Notes to Condensed Consolidated Financial Statements
(Unaudited)
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1.
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DESCRIPTION OF BUSINESS
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Alexander & Baldwin, Inc. ("A&B" or the "Company") is a real estate investment trust ("REIT") headquartered in Honolulu, Hawai‘i. The Company operates
three
segments: Commercial Real Estate ("CRE"); Land Operations; and Materials & Construction. As of
June 30, 2019
, the Company's CRE improved real estate consisted of
twenty-one
retail centers,
ten
industrial assets and
four
office properties in Hawai‘i, representing a total of
3.8 million
square feet of gross leasable area. The Company also owns a portfolio of ground leases in Hawai'i that comprised
154
acres as of
June 30, 2019
.
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2.
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The interim condensed consolidated financial statements are unaudited. Because of the nature of the Company's operations, the results for interim periods are not necessarily indicative of results to be expected for the year. While these condensed consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated balance sheets as of December 31,
2018
and
2017
, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31,
2018
, 2017 and 2016, respectively, and the notes thereto included in the Company's Annual Report filed on Form 10-K for the year ended December 31,
2018
("
2018
Form 10-K"), and other subsequent filings with the U.S. Securities and Exchange Commission ("SEC").
Rounding:
Amounts in the condensed consolidated financial statements and notes are rounded to the nearest tenth of a million. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may result in differences.
Significant Accounting Policies:
The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of the Company's
2018
Form 10-K. Changes to significant accounting policies are included herein.
Reclassifications
Unclassified Balance Sheet:
During the first quarter of 2019, the Company changed the presentation of its balance sheet to be unclassified in order to be comparable with other REIT peers. The change was applied to all periods presented retrospectively.
Gain on Sale of Properties:
In November 2018, the SEC finalized the Disclosure Update Simplification Project, which eliminated Rule 3-15(a)(1) reporting of Gain or Loss on Sale of Properties by REITs. To conform with Accounting Standards Codification ("ASC") 360 and the SEC rule change, the Company has classified the gain on dispositions of real estate assets in operating income in the Company's condensed consolidated statements of operations. The Company reclassified the prior period to conform to the current year presentation. This change resulted in an increase of
$49.8 million
in operating income during the
six months ended June 30, 2018
.
Recently adopted accounting pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02,
Leases
(Topic 842)
("ASU 2016-02"). The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 and should be implemented using a modified retrospective approach, with the option to apply the guidance at the effective date or the beginning of the earliest comparative period. The Company adopted the guidance on January 1, 2019 and elected to use the effective date as the date of initial application. Consequently, financial information was not updated and the disclosures required under the new standard are not provided for dates and periods before January 1, 2019. Additionally, the Company elected the "package of practical expedients," which permits the Company to not reassess prior conclusions about lease identification, lease classification and initial direct costs.
The new guidance did not have a material impact on the accounting treatment of the Company's triple-net tenant leases, which are the primary source of our CRE revenues. However, starting in the current year there were certain changes to the guidance under ASC 842 which will have an impact on future operating results, including initial direct costs associated with the execution
of lease agreements such as legal fees and certain transaction costs will no longer be capitalizable and instead are expensed in the period incurred.
The Company recorded right-of-use ("ROU") assets and corresponding lease liabilities of approximately
$31.0 million
on the condensed consolidated balance sheet for certain leases in which it is the lessee. The adoption of ASC 842 had no impact on the Company's lease expense.
In August 2017, the FASB issued ASU 2017-12,
Targeted Improvements to Accounting for Hedging Activities.
The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the guidance on January 1, 2019. The guidance amends the hedge accounting model in ASC 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments expand an entity's ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires the earnings effect of the hedging instrument to be presented in the same income statement line as the hedged item. The adoption of this standard did not have an impact on the Company's financial position or results of operations.
In June 2018, the FASB issued ASU 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting
. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the guidance on January 1, 2019. The guidance expands the scope of ASC 718 to include share-based payment transactions with the exception of specific guidance related to the attribution of compensation cost. The guidance also clarifies that any share-based payment awards granted in conjunction with selling goods or services to customers should be evaluated under ASC 606. The adoption of this standard did not have an impact on the Company's financial position or results of operations.
Recently issued accounting pronouncements
In June 2016, the FASB issued ASU 2016-13,
Measurement of Credit Losses on Financial Instruments,
which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This ASU is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The FASB has subsequently issued other related ASUs, which amend ASU 2016-13 to provide clarification and additional guidance. The Company is currently assessing the impact that adopting this new accounting standard will have on its condensed consolidated financial statements and footnote disclosures.
In August 2018, the FASB issued ASU 2018-13,
Changes to the Disclosure Requirements for Fair Value Measurement
. The guidance amends and removes several disclosure requirements including the valuation processes for Level 3 fair value measurements. This ASU also modifies some disclosure requirements and requires additional disclosures for changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and requires the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new standard will have on its condensed consolidated financial statements and footnote disclosures.
In August 2018, the FASB issued ASU 2018-14,
Changes to the Disclosure Requirements for Defined Benefit Plans
. The guidance clarifies current disclosures and removes several disclosure requirements including accumulated other comprehensive income expected to be recognized over the next fiscal year and amount and timing of plan assets expected to be returned to the employer. This ASU also requires additional disclosures as well as explanations for significant gains and losses related to changes in the benefit plan obligation. This ASU is effective for fiscal years beginning after December 15, 2020. The Company is currently assessing the impact that adopting this new standard will have on its condensed consolidated financial statements and footnote disclosures.
In October 2018, the FASB issued ASU 2018-17,
Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities
. The guidance changes the guidance for determining whether a decision-making fee is a variable interest. Under the new ASU, indirect interests held through related parties under common control will now be considered on a proportional basis when determining whether fees paid to decision makers and service providers are variable interests. Such indirect interests were previously treated the same as direct interests. This ASU is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements and footnote disclosures.
