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Alexander & Baldwin Inc (ALEX 0.06%)
Q3Â 2018 Earnings Conference Call
Nov. 01, 2018, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to the Alexander & Baldwin 2018 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today's conference is being recorded.
I would like to introduce your host for today's conference, Mr. Kenneth Kan, VP of Capital Markets. Sir, please go ahead.
Kenneth Kan -- Vice President, Capital Markets
Thank you. Aloha and welcome to our call to discuss Alexander & Baldwin's Third Quarter 2018 Earnings. With me today are President and CEO, Chris Benjamin and Jim Mead, our CFO. We are also joined by Lance Parker, our Chief Real Estate Officer, and Clayton Chun, our Chief Accounting Officer, who will participate in the Q&A portion of the call.
Before we commence, please note that statements in this call and presentation that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated in 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.
Such forward-looking statements speak only as of the date of the statements were made and are not guarantees of future performance. Future 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, as well as the evaluation of alternatives by the company's joint venture related to the development of Kukui'ula, generally discussed in the company's most recent Form 10-K, Form 10-Q and other filings with the Securities and Exchange Commission.
The information in this call and presentation should be evaluated in the light of these important risk factors. We do not undertake any obligation to update the company's forward-looking statements. Management will be referring to non-GAAP financial measures during the call today. Included in the appendix of today's presentation slides, is a statement regarding our use of these non-GAAP measures and reconciliations. Slides from this presentation are also available for download at our website alexanderbaldwin.com.
Chris will open up today's presentation with quarterly highlights and a strategic and operational update. He'll then turn the presentation over to Jim, who will discuss financial matters and guidance. Chris will return for some closing remarks and then we'll open it up for your questions.
With that, let me turn it over to Chris.
Christopher Benjamin -- President, Chief Executive Officer
Thanks, Kenny. Excuse me, well, I want to welcome our listeners, I also want to welcome you to your first A&B earnings call and your role as VP of Capital Markets. Kenny who already held the Treasurer role at A&B has added the Investor Relations role following the departure of Suzy Hollinger, who is now, CFO of Hawaii Gas. Many of you have met Kenny over the past month or so, and he will be at REITworld with us next week. We're happy to have them in this new expanded role.
I'm very pleased by the continued strong performance of our commercial real estate business and I'm going to direct most of my comments there. But I'd like to start by recapping our continued progress with our strategic transformation. While there are many steps taken before 2017, the big step last year was of course, our REIT conversion. So far in 2018 we have completed the special distribution and the migration of our assets to Hawaii, built out our property management acquisitions, leasing and development teams and advanced our monetization efforts. But we're not done, and we'll continue this fall and into next year, working on growing NOI, monetizing more non-commercial real estate assets and charting the best path for our materials and construction business.
I'll come back to Materials and Construction in a few moment. But suffice it to say, we were disappointed in its performance last quarter and recognize the challenges that creates, not only for our earnings, but for our broader acceptance as a REIT. What the market is telling us is that our story remains complicated, but we want to be thoughtful about achieving optimal values for all our components. We also recognize the importance of achieving greater simplicity and focus.
Our commercial real estate segment produced same-store NOI growth of 5.4% in the third quarter and strong leasing spreads are expected to support continued same-store NOI growth in the final quarter of the year. While we sit at 3.9% year to date, this may moderate a bit in the fourth quarter, landing us around the midpoint of our full-year 3% to 4% guidance range.
Leasing activity in the quarter was robust with 58 leases signed, covering 128,000 square feet of GLA. By September 30, we had completed 87% of our targeted leases for the year based on ABR, at spreads of 8.4%. These numbers reflect the continued strong environment for our commercial real estate portfolio and the excellent efforts of our team.
Given the strength of the Hawaii economy, we believe we can maintain solid leasing spreads over the balance of the year, finishing the year at the high end of our guidance range. We talk often about the embedded value of our ground leases. And in the third quarter, we had a nice demonstration of that, when the ground lease under an auto dealership and Windward Oahu was renewed two years prior to its expiration. The lease was extended for another 30 years at an initial 43% increase to base rent. While some of our ground leases present opportunities to get back the land and the improvements and potentially redevelop the site. This is an example of a lease that represented highest and best use, and where a sizable step-up, was achievable through an extension.
