85.7 F
San Fernando
Thursday, Mar 28, 2024

Dole’s Cash Deals

As Dole Food Co. prepares to go public again, it has decided to make the transition without one of its local crops – berries. The Westlake Village-based grower of fresh fruit and vegetables, which has been liquidating assets to help reduce its massive debt, has officially stepped out of its Southern California strawberry business as part of a greater effort to restructure and sell off parts of its overall berry product segment. Dole’s departure is the most recent in a series of strawberry and raspberry ranches and facilities that have closed over the last three years in Ventura County and other key berry growing areas in California, as growers react to market oversupply, lower profits and other issues. In another move which will give it non-farm revenue, Dole is hoping to trade its non-income generating headquarters for the income-generating Dole Plantation in Hawaii, the site of a popular tourist business, and owned by Dole’s director and owner David Murdock under his more diverse business, Castle & Cooke Inc. Dole spokesman William Goldfield characterized the property swap as a 1031 exchange, a way property owners can avoid paying federal capital gains taxes on a sale as long as another asset is purchased. By doing this, Dole aligns the individual properties to their parent businesses, he added. Castle & Cooke owns real estate and myriad other businesses locally and across the country. “If it occurs, this would be more or less a paper transaction as true ownership will continue to belong to Mr. Murdock and will not affect Dole’s presence in Westlake Village,” Goldfield said. Balancing debt In the second quarter of 2013, Dole sold off its packaged foods business to Itochu Corp. and went private later that year. But since then, Dole’s revenue has dropped and it has failed to turn a profit. In 2016, Dole’s revenue fell to $4.5 billion revenue, down from revenue two years ago of $4.8 billion, and its loss widened to $23 million. Debt climbed to $1.3 billion, most of which the company has borrowed at variable interest rates, making it vulnerable to rate increases, according to a federal regulatory filing. But since going private, Dole has been busy incurring expenses. It bought three container ships to move its worldwide fruits and vegetables; and it continues to face legal costs from ongoing lawsuits related to pesticides at its foreign growing fields as well as litigation and a settlement connected to going private. Other costs, including a four-month plant shutdown, stemmed from a recall of its packaged salads. The company in addition has bought cropland outside the U.S. to diversify its fruit and vegetable business. Last year, the company spent $36 million on a fruit farm in Chile, and also bought pineapple farms in Costa Rica. The purchases increased its amount of owned acreage by 20 percent. Dole is feeling the heat from more grower cooperatives, and noted in a Securities and Exchange Commission filing in June that buying the land will increase its negotiating power with independent growers. Simultaneously, Dole is also seeking ways to pay off debt. It’s selling nearly 15,000 “idle” acres it owns in Hawaii, a portion of the 124,000 acres it owns worldwide. And in January, the company sold its Swedish fresh fruit procurement and distribution operation. Dole didn’t disclose the sales price. The company has also sharply cut its workforce. In 2014, Dole restructured and laid off 439 people companywide. The Dole Plantation, if the purchase goes through, will add to the company’s earnings, Dole said in its filings, but the sale depends first upon Castle & Cooke’s lenders releasing the property. Dole didn’t disclose sales figures for the tourist attraction but said it attracts more than 1 million visitors a year. Based on the advertised ticket prices for kids and adults, the activities could generate between $11 million and $22 million annually apart from the revenue the retail shop and restaurant bring. In turn, Dole would give up its headquarters, a nearly 170,000-square-foot Class A office building just shy of 20 years old. The Four Seasons Hotel Westlake Village, which faces Dole’s building and is owned by Castle & Cooke, is not part of the trade, according to Dole. Goldfield didn’t say whether Dole planned to stay in the building, but if it did, the company would potentially pay rent to Castle & Cooke. It could be considered a sale-leaseback, which companies do for a variety of reasons, commercial real estate brokers say. Kevin Fenenbock, executive vice president of Colliers International, said companies typically sell their building and then lease it from the new owner when they see the market for their property has peaked, and they feel the sale proceeds would be better used by the company. The strategy can also help companies seeking cash, said Tom Dwyer, a senior vice president in the Oxnard office of L.A.’s CBRE Group Inc. “In general, companies that have ‘real-estate-owned’ assets in their portfolio looking for liquidity or capital will convert real estate owned to a lease via a sale-leaseback,” Dwyer said. Berries The berry segment – strawberries, blueberries, raspberries and blackberries – make up only 3 percent of Dole’s overall revenue while the much more lucrative bananas account for 43 percent. Dole got into the berry business in a substantial way in 2004 when it bought Coastal Berry Co. But since at least 2015, strawberries have been a drag on revenues. Dole blames it mostly on lower pricing caused at least in part by the oversupply in the market. The company has reacted by reducing its acreage. In 2015, Dole’s strawberry presence in Ventura County accounted for about 14 percent of the nearly 11,300 acres of strawberries planted that year across six ranches totaling 814 acres, according to Ventura County Agricultural Commissioner Henry Gonzales. That year, revenue of the fresh vegetables category which includes berries rose to $1.38 billion from $1.33 billion for the prior year. But, the company wrote, the benefits were offset by $42 million in lower strawberry prices. “Fresh vegetables’ costs decreased as a result of actions taken to reduce planted acreage of berries from an oversupplied North America berries market,” Dole wrote in its SEC filing in June. “These actions resulted in a reduction in berries volumes of 47 percent sold during fiscal 2016 as well as the associated costs.” Later last year, the company restructured its berry operations and made plans to sell off certain farms and facilities. “Dole concluded that these plans met the requirements to be presented as assets and liabilities held-for-sale,” the company wrote. Dole’s moves are one of several signs that California’s long-time love affair with berries has hit the rocks lately. Since late 2015, at least nine raspberry and strawberry ranches and facilities have closed in Oxnard, Camarillo, Santa Maria, Salinas and Watsonville, mostly “due to economic reasons.” Ventura County, where agriculture was a $2.2 billion industry in 2015, lost nearly 1,000 agriculture jobs just last year as several berry ranches shuttered, said Gonzales said. Strawberries, the county’s leading crop in terms of value, produced $618 million in sales in 2015, $10 million less than the previous year. “The strawberry business is very competitive with the highest land values in the state, water getting costlier, labor getting costlier and scarce, more salt in ground water, and additional regulations prohibiting pesticide use within a quarter mile of schools and daycares,” Gonzales said. The closing of ranches reflects the berry market’s weakness in the county, and to an extent, other areas of the state, said Farm Bureau of Ventura County Chief Executive John Krist. Prices have been soft, production costs have risen and there’s increasing competition, he explained, as more California growers are expanding into Baja California in Mexico. Areas north of Ventura County where the strawberry harvest used to occur later are now selling their crop earlier, he added. “You make money having fruit in the market when none of those others are in,” Krist said. “This area is getting squeezed on both ends.” Reduced strawberry acreage has been the result, Krist added, and it’s down 30 percent over the last four or so years there. “People have been cutting back,” he said.

Featured Articles

Related Articles