UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
ORFor the quarterly period ended June 30, 2020
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _________________
For the transition period from ______________________ to _________________
Commission file number 001-35492
ALEXANDER & BALDWIN, INC.
(Exact name of registrant as specified in its charter)
Hawaii45-4849780
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
P. O. Box 3440,
Honolulu,Hawaii
822 Bishop Street, Honolulu, Hawaii
96801
(Address of principal executive offices)
9680l
96813
(Zip Code)
(808) 525-6611
(Registrant’sRegistrant's telephone number, including area code)
N/A
(Former name, former address, and former
fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, without par valueALEXNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth companyo
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐No x☒
Number of shares of common stock outstanding as of SeptemberJune 30, 2017:     49,176,369
2020: 72,348,218

1

ALEXANDER & BALDWIN, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2020

TABLE OF CONTENTS

Page
PART I. FINANCIAL INFORMATION
Item 1.
1
Condensed Consolidated Balance Sheets - As of June 30, 2020 and December 31, 2019
1
Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 2020 and 2019
2
Condensed Consolidated Statements of Comprehensive Income (Loss) - Three and Six Months Ended June 30, 2020 and 2019
3
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2020 and 2019
4
Condensed Consolidated Statements of Equity - Three and Six Months Ended June 30, 2020 and 2019
6
8
Item 2.
24
Item 3.
43
Item 4.
43
PART II. OTHER INFORMATION
Item 1.
44
Item 1A.
44
Item 2.
45
Item 4.
45
Item 5.
45
Item 6.
47
48


1




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ALEXANDER & BALDWIN, INC.
Condensed Consolidated Statements of OperationsCONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)millions) (Unaudited)
 Quarter Ended September 30, Nine Months Ended September 30,
  
 2017 2016 2017 2016
Operating Revenue:       
Commercial Real Estate$33.9
 $32.7
 $101.4
 $102.0
Land Operations22.6
 18.1
 45.7
 29.6
Materials & Construction55.0
 52.1
 155.7
 144.7
Total operating revenue111.5
 102.9
 302.8
 276.3
Operating Costs and Expenses:       
Cost of Commercial Real Estate19.2
 19.3
 56.9
 60.1
Cost of Land Operations11.7
 6.9
 29.1
 17.6
Cost of Materials & Construction44.3
 41.0
 125.1
 114.9
Selling, general and administrative20.1
 14.7
 51.0
 42.6
REIT evaluation/conversion costs4.4
 1.9
 11.4
 3.8
Total operating costs and expenses99.7
 83.8
 273.5
 239.0
Operating Income11.8
 19.1
 29.3
 37.3
Other Income and (Expenses):       
Income related to joint ventures4.3
 0.1
 7.5
 3.5
Gain on the sale of improved property—
 0.1
 3.0
 8.1
Reductions in solar investments, net(0.4) (0.2) (2.6) (9.7)
Interest and other income, net1.5
 0.5
 3.7
 1.6
Interest expense(6.1) (6.4) (18.5) (20.1)
Total other income and (expenses)(0.7) (5.9) (6.9) (16.6)
Income from Continuing Operations Before Income Taxes11.1
 13.2
 22.4
 20.7
Income tax expense(3.7) (1.0) (6.4) (1.6)
Income from Continuing Operations7.4
 12.2
 16.0
 19.1
Income (loss) from discontinued operations, net of income taxes(0.8) (13.6) 2.4
 (28.1)
Net Income (Loss)6.6
 (1.4) 18.4
 (9.0)
Income attributable to noncontrolling interest(0.5) (0.5) (1.7) (1.1)
Net Income (Loss) Attributable to A&B Shareholders$6.1
 $(1.9) $16.7
 $(10.1)
        
Basic Earnings (Loss) Per Share of Common Stock: 
     
Continuing operations available to A&B shareholders$0.15

$0.25
 $0.32
 $0.39
Discontinued operations available to A&B shareholders(0.02)
(0.28) 0.04
 (0.58)
Net income (loss) available to A&B shareholders$0.13

$(0.03) $0.36
 $(0.19)
Diluted Earnings (Loss) Per Share of Common Stock: 
     
Continuing operations available to A&B shareholders$0.15

$0.24
 $0.31
 $0.38
Discontinued operations available to A&B shareholders(0.02)
(0.27) 0.05
 (0.57)
Net income (loss) available to A&B shareholders$0.13

$(0.03) $0.36
 $(0.19)




    
Weighted-Average Number of Shares Outstanding: 
     
Basic49.2

49.0
 49.1
 49.0
Diluted49.6

49.4
 49.6
 49.4
        
Amounts Available to A&B Shareholders (See Note 4):       
Continuing operations available to A&B shareholders, net of income taxes$7.4
 $12.1
 $15.5
 $18.9
Discontinued operations available to A&B shareholders, net of income taxes(0.8) (13.6) 2.4
 (28.1)
Net income (loss) available to A&B shareholders$6.6
 $(1.5) $17.9
 $(9.2)
        
Cash dividends per share$0.07
 $0.06
 $0.21
 $0.18
June 30,December 31,
20202019
ASSETS
Real estate investments
Real estate property$1,541.4  $1,540.2  
Accumulated depreciation(141.4) (127.5) 
Real estate property, net1,400.0  1,412.7  
Real estate developments77.9  79.1  
Investments in real estate joint ventures and partnerships132.8  133.4  
Real estate intangible assets, net67.9  74.9  
Real estate investments, net1,678.6  1,700.1  
Cash and cash equivalents96.2  15.2  
Restricted cash0.2  0.2  
Accounts receivable and retention, net of allowance for credit losses and allowance for doubtful accounts of $4.1 million and $0.4 million as of June 30, 2020 and December 31, 2019, respectively48.0  51.6  
Inventories20.2  20.7  
Other property, net119.8  124.4  
Operating lease right-of-use assets20.0  21.8  
Goodwill10.5  15.4  
Other receivables, net of allowance for credit losses and allowance for doubtful accounts of $4.3 million and $1.6 million as of June 30, 2020 and December 31, 2019, respectively14.0  27.8  
Prepaid expenses and other assets, net of allowance for credit losses and allowance for doubtful accounts of $0.1 million and $0 million as of June 30, 2020 and December 31, 2019, respectively98.7  107.1  
Total assets$2,106.2  $2,084.3  
LIABILITIES AND EQUITY
Liabilities:
Notes payable and other debt$768.6  $704.6  
Accounts payable12.4  17.8  
Operating lease liabilities19.8  21.6  
Accrued pension and post-retirement benefits26.9  26.8  
Indemnity holdbacks7.5  7.5  
Deferred revenue66.8  67.6  
Accrued and other liabilities93.4  103.4  
Total liabilities995.4  949.3  
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interest6.2  6.3  
Equity:
Common stock - no par value; authorized, 150 million shares; outstanding, 72.3 million shares at June 30, 2020 and December 31, 2019, respectively1,803.1  1,800.1  
Accumulated other comprehensive income (loss)(55.1) (48.8) 
Distributions in excess of accumulated earnings(643.4) (626.2) 
Total A&B shareholders' equity1,104.6  1,125.1  
Noncontrolling interest—  3.6  
Total equity1,104.6  1,128.7  
Total liabilities and equity$2,106.2  $2,084.3  
See Notes to Condensed Consolidated Financial Statements.

1



ALEXANDER & BALDWIN, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions)millions, except per share amounts) (Unaudited)

 Quarter Ended September 30, Nine Months Ended September 30,
  
 2017 2016 2017 2016
Net Income (Loss)$6.6
 $(1.4) $18.4
 $(9.0)
Other Comprehensive Income:       
Unrealized interest rate hedging (loss)(0.2) —
 (0.8) (2.8)
Reclassification adjustment for interest expense included in net income (loss)0.1
 0.2
 0.4
 0.2
Defined benefit pension plans:       
Amortization of prior service credit included in net periodic pension cost(0.2) (0.3) (0.7) (0.8)
Amortization of net loss included in net periodic pension cost1.0
 1.9
 3.3
 5.6
Settlement loss1.4
 —
 1.4
 —
Income taxes related to other comprehensive income(0.8) (0.8) (1.4) (0.7)
Other comprehensive income, net of tax1.3
 1.0
 2.2
 1.5
Comprehensive Income (Loss)7.9
 (0.4) 20.6
 (7.5)
Comprehensive income attributable to noncontrolling interest(0.5) (0.5) (1.7) (1.1)
Comprehensive Income (Loss) Attributable to A&B Shareholders$7.4
 $(0.9) $18.9
 $(8.6)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating Revenue:
Commercial Real Estate$34.0  $39.1  $77.4  $75.9  
Land Operations9.8  24.9  21.3  73.9  
Materials & Construction30.1  45.1  56.0  88.7  
Total operating revenue73.9  109.1  154.7  238.5  
Operating Costs and Expenses: 
Cost of Commercial Real Estate24.0  21.3  48.3  40.5  
Cost of Land Operations2.9  23.2  10.9  62.6  
Cost of Materials & Construction28.2  43.2  53.2  85.2  
Selling, general and administrative9.0  16.2  22.8  31.8  
Impairment of assets related to Materials & Construction5.6  —  5.6  —  
Total operating costs and expenses69.7  103.9  140.8  220.1  
Gain (loss) on the disposal of assets, net—  —  0.5  —  
Operating Income (Loss)4.2  5.2  14.4  18.4  
Other Income and (Expenses):
Income (loss) related to joint ventures(0.1) 1.0  3.1  3.7  
Interest and other income (expense), net (Note 2)(0.4) 0.6  (0.2) 2.2  
Interest expense(7.8) (8.1) (15.6) (17.2) 
Income (Loss) from Continuing Operations Before Income Taxes(4.1) (1.3) 1.7  7.1  
Income tax benefit (expense)—  —  —  1.1  
Income (Loss) from Continuing Operations(4.1) (1.3) 1.7  8.2  
Income (loss) from discontinued operations, net of income taxes(0.6) 0.1  (0.8) (0.7) 
Net Income (Loss)(4.7) (1.2) 0.9  7.5  
Loss (income) attributable to noncontrolling interest—  0.4  0.6  0.7  
Net Income (Loss) Attributable to A&B Shareholders$(4.7) $(0.8) $1.5  $8.2  
Earnings (Loss) Per Share Available to A&B Shareholders:
Basic Earnings (Loss) Per Share of Common Stock: 
Continuing operations available to A&B shareholders$(0.06) $(0.01) $0.03  $0.12  
Discontinued operations available to A&B shareholders(0.01) —  (0.01) (0.01) 
Net income (loss) available to A&B shareholders$(0.07) $(0.01) $0.02  $0.11  
Diluted Earnings (Loss) Per Share of Common Stock:
Continuing operations available to A&B shareholders$(0.06) $(0.01) $0.03  $0.12  
Discontinued operations available to A&B shareholders(0.01) —  (0.01) (0.01) 
Net income (loss) available to A&B shareholders$(0.07) $(0.01) $0.02  $0.11  
Weighted-Average Number of Shares Outstanding:
Basic72.372.2  72.372.1  
Diluted72.372.2  72.472.5  
Amounts Available to A&B Common Shareholders (Note 17):
Continuing operations available to A&B common shareholders$(4.1) $(0.9) $2.3  $8.9  
Discontinued operations available to A&B common shareholders(0.6) 0.1  (0.8) (0.7) 
Net income (loss) available to A&B common shareholders$(4.7) $(0.8) $1.5  $8.2  
See Notes to Condensed Consolidated Financial Statements.

2



ALEXANDER & BALDWIN, INC.
Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions) (Unaudited)
 September 30,
2017		 December 31, 2016
ASSETS   
Current Assets:   
Cash and cash equivalents$13.3
 $2.2
Accounts receivable, net34.2
 32.1
Contracts retention12.4
 13.1
Costs and estimated earnings in excess of billings on uncompleted contracts20.7
 16.4
Inventories30.1
 43.3
Real estate held for sale63.8
 1.0
Income tax receivable25.9
 10.6
Prepaid expenses and other assets39.4
 19.6
Total current assets239.8
 138.3
Investments in Affiliates402.0
 390.8
Real Estate Developments151.7
 179.5
Property – Net1,212.4
 1,231.6
Intangible Assets – Net48.7
 53.8
Goodwill102.3
 102.3
Other Assets51.4
 60.0
Total assets$2,208.3
 $2,156.3
    
LIABILITIES AND EQUITY   
Current Liabilities:   
Notes payable and current portion of long-term debt$41.6
 $42.4
Accounts payable36.0
 35.2
Billings in excess of costs and estimated earnings on uncompleted contracts2.6
 3.5
Accrued interest3.8
 6.3
Deferred revenue2.7
 17.6
Indemnity holdback related to Grace acquisition9.3
 9.3
HC&S cessation-related liabilities5.0
 19.1
Accrued and other liabilities28.6
 31.7
Total current liabilities129.6
 165.1
Long-term Liabilities:   
Long-term debt584.2
 472.7
Deferred income taxes202.5
 182.0
Accrued pension and post-retirement benefits16.7
 64.8
Other non-current liabilities41.4
 47.7
Total long-term liabilities844.8
 767.2
Total liabilities974.4
 932.3
Commitments and Contingencies
 
Redeemable Noncontrolling Interest10.8
 10.8
Equity:   
Common stock - no par value; authorized, 150 million shares; outstanding, 49.2 million and 49.0 million shares at September 30, 2017 and December 31, 2016, respectively1,160.5
 1,157.3
Accumulated other comprehensive loss(41.0) (43.2)
Retained earnings99.4
 95.2
Total A&B shareholders' equity1,218.9
 1,209.3
Noncontrolling interest4.2
 3.9
Total equity1,223.1
 1,213.2
Total liabilities and equity$2,208.3
 $2,156.3
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net Income (Loss)$(4.7) $(1.2) $0.9  $7.5  
Other Comprehensive Income (Loss), net of tax:
Cash flow hedges:
Unrealized interest rate hedging gain (loss)(0.7) (2.0) (7.6) (3.5) 
Impact of reclassification adjustment to interest expense included in Net Income (Loss)0.1  (0.2) 0.1  (0.3) 
Defined benefit plans:
Amortization of net loss included in net periodic benefit cost0.6  1.0  1.2  2.0  
Amortization of prior service credit included in net periodic benefit cost—  (0.2) —  (0.3) 
Income taxes related to other comprehensive income (loss)—  —  —  —  
Other comprehensive income (loss), net of tax—  (1.4) (6.3) (2.1) 
Comprehensive Income (Loss)(4.7) (2.6) (5.4) 5.4  
Comprehensive income (loss) attributable to noncontrolling interest—  0.4  0.6  0.7  
Comprehensive Income (Loss) Attributable to A&B Shareholders$(4.7) $(2.2) $(4.8) $6.1  
See Notes to Condensed Consolidated Financial Statements.

3



ALEXANDER & BALDWIN, INC.
Condensed Consolidated Statements of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) (Unaudited)
Six Months Ended June 30,
 20202019
Cash Flows from Operating Activities:
Net income (loss)$0.9  $7.5  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization27.4  23.4  
Loss (gain) from disposals and asset transactions, net(0.5) (2.5) 
Impairment of assets5.6  —  
Share-based compensation expense3.0  2.7  
(Income) loss from affiliates, net of distributions of income(2.9) (1.4) 
Changes in operating assets and liabilities:
Trade, contracts retention, and other contract receivables0.1  (11.0) 
Inventories0.3  (1.7) 
Prepaid expenses, income tax receivable and other assets14.3  31.4  
Development/other property inventory0.7  41.4  
Accrued pension and post-retirement benefits1.3  3.1  
Accounts payable(3.7) (10.4) 
Accrued and other liabilities(18.3) (1.4) 
Net cash provided by (used in) operations28.2  81.1  
Cash Flows from Investing Activities:  
Capital expenditures for acquisitions—  (218.4) 
Capital expenditures for property, plant and equipment(10.9) (27.4) 
Proceeds from disposal of property, investments and other assets9.4  3.0  
Payments for purchases of investments in affiliates and other investments—  (3.3) 
Distributions of capital from investments in affiliates and other investments5.3  10.6  
Net cash provided by (used in) investing activities3.8  (235.5) 
Cash Flows from Financing Activities:  
Proceeds from issuance of notes payable and other debt173.0  53.9  
Payments of notes payable and other debt and deferred financing costs(100.5) (109.2) 
Borrowings (payments) on line-of-credit agreement, net(8.7) 4.0  
Cash dividends paid(13.8) (22.4) 
Proceeds from issuance (repurchase) of capital stock and other, net(1.0) (1.1) 
Net cash provided by (used in) financing activities49.0  (74.8) 
Cash, Cash Equivalents and Restricted Cash  
Net increase (decrease) in cash, cash equivalents and restricted cash81.0  (229.2) 
Balance, beginning of period15.4  234.9  
Balance, end of period$96.4  $5.7  

4

 Nine Months Ended
 September 30,
 2017 2016
Cash Flows from Operating Activities:
 

Net income (loss)$18.4
 $(9.0)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:   
Depreciation and amortization31.4
 83.5
Deferred income taxes19.1
 (18.6)
Gains on asset transactions, net of asset write-downs(22.2) (7.6)
Share-based compensation expense3.4
 3.1
Investments in affiliates, net of distributions3.2
 0.2
Changes in operating assets and liabilities:   
Trade, contracts retention, and other receivables1.0
 (0.3)
Costs and estimated earnings in excess of billings on uncompleted contracts - net(5.2) (0.2)
Inventories13.2
 8.6
Prepaid expenses, income tax receivable and other assets(19.8) 4.8
Accrued pension and post-retirement benefits(48.0) 3.6
Accounts payable and contracts retention(3.0) (4.3)
Accrued and other liabilities(38.2) (7.5)
Real estate inventory sales (real estate developments held for sale)16.5
 2.8
Expenditures for real estate inventory (real estate developments held for sale)(15.0) (10.7)
Net cash provided by (used in) operations(45.2) 48.4
Cash Flows from Investing Activities:   
Capital expenditures for property, plant and equipment(33.7) (105.3)
Capital expenditures related to 1031 commercial property transactions—
 (6.2)
Proceeds from disposal of property and other assets9.8
 11.4
Proceeds from disposals related to 1031 commercial property transactions6.9
 59.3
Payments for purchases of investments in affiliates and other investments(31.5) (36.0)
Proceeds from investments in affiliates and other investments3.9
 6.0
Change in restricted cash associated with 1031 transactions6.6
 16.2
Net cash used in investing activities(38.0) (54.6)
Cash Flows from Financing Activities:   
Proceeds from issuance of long-term debt145.5
 222.0
Payments of long-term debt and deferred financing costs(46.4) (191.1)
Borrowings (payments) on line-of-credit agreement, net9.8

(11.8)
Distribution to noncontrolling interests(0.2) (0.5)
Dividends paid(10.3) (8.8)
Proceeds from issuance (repurchase) of capital stock and other, net(4.1) 0.9
Net cash provided by financing activities94.3
 10.7
Cash and Cash Equivalents:   
Net increase in cash and cash equivalents11.1
 4.5
  Balance, beginning of period2.2
 1.3
  Balance, end of period$13.3
 $5.8
    
Other Cash Flow Information:   
Interest paid, net of capitalized interest$(15.1) $(22.1)
Income taxes paid$(4.0) $—
Noncash Investing and Financing Activities:   
Uncollected proceeds from disposal of equipment$1.9
 $—
Capital expenditures included in accounts payable and accrued expenses$3.2
 $7.7
Other Cash Flow Information:
Interest paid, net of capitalized interest$(10.8) $(15.3) 
Income tax (payments)/refunds, net$0.5  $25.8  
Noncash Investing and Financing Activities:
Capital expenditures included in accounts payable and accrued and other liabilities3.0  3.1  
Receivable from disposal of a M&C subsidiary0.5  —  
Right-of-use ("ROU") assets and corresponding lease liability recorded upon ASC 842 adoption—  31.0  
Finance lease liabilities arising from obtaining ROU assets0.4  1.7  
Declared distribution to noncontrolling interest—  0.3  
Reconciliation of cash, cash equivalents and restricted cash:
Beginning of the period:
Cash and cash equivalents$15.2  $11.4  
Restricted cash0.2  223.5  
Cash, cash equivalents and restricted cash$15.4  $234.9  
End of the period:
Cash and cash equivalents$96.2  $5.5  
Restricted cash0.2  0.2  
Cash, cash equivalents and restricted cash$96.4  $5.7  
See Notes to Condensed Consolidated Financial Statements.

