings.

The impact of Aikahi and Ho`okele would be beyond 2019. So I think that’s the probably the best I can do. I can't give you a precise NOI number for Lau Hala in 2019. It's going to depend on exactly when tenants go economic..

Okay. And then just, I mean, it seems like you had a lot of good activity in the quarter on the sales side. I mean, in terms of the -- I mean, it sound like you had some things in the queue you said.

I mean, do you think you're at a stage now where you have better visibility at the sales, and maybe you see more of a consistent flow to sales? Or is it still probably going to be more choppy and things like that?.

I think, we always caveat sees the fact that sales are difficult to predict and project, especially the timing of sales, but even whether or not the sales will happen.

Let me give comments on both sort of the retail sales where we are selling existing residential inventory versus project sales where we might be selling out of the project or selling a builder parcel. The former, we feel very good about the pace at which things are going, the pace has picked up at Kukui'ula.

We have now sold out of Keala O Wailea, Kamalani. We only have a few unsold units that we expect to contract for this year. So that's going very well. And I think that's relatively predictable and we gave some guidance on the timing and pace of those. With respect to developments and builder parcels, those are harder to predict.

I would say that the positive activity that we have in the quarter and the discussions we've been having have overall been relatively encouraging, but we are very cautious about predicting what else we will be able to get across the finish line. So we are going to be cautious.

I think as Jim said, we do have a goal of some continued deleveraging this year and I feel pretty good that we'll hit that goal. But these things are never over till they're over. And so Lance, do you want add anymore color on market or timing, let's started..

Steve, I think, that’s really kind of all we can say in terms of an outlook. But overall, things seem relatively favorable..

Okay. And maybe just one last one. In terms of the Lau Hala Shops, maybe I have got the wrong name, but that’s the Macy's redevelopment right the box that was redeveloped..

That’s right..

And just in terms of the -- I know, you talked about the return on costs or the incremental NOI coming from the investments made in the redevelopment. What's the increase in the base rent that you used to get on that property? Is that material or ….

It is..

Hey, Steve. This is Lance. It's significant. Macy's, when they were there operated under a ground lease, they were somewhere in the range of about $300,000 annually in terms of rent paid.

So the ability one to convert it to a space lease and then reinvest additional proceeds or capital into that project is really what's going to drive a substantial lift in NOI once that becomes economic and fully occupied..

Okay. Okay.

So it's kind of two pieces coming together, the investments, the NOI from the investments and then the base rent going up as well?.

Correct..

Okay. I'll jump back in queue. Thank you..

And then, jump back in the queue but just couple more things I want to add.

One thing is that when we talk about these incremental returns on Lau Hala, this is not just incremental to the previous rent, but it's really incremental to what we thought we could achieve if we just did a space lease of the existing building, which would've been relatively low rent given the big box nature of it.

And the so the uplift here is really from the repositioning and the ability to command higher rents for smaller, more specialized spaces. The other thing I should add to my earlier comment about the timing of uplift in NOI is that what I was focused on was primarily the incremental NOI just from these specific spaces.

But as I also alluded to in my prepared remarks, we expect nice uplift in the center's more broadly. At Pearl Highlands, for example, the fact that we've been able to get Ulta in there, and then we've got guitar center, those are both deals that give us nice rent uplift beyond just the $600,000 NOI from the investment itself..

[Operator Instructions] Our next question comes from the line of Sheila McGrath with Evercore. Your line is now open. Please go ahead..

I was wondering on the lot sales that you highlighted the 22 units at Kamalani. And were those just individual sales? Or did you -- are those bulk sales to one owner to accelerate activity, just curious..

Those high see those plants. Those were individual sales to take individual buyers. So we saw going back now over a year really strong activity that has continued for those 107 units in the increment one. And as Chris indicated, as of the end of the quarter, we had just a few left and as of these we we're down to just one unit that is unsold.

So we expect to close out that project later next year as we see construction albeit able to turnover these units to the buyers..

And then, I know you can't get into detail, Chris, but I missed the three projects that you're considering like options for Kukui`ula and I missed the third, which one that was? But I just curious looking at different options for whatever hypothetical for sale residential project.