Leases
Lessee:
The Company determines if an arrangement is a lease at inception by considering whether that arrangement conveys the right to use an identified asset for a period of time in exchange for consideration. Operating leases are included in operating lease ROU assets and operating lease liabilities in the Company's condensed consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company has also elected, for all classes of underlying assets, to not recognize lease liabilities and lease assets for leases with a term of 12 months or less.
Lessor:
The Company reviews its contracts to determine if they qualify as a lease. A contract is determined to be a lease when the right to substantially all of the economic benefits and to direct the use of an identified asset is transferred to a customer over a defined period of time for consideration. During this review, the Company evaluates among other items, asset specification, substitution rights, purchase options, operating rights and control over the asset during the contract period.
The Company has lease agreements with lease and non-lease components, which are generally accounted for separately under ASC 606,
Revenue from Contracts with Customers
. The Company has elected to not separate non-lease components from lease components for all classes of underlying assets where the component follows the same timing and pattern as the lease component. Non-lease components included in rental revenue primarily consist of tenant reimbursements for common area maintenance and other services paid for by the lessor and utilized by the lessee.
Rental revenue is primarily derived from operating leases and, therefore, is generally recognized on a straight-line basis over the term of the lease. Fixed contractual payments from the Company's leases are recognized on a straight-line basis over the terms of the respective leases. Straight-line rental revenue commences when the customer assumes control of the leased premises. Accrued straight-line rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. Certain of the Company's lease agreements include terms for contingent rental revenue (e.g. percentage rents based on tenant sales volume) and tenant reimbursed property taxes, which are both accounted for as variable payments.
Certain of the Company's leases include termination and/or extension options. Termination options allow the customer to terminate the lease prior to the end of the lease term under specific circumstances. The Company's extension options generally require a re-negotiation with the customer at market rates. Initial direct costs, primarily commissions, related to the leasing of properties are capitalized on the balance sheet and amortized over the lease term. All other costs to negotiate or arrange a lease are expensed as incurred.
Accounts receivable related to leases are regularly evaluated for collectability, considering factors including, but not limited to, the credit quality of the customer, historical trends of the customer, and changes in customer payment terms. Upon determination that the collectability of a customer receivable is not probable, the Company will record an allowance for such receivable and a corresponding reduction to revenue previously recognized. Subsequent revenue is recorded on a cash basis until collectability on related billings becomes probable.
Interest and other income (expense), net
Interest and other income (expense),
net
for the
six months ended June 30, 2019
was primarily composed of a
$2.6 million
gain on asset disposal and
$2.0 million
of interest income. For the
six months ended June 30, 2019 and 2018
, other expense was primarily composed of pension and postretirement benefit expense of
$2.3 million
and
$1.5 million
, respectively.
Discontinued operations
In December 2016, the Company completed its final sugar harvest and ceased its sugar operations. Costs related to the cessation of sugar operations are presented as discontinued operations in the condensed consolidated statements of operations. Liabilities related to the cessation of sugar operations are presented within
Accrued and other liabilities
in the condensed consolidated balance sheets. For the
six months ended June 30, 2019
, the Company recorded a loss from discontinued operations
of
$0.7 million
primarily related to an increase in cessation related accruals and a reserve for bad debt against outstanding receivables deemed uncollectible in the first quarter of 2019.
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3.
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COMMITMENTS AND CONTINGENCIES
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Commitments, Guarantees and Contingencies:
Commitments and financial arrangements not recorded on the Company's condensed consolidated balance sheet included standby letters of credit and bonds. As of
June 30, 2019
, standby letters of credit issued by the Company's lenders under the Company's revolving credit facilities totaled
$11.3 million
. These letters of credit primarily relate to the Company's real estate activities, and if drawn upon the Company would be obligated to reimburse the issuer.
As of
June 30, 2019
, bonds related to the Company's construction and real estate activities totaled
$473.9 million
. Approximately
$454.8 million
represents the face value of construction bonds issued by third party sureties (bid, performance and payment bonds), and the remainder is related to commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). In the event the bonds are drawn upon, the Company would be obligated to reimburse the surety that issued the bond for the amount of the bond, reduced for the work completed to date. As of
June 30, 2019
, the Company's estimated remaining exposure, assuming defaults on all existing contractual construction obligations, was approximately
$64.5 million
.
Indemnity Agreements:
For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of work completed to date.
The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.
The Company is a guarantor of indebtedness for certain of its unconsolidated joint ventures' borrowings with third party lenders, relating to the repayment of construction loans and performance of construction for the underlying project. As of
June 30, 2019
, the Company's limited guarantees on indebtedness related to
one
of its unconsolidated joint ventures totaled
$3.1 million
.
Other than obligations described above and those described in the Company's
2018
Form 10-K, obligations of the Company's joint ventures do not have recourse to the Company and the Company's "at-risk" amounts are limited to its investment.
Legal Proceedings and Other Contingencies:
Prior to the sale of approximately
41,000
acres of agricultural land on Maui to Mahi Pono Holdings, LLC ("Mahi Pono") in December 2018, A&B, through East Maui Irrigation Company, LLC ("EMI"), also owned approximately
16,000
acres of watershed lands in East Maui and also held
four
water licenses to approximately
30,000
acres owned by the State of Hawai‘i in East Maui. The sale to Mahi Pono includes the sale of a
50%
interest in EMI (which closed February 1, 2019), and provides for A&B and Mahi Pono, through EMI, to jointly continue the existing process to secure long-term leases from the State for delivery of irrigation water to Mahi Pono for use in Central Maui.
