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Alexander & Baldwin, Inc. (NYSE:ALEX)

Analyst Day Conference Call

April 11, 2012 9:30 AM ET

Executives

Suzy Hollinger – Director, Investor Relations

Stan Kuriyama – President and CEO

Chris Benjamin – President, A&B Land Group and A&B Properties

Paul Hallin – Executive Vice President, Development

David Haverly – A&B Properties Senior Vice President, Leasing

Joel Wine – Chief Financial Officer

Analysts

Suzy Hollinger

Hello. And welcome to Alexander & Baldwin’s Analyst Day. We are going to get started; everyone has books in front of them, slides that review on this call. And on slide two we have information regarding forward-looking statement.

I’d like to note that in this presentation and webcast we’ll set forth expectations and predictions that are based on facts and situations that are known to us as of today, April 11, 2012. Actual results may differ materially due to risks and uncertainties, such as those described on pages 19 through 29 of our Form 10-K and our other subsequent filings with the SEC.

Statements in this call and presentation are not guarantees of future performance and we do not undertake any obligation to update those forward-looking statements.

For those on the webcast live for this presentation are available for download at www.alexanderbaldwin.com.

So, let me get started by introducing management team that’s presenting today, starting with Stan Kuriyama, A&B’s President and CEO.

Stan Kuriyama

Good morning.

Suzy Hollinger

Chris Benjamin, President of A&B Land Group and President of A&B Properties; Paul Hallin, Executive Vice President, Development.

Paul Hallin

Good morning.

Suzy Hollinger

And David Haverly, A&B Properties Senior Vice President of Leasing.

David Haverly

Good morning.

Suzy Hollinger

Joel Wine who is A&B CFO will be here later in the presentation. He will be available to answer question. Slide four provides an agenda for our presentation after which we’ll take your questions.

So let me now turn the presentation over to Stan who will provide an overview of our Real Estate and Land businesses.

Stan Kuriyama

Okay. Thank you, Suzy, and welcome to this morning’s presentation. I’ll give you a quick overview of the company, a little bit of our history. Who we are and will be upon separation and what our focus and strategy will be going forward from separation.

Starting with slide six, actually I do see a few face, I was going to skip this slide since many of you I know are fully familiar with the company. But there are few new faces here, so just quickly.

We started off in 1870 as a partnership between Sam Alexander and Henry Baldwin. So we are over 140 years old. They started off purchasing 12 acres on island of Maui, which over the decades expanded to include as you can see here over 130 acres of ownership throughout the state and three plantations.

This is really the roots of the company from there we grew our real estate business, we acquired our shipping business, real estate where we started with 1949 when we developed the master-planned community of Kahului on island of Maui for our sugar cane workers, from there we began to look at lands that weren’t use for our sugar cane operations, began to entitle develop those.

Then now 15 years ago we realized that in order to meet our growth objectives in real estate, we’d have to expand beyond our core landholdings. Our core lands are primarily in island of Maui and Kauai smaller population.

So we knew that as a strategy, we have to go beyond those core landholdings. So embark upon a program of investing in real estate in Hawaii outside of those core landholdings and today we are probably most active investor in real estate in the State of Hawaii.

Shipping was a natural outgrowth of our sugar business. We had at one time in Hawaii speak about two dozen sugar plantations. Regrettably, today we are -- we own the last sugar plantation in State of Hawaii. We form about 35,000 acres on island of Maui.

But at it’s peak Hawaii had about two dozen sugar plantations and all that sugar, raw sugar that was produced in Hawaii have to be shipped to our refinery on the West Coast hence the need for shipping company and over the years the sugar companies acquired a larger and larger interest in Matson, which itself is over 100 year old company and then in the 60s we acquired a majority interest and finally in 1969 A&B acquired full ownership of Matson, which is why today we own the Matson sugar -- Matson transportation company.

It is today the largest carrier of goods to Hawaii. It ships about two thirds of the goods from Mainland to Hawaii, ships in Guam where we historically have shipped about 50% of the goods to that island. Recently our other competitor in trade lane went out of business or stop servicing Guam, so we currently ship 100% of goods to Guam but historically it’s been about 50%.

Our ships that Guam to China, where they pick up goods in three ports in China and they had back fourth to Long Beach, California, so that’s the loop that we have in service and that’s supplemented by few other ships that go back and forth just between the West Coast, Mainland and Hawaii. That’s our transportation business.

Then turning to slide seven, having build up that business, we have decided now separation, it’s, whenever I meet with investors they ask us, well, why do you have, real estate and ag business together with shipping company and it’s, I’d just explain to you why we have that.

But, it’s a good question, especially as the company has grown over the years and some of the synergies that previously existed between the two businesses no longer exit. So it’s a question we’ve look at ourselves every couple years last 10 years, there was also recent evaluation, which we started in very early 2011.

We eventually reached the conclusion that indeed the time is right to separate the two companies, there a lot of benefits here which we’ve listed on the left hand side of the slide.

But essentially we’ve grown two companies large enough and strong enough, and different enough certainly to stand on their own, and be successful as independent public company. So on December 1 our Board approved that decision we announced that on that date.

Quick update on where we are on separation. We are on track for third quarter closing. We have submitted all the necessary documents with the SEC and IRS, and we expect receive those approvals in due course.

This will be structured as a tax free spin-off. It’s actually the real estate and ag business that will be spin-off, and we will keep however the name Alexander & Baldwin, Matson will operate under its name Matson Navigation Company.

We just got approval just the other day of our S-4 proxy. So that is now official and has been mailed out to our shareholders, Annual Meeting will be on May 11th. One of the items that will be vote upon on shareholders is the structure of the separation, not the separation itself that doesn’t require shareholder approval.

But looking at the different alternatives to how to best structure the separation, we came up with the plan that’s most efficient given all of the diverse holdings we have, that most efficiently accomplishes that separation and so that structure that under Hawaii law require shareholder approval. So there is a 50% approval requirement for that. We don’t expect any problems there, but off chance that it’s not approve there are alternatives we will use to effect our separation.

So the question that asked let me address it upfront, we did fully evaluated the possibility of splitting out our real estate as a REIT, there are all those tax advantages to doing that, but there are number of important limitations on the REIT, obviously, including, the type of activity you can conduct, the income that qualifies for retreatment and given our future focus on development and creating value from our development activities, given our agricultural businesses, which don’t qualify for REIT income, and few other factors which we can get into later, at the end it was actually very clear decision for us to becoming a REIT at this point was not the right move for us. So we will not be adopting a restructure for the real estate.

As far as planned capital structure is, excuse me, is concerned, at the time of separation our book assets for real estate and ag should be about $1.4 billion of total gross book assets value.

We will have term debt of about $245 million. That based upon an assumption that at the time of separation we have about $600 million of term debt to consolidated level and upon separation about 60% will be allocated to Matson, soon by Matson and 40% by the real estate business.

We also plan to have in place at the time of separation a revolver -- revolving line of credit for about $250 million, an undrawn facility that we will use to fund our operating and investment activities for the foreseeable future. So that’s separation.

Who we will be upon separation is kind of covered by the next slide. We are company, we believe with unique assets and competitive strength. We are the fourth largest private land owner in State of Hawaii, 88,000 acres.

By selling real estate, our legacy lands over the years, and reinvesting the proceeds and 1031 tax deferred exchanges. We have built up a quality commercial portfolio nearly 8 million square feet properties on the Mainland and Hawaii.

We have -- we continually work on building a development pipeline and certainly have been very active in the recent real estate downturn. We worked hard at developing a pipeline of future development projects. We will be now have over 3,500 fully entitled residential and commercial units in our pipeline that we can rollout as it supported by market demand.

We have the largest farm in the State of Hawaii and that has some very interesting and real energy potential down the road for us. I mentioned a strong balance sheet and ample debt capacity we will have at the time of separation.

But we also have important intangible assets, they reside primarily in our staff and who we are the reputation we built up and we are not just old but I think over the many decades we build up a reputation for the highest integrity trust within the state, Hawaii is not a big state, as you know, we are a big fish in a small pond.

So the focus is always on us and that’s important for us therefore and to respond accordingly, and we still I think huge commitment to our communities and I think have earned the respect of most of the people throughout the State of Hawaii.

Part of our DNA is also a very disciplined approach to underwriting and making investments, and we’ve learned a lot, we have staff here of many decades of experience and if you have watch real estate over 30 years as I have, A, it goes into cycles and B, watch the mistakes and successes of people who are investing in real estate in state, and I think, I have -- we’ve all learned quite a few lessons from being participants in real estate for these many years. So we are very disciplined and I believe very smart underwriters and investors in real estate in Hawaii.

And hopefully, we don’t just talk the talk but we walk it, we do have a track record of success. We have invested over the last 50 years well over $1 billion in commercial properties and development projects with favorable results and we’ll be describing some of those projects to you today.

And of course, we are going to be Hawaii public company. There are very few Hawaii public companies. Certainly there is no other real estate company of scale in Hawaii. So if you are looking for a vehicle for investing in Hawaii real estate we are going to be at top of your list.

That’s kind of who will be upon separation. Slide nine, we have just the map here of our landholdings, about 20,000 acres on Kauai, 70,000 acres on Maui. We will be getting into more detail on how you breakdown that acreage within our portfolio.

Let me just mention those as you see a lot of blue, which is conservation. Conservation land is really can’t developed, but in our case they do have value for us. On island of Kauai we have a hydroelectric plant in the Wainiha conservation area produces very nice steady income for us and so that land itself has high value because of the income that hydro plant generates. And on island of Maui all that blue land provides irrigation water for the green land. So we harvest water of those blue lands to irrigate our plantation in the central area of Maui.

Then turning to management for a bit slide 10, upon separation I will be Chair and CEO of the new company, and you can see beneath me the senior executives at A&B, Chris Benjamin will be President and Chief Operating Officer. He will be giving the bulk of the presentation this morning and he will be responsible for our two operating divisions, our real estate division and our agribusiness division.

Then on slide 11, we have listed under him his senior management team, kind of divided into four basic divisions within real estate and ag. We have our agribusiness who heads by -- headed by mainly Rick Volner on island of Maui. Entitlement and Development is headed by Paul Hallin, who is here with us today. David Haverly to my left here heads our Commercial Portfolio and then we have a Growth & Acquisitions division and you can see the senior managers in that division.

Quick summary of some of our financial highlights on page 12, I won’t go over this numbers we can push that later, just note the 10-year averages is there. The only number I would point out is the agribusiness number that’s -- that low number is a result of couple bad years we had, it’s traditionally been a volatile business, in fact we will talk about today how we’ve attempted to de-risk that business, reduce some of that volatility going forward, so it certainly do expect better results from ag in future years.

We are a company that’s driven by value creation, as you all know development companies cannot best be measured by EPS and while earnings are important to us, but we really focus on creating value and everything we do throughout the organization.

We also capitalized and we perceive to be our competitive strength. They're mostly in Hawaii hence the Hawaii focus for us. As far as our legacy lands are concerned those 80,000 acres we try to create as much value from those lands wherever we can. We identify lands within our 80,000 that are appropriate for development and taken through the entire development process.

As I had mentioned, we have looked at investing outside our core landholdings, so finding opportunistic high return investments is something we do everyday. We built up that development pipeline that I had described. We continually enhance value in our commercial portfolio and overtime our strategy is and it’s a long-term strategy because, again, to capitalize in our competitive strength mostly migrate most of that Mainland portfolio back to Hawaii over time.

De-risking agricultural business is something we’ve been working on, we’ll continue to work on, we’ll talk more about that this morning, and then positioning agribusiness, hopefully one day from our producer of sugar cane to the producer of energy.

