The following analysis of the consolidated financial condition and results of operations ofAlexander & 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 endedDecember 31, 2020 ("2020 Form 10-K") filed with theU.S. Securities and Exchange Commission ("SEC"). Throughout this quarterly report on Form 10-Q, references to "we," "our," "us" and "our Company" refer toAlexander & 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 theSEC . 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 endedMarch 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 endedMarch 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 withU.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 21 -------------------------------------------------------------------------------- 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 endedDecember 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 endedDecember 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. 22 -------------------------------------------------------------------------------- Termination of certain employee benefit plans OnFebruary 23, 2021 , the Company's Board of Directors approved a plan to effect the termination of the A&B Retirement Plan for Salaried Employees ofAlexander & Baldwin, LLC and the Pension Plan for Employees of A&B Agricultural Companies (collectively, the "Defined Benefit Plans"), to be effectiveMay 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 thePension Benefit Guaranty Corporation (the "PBGC"), theU.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 theIRS 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 InDecember 2019 , COVID-19 was first reported inWuhan, China , and onMarch 11, 2020 , theWorld 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 ofApril 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 23 -------------------------------------------------------------------------------- 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 ofMarch 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 endedMarch 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
2021 2020 Other relief modifications and other adjustments1 $
2.5
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 endedMarch 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 endedMarch 31, 2021 to future periods may be limited. 24
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