The last of these water license agreements expired in 1986, and all
four
agreements were then extended as revocable permits that were renewed annually. In 2001, a request was made to the State Board of Land and Natural Resources (the "BLNR") to replace these revocable permits with a long-term water lease. Pending the completion by the BLNR of a contested case hearing it ordered to be held on the request for the long-term lease, the BLNR has kept the existing permits on a holdover basis.
Three
parties filed a lawsuit on April 10, 2015 (the "4/10/15 Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit asked the court to void the revocable permits and to declare that the renewals were illegally issued without preparation of an environmental assessment ("EA"). In December 2015, the BLNR decided to reaffirm its prior decisions to keep the permits in holdover status. This decision by the BLNR was challenged by the
three
parties. In January 2016, the court ruled in the 4/10/15 Lawsuit that the renewals were not subject to the EA requirement, but that the BLNR lacked legal authority to keep the revocable permits in holdover status beyond one year. The decision was appealed to the Intermediate Court of Appeals ("ICA") of the State of Hawai‘i.
In June 2019, the ICA vacated the lower court’s ruling in the 4/10/15 Lawsuit that the BLNR lacked authority to keep the revocable permits in holdover status beyond one year and remanded the case to the trial court to determine whether the holdover status of the permits was both (a) "temporary" and (b) in the best interest of the State, as required by statute. The plaintiffs have filed a motion with the ICA for reconsideration of its decision, which was denied on July 5, 2019. Plaintiffs have publicly announced, however, that they will request the ICA's decision to be reviewed by the Hawai‘i Supreme Court.
In May 2016, while the appeal of the 4/10/15 Lawsuit was pending, the Hawai‘i State Legislature passed House Bill 2501, which specified that the BLNR has the legal authority to issue holdover revocable permits for the disposition of water rights for a period not to exceed
three years
. The governor signed this bill into law as Act 126 in June 2016. Pursuant to Act 126, the annual authorization of the existing holdover permits was sought and granted by the BLNR in December 2016, November 2017 and November 2018. No extension of Act 126 was approved by the Hawai‘i State Legislature in 2019.
In a separate matter, on December 7, 2018, a contested case request filed by the Sierra Club was denied by the BLNR. On January 7, 2019, Sierra Club filed a lawsuit in the circuit court of the first circuit in Hawai‘i against BLNR, A&B, and EMI, seeking to invalidate the extension of the revocable permits for, among other things, failure to perform an EA. It also seeks to enjoin the diversion by EMI of more than
25 million
gallons a day pending completion of an EA. In connection with A&B’s obligation to continue the existing process to secure long-term water leases from the State, A&B and EMI will defend against the claims made by the Sierra Club.
A&B is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of its businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on A&B's consolidated financial statements as a whole.
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4.
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EARNINGS PER SHARE ("EPS")
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Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards as well as adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued.
The following table provides a reconciliation of income (loss) from continuing operations to income (loss) from continuing operations available to A&B shareholders and net income (loss) available to A&B shareholders (in millions):
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Three Months Ended June 30,
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Six Months Ended June 30,
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2019
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2018
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2019
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2018
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Income (loss) from Continuing Operations
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$
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(1.3
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)
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$
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2.9
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$
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8.2
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$
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50.4
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Less: (Income) loss attributable to noncontrolling interest
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0.4
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(0.5
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)
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0.7
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(0.6
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)
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Income (loss) from continuing operations attributable to A&B shareholders
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(0.9
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)
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2.4
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8.9
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49.8
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Undistributed earnings allocated to redeemable noncontrolling interest
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—
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—
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—
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—
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Income (loss) from continuing operations available to A&B shareholders
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(0.9
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)
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2.4
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8.9
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49.8
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Income (loss) from discontinued operations available to A&B shareholders, net of income taxes
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0.1
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0.1
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(0.7
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)
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—
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Net income (loss) available to A&B shareholders
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$
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(0.8
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)
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$
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2.5
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$
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8.2
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$
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49.8
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The number of shares used to compute basic and diluted earnings per share is as follows (in millions):
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Three Months Ended June 30,
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Six Months Ended June 30,
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2019
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2018
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2019
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2018
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Denominator for basic EPS - weighted average shares outstanding
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72.2
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72.0
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72.1
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69.2
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Effect of dilutive securities:
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Non-participating stock options and restricted stock unit awards
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—
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0.3
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0.4
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0.4
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Special Distribution
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—
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—
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—
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2.7
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Denominator for diluted EPS - weighted average shares outstanding
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72.2
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72.3
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72.5
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72.3
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There were
0.4 million
and
0.1 million
shares of anti-dilutive securities outstanding during the
three and six months ended June 30, 2019
, respectively. There were
0.2 million
shares of anti-dilutive securities outstanding during the
three and six months ended June 30, 2018
.
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5.
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FAIR VALUE OF FINANCIAL INSTRUMENTS
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The fair value of the Company's cash and cash equivalents, accounts receivable, and notes receivable with remaining terms less than 12 months approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company's notes receivable with remaining terms greater than 12 months is estimated using a discounted cash flow analysis in which the Company uses unobservable inputs such as market interest rates determined by the loan to value and market capitalization rates related to the underlying collateral at which management believes similar loans would be made and classified as Level 3 in the fair value hierarchy. The fair value of these notes approximates the carrying amount of
$16.4 million
at
June 30, 2019
. The fair value and carrying value of these notes was
$16.3 million
at
December 31, 2018
.
The carrying amount and fair value of the Company's debt at
June 30, 2019
was
$727.7 million
and
$738.9 million
, respectively, and
$778.1 million
and
$758.0 million
at
December 31, 2018
, respectively. The fair value of debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company's existing debt arrangements (Level 2).
The Company carries its interest rate swaps at fair value. See Note 15 for fair value information regarding the Company's derivative instruments.