We will continue to maintain our underwriting discipline. We think we create a lot of value through that and finally, of course, as the market return, we do intend and will monetize our investments, which leads the question when will that market return and that’s.

Page 14, I think Hawaii has done an inflexion point, there are number of very strong economic indicators pointing in the upward direction. We think it’s sustainable but I won’t cover this slide because we are going to have economist Paul Brubaker address us all this afternoon at lunch and so he will give you a much in depth opinion, much more professional opinion of where we think the economy is headed. But suffice to say, I do think, we are definitely headed an upward trajectory with a number of very positive indicators.

Let me just spend a minute on this last point and that is tourism. As you know tourism is the primary engine of the state. Most of our tourist come from the U.S. Mainland, significant number also come from Japan.

And on the next page slide 15, I’d given you some of the Japan statistics there. You can see that last three years and this is actually reduction from prior years, but last three years number of visitors from Japan has been about 1.2 million out of total of about 7 million. So it’s traditionally been between 15% to 20% of the total visitors to the state.

They also are substantial investors in real estate, they continue to be the huge investors in Hawaii real estate when their economy tanked all that stopped, but even then, they have continued at a level of, you can see here $275 million to continue through invest in Hawaii real estate.

And compared those numbers to the Chinese, and you can see that China visitor is a fraction, visitor count is a fraction of Japanese, we don’t attract their investment, it’s a small.

But China has a population of 1.3 billion, Japan about 130 million, so it’s 10 times larger than Japan, so wealth began to increase there number of visitors generated by the country will increase and it just takes the fraction of their visitors to make a major difference for us in Hawaii. So if you look at future like to be one of key changes in our economic environment, certainly China is the big one.

One other interesting statistic is daily spending, U.S. visitors average about $160 day in spending, Japan is $290 and they have traditionally been highest spenders, it’s actually their -- impact they have this little disproportionate to their number because of the amount they spend per day. Chinese thus far has been spending on average $380 a day. So that has been very pleasant interesting surprise for us.

So that’s my introduction to the company. We are going to break at certain point for questions, so we’ll have question period later on the presentation, but right now I turn it over now to Chris Benjamin.

Chris Benjamin

Thanks, Stan, and I want to thank everybody for coming this morning and those that are listening. We are at a very exciting time for us as a company. We are excited not only about market and it’s what we believe is an inflection point in and an environment where we think Hawaii is going to recover very nicely over the next few years.

But we also are pleased within the company where we think we positioned a lot of our development assets for success in that environment and so I appreciate the opportunity to be able to talk a little bit about why we’re excited about the company and frankly, we are excited about this opportunity to standalone as a more focused real estate company. We have obviously a long and very important history with Matson, but we also believe this is the right time to standalone and to really create value.

What I want to do today, though, is, even though we are a more focused company than we were before, we obviously still have some unusual pieces together in terms of development business and a commercial portfolio and ag business.

And so what I want to do today is help you understand not only how those businesses work together but also at least begin the process of helping you value the company, some of you already cover the stock and are quite familiar, with others of you are just beginning to get involve in it and I think that, well, I don’t expect that you’ll walkout today with model completed, what we hope to do today is give you enough background so you can understand how the pieces work together and set you on a path towards evaluation the company.

On 17, what I want to do is explain a little bit about how those pieces work together, 17 and 18 actually help tell that story.

Historically, we have been, we have generated value. When I say historically, I mean, for most of our 140 years we've generated it from really two processes. One is Land Stewardship including agriculture, which for the majority of history of the company was the significant primary driver of value creation. And then, Entitlement and Development of historic legacy lands, our historic landholdings.

We didn't historically have the middle box in this chart on page 17. We essentially were land stewards and farmers, and then opportunistically, where we could, we would move land through the Entitlement and Development process and create additional value.

As Stan indicated earlier, we realized 15 years ago that we were constrained by the pace of entitlement and our ability to do that, and we really had a lot of capability and knowledge and expertise in-house to add value to lands beyond the pace of entitlement, and so that's when we began our new investment program, and will talk a lot about examples today of what we've done historically, but more importantly, what we've done recently that’s in the pipeline on the development front.

But it’s important to note that we really believe we create value at every step in this process and so Land Stewardship and Agricultural I’ll talk about last today, but it is not -- it's not just a necessary evil, it’s actually in our view a great opportunity to create value and we have been creating value over the last couple of years and we see more opportunities going forward, so we’ll talk about that.

We’ll talk a little bit about the very challenging entitlement environment in Hawaii and why we believe we are best suited or very well suited to create value through entitlement of lands in Hawaii because of the reputation of the company, the relationship company has and the people that the company has.

And then we’ll talk about new investments, again, where we’re buying fully entitled land to put them through the development process and but the point here is that we really believe that every aspect, every stage of this continuum is important to us and we take each one very seriously and we’ll help you understand how we do that.

On 18, very simple chart but it’s actually a very important one. Because what this says is that we not only, the pyramid is intentional because the land stewardship, planning and entitlement and eventually sales supports the stable cash flow from leasing because it’s what helped create the leasing portfolio, we’ll talk about it a little bit more later, but the lease portfolio, the commercial portfolio has been primarily built from proceeds of land sales over time.

So not only do we create value at the bottom through taking land from raw land agriculturally zone through the development process, but when we monetize much of that land we’re able to reinvest it into income producing assets, which then drove off cash flow that allow us to pursue the more cyclical development activity, which is where we believe going forward, we actually have the potential to create the most value.

So this is how these businesses work together. This is why these businesses are together. It get back to Stan’s point about why we’re not making a reelection because we believe that the cash flow from that commercial portfolio is essential to our pursuing what we think is our greatest value creation opportunity, which is in the development side. So, again, it's a simple chart so to help tell the story of how these businesses fit together.

What I'm going to do is, I’m going to spend the next three slides just giving the broad overview of our three primary business lines and then we will have one section on each of those businesses starting with development business that Paul will take us through.

But let me start with development and investment strategy on 19. As I have already said our focus is always primarily and initially on Entitlement and Development of our core Hawaii land and that’s a very long process, but it's one that we do, I think, particularly well again because of our history and our people and our reputation in Hawaii.

But as I also said, we are, if we relied only on our historic landholdings for our development activity, we wouldn’t be as busy as we like to be. And so investing in high return real estate opportunities in Hawaii, new development projects in some cases raw land, entitled land, in some cases in-progress development and in some cases joint ventures where another party may have initiated a development and we come in with expertise, capital, market knowledge and work with them.

So these are all -- these are both important sources of projects for our development pipeline both our legacy lands and our new investment lands, and we scale and we stage our development portfolio very carefully to what we see is the market. What I mean by that is, we don't get -- we don't over extend ourselves in terms of our development pipeline.

The best example of that is 2000 -- late 2006, 2007, 2008, we were on the sidelines in terms of investing in new real estate developments because we saw the market is being very frothy. We couldn't -- projects were not meeting our underwriting -- our underwriting criteria, and so we sit on the sidelines, and we were very fortunate when the market turns out that we were not overextended.

We’re very conscious of the pace of absorption in Hawaii and the market environment, and therefore we take a very disciplined approach to capital deployment. Flip that around and look at what we did during the downturn, we were not investing significant capital in to most of our projects but we were moving in forward in the entitlement process and we’ll talk a little bit more about that in the few -- entitlement and planning, and we’ll talk about that more in a few minutes.

And then, again, as I said before, joint ventures are very important to us. We are very conscious of the fact that the areas where we want to grow the most are those areas that are complementary to our existing portfolio.

So now in Kauai, we have a lot of legacy lands. Oahu is actually a market where we want to grow significantly. We’re not a big land owner in Hawaii. So in some cases through acquisition but also in some cases through joint ventures, we utilize that mechanism, that vehicle to access the projects we wouldn't otherwise have access to and to complement our portfolio. So that’s a little bit about our development investment strategy. We’ll come back and drill down on that in a moment.

The next big strategy for us is the lease portfolio and I indicated that that is today an important source of capital and cash flow for, I’m sorry, for cash flow and essentially liquidity for our development business, but it really started as a tax deferral and investment strategy back in the late 1980s when we sold significant pieces of land on Maui in both ‘89 and ’90 we sold large pieces of land.

We reinvested a good chunk of those proceeds in commercial assets on the Mainland and over the last 15 years, I’m sorry, 20 plus years, we have developed and built a portfolio now 45 assets, most of which have been acquired through 1031 exchanges and that has provided very diverse stable source of income for us and again as already mentioned provide the cash flow that help support our development business. But it’s not just a place to park money. It’s an active strategy of acquiring and managing assets, creating value, realizing that value at the appropriate time.

It is the preponderance of the, majority of that portfolio is on Mainland today and the reason for that is we have -- when we have done 1031 exchanges and have a limited period of time to make investments we wanted, frankly, the biggest sandbox to play in but what we have decided going forward is that we are going to attempt over time and we’re not putting a timeline on it.

We’re going to attempt to bring a lot of that capital back to Hawaii over time as we can identify assets to acquire because we feel that a lot of the same competitive advantage that we have on the development side in Hawaii we have on the commercial portfolio site. It will be a long process. We’ll talk about it a little bit more later but that will be a strategic direction for us.

And then, finally on the Land Stewardship side, we take a very integrated approach to identifying highest and best use of land on the non-development sides. So this is both conservation and agricultural land.

We believe that all land whether it's -- whether it has development potential in the near-term or never has the highest and best use, and we have to work to make sure that it’s in the highest and best use.

We’ve identified some lands, for example, that were slated for development at some point in the future but were not active, and we've put them -- we’re putting in solar farm on 20 acres on land in Kauai, that fit that description.

We’re looking at opportunities to either monetize or get tenants for other pieces of land and they currently not be generating as much in common thing, they have the potential to. And so -- and then of course, most importantly our agricultural operations cover the majority of our undeveloped lands and we are working very hard to ensure that those are profitable and I’ll talk a little bit more later about how we do that.

So this is not just sit and wait, this is about creating value from land that are not either currently or probably ever slated for development and making sure that we’re creating value from them.

So with that is an overview of our three areas of business. Let me dive now into real estate sales just a couple set of slides and then I'll turn it over to Paul to talk specifically about some of our current development activity.

First of all the real estate sales segment, what does that include? Well first of all, it of course includes development sales. Anything that you take through to finished product and sell is included in there, also commercial property sale.

So, within the lease portfolio, if we monetize an asset, the gain from those sales will show up and real estate sale as opposed to real estate leasing; land sales, if we ever sell raw land in Hawaii that also shows up in the real estate sales section.

And then also earnings from joint ventures, typically, those would be development joint ventures but we also have passed development joint ventures where we’ve actually kept in asset in the portfolio or where we collectively as a joint venture have held on to that asset for income purposes.

Those earnings also will show up in the development, the real estate sale segment, they show up only as operating profit not as revenue. So you got to be careful when you look at margins in that business to understand how much is from joint ventures.

The principal operating activities within this segment and I’m on slide 24 now are things I’ve largely touched on already, but it’s investment in both our legacy and non-legacy landholdings in Hawaii. Priority always on our historic landholdings but we also make investments, as I said, in new lands, and we’re really looking to have a diverse development portfolio.

So most of the new development activity that Paul will talk about that’s not on our legacy land is on land typically on Oahu where we see not only the greatest population on Oahu but also the nearest term recovery in the real estate market.

And so we have invested recently in last several years in a significant way on Oahu. And then development, this one bullet point and sub points under it, really we can spend a couple of hours on everything that’s involved in this.

And this is really probably more than anything else what distinguishes A&B within Hawaii, is the depth of our management team, the depth of our experience, our understanding of the planning and entitlement activities that are needed to see developments from conception through provision to understand acquisition opportunities, to understand market dynamics, to position ourselves to go after those deals that we think are attractive and quite, frankly, to stay away from those that we think are overpriced.