Commercial real estate is of course our core business now. And we believe the continued strong performance of the portfolio is a testament to the validity of our strategy to focus on Hawaii. Thanks to our scale on Hawaii, we've been able to internalize all our key functions, from investments and development to leasing and property management. And we've built a great team, supplementing our internal talent with some key external hires. The team is critical to our growth plans, and our third quarter and year-to-date results demonstrate the progress. We continue to make in the effective management and leasing of our commercial portfolio.
This is the first of the five levers of growth in value creation, we often reference. With the other four being redevelopment and repositioning of existing assets, ground-up development of new assets, 1031 exchanges from land and property sales and acquisitions using our balance sheet or equity. As I said, the first lever, effective management of the existing portfolio is helping drive our continued same-store NOI growth.
Moving on to the second and third levers, that I referenced a moment ago, I'd like to summarize the commercial real estate development and redevelopment and development projects we're advancing, which are increasingly going to be a source of NOI growth. They will also deliver attractive financial returns in the coming quarters and years.
I'll start by recapping a success story, Pearl Highlands Center. The upgrades of the cinema and the food court have not only generated the direct rent benefits, we had underwritten but they have enhanced the customer experience at the center, enabling us to attract other great tenants.
ULTA is open and doing very well, while Guitar Center will open in early 2019. We'll be 98% leased once Guitar Center is economic. And we have strong interest from a national tenant for the remaining 5,600 square foot space. It's hard to quantify the broader uplift, but I can assure you, our investment in the Pearl Highlands is generating returns beyond the 10% return on cost, of the specific improvements.
Our next success story will be Lau Hala Shops in Kailua where we are currently 89% pre-leased and 57% of the space is set to open this month. This asset which reverted to the company in 2016, when Macy has chosen not to exercise its option for a ground lease extension. We will now provide an exciting blend of dining, fitness, grocery and other retail options for the Kailua community.
In the fourth quarter of 2018, UFC Gym, Maui Brewing Company and Goen Dining and Bar by Roy Yamaguchi will open and contribute to NOI growth. Based on our leasing timeline, we expect incremental stabilized cash NOI of about $2.5 million per year which translates to a stabilized yield on project cost of roughly 11%. Again, without the consideration of the benefits to our adjacent assets.
Our next repositioning or redevelopment project will be Aikahi Park Shopping Center, the property that we acquired in two stages. First the ground lease with the acquisition of the Kailua portfolio in 2013, and then the leasehold improvements in 2015 at a 25% cap rate. The improvements were an important (ph) condition upon purchase and we've been prepping the center for redevelopment. We have an LOI with Safeway for a lease extension and they plan to upgrade their store. Meanwhile, we're advancing discussions with a number of tenants to extend their leases in anticipation of a renovation. We're finalizing the renovation plans for the center, and we'll share more information with you as we complete the plans, and after we roll them out to the local community. The last development I want to talk about is Ho'okele Shopping Center on Maui, which is an example of the third lever of growth, ground-up development. The center is 64% pre-leased and we are in discussions with various potential tenants to fill the rest of the space. We broke ground in March and construction is on schedule for a 2020 opening.
I do want to acknowledge some challenges in filling midbox spaces on Maui. At Ho'okele we have the ability to defer construction of the midbox space. So we'll evaluate that option. While the nearby Pu'unene Shopping Center, we conservatively underwrote the acquisition with an assumption that we would not fill our final bucks a 25,500 square feet space until 2021. So we have some cushion there. Redevelopment and new development, continue to be a source of growth for us, and we expect more redevelopment opportunities to come from our improved properties and our ground lease portfolio. While we once felt that Lahaina Square on Maui presented a redevelopment opportunity. We decided instead to sell the property. We received an offer that exceeded the residual land value of our development models. And so we'll capitalize on the opportunity to exit the property and increase NOI through a reinvestment years earlier than if we had pursued redevelopment.