5
4



ALEXANDER & BALDWIN, INC.
Condensed Consolidated Statements of EquityCONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the nine months endedSeptemberSix Months Ended June 30, 20172020 and 20162019
(In millions) (Unaudited)
 Total Equity  
     Accumulated      Redeem-
  CommonOther      able
  StockCompre-  Non-   Non-
    StatedhensiveRetained Controlling   Controlling
  Shares Value Loss Earnings interest Total interest
Balance, January 1, 2016 48.9
 $1,151.7
 $(45.3) $117.2
 $3.5
 $1,227.1
 $11.6
Net income (loss) 

 

 

 (10.1) 0.2
 (9.9) 0.9
Other comprehensive income, net of tax 

 

 1.5
 

 
 1.5
 

Dividends paid on common stock ($0.18 per share) 

 

 

 (8.8) 
 (8.8) 

Distributions to noncontrolling interest 

 

 

 

 
 —
 (0.1)
Adjustments to redemption value of redeemable noncontrolling interest 

 

 

 0.8
 
 0.8
 (0.8)
Share-based compensation 

 3.1
 

 

 
 3.1
 

Shares issued or repurchased, net 0.1
 1.4
 

 (0.4) 
 1.0
 

Balance, September 30, 2016 49.0
 $1,156.2
 $(43.8) $98.7
 $3.7
 $1,214.8
 $11.6
 Total Equity  
     Accumulated      Redeem-
  CommonOther      able
  StockCompre-  Non-   Non-
    StatedhensiveRetained Controlling   Controlling
  Shares Value Loss Earnings interest Total interest
Balance, January 1, 2017 49.0
 $1,157.3
 $(43.2) $95.2
 $3.9
 $1,213.2
 $10.8
Net income 

 

 

 16.7
 0.5
 17.2
 1.2
Other comprehensive income, net of tax 

 

 2.2
 

 
 2.2
 

Dividends paid on common stock ($0.21 per share) 

 

 

 (10.3) 
 (10.3) 

Distributions to noncontrolling interest 

 

 

 

 (0.2) (0.2) 

Adjustments to redemption value of redeemable noncontrolling interest 

 

 

 1.2
 

 1.2
 (1.2)
Share-based compensation 

 3.4
 

 

 

 3.4
 

Shares issued or repurchased, net 0.2
 (0.2) 

 (3.4) 
 (3.6) 

Balance, September 30, 2017 49.2
 $1,160.5
 $(41.0) $99.4
 $4.2
 $1,223.1
 $10.8
Total Equity
Common StockAccumulated
Other
Compre-
hensive Income (Loss)		(Distribution
in Excess
of Accumulated Earnings)
Earnings Surplus		Non-Controlling
Interest		TotalRedeem-
able
Non-
Controlling
Interest
SharesStated Value
Balance, January 1, 201972.0  $1,793.4  $(51.9) $(538.9) $5.7  $1,208.3  $7.9  
Net income (loss)—  —  —  8.2  (0.7) 7.5  —  
Other comprehensive income (loss), net of tax—  —  (2.1) —  —  (2.1) —  
Dividend on common stock ($0.31 per share)—  —  —  (22.4) —  (22.4) —  
Distributions to noncontrolling interest—  —  —  —  (0.3) (0.3) —  
Share-based compensation—  2.7  —  —  —  2.7  —  
Shares issued or repurchased, net0.2  (0.2) —  (0.9) —  (1.1) —  
Balance, June 30, 201972.2  $1,795.9  $(54.0) $(554.0) $4.7  $1,192.6  $7.9  
Total Equity
Common StockAccumulated
Other
Compre-
hensive Income (Loss)		(Distribution
in Excess
of Accumulated Earnings)
Earnings Surplus		Non-Controlling
Interest		TotalRedeem-
able
Non-
Controlling
Interest
SharesStated Value
Balance, January 1, 202072.3  $1,800.1  $(48.8) $(626.2) $3.6  $1,128.7  $6.3  
Cumulative impact of adoption of ASC 326—  —  —  (4.0) (0.1) (4.1) —  
Net income (loss)—  —  —  1.5  (0.5) 1.0  (0.1) 
Other comprehensive income (loss), net of tax—  —  (6.3) —  —  (6.3) —  
Dividend on common stock ($0.19 per share)—  —  —  (13.8) —  (13.8) —  
Disposal of M&C subsidiary—  —  —  —  (3.0) (3.0) —  
Share-based compensation—  3.0  —  —  —  3.0  —  
Shares issued or repurchased, net—  —  —  (0.9) —  (0.9) —  
Balance, June 30, 202072.3  $1,803.1  $(55.1) $(643.4) $—  $1,104.6  $6.2  
See Notes to Condensed Consolidated Financial Statements.Statements


5
6


ALEXANDER & BALDWIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended June 30, 2020 and 2019
(In millions) (Unaudited)
Total Equity
Common StockAccumulated
Other
Compre-
hensive Income (Loss)		(Distribution
in Excess
of Accumulated Earnings)
Earnings Surplus		Non-Controlling
Interest		TotalRedeem-
able
Non-
Controlling
Interest
SharesStated Value
Balance, April 1, 201972.1  $1,794.0  $(52.6) $(541.3) $5.4  $1,205.5  $7.9  
Net income (loss)—  —  —  (0.8) (0.4) (1.2) —  
Other comprehensive income (loss), net of tax—  —  (1.4) —  —  (1.4) —  
Dividend on common stock ($0.165 per share)—  —  —  (11.9) —  (11.9) —  
Distributions to noncontrolling interest—  —  —  —  (0.3) (0.3) —  
Share-based compensation—  1.3  —  —  —  1.3  —  
Shares issued or repurchased, net0.1  0.6  —  —  —  0.6  —  
Balance, June 30, 201972.2  $1,795.9  $(54.0) $(554.0) $4.7  $1,192.6  $7.9  
Total Equity
Common StockAccumulated
Other
Compre-
hensive Income (Loss)		(Distribution
in Excess
of Accumulated Earnings)
Earnings Surplus		Non-Controlling
Interest		TotalRedeem-
able
Non-
Controlling
Interest
SharesStated Value
Balance, April 1, 202072.3  $1,801.6  $(55.1) $(638.7) $3.0  $1,110.8  $6.2  
Net income (loss)—  —  —  (4.7) —  (4.7) —  
Disposal of M&C subsidiary—  —  —  —  (3.0) (3.0) —  
Share-based compensation—  1.5  —  —  —  1.5  —  
Balance, June 30, 202072.3  $1,803.1  $(55.1) $(643.4) $—  $1,104.6  $6.2  
See Notes to Condensed Consolidated Financial Statements



7


Alexander & Baldwin, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.DESCRIPTION OF BUSINESS
Business Overview
1. BACKGROUND AND BASIS OF PRESENTATION
Description of Business:Alexander & Baldwin, Inc. ("A&B" or the "Company") is headquartered in Honolulu and operates three segments: Commercial Real Estate (formerly Leasing); Land Operations (formerly Real Estate Development and Sales and Agribusiness); and Materials & Construction.
On July 10, 2017, the Company’s board of directors unanimously approved a plan for the Company to be subject to tax as a real estate investment trust (a “REIT”("REIT") for U.S. federal income tax purposes commencing with the Company’s taxable year ending December 31, 2017 (the “REIT Election”headquartered in Honolulu, Hawai‘i. The Company operates in 3 segments: Commercial Real Estate ("CRE"); Land Operations; and Materials & Construction ("M&C").
Although  As of June 30, 2020, the Company began operatingowns a portfolio of commercial real estate improved properties in compliance with the requirements for qualificationHawai‘i consisting of 22 retail centers, 10 industrial assets and taxation4 office properties, representing a total of 3.9 million square feet of gross leasable area; it also owns a portfolio of ground leases in Hawai‘i representing 153.8 acres as a REIT (the “REIT requirements”) for the taxable year ending December 31, 2017, the Company intendsof June 30, 2020. Throughout this quarterly report on Form 10-Q, references to complete a merger that will facilitate the Company’s ongoing compliance with the REIT requirements by ensuring that certain standard REIT ownership limitations"we," "our," "us" and transfer restrictions apply"our Company" refer to the Company’s capital stock.
Pursuant to the merger agreement entered into on July 10, 2017 among the Company, Alexander & Baldwin, REIT Holdings, Inc., a Hawaii corporation and a direct, wholly owned subsidiarytogether with its consolidated subsidiaries.
Basis of the Company (“A&B REIT Holdings”), and A&B REIT Merger Corporation, a Hawaii corporation and a direct, wholly owned subsidiary of A&B REIT Holdings (“Merger Sub”), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation. As a result of the merger, A&B REIT Holdings will replace the Company as the Hawaii-based, publicly held corporation through which the Company’s operations are now conducted, and promptly following the merger A&B REIT Holdings will be renamed “Alexander & Baldwin, Inc.”
During the third quarter of 2017, A&B REIT Holdings filed a registration statement on Form S-4 with the Securities and Exchange Commission (“SEC”), which included a preliminary proxy statement/prospectus that provides information regarding the REIT Election, the proposed merger and the special meeting at which the Company’s shareholders were given the opportunity to vote on the holding company merger proposal. The special meeting was held on October 27, 2017, during which A&B shareholders approved the holding company merger proposal pursuant to the registration statement.

Business Segments
Commercial Real Estate: The Commercial Real Estate segment owns, operates and manages retail, office and industrial properties in Hawaii and on the mainland. The Commercial Real Estate segment also leases urban land in Hawaii to third-party lessees.
Land Operations: Primary activities of the Land Operations segment include planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; renewable energy; and diversified agribusiness activities. The Land Operations segment also provides general trucking services, equipment maintenance and repair services, and generates and sells electricity to the extent not used elsewhere in the Company's operations. In December 2016, the Company's sugar plantation on Maui, Hawaiian Commercial & Sugar Company ("HC&S") completed its final harvest and ceased operations (the "Cessation"). See Note 14, "Cessation of Sugar Operations" for further discussion regarding the Cessation and the related costs associated with such exit and disposal activities.
Materials & Construction: The Materials & Construction segment, which primarily includes the results of Grace Pacific ("Grace"), performs asphalt paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells rock and sand aggregate; produces and sells asphaltic concrete and ready-mix concrete; provides and sells various construction- and traffic-control-related products; and manufactures and sells precast concrete products.

6


2.BASIS OF PRESENTATION
Presentation: The interim condensed consolidated financial statements are unaudited. Because of the nature of the Company’sCompany's operations, the results for interim periods are not necessarily indicative of results to be expected for the year. While these condensed consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the consolidated balance sheets as of December 31, 20162019 and 2015,2018, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 20162019, 2018 and 2017, respectively, and the notes thereto included in the Company’sCompany's Annual Report filed on Form 10-K for the year ended December 31, 20162019 ("20162019 Form 10-K"), and other subsequent filings with the U.S. Securities and Exchange Commission.Commission ("SEC").
Reclassifications: Prior year financial statement amounts are reclassified as necessary to conform to the current year presentation, including presentation of results of discontinued operations and reportable operating segments. There was no impact on net income, retained earnings or cash flows as a result of the reclassifications. See Note 17 "Discontinued Operations" and Note 18 "Segment Results" in the accompanying condensed consolidated financial statements for additional information.
Rounding: Amounts in the condensed consolidated financial statements and notes are rounded to the nearest tenth of a million. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different.result in differences.
New Accounting Pronouncements:
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in Item 8 of the Company's 2019 Form 10-K. Changes to significant accounting policies are included herein.
In May 2014,April 2020, the Financial Accounting Standards Board (FASB)("FASB") staff issued a question-and-answer document focusing on lease concessions related to the effects of the 2019 coronavirus pandemic ("COVID-19") and the application of lease accounting guidance related to modifications (the "Lease Modification Q&A"). See Note 12 to the consolidated financial statements for further discussion on the impact of applicable rent relief provided (in the form of rent deferrals) during the quarter ended June 30, 2020 under the Lease Modification Q&A.
Recently adopted accounting pronouncements
In June 2016, the FASB issued Accounting Standards Update (ASU)("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606)2016-13, Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), (“which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost and available for sale debt securities, and amended the guidance thereafter. The guidance in ASU 2014-09”) which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters2016-13 and related amendments was codified into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. ASU 2014-09 will supersede the revenue recognition requirements in FASB Accounting Standards Codification Topic 605, Revenue Recognition326, Financial Instruments - Credit Losses ("ASC 326"). ASC 326 amended prior guidance on the impairment of financial instruments by adding an impairment model based on expected losses rather than incurred losses that would be recognized through an allowance for credit losses. Amendments included in ASC 326 further clarified that operating lease receivables are not within the scope of ASC 326 and are to remain governed by lease guidance.
The Company completed its adoption of the provisions of ASU 2016-13, as amended, with an effective date of January 1, 2020, using a modified retrospective approach for its financial assets in the scope of ASC 326, which consisted of in-scope financial assets held at amortized cost (presented as part of the Company's accounts and most industry-specific guidance. Under ASU 2014-09, revenueretention receivables, other receivables and other contract assets). As a result of the guidance, the Company is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expectsrequired to estimate and record non-cash credit losses related to these financial assets and expand its credit quality disclosures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be entitledreported in accordance with previously applicable guidance. The Company recorded a net increase of $4.0 million to Distributions in exchange for those goods or services. ASU 2014-09 provides a five-step analysisexcess of transactions to determine when and how revenue is recognized including (i) identify the contract(s)accumulated earnings as of January 1, 2020, with a customer, (ii) identifycorresponding increase to previously recorded valuation accounts for its financial assets held at amortized cost for the performance obligations cumulative effect of adopting ASC 326. The new standard did not have a material impact to any of the Company's other financial assets or instruments presented on its condensed consolidated balance sheet.
8

The following table illustrates the impact of the Company's adoption of ASC 326 (in millions):
January 1, 2020
As Reported under ASC 326Prior to ASC 326 AdoptionImpact of ASC 326 Adoption
Assets:
Allowance for credit losses on Accounts receivable and retention$1.6  $0.3  $1.3  
Allowance for credit losses on Other receivables4.2  1.6  2.6  
Allowance for credit losses on costs and estimated earnings in excess of billings on uncompleted contracts1
0.1  —  0.1  
Total$5.9  $1.9  $4.0  
1 Included in Prepaid expenses and other assets in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. In addition, ASU 2014-09 requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.condensed consolidated balance sheets.
In August 2015,2018, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of2018-13, Changes to the Effective Date, deferringDisclosure Requirements for Fair Value Measurement. The guidance amends and removes several disclosure requirements, including the effective date of this standard. As a result,valuation processes for Level 3 fair value measurements. This ASU 2014-09also modifies some disclosure requirements and related amendments will be effectiverequires additional disclosures for the Companychanges in unrealized gains and losses included in other comprehensive income for its fiscal year beginning January 1, 2018, including interim periods within that fiscal year. Early adoption is permitted, but not before August 1, 2017, the original effective date of ASU 2014-09.
In March, April, May,recurring Level 3 fair value measurements and December 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal Versus Agent Consideration (Reporting Revenue Gross Versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively (collectively, the “Amendments”). The Amendments serve to clarify certain aspects of and have the same effective date as ASU 2014-09.
The Company is completing its evaluation of the impact of adopting ASU 2014-09 and the related Amendments (collectively, “Topic 606”) on its consolidated financial statements and disclosures, internal controls and accounting policies. Topic 606 permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the “Modified Retrospective Method”). The Company will adopt Topic 606 on January 1, 2018 and intends to apply the Modified Retrospective Method of transition. The Company expects to provide expanded disclosures regarding our revenues from contracts with customers. The Company will continue to monitor and assess the impact of changes to Topic 606 and interpretations as they become available.

7


In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the identificationrange and weighted average of arrangements that should be accounted for as leases by lessees. In general, lease arrangements exceeding a twelve month term must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. In addition, ASU 2016-02 requires the use of the modified retrospective method, which will require adjustmentsignificant unobservable inputs used to all comparative periods presented in the consolidated financial statements. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) ("ASU 2016-15"). ASU 2016-15 is an update that addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of cash receipts and cash payments presentation and classification in the statement of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU 2016-18 will require entities to show the changes on the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between these items on the statement of cash flows. The guidance will be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting standard on the Company’s consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business ("ASU 2017-01"). ASU 2017-01 provides guidance regarding the definition of a business with the objective of providing guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. ASU 2017-01 should be applied prospectively and early adoption is permitted. The new guidance will result in many real estate transactions being classified as an asset acquisition and transaction costs being capitalized. The Company elected to early adopt FASB ASU No. 2017-01 in the second quarter of fiscal year 2017.develop Level 3 fair value measurements. The adoption of this standard did not have a material impact on the Company’sCompany's condensed consolidated financial statements or footnote disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The adoption of this standard did not have a material impact on the Company's financial position or results of operation.operations.

Reclassifications
In January 2017,conjunction with its adoption of ASC 326, during the first quarter of 2020, the Company made certain immaterial reclassifications to its consolidated balance sheet to present interest receivables in the same line as the related financing receivables (affecting Accounts receivable, net and Other receivables). Additionally, the Company aggregated Accounts receivable, net and Contracts retention into a single line item in the accompanying condensed consolidated balance sheets (refer to Note 11 where such balances will continue to be presented separately).
Recently issued accounting pronouncements
In August 2018, the FASB issued ASU No. 2017-04, Simplifying2018-14, Changes to the TestDisclosure Requirements for Goodwill Impairment ("Defined Benefit Plans. The guidance clarifies current disclosures and removes several disclosure requirements including accumulated other comprehensive income expected to be recognized over the next fiscal year and amount and timing of plan assets expected to be returned to the employer. This ASU 2017-04").also requires additional disclosures as well as explanations for significant gains and losses related to changes in the benefit plan obligation. This ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for fiscal years or interim periods beginning after December 15, 2019. ASU 2017-04 should be applied prospectively and early adoption is permitted.2020. The Company is currently assessing the impact that adopting this new accounting standard will have on its condensed consolidated financial statements and footnote disclosures.

In March 2017,2020, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost2020-04, Reference Rate Reform. The new guidance provides practical expedients and Net Periodic Postretirement Benefit Cost ("ASU 2017-07"). ASU 2017-07 providesexceptions for reference rate reform related activities that entities will present the service cost component of net periodic benefit cost in the same income statement line item(s) asimpact debt, leases, derivatives and other employee compensation costs arising from services rendered during the period. Only the service cost component willcontracts if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be eligible for capitalization in assets. In addition, entities will present the other components of net periodic benefit cost separately from the line item(s) that includes the service costdiscontinued due to reference rate reform. These amendments are effective immediately and outside of any subtotal of operating income, if one is presented. These components will notmay be eligible for capitalization in assets. ASU 2017-07 is effective for fiscal yearsapplied prospectively to contract modifications made and hedging relationships entered into or interim periods beginning afterevaluated on or before December 15, 2017 and early adoption is permitted.31, 2022. The Company is currently assessing its contracts and the impact that adopting thisoptional expedients provided by the new accounting standard will have onstandard.
9

Allowance for Credit Losses
The Company estimates its allowance for credit losses for financial assets within the scope of ASC 326 at portfolio levels which include the CRE segment, the Land Operations segment and individual components of the M&C segment (e.g., "GPC," "GPRS," further described in Note 1 to the consolidated financial statements included in Item 8 of the Company's 2019 Form 10-K). Within these portfolio levels, the Company develops expected credit loss estimates by security type (which may include financing receivables or contract assets recognized in contracts with customers) by factoring historical loss information; information on both current conditions and footnote disclosures.reasonable and supportable forecasts of future conditions that may not be reflected in historical loss information; and other relevant credit quality information for the respective securities. As part of this process, the Company analyzes relevant information on a collective (pool) basis for securities with similar risk characteristics or separately on an individual basis when a financial asset does not share risk characteristics with other financial assets.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies when changesThe portfolios relating to the terms or conditionsCRE and Land Operations segments are primarily composed of a shared-based payment award must be accounted for as modifications. Entities will applyfinancing receivables (i.e., notes receivable) generally related to historical development and other land-related transactions. The assets in these portfolios are analyzed on an individual basis, in which the modification accounting guidance ifCompany considers certain, available information specific to the value, vesting conditions or classificationcounterparties to the transactions (e.g., liquidity and solvency of the award changes. ASU 2017-09 is effective for financial statements issued for fiscal years beginning after December 15, 2017counterparties) and early adoption is permitted. The Company is currently assessing the impactenvironmental factors that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.

8



In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.”This ASU eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire changeare relevant in the fair valueassessment of a hedging instrument to be presentedthe expected collectability of the future cash flows for these assets (e.g., changes and expected changes in the same income statement linegeneral economic environment in which the counterparty operates). For these assets, the Company uses a discounted cash flow method to calculate the allowance for credit losses using the asset's effective interest rate.
The portfolios relating to the M&C segment represent discrete business components and are composed of contract assets from its contracts with customers. The differing nature of the products and services provided by these components drive differences in historical and expected credit loss patterns and, as such, the Company tracks historical loss information at this portfolio level as part of information it uses to develop its estimate of expected credit losses. Further, as the hedged item. This ASU is effectiveCompany believes its contract assets have different default risk expectations based on customer/project type, in addition to the historical loss information at the portfolio level, the Company also pools the respective portfolio's contract receivables by these different categories to make adjustments to its historical loss experience. Other information the Company analyzes and uses in its development of its allowance for fiscal years beginning after December 15, 2018,credit losses include known customer information and interim periods within those fiscal years. Early application is permitted. The Company is currently evaluatingenvironmental factors surrounding the impact of this ASU.customers' current and future ability to pay (i.e., changes and expected changes in the general economic environment in which the customers operate).