All of this really which is what Paul is responsible for as well the acquisition activity, which Paul’s under another executive within the real estate group is really, I believe, what distinguishes us more than anything else in what we do and so, Paul, will talk more about that.

And we have a very successful track record that bears this out. We -- since 2000, we’ve invested about $800 million in Hawaii development projects. I’ll highlight a few of them on the next slide. But they really run the gamut from by asset class, by geography, by how we acquired the land, what sort of special situation led to our acquisition of the land and of the $420 million of projects that we’ve completed, we’ve had average returns over 20% on those projects and again, I'll talk about a few examples on next slide, which is 26.

Just to pick out a few, you can see, first of all, the range of product type we’ve got residential, primary residential, we’ve got office, we’ve got retail, we’ve got resort residential and we've got ground lease for retail site here on this page.

To pick out a couple of examples, the Alakea Corporate Tower in the middle, this is actually not a building that we developed, there was a building that we repositioned and it was a building that we acquired at, I believe, about quarter of its original construction cost. It is an asset that it struggled for quite a while under a -- for rent or for a lease structure.

We did a condo conversion, sold off floors in this building and did tremendously well over very short period of time, sold it out in a couple of years. And it was our understanding, first of all, our ability to negotiate a very attractive purchase price and to do so because of our balance sheet and our ability to close quickly, and our understanding of the asset.

But also our ability to understand that repositioning that asset would address some of the historical shortcomings with building and it was extremely successful and the credit for this goes to our acquisition group and Mike Wright, who was shown on one of the earlier slides, who head that to put up that was a tremendous project.

Keola Lai, on the left-hand side, is a great example because it was a high-rise condominium on land that we did not historically owned. We bought that specifically for development of this building. We plan and got necessary permit to build that and sold it off in early 2008. Our timing was impeccable and this was a very successful project for us.

Next to it, Lanikea, we’ve spent a lot of time on that but it’s important to note that Lanikea, which was a smaller condominium project in Waikiki, was really the first condominium project that, sort of, led the recent wave of condominiums about 10 years ago in Hawaii.

And we really led the way with that development and we think we’re similarly positioned with the new development in Honolulu that Paul will talk about to lead the way in what we see as the coming wave of high-rise condo.

And then finally, very briefly, I want to give an example of Daiei, which is a retail site, where we bought the ground -- the [dirt] under this retail center for development, but we were able to negotiate a sale price about year or so after we bought the [dirt] and essentially generated as much margin as we had thought we would generate from development of property through sale of the property, and so we're not always -- we’re willing to exit an asset before we get all the way to the end, that we see the right opportunity. That was a good example of that being done.

On 27, talk a little bit about what we see as a competitive advantage in Hawaii from the standpoint of investing. Essentially, we’re big enough to go after deals that a lot of the local players can’t, but small enough to care about and focus on deals and to hear about deals that lot of the Mainland larger buyers do now. So we have a sweet spot there.

Then I’ll show you on the next slide that we’ve done a lot of deals and sort of, $10 million to $15 million range where we think we've got a real competitive advantage. And if you just look at the numbers on the slide, you can see that out-of-state investors bidding on some larger assets. Typically, you get some pricing that we quite frankly think is generally too high and we are more than willing to step out of the bidding when that happens.

We like to transact as much as possible through private transactions and we have on, as you can see on the next page, the ability to do that and if you look at the deals that we've done in Hawaii over the last 10 years or so. You see that the majority of the deals we’ve done have been private, and the reason that we can do private deals, first of all, reputation. People know that we have appetite, people know that we perform. Quite often, we have situations where someone needs the cash buyer, they need to close quickly. We have the ability to do that.

And in several of these cases, in fact, probably most of them, our ability to secure these deals and secure them at very favorable prices was a result of that position in the market and the fact that we have this deal flow within Hawaii and the ability to transact deals before they go to wide auctions.

The 29 is a little bit of repeat zones. It’s been a lot of time on it but basically what it does is just reinforce the notion that we are looking to diversify our pipeline and historically, again, our pipeline has been Maui and Kauai that where our landholdings are. But we’ve made a bet on Oahu, a measured bet and Paul will talk a little bit more about the fact that we've been very measured in the pace of investment on Oahu.

But Kakaako is an area that we are very interested in. It’s an urban core of Honolulu. We've done one high -- actually two high-rise condos in Kakaako already. We have another one that we are in pre-sales process on and another site that we have an option on. It’s a -- we think for a lot of reasons, market issues, commute issues, number of other things that Paul can talk about. It's a tremendous complement to our historically more Neighbor Island resort oriented portfolio.

And so with that, I’m going to turn over to Paul to talk starting after slide 30 about some representative projects in our active pipeline, our future pipeline. And then talk a little bit about this entitlement process that I indicated earlier as where we believe we create a significant amount of value.

Paul Hallin

Thank you, Chris. I want to thank you all for coming, I wish we could have you in Hawaii, and I invite you to Hawaii to see our properties. It’s hard to see the pictures here, really how nice things are, but it is absolutely gorgeous.

Like to start with slide 31, as Chris and Stan had mentioned, we have a very wide variety of product types, and I just want to give you a bit of a market overview on Oahu. Paul Brubaker will be covering this in detail, but Hawaii, very different market between the primary Oahu residential market and the resort residential market.

And in this slide, you can see that the cycle that we've experienced, we had the Japanese bubble 1990 and then we had the run-up in 2007, ‘08 and the take away here is that we never had extreme drop-off in prices in the Oahu market.

And if you look at the next table over, you see the inventory. We had a point with stable prices and very low inventory which brings us to the next slide, on slide 32, is our next project on Oahu, which is a Waihonua development.

On this project, we did competitively bid to secure it. There were a number of issues on the site, archaeological, community opposition and what not that we are positioned well to negotiate with the community to solve those issues, and taking down the parcel of the very attractive rate, which equated to about $50,000 per unit and move the development process forward.

High-rise at Hawaii takes about four years from acquisition to sale. We’re almost two years into that process. We started pre-sales in December, had a very strong response, 200 non-binding contracts. We started converting these contracts to binding last month. As of today, we have 175 binding contracts and another 25 contracts in the binding process, which takes 30 days in Hawaii.

So we are very excited about the response on this. Typically, we see more like a 20% fall out during the binding process. Here we come through it at 100%, with 200 units under contract still [under those] binding.

With that, we’re in the bid process. As you can imagine, there’s not a lot of construction going on in Hawaii or the Mainland. It is very good bid time about to bid. We’ve got five locally based Hawaii contractors, some with Mainland ties, who would be bidding this project.

In June, we have those bids in. Hopefully, those are favorable with our sales, with our board and in tune and we’d actually look to move the construction of this project up to August depending on the pre-sales at that time and financing of the project.

The costs to build a high-rise in Hawaii can run for an upper end, not a high-end but upper end project for $5 to $600 foot and we target to sell those in the $700 per foot.

We do see a lot of competition on the horizon. There are number of entitled sites throughout Oahu market. We’re very active in that as Chris had mentioned, we do have an option for another site that we’re looking at and would like follow this project with that.

And just lastly on these projects now, obviously, Hawaii has the highest electricity rates, energy rates in the nation. We are very conscious of green development on this project, I mean, the chill water that cools the unit will also heat swimming pools, will heat the hot water, maintenance fees are very big issue when you come to high-rise development and the competition, so everything we can do to reduce those cost as -- is as important as the price of the units.

On slide 38 is an example of the private acquisition, as Chris had mentioned, large Oahu land owner…

Chris Benjamin

33.

Paul Hallin

I'm sorry, 33, larger lot, Oahu land owner was the developer look to sell a partially developed retail project to begin something we like. It has a cash stream right off the bet, opportunity to do development. We closed on this transaction December that the design build contractor to construct, we’ll have an underway by this summer.

So moving quickly, lots of tenants are involve or interest in this project in this location in the primary residential area which little bit showed on retail and there is opportunities for us to acquire additional commercial lands from this developer in the future, so very excited about that project.

Slide 34, let gets back to A&B’s historic lands on Maui, Maui Business Park. I've been with A&B now for 20 years. I was involved in the first development, in the first phase of Maui Business Park back in 1995 that we sold out in 2005 at prices from $20 to $40 per foot.

In the second phase of Maui Business Park, we are fully entitled, we are under construction, we actually close the sale to Costco for an expansion their existing stored 4 acreage even though the infrastructures is not complete, that was $38 a foot for both parcel.

We are forecasting sales prices of $40 to $60 a foot future and this is the long-term project of the 179 acre, a 155 of those are saleable and it’s probably about 20-year absorption on the project. Cost on that in Hawaii infrastructure cost runs about $500,000 an acre.

Slide 35, I want to touch on the Hawaii Resort market, again different than the primary market. This just shows you on the slide it’s not labeled. But these are resort sale over $500,000 per unit. If you look to total resort sales in Hawaii would basically double this number and there is one correction on this slide, 2011 was 754 units not the 585 as reported.

But what this shows you the cyclical nature, it’s much more radical, ups and downs, and in primary market, and with this you can also do much better on the sales price if you're positioned and ready for those upswing, and we do see that market also recovering.

On slide 36, move just to our Wailea project on Maui, again this was historic land. The land was actually owned by Matson Navigation and A&B commenced development of it in 70s, in the 80s we sold our interest to the Japanese, as Chris had mentioned, and used that money to buy improve properties in the Mainland had the opportunity to require undeveloped land in 2003 at a favorable price and this was through a public bid process that we prevailed on.

Within two year we had sold and developed approximately 100 of those 270 acres that we had acquired and paid-off the cost of acquiring those lands. So we are able to take our time with no debt, position the balance of the project for development in the future and not have to sell at the wrong time.

On slide 37, that shows you map of the Wailea area, the ones and darkened in red are those parcels that we sold or developed early on, active developments are in blue and then the future developments are clear there.

So, Wailea, again, very established project, really at the end of its cycle, but pricing doing very well, there we’re looking for the returns Maui market.

Slide 38, moves us to the island of Kauai, Kukui’ula is our latest large master-planned resort community. It is unique and that is a private club community. There is only three of those in Hawaii, those of you might be familiar with Keola La'i and Kukui'ula on the Big Island there are the other two private club, Kukui'ula, excuse me, is the third.

This targets are very high-end market and that has been impacted by this latest recession, but just in the last few months we have seen a recovery of that market with four sales since first of the year and actually we just had a closing here last week at $2.7 million for 2000 foot cottage there.

At Kukui'ula has been a substantial investment with our partners DMB Associates out of Scottsdale. We did partner with DMB to leverage their expertise in this high-end market. They’ve developed a number of high-end private communities throughout the West Coast.

They have a long following when we initially launch this project in 2005, we did have $100 million in presales that were close prior to the start of development and those are people that I have followed the DMB brand.

Currently, we get $450 million invested in project between A&B and DMB, no debt on the project, so that does give us stability to be patient. But we are adapting to the market. We are adjusting product coming with some smaller, less expensive projects and even larger lots to create value for those buyers and still we are priced below the other two private communities in -- on the Big Island.

And just again, there is couple of new brand and this has been there, you just have to see this project to look at the amenities. We have a private farm and lake, the beauty of it is A&B owns the 1500 acres adjacent mouthguard to the mountain of this, so it’s truly amounting to ocean project.

I've been involved in Hawaii development and all the major island and even the small line of alumni for the last 25 years, and there's nothing like this, it just a wonderful project. The buyers, those people who bought before we built it could be more pleased, now that’s completed, people are residing in the project and really it is the future of Hawaii.