We actually closed on the sale today. And I want to thank everyone on our team that made that possible. As you can see we're pulling several levers in our growth efforts, in our efforts to grow NOI. With the only exception really being number five, the use of our balance sheet or equity for acquisitions. The reasons we've discussed previously, those sources of growth will likely need to wait -- to await the completion of our strategic transformation.
Wrapping up with a couple of more slides on commercial real estate. This slide shows the continued strength of our retail assets with our occupancy at nearly 93% and leasing spreads remaining favorable. Meanwhile, our industrial portfolio generally remains very strong as well, though we are continuing to show lower occupancy than we historically have because of one large vacancy at Komohana Industrial Park. That one vacancy accounts for 4.6% of our industrial portfolio space. We're being patient in our releasing efforts, because we see -- as we seek to fill the space with the right tenant, especially in light of the strong 16.7% industrial releasing spreads, we achieved for the quarter.
At Kakaako Commerce Center six leases were executed in the third quarter of 2018 to bring occupancy to 91.1%, a 9.3% occupancy increase year-over-year. Additionally Honokohau Industrial achieved 100% occupancy with the execution of three leases in the third quarter, at an aggregate comparable leasing spread of 30%. Moving beyond our commercial real estate business we're advancing efforts to improve the performance of and simplify the other parts of our business.
Starting in land operations, we've advanced our monetization efforts with the sale of individual condos and homes, as well as land parcels and even our interest in one development joint venture. For the third quarter, we closed 22 units of Kamalani and 24 units at Keala 'o Wailea on Maui, the latter of which produced an $8.6 million JV distribution.
During the quarter we also monetize our remaining interest in the Ka Milo joint venture project on the Big Island for $5.5 million. The cash proceeds from these three residential developments totaled $16.9 million for the quarter. With the Ka Milo sale in the early October closing of the last units at Keala 'o Wailea, we have closed out two development projects in the last couple of months. For the rest of the year we expect to continue selling through residential inventory. This includes closing the remaining three units at the collection and 21 of the 67 remaining units at Kamalani Increment I.
At Kukui'ula we've seen a very nice increase in activity closing five lots in the third quarter, totaling $5.9 million in revenue. And for the fourth quarter, we have four lots totaling more than $10 million in revenue, either already closed or under binding contract to close before year-end. Across the board, we are advancing our efforts to simplify the company as a REIT by deemphasizing capital investments required for development for sale projects.
We're doing this by exploring JVs, recapitalization or even a sale for our Wailea, Kukui'ula and Kamalani projects, while we're working through the process of evaluating options with interested parties, we're not able to share any updates at this time. Finally in land operations, we continue to advance our diversified ag efforts on Maui, including the recent expansion of grass-fed beef operations and good progress in identifying viable farming uses for the former sugarcane lands on Maui.
We also continue to work on selling parcels of land where appropriate. We closed the sale of the 313 acre ag parcel on Maui to the State of Hawaii in the third quarter for $8.6 million. The potential sale of 219 acres to the county of Maui for the expansion of the Maui Ag Park, it's working its way through the necessary approval steps and we expect to make more progress on that soon. As I mentioned, materials and construction earnings for the quarter were disappointing. And we clearly are not going to achieve our full year earnings goals.
Adjusted EBITDA for the quarter was $5.6 million, a decline of 38% from last year. And for the full year, our adjusted EBITDA is trailing 2017 by more than 40%. We've been making some operational changes in recent months and saw improved results from our paving operations where revenue and margins increased in the quarter. Offsetting that however we look for results at our quarry operation where we've made some operational changes, but aren't yet seeing the benefits. This is proving to be a more challenging process than we had appreciated. But I believe the right steps are in motion including revamping our financial systems to better understand the economics of every component of the business and continuing to implement operational process improvements.
Looking forward, we've won some favorable new contracts over the past couple of months and we expect various operational changes to bear fruit in future quarters, but some operational improvements may bring additional short-term pain. So we're not prepared to provide an outlook for the balance of the year. As we finalize our plans for next year, we will share both, more details of the steps we're taking and how they will position us for 2019.
With that strategic and operational context, let me turn the call over to Jim to discuss third quarter earnings drivers, our outlook and our balance sheet.