Interest and other income (expense), net
3.COMMITMENTS AND CONTINGENCIES
Commitments, GuaranteesInterest and Contingencies:  Commitmentsother income (expense),net for the three and financial arrangements not recorded on the Company's condensed consolidated balance sheet, excluding lease commitments that are disclosed in Note 9 of the Company’s 2016 Form 10-K,six months ended June 30, 2020 and 2019 included the following (in millions) as of September 30, 2017::
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Interest income$0.2  $1.8  $0.8  $2.0  
Pension and postretirement benefit (expense)(0.6) (1.1) (1.3) (2.3) 
Gain (loss) on sale of joint venture interest—  —  —  2.6  
Other income (expense), net—  (0.1) 0.3  (0.1) 
Interest and other income (expense), net(0.4) $0.6  (0.2) $2.2  

Standby letters of credit(a)
$11.8
Bonds(b)
$409.7
(a) Consists of standby letters of credit, issued by the Company’s lenders under the Company’s revolving credit facilities, and relate primarily to the Company’s real estate activities. In the event the letters of credit are drawn upon, the Company would be obligated to reimburse the issuer of the letter of credit. None of the letters of credit have been drawn upon to date.
(b) Represents bonds related to construction and real estate activities in Hawaii. Approximately$387.1 million is related to construction bonds issued by third party sureties (bid, performance and payment bonds) and the remainder is related to commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). In the event the bonds are drawn upon, the Company would be obligated to reimburse the surety that issued the bond. None of the bonds has been drawn upon to date.
Indemnity Agreements: For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of work completed to date. The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.3. REAL ESTATE ASSET ACQUISITIONS
The Company is a guarantor of indebtedness for certain of its unconsolidated joint ventures' borrowings with third party lenders, relating todid not execute any acquisitions during the repayment of construction loans and performance of construction forsix months ended June 30, 2020. During the underlying project. As of September 30, 2017, the Company's limited guarantees on indebtedness related to five of its unconsolidated joint ventures totaled $6.1 million. The Company has not incurred any significant historical losses related to guarantees on its joint venture indebtedness.
Other than the obligations described above and those described in the Company's 2016 Form 10-K, obligations of the Company’s non-consolidated joint ventures do not have recourse toyear ended December 31, 2019, the Company and the Company’s "at-risk" amounts are limited to its investment.
Legal Proceedings and Other Contingencies: A&B owns 16,000 acres of watershed lands in East Maui. A&B also held four water licenses to another 30,000 acres owned by the State of Hawaii in East Maui. The last of these water license agreements expired in 1986, and all four agreements were then extended as revocable permits that were renewed annually. In 2001, a request was made to the State Board of Land and Natural Resources (the "BLNR") to replace these revocable permits with a long-term water lease. Pending the conclusion by the BLNR of this contested case hearing on the requestacquired 5 commercial real estate assets for the long-term lease, the BLNR has kept the existing permits on a holdover basis. Three parties filed a lawsuit on April 10, 2015 (the "4/10/15 Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit asks the court to void the revocable permits and to declare that the renewals were illegally issued without preparation of an environmental assessment ("EA"). In December 2015, the BLNR decided to reaffirm its prior decisions to keep the permits in holdover status. This decision by the BLNR is being challenged by the three parties. In January 2016, the court ruled in the 4/10/15 Lawsuit that the renewals were not subject to the EA requirement, but that the BLNR lacked legal authority to keep the revocable permits in holdover status beyond one year. The court has allowed the parties to make an immediate appeal of this ruling. In May 2016, the Hawaii State Legislature passed House Bill 2501, which specified that the BLNR has the legal authority to issue holdover revocable permits for the disposition of water rights for a period not to

$218.4 million.
9
10



exceed three years. The governor signed this bill into law as Act 126 in June 2016. Pursuant to Act 126, the first annual authorization of the existing holdover permits was sought and granted by the BLNR in December 2016.
In addition, on May 24, 2001, petitions were filed by a third party, requesting that the Commission on Water Resource Management of the State of Hawaii ("Water Commission") establish interim instream flow standards ("IIFS") in 27 East Maui streams that feed the Company's irrigation system. The Water Commission initially took action on the petitions in 2008 and 2010, but the petitioners requested a contested case hearing to challenge the Water Commission's decisions on certain petitions. The Water Commission denied the contested case hearing request, but the petitioners successfully appealed the denial to the Hawaii Intermediate Court of Appeals, which ordered the Water Commission to grant the request. The Commission then authorized the appointment of a hearings officer for the contested case hearing and expanded the scope of the contested case hearing to encompass all 27 petitions for amendment of the IIFS for East Maui streams in 23 hydrologic units. The evidentiary phase of the hearing before the Commission-appointed hearings officer was completed on April 2, 2015. On January 15, 2016, the Commission-appointed hearings officer issued his recommended decision on the petitions. The recommended decision would restore water to streams in 11 of the 23 hydrologic units. In March 2016, the hearings officer ordered a reopening of the contested case proceedings in light of the Company’s January 2016 announcement to cease sugar operations at HC&S by the end of the year and to transition to a new diversified agricultural model on the former sugar lands. In April 2016, the Company announced its commitment to fully and permanently restore the priority taro streams identified by the petitioners. Re-opened evidentiary hearings occurred in the first quarter of 2017 and a decision is pending. In August 2017, the hearings officer in the reopened evidentiary hearing issued his proposed decision. The Commission heard arguments on the proposed decision in October 2017.
HC&S also used water from four streams in Central Maui ("Na Wai Eha") to irrigate its agricultural lands in Central Maui.  Beginning in 2004, the Water Commission began proceedings to establish IIFS for the Na Wai Eha streams. Before the IIFS proceedings were concluded, the Water Commission designated Na Wai Eha as a surface water management area, meaning that all uses of water from these streams required water use permits issued by the Water Commission. Following contested case proceedings, the Water Commission established IIFS in 2010, but that decision was appealed, and the Hawaii Supreme Court remanded the case to the Water Commission for further proceedings. The parties to the IIFS contested case settled the case in 2014. Thereafter, proceedings for the issuance of water use permits commenced with over 100 applicants, including HC&S, vying for permits. While the water use permit proceedings were ongoing, A&B announced the cessation of sugar cane cultivation at the end of 2016.  This announcement triggered a re-opening and reconsideration of the 2014 IIFS decision. Reconsideration of the IIFS is taking place simultaneously with consideration of the applications for water use permits.
If the Company is not permitted to use sufficient quantities of stream waters, it would have a material adverse effect on the Company’s pursuit of a diversified agribusiness model in subsequent years and the value of the Company’s agricultural lands.
A&B is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of its businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have a material effect on A&B’s condensed consolidated financial statements as a whole.

10


4.EARNINGS PER SHARE ("EPS")
The following table provides a reconciliation of income from continuing operations to income from continuing operations available to A&B shareholders (in millions):
 Quarter Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Income from continuing operations$7.4
 $12.2
 $16.0
 $19.1
Less: Income attributable to noncontrolling interest(0.5) (0.5) (1.7) (1.1)
Income from continuing operations attributable to A&B shareholders, net of income taxes6.9
 11.7
 14.3
 18.0
Undistributed earnings allocated to redeemable noncontrolling interest0.5
 0.4
 1.2
 0.9
Income from continuing operations available to A&B shareholders, net of income taxes7.4
 12.1
 15.5
 18.9
Income (loss) from discontinued operations available to A&B shareholders, net of income taxes(0.8) (13.6) 2.4
 (28.1)
Net income (loss) available to A&B shareholders$6.6
 $(1.5) $17.9
 $(9.2)
The number of shares used to compute basic and diluted earnings per share is as follows (in millions):
 Quarter Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Denominator for basic EPS – weighted-average shares outstanding49.2
 49.0
 49.1
 49.0
Effect of dilutive securities: 
  
    
Non-participating stock options and restricted stock unit awards0.4
 0.4
 0.5
 0.4
Denominator for diluted EPS – weighted-average shares outstanding49.6
 49.4
 49.6
 49.4
Basic earnings per share is computed by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued. Potentially dilutive shares of common stock include non-qualified stock options and restricted stock units.
There were no anti-dilutive securities outstanding during the quarter and nine months ended September 30, 2017. During the quarter and nine months ended September 30, 2016, anti-dilutive securities totaled 0.4 million shares.
5.FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of receivables and short-term borrowings approximate their carrying values due to the short-term nature of the instruments. The Company’s cash and cash equivalents, consisting principally of cash on deposit, may from time to time include short-term money market funds. The fair values of these money market funds, based on market prices (Level 2), approximate their carrying values due to their short-maturities. The carrying amount and fair value of the Company’s long-term debt at September 30, 2017 was $625.8 million and $642.0 million, respectively, and $515.1 million and $529.3 million at December 31, 2016, respectively. The fair value of long-term debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company’s existing debt arrangements (Level 2).

11


6.INVENTORIES
Materials & Construction segment inventory, including materials and supplies, are stated at the lower of cost (principally average cost, first-in, first-out basis) or market value. Sugar inventories are stated at the lower of cost (first-in, first-out basis) or market value.
Inventories at September 30, 2017 and December 31, 2016 were as follows (in millions):
 September 30, 2017 December 31, 2016
Sugar inventories$—
 $17.5
Asphalt10.1
 7.4
Processed rock, Portland cement, and sand13.3
 12.6
Work in progress3.1
 3.0
Construction-related retail merchandise2.0
 1.7
Parts, materials and supplies inventories1.6
 1.1
Total$30.1
 $43.3

7.SHARE-BASED PAYMENT AWARDS
The time-based restricted stock units vest ratably over 3 years and the performance share units cliff vest over 3 years, provided that the total shareholder return of the Company’s common stock over the relevant period meets or exceeds pre-defined levels of relative total shareholder returns of the Standard & Poor’s MidCap 400 Index and the Dow Jones U.S. Real Estate Index.

The following table summarizes the Company's stock option activity during 2017 (in thousands, except weighted average exercise price and weighted average contractual life):
 2012 Plan Weighted-
Average
Exercise
Price		 Weighted-
Average
Contractual
Life		 Aggregate
Intrinsic
Value
Outstanding, January 1, 2017903.5
 $17.78
    
Exercised(230.9) $16.45
    
Outstanding, September 30, 2017672.6
 $18.24
 3.0 years $18,947
Vested or expected to vest672.6
 $18.24
 3.0 years $18,947
Exercisable, September 30, 2017672.6
 $18.24
 3.0 years $18,947
The following table summarizes 2017 non-vested restricted stock unit activity (in thousands, except weighted-average grant-date fair value amounts):
 2012 Plan
Restricted
Stock Units
Weighted-
Average
Grant-date
Fair Value
Outstanding, January 1, 2017293.5
 $33.81
Granted139.1
 $37.41
Vested(96.3) $37.20
Canceled(17.4) $35.03
Outstanding, September 30, 2017318.9
 $34.29

12


The fair value of the Company’s time-based awards is determined using the Company's stock price on the date of grant. The fair value of the Company's market-based awards is estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted-average assumptions:
 2017 Grants 2016 Grants
Volatility of A&B common stock24.1% 26.3%
Average volatility of peer companies25.6% 27.7%
Risk-free interest rate1.6% 1.1%
A summary of compensation cost related to share-based payments is as follows (in millions):
 Quarter Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Share-based expense:       
Time-based and market-based restricted stock units$1.2
 $1.0
 $3.4
 $3.1
Total recognized tax benefit(0.5) (0.5) (1.3) (1.1)
Share-based expense (net of tax)$0.7
 $0.5
 $2.1
 $2.0
8.RELATED PARTY TRANSACTIONS
Construction Contracts and Material Sales. The Company entered into contracts in the ordinary course of business, as a supplier, with affiliates that are members in entities in which the Company also is a member. Revenues earned from transactions with affiliates totaled approximately $5.5 million and $1.8 million for the quarters ended September 30, 2017 and 2016, respectively. Revenues earned from transactions with affiliates totaled approximately $15.4 million and $6.0 million for the nine months ended September 30, 2017 and 2016, respectively. Receivables from these affiliates were $4.0 million and $2.1 million at September 30, 2017 and December 31, 2016, respectively. Amounts due to these affiliates were $0.5 million and $0.2 million at September 30, 2017 and December 31, 2016, respectively.
Commercial Real Estate. The Company entered into contracts in the ordinary course of business, as a lessor of property, with unconsolidated affiliates in which the Company has an interest, as well as with certain entities that are owned by a director of the Company. Revenues earned from these transactions were $1.4 million and $4.0 million for the quarter and nine months ended September 30, 2017, respectively, and immaterial for the quarter and nine months ended September 30, 2016. Receivables from these affiliates were immaterial as of September 30, 2017 and December 31, 2016.
During the quarters ended September 30, 2017 and 2016, the Company recorded developer fee revenues of approximately $0.5 million and $0.2 million related to management and administrative services provided to certain unconsolidated investments in affiliates. Developer fee revenues recorded for the nine months ended September 30, 2017 and 2016 were $2.1 million and $0.7 million, respectively. Receivables from these affiliates were immaterial as of September 30, 2017 and December 31, 2016.

13


9.EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost recorded for the quarters ended September 30, 2017 and 2016 were as follows (in millions):
 Pension Benefits Post-retirement Benefits
 2017 2016 2017 2016
Service cost$0.7
 $0.8
 $—
 $—
Interest cost2.0
 2.2
 0.1
 0.2
Expected return on plan assets(2.3) (2.5) —
 —
Amortization of net loss included in net periodic pension cost1.0
 1.9
 (0.1) —
Amortization of prior service credit included in net periodic pension cost(0.2) (0.3) —
 —
Curtailment gain—
 (0.2) —
 —
Settlement loss1.4
 —
 —
 —
Net periodic benefit cost$2.6
 $1.9
 $—
 $0.2
The components of net periodic benefit cost recorded for the nine months ended September 30, 2017 and 2016 were as follows (in millions):
 Pension Benefits Post-retirement Benefits
 2017 2016 2017 2016
Service cost$2.2
 $2.4
 $0.1
 $0.1
Interest cost6.2
 6.7
 0.3
 0.4
Expected return on plan assets(7.1) (7.5) —
 —
Amortization of net loss included in net periodic pension cost3.3
 5.5
 —
 0.1
Amortization of prior service credit included in net periodic pension cost(0.7) (0.8) —
 —
Curtailment gain(0.3) (0.7) —
 —
Settlement loss1.4
 —
 —
 —
Net periodic benefit cost$5.0
 $5.6
 $0.4
 $0.6
10.ACQUISITIONS
Manoa Marketplace Acquisition. The Company applies the provisions of FASB ASC Topic No. 805, Business Combinations, ("ASC 805") to acquisitions that constitute a business, as defined. Under ASC 805, assets acquired and liabilities assumed are recorded at fair value. The excess of the purchase price over the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The fair values of assets acquired and liabilities assumed are determined through the market, income or cost approaches, and the valuation approach is generally based on the specific characteristics of the asset or liability. Under the market approach, value is estimated using information from transactions in which other participants in the market have paid for reasonably similar assets that have been sold within a reasonable period from the valuation date. Adjustments are made to compensate for differences between reasonably similar assets and the item being valued. Under the income approach, the future cash flows expected to be received over the life of the asset, taking into account a variety of factors, such as long-term growth rates and the amount and timing of cash flows, are discounted to present value using a rate of return that accounts for the time value of money and investment risk factors. Under the cost approach, the Company estimates the cost to replace the asset with a new asset taking into consideration a variety of factors such as age, physical condition, functional obsolescence and economic obsolescence. The fair value of liabilities assumed is calculated as the net present value of estimated payments using prevailing market interest rates for liabilities with similar credit risk and terms.
On January 29, 2016, the Company consummated the purchase of the leasehold and leased fee interests in Manoa Marketplace, a multi-tenant neighborhood shopping center in Honolulu for $82.4 million through a 1031 transaction.

14


The 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:
Land$106.9 
Property and improvements91.3 
In-place leases23.2 
Favorable leases4.3 
Total assets acquired$225.7 
Liabilities assumed:
Unfavorable leases$7.3 
Total liabilities assumed7.3 
Net assets acquired$218.4 
Assets acquired: 
Land$40.5
Building36.8
In-place leases7.0
Favorable leases1.3
Total assets acquired85.6
  
Total liabilities assumed3.2
  
Net assets acquired$82.4
The finite-lived intangible assets related to in-place leases and favorable leases are amortized over their respective lease terms. As of the acquisition date, the weighted-average remaining livesamortization periods of the in-place leases and favorable leases were approximately 58.2 years and 34.7 years, respectively.
In connection with the Manoa Marketplace transaction, the Company incurred approximately $1.1 million of acquisition-related expenses during the nine months ended September 30, 2016. The costs are included in selling, general and administrative costs in the accompanying condensed consolidated statements of operations and are reported in the Commercial Real Estate segment for segment reporting purposes.
11.ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2017 were as follows (in millions, net of tax):
 Employee Benefit Plans Interest Rate Swap Total
Beginning balance, January 1, 2017$(45.0) $1.8
 $(43.2)
Unrealized interest rate hedging loss, net of taxes of $0.3—
 (0.5) (0.5)
Amounts reclassified from accumulated other comprehensive loss, net of taxes of $1.5 and $0.2 for employee benefit plans and interest rate swap, respectively2.5
 0.2
 2.7
Ending balance, September 30, 2017$(42.5) $1.5
 $(41.0)
The reclassifications of other comprehensive income components out of accumulated other comprehensive loss for the quarters and nine months ended September 30, 2017 and 2016 were as follows (in millions):
  Quarter Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Reclassification adjustment for interest expense included in net income (loss) $0.1
 $0.2
 $0.4
 $0.2
Amortization of defined benefit pension items reclassified to net periodic pension cost:   —
   —
Prior service credit (0.2) (0.3) (0.7) (0.8)
Net loss 1.0
 1.9
 3.3
 5.6
Settlement loss 1.4
 —
 1.4
 —
Total reclassifications before income tax 2.3
 1.8
 4.4
 5.0
Income taxes related to reclassifications of other comprehensive income (0.9) (0.8) (1.7) (1.9)
Total reclassifications of other comprehensive income components, net of tax $1.4
 $1.0
 $2.7
 $3.1

15


12.INCOME TAXES
The Company's effective tax rate was higher for the nine months ended September 30, 2017 compared to the sameweighted-average amortization period in 2016 primarily due to the 2016 recognition of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities, discussed below.
In 2016, the Company invested $15.4 million in Waihonu Equity Holdings, LLC ("Waihonu"), an entity that operates two photovoltaic facilities with a combined capacity of 6.5 megawatts in Mililani, Oahu. The Company accounts for its investment in Waihonu under the equity method. The investment return from the Company's investment in Waihonu is principally composed of non-refundable federal and refundable state tax credits. The federal tax credits are accounted for using the flow through method, which reduces the provision for income taxes in the year that the federal tax credits first become available. During 2016, the Company recognized income tax benefits of approximately $8.7 million related to the non-refundable tax credits, $2.9 million related to the refundable state tax credits in Income Tax Receivable, as well as a corresponding reduction to the carrying amount of its investment in Waihonu, recorded in Investments in Affiliates in the accompanying condensed consolidated balance sheets.
For the quarter and nine months ended September 30, 2017, the Company recorded reductions to the carrying value of its Waihonu and KIUC Renewable Solutions Two ("KRS II") investments of $0.4 million and $2.6 million, respectively, in Reduction in Solar Investments, net in the accompanying condensed consolidated statements of operations. For the quarter and nine months ended September 30, 2016, the Company recorded reductions to the carrying value of its Waihonu and KRS II investments of $0.2 million and $9.7 million, respectively, in Reduction in Solar Investments, net in the accompanying condensed consolidated statements of operations.
The Company recognizes accrued interest on income taxes in income tax expense. As of September 30, 2017, accrued interest was not material. As of September 30, 2017, the Company has not identified any material unrecognized tax positions.
13.NOTES PAYABLE AND LONG-TERM DEBT
Revolving Credit Facility Amendment: On September 15, 2017, the Company entered into a Second Amended and Restated Credit Agreement ("A&B Revolver") with Bank of America N.A., as administrative agent, First Hawaiian Bank, and other lenders party thereto, which amended and restated its existing $350 million committed revolving credit facility ("Revolving Credit Facility"). The A&B Revolver increased the total revolving commitments to $450 million, extended the term of the Revolving Credit Facility to September 15, 2022, amended certain covenants (see below), and reduced the interest rates and fees charged under the Revolving Credit Facility. All other terms of the Revolving Credit Facility remain substantially unchanged.unfavorable leases was approximately 18.6 years.
Private Shelf Facility Amendment: On September 15, 2017, the Company entered into an amendment ("Pru Amendment") of its Second Amended and Restated Note Purchase and Private Shelf Agreement, dated as of December 10, 2015, with Prudential Investment Management, Inc. and certain affiliates (individually and collectively with “Prudential”), which amended certain covenants (see below). Additionally, the Pru Amendment included a provision for a contingent incremental interest rate increase of 20 basis points on all outstanding notes unless, following the Company's planned earnings and profits purge, the maximum ratio of debt to total adjusted asset value is equal to or less than 0.35 to 1.00 with respect to any fiscal quarter ending on or before September 30, 2018. The contingent interest rate adjustment, if triggered, will continue until such time that the Company's ratio of debt to total adjusted asset value declines to 0.35 to 1.00 or below. If the contingent interest rate adjustment is not triggered on September 30, 2018, or if triggered, but subsequently the Company's ratio of debt to total adjusted asset value declines to 0.35 to 1.00 or below, the contingent interest rate adjustment shall have no further force or effect.
Changes to Revolver Amendment and Pru Amendment Covenants: The principal amendments under the A&B Revolver and the Pru Amendment are as follows:4. INVESTMENTS IN AFFILIATES
An increase in the maximum ratio of debt to total adjusted asset value from 0.50:1.0 to 0.60:1.0.
An increase in the aggregate maximum amount of priority debt at any time from 20 percent to 25 percent.
Allows the Company to consummate the holding company merger to adopt certain governance changes and facilitate the Company's ongoing compliance with REIT requirements.
Sets the minimum shareholders' equity amount to be $850.6 million plus 75 percent of the net proceeds received from equity issuances, less non-recurring costs related to the REIT conversion, among other additions and subtractions.
Allows for the payment of minimum dividends required to maintain REIT status and other dividends in any amount so long as no event of default shall then exist or would exist after giving effect to such dividends.

