The following analysis of the consolidated financial condition and results of
operations of Alexander & Baldwin, Inc. ("A&B" or the "Company") and its
subsidiaries should be read in conjunction with the condensed consolidated
financial statements and related notes thereto included in Item 1 of this Form
10-Q and the Company's Annual Report on Form 10-K for the year ended
December 31, 2020 ("2020 Form 10-K") filed with the U.S. Securities and Exchange
Commission ("SEC").
Throughout this quarterly report on Form 10-Q, references to "we," "our," "us"
and "our Company" refer to Alexander & Baldwin, Inc., together with its
consolidated subsidiaries.
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 2019 ("COVID-19") pandemic 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 by the Company's joint venture related
to the development of Kukui'ula, and the risk factors discussed in the Company's
most recent Form 10-K, Form 10-Q and other filings with the SEC. The information
in this Form 10-Q should be evaluated in light of these important risk factors.
We do not undertake any obligation to update the Company's forward-looking
statements.
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 March
31, 2021 as compared to the corresponding period of the preceding fiscal year.
•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 March 31, 2021 as compared to the corresponding period of the
preceding fiscal year.
•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 U.S. GAAP. It also describes why the Company believes that
presentation of the non-GAAP financial measure provides useful information to
investors regarding the Company's financial condition and results of operations
and, to the extent material, describes additional purposes for which the Company
uses the non-GAAP financial measures.
•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
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from the most recent fiscal period end) and in the long-term (i.e., beyond the
next twelve months) through internal and external sources of capital, as
compared to the end of preceding fiscal year ended December 31, 2020. It
includes an evaluation of the amounts and certainty of cash flows from
operations and from outside sources.
•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 December 31, 2020, the potential impact of recently
issued accounting pronouncements and other miscellaneous matters as needed.
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; Land Operations;
and Materials & Construction. A description of each of the Company's reporting
segments is as follows:
•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 citizens. 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 as Hawai'i's largest
asphalt paving contractor and is one of the state's largest natural materials
and infrastructure construction companies. Such activities are primarily
conducted through its wholly-owned subsidiary, Grace Pacific LLC ("Grace
Pacific"), a materials and construction company in Hawai'i.
Simplification strategy
As a result of its conversion to a REIT and consequent de-emphasis of non-REIT
operating businesses, the Company has established a strategy to simplify its
business, which includes ongoing efforts to accelerate the monetization of land
and related assets and also includes evaluating strategic options for the
eventual monetization of some or all of its Materials & Construction businesses.
Moreover, related to its unconsolidated equity method investments in joint
venture development projects at Kukui'ula, the Company continues its evaluation
of opportunities to monetize these investments or, in conjunction with the joint
venture partners, its evaluation of a range of alternative strategies to
accelerate the monetization of the land in the joint venture projects. Any
potential transaction related to either the investments or the assets within the
joint venture projects would be dependent upon a number of external factors that
may be beyond the Company's and/or joint venture projects' control, including,
among other factors, market conditions, industry trends and the interest of
third parties in the Kukui'ula development projects. 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 will result in the Company
being able to maintain the carrying value of the Kukui'ula joint venture
development projects.
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Termination of certain employee benefit plans
On February 23, 2021, the Company's Board of Directors approved a plan to effect
the termination of the A&B Retirement Plan for Salaried Employees of Alexander &
Baldwin, LLC and the Pension Plan for Employees of A&B Agricultural Companies
(collectively, the "Defined Benefit Plans"), to be effective May 31, 2021.
In addition, the Board of Directors authorized the Company to take the following
steps to prepare for the termination of the Defined Benefit Plans, which are
tax-qualified, including:
a.Prepare and execute any necessary amendments to the Defined Benefit Plans
and/or restatements regarding the termination of the Defined Benefit Plans,
including amending the Defined Benefit Plans to provide for a limited lump-sum
window for eligible participants;
b.Prepare and file an Application for Determination for Terminating Plan with
the Internal Revenue Service ("IRS") for a determination as to the tax-qualified
status of the Defined Benefit Plans at the time of termination; and
c.Prepare and file all appropriate notices and documents related to the
termination of the Defined Benefit Plans and wind-down with the Pension Benefit
Guaranty Corporation (the "PBGC"), the U.S. Department of Labor, the Internal
Revenue Service, the trustee and any other appropriate parties.
Except for retirees currently receiving payments under the Defined Benefit
Plans, participants will have the choice of receiving a single lump sum payment
or an annuity from a highly-rated insurance company that will pay and administer
future benefit payments. The amount of any lump sum payment will equal the
actuarial-equivalent present value of the participant's accrued benefit under
the applicable pension plan as of the distribution date. Annuity payments to
current retirees will continue under their current elections, but will be
