Ladies and gentlemen, thank you for standing by, and welcome to the Alexander & Baldwin’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions].

Please be advised that today's conference is being recorded. [Operator Instructions]. I'd now like to hand the conference over to your speaker today, Mr. Steve Swett, Investor Relations. Thank you. Please go ahead..

Thank you, Aloha, and welcome to our call to discuss Alexander & Baldwin's third quarter 2020 earnings. With me today for our presentation are A&B's President and CEO, Chris Benjamin; and Brett Brown, CFO.

We are also joined by Lance Parker, A&B's Chief Real Estate Officer; and Clayton Chun, Chief Accounting Officer, who are available to 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 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 as well as the rapidly changing challenges with, and the company's plans and responses to the novel Coronavirus COVID-19 pandemic and related economic disruptions.

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 the company's REIT status and the company's business, risks associated with the COVID-19 and its impacts on the company's businesses, results of operations, liquidity and financial condition, the evaluation of alternatives by the company related to its Materials & Construction business and 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 SEC.

The information in this call and the 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 measures and reconciliations. Slides from this presentation are available for download at our website, alexanderbaldwin.com. Chris will open up today's presentation with a strategic and operational update.

He will then turn this presentation over to Brett who'll discuss financial matters. Chris will return for some closing remarks and then we'll open it up for your questions. With that, let me turn the call over to Chris..

Thanks, Steve, and good afternoon to our listeners. As always, we hope everyone on this call is well and that your families remain safe and healthy.

Well, these are challenging and uncertain times we're pleased to be reporting steady progress in both our core commercial real estate business, and in our strategic efforts to continue simplifying our business model.

Before getting into the specifics of A&B's performance, let me start with an update on Hawaii with respect to COVID-19 and recent progress on health outcomes and reopening.

Hawaii has remained relatively shielded from COVID health impacts as the fifth lowest state in terms of total cases per capita, since the start of the pandemic, according to CDC data. However, during the third quarter, daily new case counts did rise triggering a one month stay-at-home order for Oahu, from late August to late September.

So after reopening for almost three months, Oahu again mandated the closure of all non-essential businesses on the island for about one more month at the end of the summer. As a reminder, Oahu contributes roughly three quarters of Hawaii GDP and the same proportion of A&B's commercial real estate net operating income.

This and earlier shutdowns have had a significant impact on the state's economy. With a report from the University of Hawaii's Economic Research Organization or UHERO, noting that Hawaii's second quarter 2020 real GDP declined at a 42% annual rate.

It's worth mentioning that the majority of the impact to Hawaii's economy stems from the state's restrictions on the tourism industry, one of Hawaii's main economic drivers. While most of our properties are not directly reliant on tourism, all of Hawaii does benefit from the revenue and jobs the tourism industry generates.

However, as we stand here today, in late October, the situation has improved dramatically. We've seen improvement in COVID control on Oahu with daily case counts dropping to level that facilitated a move to the second tier of Oahu's reopening process last week.

Most businesses on Oahu were allowed to reopen on September 24, with the first tier of the reopening, and then the second tier eased retail restrictions further on October 22, facilitating indoor gyms and more indoor dining flexibility. As a result, 95% of our portfolio is now open.

Most importantly, the mandatory two-week quarantine requirement for Mainland travelers, which had been in place since March was relaxed on October 15. Domestic travelers may now enter Hawaii without quarantine after providing a negative pre-travel COVID test.

And earlier this week, the Governor approved a pre-travel testing program for travelers from Japan that will begin in early November. These are important steps for the state's economic recovery, particularly as we approach the holiday travel season.

While we're hopeful for steady improvement from here, caution is warranted as we go through this process. The ultimate trajectory of COVID-19 remains uncertain. Local residents and tourists' alike need to practice social distancing and generally be prudent or we could find ourselves moving backward again.

Even with the state virtually cut off from its primary economic engine, our portfolio with its balance of needs based retail, industrial and ground leases has been resilient. As I said before, we feel we're in the best Hawaii asset classes we could be in with no exposure to hotels, malls or urban offices.