James Mead -- Executive Vice President and Chief Financial Officer
Great, thanks Chris, and good afternoon. Our total company earnings improved year-over-year, driven mostly by results in our commercial real estate portfolio and a modest increase in monetization activities during the quarter versus last year. Diluted earnings increased to $0.20 per share for the quarter. Chris reviewed the continued outperformance of our commercial real estate portfolio. I wanted to point out that not only is our total NOI and same store NOI growing, the quality of our NOI is also increasing. Last year at this time, we own an assortment of commercial properties on the Mainland.
As you will recall, we sold those properties early this year and reinvested into three high quality retail assets in Hawaii. So our Hawaii NOI, which is more highly valued than the Mainland NOI we traded out of, is almost 20% larger now, than it was a year ago. This is a table recapping where we are on our land operations activities, our Keala 'o Wailea for sale development project is sold out, with the final closings having occurred in October.
The Kamalani affordable housing project is almost through its first phase and we are expecting the closeout sales of the collection during the next couple of quarters. We are also working to accelerate the remaining Kahala lot sales. During the quarter we sold out -- we sold our joint venture interest in the Ka Milo development on the Big Island of Hawaii and monetize 330 acres of land on Maui and a sale to the state for expansion of their airport.
Chris referred to the, for sale residential projects which are undergoing reviews, the Kukui'ula project on Kauai, our remaining Wailea lands in Maui, and the remaining two development increments of our Kamalani affordable housing development. We will give you updates on our progress in future quarters.
Turning to Materials and Construction, on prior earnings calls, we spoke about headwinds in the market with a pause in federal, state and local contracting. Nevertheless, during the third quarter, we had a year-over-year improvement in revenues as a result of both building from our backlog and an unexpected contract on the Big Island. However, the improved top line was weighed down by increasing unit costs in our quarry.
We lowered our production levels to reduce inventories, and because it is a high fixed cost business, unit cost increased, where they decreased in our production. We do not expect to meet our EBITDA goals for the year. From a market side, an early read (ph) of next year's Hawaii paving market makes us increasingly confident that the total market opportunity is returning to the levels we saw in years prior to this year. We are on track for the guidance metrics we provided at the beginning of the year, as shown on this slide. On the commercial real estate side we are projecting leasing spreads toward the top end of our 6.5% to 7.5% range and same-store NOI growth in the middle are at about 3.5% for the year. I've added to guidance a goal to reduce the company's total debt by $100 million from the end of Q1. You will recall, we made a dividend in Q1 for our REIT conversion of which $156 million was cash.
We said at the beginning of the year that our balance sheet goal is to reduce our indebtedness and make a substantial repayment of that distribution during the year. Since March, we reduced $61 million in the company's total debt and have a $100 million debt reduction goal for the year-end 2018. Finally, we remain well capitalized with low corporate leverage and healthy credit statistics. So now, let me turn the call back to Chris for closing remarks.
Christopher Benjamin -- President, Chief Executive Officer
Thanks a lot, Jim. Before I share my closing remarks, let me thank Jim for his contributions to A&B. Jim arrived at a critical time for the company when we were in the midst of our REIT conversion, and he brought deep knowledge of the REIT industry, helping us reshape everything from our financial reporting and credit facilities to our information systems and investment strategies. He has helped us immensely in our REIT journey. Meanwhile, Diana Laing is now on board and has had the opportunity to work with Jim and the team over the past few weeks, facilitating a smooth transition. Not only will Diana add great value in her interim CFO role here, but she gives us the luxury of time and conducting a thorough national search for our next CFO. I want to thank both Jim and Diana for their leadership and thank the outstanding finance team supporting both of them and me.
In closing, I'm very proud of what we've accomplished as a company, but it's no secret that we're not yet realizing the benefit of these successes in our stock price. There are many forces at play in the market right now, but we have to focus on those that we can control and foremost among them is the size and complexity of our non-commercial real estate businesses.