Inventories are stated at the lower of cost (principally first-in, first-out basis) or net realizable value. Inventories as of
June 30, 2019
and
December 31, 2018
were as follows (in millions):
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June 30, 2019
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December 31, 2018
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Asphalt
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$
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13.1
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$
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9.4
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Processed rock and sand
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8.6
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9.5
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Work in progress
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3.2
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4.0
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Retail merchandise
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1.9
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2.0
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Parts, materials and supplies inventories
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1.4
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1.6
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Total
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$
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28.2
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$
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26.5
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7.
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SHARE-BASED PAYMENT AWARDS
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The 2012 Incentive Compensation Plan ("2012 Plan") allows for the granting of stock options, restricted stock units and common stock. The shares of common stock authorized to be issued under the 2012 Plan may be drawn from the shares of the Company's authorized but unissued common stock or from shares of its common stock that the Company acquires, including shares purchased on the open market or private transactions.
The following table summarizes the Company's stock option activity for the
six months ended June 30, 2019
(in thousands, except weighted-average exercise price and weighted-average contractual life):
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2012 Plan
Stock Options
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Weighted-
Average
Exercise Price
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Weighted-
Average
Contractual Life
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Aggregate
Intrinsic
Value
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Outstanding, January 1, 2019
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580.1
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$
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12.91
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Exercised
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(212.7)
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$
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11.33
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Canceled
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(2.0)
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$
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13.11
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Outstanding, June 30, 2019
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365.4
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$
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13.83
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2.0
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$
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3,463
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Vested or expected to vest
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365.4
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$
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13.83
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2.0
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$
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3,463
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Exercisable, June 30, 2019
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365.4
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$
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13.83
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2.0
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$
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3,463
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The following table summarizes non-vested restricted stock unit activity for the
six months ended June 30, 2019
(in thousands, except weighted-average grant-date fair value amounts):
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2012 Plan
Restricted
Stock Units
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Weighted-
Average
Grant-date
Fair Value
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Outstanding, January 1, 2019
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421.3
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$
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25.91
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Granted
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239.5
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$
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22.10
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Vested
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(143.5
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)
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$
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24.28
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Canceled
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(69.1
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)
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$
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21.34
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Outstanding, June 30, 2019
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448.2
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$
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25.10
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The time-based restricted stock units granted to employees vest ratably over a period of
three years
. The time-based restricted stock units granted to non-employee directors prior to 2018 vest ratably over a period of
three years
, and commencing in 2018, the time-based restricted stock units granted to non-employee directors vest over
one year
. The market-based performance share units cliff vest over
three years
, provided that the total shareholder return of the Company's common stock over the relevant period meets or exceeds pre-defined levels of total shareholder returns relative to indices, as defined.
The fair value of the Company's time-based awards is determined using the Company's stock price on the date of grant. The fair value of the Company's market-based awards is estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2019 Grants
|
|
2018 Grants
|
|
Volatility of A&B common stock
|
23.6
|
%
|
|
22.7
|
%
|
|
Average volatility of peer companies
|
24.3
|
%
|
|
21.6
|
%
|
|
Risk-free interest rate
|
2.6
|
%
|
|
2.3
|
%
|
The Company recognizes compensation cost net of actual forfeitures of time-based or market-based awards. A summary of compensation cost related to share-based payments is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Share-based expense:
|
|
|
|
|
|
|
|
|
|
Time-based and market-based restricted stock units
|
|
$
|
1.3
|
|
|
$
|
1.4
|
|
|
$
|
2.7
|
|
|
$
|
2.7
|
|
|
Total share-based expense
|
|
1.3
|
|
|
1.4
|
|
|
2.7
|
|
|
2.7
|
|
|
Total recognized tax benefit
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
Share-based expense (net of tax)
|
|
$
|
1.3
|
|
|
$
|
1.2
|
|
|
$
|
2.7
|
|
|
$
|
2.4
|
|
|
|
|
|
8.
|
RELATED PARTY TRANSACTIONS
|
Construction Contracts and Material Sales.
The Company entered into contracts in the ordinary course of business, as a supplier, with affiliates that are members in entities in which the Company also is a member. Revenues earned from transactions with affiliates were
$4.2 million
and
$1.8 million
for the
three months ended June 30, 2019 and 2018
, respectively. Revenues earned from transactions with affiliates were
$6.8 million
and
$6.3 million
for the
six months ended June 30, 2019 and 2018
, respectively. Receivables from these affiliates were
$1.9 million
and
$2.2 million
as of June 30, 2019
and
December 31, 2018
, respectively. Amounts due to these affiliates were less than
$0.1 million
and
$0.6 million
as of June 30, 2019
and
December 31, 2018
, respectively.
Commercial Real Estate.
The Company entered into contracts in the ordinary course of business, as a lessor of property, with unconsolidated affiliates in which the Company has an interest, as well as with certain entities that are partially owned by a former director of the Company. There was
no
recorded revenue earned from transactions with affiliates for the
three months
ended June 30, 2019
. For the
three months ended June 30,
2018, revenues earned from transactions with affiliates were
$0.8 million
. Revenues earned from transactions with affiliates were
$1.3 million
and
$2.3 million
for the
six months ended June 30, 2019 and 2018
, respectively. Receivables from these affiliates were less than
$0.1 million
as of
June 30, 2019
and
December 31, 2018
.
Land Operations.
During the
three months ended June 30, 2019 and 2018
, the Company recognized
$0.3 million
and less than
$0.1 million
, respectively, related to management and administrative services provided to certain unconsolidated investments in affiliates and interest earned on notes receivable from related parties. Service revenues and interest recorded in
2019
were
$0.6 million
. Receivables from these affiliates were less than
$0.1 million
as of
June 30, 2019
and
December 31, 2018
.