Also, just from the entitlement standpoint, this is the 1000 acres. Currently at land use commission in Hawaii we only approved projects that you can demonstrate that will be sold out within 10 years. So you will never see a project of this magnitude being development in Hawaii. I don't think in the future.

Slide 39, touching on our pipeline, I'm sorry, I think, I've covered most of that at Kukui’ula.

Move on to slide 40, aside from the major projects on Maui and Kauai, as Chris had mentioned, we do look to acquire others land in the resort of Mauna Lani. We joined with Brookfield, who is the developer out of the West Coast and a builder, and they brought their experience and being a general contractor to the table ours are market condition.

We've been very pleased with this project. Again, it was impacted by the down market. We got into this in 2004, with very strong pre-sales coming into 2008, the market went down, we had some cancellations.

Recently we’ve seen that market recover. We’ve had six contracts this year. We had a closing yesterday at $1.3 million for 2000 foot home. These are less-expensive homes but still nice and are all in cost about $400 a foot and we sell those for $5 to $600 a foot.

Moving onto slide 41, Brydeswood project, it’s a little bit different in that, the entitlement process as we’ve mentioned is very difficult in Hawaii and you do have the ability to develop agricultural lands for residential use. They must be much bigger lots. They need to be obviously very good properties, because of the cost of infrastructure over 12-acre lots is more expensive. But this is some beautiful historic lands we had that had and formerly actually been in academia that and we’ve broken this into about 12-acre parcels.

These appeals both to the local residents, who can put multiple plant and multiple homes on those 12 acres, anywhere from three to five in this situation, and also to the Mainland buyer looking for a larger state home, who get further Mauka up the mountain that use spectacular we anticipate the state homes and be towards the top and down at the bottom will be the multiple homes by local residents or they can also use for grazing those cattle or horses.

So this is an example, while you see the sales price per foot appears very low, but actually from value creation standpoint, the bulk value of agricultural lands in Hawaii, there is a range, let’s say, it’s on this parcel about 20,000-per acre and doing this development, we elevate that to about a 100,000-per acre with the infrastructure improvement.

Slide 42, just summarizing the pipeline, as Chris had mentioned, we are really involved in every type of build in Hawaii. Hawaii is a small market. We touch everything from primary residential, resort residential, resort commercial, primary commercial and industrial on all the island, if there's any deals to be done in Hawaii, we look at them, everybody knows that we are interested and they come to us with their projects, and we do work with people both from Japan and the Mainland who are have properties in Hawaii.

Slide 43, the entitlement process as touched on earlier, is a difficult process in Hawaii, there is three steps to get zoning in Hawaii, first, you have to start at the state level through the State Land Use Commission.

As I mentioned, they have specific rules that involves public hearing, you get the Sierra Club and everybody else who have decided there should be no more development Hawaii coming out, so you have that to work with.

Reputation is everything when it comes to the entitlement process. A&B is committed to Hawaii, we follow through on our commitment that we can look back at developments that we’ve done over the last 40 years and demonstrate that we have honored our commitments.

The next step is going through the county. There is two steps in the county, you have to have a community plan designation or an island-wide plan designation basically was in the urban growth boundary. And then lastly, you have to go through the zoning process through the city council.

All of these steps involved public hearing. They are all very difficult and it takes at least 10 years to go through the process. So it’s a lengthy process. We know it well. We feel we do as well as anybody, but still, it is difficult to get through.

Just touching on a couple or three of the projects that we have in that process right now, Waiale is an expansion, primary residential on the island of Maui, it’s both mixed-use commercial, residential about 2500 unit. As we look at this project is about 800 units of primary residential absorption in Maui a year on an average basis. This project would be about 30% of that demand.

Kihei Residential is also on the island of Maui, it’s closer to Waiale, but again this is primary residential, it’s somewhat of an infill project as you can see from the photo that are abuts existing residential and it is small in acreage, but in density it’s a bit higher, half the project would be affordable housing 600 units, meeting about 12% of the annual demand on the island.

And moving to the island of Kauai, of course we got our Kukui’ula project which is, is very high-end, the Ele’ele expansion. The expansion of primary residential that we've done on the island, the 840 acres is the master plan, but that’s too large today to get entitlement in one shot, so the first phase of that will be about 280 acres that we are currently working with the county going through their island-wide plan process.

To help us along in this, we did sell 75 acres of portion of this project to the county for an affordable housing project to help get our foot establish and they are moving forward with that, and they are looking forward to us moving forward to assist them with the infrastructure costs.

Chris Benjamin

Okay. Thanks Paul. On 44, just a couple of things to note, as far as our 10-year history in financial performance in the retail estate segment. First one is, we’ve made money throughout the cycle, and even in the downturn of 2009, ’10, ’11, we’ve continued, we’ve remain profitable. The big part of the reason for that is what I said earlier about our discipline back in 2006, ’07 timeframe where we didn’t get overextended on our development pipeline.

Another thing to point out is in 2011 we did have dip earnings, which was largely driven by the change in strategy or the tweak in our strategy with respect to our commercial portfolio.

Historically, we have when we feel that we’ve optimized to maximize value in commercial asset we will sell it and reinvest the proceeds in a new asset that we think has greater growth potential.

Last year we made a conscious decision to hold off on or at least scale back our commercial property sales, so that going forward, and I’ll talk about this in a few minutes, we can talk about it now, I guess, is down in slide in few minutes, but so that we can focus more on the acquisition side of 1031 exchange.

So that we are leading more with what we want to buy and specifically, hopefully, buy in Hawaii and let that drive the timing of our sales to generate proceeds for the 1031 acquisition, as opposed to being driven by more on the sale side when we feel that an asset has reached full potential, not that those will be completely decoupled, because we’ll still be looking at assets that we think have been maximize in terms of value, but in terms of the timing and therefore the recognition of being that will be driven a little bit more by what we see on the buy side. So just an explanation of why the dip in 2011, a lot of that was a conscious decision.

And then on 45, I want to make the point that beyond just our earnings, as Paul said, it’s not all about EPS in the development business, in fact, quite often it’s not about current year EPS, it’s about the value that you create that may or may not be recognized in the given year.

So it’s permitting the entitlement activities, the investments that we’ve made. I think that over the last couple of years we’ve created tremendous value to the investments we've made even though that value will not be realized until we sold the projects.

We have a lot of ways that we measure that internally, I know that it’s more difficult for you as analyst to value some of those things, but we are endeavoring to provide as much detail as we can in our real estate supplement to give you a feel for our entitlement progress, our planning progress, where we are in the pipeline and let you begin to get more of an appreciation for that value creation even if it may not show up in the P&L in the given year.

And then finally to summarize on the real estate sales side, again value creation always starts with entitlement. We focus on our historic landholdings, but we think we've been extremely successful in demonstrating our knowledge of the market and our ability to invest in new lands, Paul just went through a number of example the things that are in our pipeline today that are there because we’ve invested outside our historic landholdings.

And we think we’ve got a very robust pipeline. I think that Paul and his team over the last few years have done a tremendous job of positioning these projects without a lot of capital spending on things like Waihonua and Wailea, and Maui Business Park to be positioned in this current environment for now spend some capital and moving toward sales process.

So, with that, I’ll wrap up the real estate sales discussion and our introduction, and ask if you have any questions on anything that covered so far, and then we’ll take a quick break. Yeah.

Question-and-Answer Session

Unidentified Analyst

Quick question on the Kukui’ula joint venture, now we know currently that you have over 90% economic interest in that project?

Chris Benjamin

There is essentially a waterfall structure and it’s a little bit difficult to project exactly what our long-term economic interest would be. But based on our current financial models and what we believe the cash flow from the project will be, we would expect that we would get about 90% of the proceeds from the projects based on that waterfall.

Unidentified Analyst

So, of the remaining, let’s call it $400 million roughly that need to be invest in that project over the next 20 years roughly. Is that primarily going to be invested by the land or is that going to be through, when you’re joint venture partner also been investing on sites?

Chris Benjamin

Well, that the primary answer that question is that most of that additional $400 million of capital will not come from either of us it will come from sales proceeds.

Unidentified Analyst

Okay.

Chris Benjamin

As we go along because, we have infrastructure already built out to support sales of about another 500 to 800 units without any material additional infrastructure work.

Unidentified Analyst

Okay.

Chris Benjamin

So as that cash comes in and as we deplete that inventory will then use that to build out the rest of the project…

Unidentified Analyst

Okay.

Paul Hallin

Let me just clarified that a bit, if the infrastructure in place is for all the amenities in the backbone infrastructure, we do have about a 100 lots developed in inventory, but we would have on-site civil infrastructure to bring on the rest of those 5 to 800 lots.

Unidentified Analyst

Okay. Thank you.

Chris Benjamin

But that should be modest capital relative to the sales proceed.

Paul Hallin

Yeah.

Unidentified Analyst

Okay. I have a follow-up on that 90% is that more, is that breakout more based on profitability or will that percentage gets unit timing of project recovery or elongated?

Chris Benjamin

I think the answer is yeah to both, I mean at the sense, well, it’s essentially based on that the waterfall and the pref, and the capital that’s been put in over the last few years, it has preferred return disproportionately are capital and so proceeds would come to us.

But to your second question, our projection of 90% is based on our assumptions about absorption and timing and if that change, that waterfall can change. But, I don’t know Paul you can comment on how dramatically the 90% would change, but there is no doubt that it could fluctuate and that’s why it’s an emphasize, it’s an emphasize number but that’s our current projection.

Unidentified Analyst

And the project are dated 2013, I think just to guess (inaudible).

Paul Hallin

Yeah. Right. That’s so we have no, so pretty, if we were able to the market just yet we sold up in 15 years…

Unidentified Analyst

Yeah.

Paul Hallin

Our percentage will go down, our partners will go up, if its elongated it will go to other way.

Unidentified Analyst

Okay. And then I have a second question, when you look at real estate sales of the commercial portfolio that you are talking about migrating that capital back to slight overtime, your vision that’s going to be into income producing properties for would that be -- would you target some of that into new development projects as you talk about it’s a growth engine of the company going forward?

Chris Benjamin

It’s in almost all cases 1031 proceeds will go into income producing assets, existing assets, there the only way that you can put it into a development piece of safer, a piece of land for development this a few intent to keep that development and that asset in your portfolio after development.

So if you plan to build for sale then it doesn’t qualify for life time exchange. So that the easiest suppose we’ve to think about it is that that capital will be reinvested in commercial assets, income-producing assets. Okay. Yeah.

Unidentified Analyst

You talked about the work of driving value from the entitlement, et cetera, not just measuring the sales but a lot of the value [that you created that it show in unit]. How you go about measuring that and how do you go about compensating your people?

Chris Benjamin

That’s a good question, let me repeat it, just in case it wasn’t audible on the webcast.. Question is there is a lot of value created from year-to-year that may not be recognized in the P&L and so how do we go about measuring it and how do we go about compensating our people?

The -- first of all, what we do not do on a regular basis and any the analysis, and use that as a management tool across the whole portfolio. What we do though as we’ve set very clear objectives over the lifecycle of the project for in early stages, the various stages of entitlement then the planning, then pre-sales activity sales.

And so every manager there is -- within incentive compensation structure has very specific goals every year for what he or she has to do to move a project along and their incentive payments are based on, they are hitting those milestones as opposed to -- as opposed to just a P&L objective.

And we think that those invest that system and those measures are very well align, very closely aligned with what it really is that we do to create value for shareholders even though again, it may not be recognized within the given year.

Unidentified Analyst

You talked about how many acres you have in current process right now?

Chris Benjamin

We have in the past, I don’t know if we mentioned today, but I think that we’ve got let’s certainly the slide 43, identify three projects, we do have some others, Paul you can comment another, Suzy if you recall what we’ve disclosed.