16



New Unsecured Term Debt - Rate Locks: On October 10, 2017, the Company entered into a rate lock commitment to draw $50 million under its Second Amended and Restated Note Purchase and Private Shelf Agreement, as amended, with Prudential (“Prudential Shelf Facility”). Under the commitment, the Company will draw $50 million on November 21, 2017 and will use the proceeds for general corporate purposes. The note bears interest at 4.04 percent and matures on November 21, 2026. Interest only is paid semi-annually and the principal balance is due at maturity.
On October 30, 2017, the Company entered into a second rate lock commitment to draw $25 million under its Prudential Shelf Facility. Under the commitment, the Company will draw $25 million on December 8, 2017 and will use the proceeds for general corporate purposes. The note bears interest at 4.16 percent and matures on December 8, 2028. Interest only is paid semi-annually and the principal balance is due at maturity.

At September 30, 2017 and December 31, 2016, notes payable and long-term debt consisted of the following (in millions):
 2017 2016
Revolving credit facilities:   
Wells Fargo GLP Revolver, matures in 2018 (a)—
 —
A&B Revolver, matures in 2022 ($283.0 million available) (b)155.2
 14.9
Term loans:   
6.38%, payable through 2017, secured by Midstate Hayes—
 8.2
1.85%, payable through 2017, unsecured0.5
 2.5
2.00%, payable through 2018, unsecured0.3
 0.8
3.31%, payable through 2018, unsecured1.5
 2.8
5.19%, payable through 2019, unsecured5.1
 6.5
LIBOR plus 2.00%, payable through 2019 (c)

9.4
 9.4
6.90%, payable through 2020, unsecured48.8
 65.0
LIBOR plus 1.00%, payable through 2021, secured by asphalt terminal (d)5.1
 6.1
3.15%, payable through 2021, second mortgage secured by Kailua Town Center III4.9
 —
LIBOR plus 1.50%, payable through 2021, secured by Kailua Town Center III (e)10.9
 11.2
5.53%, payable through 2024, unsecured28.5
 28.5
3.90%, payable through 2024, unsecured65.9
 68.1
4.15%, payable through 2024, secured by Pearl Highlands Center87.5
 88.8
5.55%, payable through 2026, unsecured46.0
 46.0
5.56%, payable through 2026, unsecured25.0
 25.0
4.35%, payable through 2026, unsecured22.0
 22.0
3.88%, payable through 2027, unsecured50.0
 50.0
LIBOR plus 1.35%, payable through 2029, secured by Manoa Marketplace (f)60.0
 60.0
Total debt (contractual)626.6
 515.8
Unamortized debt premium (discount)0.4
 0.5
Unamortized debt issuance costs(1.2) (1.2)
Total debt (carrying value)625.8
 515.1
Less current portion(41.6) (42.4)
Long-term debt$584.2
 $472.7
(a) Loan has a stated interest rate of LIBOR plus 1.50%.
(b) Loan has a stated interest rate of LIBOR plus 1.65%, based on pricing grid.
(c) Loan is secured by a letter of credit.
(d) Loan has a stated interest rate of LIBOR plus 1.00%, but is swapped through maturity to a 5.98% fixed rate.
(e) Loan has a stated interest rate of LIBOR plus 1.50%, but is swapped through maturity to a 5.95% fixed rate.
(f) Loan has a stated interest rate of LIBOR plus 1.35%, but is swapped through maturity to a 3.14% fixed rate.

17


14.CESSATION OF SUGAR OPERATIONS
A summary of the pre-tax costs and remaining costs associated with the Cessation is as follows (in millions):
  Nine Months Ended September 30, 2017 
Cumulative
Amount
Recognized
as of September 30, 2017
 
Remaining
to be
Recognized
 Total
Employee severance benefits and related costs $0.3
 $22.1
 $—
 $22.1
Asset write-offs and accelerated depreciation —
 71.3
 —
 71.3
Property removal, restoration and other exit-related costs 2.1
 9.2
 1.2
 10.4
Total Cessation-related costs $2.4
 $102.6
 $1.2
 $103.8
A rollforward of the Cessation-related liabilities during the nine months ended September 30, 2017 is as follows (in millions):

 Employee Severance Benefits and Related Costs 
Other Exit Costs1
 Total
Balance at December 31, 2016 $13.7
 $5.4
 $19.1
Expense 0.3
 2.1
 2.4
Cash payments (14.0) (2.5) (16.5)
Balance at September 30, 2017 $—
 $5.0
 $5.0
1Includes asset retirement obligations.
The Cessation-related liabilities were included in the accompanying condensed consolidated balance sheets as follows (in millions):
  Classification on Balance Sheet September 30, 2017 December 31, 2016
Employee severance benefits and related costs HC&S cessation-related liabilities $—
 $13.7
Other exit costs HC&S cessation-related liabilities 5.0
 5.4
Total Cessation-related liabilities   $5.0
 $19.1

18


15.INVESTMENTS IN AFFILIATES
The Company's investments in affiliates principally consist principally of equity investments in limited liability companies in which the Company has the ability to exercise significant influence over the operating and financial policies of these investments. Accordingly, the Company accounts for its investments using the equity method of accounting.
Operating results presented in the Company's condensed consolidated financial statements include the Company's proportionate share of net income (loss) from its equity method investments. A summary of combinedSummarized financial information related toof entities accounted for by the Company's equity method investmentson a combined basis for the quarters ended June 30, 2020 and nine months ended September 30, 2017 and 20162019 is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues$38.3  $57.6  $90.3  $98.4  
Operating costs and expenses34.1  54.7  74.0  92.0  
Gross Profit (Loss)$4.2  $2.9  $16.3  $6.4  
Income (Loss) from Continuing Operations1
$0.4  $0.2  $8.0  $1.1  
Net Income (Loss)1
$0.2  $0.4  $7.8  $1.0  
1 Includes earnings from equity method investments held by the investee.

11
 Quarter Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Revenues$52.4
 $46.4
 $136.6
 $142.5
Gross Profit$8.5
 $7.5
 $23.2
 $24.5
Income from Continuing Operations*$4.0
 $(0.2) $10.6
 $8.7
Net Income (Loss)*$3.8
 $(0.5) $10.2
 $8.1
* Includes earnings from equity method investments held by the investee.  

5. ALLOWANCE FOR CREDIT LOSSES
The following table presents the activity in the allowance for credit losses related to the Company's financing receivables and contract assets for the six months ended June 30, 2020 (in millions):
CRELand OperationsM&C
Financing ReceivablesFinancing ReceivablesContract AssetsTotal
Allowance for credit losses:
Balance as of January 1, 2020 (prior to adoption of ASC 326)$—  $1.6  $0.3  $1.9  
Impact of adoption of ASC 3260.4  2.3  1.3  4.0  
Provision for expected credit losses—  0.3  —  0.3  
Balance as of March 31, 20200.4  4.2  1.6  6.2  
Provision for expected credit losses—  (0.3) (0.1) (0.4) 
Disposal of subsidiary—  —  (0.1) (0.1) 
Ending allowance balance as of June 30, 2020$0.4  $3.9  $1.4  $5.7  
The credit quality of the Company's financing receivables is monitored each reporting period on an individual asset basis using specific information on the counterparties in these transactions. The following represents qualitative and quantitative information on each financing receivable within the applicable portfolios.
The CRE portfolio of financing receivables consists of 1 asset that originated in 2019 and had an amortized cost basis of $0.4 million as of both the adoption date of January 1, 2020 and June 30, 2020. Based on individual credit quality indicators of the counterparty as of the adoption date and June 30, 2020, the most likely outcome of expected cash flows for the asset in a range of possible outcomes (i.e., the single best estimate) was zero and, as a result, the Company recorded a full allowance for credit losses for the financing receivable on adoption of ASC 326 as of January 1, 2020 and as of June 30, 2020.
The Land Operations financing receivables consist of 3 assets. The first originated in 2008 and had an amortized cost basis of $1.6 million as of both the adoption date of January 1, 2020 and June 30, 2020. Based on individual credit quality indicators of the counterparty as of the adoption date and June 30, 2020, the most likely outcome of expected cash flows for the asset in a range of possible outcomes (i.e., the single best estimate) was zero and, as a result, the Company recorded a full allowance for credit losses for the financing receivable on adoption of ASC 326 as of January 1, 2020 and as of June 30, 2020. The second financing receivable within Land Operations was generated in 2016 and had an amortized cost basis of $13.5 million and $11.4 million as of the adoption date of January 1, 2020 and June 30, 2020, respectively. The third financing receivable within Land Operations was generated in 2017 and had an amortized cost basis of $2.6 million and $2.5 million as of the adoption date of January 1, 2020 and June 30, 2020, respectively. The second and third financing receivables were evaluated based on the credit quality indicators of the respective counterparties (as well as reasonable and supportable forecasts of future conditions that are relevant to determining the expected collectability of the receivable) as of the adoption date and June 30, 2020 and the estimated allowance for credit losses was calculated using a discounted cash flow approach.
The Company's contract assets represent trade receivables that are due in one year or less that result from revenue transactions from contracts with customers or other related balances that do not meet the definition of financing receivables.
For allowance for credit losses estimated using the discounted cash flow approach, changes in present value attributable to the passage of time are reported as an adjustment to credit loss expense. As a result, the provision for expected credit losses in any given period may be impacted by changes in expected credit losses on future payments or current period collections for receivables on which allowances were recorded in previous periods, both of which may be further impacted or offset by changes in present value attributable to the passage of time.
12

6. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out basis) or net realizable value. Inventories as of June 30, 2020 and December 31, 2019 were as follows (in millions):
June 30,December 31,
20202019
Asphalt$7.2  $8.0  
Processed rock and sand6.6  6.6  
Work in progress3.4  2.9  
Retail merchandise2.0  2.0  
Parts, materials and supplies inventories1.0  1.2  
Total$20.2  $20.7  

7. FAIR VALUE MEASUREMENTS
The fair value of the Company's cash and cash equivalents, accounts receivable and notes receivable with remaining terms less than 12 months approximate their carrying values due to the short-term nature of the instruments. The fair value of the Company's notes receivable with remaining terms greater than 12 months is estimated using a discounted cash flow analysis in which the Company uses unobservable inputs such as market interest rates determined by the loan to value and market capitalization rates related to the underlying collateral at which management believes similar loans would be made and classified as Level 3 in the fair value hierarchy. The fair value of these notes approximates the carrying amount of $11.6 million at June 30, 2020. The fair value and carrying value of these notes was $16.1 million at December 31, 2019 (see Note 2, "Summary of Significant Accounting Policies," for reclassifications related to these notes in conjunction with the adoption of ASC 326).
The carrying amount and fair value of the Company's debt at June 30, 2020 was $768.6 million and $755.6 million, respectively, and $704.6 million and $727.3 million at December 31, 2019, respectively. The fair value of debt is calculated by discounting the future cash flows of the debt at rates based on instruments with similar risk, terms and maturities as compared to the Company's existing debt arrangements (Level 2).
The Company carries its interest rate swaps at fair value. See Note 9, "Derivative Instruments," for fair value information regarding the Company's derivative instruments.

13

8. NOTES PAYABLE AND OTHER DEBT
At June 30, 2020 and December 31, 2019, notes payable and total debt consisted of the following (in millions):
Interest Rate (%)Maturity DatePrincipal Outstanding
June 30, 2020December 31, 2019
Secured:
Kailua Town Center(1)2021$10.0  $10.2  
Kailua Town Center #23.1520214.5  4.6  
Heavy Equipment Financing(2)(2)3.4  3.6  
Laulani Village3.93202461.9  62.0  
Pearl Highlands4.15202482.5  83.4  
Manoa Marketplace(3)202958.7  59.5  
Subtotal$221.0  $223.3  
Unsecured:
Series D Note6.90%2020—  16.2  
Bank syndicated loan(4)202350.0  50.0  
Series A Note5.53%202428.5  28.5  
Series J Note4.66%202510.0  10.0  
Series B Note5.55%202646.0  46.0  
Series C Note5.56%202623.0  23.0  
Series F Note4.35%202622.0  22.0  
Series H Note4.04%202650.0  50.0  
Series K Note4.81%202734.5  34.5  
Series G Note3.88%202735.0  35.0  
Series L Note4.89%202818.0  18.0  
Series I Note4.16%202825.0  25.0  
Term Loan 54.30%202925.0  25.0  
Subtotal$367.0  $383.2  
Revolving Credit Facilities:
GLP Asphalt revolving credit facility(5)2020—  —  
A&B Revolver(6)2022181.0  98.7  
Subtotal$181.0  $98.7  
Total Debt (contractual)769.0  705.2  
Unamortized debt premium (discount)—  (0.1) 
Unamortized debt issuance costs(0.4) (0.5) 
Total debt (carrying value)$768.6  $704.6  

16.(1) Loan has a stated interest rate of LIBOR plus 1.50%, but is swapped through maturity to a 5.95% fixed rate.DERIVATIVE INSTRUMENTS
(2) Loans have stated rates ranging from 4.08% to 5.00% and stated maturity dates ranging from 2021 to 2024.
(3) Loan has a stated interest rate of LIBOR plus 1.35%, but is swapped through maturity to a 3.14% fixed rate.
(4) Loan has a stated interest rate of LIBOR plus 1.80% but is swapped through maturity to a 3.15% fixed rate.
(5) Loan has a stated interest rate of LIBOR plus 1.25%.
(6) Loan has a stated interest rate of LIBOR plus 1.85% based on pricing grid.
The Company believes that funds generated from results of operations, available cash and cash equivalents, and available borrowings under credit facilities will be sufficient to satisfy any maturities of debt due in the next twelve months.
Interest costs are capitalized for certain development and redevelopment projects that have not yet been placed into service. Capitalization of interest commences when development activities and expenditures begin and end upon completion, which is when the asset is ready for its intended use. Capitalized interest costs related to development activities were $0.1 million for the three months ended June 30, 2020 and $0.2 million for the six months ended June 30, 2020. There were $0.3 million and $0.6 million of capitalized interest costs for the three months ended and six months ended June 30, 2019, respectively.
14

9. DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk related to its floatingvariable rate interest debt. The Company balances its cost of debt and exposure to interest rates primarily through its mix of fixed and floatingvariable rate debt. From time to time, the Company may use interest rate swaps to manage its exposure to interest rate risk.
Cash Flow Hedges of Interest Rate Risk
During 2016,As of June 30, 2020, the Company entered into anhas 2 interest rate swap agreement with a notional amount of $60.0 million which wasagreements designated as a cash flow hedge. The Company structured the interest rate swap agreement to hedge the variability of future interest payments due to changes in interest rates with regards to the Company's long-term debt. A summary of thehedges whose key terms related to the Company's outstanding cash flow hedge as of September 30, 2017 isare as follows (dollars in millions):
 Notional Amount at Fair Value atClassification on
Effective DateMaturity DateInterest Rate September 30, 2017 September 30, 2017 December 31, 2016Balance Sheet
EffectiveEffectiveMaturityFixed InterestNotional Amount atAsset (Liability) Fair Value atClassification on
DateDateRateJune 30, 2020December 31, 2019Balance Sheet
4/7/20168/1/20293.14% $60.0
 $2.4
 $2.8
Other assets4/7/20168/1/20293.14%$58.7  $(6.2) $(0.2) Accrued and other liabilities
02/13/202002/13/202002/27/20233.15%$50.0  $(1.6) N/AAccrued and other liabilities
The Company assessed the effectiveness of the cash flow hedge at inception and will continue to do so on an ongoing basis. The effective portion of the changes in fair value of the cash flow hedge isare recorded in accumulated other comprehensive lossincome (loss) and subsequently reclassified into interest expense as interest is incurred on the related-variable rate debt. When ineffectiveness exists,As of June 30, 2020, the ineffective portionCompany expects to reclassify $0.3 million of changes in fair value ofnet gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the cash flow hedge is recognized in earnings in the period affected.next 12 months.
Non-designated Hedges
As of SeptemberJune 30, 2017,2020, the Company has two1 interest rate swapsswap that havehas not been designated as a cash flow hedgeshedge whose key terms are as follows (dollars in millions):
    Notional Amount at Fair Value atClassification on
Effective DateMaturity DateInterest Rate September 30, 2017 September 30, 2017 December 31, 2016Balance Sheet
1/1/20149/1/20215.95% $10.9
 $(1.1) $(1.3)Other non-current liabilities
6/18/20083/1/20215.98% $5.1
 $(0.3) $(0.5)Other non-current liabilities
Total   $16.0
 $(1.4) $(1.8) 

19


EffectiveMaturityFixed InterestNotional Amount atAsset (Liability) Fair Value atClassification on
DateDateRateJune 30, 2020June 30, 2020December 31, 2019Balance Sheet
1/1/20149/1/20215.95%$10.0  $(0.5) $(0.5) Accrued and other liabilities
The following table represents the pre-tax effect of the derivative instruments in the Company's condensed consolidated statement of comprehensive income (loss) (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Derivatives in Designated Cash Flow Hedging Relationships:
Amount of gain (loss) recognized in OCI on derivatives$(0.7) $(2.0) $(7.6) $(3.5) 
Impact of reclassification adjustment to interest expense included in Net Income (Loss)$0.1  $(0.2) $0.1  $(0.3) 
  Quarter Ended September 30, Nine Months Ended September 30,
Derivatives in Designated Cash Flow Hedging Relationships: 2017 2016 2017 2016
Amount of (gain) loss recognized in OCI on derivatives (effective portion) $0.2
 $—
 $0.8
 $2.8
Amounts of (gain) loss reclassified from accumulated OCI into earnings under "interest expense" (ineffective portion and amount excluded from effectiveness testing) $(0.1) $(0.2) $(0.4) $(0.2)
The Company records gains or losses related to interest rate swaps that have not been designated as cash flow hedges in interest expenseInterest and other income in its condensed consolidated statements of operations,operations. There were 0 gains or losses recognized in the six months ended June 30, 2020 and 0 amounts recognized in the amounts were immaterial during each of the quarterssix months ended SeptemberJune 30, 2017 and 2016.2019 related to changes in fair value.
The Company measures all of its interest rate swaps at fair value. The fair values of the Company's interest rate swaps (Level 2) are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs.
17.DISCONTINUED OPERATIONS
10. COMMITMENTS AND CONTINGENCIES
Commitments, Guarantees and Contingencies: Commitments and financial arrangements not recorded on the Company's condensed consolidated balance sheet included standby letters of credit and bonds. As of June 30, 2020, standby letters of credit issued by the Company's lenders under the Company's revolving credit facilities totaled $1.1 million. These letters of credit primarily relate to the Company's workers' compensation plans and construction activities, and if drawn upon the Company would be obligated to reimburse the issuer.
15