During the year ended December 31, 2017, the Company extended a
five
-year construction loan secured by a mortgage on real property to one of its joint ventures. Receivables from this affiliate were
$13.6 million
and
$13.5 million
as of
June 30, 2019
and
December 31, 2018
, respectively.
|
|
|
|
9.
|
EMPLOYEE BENEFIT PLANS
|
Components of the net periodic benefit cost for the Company's pension and post-retirement plans for the
three and six months ended June 30, 2019
and
2018
are shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Service cost
|
$
|
0.6
|
|
|
$
|
0.6
|
|
|
$
|
1.1
|
|
|
$
|
1.1
|
|
|
Interest cost
|
2.1
|
|
|
2.0
|
|
|
4.2
|
|
|
4.0
|
|
|
Expected return on plan assets
|
(1.8
|
)
|
|
(2.2
|
)
|
|
(3.6
|
)
|
|
(4.1
|
)
|
|
Amortization of net loss
|
1.0
|
|
|
1.2
|
|
|
2.0
|
|
|
2.2
|
|
|
Amortization of prior service credit
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Amortization of curtailment (gain)/loss
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
Net periodic benefit cost
|
$
|
1.7
|
|
|
$
|
1.1
|
|
|
$
|
3.4
|
|
|
$
|
2.5
|
|
|
|
|
|
10.
|
REAL ESTATE ASSET ACQUISITIONS
|
During the
six months ended June 30, 2019
, the Company acquired
five
commercial real estate assets for
$218.4 million
.
The allocation of purchase price to assets acquired and liabilities assumed is as follows (in millions):
|
|
|
|
|
|
|
|
Fair value of assets acquired and liabilities assumed
|
|
Assets acquired:
|
|
|
Land
|
$
|
106.9
|
|
|
Property and improvements
|
91.3
|
|
|
In-place leases
|
23.2
|
|
|
Favorable leases
|
4.3
|
|
|
Total assets acquired
|
$
|
225.7
|
|
|
|
|
|
Liabilities assumed:
|
|
|
Unfavorable leases
|
$
|
7.3
|
|
|
Total liabilities assumed
|
7.3
|
|
|
Net assets acquired
|
$
|
218.4
|
|
As of the acquisition date, the weighted-average amortization period of the in-place/favorable leases was approximately
7.0 years
. The weighted-average amortization period of the unfavorable leases was approximately
18.6 years
.
|
|
|
|
11.
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
The changes in accumulated other comprehensive income (loss) by component for the
six months ended June 30, 2019
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Benefit Plans
|
|
Interest Rate Swap
|
|
Total
|
|
Balance, January 1, 2019
|
$
|
(55.2
|
)
|
|
$
|
3.3
|
|
|
$
|
(51.9
|
)
|
|
Other comprehensive income (loss) before reclassifications, net of taxes of $0 for interest rate swap
|
—
|
|
|
(3.5
|
)
|
|
(3.5
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes of $0 for employee benefit plans
|
1.7
|
|
|
—
|
|
|
1.7
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of taxes of $0 for interest rate swap
|
—
|
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Balance, June 30, 2019
|
$
|
(53.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(54.0
|
)
|
The reclassifications of other comprehensive income (loss) components out of accumulated other comprehensive income (loss) for the
three and six months ended June 30, 2019
and
2018
, respectively, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Other Comprehensive Income (Loss) Components:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Unrealized interest rate hedging gain (loss)
|
|
$
|
(2.0
|
)
|
|
$
|
0.6
|
|
|
$
|
(3.5
|
)
|
|
$
|
2.4
|
|
|
Reclassification adjustment for interest expense included in net income (loss)
|
|
(0.2
|
)
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
Amortization of defined benefit pension items reclassified to net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
Net loss
1
|
|
1.0
|
|
|
1.2
|
|
|
2.0
|
|
|
2.2
|
|
|
Prior service credit
1
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
Curtailment (gain)/loss
|
|
—
|
|
|
(0.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
|
Total before income tax
|
|
(1.4
|
)
|
|
1.3
|
|
|
(2.1
|
)
|
|
3.9
|
|
|
Income taxes
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(1.0
|
)
|
|
Other comprehensive income (loss), net of tax
|
|
$
|
(1.4
|
)
|
|
$
|
1.0
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.9
|
|
1
This accumulated other comprehensive income (loss) component is included in the computation of net periodic pension cost (see
Note 9
for additional details).
The Company has been organized and operates in a manner that enables it to qualify, and believes it will continue to qualify, as a REIT for federal income tax purposes. The Company’s effective tax rate for the three and six months ended June 30, 2019 differed from the effective tax rate for the same periods in 2018, primarily due to the full valuation allowance recorded on the net deferred tax assets at the end of 2018.
|
|
|
|
13.