Paul Hallin

Yeah. I think our major project again I listed here there are some smaller thing that we are involve in various levels. Anything that we do involve it is change in entitlements on previously entitlement projects where we are to others need some adjustment even as we put that Hanula high-rise have you go back in and you get some approval adjusted and make some modification. So even once you have full entitlement Hawaii there is still can be some issues out there, she need to going and work through.

Unidentified Analyst

And then what is your returns then like in (inaudible) Hawaii in terms of at least portfolio sales and.

Paul Hallin

Yeah. We have had different 2000 projects on Mainland. We have invested in Valencia and we had about four, five completed projects there and returns have been good. I mean it probably it averaged high-teens, but we have some outstanding investments that have stopped in the recession and so, when we talk about lesions learn I think part of it, from our Mainland experience was recognizing that we do have the competitive strength and advantages in Hawaii much less on amendment.

And so I think that is partly why we’re again driven by I mean in Hawaii focus for future investments going forward. We do invest heavily of course in many commercial properties and there we get market returns of those, we do have a staff that evolve that, here in the minute, evolve that to managing and always enhancing driving that portfolio but, again whatever competitive advantage we have probably lies in Hawaii as opposed to those Mainland properties.

Unidentified Analyst

(Inaudible) when you talk about return, what exactly you view there, from that annualized or you talking about what does that mean any number you get again going to (inaudible) what are you including in that and what we are not including in that into some corporate and stuff like that?

Paul Hallin

So generally when we total returns we are talking about IRS.

Unidentified Analyst

Yeah.

Paul Hallin

Well, yeah, from the investment from section to completion and they can be either leverage on those. So the most part when it’s a project that we developed on our own to the IRS expresses unleveraged returns, usually when we have JV or debt on it, so it usually express the leverage return. And generally corporate overhead is not included in those returns.

Unidentified Analyst

Quick one follow-up for me. From the land it’s currently entitlement process where is that in your landholding, is that on to the agriculture land or is that, or is that entitled land already, how should we think about that?

Stan Kuriyama

(Inaudible) as agricultural land.

Unidentified Analyst

Okay.

Stan Kuriyama

Yeah. It’s currently agriculture is known.

Unidentified Analyst

And so for the sake of thinking about valuation clearly, I will assume plan to the entitlement process would be more than just on a per acre basis than the agriculture land in general. Can you give us some idea -- I don’t know, you guys are going to touch on this later on the presentation. But I mean how should you think about -- the valuation of land that’s in the entitlement process but maybe not a fully entitled yet?

Stan Kuriyama

Yeah. I think to think about that -- we will talk a little bit about this later. I don’t know we have the time to go in great depth, but essentially the valuation of ag land depends first of all on whether it has development potential at any point in time. If it doesn’t then there are variety of means you can use to evaluate from the cash flow its generate and it’s current and future ag business, potential that may have to be converted as Paul will describe he is into large ag lots subdivisions which can be very, very valuable, but certainly not all of our ag land is that most of our ag land would not be slated for that kind of development.

Or if it has true urban potential and then if it has urban potential to question of how immediately. So you’re exactly right, that if it’s currently in the entitlement process, you intend to just put the time value or money to put -- certainly higher land value on that because even though entitlement can take some time, if it’s relatively more immediate than something that maybe in a master plan somewhere down the road, but isn’t currently in the process.

So and that’s the process that we will give some data later in the presentation along those lines and some land values. But that’s really something, when I said earlier you’re probably not going to walk out with the models completed that’s an area where typically Suzy or I or our CFO can spend time with you to help you understand what falls into what categories.

Unidentified Analyst

Sure. Okay. How much of that in the ag land use a character potential, time, entitled potential beyond it existing values?

Stan Kuriyama

We use to have a category from the plans before and I’ve said about 10,000 acres and yeah, we stopped I think why we got statistics because it’s just to difficult to project. So we have done master planning for lands, we know which lands have the highest in our opinion urban potential. But in the function of economics and government and community acceptance and see after way that two together to determine, which project are truly viable and that changes over time. So -- another decent indicator where urban potential exists is the county’s go through what they called general plan update periodically. Maui County is in the process of completing theirs and Kauai County is starting theirs, and within those general plan updates they have designated areas that at least, government believes has near-term earning potential.

And so we can later provide data on --what lands are included in those plan updates but include more in the land described here but it’s hard, it’s really I think probably more misleading than helpful to provide the statistics but that might be places start anyway.

Unidentified Analyst

Great. It’s fair to say, we look at the roughly 10,000 acres ag land you guys have (inaudible) restart – so it’s being used in your ag business that proportion of that they don’t have urban potential as relatively low value because (inaudible) leasing generate sub sort of think income?

Stan Kuriyama

No. I wouldn’t say, they don’t have -- they have a low value and recent they -- some of these lands actually have decent values because of where they are located. Lot of these lands have nice ocean to use or actually not beach front but ocean front properties. And so there are very nice lands, some of the better lands actually in our portfolio. And periodically, we won’t sell those lands.

We had in past, so we will continue to do so. But we’re pretty careful about, which lands we sell and when, but I wouldn’t characterized so about U.S., no. Now we of course, some of that consist of 100 of acre of cultures yeah, and those already very low value, but in the aggregate I wouldn’t consider that low value lands.

Unidentified Analyst

Are there any restrictions on the 350, 750, 000 acres of agriculture land that it’s not conservation right? Do you have any restrictions on that property as far as you can sell it to when you help quickly to sell it or maybe the type of person they could buy whether it has to stay, actually a piece of agriculture land or couldn’t eventually redevelop to few want sale someone else?

Stan Kuriyama

Well, I think that the first answer that there is no formal restriction on where you can sell and if someone for example, wants to buy ag land and go to the entitlement process they have -- I think one of the things that defined specially on Maui where you look at they are 35,000 plus acre Sugar plantation is that it is sort of inextricably linked with the water that the conservation lands on which we collect water and it really operates best as a whole. And so to take large chunks of that 35,000 acres and sell that for example, would -- while, there is no formal restriction on that but probably wouldn’t make a lot of sense just because it’s highest and best use is as part of that larger contiguous plantation. But as far as a sale of other lands and for example Kauai’s and of our ag lands are not as linked because they are not in one business, they wouldn’t be any particular restriction.

Paul Hallin

(Inaudible) there have them buyers over years in Japan and USA (inaudible) buy large track agriculture, thinking they would entitle and they have been too successful?

Suzy Hollinger

Okay. I think that we should probably take a quick break. While we will be here at 11’ clock (inaudible). Thank you.

Presentation

Chris Benjamin

Okay. We’re back and we are going to pick up on slide 49 with the leasing segment. What’s included in the leasing segment is our, of course, the income from the commercial property portfolio as well as our Hawaii unimproved properties that we’ve leased to third parties and then gained on – as I said earlier gains and losses on sales of assets are not included in this segment. Those are included in the real estate sales segment.

The primary operational activities on slide 50 are to acquire and/or develop income properties in markets with strong growth potential so we’ve done for the last couple of decades and then enhance the asset. Dave can talk a little about the team that he has in the process that we have for enhancing the assets overtime and then repositioning and as I said earlier eventually monetizing them, we feel, we maximize value, and we do very actively manage these assets and then as I said this was at the appropriate time. There are certain assets in our portfolio that we held for many decades and are unlikely to be solved but most of our commercial portfolio in Mainland as I think flipped at least one since we have acquired.

On 51, you can get a feel for the mix of our portfolio although various shades that are green are on Mainland, but the portion of the portfolio on Mainland and then the blue are in Hawaii.

As you can see from cash in NOI perspective, about two-thirds -- two-thirds is on Mainland. About third in Hawaii, that again going back to our earlier discussion is a balance that we would like to shift more towards – we would like to see blue shading over time in the portfolio. You can see the very heavy concentration from a square footage standpoint in industrial both on the Mainland in particular but on a cash NOI basis its actually much more balanced just given the low rent per square foot and the industrial portfolio on the Mainland.

And 52, I have really already talked about so I’m not going to spend a lot of time on this. We have a – we want to involve the strategy for the portfolio to increase the Hawaii concentration overtime.

I think that our local market now has positioned us very well to do that and because of this the case of our future commercial property sales will be dictated more by the availability of assets in Hawaii than it has historically and because there is not a lot of assets turning over in any given year.

We will potentially see fewer commercial property sales in the near future although we are working very hard with both specific assets and owners of multiple assets to identify assets in Hawaii. And with that I’ll turn it over to Dave to talk about the Hawaii and Mainland commercial portfolios.

David Haverly

Thanks Chris, and thank you all for being with us this morning. I will now, kind of, quickly run through the overall commercial portfolio both on Hawaii and the Mainland. The first, on Slide 53 is Hawaii commercial portfolio, currently with 21 properties on four islands, eight on Oahu, eight on Maui, four on Kauai and one on the big island with the island of Hawaii.

This 1.4 million square feet represents pre-significant holding for Hawaii Real Estate Company as 18% of our overall GLA. This 18% GLA also again represents as Chris indicated 36.5% of the portfolio NOI. So by no small means, it’s a very large indicator what goes on with the portfolio.

Hawaii commercial portfolio continues to pose pretty strong results, closing out in 2011 with 91% occupancy and a 9% increase over 2010 NOI.

I’ll briefly cover on the next couple of slides in the Neighbor Island markets. The first one would be the Neighbor Island retail market on Slide 54 and the good takeaway from this is if you look at the trends overall, the Neighbor Island continue to struggle in the commercial market.

Both Maui and Kauai show a negative net absorption and vacancy rates of plus 10%. The Big Island had a positive year in 2011 but again it struggled overall with occupancy and activity. Now, this is a little contrast (inaudible) to our Kauai portfolio.

Now, if you move to slide 54, where we look at our Maui Mall, which is located in Kahului, just adjacent to the airport in Kahului Harbor. This partly was repositioned in 2009 and 2010 with the opening of – excuse me -- Maui’s first and only Whole Foods. There is only two Whole Foods in the state of Hawaii right now, one in Oahu and one here at Maui Mall. This reposition allowed us to relook at tenant mix, the property itself and focus on adding some features, attract new and Mainland tenancy property. As such we saw these properties well established and we are already for our next close tourism in the market itself.

As you can see from slide itself, the occupancy remains strong and NOI continues to increase year-over-year, encountering some of the trends that we’re reporting on overall trend.

It is also evident as we move to next slide on slide 56 when we look at Lanihau Marketplace in Kailua-Kona. This property has got a really unique history for us. We originally acquired it in 2005 for 16.7 million, disposed off in 2006 for 27 million and we acquired it in 2010 for 22.5 million.

Now, again covering the trend in Neighbor Island, this property seems positive and stable occupancy to this time frame and if you analyze our 2010 NOI, we reflect 21% NOI year-over-year growth between 2010 and 2011, once we took control.

Moving on to Oahu retail market, if we look at the trends in slide 57, the top trends indicated Oahu retail market is resilient and it really never took that we saw in other markets in the Mainland. Activities are strong and the tourism markets evolving there faster then anywhere else. We currently have four properties on Oahu, kindly Bay Shopping Center, like shopping center, Kaneohe Shopping Center and Gateway at Mililani which we purchased at the end of 2011.

Let me briefly run some of these, starting off with Kaneohe Bay shopping center on slide 58. Kaneohe Bay shopping center is located on 12 miles outside downtown Honolulu and unlike some of the other overall market, you saw the occupancy on slide 57 – vacancy – excuse me on slide 57, 4% or higher than 4%. We maintained a stable occupancy for 2011, roughly 97%. The real key that was in the sub market and this property we’ve seen, went for over the last two years anywhere between 3% and 5% annually and as a result, our annual events for this property for underlying space is anywhere between $42 and $54 square foot annually.