As we've demonstrated, we're working to monetize assets and we have more such efforts in the queue. We absolutely value simplification, but are not in prior sale mode. We'll be thoughtful about each asset. And while I fully expect more progress and simplification over the next six months, will be disciplined about the process. Most importantly, I can assure you that these simplification efforts will not detract from our focus on growing our core commercial portfolio, where I expect to continue to see great results.
That concludes our prepared remarks and we're happy to take questions.
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question comes from the line of Steve O'Hara with Sidoti & Company. Your line is open. Please go ahead.
Stephen O'Hara -- Sidoti & Company -- Analyst
Hi, good afternoon and thanks for the time.
Christopher Benjamin -- President, Chief Executive Officer
Hey, Steve.
Stephen O'Hara -- Sidoti & Company -- Analyst
Just a question about the -- you had mentioned in the highlights, in the press release about the development for hold. Have you talked about the expected impact on NOI for 2019 -- I assume 2019 openings. Is there -- have you given any guidance on that or you plan to?
Christopher Benjamin -- President, Chief Executive Officer
We haven't given an exact timing guidance, beyond the fact that we did talk a little bit about the fact that Pearl Highlands is pretty much stabilized now and that Lau Hala will be stabilizing over the course of the -- well starting in the fourth quarter, but probably by mid-2019. So that gives you a sense of how those will come into earnings. The impact of Aikahi and Ho'okele would be beyond 2019. So I think that's probably the best I can do. I can't give you a precise NOI number for Lau Hala in 2019. It's going to depend on exactly when tenants go economic.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. And then just, I mean, it seems like you had a lot of good activity in the quarter on the sales side, in terms of -- I mean it sounded like you had some things in the queue, you said. I mean, do you think you're at a stage now where you have better visibility of the sales and maybe you see more of a consistent flow to sales or is it still probably going to be more choppy and things like that?
Christopher Benjamin -- President, Chief Executive Officer
I think we always caveat, Steve. The fact that sales are difficult to predict and project, especially the timing of sales but even whether or not the sales will happen. And let me give comments on both the retail sales, where we're selling existing residential inventory versus project sales where we might be selling -- selling out of a project or selling a builder parcels. The former, we feel very good about the pace at which things are going, the pace has picked up at Kukui'ula, we've now sold out of Keala 'o Wailea, Kamalani. We only have a few unsold units that we expect to contract for this year. So that's going very well and I think that's relatively predictable and we gave some guidance on the timing and pace of those.
With respect to developments and builder parcels, those are harder to predict. I would say that the positive activity that we have in the quarter and the discussions we've been having have overall been relatively encouraging. But we're very cautious about predicting what else will be able to get across the finish line. So we're going to be cautious. I think, as Jim said, we do have a goal with some continued deleveraging this year and I feel pretty good that we'll hit that goal, but these things are never over till they are over. And so unless Lance you want to add in more color on market or timing, that's about it.
Lance Parker -- Chief Real Estate Officer
Yeah. Steve, I think, that's really kind of all we can say in terms of an outlook. But overall, things seem relatively favorable.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. And maybe just one last one. In terms of Lau Hala shops, just maybe I've got the wrong name, but that's the Macy's redevelopment, right? The box that was redeveloped?
Christopher Benjamin -- President, Chief Executive Officer
That's right.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. And just, I mean, in terms of the -- I know you talked about the return on cost or the incremental NOI coming from the investments made in the redevelopment. What's the increase in the base rent that you used to get on that property? Is that material or --
Christopher Benjamin -- President, Chief Executive Officer
It is.
Lance Parker -- Chief Real Estate Officer
Hey, Steve. This is Lance. It's significant. Macy's, when they were there, operated under a ground lease, they were somewhere in the range of about $300,000 annually in terms of rent paid. So the ability want to convert it to a space lease, and then reinvest additional proceeds or capital into that project is really what's going to drive a substantial lift in NOI, once that becomes economic and fully occupied.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. So it's kind of the two pieces coming together. The investments, the NOI from the investments and then the base rent going up as well?
Lance Parker -- Chief Real Estate Officer
Correct.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. Alright. I'll jump in back in queue. Thank you.