|
NOTES PAYABLE AND TOTAL DEBT
|
At
June 30, 2019
and
December 31, 2018
, notes payable and total debt consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Outstanding
|
|
Debt
|
|
Interest Rate
(%)
|
|
Maturity
Date
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Secured:
|
|
|
|
|
|
|
|
|
|
Kailua Town Center
|
|
(1)
|
|
2021
|
|
$
|
10.4
|
|
|
$
|
10.5
|
|
|
Kailua Town Center #2
|
|
3.15%
|
|
2021
|
|
4.7
|
|
|
4.7
|
|
|
Laulani Village
|
|
3.93%
|
|
2024
|
|
62.0
|
|
|
62.0
|
|
|
Pearl Highlands
|
|
4.15%
|
|
2024
|
|
84.3
|
|
|
85.3
|
|
|
Manoa Marketplace
|
|
(2)
|
|
2029
|
|
60.0
|
|
|
60.0
|
|
|
Heavy equipment financing
|
|
(3)
|
|
2023
|
|
2.2
|
|
|
—
|
|
|
Subtotal
|
|
|
|
|
|
$
|
223.6
|
|
|
$
|
222.5
|
|
|
Unsecured:
|
|
|
|
|
|
|
|
|
|
Term Loan 3
|
|
5.19%
|
|
2019
|
|
1.4
|
|
|
2.3
|
|
|
Series D Note
|
|
6.90%
|
|
2020
|
|
16.2
|
|
|
32.5
|
|
|
Term Loan 4
|
|
(4)
|
|
2019
|
|
9.4
|
|
|
9.4
|
|
|
Bank syndicated loan
|
|
(5)
|
|
2023
|
|
50.0
|
|
|
50.0
|
|
|
Series A Note
|
|
5.53%
|
|
2024
|
|
28.5
|
|
|
28.5
|
|
|
Series J Note
|
|
4.66%
|
|
2025
|
|
10.0
|
|
|
10.0
|
|
|
Series B Note
|
|
5.55%
|
|
2026
|
|
46.0
|
|
|
46.0
|
|
|
Series C Note
|
|
5.56%
|
|
2026
|
|
24.0
|
|
|
24.0
|
|
|
Series F Note
|
|
4.35%
|
|
2026
|
|
22.0
|
|
|
22.0
|
|
|
Series H Note
|
|
4.04%
|
|
2026
|
|
50.0
|
|
|
50.0
|
|
|
Series K Note
|
|
4.81%
|
|
2027
|
|
34.5
|
|
|
34.5
|
|
|
Series G Note
|
|
3.88%
|
|
2027
|
|
42.5
|
|
|
42.5
|
|
|
Series L Note
|
|
4.89%
|
|
2028
|
|
18.0
|
|
|
18.0
|
|
|
Series I Note
|
|
4.16%
|
|
2028
|
|
25.0
|
|
|
25.0
|
|
|
Term Loan 5
|
|
4.30%
|
|
2029
|
|
25.0
|
|
|
25.0
|
|
|
Subtotal
|
|
|
|
|
|
$
|
402.5
|
|
|
$
|
419.7
|
|
|
Revolving Credit Facilities:
|
|
|
|
|
|
|
|
|
|
GLP Asphalt revolving credit facility
|
|
(6)
|
|
2020
|
|
3.8
|
|
|
0.4
|
|
|
Revolving credit facility
|
|
(7)
|
|
2022
|
|
98.6
|
|
|
136.6
|
|
|
Subtotal
|
|
|
|
|
|
$
|
102.4
|
|
|
$
|
137.0
|
|
|
Total debt (contractual)
|
|
|
|
|
|
$
|
728.5
|
|
|
$
|
779.2
|
|
|
Unamortized debt premium (discount)
|
|
|
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|
Unamortized debt issuance costs
|
|
|
|
|
|
(0.7
|
)
|
|
(0.9
|
)
|
|
Total debt (carrying value)
|
|
|
|
|
|
$
|
727.7
|
|
|
$
|
778.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Loan has a stated interest rate of LIBOR plus 1.50%, but is swapped through maturity to a 5.95% fixed rate.
|
|
(2) Loan has a stated interest rate of LIBOR plus 1.35%, but is swapped through maturity to a 3.14% fixed rate.
|
|
(3) Loans have stated rates ranging from 4.08% to 5.00%.
|
|
(4) Loan has a stated interest rate of LIBOR plus 2.00%, and is secured by a letter of credit.
|
|
(5) Loan has a stated interest rate of LIBOR plus 1.60%, based on pricing grid.
|
|
(6) Loan has a stated interest rate of LIBOR plus 1.25%.
|
|
(7) Loan has a stated interest rate of LIBOR plus 1.65%, based on pricing grid.
|
The Company believes that funds generated from results of operations, available cash and cash equivalents, and available borrowings under credit facilities will be sufficient to satisfy any maturities of debt due in the next twelve months.
Interest costs are capitalized for certain development and redevelopment projects that have not yet been placed into service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use. Capitalized interest costs related to development activities were
$0.6 million
for the
six months ended June 30, 2019
. There were
$0.2 million
of capitalized interest costs for the
six months ended June 30, 2018
.
14. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates principally consist of equity investments in limited liability companies in which the Company has the ability to exercise significant influence over the operating and financial policies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting. As of
June 30, 2019
, the Company has an investment that was determined to be a variable interest entity that was not consolidated, as the Company determined that it was not the primary beneficiary. The Company's maximum risk of loss was limited to its investment (
$2.7 million
as of
June 30, 2019
), plus the Company's portion of future contributions.
Operating results include the Company's proportionate share of net income (loss) from its equity method investments. A summary of combined financial information related to the Company's equity method investments for the
three and six months ended June 30, 2019
and
2018
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenues
|
|
$
|
57.6
|
|
|
$
|
60.2
|
|
|
$
|
98.4
|
|
|
$
|
124.6
|
|
|
Operating costs and expenses
|
|
54.7
|
|
|
49.6
|
|
|
92.0
|
|
|
107.7
|
|
|
Gross Profit (Loss)
|
|
$
|
2.9
|
|
|
$
|
10.6
|
|
|
$
|
6.4
|
|
|
$
|
16.9
|
|
|
Income (Loss) from Continuing Operations
1
|
|
$
|
0.2
|
|
|
$
|
6.6
|
|
|
$
|
1.1
|
|
|
$
|
4.4
|
|
|
Net Income (Loss)
1
|
|
$
|
0.4
|
|
|
$
|
6.4
|
|
|
$
|
1.0
|
|
|
$
|
4.2
|
|
|
1
Includes earnings from equity method investments held by the investee.