As of June 30, 2020, bonds related to the Company's construction and real estate activities totaled $374.2 million. Approximately $354.9 million represents the face value of construction bonds issued by third party sureties (bid, performance and payment bonds), and the remainder is related to commercial bonds issued by third party sureties (permit, subdivision, license and notary bonds). In the event the bonds are drawn upon, the Company would be obligated to reimburse the surety that issued the bond for the amount of the bond, reduced for the work completed to date. As of June 30, 2020, the Company's estimated remaining exposure, assuming defaults on all existing contractual construction obligations, was approximately $65.1 million.
Indemnity Agreements: For certain real estate joint ventures, the Company may be obligated under bond indemnities to complete construction of the real estate development if the joint venture does not perform. These indemnities are designed to protect the surety in exchange for the issuance of surety bonds that cover joint venture construction activities, such as project amenities, roads, utilities, and other infrastructure, at its joint ventures. Under the indemnities, the Company and its joint venture partners agree to indemnify the surety bond issuer from all losses and expenses arising from the failure of the joint venture to complete the specified bonded construction. The maximum potential amount of aggregate future payments is a function of the amount covered by outstanding bonds at the time of default by the joint venture, reduced by the amount of work completed to date. The recorded amounts of the indemnity liabilities were not material individually or in the aggregate.
The Company is a guarantor of indebtedness for certain of its unconsolidated equity method investments' borrowings with third party lenders, relating to the repayment of a line of credit. As of June 30, 2020, the Company's limited guarantees on indebtedness related to 1 of its unconsolidated equity method investments total $0.2 million.
Other than obligations described above and those described in the Company's 2019 Form 10-K, obligations of the Company's joint ventures do not have recourse to the Company, and the Company's "at-risk" amounts are limited to its investment.
Legal Proceedings and Other Contingencies: Prior to the sale of approximately 41,000 acres of agricultural land on Maui to Mahi Pono Holdings, LLC ("Mahi Pono") in December 2018, the Company, through East Maui Irrigation Company, LLC ("EMI"), also owned approximately 16,000 acres of watershed lands in East Maui and also held 4 water licenses to approximately 30,000 acres owned by the State of Hawai‘i in East Maui. The sale to Mahi Pono includes the sale of a 50% interest in EMI (which closed February 1, 2019), and provides for the Company and Mahi Pono, through EMI, to jointly continue the existing process to secure a long-term lease from the State for delivery of irrigation water to Mahi Pono for use in Central Maui.
The last of these water license agreements expired in 1986, and all four agreements were then extended as revocable permits that were renewed annually. In 2001, a request was made to the State Board of Land and Natural Resources (the "BLNR") to replace these revocable permits with a long-term water lease. Pending the completion by the BLNR of a contested case hearing it ordered to be held on the request for the long-term lease, the BLNR has kept the existing permits on a holdover basis. NaN parties filed a lawsuit on April 10, 2015 (the "Initial Lawsuit") alleging that the BLNR has been renewing the revocable permits annually rather than keeping them in holdover status. The lawsuit asked the court to void the revocable permits and to declare that the renewals were illegally issued without preparation of an environmental assessment ("EA"). In December 2015, the BLNR decided to reaffirm its prior decisions to keep the permits in holdover status. This decision by the BLNR was challenged by the 3 parties. In January 2016, HC&S completedthe court ruled in the Initial Lawsuit that the renewals were not subject to the EA requirement, but that the BLNR lacked legal authority to keep the revocable permits in holdover status beyond one year (the "Initial Ruling"). The Initial Ruling was appealed to the Intermediate Court of Appeals ("ICA") of the State of Hawai‘i.
In May 2016, while the appeal of the Initial Ruling was pending, the Hawai‘i State Legislature passed House Bill 2501, which specified that the BLNR has the legal authority to issue holdover revocable permits for the disposition of water rights for a period not to exceed three years. The governor signed this bill into law as Act 126 in June 2016. Pursuant to Act 126, the annual authorization of the existing holdover permits was sought and granted by the BLNR in December 2016, November 2017 and November 2018 for calendar years 2017, 2018 and 2019. No extension of Act 126 was approved by the Hawai‘i State Legislature in 2019.
In June 2019, the ICA vacated the Initial Ruling, effectively reversing the determination that the BLNR lacked authority to keep the revocable permits in holdover status beyond one year (the "ICA Ruling"). The ICA remanded the case back to the trial court to determine whether the holdover status of the permits was both (a) "temporary" and (b) in the best interest of the State, as required by statute. The plaintiffs filed a motion with the ICA for reconsideration of its final harvestdecision, which was denied on July 5, 2019. On September 30, 2019, the plaintiffs filed a request with the Supreme Court of Hawai‘i to review and reverse the Company ceased its sugar operations.ICA Ruling. On November 25, 2019, the Supreme Court of Hawai‘i granted the plaintiffs' request to review the ICA Ruling. On October 11, 2019, the BLNR took up the renewal of all the existing water revocable permits in the state, acting
16

under the ICA Ruling, and approved the continuation of the 4 East Maui water revocable permits for another one-year period through December 31, 2020.
In a separate matter, on December 7, 2018, a contested case request filed by the Sierra Club contesting the BLNR's November 2018 approval of the 2019 revocable permits was denied by the BLNR. On January 7, 2019, Sierra Club filed a lawsuit in the circuit court of the first circuit in Hawai‘i against BLNR, A&B, and EMI, seeking to invalidate the 2019 extension of the revocable permits for, among other things, failure to perform an EA. The lawsuit also seeks to have the BLNR enjoin A&B/EMI from diverting more than 25 million gallons a day until a permit or lease is properly issued by the BLNR, and for the imposition of certain conditions on the revocable permits by the BLNR. The count seeking to invalidate the revocable permits based on the failure to perform an EA has been dismissed by the court, based on the ICA Ruling in the Initial Lawsuit. In connection with A&B’s obligation to continue the existing process to secure a long-term water lease from the State, A&B and EMI will defend against the remaining claims made by the Sierra Club.
The historical resultsCompany is a party to, or may be contingently liable in connection with, other legal actions arising in the normal conduct of operationsits businesses, the outcomes of which, in the opinion of management after consultation with counsel, would not have been presented as discontinued operations ina material effect on the Company's condensed consolidated financial statements and prior periods have been recast.as a whole.
11. REVENUE AND CONTRACT BALANCES
The Company disaggregates revenue from contracts with customers by revenue type, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors. Through its CRE segment, the Company owns and operates a portfolio of commercial real estate properties and generates income as a lessor through leases of such assets. See Note 12 to the consolidated financial statements for further discussion.

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues:
     Commercial Real Estate$34.0  $39.1  $77.4  $75.9  
     Land Operations:
Development sales revenue2.3  18.1  5.9  30.4  
Unimproved/other property sales revenue1.6  0.4  3.7  30.9  
Other operating revenue5.9  6.4  11.7  12.6  
Land Operations9.8  24.9  21.3  73.9  
     Materials & Construction30.1  45.1  56.0  88.7  
Total revenues$73.9  $109.1  $154.7  $238.5  
In the context of guidance on revenue from contracts with customers and arrangements in its scope, the total amount of contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations was $105.5 million as of June 30, 2020. The Company expects to recognize as revenue approximately 15% - 25% of the remaining contract consideration allocated to either wholly unsatisfied or partially satisfied performance obligations in 2020, with the remaining recognized thereafter.
Timing of revenue recognition may differ from the timing of invoicing to customers. Certain construction contracts include retainage provisions that are customary in the industry (i.e., are not for financing purposes) and are included in Accounts receivable and retention, net. The balances billed but not paid by customers pursuant to these provisions generally become due upon completion and acceptance of the project work or products by the customers. Costs and estimated earnings in excess of billings on uncompleted contracts represent amounts earned and reimbursable under contracts, but have a conditional right for billing and payment, such as achievement of milestones or completion of the project. When events or conditions indicate that it is probable that the amounts outstanding become unbillable, the transaction price and associated contract asset is reduced. Billings in excess of costs and estimated earnings on uncompleted contracts are billings to customers on contracts in advance of work performed, including advance payments negotiated as a contract condition. Generally, unearned project-related costs will be earned over the next twelve months.
17

The following table provides information about receivables, contract assets and contract liabilities from contracts with customers (in millions):
June 30, 2020December 31, 2019
Accounts receivable$43.9  $43.4  
Contracts retention$8.2  $8.6  
Allowance for credit losses on accounts receivable and retention$(4.1) $(0.4) 
Accounts receivable and retention, net$48.0  $51.6  
Costs and estimated earnings in excess of billings on uncompleted contracts$6.8  $10.0  
Billings in excess of costs and estimated earnings on uncompleted contracts$8.1  $7.9  
Variable consideration1
$62.0  $62.0  
Deferred revenue$4.8  $5.6  
1Variable consideration deferred as of the period end related to amounts received in the sale of agricultural land on Maui in 2018 that, under revenue recognition guidance, could not be included in the transaction price.
For the three months ended and six months ended June 30, 2020, the Company recognized revenue of $1.5 million and $6.0 million, respectively, related to the Company's contract liabilities reported as of January 1, 2020.
12. LEASES - THE COMPANY AS LESSOR
The Company leases land and buildings to third parties under operating loss, gain (loss) on asset dispositions, income tax (expense) benefitleases. Such activity is primarily composed of operating leases within its CRE segment.
During the quarter ended June 30, 2020, the Company agreed to rent relief arrangements with certain of its tenants due to the disruption from COVID-19 in the form of rent deferrals. Consistent with lease accounting guidance and after-tax effectsrecent interpretations provided by the FASB in the Lease Modification Q&A, the Company elected to treat such eligible lease concessions (i.e., such rent deferrals that do not result in a substantial increase in the rights of the lessor or obligations of the lessee) outside of the lease accounting modification framework. Consistent with an acceptable method described in the Lease Modification Q&A, under these transactionsrent deferrals, the Company accounts for the quartersevent as if no changes to the lease contract were made and ninecontinues to record lease receivables and recognize income during the deferral period (if collectability on such amounts is assessed as probable).
Additionally, during the three months ended SeptemberJune 30, 20172020, the Company projected a higher amount of uncollectable tenant billings due to COVID-19. As a result, the Company recorded reductions in revenue of $6.0 million related to CRE receivables and 2016unbilled straight-line assets for which the Company assessed that the tenant's future payment of amounts due under leases was not probable and $2.8 million related to the allowance for doubtful accounts for other impacted operating lease receivables.
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 additional rent deferrals or rent abatement, among other possible agreements. The Company is evaluating each request on a case-by-case basis and will apply lease accounting guidance (including the Lease Modification Q&A) consistently to leases with similar characteristics and similar circumstances. The future impact of any potential rent concessions in the context of lease accounting guidance and the Lease Modification Q&A is dependent upon the extent of relief granted to tenants as a result of COVID-19 in future periods and the elections made by the Company at the time of entering into such agreements.
The historical cost of, and accumulated depreciation on, leased property as of June 30, 2020 and December 31, 2019 were as follows (in millions):
 Quarter Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Sugar operations revenue (Land Operations)$0.4
 $35.7
 $22.9
 $73.7
        
Operating loss before income taxes$(1.1) $(17.1) $(2.2) $(51.2)
Gain (loss) on asset dispositions, net(0.2) —
 6.0
 —
Income (loss) from discontinued operations before income taxes(1.3) (17.1) 3.8
 (51.2)
Income tax (expense) benefit0.5
 3.5
 (1.4) 23.1
Income (loss) from discontinued operations$(0.8) $(13.6) $2.4
 $(28.1)
        
Basic earnings (loss) per share$(0.02) $(0.28) $0.04
 $(0.58)
Diluted earnings (loss) per share$(0.02) $(0.27) $0.05
 $(0.57)
There was no depreciation and amortization related to discontinued operations for the quarter and nine months ended September 30, 2017. Depreciation and amortization related to discontinued operations was $12.6 million and $47.3 million for the quarter and nine months ended September 30, 2016, respectively.

June 30, 2020December 31, 2019
Leased property - real estate$1,513.8  $1,511.3  
Less: Accumulated depreciation(139.0) (125.0) 
Property under operating leases, net$1,374.8  $1,386.3  
20
18



18.SEGMENT RESULTS
Segment resultsTotal rental income under these operating leases were as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Lease payments$21.5  $27.7  $50.9  $52.4  
Variable lease payments13.3  11.4  28.0  23.5  
Total$34.8  $39.1  $78.9  $75.9  
Future lease payments to be received on non-cancelable operating leases as of June 30, 2020 were as follows (in millions):
June 30, 2020
2020$60.0  
2021113.0  
2022101.1  
202390.3  
202478.4  
202566.4  
Thereafter480.5  
Total future lease payments to be received$989.7  

13. LEASES - THE COMPANY AS LESSEE
There have been no material changes from the Company's leasing activities as a lessee described in Note 9 to the consolidated financial statements included in Item 8 of the Company's 2019 Form 10-K. Operating lease cost was $1.1 million and $1.7 million for the three months ended June 30, 2020 and 2019, respectively. Operating lease cost was $2.3 million and $3.3 million for the six months ended June 30, 2020 and 2019, respectively. Finance lease cost was $0.3 million and $0.1 million for the three months ended June 30, 2020 and 2019, respectively. Finance lease cost was $0.6 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively.
14. SHARE-BASED PAYMENT AWARDS
The 2012 Incentive Compensation Plan ("2012 Plan") allows for the granting of stock options, restricted stock units and common stock. The shares of common stock authorized to be issued under the 2012 Plan may be drawn from the shares of the Company's authorized but unissued common stock or from shares of its common stock that the Company acquires, including shares purchased on the open market or private transactions. During the six months ended June 30, 2020, the Company granted approximately 271,800 restricted stock units with a weighted average grant date fair value of $22.57 under the 2012 Plan. During the six months ended June 30, 2019, the Company granted approximately 239,500 restricted stock units with a weighted average grant date fair value of $22.10 under the 2012 Plan.
The fair value of the Company's time-based awards is determined using the Company's stock price on the date of grant. The fair value of the Company's market-based awards is estimated using the Company's stock price on the date of grant and the probability of vesting using a Monte Carlo simulation with the following weighted-average assumptions:
2020 Grants2019 Grants
Volatility of A&B common stock22.6 %23.6 %
Average volatility of peer companies23.2 %24.3 %
Risk-free interest rate1.3 %2.6 %
19


Quarter Ended September 30, Nine Months Ended September 30,

2017 2016 2017 2016
Revenue:       
Commercial Real Estate$33.9
 $32.7
 $101.4
 $102.0
Land Operations22.6
 18.1
 45.7
 29.6
Materials & Construction55.0
 52.1
 155.7
 144.7
Total revenue111.5
 102.9
 302.8
 276.3
Operating Profit (Loss):       
Commercial Real Estate1
13.6
 13.5
 41.3
 41.3
Land Operations2
10.4
 7.8
 9.7
 (7.3)
Materials & Construction6.5
 5.6
 18.8
 18.5
Total operating profit30.5
 26.9
 69.8
 52.5
Interest expense(6.1) (6.4) (18.5) (20.1)
Gain on the sale of improved property—
 0.1
 3.0
 8.1
General corporate expenses(8.9) (5.5) (20.5) (16.0)
REIT evaluation/conversion costs3
(4.4) (1.9) (11.4) (3.8)
Income From Continuing Operations Before Income Taxes11.1
 13.2
 22.4
 20.7
Income tax expense(3.7) (1.0) (6.4) (1.6)
Income From Continuing Operations7.4
 12.2
 16.0
 19.1
Income (loss) from discontinued operations, net of income tax(0.8) (13.6) 2.4
 (28.1)
Net Income (Loss)6.6
 (1.4) 18.4
 (9.0)
Income attributable to noncontrolling interest(0.5) (0.5) (1.7) (1.1)
Net Income (Loss) Attributable to A&B Shareholders$6.1
 $(1.9) $16.7
 $(10.1)
The Company recognizes compensation cost net of actual forfeitures of time-based or market-based awards. A summary of compensation cost related to share-based payments is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Share-based expense:
Time-based and market-based restricted stock units$1.5  $1.3  $3.0  $2.7  

15. EMPLOYEE BENEFIT PLANS
Components of the net periodic benefit cost for the Company's pension and post-retirement plans for the three and six months ended June 30, 2020 and 2019 are shown below (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Service cost$0.2  $0.6  $0.4  $1.1  
Interest cost1.8  2.1  3.5  4.2  
Expected return on plan assets(1.7) (1.8) (3.4) (3.6) 
Amortization of net loss0.6  1.0  1.2  2.0  
Amortization of prior service credit—  (0.2) —  (0.3) 
Net periodic benefit cost$0.9  $1.7  $1.7  $3.4  
The Company has made 0 contributions to its defined benefit pension plans during the six months ended June 30, 2020 and does 0t expect to make any such contributions in the current fiscal year.
16. INCOME TAXES
The Company has been organized and operates in a manner that enables it to qualify, and believes it will continue to qualify, as a REIT for federal income tax purposes.The Company’s effective tax rate for the three months ended June 30, 2020 differed from the effective tax rate for the same periods in 2019, primarily due to the benefit from interest income receivable on IRS tax refunds in 2019.

As of June 30, 2020, tax years 2016 and later are open to audit by the tax authorities.As of June 30, 2020, the Company has 1 open tax examination of the 2016 Hawaii state income tax return of a joint venture investment.The Company believes that the result of this audit will not have a material adverse effect on its results of operations, financial condition or liquidity.
17. EARNINGS PER SHARE ("EPS")
Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocated to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards as well as adjusted by the number of additional shares, if any, that would have been outstanding had the potentially dilutive common shares been issued.
20

The following table provides a reconciliation of income (loss) from continuing operations to income (loss) from continuing operations available to A&B common shareholders and net income (loss) available to A&B common shareholders (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Income (loss) from continuing operations$(4.1) $(1.3) $1.7  $8.2  
Exclude: (Income) loss attributable to noncontrolling interest—  0.4  0.6  0.7  
Income (loss) from continuing operations attributable to A&B shareholders(4.1) (0.9) 2.3  8.9  
Distributions and allocations to participating securities—  —  —  —  
Income (loss) from continuing operations available to A&B common shareholders(4.1) (0.9) 2.3  8.9  
Income (loss) from discontinued operations available to A&B common shareholders(0.6) 0.1  (0.8) (0.7) 
Net income (loss) available to A&B common shareholders$(4.7) $(0.8) $1.5  $8.2  
The number of shares used to compute basic and diluted earnings per share is as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Denominator for basic EPS - weighted average shares outstanding72.3  72.2  72.3  72.1  
Effect of dilutive securities:
Stock options and restricted stock unit awards—  —  0.1  0.4  
Denominator for diluted EPS - weighted average shares outstanding72.3  72.2  72.4  72.5  
There were 0.5 million and 0.2 million shares of anti-dilutive securities outstanding during the three and six months ended June 30, 2020, respectively. There were 0.4 million and 0.1 million shares of anti-dilutive securities outstanding during the three and six months ended June 30, 2019.
18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of taxes, were as follows as of June 30, 2020 and December 31, 2019 (in millions):
June 30, 2020December 31, 2019
Unrealized components of benefit plans:
Pension plans$(46.2) $(47.4) 
Post-retirement plans0.2  0.2  
Non-qualified benefit plans(0.8) (0.8) 
Total employee benefit plans(46.8) (48.0) 
Interest rate swap(8.3) (0.8) 
Accumulated other comprehensive income (loss)$(55.1) $(48.8) 
21

The changes in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2020 were as follows (in millions):
Employee Benefit PlansInterest Rate SwapTotal
Balance, January 1, 2020$(48.0) $(0.8) $(48.8) 
Other comprehensive income (loss) before reclassifications—  (7.6) (7.6) 
Amounts reclassified from accumulated other comprehensive income (loss)1
1.2  0.1  1.3  
Taxes on other comprehensive income (loss)—  —  —  
Other comprehensive income (loss), net of taxes1.2  (7.5) (6.3) 
Balance, June 30, 2020$(46.8) $(8.3) $(55.1) 
1Amounts reclassified from accumulated other comprehensive income related to interest swap settlements are presented as an adjustment to Interest expense in the condensed consolidated statements of operations. Amounts reclassified from accumulated other comprehensive income related to employee benefit plan items are presented as part of Interest and other income (expense), net in the condensed consolidated statements of operations.

19. RELATED PARTY TRANSACTIONS
Construction Contracts and Material Sales. The Company entered into contracts in the ordinary course of business, as a supplier, with affiliates that are members in entities in which the Company also is a member. Related to the periods during which the relationship existed, revenues earned from transactions with affiliates were $1.3 million and $4.2 million for the three months ended June 30, 2020 and 2019, respectively, and $2.0 million and $6.8 million for the six months ended June 30, 2020 and 2019, respectively. Expenses recognized from transactions with affiliates were $0.7 million and less than $0.1 million for the three months ended June 30, 2020 and 2019, respectively, and $0.9 million and less than $0.1 million for the six months ended June 30, 2020 and 2019, respectively. Receivables from these affiliates were $0.2 million and $0.2 million as of June 30, 2020 and December 31, 2019, respectively. Amounts due to these affiliates were $1.0 million and $1.2 million as of June 30, 2020 and December 31, 2019.
Commercial Real Estate. The Company entered into contracts in the ordinary course of business, as a lessor of property, with certain affiliates that were partially owned by a former director of the Company, as lessee. Related to the periods during which the former director was actively serving the Company, revenue from transactions with these affiliates was $1.3 million during the six months ended June 30, 2019.
Land Operations. During the three months ended and six months ended June 30, 2020 and 2019, the Company recognized $0.3 million and $0.3 million, respectively, and $1.1 million and $0.6 million, respectively, related to revenue for services provided to certain unconsolidated investments in affiliates and interest earned on notes receivables from related parties. Receivables from service revenue from these affiliates were less than $0.1 million as of June 30, 2020 and December 31, 2019. Notes receivables from related parties were held at carrying values of $9.7 million and $13.1 million as of June 30, 2020 and December 31, 2019, respectively, related to a construction loan secured by a mortgage on real property with one of its joint ventures.
22

20. SEGMENT RESULTS
Operating segment information for the three and six months ended June 30, 2020 and 2019 is summarized below (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating Revenue:
Commercial Real Estate$34.0  $39.1  $77.4  $75.9  
Land Operations9.8  24.9  21.3  73.9  
Materials & Construction30.1  45.1  56.0  88.7  
Total operating revenue73.9  109.1  154.7  238.5  
Operating Profit (Loss): 
Commercial Real Estate1
8.9  17.0  26.9  32.6  
Land Operations2
4.7  0.5  9.7  13.1  
Materials & Construction(7.6) (4.3) (11.4) (8.8) 
Total operating profit (loss)6.0  13.2  25.2  36.9  
Gain (loss) on the disposal of assets, net—  —  0.5  —  
Interest expense(7.8) (8.1) (15.6) (17.2) 
Corporate and other expense(2.3) (6.4) (8.4) (12.6) 
Income (Loss) from Continuing Operations Before Income Taxes$(4.1) $(1.3) $1.7  $7.1  
1 Commercial Real Estate segment operating profit (loss) includes intersegment operating revenue, primarily from ourthe Materials & Construction segment, and is eliminated in ourthe condensed consolidated resultsstatements of operations.
2 For the quarter and nine months ended September 30, 2017, Land Operations segment operating profit (loss) includes equity in earnings (losses) from the Company's various real estate joint ventures and non-cash reductions of $0.4 million and $2.6 million, respectively, related to the Company's solar tax equity investments. For
21. DISPOSAL OF SUBSIDIARIES
As described in Note 1 to the consolidated financial statements in the Company's 2019 Form 10-K, as of December 31, 2019, the Company owned a 51% interest in GP/RM Prestress, LLC ("GPRM"), a provider of precast/prestressed concrete products and services, which the Company consolidated due to holding a controlling financial interest through its majority voting interests. GPRM is reported as part of the M&C segment. Subsequent to the quarter and nine months ended SeptemberMarch 31, 2020, GPRM met the criteria to be classified as held-for-sale. As a result, in the quarter ended June 30, 2016, Land Operations segment operating profit2020, the Company recorded a write-down of $5.6 million (based on fair value less cost to sell) related to the disposal group which was included non-cash reductionsin Impairment of $0.2 million and $9.7 million, respectively. The non-cash reductions are recordedassets in Reductions in solar investment, net on the condensed consolidated statementstatements of operations.
3
Costs related to the Company's in-depth evaluation of and conversion to a REIT.