Christopher Benjamin -- President, Chief Executive Officer
And then. Yeah, Steve, you jump back in the queue. But just a couple of more things I want to add. One thing is that, when we talk about these incremental returns on Lau Hala, this is not just incremental to the previous rent, but it's really incremental to what we thought we could achieve if we just did a space lease of the existing building, which would have been at relatively low rent, given the big box nature of it. And so, the uplift here is really from the repositioning and the ability to command higher rents for smaller, more specialized spaces.
The other thing that I should add to my earlier comment about the timing of uplift in NOI is that, what I was focused on was primarily the incremental NOI just from these specific spaces. But as I also alluded to in my prepared remarks, we expect nice uplift in the center's more broadly at Pearl Highlands, for example, the fact that we've been able to get ULTA in there and then we've got Guitar Center. Those are both deals that give us nice rent uplift beyond just the $600,000 NOI from the investment itself.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Sheila McGrath with Evercore. Your line is open. Please go ahead.
Sheila McGrath -- Evercore Partners -- Analyst
Yes, good afternoon. I was wondering on the lot sales that you highlighted, the 22 units at Kamalani and were those just individual sales or did you -- are those bulk sales to one owner to accelerate activity? Just curious.
Lance Parker -- Chief Real Estate Officer
Hi, Sheila, it's Lance. Those were individual sales to individual buyers. So as we saw going back now over a year, really strong activity that has continued for those 170 units and the Increment 1. And as Chris indicated, as of the end of the quarter, we had just a few left and as of this week we're down to just 1 unit that is unsold. So we expect to close out that project later next year as we complete construction and then (inaudible) turnover these units to the buyers.
Sheila McGrath -- Evercore Partners -- Analyst
Okay, great. And then I know you can't get into detail, Chris, but I missed the three projects that you're considering like options for our Kukui'ula, Wailea and I missed the third, which one that was? But I was just curious, looking at different options for whatever hypothetical for sale of residential project. Just wondering how you can structure that with after converting to a REIT, can you structure it as a 1031? Or are you able to somehow retain most of the proceeds from a sale or are there frictional tax things that we should consider?
James Mead -- Executive Vice President and Chief Financial Officer
Hi, Sheila, it's Jim. So the third project that we had talked about, were the second -- the last two phases, we call it Increment 2 and 3 of the Kamalani development, that Lance was just talking about. So Kukui'ula, Kamalani and the remaining land in Wailea are all in the TRS. So they're not REIT assets, they're TRS assets. And I would say that we're looking at, any and all options in order to monetize those investments earlier than later, and also to keep to a strategy of not having to put our own capital into those developments. And I would say that from a tax perspective, tax planning is something that kind of like is ongoing. I would not look from what I know, I would not assume much in the way of frictional tax cost, in the execution of those sales. But again I can't, it depends on the order and the amounts in the structure. So at this point, though, we're not looking at a significant tax burden on those activities.
Sheila McGrath -- Evercore Partners -- Analyst
Okay, great. Thank you. And then just on the Maui Shopping Centre sale, is that a good comparable that you could share with us the cap rate, just curious what that traded at?
James Mead -- Executive Vice President and Chief Financial Officer
We closed at $11.3 million. We could look in the supplement for the cap rate. But I would say it's probably not an appropriate metric. We had purposefully looked at repositioning that asset, potentially redeveloping it. And so the rents, I would say we're not necessarily market, neither were the terms. That all said, I would say that the buyer is looking at just holding the asset and putting some improvements in it, but no real long-term plans beyond that.
Christopher Benjamin -- President, Chief Executive Officer
So I'll just add, Sheila again when we're looking at the portfolio in total, this was an outlier in terms of the requirement for capital. Without a redevelopment it was going to require a significant amount of capital for releasing. And with the redevelopment, obviously, we require a lot of capital. And when we looked at the economics of doing either scenario, the NPV for us, didn't seem attractive in comparison to the sale price that we can get for the properties. So it just didn't seem to fit with our overall strategy of -- wanted to nurture a higher growth rate for our portfolio. So it made a good candidate for spinning out of the portfolio.