|
15. DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk related to its variable rate interest debt. The Company balances its cost of debt and exposure to interest rates primarily through its mix of fixed and variable rate debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
Cash Flow Hedges of Interest Rate Risk
During 2016, the Company entered into an interest rate swap agreement with a notional amount of
$60.0 million
which was designated as a cash flow hedge. The Company structured the interest rate swap agreement to hedge the variability of future interest payments due to changes in interest rates with regards to the Company's long-term debt. A summary of the key terms related to the Company's outstanding cash flow hedge as of
June 30, 2019
, is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
Maturity
|
Fixed Interest
|
|
Notional Amount at
|
|
Fair Value at
|
Classification on
|
|
Date
|
Date
|
Rate
|
|
June 30, 2019
|
|
June 30, 2019
|
|
December 31, 2018
|
Balance Sheet
|
|
4/7/2016
|
8/1/2029
|
3.14%
|
|
$
|
60.0
|
|
|
$
|
0.1
|
|
|
$
|
3.9
|
|
Other assets
|
The changes in fair value of the cash flow hedge is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense as interest is incurred on the related-variable rate debt.
Non-designated Hedges
As of
June 30, 2019
, the Company has
one
interest rate swap that has not been designated as a cash flow hedge whose key terms are as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
Maturity
|
Fixed Interest
|
|
Notional Amount at
|
|
Fair Value at
|
Classification on
|
|
Date
|
Date
|
Rate
|
|
June 30, 2019
|
|
June 30, 2019
|
|
December 31, 2018
|
Balance Sheet
|
|
1/1/2014
|
9/1/2021
|
5.95%
|
|
$
|
10.4
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.5
|
)
|
Other non-current liabilities
|
The following table represents the pre-tax effect of the derivative instruments in the Company's condensed consolidated statement of comprehensive income (loss) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Derivatives in Designated Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
Amount of (gain) loss recognized in OCI on derivatives
|
|
$
|
2.0
|
|
|
$
|
(0.6
|
)
|
|
$
|
3.5
|
|
|
$
|
(2.4
|
)
|
|
Amounts of (gain) loss reclassified from accumulated OCI into earnings under
Interest expense
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
The Company records gains or losses related to interest rate swaps that have not been designated as cash flow hedges in
Interest and other income
in its condensed consolidated statements of operations, and the amounts were immaterial during the
three and six months ended June 30, 2019
and
2018
.
The Company measures all of its interest rate swaps at fair value. The fair values of the Company's interest rate swaps (Level 2) are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs.
16. SEGMENT RESULTS
Operating segment information for the
three and six months ended June 30, 2019
and
2018
is summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Operating Revenue:
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
39.1
|
|
|
$
|
33.8
|
|
|
$
|
75.9
|
|
|
$
|
69.0
|
|
|
Land Operations
|
|
24.9
|
|
|
19.3
|
|
|
73.9
|
|
|
48.6
|
|
|
Materials & Construction
|
|
45.1
|
|
|
59.0
|
|
|
88.7
|
|
|
107.8
|
|
|
Total operating revenue
|
|
109.1
|
|
|
112.1
|
|
|
238.5
|
|
|
225.4
|
|
|
Operating Profit (Loss):
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
1
|
|
17.0
|
|
|
13.6
|
|
|
32.6
|
|
|
29.1
|
|
|
Land Operations
2
|
|
0.5
|
|
|
1.6
|
|
|
13.1
|
|
|
(3.8
|
)
|
|
Materials & Construction
|
|
(4.3
|
)
|
|
3.6
|
|
|
(8.8
|
)
|
|
3.8
|
|
|
Total operating profit (loss)
|
|
13.2
|
|
|
18.8
|
|
|
36.9
|
|
|
29.1
|
|
|
Gain (loss) on the sale of commercial real estate properties
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
49.8
|
|
|
Interest expense
|
|
(8.1
|
)
|
|
(8.9
|
)
|
|
(17.2
|
)
|
|
(17.3
|
)
|
|
General corporate expenses
|
|
(6.4
|
)
|
|
(7.3
|
)
|
|
(12.6
|
)
|
|
(14.0
|
)
|
|
Income (Loss) from Continuing Operations Before Income Taxes
|
|
$
|
(1.3
|
)
|
|
$
|
2.8
|
|
|
$
|
7.1
|
|
|
$
|
47.6
|
|
1
Commercial Real Estate segment operating profit (loss) includes intersegment operating revenue, primarily from the Materials & Construction segment, and is eliminated in the condensed consolidated results of operations.
2
Land Operations segment operating profit (loss) includes equity in earnings (losses) from the Company's various real estate joint ventures and non-cash reductions related to the Company's solar tax equity investments.
Segment balance sheet information as of
June 30, 2019
and
December 31, 2018
is summarized below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Identifiable Assets:
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
1,538.9
|
|
|
$
|
1,530.4
|
|
|
Land Operations
|
|
301.7
|
|
|
350.0
|
|
|
Materials & Construction
|
|
309.6
|
|
|
297.1
|
|
|
Other
|
|
34.3
|
|
|
47.7
|
|
|
Total assets
|
|
$
|
2,184.5
|
|
|
$
|
2,225.2
|
|
17. REVENUE AND CONTRACT BALANCES
The Company disaggregates revenue from contracts with customers by revenue type as the Company believes it best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
$
|
39.1
|
|
|
$
|
33.8
|
|
|
$
|
75.9
|
|
|
$
|
69.0
|
|
|
Land Operations:
|
|
|
|
|
|
|
|
|
|
Development sales revenue
|
|
18.1
|
|
|
10.8
|
|
|
30.4
|
|
|
33.8
|
|
|
Unimproved/other property sales revenue
|
|
0.4
|
|
|
2.1
|
|
|
30.9
|
|
|
2.4
|
|
|
Other operating revenue
|
|
6.4
|
|
|
6.4
|
|
|
12.6
|
|
|
12.4
|
|
|
Land Operations
|
|
24.9
|
|
|
19.3
|
|
|
73.9
|
|
|
48.6
|
|
|
Materials & Construction
|
|
45.1
|
|
|
59.0
|
|
|
88.7
|
|
|
107.8
|
|
|
Total revenues
|
|
$
|
109.1
|
|
|
$
|
112.1
|
|
|
$
|
238.5
|
|
|
$
|
225.4
|
|
The total amount of contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations was
$103.3 million
as of
June 30, 2019
. The Company expects to recognize as revenue approximately
45%
-
50%
of the remaining contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations in 2019, with the remaining recognized thereafter.
