Acquisitions (Notes)

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Acquisitions

ACQUISITIONS                                                    

Grace Acquisition

On October 1, 2013, the Company consummated its acquisition of 100% of the shares of Grace, a Hawaii-based natural materials and infrastructure construction company. Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), by and among A&B, A&B II, LLC ("Merger Sub"), a Hawaii limited liability company and a wholly owned subsidiary of A&B, Grace Pacific Corporation, a Hawaii corporation (now Grace Pacific LLC, a Hawaii limited liability company and a wholly owned subsidiary of Grace Holdings), Grace Holdings and David C. Hulihee, in his capacity as the shareholders' representative, dated June 6, 2013, Grace Holdings merged with and into Merger Sub with Merger Sub remaining as the surviving company and a wholly owned subsidiary of A&B (the "Merger"). The assets and liabilities of Grace are included in the Consolidated Balance Sheets as of December 31, 2013, and the results of Grace’s operations subsequent to the acquisition date are included in the Consolidated Statements of Income.

The Company views the acquisition of Grace as an attractive long-term investment, with favorable return metrics and diversification benefits that will augment A&B's ability to further pursue its core real estate strategies over time. Grace will extend and enhance A&B's community building capabilities to encompass infrastructure work, for which a steady and growing need exists in Hawaii. Grace will also allow A&B to further benefit from Hawaii's improving economy and real estate markets and also materially strengthens and diversifies A&B's financial profile and flexibility.

The total merger consideration paid to Grace equity holders was approximately $231.6 million, consisting of 5.4 million shares of A&B common stock, valued at $196.3 million, based on the fair value of the Company’s stock price on October 1, 2013, and approximately $35.25 million in cash. Additionally, approximately $67.6 million of net debt was assumed by A&B in the Merger. Pursuant to the Merger Agreement, the aggregate number of shares of A&B common stock issued in the Merger was determined by dividing $199.75 million, which was 85% of the total merger consideration prior to any post-closing adjustments, by $36.7859, which was the volume weighted average of the trading prices of A&B common stock on the New York Stock Exchange for the 20 consecutive trading days ending on the third trading day prior to the closing of the Merger. Of the $35.25 million cash portion of the acquisition price, as of December 31, 2013, approximately $23.5 million (the "Holdback Amount") remains withheld pro rata from Grace shareholders and retained by A&B to secure any final adjustments to the merger consideration and certain indemnification obligations of Grace shareholders pursuant to the Merger Agreement. These funds will be released by A&B in accordance with the terms set forth in the Merger Agreement. In addition, an amount of cash equal to $1 million of the merger consideration otherwise deliverable to Grace shareholders has been delivered to the shareholders' representative to cover the costs and expenses incurred by him in performing his duties as provided in the Merger Agreement. Any amounts not used, or retained for future use, by the shareholders' representative will be paid to Grace shareholders upon the release of any and all remaining portions of the Holdback Amount.

The preliminary allocation of purchase price to assets acquired and liabilities assumed is as follows (in millions):

Cash consideration	$	35.3
Common stock issued as consideration	196.3
Noncontrolling interest	9.1
Fair value of consideration transferred	240.7
Fair value of assets acquired and liabilities assumed
Assets acquired:
Cash and cash equivalents	5.7
Accounts receivable	37.1
Contracts retention	9.6
Costs and estimated earnings in excess of billings on uncompleted contracts	11.7
Inventories	42.0
Property, plant and equipment	148.6
Mineral rights	18.0
Intangible assets	5.8
All other, net	10.4
Total assets acquired	288.9
Liabilities assumed:
Accounts payable and accrued liabilities	26.3
Billings in excess of cost and estimated earnings on uncompleted contracts	7.5
Deferred tax liability, long-term	27.1
Long-term debt, including current portion	72.7
All other, net	4.9
Total liabilities assumed	138.5
Excess of purchase price over net assets acquired	$	90.3

As of December 31, 2013, the purchase price allocation related to the acquisition is preliminary and the final purchase price allocation will be determined pending the receipt of information necessary to complete the valuation of assets and liabilities, which may result in a change from the initial estimate. Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded as part of the acquisition primarily reflects the value of the know-how, operating processes and employee base of Grace, and other intangible assets that do not qualify for separate recognition.

Through December 31, 2013, the Company incurred $4.6 million of acquisition costs and other related fees, which were recorded in selling, general and administrative costs.

