The following analysis of the consolidated financial condition and results of
operations of
Throughout this quarterly report on Form 10-Q, references to "we," "our," "us"
and "our Company" refer to
Forward-Looking Statements
Statements in this Form 10-Q that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and involve a number of risks and uncertainties that could cause actual
results to differ materially from those contemplated by the relevant
forward-looking statements. These forward-looking statements include, but are
not limited to, statements regarding possible or assumed future results of
operations, business strategies, growth opportunities and competitive positions,
as well as the rapidly changing challenges with, and the Company's plans and
responses to, the coronavirus pandemic ("COVID-19") and related economic
disruptions. Such forward-looking statements speak only as of the date the
statements were made and are not guarantees of future performance.
Forward-looking statements are subject to a number of risks, uncertainties,
assumptions and other factors that could cause actual results and the timing of
certain events to differ materially from those expressed in or implied by the
forward-looking statements. These factors include, but are not limited to,
prevailing market conditions and other factors related to the Company's REIT
status and the Company's business, risks associated with COVID-19 and its impact
on the Company's businesses, results of operations, liquidity and financial
condition, the evaluation of alternatives by the Company related to its
materials and construction business, and the risk factors discussed in the
Company's most recent Form 10-K, Form 10-Q and other filings with the
Introduction and Objective
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides additional material information about the Company's business, recent developments and financial condition; its results of operations at a consolidated and segment level; its liquidity and capital resources including an evaluation of the amounts and certainty of cash flows from operations and from outside sources; and how certain accounting principles, policies and estimates affect its financial statements. MD&A is organized as follows:
•Business Overview: This section provides a general description of the Company's business, as well as recent developments that management believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
•Consolidated Results of Operations: This section provides an analysis of the
Company's consolidated results of operations for the three months ended
•Analysis of Operating Revenue and Profit by Segment: This section provides an
analysis of the Company's results of operations by business segment for the
three months ended
•Use of Non-GAAP Financial Measures: This section provides a discussion of the
Company's non-GAAP financial measures included in this report and presents
quantitative reconciliations between the non-GAAP financial measures and the
most directly comparable financial measures calculated and presented in
accordance with
•Liquidity and Capital Resources: This section provides a discussion of any material changes in the Company's liquidity, financial condition and cash flows, including a discussion of any material changes in the Company's ability to fund its future commitments and ongoing operating activities in the short-term (i.e., over the next twelve months from the most recent fiscal period end) and in the long-term (i.e., beyond the next twelve months) through internal and
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external sources of capital, as compared to the end of preceding fiscal year
ended
•Other Matters: This section identifies and summarizes other matters to be
discussed in Item 2 of this report including any changes in the significant
judgments or estimates on the part of management in preparing the Company's
consolidated financial statements that may materially impact the Company's
reported results of operations and financial condition from the end of the
preceding fiscal year ended
Amounts in the MD&A are rounded to the nearest tenth of a million. Accordingly, a recalculation of totals and percentages, if based on the reported data, may be slightly different.
Business Overview Reportable segments
The Company operates three segments:
•Commercial Real Estate ("CRE") - This segment functions as a vertically integrated real estate investment company with core competencies in investments and acquisitions (i.e., identifying opportunities and acquiring properties); construction and development (i.e., designing and ground-up development of new properties or repositioning and redevelopment of existing properties); and in-house leasing and property management (i.e., executing new and renegotiating renewal lease arrangements, managing its properties' day-to-day operations and maintaining positive tenant relationships). The Company's preferred asset classes include improved properties in retail and industrial spaces and also urban ground leases. Its focus within improved retail properties, in particular, is on grocery-anchored neighborhood shopping centers that meet the daily needs of Hawai'i communities. Through its core competencies and with its experience and relationships in Hawai'i, the Company seeks to create special places that enhance the lives of Hawai'i residents and to provide venues and opportunities that enable its tenants to thrive. Income from this segment is principally generated by owning, operating and leasing real estate assets.
•Land Operations - This segment includes the Company's legacy assets and landholdings that are subject to the Company's simplification and monetization effort. Financial results from this segment are principally derived from real estate development and land sales, income/loss from real estate joint ventures, hydroelectric energy and other legacy business activities.
•Materials & Construction ("M&C") - This segment operates one of Hawai'i's
largest asphalt paving contractors and is one of the state's largest natural
materials and infrastructure construction companies, primarily conducting
business through its wholly-owned subsidiary,
Simplification strategy
As a result of its conversion to a REIT and consequent de-emphasis of non-REIT operating businesses, the Company has pursued the simplification of its business, which includes ongoing efforts to accelerate the monetization of its non-commercial real estate assets, including its Materials & Construction businesses.
The Company is evaluating strategic alternatives in order to monetize and dispose of the remaining Materials & Construction businesses, either together as a group or individually. However, the outcome, including the timing, of the strategic exploration process is not certain, as any potential transaction related to the Materials & Construction businesses would be dependent upon a number of external factors that may be beyond the Company's control, including, among other factors, market conditions, industry trends, interest of third parties, and the availability of financing to potential buyer(s) on reasonable terms. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms. Accordingly, there can be no assurance that any of the options evaluated will be pursued or completed. Further, there can be no assurance that the outcome of the evaluation of strategic alternatives or any potential transaction or transactions will result in the Company being able to recover the carrying value of the Materials & Construction businesses or related disposal group.
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Termination of certain employee benefit plans
On
In connection with the termination, the Company expects to make cash
contributions in 2022 in order to fully fund the Defined Benefit Plans on a plan
termination basis, and the Defined Benefit Plans will be settled upon completion
of lump sum distributions and purchase of annuity contracts. These additional
cash contributions are expected to range between
Recent Developments Coronavirus Pandemic
Economic uncertainty and volatility stemming from the coronavirus or COVID-19 pandemic remain, including depressed international tourism, global supply chain disruptions, labor shortages and turnover, and more recently, rising inflation. The ultimate extent of the impact that the COVID-19 pandemic will have on the Company's business, financial condition, results of operations and liquidity and capital resources may continue to be impacted by unpredictable future developments.
Inflationary Trends
The
For the Materials & Construction segment, inflation-sensitive inputs necessary for the Company to provide products and services, including upward pressure on wages and increases in the cost of raw materials used to produce HMA and other items that are critical to the businesses in this segment, including fuel. In addition, the Company experienced some disruptions from various supply chain participants, including subcontractors, materials suppliers and equipment manufacturers, who provide the raw materials, equipment, vehicles, construction supplies and other services required in order to manufacture HMA and perform construction projects. To date, we have been able to mitigate some of the effects of inflation, supply chain disruptions and labor constraints by increasing prices for products and including the anticipated cost increases in bids on construction projects. However, the Company is limited in its ability to pass through increased costs for projects already in backlog and, under those circumstances, may be unable to recoup losses or diminished profit margins by passing these costs through to customers.
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