Just wondering how you construction that with -- after converting to a reach, can you structure it as a 1031? Or are you able to somehow retain most of the proceeds from a sale? Or are there frictional tax things that we should consider?.

Hi, Sheila, it's Jim. So the third project that we have talked where the second to -- the last two phases, we call it increment two and three of the Kamalani development that Lance was just talking about. So Kukui`ula, Kamalani and the remaining land in Wailea are all in the TRS. So they're not REIT assets, there are TRS assets.

And I would say that we’re looking at -- any at all options in order to monetize those are best things earlier than later, and also to -- keep to a strategy of not having to put our own capital into those developments. And I would say that from a tax perspective, tax planning is something that kind of like she is ongoing.

I would not -- look from what I know I would not assume much in a way of frictional tax costs, in the execution of those sales. But again, I can't -- it depends on the order, and the amounts and the structures. So at this point, though, we are not looking at a significant tax burden on those activities..

And then just on the Maui shopping center sale.

Is that a good comparable that you could share us the cap rate? Just curious what that traded at?.

We closed at $11.3 million. We could look into the supplement for the cap rate. But I would say it's probably not an appropriate metric. You know, we had purposefully looked at repositioning that asset, potentially redeveloping it. And so the rents, I would say, we're not necessarily market neither were the terms.

Also, I would say that the buyer is looking at just holding the asset and putting some improvements, but no real long-term plan to be honest..

So I would just add Sheila, again, when we're looking at the portfolio in total. This was an outlier in terms of the requirement for capital. Without a redevelopment it was going to require a significant amount of accountable for re-leasing. And with the redevelopment, obviously, we borrow on capital.

And when we look at the economics of doing either scenario of the NPV for us, didn’t seem it attractive in comparisons of the sale price. We can get through the property. So it just didn't seem to fit, with our overall strategy of points and nurture, a higher growth rate for our portfolio. So it made a good candidate for spending out of the portfolio..

And then on the Lau Hala development that 11% yield on cost. I know that was a decent uptick from the prior.

Was that on better rents, better costs? Or how are you able to boost that yield on that project?.

It's really coming down to better rents. And so we stated 89% preleased. We do have the remaining days and various levels of discussions and negotiations. So we are starting to fine tune our guidance on that just being able to see where we end up or expect to end up..

Okay, one last one. On ground lease that was a significant lease ag.

Can you remind us or maybe it's in the supplemental, when -- how many resets are coming over the next couple of years? Is this like a good window for ground lease resets for the company?.

In our supplement in the table, Sheila, we do lay out our top 20 ground leases by ABR. And then we do have the next leader step or expiration schedule in there. It’s a nice highlight to show where is embedded value in our portfolio.

But as Chris had indicated in his comments, there's always the opportunity to look either at recapturing the space, releasing the space or doing something like we did at Lau Hala. So it's a little difficult on an aggregated basis to just apply this kind of increase and think the best appropriate..

And our next question is a follow-up question from the line of Steve O'Hara with Sidoti & Company. Your line is open. Please go ahead..

Yes, thanks for taking the follow-up.

Just I was curious, is there any -- I didn’t see the press release maybe and if there was any impact from weather or hurricane or anything like that in the quarter for great potentially or maybe in any other areas?.

No. We didn’t have. The whether -- the weather channel didn’t really impact our portfolio. It was more on the Big Island was impact. We don’t have much real estate on the big island..

The question was about Greece. And I do think that there -- Greece did lose some operating days because of the weather. But I don't think it was in a primary cause of the performance..

Okay. And then maybe there was a price for the anchor Maui.

Is that within the re-subsidiary or is that within the REIT itself? And then also on the pending 4Q sale, can you just talk about what type of the value of that is if you can or into it?.

I'll let Lance comment on values with respect to the sale that closed, and whether that's reflective of what we might see going forward. I will say that the those lands are all within the REIT, and they actually would qualify for exchange. It should be 1033 exchanges as opposed to 1031 exchanges because these were friendly.

One was, and the other is set up as a friendly condemnation with the government agencies. So it's a little bit more flexible in terms of the reinvestment timeline..