This is further evidenced by the fact that we lost Blockbuster obviously and 2009, this property replaced them with another tenant paying 20% rent increase over Blockbuster rate. So in the strong market, typically with some of our retail properties at Hawaii.

Moving on to slide 59, this is Kunia Shopping Center, one that we’ve highlighted already as a development project as we move to the income portfolio. This is completed in 2004 as a relatively steady since that we’ve had some ups and down in occupancy. But since 2010, we’ve posted 6% increase in occupancy against the Oahu retail trend.

In 2011, with 14% return on development cost based on our NOI that we’ve developed, again this is a infill project, well positioned against the future growth on rent increases.

Moving onto the Oahu industrial market on slide 60, the major trends of the markets been relatively subdued. We’ve seen a whopping increase in vacancy rates in 2005 to 4.8% in 2011, that’s compared from Mainland current port market is that, yeah, everyone will be very happy some of these vacancy rates we have here. Oahu industrial market has always been a very tight market with very high rents overall.

Product class, that we need to understand employee industrial that the product is a little older than we’ve seen in the Mainland markets. We’re not looking at Ontario, California with 32 foot clary height still fill, still well building construction. We’re seeing steel building, some older cost for (inaudible) from over to and then some more product that’s very well construction last five to 10 years. Typical tenant size is for the Oahu market under 5,000 square feet, a large tenant probably range between 15 and 40,000 square feet.

That leads me to slide 61 which is our Waipio Industrial portfolio. This property is located at 14 miles west of downtown Honolulu. That continues four buildings which are really considered as class A industrial property in Hawaii. All the buildings are 80,000 square foot type property, the balance of multi-tenant properties. If you look at the occupancy here, since our acquisition in 2009, we’ve been actively able to increase the occupancy from 92% to 100% every quarter that have been reported as of March 31, 2012.

Though, definitely rental income has been something that’s been about especially 2009 and 2010. We are seeing great strides in this going forward especially 2011, 2012 seeing larger increases in the rents that we have achieved. A different type of industrial profit that we have as reflected on slide 62, the Komohana Industrial Park is will further out in West Oahu about 18 miles out down town. This is a five older buildings with 29 acres through all this attached to it.

This is in the heavy industrial park of Campbell and West Oahu has really where the heavy industrial users are located. We have one vacancy right now 44,000 square feet, which up until probably late 2011 had some little activity. We’ve seen new IT and large increase in activity in the first quarter this year on the space and are currently negotiating for the potential user, national user particular assuming 44,000 square feet.

The upside here in Komohana is obviously to 29 acres of ground lease we have. Potentially, if we continue to the ground lease income which reduces over $1 million a year in NOI for this property or to be split off end-users builder suite sites or even as commercial condos in the future.

In general, on slide 63, when you look to play market summary and you see the retail markets improving positive searching vacancy rates, it’s relatively low, industrial marketwise posted a negative net absorption, the vacancy rate is still relatively low. The office market is slightly different and probably we’re seeing nationwide a higher vacancy rate 13% and a low and then negative net absorption. The good news for us is that we only have 2.5% of total GLA in office in the Hawaii market total and only -- actually 50,000 square feet of that is on Oahu.

So our exposure to rate is obviously relatively low. Well, you will note on this market overviews that some examples we provide in portfolio overall were outperforming what’s going on generally in the Hawaii market, better occupancies, higher rates and better renewal rates.

Moving on to our Mainland portfolio on slide 64, I think at first glance you go to north of map and now it looks like a spread out mix bag of portfolio and it is. It is – it is a mix bag with eight states, eight investor properties, 10 office properties and six retail properties. But it is designed for specific reason. It is designed for stability and for providing NOI for the portfolio. It currently produces 55% of the NOI for the overall portfolio and close out 2011 in 92% occupancy and similarly with the slight portfolio, posted a 9% increase over year-over-year NOI.

I mean, okay, we went through some of the general trends we’re seeing, both in Mainland retail office and industrial portfolio. The next couple of slides, if we turn to slide 65, we can look to the Mainland retail portfolio, we currently, properties in Texas, Colorado, California and Utah.

Their portfolio on our retail side, it is generally trending with the Mainland trends that we’re seeing. One that is little different for us is we’re seeing rents are remaining flat for 2011 going into 2012 at this point.

Upside that we’re seeing however is increased investment interest in our properties. We’ve seen recent activity and offers on some of the properties at cap rates we haven’t seen since 2007 and as such we anticipate that these would be potential targets for repositioning and redeploying assets back to the point on your future.

Moving onto Mainland Office Portfolio on slide 66, currently we have 10 office buildings in Arizona, Texas, Utah, California, Washington. As we all know the Mainland Office market continues to suffer, vacancy rates have been so high that we’re not going to see major rent increases for years to come.

We all are likely some of our properties seeing some positive indicators. In Texas, we’re seeing generally 2% increase due to job growth, that’s really been tied to oil and shale plates that’s going on out there. Arizona, we’ve seen some modest economic changes that we’re anticipating will increase our occupancy this coming year where tenants have difficult and hard-hit market.

In Sacramento, I bring this up because the Sacramento market’s been relatively inactive into the public sector and moving oppose at the end of March this year, one of our properties have occupancy, it’s going to fall into high 30% range following the loss of our anchorage tenant University of Phoenix. The good news on it, it is 58,000 square feet office building in Sacramento.

We’ve had similar experiences with properties that we’ve lost large anchor tenants but we’ve been very successful in retaining the properties. We’ve done this in San Antonio in the past and other markets and we anticipate we go to this year in Sacramento pretty quickly.

The bright spot for us has been the Mainland Industrial Market on Slide 67. (inaudible) investor properties in Texas, California, Georgia, Utah and Nevada, the industrial market specifically in Texas, we’ve seen 10% increase year-over-year in occupancy rate and in some of our southern California properties, specifically at our activity distribution center, we closed out 2010 at 80% occupancy rate.

At the end of 2011, we reported 100% occupancy rate. At the same time, we reported 20% growth in our base strength that we are achieving for the property. So a real strong rebound that came out California for us.

Now, that’s not typical for the entire industry portfolio. We’re only seeing nation-wide, we have seen some downward trend in rents in industrial market. That trend has definitely slowed off as 2011 close down. That leads me to Slide 68 on our renewals.

This slide shows us our renewals was our rollovers from 2012 to 2022, you will specifically note in 2013 we have over 2 million square feet building over 29% of the portfolio. A million square feet of this represent by our Savannah Industrial Park which lease to single tenant one of our Matson subsidiaries. We are currently working on long-term negotiation extension release.

With that it show some pretty relatively stable rollover for main years. You do want to know that in 2010 and 2011, we have been very successful in retaining our tenants, posting 70 and 72% renewal rates on tenants that have expired.

It also shown in 2010, we posted almost a 12% reduction across the portfolio of rents as our tenants renewed, that slowed in 2011 to less than 3% REIT and primarily that's driven due to several leases ever executed during the peak of the market, 2007, so on that are rolling off and burning off at this point, as the rental increases have been felt in portfolio, we expected this downward trend will slow even further and hopefully turn positive quite quickly here.

With that, I'm going to turn it back to Chris for the financial overview on the leasing segment.

Chris Benjamin

Thanks, Dave, and so on 69 you can see the financial overview, we can segment – you can see as I noted earlier from the sales segment but even more so for the leasing segment, we've remained profitable through the cycle and we did of course have the dip most notably in 2010 in operating profit trending down 2008, 2009. But we had a nice recovery in 2011 and some of the 2010 decline which is actually even more noticeable on slide 70 which is cash NOI, was a result of the fact that we had a number of assets that had been sold in the proceeds had not yet been reinvested. So some of the impact is a result of that, but nonetheless, 2010 was primarily symptomatic of the fact that – it's kind of the – the end of that cycle of rent renegotiations in the recession period and some increase in vacancies.

But if you look at slide 71 I think that the best news and what David alluded to is the fact that we actually had quite a nice year-over-year increase in same store cash-NOI in 2011, reversing trend of the prior few years and that's very good news for us, as we go forward. And I think as David indicated we started last year I think the first quarter of last year our average lease rent renewal was something like 10% or 12% below expiring and by the fourth quarter of last year it was only 3% below expiry, so we feel that we're reaching the bottom or at the bottom and reaching a turnaround in terms of year-over-year, or I'm sorry lease renewal rents.

So the last slide on – last couple of slides on the leasing segment, first of all on 72 the value creation drivers. And here there are a little bit more measurable than they are on the development side even though they're certainly more to life than the bottom line, the metrics are much more measurable on a year-to-year basis. And these are largely reported in our real estate supplement and you will be able on quarterly and annual basis to see our NOI and our same store cash NOI occupancy and so you know it's a little bit more straight forward but this isn't and it is about of our development business to monitor our progress.

As far as the summary of the leasing segment on the 73, as I said earlier the commercial portfolio has been assembled over time largely through 1031 exchanges and some development activity but we've leveraged over $200 million essentially the government's money through deferred taxes to acquire these assets that are now producing income for us and providing – consistent earnings and cash flow. This will continue to be a long-term cash flow generator for us, we've talked a few times now about the desired focus it more in Hawaii and to add to the discussion I had with Brendan during the Q&A, I should point out that another means of repatriating capital from the Mainland back to Hawaii could be the monetization of assets, the paying of taxes and then reinvesting, investment into our development pipeline in Hawaii, the point I made earlier is that if we want to do a 1031 exchange and avoid the taxation, it has to go into other income portfolio asset but we certainly could pay taxes and redeploy those dollars – the capital directly into our development pipeline. So we reserve that right and we have paid taxes over the last few years when we haven't been able to find attractive replacement assets we've done that.

So that concludes the real estate segment, we can take a minute and talk about any questions you might have and then we'll move into agriculture.

Question-and-Answer Session

Unidentified Analyst

You mentioned that there was – or you felt that there might be an active transaction market for a potential sales of assets, could you just expand that a little bit who are the buyers and what's – what are they looking for in the markets?

Chris Benjamin

Well cant' disclose the buyers at this point but we have to see several –

Unidentified Analyst

I mean in – not in general, but you could characterize who they are?

Chris Benjamin

They've been a larger capita groups looking for opportunities, specifically retail West Coast to Mid West, had a very attractive cap rates that we're seeing, somewhere between let say (inaudible) what so very attractive to what we've seen in somewhat (inaudible) 2007 base market.

Unidentified Analyst

Any appetite on the office side?

Chris Benjamin

We've not seen other than – office in some office property, we haven't seen much activity on that front.

Unidentified Analyst

A few questions, I wanted to – if I look at your NOI per square foot and rent per square foot on the retail side it looked a little relative to the market comp in Hawaii is there a reason for that and then the second question is there any of your properties on Hawaii where you guys don't own a land and other long term properties?

Chris Benjamin

On the first question, on the NOI for retail per square foot I guess it really depends on what you comparing it to. I mean if you look at the resource detail definitely we're looking at probably a little low on per square foot rate, and you have to look at our typical properties and really, our grocer community anchor centers. So we're not necessarily cored downtown or like it did itself, but for those properties, a much higher rental rates than much of our competition. So I – you have to understand with better where the properties are appearing to give different answer.

Unidentified Analyst

Yeah. I'm just like – what was in the general – but I think Paul has provided the – a range, so I would like to – so if I compare that how does that translate into, do you think cap rates that you would think will be appropriate or value per square foot there that could little product that yet have to neighbor or something there so?

Chris Benjamin

Well the interesting point is that they're not recent comps and they were tracking certain way that, one shopping center safely anchored I've just traded for well, 5.5 cap and let's say a little more retail centers would be 5.5 caps with definitely strong interest in going retail. So it's really grocery anchored now, and if you aren't looking for more cap rate, then I guess probably seeing rates overall between 5.5 on the lower side to be maybe 7, 7.5 product type location.