Certain construction contracts include retainage provisions that are included in
Accounts receivable and retention, net
in the condensed consolidated balance sheets. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the owners.
Costs and estimated earnings in excess of billings represent amounts earned and reimbursable under contracts but have a conditional right for billing and payment such as achievement of milestones or completion of the project. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced. Costs and estimated earnings in excess of billings are presented within
Prepaid expenses and other assets
in the condensed consolidated balance sheets.
Billings in excess of costs and estimated earnings are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months. Billings in excess of costs and estimated earnings are presented within
Accrued and other liabilities
in the condensed consolidated balance sheets.
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers as of
June 30, 2019
and
January 1, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
6/30/2019
|
|
1/1/2019
|
|
Accounts receivable, net
|
$
|
60.4
|
|
|
$
|
49.6
|
|
|
Contracts retention
|
$
|
9.6
|
|
|
$
|
11.6
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
$
|
11.4
|
|
|
$
|
9.2
|
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
$
|
8.0
|
|
|
$
|
5.9
|
|
|
Variable consideration
|
$
|
62.0
|
|
|
$
|
62.0
|
|
|
Deferred revenue
|
$
|
3.9
|
|
|
$
|
1.2
|
|
For the
six months ended June 30, 2019
, the Company recognized revenue of
$3.3 million
related to the Company's contract liabilities reported as of
January 1, 2019
.
18. LEASES
The Company as Lessee:
Principal non-cancelable operating leases include land, office space, harbors and equipment leased for periods that expire through
2031
. Management expects that in the normal course of business, most operating leases will be renewed or replaced by other similar leases.
Lease expense for operating leases that provide for future escalations are accounted for on a straight-line basis. For the
three and six months ended June 30, 2019
, lease expense under operating leases was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
Operating lease cost
|
|
$
|
1.7
|
|
$
|
3.3
|
|
Supplemental balance sheet information related to leases as of
June 30, 2019
was as follows:
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
9.5
|
|
|
Weighted-average discount rate
|
|
4.39
|
%
|
Supplemental cash flow information related to leases for the
six months ended June 30, 2019
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
2.6
|
|
|
Operating cash outflows from financing leases
|
|
$
|
0.2
|
|
Future minimum payments under non-cancelable operating and finance leases as of
June 30, 2019
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
June 30, 2019
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
2019
|
|
$
|
2.9
|
|
|
$
|
0.4
|
|
|
2020
|
|
5.7
|
|
|
0.8
|
|
|
2021
|
|
5.6
|
|
|
0.8
|
|
|
2022
|
|
5.6
|
|
|
0.3
|
|
|
2023
|
|
4.8
|
|
|
0.1
|
|
|
Thereafter
|
|
13.5
|
|
|
—
|
|
|
Total lease payments
|
|
$
|
38.1
|
|
|
$
|
2.4
|
|
|
Less: Interest
|
|
(9.6
|
)
|
|
(0.2
|
)
|
|
Total lease liabilities
|
|
$
|
28.5
|
|
|
$
|
2.2
|
|
The Company has equipment under finance leases with periods that expire through 2023. The weighted-average remaining lease term and discount rate of these leases was
2.9 years
and
4.62%
, respectively, as of
June 30, 2019
. ROU assets and lease liabilities related to these finance leases are presented within
Other property, net
and
Notes payable and other debt
, respectively, in the condensed consolidated balance sheets. Lease expense for finance leases included
$0.1 million
and
$0.2 million
of amortization and interest for the
three and six months ended June 30, 2019
, respectively.
The Company as Lessor:
The Company leases to third-parties land and buildings under operating leases. The historical cost of, and accumulated depreciation on, leased property as of
June 30, 2019
and
December 31, 2018
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
December 31, 2018
|
|
Leased property - real estate
|
|
$
|
1,474.1
|
|
|
$
|
1,263.0
|
|
|
Less: Accumulated depreciation
|
|
(115.5
|
)
|
|
(104.4
|
)
|
|
Property under operating leases, net
|
|
$
|
1,358.6
|
|
|
$
|
1,158.6
|
|
Total rental income under these operating leases were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
Minimum rentals
|
|
$
|
26.4
|
|
|
$
|
51.3
|
|
|
Contingent rentals (based on sales volume)
|
|
1.1
|
|
|
2.6
|
|
|
Total
|
|
$
|
27.5
|
|
|
$
|
53.9
|
|
Future minimum rentals on non-cancelable operating leases as of
June 30, 2019
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
2019
|
|
$
|
101.9
|
|
|
2020
|
|
111.6
|
|
|
2021
|
|
97.9
|
|
|
2022
|
|
86.2
|
|
|
2023
|
|
76.5
|
|
|
Thereafter
|
|
542.9
|
|
|
Total lease receivables
|
|
$
|
1,017.0
|
|
The Company's leases have remaining lease terms of
1 year
to
45 years
, some of which include options to extend the leases for up to
10 years
, and some of which include options to terminate the leases within
1 year
.
19. SUBSEQUENT EVENTS
On August 1, 2019, the Company's Board of Directors declared a cash dividend of
$0.19
per share of outstanding common stock, payable on
September 5, 2019
to shareholders of record as of the close of business on
August 12, 2019
.