Alexander & Baldwin(US:ALEX)2023-07-27 16:00PART I. FINANCIAL INFORMATION Financial Statements This section presents Alexander & Baldwin, Inc.'s unaudited condensed consolidated financial statements, detailing changes in assets, net income, and cash flows Condensed Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,784.9 | $1,787.3 | | Cash and cash equivalents | $8.2 | $33.3 | | Real estate investments, net | $1,505.4 | $1,507.6 | | Assets held for sale | $154.9 | $126.8 | | Total Liabilities | $752.0 | $743.6 | | Notes payable and other debt | $506.9 | $472.2 | | Total A&B shareholders' equity | $1,023.7 | $1,035.7 | Condensed Consolidated Statements of Operations Summary (in millions, except EPS) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenue | $53.1 | $51.1 | $103.5 | $110.3 | | Operating Income (Loss) | $16.2 | $66.2 | $30.4 | $83.4 | | Net Income (Loss) | $15.0 | $4.4 | $20.3 | $15.4 | | Net Income Attributable to A&B | $13.4 | $4.1 | $18.7 | $14.6 | | Diluted EPS | $0.18 | $0.05 | $0.26 | $0.20 | Condensed Consolidated Statements of Cash Flows Summary (in millions) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operations | $9.2 | $0.7 | | Net cash provided by (used in) investing activities | ($12.5) | $62.9 | | Net cash provided by (used in) financing activities | ($21.1) | ($101.2) | | Net (decrease) in cash | ($24.4) | ($37.6) | - The company operates in two segments: Commercial Real Estate (CRE) and Land Operations. As of June 30, 2023, the CRE portfolio is entirely in Hawai'i and includes 22 retail centers, 13 industrial assets, and four office properties31 - The Grace Disposal Group, which comprised the majority of the former Materials & Construction (M&C) segment, was classified as held for sale and discontinued operations in Q4 2022. Historical financial data has been retrospectively adjusted to reflect this change33 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, business segments, and strategic initiatives, highlighting CRE growth, varied Land Operations results, and sufficient liquidity Business Overview The company operates two segments: Commercial Real Estate (CRE) and Land Operations, strategically simplifying through asset monetization - The company operates two reportable segments: Commercial Real Estate (CRE) and Land Operations124 - The CRE segment is a vertically integrated real estate investment company focused on retail (especially grocery-anchored centers) and industrial properties in Hawai'i124 - The Land Operations segment includes legacy landholdings and assets subject to a simplification and monetization strategy125 - As part of its simplification strategy, the company is monetizing non-core assets. The Grace Disposal Group (formerly the M&C segment) was classified as held for sale and discontinued operations as of December 31, 2022126127 Consolidated Results of Operations Net income attributable to A&B shareholders increased in Q2 and H1 2023 due to the non-recurrence of a prior-year pension termination loss, while operating income decreased due to a non-recurring asset disposal gain Consolidated Financial Results - Q2 2023 vs. Q2 2022 (in millions) | Metric | Q2 2023 | Q2 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $53.1 | $51.1 | $2.0 | 3.9% | | Operating income | $16.2 | $66.2 | ($50.0) | (75.5)% | | Net income attributable to A&B | $13.4 | $4.1 | $9.3 | 2X | | Diluted EPS | $0.18 | $0.05 | $0.13 | 3X | Consolidated Financial Results - H1 2023 vs. H1 2022 (in millions) | Metric | H1 2023 | H1 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $103.5 | $110.3 | ($6.8) | (6.2)% | | Operating income | $30.4 | $83.4 | ($53.0) | (63.5)% | | Net income attributable to A&B | $18.7 | $14.6 | $4.1 | 28.1% | | Diluted EPS | $0.26 | $0.20 | $0.06 | 30.0% | - The significant decrease in Q2 and H1 operating income was primarily due to a $54.0 million gain on the disposal of non-core assets in 2022, which did not recur in 2023133138 - The increase in net income was driven by a pension termination loss of $73.7 million in Q2 2022 and $76.9 million in H1 2022 that did not recur in 2023134139 Analysis of Operating Revenue and Profit by Segment The Commercial Real Estate (CRE) segment experienced revenue and profit growth driven by higher rents and strong leasing, while Land Operations results were volatile due to asset sales and prior-year charges Commercial Real Estate Financial Results - Q2 2023 vs. Q2 2022 (in millions) | Metric | Q2 2023 | Q2 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Operating revenue | $49.5 | $46.0 | $3.5 | 7.6% | | Operating profit | $22.7 | $19.3 | $3.4 | 17.6% | | Net Operating Income (NOI) | $31.3 | $29.8 | $1.5 | 5.0% | | Same-Store NOI | $31.1 | $29.8 | $1.3 | 4.6% | - In Q2 2023, the company signed 72 leases for improved properties, covering 220,100 sq. ft., achieving an average rent spread of 5.8% on comparable leases151153 Portfolio Occupancy as of June 30 | Occupancy Type | 2023 | 2022 | Basis Point