For the third quarter, we collected 81% of rent due and so far in October, we've collected 75%, which is in line with prior months on this date. While these numbers do trail some of our Mainland peers, that's reflective of the seven months near total shutdown of tourism.

I consider these numbers an impressive indicator of our portfolio's ability to withstand this type of economic stress and believe that as the reopening continues, we should have meaningful upside from here. Throughout this process, we have worked proactively with our tenants to ensure their long-term success.

Not only is this the right thing to do for the community and our tenants, but we would much rather retain occupancy than have to re-tenant a significant percentage of our portfolio. Year-to-date, we've granted rent deferrals to tenants of approximately $4.5 million, of which $1.6 million has already been repaid.

And substantially all of the remainder is scheduled to be repaid by the end of 2021. Additionally, we have provided several other or taken several other measures to assist our tenants which Brett will address later.

Further, we made progress in our ongoing efforts to monetize our development projects in non-core assets this quarter, and Grace Pacific continues its steady recovery.

Turning to our quarterly results, while we did experience an expected year-over-year decrease in commercial real estate revenue, and NOI this quarter, for the reasons I just mentioned, we had several key positive developments across our business. First, we had solid new and renewal leasing activity.

We completed 35 new and renewal leases and for the comparable leases, spreads were 4.2%. Within our retail portfolio leasing spreads were negative 3.1%. But we were pleased with our ability to secure longer-term leases for a number of key spaces and reduce future occupancy risks.

Additionally, we completed 35 lease modification extensions related to COVID-19 at an average term of a little more than one year, which helps us lease near-term occupancy risk while letting tenants get to the other side of this pandemic. Second, same-store portfolio occupancy was up 10 basis points from the prior-year to 95.1%.

While our overall occupancy was down 150 basis points year-over-year to 93.5%, this was largely driven by the addition of Kunia shopping center to our portfolio occupancy calculations. Further our industrial portfolio occupancy achieved a high watermark of 97.8% due to the incremental leasing at Komohana Industrial Park.

Third, our redevelopment efforts continue at Aikahi Park Shopping Center. While we have delayed other portfolio redevelopment efforts in the interest of capital preservation, we thought this project was too attractive for both A&B and the community to put on hold.

The financial return outlook for the redevelopment remains strong, thanks to the resilience of the center and our tenant mix there as well as the new leases we've negotiated at the center. Fourth, we continue to make steady progress on monetizing assets and simplifying our business.

One of the most pleasant surprises through the pandemic has been the resilience of the market for Hawaii real estate, land and operating assets. Homebuyers and investors remain bullish on Hawaii. In the third quarter, we closed two sales at Maui Business Park and four units at Kukui'ula.

Additionally, we completed the sale of the Port Allen solar facility on Hawaii. We were very proud to develop this facility back in 2012, at the time; it was the largest solar farm in the State of Hawaii.

With its power purchase agreement expiring in 2032, however the NPV of this assets tend to decline steadily over time, and we determined it was a strong monetization candidate. We were very pleased with the transaction.

As we position certain of our non-core assets for sale, we're addressing many legacy obligations and identifying others that we'll address in the future.

We created a non-cash reserve of $6.7 million to address certain of these future obligations, which offset a portion of the book gain recorded for the Port Allen sale, though it was not related to that sale.

And fifth, with respect to Materials & Construction, we remain focused on the continued improvement of operations in the segment, began realize positive EBITDA in the segment in the third quarter, the majority of which was generated by Grace Pacific.

We're pleased with our year-to-date progress, including G&A reduction, successful bidding activity that increased our backlog, and improving operational efficiency, all of which reflects the disciplined new leadership in that business and the hard work of the Grace team over the past year-and-a-half.

Looking ahead, we expect moderating profitability in the fourth quarter as work schedules, weather-related delays, and normal seasonality may impact performance. We do expect continued steady improvement in the business and are hoping for greater profitability in 2021, but acknowledge that earnings growth won't necessarily be linear.