Sheila McGrath -- Evercore Partners -- Analyst
Okay, great. And then on the Lau Hala development, the 11% yield on cost, I know that was a decent uptick from the prior. Was that on better rents, better costs, so how are you able to boost that yield on that project?
Christopher Benjamin -- President, Chief Executive Officer
It's really coming down to better rents. And so we stated 89% pre-leased. We do have the remaining base in various levels of discussions and negotiations. So we're starting to fine-tune our guidance on that, just being able to see what we -- where we end up or expect to end up.
Sheila McGrath -- Evercore Partners -- Analyst
Okay, and one last one, on ground lease that was a significant reset. Can you remind us or maybe it's in the supplemental. When, how many resets are coming over the next couple of years, this like a good window for ground lease resets for the company?
James Mead -- Executive Vice President and Chief Financial Officer
In our supplement in the tables, we do layout our top 20 ground leases by ABR, and then we do have the, the next either step or expiration schedule in there. It's a nice highlight to show whether it's embedded value in our portfolio. But as Chris had indicated in his comments, there is always the opportunity to look either at recapturing the space, releasing the space or doing something like we did at Lau Hala. So I'm not, it's a little difficult on an aggregated basis to just apply this kind of increase and I think that's appropriate.
Sheila McGrath -- Evercore Partners -- Analyst
Okay. Thank you very much.
Operator
Thank you. And our next question was a follow-up question from the line of Steve O'Hara with Sidoti & Company. Your line is open. Please go ahead.
Stephen O'Hara -- Sidoti & Company -- Analyst
Yeah, thanks for taking the follow-up. Just I was curious, was there any, I didn't see the press release, maybe I missed it. Was there any impact from weather or hurricanes or anything like that in the quarter for Grace potentially or maybe in any other areas?
Christopher Benjamin -- President, Chief Executive Officer
No, we didn't have -- the weather channel, weather didn't really impact our portfolio, was more on, I think the big island was impacted. We don't have much real estate on the Big Island.
James Mead -- Executive Vice President and Chief Financial Officer
No, the question was about Grace. And I do think that -- Grace did lose some operating days because of the weather, but I don't think it wasn't a primary cause of the performance.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay. And then maybe there was a -- the price for the acreage on Maui, is that within the taxable REIT subsidiary or is that within the REIT itself? And then also on the pending 4Q sales, can you just talk about, you know what, what type of values that is, if you can or is it too early?
Christopher Benjamin -- President, Chief Executive Officer
I'll let Lance comment on values, with respect to the sale that closed and whether that's reflective of what we might see going forward. I will say that the -- those lands are all within the REIT, and they actually would qualify for exchange, these would be 1033 exchanges as opposed to 1031 exchanges because these were friendly. Well, one was and the other is set up as a friendly condemnation with a government agency. So it's a little bit more flexible in terms of the reinvestment timeline.
Lance Parker -- Chief Real Estate Officer
And then the only other thing that I would add is because they were in the case of the airport lands that we closed, that was a governmental agency in the state. And in the prospective deals the governmental agency in the county. A material part of the valuation process is actually done by appraisal. So it really is sort of a third-party valuation process that we go through to arrive at the valuation. That said, I'd say it's relatively indicative of expectations for the next year.
Christopher Benjamin -- President, Chief Executive Officer
Okay. Alright. Thank you very much.
Operator
Thank you. (Operator Instructions) And we have another follow-up question from the line of Sheila McGrath with Evercore. Your line is open. Please go ahead.
Sheila McGrath -- Evercore Partners -- Analyst
Hi. Yes, Chris, I was just wondering if you could remind us how now that we're closer to year-end, how you're thinking about the dividend next year. I've realized this year's dividend was wrapped up in the E&P, and it's when people look at it, it just doesn't scream like a typical REIT with no yield. And so I just wanted to hear your thoughts about the dividend for next year?