administered by the selected insurance company.
In 2022, after receiving approval from the IRS and the PBGC and following
completion of the limited lump-sum offering, the Company expects to make an
additional cash contribution in order to fully fund the Defined Benefit Plans on
a plan termination basis, followed by the purchase of annuity contracts to
transfer its remaining liabilities under the Defined Benefit Plans. These
additional cash contributions are expected to range between $25 million and $40
million. However, the actual amount of this cash contribution requirement will
depend upon the nature and timing of participant settlements, interest rates, as
well as prevailing market conditions. In addition, the Company expects to
recognize non-cash pension settlement charges totaling between $80 million and
$90 million, related to actuarial losses currently in Accumulated other
comprehensive income (loss) in the consolidated balance sheets, upon settlement
of the obligations of the Defined Benefit Plans. These charges are currently
expected to occur in 2022, with the specific timing and final amounts dependent
upon completion of the activities enumerated above.
Coronavirus outbreak
In December 2019, COVID-19 was first reported in Wuhan, China, and on March 11,
2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19
pandemic has adversely impacted the global economy and has contributed to
significant volatility in financial markets. Considerable uncertainty continues
to surround COVID-19 and its effects on the population, as well as the
effectiveness of any responses taken by government authorities and the
availability and efficacy of vaccinations and therapeutic treatments for
COVID-19. The pandemic resulted in a significant decline in Hawai'i tourism and
an increase in business closures; it has significantly impacted the Company's
business due largely to the extreme hardships facing its retail tenants. 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 will largely depend on future developments, including the
duration and spread of the outbreak, the severity of economic disruptions and
resulting impact on economic growth/recession, the response by all levels of
government in their efforts to contain the outbreak and to mitigate the economic
disruptions, the impact on travel and tourism behavior and the impact on
consumer confidence and spending, all of which are highly uncertain and cannot
be reasonably predicted.
As of April 16, 2021, all of the Company's properties within its CRE portfolio
remain open and substantially all of its existing tenants remain open and
operating in some capacity. Further, as of this date, the CRE portfolio tenants
have paid approximately 87% of their first quarter billings (which includes base
rents and recoveries from tenants). Within this population, the Company's grocer
tenants (designated as essential businesses and located within its
grocery-anchored neighborhood shopping centers), have paid approximately 94% of
their first quarter billings.
As a result of COVID-19, certain tenants experiencing economic difficulties have
sought and may continue to seek current and future rent relief, which may be
provided in the form of rent deferrals, which has varied in terms of months
covered and the repayment period (e.g., repaid in 2020 or to be repaid over
2021) or other relief modifications, including modifying the
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nature of rent payments from fixed to variable (i.e., variable based on a
percentage of the tenant's sales, typically subject to a minimum "floor" amount)
or, in some cases, payment forgiveness.
As it pertains to rent deferrals, as of March 31, 2021, since the Company began
providing rent relief arrangements as a result of COVID-19, the Company has
agreed to rent deferrals with tenants which has impacted total billings of $7.1
million (net of amounts subsequently forgiven under other relief modifications)
and has subsequently collected $3.6 million of these amounts from tenants. The
remaining $3.5 million outstanding has been subject to the Company's ongoing
assessments of uncollectable tenant billings, pursuant to which the Company
records adjustments to revenue based on changes in the assessments during the
period (further described below).
During the three months ended March 31, 2021 and 2020, the reductions (or
increases) to revenue that the Company has recorded as result of other relief
modifications and other adjustments, as well as those recorded based on its
assessments of uncollectable tenant billings were as follows (in millions):

Three Months Ended March 31,


                                                                            2021                  2020
Other relief modifications and other adjustments1                    $

2.5 $ 0.1

Tenant collectability assessments and allowance for doubtful accounts Impact to billed accounts receivable

                                 $           1.3          $      0.7
Impact to straight-line lease receivables                                        0.3                (0.1)
Total revenue reductions (increases) - tenant collectability                     1.6                 0.6

assessments


Provision for allowance for doubtful accounts2                                   0.2                (0.1)
Total revenue reductions (increases) for assessments and             $           1.8          $      0.5
provisions

Total revenue reductions (increases) related to adjustments, $ 

      4.3          $      0.6
assessments and provisions
Total revenue reductions (increases) impacting billed accounts       $           4.0          $      0.7
receivable only3

1 Primarily related to COVID-19, but may include other adjustments (e.g., adjustments due to tenant
bankruptcies).
2 Related to other impacted operating lease receivables.
3 Excludes the impact to unbilled straight-line lease receivables.


The Company's financial results for the three months ended March 31, 2021 were
significantly impacted by the COVID-19 pandemic resulting in reductions in
operating profit and its non-GAAP performance measures. As such, the
comparability of the Company's results of operations for the three months ended
March 31, 2021 to future periods may be limited.
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