Before I turn the call over to Brett, I want to discuss our ongoing corporate commitment to ESG initiatives. The values that drive ESG are not only important to investors and stakeholders, they're extremely important to me personally, and/or I believe, consistent with the company's DNA in 150-year history.

On the governance front, we continue to improve with recent board changes that enhanced independence. On the environmental front, our Lau Hala shops received the NAIOP Hawaii Chapters Kukulu Hale award for commercial renovation, which recognized our environmentally friendly adaptive reuse of the former Macy's Box in Kailua.

On the social front, I'm pleased to note that in the third quarter, we were recognized with a Business of Pride Award by Pacific Business News, which acknowledged our leadership on diversity and inclusion. And our Kamalani project on Maui, which provided badly needed affordable housing also was honored by NAIOP.

Finally, we have directed a significant portion of our charitable giving budget to COVID-related causes. Our efforts to be partners for Hawaii remain core to our company's mission most importantly, during times like this. I'd like to thank each member of the A&B team for their ongoing dedication and commitment throughout the pandemic.

And with that, I'll turn the call over to Brett..

Thank you, Chris, and good afternoon, everyone. Let me begin with our financial results. For the third quarter, we recorded net income of $3 million or $0.04 per share, compared to a net loss of nearly $50 million or $0.69 per share in the same quarter of 2019.

As a reminder, our third quarter 2019 results were impacted by a non-cash impairment taken at Grace Pacific of $49.7 million. For the third quarter 2020, we're reporting funds from operations of $12.5 million or $0.17 per share, compared to a negative $40 million and $0.55 per share respectively for the same period of the prior-year.

Core FFO was $11.6 million and $0.16 per share, compared to $18.5 million and $0.25 per share respectively in the same quarter of 2019.

The decrease in core FFO was primarily driven by impacts related to the COVID-19 pandemic and that resulted in a cumulative third quarter charge of $8.9 million or $0.12 per share, primarily related to the collectability of revenue and the impacts of other tenant relief modifications.

For context, the tenant relief modifications during the quarter, which represented approximately $2.6 million or $0.04 per share, and was out of that $8.9 million charge primarily reflects rent abatements granted as well as the impacts of converting certain tenant leases from a fixed rent structure to one that's predominantly based upon percentage rent.

It should also be noted that $8.9 million charge taken during the third quarter also includes $1.6 million or $0.02 per share, related to straight-line release receivables.

Turning to our Commercial Real Estate segment, third quarter CRE revenue was down 16.4% or $7 million from the prior-year quarter, a primary driver of the decrease was the second government mandated shutdown on Oahu which contributes 75% of our NOI. And our total portfolio occupancy was down 150 basis points year-over-year.

Total portfolio NOI decreased $5.7 million or almost 21% driven by the charges recorded related to the reduced collectability of tenant billings as a result of COVID-19. Same-store NOI for the third quarter decreased by 18.8% compared to the prior year, primarily due to those charges.

Our land operations business unit produced revenue of $7.7 million during the third quarter of 2020, and generated EBITDA of $3.8 million in the quarter as a result of sales and other operating revenue.

As Chris mentioned, during the quarter, we completed two sales totaling one acre at Maui Business Park, and we closed four units at our Kukui'ula joint venture projects. Additionally, we did complete the sale of the Port Allen Solar facility, a non-core asset on Hawaii which generated a gain on disposal of $8.9 million.

A portion of the gain was partially offset by a non-cash reserve of $6.7 million recorded in the quarter to address future obligations associated with our non-core legacy assets. Our Materials & Construction segment generated adjusted EBITDA of $3.8 million for the third quarter compared to a $4.4 million loss in the same quarter of the prior year.

We're encouraged by positive momentum in this segment and remain focused on improving operations and cost controls at this time, with a longer-term focus on monetization.

At the same time, we continue to reduce costs across our business, operating costs exclusive of G&A and non-cash impairment charges taken in the prior-year decreased by approximately 7.1% from the prior-year quarter, due to a significant decrease in costs incurred in the Materials & Construction segment.