Since October 1, 2013 through December 31, 2013, Grace has contributed operating revenues of $54.9 million and net earnings of $1.7 million (including earnings attributed to noncontrolling interest of 0.5 million), which included deductions of $0.1 million and $1.7 million for operating revenue and net earnings, respectively, related to purchase price allocation adjustments. The unaudited pro forma combined historical results (using audited Grace results for its fiscal years ended September 30, 2013 and 2012), as if Grace had been acquired at the beginning of 2012 are as follows (in millions):

	Year Ended December 31,
	2013		2012
Operating revenue	$	539.1	$	454.1
Income from continuing operations, after tax	$	31.7	$	14.8

The 2013 pro forma results excludes $6.9 million of pre-tax transaction-related costs incurred by A&B and Grace and includes amortization of the definite lived intangible assets and depreciation based on estimated fair value and useful lives. The pro forma results are for informational purposes only are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2012, nor are the pro forma results necessarily indicative of future consolidated results.

Kailua Portfolio Acquisition

On December 20, 2013, the Company consummated its previously announced purchase of a portfolio of commercial and other properties in Hawaii for $360.7 million, plus assumed debt of $12.0 million, from Castle Family LLC, Castle 1974 LLC, Castle Residuary LLC, Castle Kaopa LLC, and Harold K. L. Castle Foundation (collectively “KR”). The portfolio encompasses 43 grocery- and drug store-anchored shopping centers, light industrial properties and 51 acres ground leased to third-parties and improved with 760,000 square feet of retail and other commercial space, primarily located in the Windward Oahu town of Kailua. The portfolio also includes approximately 585 acres of mostly preservation-zoned land on Oahu. The purchase of the portfolio was funded with approximately $270 million of 1031 and 1033 proceeds from the sales of commercial properties and other non-income generating assets, a $60 million bridge loan, the assumption of $12.0 million in mortgage debt principal, and borrowings under the Company's line of credit for the balance. The portion of the purchase price not initially funded with 1031 and 1033 proceeds is ultimately expected to be funded with tax-deferred proceeds; however, to the extent 1031 and 1033 proceeds are insufficient to pay for the entire purchase price, the difference will be paid in cash. The acquisition of the portfolio is expected to improve the long-term growth prospects of the Company’s commercial portfolio.

The preliminary 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:
Property, plant and equipment	$	367.7
Intangible assets	30.4
Total assets acquired	398.1
Liabilities assumed:
Intangible liabilities	26.0
Liabilities assumed	11.4
Total liabilities assumed	37.4
Net assets acquired	$	360.7

As of December 31, 2013, the purchase price allocation related to the acquisition is preliminary and the final purchase price allocation will be determined pending the receipt of information necessary to complete the valuation of assets and liabilities, which may result in a change from the initial estimate.

Through December 31, 2013, the Company incurred $1.1 million of acquisition costs and other related fees, which were recorded in selling, general and administrative costs.

Since December 20, 2013 through December 31, 2013, the portfolio has contributed net revenues of $0.8 million and net earnings of $0.4 million. The unaudited pro forma combined historical results, as if the portfolio had been acquired at the beginning of 2012 are as follows (in millions):

	Year Ended December 31,
	2013		2012
Operating revenue	$	391.0	$	285.5
Income from continuing operations, after tax	$	23.3	$	14.2

The pro forma results include transaction costs, amortization of in-place and above/below leases and depreciation increase based on estimated fair value and useful lives. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2012, nor are they necessarily indicative of future consolidated results.

Other Acquisitions

In 2013, A&B completed various acquisitions that included Waianae Mall (January 2013), Napili Plaza (May 2013), Pearl Highlands Center (September 2013), and The Shops at Kukui’ula (September 2013). The acquisitions were funded with $111.1 million of 1031 proceeds, the assumption of $130.9 million of debt, and $0.8 million of cash.

The preliminary 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:
Property, plant and equipment	$	224.2
Intangible assets	20.9
Goodwill	9.3
Total assets acquired	254.4
Liabilities assumed:
Intangible liabilities	8.3
Liabilities assumed	134.2
Total liabilities assumed	142.5
Net assets acquired	$	111.9

The above allocation is preliminary and is based on estimated fair value estimates that may change once all information necessary to make a final fair value assessment is received. Goodwill recorded is not deductible for tax purposes.

Through December 31, 2013, the Company incurred $2.1 million of acquisition costs and other related fees, which were recorded in selling, general and administrative costs.

Since the acquisition dates through December 31, 2013, the acquired assets have contributed net revenues of $12.4 million and net earnings after tax of $2.1 million. The unaudited pro forma combined historical results have been omitted because after making every reasonable effort, the properties' complete historical information is impracticable to obtain.