And the only other thing that I would add is because they were -- in the case of the airport lands that we closed, it was a governmental agency in the state and in the prospective deals that governmental agency in the county, a material part of the evaluation process is actually done by appraisal.

So it really is sort of a third-party valuation process that we go through to arrive at the valuation. That's said I'd say it's relatively indicative of expectations for the next year..

[Operator Instructions] And we have another follow up question from the line of Sheila McGrath with Evercore. Your line is now open..

Yes, Chris, I was just wondering if you could remind us how -- now that we’re closure to year end, how you’re thinking about the dividend next year? I realize this year's dividend was wrapped up in the E&P. And it's when people look at it, it just does -- doesn't screen like a typical REIT with no yield.

And so I just want to hear your thoughts about the dividend for next year..

Sure. So we had a portion decision about this just a week ago. And, Sheila, as we go into next year, the REIT needs to pay a dividend of at least 100% of its actual income.

And just as a reminder of that, that taxable income this year was about $0.57 a share, which, of course, we paid in the -- we accumulated that dividend and paid it in the first quarter along with our along with our distribution E&P to become a REIT. So that's why we didn't see a current dividend this year.

Next year we are going to pay our current dividend based on at least 100% of our taxable income. And so, again, I can’t talk for the Board. Board has to decide on these things. But in January, we will have a pretty good estimate for our full year.

And we will begin to have a routine dividend, I think, very similar in terms of schedule to other REITs that would be the goal so that there are no surprises going forward. We will set at a level which is something that we can maintain and grow it over time with the growth of our commercial real estate portfolio.

So I think that begins in the early part of next year sort of the same ways to any other refilling it..

Sheila, I would just add that that $0.57 or there about yield will be relatively modest compared to a lot of other REITs. But we always like to remind people that currently only about 55% of our assets are in Commercial Real Estate and generating REIT taxable income.

So as we are successful in continuing our strategic transformation and shifting more of our assets from the non-commercial real estate side into commercial real estate, we should have disproportionate dividend growth in the next few years..

Chris, are you -- we didn’t touch on any like acquisitions. If you do have a number of land sales or non-core asset sales speed up, I would think that you would be in the market looking.

Are there things that are of interest that you are looking at in industrial or retail?.

There are. There are a number of things that we are very interested in.

As I have said before, once we completed the migration of the portfolio, we shifted our focus this year a little bit more to the disposition side, and trying to monetize some of our -- not so much on the commercial real estate side, but on the for sale development side, we've been trying to accelerate monetization.

So we have been a little bit less focused on the commercial real estate acquisition side. But as we have proceeds from land sales, we certainly have a list of assets that we are interested in Hawaii, and we maintain dialogue with potential sellers for those opportunities..

And I have another follow up question from the line of Steve O'Hara with Sidoti & Company. Your line is open. Please go ahead..

You said, I think, about 55% of your assets are in income paying or Commercial Real Estate. And just based on those assets, I mean, I would think that a number of those assets are on the balance sheet for maybe significantly less than what they were.

And, so, I guess -- my take on it is, part of the opportunity is converting those to market value overtime. And then obviously that increases the size of the taxable [indiscernible] your REIT portfolio.

I mean, can you just kind of remind how much of that -- 45% is within the TRS versus the REIT? I mean I guess it's all based on balances [indiscernible] how much value credit? But if you could talk about that just a little bit..

I'll say the vast majority is in the TRS. The primary asset that is not Commercial Real Estate, but that splits within the REIT is our agricultural lands. But from a book standpoint, those are on our books at relatively low values, about $150 an acre.

So if you are just looking at a book asset split between the REIT and the TRS, the vast majority of the book assets in the REIT are commercial real estate assets with the balance -- most of the balance being agricultural land, and a little bit of urban land that we would hope to develop into for hold projects over time.

So most of the balance of our assets would be in the TRS..

Thank you. And I’m showing no further questions at this time. And I would like to turn the conference back over to Mr. Kenneth Kan for any further remarks..

Thanks everyone for being on the call. If you have further questions, please feel free to call me at area code (808) 525-8475..

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