Unidentified Analyst

And then the lands you…

Chris Benjamin

Yeah. With lands – excuse me, we do have one property in Hawaii that's still under long-term ground lease, that was kind of these shopping centers I referenced in our slides, about – it's got a long-term ground lease I think it still extends out a little over 20 years.

Unidentified Analyst

Okay. Thanks.

Chris Benjamin

Sure.

Unidentified Analyst

You actually could – basically answered my question I think, so I was just – just the cap rates in Hawaii are actually fairly similar to what you're saying in the Mainland right now, would you say?

Chris Benjamin

They've been what typically what's been in the very similar cap rates right now. General law also market in Mainland and market volumes in – Mainland was probably same things and (inaudible) and it is similar to Hawaii.

Unidentified Analyst

And historically what has these relationship with cap rates in the Mainland versus Hawaii tending to be?

Chris Benjamin

Well depending on the market cycle you know, you can say the cap rates in Hawaii are a little lower than what was going in the Mainland vice versa. And usually there's a probably 50 point basis spread between the two and depending on –

Unidentified Analyst

So Hawaii has not systematically tended to have a lower cap rates than the Mainland?

Chris Benjamin

In recent years I think we're starting to see a little more – if you go back several years it was probably trend but Hawaii cap rates were higher and then trends deployed were nice (Inaudible) and more cap rates were.

Unidentified Analyst

And you've talked about potentially taking some of your Mainland portfolio and shifting it into Hawaii, how important would it be that you didn't have a negative variance on the cap rates as you did that process.

Chris Benjamin

Well, I think if you look at the NOIs that we produced based on the GLA we have in Hawaii, if that didn't compensate somewhat for any potential change in cap rates, but it is definitely consideration for it. That will be to maximize the cap rate on the Mainland part but looking cap rate and then use our relationships to fund our market property and buy it at a regional cap rates.

P:

I think the key for us is going to be long-term value creation and therefore we believe that – as a general rule we are in no hurry to make this transition so we're not going to go out and sell everything that has 7 cap could buy, 6 cap just to get that to Hawaii but I wouldn't rule out potentially buying at a lower cap rate if we feel that there's value there that we can create on an assets specific bases, but for the most part I think we – we have the opportunity and we're patient to make the transition without cap rate compression and that's why we're going to be patient. We're not just going to do this for the sake of saving their portfolios in Hawaii.

Chris Benjamin

Yeah. This is Chris. I think there's several opportunities in Hawaii where cap rates would be very low to be upside due to vacancy rates are another factor.

Unidentified Analyst

Do you think third party manageably, the stuff on the Mainland, do you manage it in-house, your portfolio in Hawaii, or is that third party managed as well?

Presentation

Chris Benjamin

It' – the Mainland is a 100% third party. In Hawaii depending on the island and we do a combination of – in-house and third party managers, we've got in Hawaii everything is in-house, Maui we split it, we do some in-house and some third party.

And then on the island of Hawaii or the big island is 100% outsourced. And Oahu is 100% outsourced but we feel we're still -- into embedded in the market that, third party guys and we're directing the deals. Okay, there are no more questions on these and we can go into Land Stewardship and Agribusiness.

On 76, again just to follow the pattern, what's included in agribusiness results, first of all our sugar operations the raw and specialty sugar sale as well as power sales are included in our revenue and our operating profit, there on McBryde Resources which is the essentially in the success to our old Hawaii coffee operations, we sold the assets of Hawaii Coffee and essentially sold the operating business but we have retained the renewable energy business as well as the management of our ag lands on Kauai and third party leases there.

And then we have a couple of small supporting trucking operations that are sort of legacies of our sugar days that are small but profitable trucking operations on both Maui and Kauai and a small business on the Big Island as well. Those together make up the ag segment. The lion's share of it is – and has been the sugar operation but renewable energy peaked and for our resources pieces is it growing shares up.

As far as Land Stewardship goes you know we have extensive conservation land into Maui and Kauai that are yet not just for drinking water for irrigation but also for hydroelectric energy purposes and this is a significant contributor to our operations, we don't break it up separately because it really is part and parcel of the farming operation, but we do sell excess power to the local utilities and it's a fairly significant revenue source for us.

We own some of the highest quality ag lands in the state and our HC&S plantation really is the not only the largest contiguous farm but it's fully irrigated and it is incredibly fertile land and because it's contiguous and it's relatively flat it's extremely attractive for growing biomass.

We've turned that biomass today into crystallized sugar. So sugar business and it has been for 140 years but it may not always be, what we've – our objective here is to make sure that the lands are put in the highest and best use today given sugar prices and our experience growing sugar that is that business supposed to be and, but we're very actively looking at other opportunities to grow biomass potentially for renewable energy and that's something we're working closely on but the recent improvements in sugar pricing and our significant increase in production in last few years can really increase production over 40% to 45% the last couple of years really provide, steam power and a bridge to some potential renewable energy in future.

On 78 agribusiness core strategy, I've already, some of the stuff it does present – represents a highest and best use of most of our lands and it also provides benefits to us more broadly in terms of helping us maintain our key infrastructure covering a significant amount of our land carrying cost and generating nice profits, last year and we expect to have another good year this year. We generated about $23.5 million of operating cash flow from our businesses last year.

In addition to the sugar business which has improved a lot over the last few years, we've done a lot to expand and reinforce our renewable energy presence. We are this year under development on our solar farm on Hawaii that I alluded to earlier. We are investing in our hydroelectric assets, most of which have been in place for a century, we're doing maintenance to and some enhancements to increase electric output and we're also as I mentioned looking very actively at biofuel opportunities.

And we do see a growth potential there although we are very cautious there because this is the classic case of literally not wanting to bet for pharma and new technology in renewable energy, we've got a profitable business and sugar, and we're going to maintain that and we're going to look for opportunities to evolve it, but we're not desperate and we're not going to make any dramatic changes there, invest in new technology until the present.

On 79 the financial results, as Stan alluded to earlier it's been a volatile business over the last few years, but the drivers of the significant decline in profitability in 2008 and 2009 were primarily weather related and they were – we had an unprecedented drought in the 2007 – 2008 timeframe and to grow a two year crop, the crop business starved for water during that time period so it was probably hardest in 2008 and 2009.

We've not only had a recovery in weather patterns, even though we're still in a relative drought by historical standards we're in a better situation than we were in that time period, but we've made a lot of operational improvements as well in the way we plant harvest and process our sugarcane. So I'm very confident that from a production standpoint we won't have a repeat of 2008 and 2009.

We've also benefitted from a very high sugar pricing which we can't guarantee will last forever but we are steps to lock in the pricing as far as we can and we're largely priced for this year's crop and next year's crop.

On page 80 just some of the drivers of performance in our ag business, certainly sugar and power pricing a very – the single most important determinants of sugar and power production and sales obviously very important but a little bit less volatile than pricing can be – the big driver that we focus on is yield per acre.

We've got a finite number of acres that we can grow sugarcane on and we want to get as many tons of sugar per acre as we can and our yields have gone up about 40% over the last couple of years and we're also bringing some additional acreage back into cultivation.

So those are all the things we're doing to try to ensure the ongoing profitability of the ag business and we see it not, and – not just a holding strategy or we see it's very actively being managed to maximize profitability but I think we have more opportunities on the renewable energy front, not just with potentially biofuels but I think we've got a little land there suitable for solar, potentially land that are suitable for wind and there's a big push in Hawaii towards more renewable energy and we're going to be actively looking to participate in that.

But with our usual fiscal conservatives and as we evaluate opportunities, so trends we're seeing then into land holdings on 82 you see just a snapshot – the map of the state with the numbers that we summarized earlier, on one of Stan's slides, on 83 you see the same picture actually a repeat of one Stan's slides with combination of primarily conservation and agricultural land that he referenced earlier, and then on 84 you see a more detailed breakdown land between fully entitled land on the various Hawaii islands and the Mainland as well as our agricultural land with the breakdown between what's actively bond by us versus third parties agricultural leases to third parties and then our watershed lands.

Paul Hallin

I think just to point out, it excludes our joint venture lands, for example Kukui'ula.

Chris Benjamin

Right. So there were 1000 acres in the Kukui'ula Joint venture on Kauai that's not included here. Which is just down our balances sheet. That gets us into the topic of valuation.

And it's a tough one and I know that we don't have a lot of time left but what we – in response to a question earlier I pointed out that we don't do on annual basis for example a net asset value calculation and the reason is that we view our land and our management of that land and value creation from that land really on a parts – some specific basis and in space and on what on where are we in either the utilization of that land for agricultural purposes or the entitlement of that land for development purposes and how can we make progress against that – the goal that we have for that specific asset. We don't perform in that asset valuation but we can understand that that's an important part of how outsiders value us.

So what we try to do is to be helpful to your efforts is to breakdown those holdings into key asset classes, to give you some information about those various asset classes and try to give you some information that you can use to value the business. But we certainly refrain from – for doing it for you. It requires a lot of assumptions on your part and we understand that that's difficult but that's what we can try to help with.

The next couple of pages are relatively simplistic, and certainly for those of you who have already built models and have this accessed already, but just giving examples of various ways to value the components of our business.

So that the income portfolio I would say is – we typically relatively of use the term easy to value I know it's very suggestive still, but you know it capitalize -- a capital approach or a comparable sales approach can be used there.

The developed land even, we've tried to provide in our real estate supplement enough information so that you can do at least a rough just kind of cash flow analysis, ran again there, or some assumption that need to be made but we've tried to provide as much information as we can.

And then on the ag and conservation land we are providing here some representative on the slides 89, 90 we're giving some market data that we've pulled together on land sales over the last five – six years by the size of the sales as well as the location between Maui and Kauai.

But you know, this is not the be and all data there are other data sources we certainly can use and we can try to be helpful in breaking down the acreage so that you can get a feel for how to put values on the various components but it really is a very subjective process, one that we're happy to take questions on but ultimately it's – this is I think where some of the heavy lifting is in terms of value of the company and we'll, you know.

I think Suzy has walked out but Suzy certainly can be a resource to assist with this.

Stan Kuriyama

It gets back to me for one last slide. And that's 93 where we try to answer the questions, why invest in A&B, why buy our stock, separate companies. And we've tried to enlist the primary reasons we think that make sense to invest in our company.

We've spoken about the unique assets and competitive strengths, both our physical tangible assets as well our intangible assets. And the intangibles are important they're based on many years of experience, and just as importantly in decades of building up a reputation and brand in the state of Hawaii.

Second we have a track record it's not just all talk, we have a proven track record of success and within the state of Hawaii as well as generating value in our commercial portfolio and our development pipeline, we've worked hard especially during the downturn to create this developmental pipeline and as I mentioned we now have a pipeline of over 3500 units and they're fully entitled that we can roll out as the market recovers.

And we spoken about our liquidity, balance sheet and combined with a very disciplined and I think very smart experienced approach to underwriting and making investments. I didn't get much into it today but you'll hear more at lunch about Hawaii's economic future, we think we are at that inflection point and that we are well positioned to capitalize on the economic rebound that we expect to, experience at Hawaii and then finally again, we are if you're looking for a public company to invest in the only real estate company of any scale in Hawaii and we think the best at creating long-term value for our shareholders.

We don't underestimate some of the problems that we'll be encountering as a standalone, we are a smaller company, we are not – you know just a commercial portfolio, we're not just a development property, so we do have a mix of assets and activities within the company, but it's a good business, it's a good state to be investing in and I think now is the right time.