On June 29, 2020, the Company consummated the sale of its 51% ownership interest in GPRM to an unrelated third-party through an LLC interest purchase agreement in exchange for cash proceeds received/to be received of approximately $5.0 million. In connection with the consummation of the disposal of GPRM, the Company recorded an entry to deconsolidate the carrying amounts of the GPRM disposal group and recognized a net loss of $0.1 million, which was included in Gain (loss) on the disposal of assets, net in the condensed consolidated statements of operations.
The GPRM disposal was not considered individually significant and does not qualify for presentation and disclosure as a discontinued operation. Subsequent to the disposal of GPRM, the Company's goodwill balance was $10.5 million and $15.4 million as of June 30, 2020 and December 31, 2019, respectively, of which $8.7 million relates to the Commercial Real Estate segment and the remainder relates to a separate reporting unit within the M&C segment, GP Roadway Solutions, Inc.

21
23



ITEM 2.  MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of the condensed consolidated financial condition and results of operations of Alexander & Baldwin, Inc. ("A&B" or the "Company") and its subsidiaries (collectively, the "Company") 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’sCompany's Annual Report on Form 10-K for the year ended December 31, 20162019 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
Alexander & Baldwin, Inc. ("A&B" or the "Company"), from time to time, may make or may have made certainStatements in this Form 10-Q that are not historical facts are forward-looking statements whether orally or in writing, such as forecasts and projectionswithin the meaning of the Company’s future performance or statements of management’s plans and objectives. These statements are "forward-looking" statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be contained in, among other things, SEC filings, such as the Forms 10-K, 10-Q and 8-K, the Annual Report to Shareholders, press releases made by the Company, the Company’s web sites (including web sites of its subsidiaries), and oral statements made by the officers of the Company. Except for historical information contained in these written or oral communications, such communications contain forward-looking statements. New risk factors emerge from time to time and it is not possible for the Company to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements cannot be relied upon as a guarantee of future results and1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those projectedcontemplated 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 recent novel coronavirus ("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 statements, including the Company’s 2016 Annual Report onCompany's most recent Form 10-K, Form 10-Q and other filings with the SEC. The Company isinformation in this Form 10-Q should be evaluated in light of these important risk factors. We do not required, and undertakes noundertake any obligation to revise or update the Company's forward-looking statements or any factors that may affect actual results, whether as a result of new information, future events, or circumstances occurring after the date of this report.statements.
INTRODUCTION
Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is a supplement to the accompanying condensed consolidated financial statements and provides additional information about A&B’sthe Company's business, recent developments, financial condition, liquidity and capital resources, cash flows, results of operations and how certain accounting principles, policies and estimates affect A&B’sthe Company’s financial statements. MD&A is organized as follows:
•Business Overview: This section provides a general description of A&B’sthe Company's business, as well as recent developments that A&B believeswe believe are important in understanding its results of operations and financial condition or in understanding anticipated future trends.
•ConsolidatedResults of Operations: This section provides an analysis of the Company's consolidated results of operations for the three and six months ended June 30, 2020.
Critical Accounting Estimates: •Analysis of Operating Revenue and Profit by Segment: This section provides an analysis of the Company's results of operations by business segment.
•Liquidity and Capital Resources: This section provides a discussion of the Company's financial condition and an analysis of the Company’s cash flows for the six months ended June 30, 2020 and 2019, as well as a discussion of the Company's ability to fund its future commitments and ongoing operating activities through internal and external sources of capital.
•Other Matters: This section identifies and summarizes thoseother matters to be discussed in Item 2 of this Form 10-Q including commitments, contingencies and off-balance sheet arrangements; accounting policies that significantly impact A&B’sthe Company's reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.
application; and other miscellaneous matters as needed.
ConsolidatedResults of Operations: This section provides an analysis of A&B’s consolidated results of operations for the quarters and nine months ended September 30, 2017 and 2016.
Analysis of Operating Revenue and Profit by Segment: This section provides an analysis of A&B’s results of operations by business segment.
Liquidity and Capital Resources: This section provides a discussion of A&B’s financial condition and an analysis of A&B’s cash flows for the nine months ended September 30, 2017 and 2016, as well as a discussion of A&B’s ability to fund its future commitments and ongoing operating activities through internal and external sources of capital.
Quantitative and Qualitative Disclosures about Market Risk: This section discusses how A&B monitors and manages exposure to potential gains and losses associated with changes in interest rates.
Rounding: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, and may be slightly different.
24

22



BUSINESS OVERVIEW
A&B, whose history dates back to 1870, is headquartered in Honolulu andThe Company operates through three reportable segments: Commercial Real Estate; Land Operations; and Materials & Construction. The Company's three reportable segments reflect an internal reorganizationA description of each of the operations andCompany's reporting structure that the Company completed in the fourth quarter of 2016 to facilitate operational efficiencies and enhance the execution of the Company’s businesses. Prior to October 1, 2016, the Company operated under four reportable segments: segments is as follows:
•Commercial Real Estate Real Estate Development and Sales, Materials & Construction, and Agribusiness. As("CRE") functions as a result of the segment reorganization, the Company’s former Real Estate Development and Sales and Agribusiness segments have been combined into the new Land Operations reportable segment. Additionally, the following items were realigned in connection with the segment changes: (1) agricultural leases that previously were included in the Commercial Real Estate segment were reclassified to the Land Operations segment, (2) certain industrial leases that previously were included in the former Agribusiness segment were reclassified to the Commercial Real Estate segment, (3) sales of commercial properties that previously were included in the former Real Estate Development and Sales segment were reclassified to the Commercial Real Estate segment, and (4) the Company's solar energy investments that previously were presented as Corporate investments were reclassified to Land Operations. The financial information for all prior periods has been recast to correspond to these segment changes.
On July 10, 2017, the Company’s board of directors unanimously approved a plan for the Company to be subject to tax as avertically integrated real estate investment trust (a “REIT”) for U.S. federal income tax purposes commencingcompany with core competencies in investments and acquisitions (i.e., raising capital, 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); 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); and asset management (i.e., maintaining, upgrading and enhancing its portfolio of high-quality improved properties). The segment'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 Company’s taxable year ending December 31, 2017 (the “REIT Election”).
Althoughdaily needs of Hawai‘i citizens. Through its core competencies and with its experience and relationships in Hawai‘i, the Company beganseeks to create special places and experiences for Hawai‘i residents and attempts to provide venues and opportunities for tenants to thrive. Income from this segment is principally generated by owning, operating in compliance withand leasing real estate assets.
•Land Operations involves the requirements for qualificationmanagement and taxation as a REIT (the “REIT requirements”) for the taxable year ending December 31, 2017, the Company intends to complete a merger that will facilitate the Company’s ongoing compliance with the REIT requirements by ensuring that certain standard REIT ownership limitations and transfer restrictions apply to the Company’s capital stock.
Pursuant to the merger agreement entered into on July 10, 2017 among the Company, Alexander & Baldwin REIT Holdings, Inc., a Hawaii corporation and a direct, wholly owned subsidiaryoptimization of the Company (“A&B REIT Holdings”),Company's historical landholdings primarily through the following activities: planning and A&B REIT Merger Corporation, a Hawaii corporationentitlement of real property to facilitate sales; selling undeveloped land; and a direct, wholly owned subsidiary of A&B REIT Holdings (“Merger Sub”), Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation. As a result of the merger, A&B REIT Holdings will replace the Company as the Hawaii-based, publicly held corporation through which the Company’s operations are now conducted, and promptly following the merger A&B REIT Holdings will be renamed “Alexander & Baldwin, Inc.”
During the third quarter of 2017, A&B REIT Holdings filed a registration statement on Form S-4 with the Securities and Exchange Commission (“SEC”), which included a preliminary proxy statement/prospectus that provides information regarding the REIT Election, the proposed merger and the special meetingother operationally-diverse legacy business activities to employ its landholdings at which the Company’s shareholders were given the opportunity to vote on the holding company merger proposal. The special meeting was held on October 27, 2017, during which A&B shareholders approved the holding company merger proposal pursuant to the registration statement.
Commercial Real Estate
The Commercial Real Estate segment owns, operates and manages retail, industrial, and office properties in Hawaii and on the mainland. The Commercial Real Estate segment also leases urban land in Hawaii to third-party lessees.
Land Operations
The Land Operations segment actively manages the Company's land and real estate-related assets and deploys these assets to their highest and best use. Primary activitiesFinancial results from this segment are principally derived from real estate development sales, land parcel sales, income/loss from real estate joint ventures and other legacy business activities.
•Materials & Construction ("M&C") operates as Hawai‘i's largest asphalt paving contractor and is one of the Land Operations segment include planning, zoning, financing, constructing, purchasing, managing, selling,state's largest natural materials and investinginfrastructure construction companies. Such activities are primarily conducted through the Company's wholly-owned subsidiary, Grace Pacific LLC ("Grace Pacific"), a materials and construction company in real property; renewable energy; and diversified agribusiness activities. Hawai‘i.
As a result of the previously mentioned segment realignment,its conversion to a REIT and consequent de-emphasis of non-REIT operating businesses, the Company has reclassifiedestablished a strategy to simplify its business, which includes ongoing efforts to accelerate the HC&S sugar operations, which completed its final harvestmonetization of land and ceased operations in December 2016, to the Land Operations segmentrelated assets and also presentedincludes evaluating strategic options for the operations as discontinued operations foreventual monetization of some or all periods.
Materials & Construction
Theof its Materials & Construction segment performs asphaltbusinesses.
While the Company continues to evaluate options for the Grace Pacific paving as prime contractor and subcontractor; imports and sells liquid asphalt; mines, processes and sells basalt aggregate; produces and sells asphaltic and ready-mix concrete; provides and sells various construction- and traffic-control-relatedbusiness, at the close of the quarter ended June 30, 2020, the Company consummated the sale of one of Grace Pacific's subsidiary operations, GP/RM Prestress, LLC ("GPRM"), a provider of precast/prestressed concrete products and manufacturesservices (which the Company historically consolidated through the disposal date due to holding a controlling financial interest through its majority voting interests). In connection with this sale and sells precast concrete products.disposal, the Company recognized a write-down of $5.6 million (based on fair value less cost to sell) related to GPRM which was included in Impairment of assets in the condensed consolidated statements of operations in the three and six months ended June 30, 2020.

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 surrounds COVID-19 and its effects on the population, as well as the effectiveness of any responses taken by government authorities. The pandemic resulted in a significant decline in Hawai‘i tourism and increase in business closures during the three and six months ended June 30, 2020; 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 July 31, 2020, all of the Company's properties within its CRE portfolio remain open and the Company has estimated that approximately 93% of its tenants (based on total lease billings in July 2020) remain open and operating in some capacity. Further as of this date, the CRE portfolio tenants have paid approximately 74% of their July lease billings (which includes base rents and recoveries from tenants). Within this population, the Company's grocer tenants (designated as essential
23
25

businesses and located within its grocery-anchored neighborhood shopping centers), have paid 81% of their July lease 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 or rent abatement, among other possible agreements. As of June 30, 2020, the Company has offered and agreed to rent deferrals with certain tenants either on a short-term basis (to be paid back over the second half of 2020) or on a long-term basis (to be repaid over 2021). As of July 31, 2020, such short-term rent deferral agreements included 77 tenants totaling $0.6 million of total deferred lease billings and such long-term rent deferral agreements included 115 tenants totaling $2.8 million of total deferred lease billings.
Moreover, during the three months ended June 30, 2020, the Company projected a higher amount of uncollectable tenant billings due to COVID-19. As a result, the Company recorded reductions in revenue of $6.0 million related to CRE receivables and unbilled straight-line assets for which the Company assessed that the tenant's future payment of amounts due under leases was not probable and $2.8 million related to the allowance for doubtful accounts for other impacted operating lease receivables.
The Company’s financial results for the three and six months ended June 30, 2020 have been 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 and six months ended June 30, 2020 to future periods may be significantly impacted by the effects of the outbreak of the COVID-19 pandemic.

26


CONSOLIDATED RESULTS OF OPERATIONS
The following analysis of the consolidated financial condition and results of operations of Alexander & Baldwin, Inc. and its subsidiaries should be read in conjunction with the condensed consolidated financial statements and related notes thereto. Amounts in this narrative are rounded to the nearest tenth of a million, but per-share calculations and percentages were calculated based on thousands. Accordingly, a recalculation of some per-share amounts and percentages, if based on the reported data, may be slightly different than the amounts presented herein. The financial information included in the following table and narrative reflects the presentation of the Company's former sugar operations as discontinued operations for all periods presented.
27

Consolidated – Third quarter- Second Quarter of 20172020 compared with 20162019
Three Months Ended June 30,
(dollars in millions, except per share amounts, unaudited)20202019$ ChangeChange
Operating revenue$73.9  $109.1  (35.2) (32.3)%
Cost of operations(55.1) (87.7) 32.6  (37.2)%
Selling, general and administrative(9.0) (16.2) 7.2  (44.4)%
Impairment of assets related to Materials & Construction(5.6) —  (5.6) NM
Operating income (loss)4.2  5.2  (1.0) (19.2)%
Income (loss) related to joint ventures(0.1) 1.0  (1.1) (110.0)%
Interest and other income (expense), net(0.4) 0.6  (1.0) (166.7)%
Interest expense(7.8) (8.1) 0.3  (3.7)%
Income (loss) from continuing operations(4.1) (1.3) (2.8) 215.4 %
Discontinued operations (net of income taxes)(0.6) 0.1  (0.7) (700.0)%
Net income (loss)(4.7) (1.2) (3.5) 291.7 %
(Income) loss attributable to noncontrolling interest—  0.4  (0.4) (100.0)%
Net income (loss) attributable to A&B$(4.7) $(0.8) (3.9) 487.5 %
Basic Earnings (Loss) Per Share of Common Stock:
Basic earnings (loss) per share - continuing operations$(0.06) $(0.01) (0.05) 500.0 %
Basic earnings (loss) per share - discontinued operations(0.01) —  (0.01) NM
Net income (loss) available to A&B shareholders$(0.07) $(0.01) (0.06) 600.0 %
Diluted Earnings (Loss) Per Share of Common Stock:
Diluted earnings (loss) per share - continuing operations$(0.06) $(0.01) (0.05) 500.0 %
Diluted earnings (loss) per share - discontinued operations(0.01) —  (0.01) NM
Net income (loss) available to A&B shareholders$(0.07) $(0.01) (0.06) 600.0 %
Continuing operations available to A&B common shareholders$(4.1) $(0.9) (3.2) 355.6 %
Discontinued operations available to A&B common shareholders(0.6) 0.1  (0.7) (700.0)%
Net income (loss) available to A&B common shareholders$(4.7) $(0.8) (3.9) 487.5 %
Funds From Operations ("FFO")1
$5.9  $8.3  (2.4) (28.9)%
Core FFO1
$13.1  $15.6  (2.5) (16.0)%
FFO per diluted share$0.08  $0.11  (0.03) (27.3)%
Core FFO per diluted share$0.18  $0.22  (0.04) (18.2)%
Weighted average diluted shares outstanding (FFO)72.4  72.5  
 Quarter Ended September 30,
(dollars in millions, except per-share amounts)2017 2016 $ Change Change
Operating revenue$111.5
 $102.9
 8.6
 8.4%
Operating costs and expenses99.7
 83.8
 15.9
 19.0%
Operating income11.8
 19.1
 (7.3) (38.2)%
Other expense, net(0.7) (5.9) 5.2
 (88.1)%
Income tax expense(3.7) (1.0) (2.7) 270.0%
Income from continuing operations7.4
 12.2
 (4.8) (39.3)%
Discontinued operations (net of income taxes)(0.8) (13.6) 12.8
 (94.1)%
Net income (loss)6.6
 (1.4) 8.0
 NM
Income attributable to noncontrolling interest(0.5) (0.5) —
 —%
Net income (loss) attributable to A&B$6.1
 $(1.9) 8.0
 NM
     
  
Basic earnings per share - continuing operations$0.15
 $0.25
 (0.10) (40.0)%
Basic earnings (loss) per share - discontinued operations(0.02) (0.28) 0.26
 (92.9)%
Net income (loss) available to A&B shareholders$0.13
 $(0.03) 0.16
 NM
        
Diluted earnings per share - continuing operations$0.15
 $0.24
 (0.09) (37.5)%
Diluted earnings (loss) per share - discontinued operations(0.02) (0.27) 0.25
 (92.6)%
Net income (loss) available to A&B shareholders$0.13
 $(0.03) 0.16
 NM
1 Refer to page 37 for definitions of capitalized terms and a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
The Company'scauses of material changes in the condensed consolidated operating revenue increased $8.6 million, or 8.4%, to $111.5 millionstatements of operations for the third quarter of 2017three months ended June 30, 2020 as compared to the third quarter of 2016, reflecting an increase in revenue for Land Operations of $4.5 million, and an increase in Materials & Construction revenue of $2.9 million.
Consolidated operating costs and expenses for the third quarter of 2017 increased $15.9 million, or 19.0%, to $99.7 million compared to the third quarter of 2016. The reasons for the operating cost and expense changesthree months ended June 30, 2019 are described below by business segment,or in the Analysis of Operating Revenue and Profit by Segment. Segment sections below.
Operating costs and expenses revenue for the thirdsecond quarter ended June 30, 2020 decreased 32.3%, or $35.2 million, to $73.9 million, primarily due to lower revenue from each of the Land Operations, Materials & Construction and Commercial Real Estate segments.
Cost of operations for the second quarter ended June 30, 2020 decreased 37.2% or $32.6 million, to $55.1 million, primarily due to decreases in costs incurred by each of the Land Operations and Materials & Construction segments partially offset by an increase in costs incurred by the Commercial Real Estate segment.
28

Selling, general and administrative for the second quarter ended June 30, 2020 decreased 44.4%, or $7.2 million, to $9.0 million, primarily due to lower corporate overhead costs, as well as lower costs incurred in the Materials & Construction and CRE segments. Corporate overhead costs decreased from the second quarter of 2017 also included $4.4the prior year, due primarily to lower personnel-related costs.
Impairment of assets related to Materials & Construction of $5.6 million for the second quarter ended June 30, 2020 was related to the Company's evaluationsale and conversiondisposal of GPRM at the close of the quarter ended June 30, 2020 as described above.









29

Consolidated - First half of 2020 compared with 2019
Six Months Ended June 30,
(dollars in millions, except per share amounts, unaudited)20202019$ ChangeChange
Operating revenue$154.7  $238.5  (83.8) (35.1)%
Cost of operations(112.4) (188.3) 75.9  (40.3)%
Selling, general and administrative(22.8) (31.8) 9.0  (28.3)%
Impairment of assets related to Materials & Construction(5.6) —  (5.6) NM
Gain (loss) on the sale of assets, net0.5  —  0.5  NM
Operating income (loss)14.4  18.4  (4.0) (21.7)%
Income (loss) related to joint ventures3.1  3.7  (0.6) (16.2)%
Interest and other income (expense), net(0.2) 2.2  (2.4) (109.1)%
Interest expense(15.6) (17.2) 1.6  (9.3)%
Income tax benefit (expense)—  1.1  (1.1) (100.0)%
Income (loss) from continuing operations1.7  8.2  (6.5) (79.3)%
Discontinued operations (net of income taxes)(0.8) (0.7) (0.1) 14.3 %
Net income (loss)0.9  7.5  (6.6) (88.0)%
(Income) loss attributable to noncontrolling interest0.6  0.7  (0.1) (14.3)%
Net income (loss) attributable to A&B$1.5  $8.2  (6.7) (81.7)%
Basic Earnings (Loss) Per Share of Common Stock:
Basic earnings (loss) per share - continuing operations$0.03  $0.12  (0.09) (75.0)%
Basic earnings (loss) per share - discontinued operations(0.01) (0.01) —  — %
Net income (loss) available to A&B shareholders$0.02  $0.11  (0.09) (81.8)%
Diluted Earnings (Loss) Per Share of Common Stock:
Diluted earnings (loss) per share - continuing operations$0.03  $0.12  (0.09) (75.0)%
Diluted earnings (loss) per share - discontinued operations(0.01) (0.01) —  — %
Net income (loss) available to A&B shareholders$0.02  $0.11  (0.09) (81.8)%
Continuing operations available to A&B common shareholders$2.3  $8.9  (6.6) (74.2)%
Discontinued operations available to A&B common shareholders(0.8) (0.7) (0.1) 14.3 %
Net income (loss) available to A&B common shareholders$1.5  $8.2  (6.7) (81.7)%
Funds From Operations ("FFO")1
$21.8  $24.7  (2.9) (11.7)%
Core FFO1
$31.4  $28.1  3.3  11.7 %
FFO per diluted share$0.30  $—  $0.34  (0.04) (11.8)%
Core FFO per diluted share$0.43  $—  $0.39  0.04  10.3 %
Weighted average diluted shares outstanding (FFO)72.4  —  72.5  
1 Refer to page 37 for definitions of capitalized terms and a REIT.discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
The Company's other expenses, net were $0.7 millioncauses of material changes in the third quartercondensed consolidated statements of 2017 compared to $5.9 million inoperations for the third quarter of 2016. The change in other income (expense) was primarily due to higher income from the Company's equity method investments, partially offset by a higher non-cash reduction to solar investments, net in the third quarter of 2017six months ended June 30, 2020 as compared to the third quarter of 2016.
The Company recorded an income tax expense of $3.7 million on pre-tax income of $11.1 million for the third quarter of 2017, and an income tax expense of $1.0 million on pre-tax income of $13.2 million for the third quarter of 2016. The Company's effective tax rate was higher for the quartersix months ended SeptemberJune 30, 2017, compared to the same period in 2016, primarily due to the 2016 recognition of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities.