G&A expenses decreased 12% to $11.7 million in the third quarter of 2020, compared to $13.3 million in the third quarter of 2019 due primarily to reduced G&A in our CRE segment, as well as the Materials & Construction segment. Let me now turn to the balance sheet and liquidity metrics.

Our year's long effort to streamline our business positioned A&B to withstand this pandemic with an asset base that is focused on commercial real estate.

At September 30, 2020, our total debt outstanding was approximately $764 million and we had total liquidity of $385 million, including $117 million of cash and approximately $268 million of remaining capacity on our credit facility.

We have no material debt maturities until September 2022 and at quarter-end net debt to trailing 12-months consolidated adjusted EBITDA was 6.6 times and our total debt to total market capitalization stood at 48%.

With respect to our dividend, the board will likely declare a catch-up dividend in the fourth quarter as we currently expect full-year re-tax learnings to exceed dividends paid year-to-date. We intend to pay out 100% of re-taxable income and the exact amount will be determined by our board at the appropriate time.

With that, I'll turn the call over to Chris for his closing remarks..

Thank you, Brett. As we look toward 2021 and beyond, I'm encouraged by our prospects. We own high quality assets in one of the most supply constrained markets in the country.

Our tenant base and asset mix are resilient and with tourism returning and 95% of our tenant base now open, I believe we're on a path to continued improvement in our commercial real estate performance.

Additionally, demand for our Hawaii land holdings and non-core assets remains strong, allowing us to continue to execute on our asset monetization and simplification strategy. And Grace Pacific continues to show improving results.

Finally, our ESG-focused culture means that we're tasked with creating value for all of our stakeholders and the COVID-19 pandemic has given us an opportunity to rise to that challenge. With that, we'll now open the call for your questions..

Thank you. [Operator Instructions]. Our first question comes from Alexander Goldfarb from Piper Sandler. Your line is now open..

Hello, hey and good morning, good morning out there. So just a few questions.

First on the rent collections, Chris, I think you said that you guys are 75% rent collections which I get it less than what's going on in the Mainland but two parts to this, one, the 25% that you haven't collected, because you said the rent collections are lower just because of the longer the duration of the lockdowns at Hawaii.

So should we infer that the 25% that has been collected are all local operators? Or are there some nationals who are part of that unpaid, uncollected rents? You answer that. And then I have a second one to that question as well..

Okay, I'll briefly start and then I’ll let's Lance jump in here with slightly more detail. Keep in mind, the 75% is just for the month of October. And we're still even though at the end of October, we're relatively early in the rent collection cycle for October. So I think you're probably focused more on the 80% to 81% that we have for prior months.

But Lance, do you want to elaborate on kind of the local, national mix or --.

Yes, hey, Alex good afternoon to you. It's really a combination of both. And I think the point that Chris made is an important one. So 81% overall collections for Q3. When we look at October, and specifically that 75% collection rate, we’re tracking above the collection curve.

So in other words, at the same point in time, we're ahead of where we were for the same months in Q3. So we feel good about our prospects to continue to have that number increase as time goes on.

And then, as far as the makeup, like I said, it really is -- it's a combination of both and we've been transparent in the past about our proactive nature on deferrals to our local tenants and extending a hand to help them through their short-term needs.

And then also on the national side, and being able to reach resolution with many of our tenants, most of which were deferrals. And most of which we expect to get paid back by the end of this year..

Okay. So in other words and I didn't hear you comment on but we can leave the fitness and movie theaters, I guess they're just part of it. Big picture, so it sounds like the nationals, the rent issue is going to be deferral not abatement. But then, Lance, is it fair to say that the bulk of the let's just for a simple math call it 20%.

So a little bit of that sounds like some deferrals for nationals that will get repaid.

But the remainder of that are sounds like are locals and of that remainder, do you think that that is mostly going to be deferred with a little bit of abatement? Or you think that it's going to be more of a mix of abatement plus a bunch of closures?.