Change | | :--- | :--- | :--- | :--- | | Leased Occupancy | 94.4% | 94.6% | (20) | | Physical Occupancy | 93.5% | 93.7% | (20) | | Economic Occupancy | 92.4% | 92.6% | (20) | - Land Operations Q2 2023 operating profit was $1.7 million, primarily from unimproved land sales. This compares to a Q2 2022 operating loss of $7.5 million, which was impacted by a $54.0 million asset sale gain and a $59.9 million pension termination charge166167168 Use of Non-GAAP Financial Measures The company uses non-GAAP measures like FFO, Core FFO, and NOI to evaluate performance, with Core FFO and CRE NOI showing increases in Q2 2023 - The company uses FFO, Core FFO, and NOI as supplemental measures to evaluate operating performance, consistent with real estate industry practices173177 FFO and Core FFO Reconciliation Summary (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income available to A&B | $13.3 | $4.0 | $18.6 | $14.5 | | FFO | $19.8 | $14.6 | $38.4 | $33.4 | | Adjustments for non-core items | $1.5 | $5.9 | $4.1 | $7.9 | | Core FFO | $21.3 | $20.5 | $42.5 | $41.3 | Commercial Real Estate NOI Reconciliation Summary (in millions) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | CRE Operating Profit | $22.7 | $19.3 | $43.6 | $40.0 | | Adjustments | $8.6 | $10.5 | $18.1 | $19.6 | | NOI | $31.3 | $29.8 | $61.7 | $59.6 | | Same-Store NOI | $31.1 | $29.8 | $61.5 | $59.5 | Liquidity and Capital Resources The company's liquidity is sourced from operating cash flows, cash on hand, and its revolving credit facility, deemed sufficient to meet obligations, with compliance to financial covenants - Principal sources of liquidity are cash from operations, available cash, and borrowing capacity under its credit facility186 - As of June 30, 2023, the company had $8.2 million in cash and cash equivalents and $432.9 million of available capacity on its A&B Revolver194 - For H1 2023, cash used in investing activities was $13.8 million, primarily for a $9.5 million industrial property acquisition and $7.2 million in other capex. Cash used in financing was $15.9 million, driven by $48.2 million in dividends, offset by $54.0 million in net borrowings on the revolver196198199 - The company was in compliance with its financial covenants as of June 30, 2023187 Other Matters This section discusses critical accounting estimates, particularly the classification of the Grace Disposal Group as held for sale, a strategic shift materially affecting future operations - The classification of the Grace Disposal Group as 'held for sale' involves significant management judgment regarding the probability and timing of a sale205207 - The planned sale of the Grace Disposal Group is considered a strategic shift that will have a major effect on the Company's operations and financial results, leading to its classification as a discontinued operation208 Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's quantitative and qualitative disclosures about market risk since December 31, 2022 - There have been no material changes in the quantitative and qualitative disclosures about market risk since December 31, 2022211 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023212 - There were no material changes in the Company's internal control over financial reporting during the fiscal second quarter213 PART II. OTHER INFORMATION Legal Proceedings This section incorporates by reference legal proceedings information from Note 8, primarily concerning ongoing litigation related to East Maui water rights - Information regarding legal proceedings is incorporated by reference from Note 8 of the financial statements215 - The primary legal contingencies relate to ongoing disputes over water licenses and revocable permits for East Maui, involving parties such as the Sierra Club and the State Board of Land and Natural Resources (BLNR)707176 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Company's most recent annual report on Form 10-K216 Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered equity securities or repurchase shares during the quarter, with $145.4 million remaining available under the stock repurchase program - No unregistered equity securities were sold during the period217 - No shares were repurchased during the quarter ended June 30, 2023217 - As of June 30, 2023, $145.4 million remains available under the stock repurchase program, which is authorized through December 31, 2023217 Mine Safety Disclosures Information concerning mine safety disclosures, as required by the Dodd-Frank Act, is included in Exhibit 95 of this Form 10-Q report - Information concerning mine safety disclosures is included in Exhibit 95 to this Form 10-Q218 Exhibits This section lists the exhibits filed with the Form 10-Q, including material contracts, CEO and CFO certifications, mine safety disclosures, and the Interactive Data File - The Exhibit Index lists all documents filed with the report, including CEO/CFO certifications and the Inline XBRL data220221