24


Consolidated – First nine months of 2017 compared with 2016
 Nine Months Ended September 30,
(dollars in millions, except per-share amounts)2017 2016 $ Change Change
Operating revenue$302.8
 $276.3
 26.5
 9.6%
Operating costs and expenses273.5
 239.0
 34.5
 14.4%
    Operating income29.3
 37.3
 (8.0) (21.4)%
Other expense, net(6.9) (16.6) 9.7
 (58.4)%
Income tax expense(6.4) (1.6) (4.8) 300.0%
     Income from continuing operations16.0
 19.1
 (3.1) (16.2)%
Discontinued operations (net of income taxes)2.4
 (28.1) 30.5
 NM
     Net income (loss)18.4
 (9.0) 27.4
 NM
Income attributable to noncontrolling interest(1.7) (1.1) (0.6) 54.5%
     Net income (loss) attributable to A&B$16.7
 $(10.1) 26.8
 NM
        
Basic earnings per share - continuing operations$0.32
 $0.39
 (0.07) (17.9)%
Basic earnings (loss) per share - discontinued operations0.04
 (0.58) 0.62
 NM
     Net income (loss) available to A&B shareholders$0.36
 $(0.19) 0.55
 NM
        
Diluted earnings per share - continuing operations$0.31
 $0.38
 (0.07) (18.4)%
Diluted earnings (loss) per share - discontinued operations0.05
 (0.57) 0.62
 NM
     Net income (loss) available to A&B shareholders$0.36
 $(0.19) 0.55
 NM

The Company's consolidated operating revenue increased $26.5 million, or 9.6%, to $302.8 million for the first nine months of 2017 as compared to the first nine months of 2016, reflecting an increase in revenue for Land Operations of $16.1 million, and an increase in revenue for Materials & Construction of $11.0 million.
Consolidated operating costs and expenses for the first nine months of 2017 increased $34.5 million, or 14.4%, to $273.5 million compared to the first nine months of 2016. The reasons for the operating cost and expense changes2019 are described below by business segment,or in the Analysis of Operating Revenue and Profit by Segment. Segment sections below.
Operating costs and expenses revenue for the first ninesix months ended June 30, 2020 decreased 35.1%, or $83.8 million, to $154.7 million, primarily due to lower revenue from each of 2017 also included $11.4the Land Operations and Materials & Construction segments partially offset by higher revenue from the Commercial Real Estate segment.
30

Cost of operations for the six months ended June 30, 2020 decreased 40.3% or $75.9 million, to $112.4 million, primarily due to decreases in costs incurred by each of the Land Operations and Materials & Construction segments partially offset by an increase in costs incurred by the Commercial Real Estate segment.
Selling, general and administrative for the six months ended June 30, 2020 decreased 28.3%, or $9.0 million, to $22.8 million, primarily due to lower corporate overhead costs, as well as lower costs incurred in the Materials & Construction and CRE segments. Corporate overhead costs decreased from the prior period primarily due to lower personnel-related costs.
Impairment of assets related to Materials & Construction of $5.6 million for the six months ended June 30, 2020 was related to the Company's evaluationsale and disposal of a REIT conversion.GPRM at the close of the quarter ended June 30, 2020 as described above..
The Company's other expenses, net, were $6.9 million in the first nine months of 2017 compared to $16.6 million in the first nine months of 2016. The change in other income (expense) was primarily due to a lower reduction in solar investments, net, partially offset by lower gains on sales of improved property.
The Company recorded an income tax expense of $6.4 million on pre-tax income of $22.4 million for the first nine months of 2017, and an income tax expense of $1.6 million on pre-tax income of $20.7 million for the first nine months of 2016. The Company's effective tax rate was higher for the first nine months ended September 30, 2017 compared to the same period in 2016 due primarily to the 2016 recognition of non-refundable federal tax credits related to the Company’s investment in two photovoltaic facilities.



25
31



ANALYSIS OF OPERATING REVENUE AND PROFIT BY SEGMENT
Commercial Real Estate
Financial Results - Second Quarter of 2020 compared with 2019: Operating results for the second quarter ended June 30, 2020, as compared to the second quarter ended June 30, 2019, were as follows:
Three Months Ended June 30,
(dollars in millions, unaudited)20202019$ ChangeChange
Commercial Real Estate operating revenue$34.0  $39.1  $(5.1) (13.0)%
Commercial Real Estate operating costs and expenses(24.0) (21.3) (2.7) 12.7 %
Selling, general and administrative(1.8) (3.0) 1.2  (40.0)%
Intersegment operating revenue, net1
0.8  0.6  0.2  33.3 %
Interest and other income (expense), net(0.1) 1.6  (1.7) (106.3)%
Commercial Real Estate operating profit (loss)$8.9  $17.0  $(8.1) (47.6)%
Operating profit (loss) margin26.2 %43.5 %
Net Operating Income ("NOI")2
$22.2  $25.3  
Same-Store Net Operating Income ("Same-Store NOI")2
$18.9  $22.7  
Gross Leasable Area ("GLA") (million sq. ft.) - Improved (end of period)3.9  3.8  
Ground leases (acres at end of period)154  154  
1 Intersegment operating revenue, net for Commercial Real Estate – Third quarteris primarily from the Materials & Construction segment and is eliminated in the consolidated results of 2017 compared with 2016operations.
 Quarter Ended September 30,
(dollars in millions)2017 2016 Change
Commercial Real Estate segment operating revenue$33.9
 $32.7
 3.7%
Commercial Real Estate segment operating costs and expenses(19.2) (19.3) (0.5)%
Selling, general and administrative(1.9) (0.4) 375.0%
Intersegment operating revenue2
0.8
 0.6
 33.3%
Other income (expense), net—
 (0.1) (100.0)%
Commercial Real Estate operating profit$13.6
 $13.5
 0.7%
Operating profit margin40.1% 41.3%
 
Cash Net Operating Income ("Cash NOI")1
    
   Hawaii$18.5
 $17.6
 5.2%
   Mainland2.7
 2.6
 2.4%
Total$21.2
 $20.2
 4.8%
Same-Store Cash Net Operating Income ("Same-Store Cash NOI")1
     
   Hawaii$16.7
 $16.1
 3.5%
   Mainland2.7
 2.5
 7.2%
Total$19.4
 $18.7
 4.0%
Gross Leasable Area ("GLA") (million sq. ft.) - Improved, end of period     
Hawaii3.0
 2.9
  
Mainland1.8
 1.8
  
Total improved4.8
 4.7
  
Hawaii ground leases (acres)117
 115
  
12 Refer to page 2837 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
Commercial Real Estate operating revenue decreased 13.0% or $5.1 million, to $34.0 million for the second quarter ended June 30, 2020, as compared to the second quarter ended June 30, 2019. Operating profit decreased 47.6%, or $8.1 million, to $8.9 million for the second quarter ended June 30, 2020, as compared to the second quarter ended June 30, 2019. The decrease in operating revenue and operating profit from the prior year is primarily driven by charges recorded related to the collectability of tenant billings as a result of COVID-19. During the three months ended June 30, 2020, the Company recorded reductions in revenue of $6.0 million related to receivables and unbilled straight-line assets for tenants whose future payment of amounts due under leases was no longer considered probable and $2.8 million related to the allowance for doubtful accounts for other impacted operating lease receivables.
The impacts of the tenant billings collectability charges were partially offset by the positive impact of recent redevelopment/new development projects commencing operations, most notably Ho‘okele Shopping Center on Maui (commenced operations in the third quarter of 2019). This retail property contributed approximately $0.4 million of additional gross margin in the second quarter ended 2020 as compared to 2019.
Commercial Real Estate interest income from the prior year was earned on §1031 exchange funds from the sale of agricultural land on Maui in 2018 (which were utilized as of the end of the quarter ended June 30, 2019).
32

Financial Results - First half of 2020 compared with 2019: Operating results for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019, were as follows:
Six Months Ended June 30,
(dollars in millions, unaudited)20202019$ ChangeChange
Commercial Real Estate operating revenue$77.4  $75.9  $1.5  2.0 %
Commercial Real Estate operating costs and expenses(48.3) (40.5) (7.8) 19.3 %
Selling, general and administrative(3.9) (5.5) 1.6  (29.1)%
Intersegment operating revenue, net1
1.4  1.2  0.2  16.7 %
Interest and other income (expense), net0.3  1.5  (1.2) (80.0)%
Commercial Real Estate operating profit (loss)$26.9  $32.6  $(5.7) (17.5)%
Operating profit (loss) margin34.8 %43.0 %
Net Operating Income ("NOI")2
$51.1  $49.5  
Same-Store Net Operating Income ("Same-Store NOI")2
$43.3  $46.3  
21 Intersegment operating revenue, net for Commercial Real Estate is primarily from ourthe Materials & Construction segment and is eliminated in ourthe consolidated results of operations.
Commercial Real Estate revenue for the third quarter of 2017 and 2016 was $33.9 million and $32.7 million, respectively. The increase was primarily attributable to the increases in Hawaii same-store rents. "Same-store" refers to properties that were owned and operated for the entirety of the prior calendar year. The same-store pool excludes properties under development or redevelopment and also excludes properties acquired or sold during the comparable reporting periods, including stabilized properties. New developments and redevelopments are moved into the same-store pool upon one full calendar year of stabilized operation, which is typically upon attainment of market occupancy.
Operating profit and cash net operating income ("Cash NOI") for the third quarter of 2017 increased by 0.7% and 4.8%, respectively, compared to the third quarter of 2016. The period-over-period increase in operating profit was primarily due to performance of the Hawaii properties, including higher Hawaii same-store rents, offset by an increase in general and administrative expenses. The higher general and administrative expenses reflect the Company’s strategic shift to focus on the growth of the commercial real estate portfolio through acquisition, development and redevelopment, which resulted in the alignment of certain personnel and related costs to the Commercial Real Estate segment, as well as costs incurred related to transitioning existing third-party property management and leasing functions internally. The period-over-period increase in Cash NOI was primarily due to performance of the Hawaii portfolio, including higher Hawaii same-store rents. Same-Store Cash NOI for the third quarter of 2017 increased by 4.0% compared to the third quarter of 2016, primarily due to an increase in same-store rents.
Tenant improvement costs were $2.5 million and $0.6 million for the quarter ended September 30, 2017 and 2016, respectively. Leasing commissions were $1.0 million and $0.6 million for the quarter ended September 30, 2017 and 2016, respectively.

26


The Company's commercial portfolio's occupancy percentage summarized by geographic location and property type as of September 30, 2017 was as follows:
Percent occupancyHawaiiMainlandTotal
Retail92.5%96.0%92.9%
Industrial94.2%99.2%97.0%
Office91.9%87.5%88.8%
Total93.0%95.9%94.1%
The Company's commercial portfolio's quarter end same-store occupancy as of September 30, 2017 was 94.1% as compared to 91.3% as of September 30, 2016.
The table below identifies sales and acquisitions between December 31, 2016 and September 30, 2017:
Dispositions Acquisitions
Date Property Leasable sq. ft. Date Property Leasable sq. ft.
1/17 The Maui Clinic Building 16,600
 6/17 Honokohau Industrial 73,200
  Total dispositions 16,600
   Total improved acquisitions 73,200
The table below identifies sales and acquisitions between December 31, 2015 and December 31, 2016:
Dispositions Acquisitions
Date Property Leasable sq. ft. Date Property Leasable sq. ft.
6/16 Ninigret Office Park 185,500
 12/16 2927 East Manoa Road (Ground Lease) N/A
6/16 Gateway Oaks 59,700
 1/16 Manoa Marketplace 139,300
6/16 Prospect Park 163,300
      
  Total dispositions 408,500
   Total improved acquisitions 139,300

Commercial Real Estate – First nine months of 2017 compared with 2016
 Nine Months Ended September 30,
(dollars in millions)2017 2016 Change
Commercial Real Estate segment operating revenue$101.4
 $102.0
 (0.6)%
Commercial Real Estate segment operating costs and expenses(56.9) (60.1) (5.3)%
Selling, general and administrative(5.1) (2.3) 121.7%
Intersegment operating revenue2
2.1
 1.9
 10.5%
Other income (expense), net(0.2) (0.2) —%
Commercial Real Estate operating profit$41.3
 $41.3
 —%
Operating profit margin40.7% 40.5%  
Net Operating Income ("Cash NOI")1
     
   Hawaii$55.5
 $52.5
 5.8%
   Mainland8.3
 10.5
 (21.6)%
Total$63.8
 $63.0
 1.2%
Same-Store Net Operating Income ("Same-Store Cash NOI")1
     
   Hawaii$50.7
 $48.6
 4.3%
   Mainland8.2
 7.9
 4.5%
Total$58.9
 $56.5
 4.3%
12 Refer to page 2837 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.
2Intersegment operating revenue for Commercial Real Estate is primarily from our Materials & Construction segment, and is eliminated in our consolidated results of operations.

27


Commercial Real Estate operating revenue increased 2.0% or $1.5 million, to $77.4 million for the first ninesix months ended June 30, 2020, as compared to the six months ended June 30, 2019. Operating profit decreased 17.5%, or $5.7 million, to $26.9 million for the six months ended June 30, 2020, as compared to the six months ended June 30, 2019. The increase in each of 2017Commercial Real Estate operating revenue and Commercial Real Estate operating costs and expenses for the six months ended June 30, 2020 is primarily attributable to the impacts of recently acquired properties, redevelopment/new development projects commencing operations, as well as a growth in a category of properties that were owned and operated for the entirety of the prior calendar year ("Same-Store" as more fully described below). Such increases in Commercial Real Estate operating revenue were partially offset by revenue charges of $8.8 million that the Company recorded during the second quarter ended June 30, 2020 related to the collectability of tenant billings as a result of COVID-19 (described above).
Commercial Real Estate interest income from the prior year was 0.6% lower thanearned on §1031 exchange funds from the sale of agricultural land on Maui in 2018 (which were utilized as of the end of the quarter ended June 30, 2019).
Commercial Real Estate Portfolio Acquisitions and Dispositions: There were no acquisitions of CRE improved properties or ground lease interests in land during the three or six months ended June 30, 2020.
During the second quarter ended June 30, 2020, the Company made the following dispositions within one of its commercial real estate properties under a purchase option held and executed by the then-current tenant as follows ($ in millions):
Dispositions
PropertyLocationDate
(Month/Year)		Sales PriceGLA (SF)
The Collection (Suites 2 & 3)Oahu, HI2/20$6.0  6,100

Leasing Activity: During the second quarter ended June 30, 2020, the Company signed 11 new leases and 31 renewal leases, covering 176,500 square feet of GLA. The 11 new leases comprise 19,900 square feet with an average annual base rent of $41.59 per square foot. Signed new leases resulted in a 5.8% average base rent increase over comparable expiring leases. The 31 renewal leases comprise 156,700 square feet with an average annual base rent of $24.48 per square foot. Signed renewal leases resulted in a 4.9% average base rent increase over comparable expiring leases.
Leasing activity summarized by property type for the three and six months ended June 30, 2020 were as follows:

33

Three Months Ended June 30, 2020Six Months Ended June 30, 2020
LeasesGLAABR/SFRent SpreadLeasesGLAABR/SFRent Spread
Retail27129,964$27.926.1%51188,069$27.625.8%
Industrial1232,531$15.702.5%26166,464$14.4511.0%
Office314,040$37.171.6%822,456$35.741.5%

Occupancy: Occupancy represents the percentage of square footage leased and commenced to gross leasable space at the end of the period reported. The Company's commercial portfolio's occupancy and Same-Store occupancy percentage summarized by property type as of June 30, 2020 and 2019 was as follows:
Occupancy
As ofAs ofPercentage Point Change
June 30, 2020June 30, 2019
Retail93.1%94.9%(1.8)
Industrial97.6%94.4%3.2
Office93.7%94.3%(0.6)
Total94.6%94.7%(0.1)

Same-Store Occupancy
As ofAs ofPercentage Point Change
June 30, 2020June 30, 2019
Retail94.8%95.0%(0.2)
Industrial97.4%93.9%3.5
Office93.7%94.3%(0.6)
Total95.6%94.6%1.0



34


Land Operations - Second Quarter of 2020 compared with 2019
Three Months Ended June 30,
(in millions, unaudited)20202019
Development sales revenue$2.3  $18.1  
Unimproved/other property sales revenue1.6  0.4  
Other operating revenue1
5.9  6.4  
Total Land Operations operating revenue9.8  24.9  
Land Operations operating costs and expenses(2.9) (23.2) 
Selling, general and administrative(1.2) (1.2) 
Earnings (loss) from joint ventures(0.7) 0.8  
Interest and other income (expense), net(0.3) (0.8) 
Total Land Operations operating profit (loss)$4.7  $0.5  
1 Other operating revenue includes revenue related to trucking, renewable energy and diversified agriculture.
Second Quarter of 2020: Land Operations revenue during the quarter ended June 30, 2020 was $9.8 million and included the sales of a development parcel at Maui Business Park II, as well as sales of unimproved parcels on Kauai and Maui. Revenue also included other operating revenues related to the Company's legacy business activities in the Land Operations segment (e.g., trucking service, renewable energy and diversified agribusiness operations).
Land Operations operating profit of $4.7 million during the second quarter ended June 30, 2020 was due primarily to the impact of favorable resolutions to certain contingent liabilities recorded in connection with the sale of agricultural land on Maui in 2018, margins realized for the sales activity previously described, as well as profits generated from the operations of the segment's other legacy business activities.
Second Quarter of 2019: Land Operations revenue was $24.9 million and included sales of the 22 remaining units from the Company's Kamalani real estate development project in Kihei, Maui, one Kahala Avenue parcel and one parcel at Maui Business Park II. Revenue also included other operating revenues related to the Company's trucking service, renewable energy and diversified agribusiness operations.
Land Operations - First half of 2020 compared with 2019
Six Months Ended June 30,
(in millions, unaudited)20202019
Development sales revenue$5.9  $30.4  
Unimproved/other property sales revenue3.7  30.9  
Other operating revenue1
11.7  12.6  
Total Land Operations operating revenue21.3  73.9  
Land Operations operating costs and expenses(11.0) (62.6) 
Selling, general and administrative(2.4) (2.6) 
Earnings (loss) from joint ventures2.3  3.4  
Interest and other income (expense), net(0.5) 1.0  
Total Land Operations operating profit (loss)$9.7  $13.1  
1 Other operating revenue includes revenue related to trucking, renewable energy and diversified agriculture.
First half of 2020: Land Operations revenue during the six months ended June 30, 2020 was $21.3 million and included the sales of development parcels at Maui Business Park II and unimproved land sales on the island of Kauai and Maui. Revenue also included other operating revenues related to the Company's legacy business activities in the Land Operations segment (e.g., trucking service, renewable energy, and diversified agribusiness operations).
Land Operations operating profit of $9.7 million during the first ninehalf ended June 30, 2020 was composed of the margins on the sales noted above, as well as profits generated from the operations of the segment's other legacy business
35

activities. Other drivers of operating profit in the quarter included favorable outcomes for contingent liabilities recorded as part of the sale of agricultural land on Maui in 2018 that were resolved as of June 30, 2020.
First half of 2019: Land Operations revenue was $73.9 million and included the impact of the sales of 42 acres of land and related improvements in Wailea, the remaining 44 units in Increment 1 of the Kamalani planned community, two Kahala lots, approximately 800 acres of agricultural land on Maui and one Maui Business Park II lot. Operating profit for the six months ended June 30, 2019 of 2016,$13.1 million was primarily driven by the sales of land and related improvements mentioned above.
Known Trends, Events and Uncertainties: The asset class mix of real estate sales in any given year or quarter can be diverse and may include developed residential real estate, developable subdivision lots, undeveloped land, or property sold under threat of condemnation. Further, the timing of property or parcel sales can significantly affect operating results in a given period.
Additionally, the operating profit reported in each quarter does not necessarily follow a percentage of sales trend because the cost basis of property sold can differ significantly between transactions. For example, the sale of undeveloped land and vacant parcels in Hawai‘i generally provides higher margins than does the sale of developed property, due to the timinglow historical cost basis of the Company's land owned in Hawai‘i.
As a result, direct year-over-year comparison of the Land Operations segment results may not provide a consistent, measurable indicator of future performance. Further, Land Operations revenue trends, cash flows from the sales of real estate, and acquisitionsthe amount of real estate held for sale on the Company's balance sheet do not necessarily indicate future profitability trends for this segment.
Materials & Construction - Second Quarter of 2020 compared with 2019
Three Months Ended June 30,
(in millions, unaudited)20202019$ ChangeChange
Materials & Construction operating revenue$30.1  $45.1  $(15.0) (33.3)%
Materials & Construction operating profit (loss)$(7.6) $(4.3) $(3.3) 76.7%
Operating margin percentage(25.2)%(9.5)%
Impairment of assets related to Materials & Construction$5.6  $—  $5.6  NM
Depreciation and amortization$2.6  $3.0  $(0.4) (13.3)%
Aggregate tons delivered (tons in thousands)160.8  209.6  (48.8) (23.3)%
Asphalt tons delivered (tons in thousands)38.6  92.7  (54.1) (58.4)%
Backlog1 at period end
$112.3  $77.6  $34.7  44.7%
1 Backlog represents the total amount of revenue that Grace Pacific and Maui Paving, LLC, a 50-percent-owned unconsolidated affiliate, expect to realize on contracts awarded. Backlog primarily consists of asphalt paving and, to a lesser extent, Grace Pacific’s consolidated revenue from its construction-and traffic control-related products. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders. The length of time that projects remain in backlog can span from a few days for a small volume of work to 36 months for large paving contracts and contracts performed in phases. As of June 30, 2020 and 2019, these amounts include $55.3 million and $7.4 million of opportunity backlog consisting of government contracts in which Grace Pacific has been confirmed to be the lowest bidder and formal communication of the award is perfunctory at the time of this disclosure. Circumstances outside the Company's control such as procurement or technical protests may arise that prevent the finalization of such contracts. Maui Paving's backlog at June 30, 2020 and 2019 was $6.8 million and $1.9 million, respectively.