Yes, it's hard to tell at this point. And maybe another way to think about it, Alex, is within that, call it the 20% of uncollected rent, what we tried to highlight in the deck here is the portion of unresolved collections. And that's maybe getting to where your point or your question may be the majority of that unresolved, sits in the local market.

And that's going to be a combination of some deferrals; it's going to be a combination of in all likelihood, a little bit of abatement. And one of the things we've also been doing is moving some tenants to percentage rent structures.

So where we, give some downside protection based on sales in hopes of increased activity for them with the tourism now being open, and being able to capture some of that as time goes on..

Okay. And then the second question is, if we think about reopening tourism is sort of the discovery of a vaccine to the Hawaiian economy. How long do you anticipate the store tourism resumes because obviously, the country isn't sorry a bit, not going back to what it was back in February.

How long before you think enough tourism is in -- is floating through the economy that it really starts to show up as far as the tenant health, performance and the activity?.

Yes, it's a great question and important one. And there's an important distinction that I think we need to draw in light of our portfolio because we're not directly dependent on tourists. It is not as important to us that tourism comes back to say 80%, 90%, 100% of where it was before.

What's important is that the people that shopped in our centers, and utilize our retail are largely back to work. And so while of course, we'd love to see the tourism industry get back to full strength. I think what's going to drive and already is driving the recovery of our centers is just the level of economic activity that is more back to normal.

So we'd certainly like to see the unemployment rate drop, but we think that's going to happen just as hotels open, whether they're fully occupied or not, and whether, as people get, as airline begins to call people back and all that.

So I guess my point is, I think that the tourism industry will recover over the next year to a degree that is probably enough to really fuel the recovery of our portfolio. Even though, if you look at projections of the full recovery of the tourism industry, they're stretching out to multiple years.

So it's hard to predict with precision, but I think that we're going to be, much better off just as tourism recovers to even a moderate degree..

Okay.

And then just a final question, the dividend or the dividends for the fourth quarter, Brett, do you anticipate that being a regular dividend that we can look for on a go-forward basis? Or is it just sort of a stub dividend and sub? Is there a sense of what size that could be?.

It's going to be a catch-up dividend, Alex, not a recurring run rate. And we'll determine the right amount at the appropriate time here before year-end..

Thank you. And our next question comes from Sheila McGrath with Evercore. Your line is now open..

Hi, yes, good afternoon. Sorry, I had multiple calls at once. If I missed, or if I ask a question that's already been asked, but just on the Materials & Construction, it was positive to see that operating profit was positive and also EBITDA.

I know you've guided to fourth quarter being a little bit softer, just wondering what was driving the better performance in the quarter, number one? And number two, just on thinking about monetizing that asset? Is it something that you want to have a longer track record of positive EBITDA to maximize pricing or just how you think about timing of monetization?.

Yes, Sheila, it's Chris, thanks very much for the question. We were pleased with Grace's performance in the quarter. We have been saying for some time that we saw fundamentals in the business changing in a positive way and expected that to translate into earnings. As I said towards the end of the call, I don't expect it to necessarily be linear.

But it's certainly going the right direction. I think the thing that drove the profitability in the quarter were a combination of lower cost structure, as a result of some of the G&A reduction efforts, we've made, greater efficiency in the -- just the operations, which has helped improve operating margins in the business.

And frankly, just the fact that the crews were a bit busier, thanks to the fact that we've been winning more jobs off late and some of the initial COVID impact in terms of slowing down some of the work activity had subsided. So I think it was a good quarter.

But to your question about monetizing the business, we can't, as your question implied, we are -- as you rightfully implied in your question, we can't just take one quarter of performance and expect to get optimal pricing from the asset. We feel we do need to have a few solid quarters behind us.

And we hope that we can do that, we would expect a bit of moderation in the fourth quarter. But we do expect to have, continued profitability into next year. And so if we can prove that out and demonstrate that we really have turned the corner on the business, I think we'd be in a better position to revisit the market sometime next year..

Okay, great. And then on Page 9 of your slide deck, there's a bullet that mentions that you secured leases for key space to reduce future occupancy risks. I was wondering if you could give us a little bit more detail behind that comment..