So those are concluding remarks we're excited about separation, we look forward to the challenge. It hasn't been as easy as I would have expected a year ago. But the way we're getting close to the finish line and so, I think both Matson and we [had and we feel] good about that.

The time of slide to answer any of the questions you may have. I would also like to note that Joel Wine, who is A&B's Senior Vice President and Chief Financial Officer and Treasurer is not in the room and unable to take any questions on the financial side, I should point out that Joel will become the Chief Financial Officer of Matson post separation. Paul Ito, who is currently our Controller at A&B will become CFO of A&B, he was not able to make this trip because, if anyone's been watching our SEC filings for the last couple of days, he's been (inaudible). So he'll be on future trips and we'll have an opportunity to meet him.

So with that any questions you may have we'd be happy take.

Question-and-Answer Session

Unidentified Analyst

Maybe I'll start out, is there a share buyback authorized and perhaps could you comment on your just – thought on the potential for share repurchase?

Stan Kuriyama

We do have a share authorization that we generally keep up and running as part of good housekeeping so it's the opportunity whereas we can be opportunistic and don't hit – not having something up and running. That said we have no intention we've said we have no intention – we said we have no intention of any kind of share buyback plans specifically any time soon.

And the way we thought about the separation, and capitalization we've been very thoughtful as we have allocated data cost for two companies – and are now moving through the process of getting the financing in place to affect the two capitalization structures going forward, it's important both companies have, liquidity strong access to capital, investment grade kind of match et cetera. So in the short term, medium term I don't think there's anything out there that at least I see as CFO that would lead to a lot of expectation on share buyback.

Unidentified Analyst

A question on taxes, there can you – you kind of gave an outlook on what you think the tax rate for A&B, it will be pro forma and is there a difference on that relative to cash taxes versus GAAP taxes?

Stan Kuriyama

Sure, there will be differences on your – correcting the question Brendan on cash versus GAAP. But those won't be materially different than what they – where they have been in the past, so I don't think there is any new news there or anything happening in the real estate at this point that this will be a little different than what it has been in the past.

And from an overall effective tax rate perspective, if we put that the tax rate that you see in the Form 10 that you should they have been influenced year-by-year, and you should read through that and I think what you see in the Form 10 should be the tax rate that you think about, for the A&B business as going forward.

Unidentified Analyst

Yeah. There is no change.

Stan Kuriyama

No.

Unidentified Analyst

Okay. And the tax…

Stan Kuriyama

The potential is, always the potential for the change, but we haven't said anything other than what's in the Form 10.

Unidentified Analyst

Yeah. I think you mentioned this morning at the Matson and there was a change right but there's not that sort of simple.

Stan Kuriyama

Not different dynamics on the…

Unidentified Analyst

Okay. And then to the extent that we would look at maybe plant sales the taxes would be capital gain tax rates on these if you were, if we where to sort of look at these values and subscribe what the proceed to be A&B because I know we should think about that as after tax.

Stan Kuriyama

No. To the extent that we don't reinvest those proceeds those gains or tax, court number corporate rate not in a companies or…but that is what typically when we do large scale land sales, we'll look for opportunities to reinvest the proceeds, and avoid the taxes. Yeah.

Unidentified Analyst

So couple of both first to comment on the sugar and that the power business, roughly how much of the revenues or income is coming from sugar versus power last year for instance?

Stan Kuriyama

No. We don't break it out and the reason we don't break it out is because different business is really so in it’s certainly lengthen in other words we couldn't produce the power revenue without the hydroelectric assets that are driven by the irrigation water and the co-generation that we have and so with that bottom line as we don't break it out, Suzy is that.

Suzy Hollinger

Yeah. That's correct.

Stan Kuriyama

Am I correct?

Suzy Hollinger

You're correct.

Stan Kuriyama

I think that best I can tell you.

Unidentified Analyst

Okay. But – the follow up, what you talked about having most of your pricing for sugar locked in for the next couple of years. So presumably you have pretty good visibility assuming volumes come out, there'll be no big surprises there, on what the profitability from that business is going to be. Do you also then have that on the power side or do we have potential variability?

Stan Kuriyama

That's a great question, so the short answer is today we have great variability on revenue side on the power. Mitigating that are the following; number one, even great volatility on the power side because power is small enough that it's not going to wipe out profitability on the sugar side, it gives us confidence that we should be assuming we can get the crop up the field and all that volatility on the power side should not overwhelm let say the strength on the sugar side.

Number two, we are moving towards more fixed price contracting on the power side. By the end of this year, we will have our solar farm up and running that will be generating power at fixed price for the next 20 year or so, about $0.20 kilowatt/hour. So we will begin to have a little bit less volatility on our overall power revenue picture as a result of that.

We also will be looking as we go forward to negotiate fixed price power purchase agreement with the utility on our hydroelectric power as well, because that is essentially not a business that's driven by fossil fuel inputs. And so the utility would like to get us away from and we'd like to get away from the volatility there.

So I would say we'll always have some, I should say always but for the foreseeable future we'll have some portion of our power revenue that will be tied to fossil fuel and will be volatile.

But increasingly, we will move to fixed price contracting to reduce some of that volatility. Our whole theme in the Ag segment right now is trying to de-risk and reduce volatility and so those are going to important steps toward building that.

Unidentified Analyst

And then just lastly – I am sorry I don't follow the sugar markets otherwise I'd probably wouldn't even need to ask this question but the types of pricing that you have locked in for this year and next are they comparable higher lower than what you had in 2011?

Stan Kuriyama

In the same range, Kaka'ako.

Unidentified Analyst

Okay. Thank you.

Unidentified Analyst

I think you retaining your Jones Act is that so, would be A&B why is that sounding like you've signed a arms like transaction with Matson kind of before the owner restrictions.

Stan Kuriyama

You know, we could it's an asset that is used – it's – well primarily for the transportation of sugar we also do charter it, there are it would be possible to sell that asset and sell it to Matson, but for a variety of reasons just operational and financial, we've decided that, it's our preference to keep it within the – on the A&B side and have Matson essentially manage the vessel for us. But I'd rather not go into the details on that but we have thought about it and decided that we want to keep it on our side.

Unidentified Analyst

Is there on the what you had talked about what the restructured not fitting is that because you couldn't make work for – with the REIT parameters or is it because like to nobody that you want to have but being about to sell asset or move cash flow around is restricted enough in a sense is it that more of that you couldn't do it or is it more that you don't want to do it, if you don't have it doesn't give you enough flexibility?

Stan Kuriyama

Well, I think the number one reason as we've said a couple times related, to we haven't said it specifically related to REIT but we've talked about the cash flow from the commercial portfolio and the importance of that cash flow to pursue the development business the stability that gives us.

Obviously, if we did a REIT that you know we'd have to hand out that cash flow that those earnings. And so that would essentially negate the value of having that commercial portfolio married to the development business.

There are as you know a lot of intricacies of formerly there are mechanisms that can be used to have development businesses within a REIT and taxable REIT subsidiary and there are a lot of options the way to structure it but it sort for us starts and stops at the fact that we think that cash flow is very important to supporting the development business.

And as I indicated during the break, I mean we really view ourselves as a real estate developer that has a commercial portfolio as opposed to say REIT for the development business.

And we really think the structure should follow strategy we think that our strategy is to create value from the development business and the development business makes a lot more sense in a SEA Corp structure than the REIT structure, I don't know Joel if you want to complete that.

Unidentified Analyst

So you have pro forma amount of $250 million in debt there is I think about 60 million of cash upon the balance sheet. You've got the commercial portfolio that's got in a value in excess of that debt, I mean would it make sense to sell those high multiple assets, low cap rate assets, pay off debt and just not have corporate level debt and then have a smaller commercial portfolio that generates cash and have that as opposed to having debt.

Joel Wine

No. Not, the tax implications, if you sold it then redeploy it, you have to pay tax so it wouldn't make an economic sense.

Unidentified Analyst

But you're paying tax, I mean you're corporate tax payer right, so aren't you sort of…

Joel Wine

You pay it again. I mean you have to pay a big one time gain. So it will be very uneconomical.

Unidentified Analyst

But don't you think it's going to...

Joel Wine

The ability to pay down debt would not be dollar for dollars at corporate proceed should be all right, redeploy 60% of proceed or 65% right at the number pay down debt and has in our REIT that would, I mean, that was income trend that we can grow over time.

Unidentified Analyst

But you I mean you're sort of in this corporate structure that's largely probably going to be viewed as a development company we've got this tied multiple assets, low cap rate assets that you're probably not in that structure, there is inefficiency from a tax perspective if you sold those assets I mean might kind of will might it kind of level out in a sense that you're cap structure.

Stan Kuriyama

I mean in a sense it's not even close, I mean the tax leakage of doing that of taxable assets sale of the commercial, I mean not every single commercial portfolio I feel so that aren't [sound I gave it to you] they actually have high tax basis but they're very very few. The tax leakage from the sale will dominate the economic analysis, anything you suggest, I mean we have to look at it.

Unidentified Analyst

Just two quick ones and how you can stop. One would be as you think about the lifecycle of the company and what you're going to be doing with the cash? So initially, you're going to be no like redeploying from Mainland to Hawaii et cetera, what as you think about getting cash back to shareholders and I realized that may not be something that's happening in the short term but how do you conceive the business maturing and developing and are their parameters or timeframes where you think that you transition to a dividend paying company or what's your mindset as you start on the process as a standalone entity.

Stan Kuriyama

Certainly over time, I think it is our goal to become a dividend paying company, certainly during periods of market recovery when we're liquidating our investment, facilitating our development projects.

We hope at that time to be able to generate a dividend and long term if we're able to pay one as well, short term we look at the numbers and we felt that at this point in our cycle that the investment opportunities were good, we could better use that dividend money for making investments instead. So over the short term I don't foresee paying that dividend but certainly when the markets recover, it is our goal to begin paying dividend.

Unidentified Analyst

Okay. Is that something I don't mean to be pressing, but is it something that is two, three years out or is this 10 years out?

Joel Wine

Well you get some inclination hopefully at lunch today but I would expect that our markets will recover in that two to five year of timeframe.

Chris Benjamin

Yeah. I think it's really important for us, especially for those of you who may be newer company to understand I guess as I say our D&A is relatively conservative, I think we've made a lot of great investments over time, but we've avoided getting trapped because of being overly aggressive.

We weren't placing the capital in real estate development in 2007, late 2006, 2007, we weren't over leveraging our business. And as a result we did very well through the cycle and are very strong today.

I think it's that same conservatism and our memory of what happens to the other large real estate companies in the Hawaii through the 90s, they didn't have Matson cash flow to not support them through that cycle. And they really don't exist and anything close to their previous form today.

We've got long memories about that we're being conservative we want to retain cash flow so that this business in our ability to pursue our development agenda can be pursued that we can do that.

I think that if we get to a point it sort of goes to both [Brendan] then and your comments about convincing ourselves that that cash flow is not essential to keep in-house then we make comfortable that but I don't think that's going to happen over 90, I think that Stan's right after the long-term objective.

But we're going to I think we're going to continue to try to be reasonably conservative so that we don't get caught in a tough situation and it's not just about protecting against downside it's also about having dry powder for opportunistic investment which is really historically been something that we have -- the fact that we're able the buy the lands and we did in the fact we've been able to invest in some of the assets we have. We can really create value from having that dry powder. So that's just a little bit about kind of our D&A that I think that it's important to understand.

Stan Kuriyama

So with that thank you very much. I'll soon we had step out so close the meeting. I thank everybody on the webcast for listening, I thank everybody for coming and if anybody has any follow up question please feel free to call Suzy at 808-525-8422 or email any of us. Thanks very much.

Chris Benjamin

Thank you.

Paul Hallin

Thanks.

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