Christopher Benjamin -- President, Chief Executive Officer
Sure. So we had a -- we had a fulsome discussion about this just a week ago. And Sheila, as we go into next year, the REIT needs to pay a dividend, at least at a 100% of its taxable income. And just as a reminder that taxable income this year was about $0.57 a share, which of course we paid in the -- we accumulated that dividend and paid it in the first quarter along with our distribution of E&P to become a REIT. So that's why we didn't see a current dividend this year. And next year we're going to pay a current dividend based on at least the 100% of our taxable income. And so again, I can't talk for the board, board has to decide on these things, but in January we'll have a pretty good estimate for our full-year and we will begin to have a routine dividend, I think very similar in terms of schedule to other REITs, that would be the goal. So that there are no surprises going forward. We'll set it at a level which is something that we can maintain and grow it over time, with the growth of our commercial real estate portfolio. So I think that begins in the early part of next year, sort of the same way you see any other REIT doing it.
James Mead -- Executive Vice President and Chief Financial Officer
Yeah, and Sheila just to add that $0.57 or thereabouts, yield will be relatively modest compared to a lot of other REITs, but we always like to remind people that currently only about 55% of our assets are in commercial real estate and generating REIT taxable income. So as we're successful in continuing our strategic transformation and shifting more of our assets from the non-commercial real estate side, into commercial real estate, we should have disproportionate dividend growth in the next few years.
Sheila McGrath -- Evercore Partners -- Analyst
Chris, are you, we didn't touch on any like acquisitions. If you do have a number of land sales or non-core asset sales teed up. I would think that you would be in the market, looking, are there things that are of interest that you're looking at, in industrial or retail?
Christopher Benjamin -- President, Chief Executive Officer
There are a number of things that we were very interested in. As I've said before, we've, once we completed the migration of the portfolio, we shifted our focus this year a little bit more to the disposition side, and trying to monetize some of our -- not so much on the commercial real estate side but on the for-sale development side, we've been trying to accelerate monetization. So we've been a little bit less focused on the commercial real estate acquisition side, but as we have proceeds from land sales, we certainly have a list of assets that were interested in Hawaii and we maintain dialog with potential sellers for those opportunities.
Sheila McGrath -- Evercore Partners -- Analyst
Okay, great. Thank you.
Operator
Steve O'Hara, Sidoti & Company.
Stephen O'Hara -- Sidoti & Company -- Analyst
Yeah, hi. Sorry about repeated follow up. You just, you had said, I think about 55% of your assets are in income paying or commercial real estate. And just based on those assets, I mean I would think that a number of those assets are on the balance sheet for may be significantly less than what they're worth. And so I guess my take on it is, part of the opportunity is converting those to market value over time. And then obviously that increases the size of the taxable or the REIT portfolio. I mean can you just kind of remind me, how much of that 45% is within the TRS versus the REIT. I mean I guess it's all based on balance sheet value, so I'm not sure I'm a valuable that is, but if you could talk about that just a little bit.
Christopher Benjamin -- President, Chief Executive Officer
Yeah, Steve, I'll say the vast majority is in the TRS. The primary asset that is not commercial real estate, but that sits within the REIT is our agricultural lands. But from a book standpoint, those are on our books at relatively low values, about $150 an acre. So if you're just looking at a book asset split between the REIT and the TRS, the vast majority of the book assets in the REIT are commercial real estate assets, with the balance. Most of the balance being agricultural land and a little bit of urban land that we would hope to develop into for hold projects over time. So most of the balance of our assets would be in the TRS.
Stephen O'Hara -- Sidoti & Company -- Analyst
Okay, alright. Thank you very much.
Christopher Benjamin -- President, Chief Executive Officer
Thank you.
Operator
Thank you. And I'm showing no further questions at this time, and I'd like to turn the conference back over to Mr. Kenneth Kan for any further remarks.
Kenneth Kan -- Vice President, Capital Markets
Thanks everyone for being on the call. If you have any further questions, please feel free to call me at area code 808-525-8475. Aloha.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you can all disconnect. Everyone have a great day.
Duration: 45 minutes
Call participants:
Kenneth Kan -- Vice President, Capital Markets
Christopher Benjamin -- President, Chief Executive Officer
James Mead -- Executive Vice President and Chief Financial Officer
Stephen O'Hara -- Sidoti & Company -- Analyst
Lance Parker -- Chief Real Estate Officer
Sheila McGrath -- Evercore Partners -- Analyst
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