Yes, Lance do you want to talk to that?.

Yes, I'd say in general, Sheila, we had -- we felt good about our leasing activity for the quarter. So on a number of leases completed relative to other quarters, we felt there was good activity. Now, it's fair to say that about half of that were modifications related to COVID or COVID modifications with tenants.

And so of the 35 remaining leases is sort of more of our traditional extensions. One in particular that, ironically was the driver of our negative lease spread on the retail side was a really good backfill at Kunia Shopping Center. It was at own GameStop space that we were able to get a veterinary clinic in 10-year of term.

And the reason we had a negative lease spread is there's a fair amount of TI that they have to put in on their side to improve the space. And so that was a good example of where we had some risk on the occupancy side that we were able to address that and I think representative of the types of deals we continue to see through COVID..

Okay, great. And then also on the same page the 97.8% high watermark in industrial.

What's driving that and can you remind us if there's any near-term development opportunities on the industrial side on any of your land holdings?.

Sure. So the biggest driver for that was our Komohana Industrial Park, which is over in the City of Kapolei, on the Island of Oahu. We did have a vacancy that we were able to lease last year, and is now being reflected on a year-over-year basis that's really driving that that all-time high.

So we continue to feel very good about our industrial portfolio, as well as being bullish about that asset class in general here in the state.

In terms of opportunities for us in the future, the most obvious one is probably Maui Business Park, where we've continued to have strong unit sales to buyers, but continue to look for opportunities where we can do build a suit for tenants, and then retain those assets in our portfolio..

Okay, great.

And then any insights on non-core asset sales in fourth quarter that something, is some assets that might be under contract at Kukui'ula or just any visibility you can give us on non-core in fourth quarter?.

Yes, again Sheila I'll start with just kind of the environment and our degree of optimism in general for non-core sales going forward. As you know, we always shy away from predicting the timing of closings of any transactions just because they're unpredictable.

But overall, I think we're in a very good position to continue the pace of monetization both at our two development projects, being Maui Business Park, and Kukui'ula as well as some of our non-core land assets. We do have a number of transactions.

We mentioned to you earlier in the year that our investment team was shifting its focus more to the divestment side and dispositions. And they've done a fabulous job along with a number of our other team members who have been focused on land monetization. And so I think we've got a good pipeline of potential transactions.

I think that it's likely we'll close some over the balance of the year, and also have some more that may spill over into next year. So I don't know if Lance wants to add anything. But I know we'll shy away from being too specific on timing or what we might sell.

But we do feel good about the environment and potentially could be positioned next year to even increase the pace of monetization. And it all gets back to the fact that there's a lot of demand for Hawaii real estate right now.

One of the things just anecdotally that we're seeing is people during the travel quarantine period and essentially the tourism shutdown have been buying homes in Hawaii sight unseen and flying over in quarantine and then quarantining them for two weeks, there's a lot of desire to be in Hawaii and there's also a lot of desire to do development in Hawaii.

So I think that those two facts are going to bode well for us. I don't think I left anything for Lance, sorry..

No, I was happy with it. Thank you..

He was looking very anxious to get a word in it..

No. And Chris I just meant frequently you disclose if there's any lots are under contract at Kukui'ula or Maui Business Park, I didn't mean to it..

You taught me that five minute answer was totally off that. I'll let Lance answer the question you really asked..

Without getting any, into any specificity, Sheila, because again, we always try to shy away from forecasting timing and amounts. We do have units in escrow at Kukui'ula, we do have a significant amount of land in escrow at Maui Business Park and we do have some other non-core transactions.

So I think just underscoring Chris's comments, the dartboard or the scoreboard rather, is relatively full and we're hopeful that we can take some of those over the goal line in the near-term..

Okay. And last question, did you disclose the solar facility sale pricing, and if do you have other solar assets that could be for sale I forget..

Hi, Sheila, it's Brett. We indicated that the gain on that solar facility. We did not have the pricing outlined. So that was a gain of $8.9 million. And we do not have any other solar facilities. But we do have other renewable energy, we have a -- the hydroelectric plants also on Hawaii..

Thank you. And we have a follow-up from Alexander Goldfarb with Piper Sandler. Your line is now open..

Thank you. Just a question, remind me and it may predate when I picked up coverage of you guys. But you've been steadily selling parts of the Maui Business Park.

Can you just remind me what the sales are and presumably, if you guys want to expand in industrial, I'm guessing that what you're selling is not conducive to develop into industrial; I just want to better understand it..

Sure. So Maui Business Park is a business park near the airport, in Central Maui. And the zoning is very flexible there. So it allows a number of different uses from industrial on one end all the way through more traditional commercial and up to an including retail on the other.

And so sales have been across that spectrum to users, both industrial users who have built facilities for their own operations, as well as retailers like Lowe's who have relocated and constructed stores there. On the development side, we've taken advantage of building on the retail side.

So the best and most recent example of that is our Hookele Shopping Center, where Safeway have opened last year, grocery-anchored center. We've now completed the majority of our spec space in terms of leasing and we also leased our two retail pads earlier this year. So really looking to sort of wrap-up Phase 1.

And, we'll continue to look for those types of opportunities, Alex within the business park on the retail side, but we will also look for opportunities on the industrial side.

So while we have had users as buyers, we have not had as many users as tenants that are coming to look into have somebody with the capital and the development wherewithal to construct and lease to them. And that's a role that we'd love to play..

Okay. But just if I understand it correctly, there is opportunity for you to build industrial there..

Yes..

But you basically are going you're building whatever is the product that's most sellable in the market today; is that correct?.

We --that is correct. We’re also selling lots to owners who will in turn build -- owner users who will in turn build the type of product that is most in demand today. But --.

Okay..

The zoning does allow us to do industrial, some more traditional warehouse light industrial type uses..

Okay. So I guess just going back to it, if it's difficult to get land in Hawaii, especially adjacent near to the airport logistically convenient on Maui. Why wouldn't you just save that land and build it into industrial and bulk up your industrial exposure? I guess I'm a little confused.

If you have good position in land, I realize there may not be a user for today.

But if you know that you guys want to grow industrial and that you're rather than having shipping containers in the back parking lot at the -- at the grocery -- at the shopping centers, you want to provide warehouse facilities? Why not keep that land? And then that becomes the development pipeline?.

It's a -- it's a good question. And it's sort of a business plan of ours. Really, it comes down to opportunities and present valuing what we can get for selling land today. And potentially reinvesting those proceeds later, compared to what it would cost for the land basis to build and to lease the land with construction prices being the way they're.

But suffice it to say it's certainly a desire of ours to play the role of developer where will build inventory for our portfolio in the long-term..

Sorry, one thing we haven't wanted to do is just build spec warehouse. We wanted to have tenants lined up and we've come close to doing a couple of deals, build a suit deals and others and just haven't gotten across the finish line. And I think some of that may take a little while.

But we're very mindful of the fact that we'd rather own the land long-term if we can make that work, but there are a lot of users that do not want to lease land or space, they want to own and so it's a trade-off that we make. And we certainly have gone vertical in most hotels shopping center on the retail side of my business park.

But, and I would expect that we will continue to do that..

I understand, I'm just saying from the market perspective, you guys have this amazing story for being this sort of one-stop user for both retail and then growing the industrial.

And if there's, I think investors will be willing to sit on land, if you guys eventually can develop into industrial, so it's just a view that that there seems to be opportunity there. And I don't think you'd get penalized if you were sitting on that land for period of time until you could develop it for a user on the warehouse side.

It's just good for thought I guess..

Thank you..

Thank you. And I'm showing no further questions in the queue at that time. I'd like to turn the call back to Steve Swett for any closing remarks..

Thank you all for joining us today. If you have any follow-up questions, please feel free to call us at (808) 525-8475 or email us at investorrelations@abhi.com. Aloha, have a great day..

Ladies and gentlemen, thank you for your participation on today's conference. This does concludes your program and you may now disconnect..