Materials & Construction revenue was $30.1 million for the second quarter ended June 30, 2020, compared to $45.1 million for the second quarter ended June 30, 2019. Operating loss was $7.6 million for the second quarter ended June 30, 2020, compared to operating loss of $4.3 million for the second quarter ended June 30, 2019. During the quarter ended June 30, 2020, the segment operating loss was primarily driven by a write-down of $5.6 million that the Company recorded in advance of, but in connection with, the Company's sale of its 51% interest in GPRM (based on fair value less cost to sell) at the end of the quarter. The remaining operating loss incurred during 2016, partially offsetthe second quarter of 2020 was due primarily to the impact of low paving volumes due in part to government agency-imposed delays and the impact of COVID-19.
Backlog at June 30, 2020 was $112.3 million (as a result of the disposal of GPRM at the end of the second quarter ended June 30, 2020, this metric excludes backlog related to GPRM). On a comparable basis (i.e., adjusted to exclude GPRM backlog of $27.6 million as of June 30, 2019), backlog increased from $77.6 million at June 30, 2019. The increase in backlog
36

was primarily driven by an increase in Hawaii same-store rents.the amount of marketed bid opportunities and an improvement in the rate of bids won by the Company.
Operating profitRelated to the calculation of the backlog metric, as noted in prior periods, certain agencies award "maintenance contracts" under which a contractor can secure all paving work within a certain geographic area, but jobs are not identified in advance (and, therefore, will not meet the requirement for inclusion in backlog). Under this maintenance contract system, during the six months ended June 30, 2020, the Company also secured significant maintenance contract awards, including the Oahu State Pavement Preservation maintenance contracts for the entire island of Oahu. Procedurally, the Company must receive specific work orders that would meet the definition of backlog and provide actionable scopes of work, including quantities, location, materials and project economics.
Materials & Construction - First half of 2020 compared with 2019
Six Months Ended June 30,
(in millions, unaudited)20202019$ ChangeChange
Materials & Construction operating revenue$56.0  $88.7  $(32.7) (36.9)%
Materials & Construction operating profit (loss)$(11.4) $(8.8) $(2.6) 29.5%
Operating margin percentage(20.4)%(9.9)%
Impairment of assets related to Materials & Construction$5.6  $—  $5.6  NM
Depreciation and amortization$5.4  $5.8  $(0.4) (6.9)%
Aggregate tons delivered (tons in thousands)308.4  410.6  (102.2) (24.9)%
Asphalt tons delivered (tons in thousands)72.4  169.7  (97.3) (57.3)%

Materials & Construction revenue was $56.0 million for the first ninehalf ended June 30, 2020, compared to $88.7 million for the first half ended June 30, 2019. Operating loss was $11.4 million for the first half ended June 30, 2020, compared to operating loss of $8.8 million for the first half ended June 30, 2019. During the six months ended June 30, 2020, the segment operating loss was primarily driven by the write-down of 2017 was consistent with the same period last year, while Cash NOI increased by 1.2%. Operating profit did not change period-over-period, which reflected an increase in operating profit$5.6 million (based on fair value less cost to sell) related to same-store properties as described above, offset by an increaseGPRM that was recorded in general and administrative expenses. The general and administrative expenses reflect the Company’s strategic shift to focus on the growthadvance of the commercial real estate portfolio through acquisition, developmentsale and redevelopment, which resulted indisposal consummated at the alignmentclose of certain personnel and related costs to the Commercial Real Estate segment, as well as costs incurred related to transitioning existing third-party property management and leasing functions internally.quarter ended June 30, 2020. The period-over-period increase in Cash NOIremaining operating loss was primarily was due primarily to increases in same-store rents, partially offset by the impact of acquisitionslow paving volumes due in part to government agency-imposed delays and dispositions between the reported periods. Same-Store Cash NOIimpact of COVID-19 (including travel restrictions and resource availability for projects on neighbor islands). The Company is continuing to monitor the first nine monthsperformance of 2017 increased by 4.3% compared to the first nine monthsM&C segment in the context of 2016.  The period over period increasethe COVID-19 pandemic. However, based on the inherent uncertainty in Same-Store Cash NOI was primarily due to an increase in same-store rents throughout the Hawaiigeneral economic environment, there can be no assurance that the carrying values associated with the long-lived assets and Mainland portfolios.goodwill will be recoverable and impairments on such long-lived assets and goodwill may be required.
Tenant improvement costs were $4.0 million and $3.0 million for the nine months ended September 30, 2017 and 2016, respectively. Leasing commissions were $4.6 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Use of Non-GAAP Financial Measures
Cash netThe Company uses non-GAAP measures when evaluating operating income ("Cash NOI")performance because management believes that they provide additional insight into the Company's and segments' core operating results, and/or the underlying business trends affecting performance on a consistent and comparable basis from period to period. These measures generally are provided to investors as an additional means of evaluating the performance of ongoing core operations. The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for or superior to, financial measures calculated in accordance with GAAP.
FFO is presented by the Company as a widely used non-GAAP measure of operating performance for real estate companies. FFO is defined by the CommercialNational Association of Real Estate segment,Investment Trusts ("Nareit") December 2018 Financial Standards White Paper as follows: net income (calculated in accordance with GAAP), excluding (1) depreciation and amortization related to real estate, (2) gains and losses from the sale of certain real estate assets, (3) gains and losses from change in control and (4) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
37

The Company believes that, subject to the following limitations, FFO provides a supplemental measure to net income (calculated in accordance with GAAP) for comparing its performance and operations to those of other REITs. FFO does not represent an alternative to net income calculated in accordance with GAAP. In addition, FFO does not represent cash generated from operating activities in accordance with GAAP, nor does it represent cash available to pay distributions and should not be considered as an alternative to cash flow from operating activities, determined in accordance with GAAP, as a measure of our liquidity. The Company presents different forms of FFO:
•"Core FFO" represents a non-GAAP measure relevant to the operating performance of its commercial real estate business (i.e., its core business). Core FFO is calculated by adjusting segmentCRE operating profit forto exclude items noted above (i.e., depreciation and amortization straight-line lease adjustments, and general, administration and other expenses. Otherrelated to real estate companies may use different methodologies for calculating Cash NOI,included in CRE operating profit) and accordingly,to make further adjustments to include expenses not included in CRE operating profit but that are necessary to accurately reflect the operating performance of its core business (i.e., unallocated corporate expenses and interest expense attributable to this core business). The Company believes such adjustments facilitate the comparable measurement of the Company's presentationcore operating performance over time. The Company believes that Core FFO, which is a supplemental non-GAAP financial measure, provides an additional and useful means to assess and compare the operating performance of Cash NOIREITs.

•FFO represents the Nareit-defined non-GAAP measure for the operating performance of the Company as a whole. The Company's calculation refers to net income (loss) available to A&B common shareholders as its starting point in the calculation of FFO.

The Company presents both non-GAAP measures and reconciles each to the most directly-comparable GAAP measure as well as reconciling FFO to Core FFO. The Company's FFO and Core FFO may not be comparable to FFO non-GAAP measures reported by other real estate companies.REITs. These other REITs may not define the term in accordance with the current Nareit definition or may interpret the current Nareit definition differently.

Cash NOI is a non-GAAP measure used by the Companyinternally in evaluating the CRE segment’s operatingunlevered performance as it is an indicator of the return on property investment,Company's Commercial Real Estate portfolio. The Company believes NOI provides useful information to investors regarding the Company's financial condition and provides a method of comparing performanceresults of operations on an unlevered basis, over time. Cashbecause it reflects only those cash income and expense items that are incurred at the property level, and when compared across periods, can be used to determine trends in earnings of the Company's properties as this measure is not affected by non-cash revenue and expense recognition items, the impact of depreciation and amortization expenses or other gains or losses that relate to the Company's ownership of properties. The Company believes the exclusion of these items from operating profit (loss) is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating the Company's Commercial Real Estate portfolio as well as trends in occupancy rates, rental rates, and operating costs. NOI should be not be viewed as a substitute for, or superior to, financial measures calculated in accordance with GAAP. In connection with the Company's decision to convert to a REIT in 2017, the Company has revised its definition
NOI represents total Commercial Real Estate cash-based operating revenues (i.e., billings for which collectability is deemed probable), less direct property-related operating expenses. The calculation of NOI to adjust Operating Profit for termination income,excludes the impact of depreciation and amortization (including amortization of maintenance capital, tenant improvements and leasing commissions); straight-line lease incentiveadjustments (including amortization andof lease incentives); amortization of favorable/unfavorable lease amortization. We refer to amounts reported in this MD&Aassets/liabilities; lease termination income; other income and expense, net; selling, general, administrative and other expenses; and impairment of commercial real estate assets.
The Company reports NOI and Occupancy on a Same-Store basis, which includes the results of properties that were owned and operated for the entirety of the prior calendar year and current reporting period, year-to-date. The Same-Store pool excludes properties under our new definition as "Cash NOI" to distinguish fromdevelopment or redevelopment and also excludes properties acquired or sold during either of the amounts previously reported under our prior definition.comparable reporting periods. While there is no standard industry definitionmanagement judgment involved in classifications, new developments and redevelopments are moved into the Same-Store pool after one full calendar year of NOI,stabilized operation. New developments and redevelopments are generally considered stabilized upon the initial attainment of 90% occupancy. Properties included in held for sale are excluded from Same-Store.
The Company believes its revised definition is more closely alignedthat reporting on a Same-Store basis provides investors with current practicesadditional information regarding the operating performance of comparable assets versus from other REITs.factors (such as the effect of developments, redevelopments, acquisitions or dispositions).

To emphasize, the Company's methods of calculating non-GAAP measures may differ from methods employed by other companies and thus may not be comparable to such other companies.
38

Reconciliations of net income (loss) available to A reconciliation&B common shareholders to FFO and Core FFO for the three and six months ended June 30, 2020 and 2019 are as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net income (loss) available to A&B common shareholders$(4.7) $(0.8) $1.5  $8.2  
Depreciation and amortization of commercial real estate properties10.6  9.1  20.8  16.5  
Gain on the sale of commercial real estate properties—  —  (0.5) —  
FFO$5.9  $8.3  $21.8  $24.7  
Exclude items not related to core business:
Land Operations Operating Profit(4.7) (0.5) (9.7) (13.1) 
Materials & Construction Operating Loss7.6  4.3  11.4  8.8  
Loss from discontinued operations0.6  (0.1) 0.8  0.7  
Income (loss) attributable to noncontrolling interest—  (0.4) (0.6) (0.7) 
Income tax expense (benefit)—  —  —  (1.1) 
Non-core business interest expense3.7  4.0  7.7  8.8  
Core FFO$13.1  $15.6  $31.4  $28.1  
Reconciliations of Core FFO starting from CRE operating profit for the three and six months ended June 30, 2020 and 2019 are as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
CRE Operating Profit$8.9  $17.0  $26.9  $32.6  
Depreciation and amortization of commercial real estate properties10.6  9.1  20.8  16.5  
Corporate and other expense(2.3) (6.4) (8.4) (12.6) 
Core business interest expense(4.1) (4.1) (7.9) (8.4) 
Core FFO$13.1  $15.6  $31.4  $28.1  
Reconciliations of Commercial Real Estate segment operating profit to Commercial Real Estate segment Cash NOI is as follows:
  Quarter Ended September 30, Nine Months Ended September 30,
(dollars in millions) 2017 2016 Change 2017 2016 Change
Commercial Real Estate Operating Profit $13.6
 $13.5
 
 $41.3
 $41.3
 
Adjustments:     
      
Depreciation and amortization 6.6
 7.0
 
 19.7
 21.7
 
Straight-line lease adjustments (0.3) (0.4) 
 (1.3) (1.6) 
Lease incentive amortization —
 —
 
 —
 0.1
 
Favorable/(unfavorable) lease amortization (0.6) (0.9) 
 (2.2) (2.6) 
Termination income —
 —
 
 —
 (0.1) 
Other (income)/expense, net —
 0.1
 
 0.2
 0.2
 
Selling, general, administrative and other expenses 1.9
 0.9
 
 6.1
 4.0
 
Commercial Real Estate Cash NOI 21.2
 20.2
 4.8% 63.8
 63.0
 1.2%
Acquisitions/disposition and other adjustments (1.8) (1.5) 
 (4.9) (6.5) 
Commercial Real Estate Same-Store Cash NOI $19.4
 $18.7
 4.0% $58.9
 $56.5
 4.3%



28


Land Operations – Third quarter of 2017 compared with 2016
Effect of Property Sales Mix on Operating Results: Direct year-over-year comparison of the Land Operations segment results may not provide a consistent, measurable indicator of future performance because results from period to period are significantly affected by the mix and timing of property sales. Operating results, by virtue of each project’s asset class, geography and timing are inherently variable. Earnings from joint venture investments are not included in segment revenue, but are included in operating profit. The mix of real estate sales in any year or quarter can be diverse and can include developed residential real estate, developable subdivision lots, undeveloped land, and property sold under threat of condemnation. The sale of undeveloped land and vacant parcels in Hawaii generally provides higher margins than does the sale of developed property, due to the low historical cost basis of the Company’s Hawaii land. Consequently, Land Operations revenue trends, cash flows from the sales of real estate, and the amount of real estate held for sale on the Company's balance sheet do not necessarily indicate future profitability trends for this segment. Additionally, the operating profit reported in each quarter does not necessarily follow a percentage of sales trend because the cost basis of property sold can differ significantly between transactions.
 Quarter Ended September 30,
(dollars in millions)2017 2016
Development sales revenue$1.5
 $3.3
Unimproved/other property sales revenue15.4
 9.5
Agribusiness revenue5.6
 5.2
Other operating revenues0.1
 0.1
Total Land Operations segment revenue$22.6
 $18.1
Operating expenses(16.4) (11.2)
Earnings from joint ventures2.9
 0.6
Reductions in solar investments, net(0.4) (0.2)
Interest and other income1.7
 0.5
Total Land Operations operating profit$10.4
 $7.8
Third quarter 2017: Land Operations operating revenue and operating profit were $22.6 million and $10.4 million, respectively. Operating results for the Land Operations segment included sales related to a 293-acre parcel in Haiku, Maui, a 273-acre parcel on the island of Kauai,three and a 1.5-acre parcel at Maui Business Park II, as well as earnings from the Company's real estate development-related joint ventures and investments. The segment results also included segment operating expenses of $16.4 million and non-cash reductions in the carrying value of the Company's tax equity solar investments of $0.4 million.
Third quarter 2016: Land Operations operating revenue and operating profit were $18.1 million and $7.8 million, respectively. Operating results included sales of a 267-acre parcel in Haiku, Maui, a Kahala lot, as well as earnings from the Company's real estate development-related joint ventures and investments, partially offset by operating expenses of the segment and a $0.2 million non-cash reduction in the carrying value of the Company’s tax equity solar investments.

29


Land Operations – First nine months of 2017 compared with 2016
 Nine Months Ended September 30,
(dollars in millions)2017 2016
Development sales revenue$6.1
 $3.3
Unimproved/other property sales revenue21.4
 10.1
Agribusiness revenue18.0
 16.0
Other operating revenues0.2
 0.2
Total Land Operations segment revenue$45.7
 $29.6
Operating expenses(40.7) (29.3)
Earnings from joint ventures3.6
 1.0
Reductions in solar investments, net(2.6) (9.7)
Interest and other income3.7
 1.1
Total Land Operations operating profit (loss)$9.7
 $(7.3)
First nine months of 2017: Land Operations operating revenue and operating profit were $45.7 million and $9.7 million, respectively. Operating results for the Land Operations segment included sales related to a 293-acre parcel in Haiku, Maui, a 273-acre parcel on the island of Kauai, a 3-acre parcel in Wailea, Maui, a 6-acre parcel in Haliimaile, Maui, two lots at Maui Business Park, and a 0.8-acre vacant, urban parcel on Maui, as well as earnings from the Company's real estate development-related joint ventures and investments. The segment results also included a $2.6 million non-cash reduction in the carrying value of the Company's Solar Investment.
First nine months of 2016: Land Operations operating revenue and operating loss were $29.6 million and $7.3 million, respectively. Operating results included a $9.7 million non-cash reduction in the carrying value of the Company’s Solar Investments, segment operating expenses, partially offset by revenue from the sale of a 267-acre parcel in Haiku, Maui, a Kahala lot, nine Ka Milo units, and the sale of electricity generated by the Company's renewable energy assets.

Discontinued Operations
The revenue, operating loss, and after-tax effects of discontinued operations for the quarter and ninesix months ended SeptemberJune 30, 20172020 and 2016 were2019 are as follows (in millions):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Commercial Real Estate Operating Profit (Loss)$8.9  $17.0  $26.9  $32.6  
Plus: Depreciation and amortization10.6  9.1  20.8  16.5  
Less: Straight-line lease adjustments1.3  (1.7) 0.5  (2.7) 
Less: Favorable/(unfavorable) lease amortization(0.5) (0.5) (0.7) (0.9) 
Plus: Other (income)/expense, net0.1  (1.6) (0.3) (1.5) 
Plus: Selling, general, administrative and other expenses1.8  3.0  3.9  5.5  
Commercial Real Estate NOI22.2  25.3  51.1  49.5  
Less: NOI from acquisitions, dispositions, and other adjustments(3.3) (2.6) (7.8) (3.2) 
Same-Store NOI$18.9  $22.7  $43.3  $46.3  

 Quarter Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Sugar operations revenue (Land Operations)$0.4
 $35.7
 $22.9
 $73.7
        
Operating loss before income taxes$(1.1) $(17.1) $(2.2) $(51.2)
Gain (loss) on asset dispositions(0.2) —
 6.0
 —
Income (loss) from discontinued operations before income taxes(1.3) (17.1) 3.8
 (51.2)
Income tax (expense) benefit0.5
 3.5
 (1.4) 23.1
Income (loss) from discontinued operations$(0.8) $(13.6) $2.4
 $(28.1)
        
Basic earnings (loss) per share$(0.02) $(0.28) $0.04
 $(0.58)
Diluted earnings (loss) per share$(0.02) $(0.27) $0.05
 $(0.57)
Third quarter 2017: Loss from discontinued operations of $0.8 million during the third quarter of 2017 reflected exit related costs, as well as property removal and restoration costs. See Note 14, "Cessation of Sugar Operations" for further discussion regarding the cessation and the related costs associated with such exit and disposal activities.

30


Third quarter 2016: Loss from discontinued operations of $13.6 million during the third quarter of 2016 reflected sugar operations cessation costs, partially offset by results of the sugar operations. The cessation charges included accelerated depreciation, employee severance benefits and related costs, and property removal, restoration and other exit-related costs.
First nine months of 2017: Income from discontinued operations of $2.4 million during the first nine months of 2017 reflected the gain on asset dispositions and the results of operations related to the final sugar voyage, partially offset by cessation-related costs. During the first nine months ended September 30, 2017, the Company sold mobile equipment assets, its bulk sugar transportation vessel and factory equipment, which resulted in a total gain of $6.0 million. Additionally, the Company recognized revenue and operating profit during the first nine months of 2017, primarily related to the final delivery of sugar inventory, which occurred in January 2017. The cessation charges included costs related to employee severance and benefits, as well as property removal, restoration and other exit-related costs. See Note 14, "Cessation of Sugar Operations" for further discussion regarding the cessation and the related costs associated with such exit and disposal activities.
First nine months of 2016: Loss from discontinued operations of $28.1 million during the first nine months of 2016 reflected sugar operations cessation costs, partially offset by results of the sugar operations. The cessation charges included accelerated depreciation, employee severance benefits and related costs, and property removal, restoration and other exit-related costs.

MATERIALS & CONSTRUCTION
Materials & Construction -Third quarterof 2017 compared with 2016
 Quarter Ended September 30,
(dollars in millions)2017 2016 Change
Revenue$55.0
 $52.1
 5.6%
Operating profit$6.5
 $5.6
 16.1%
Operating profit margin11.8% 10.7%  
Depreciation and amortization$3.1
 $2.9
 6.9%
Aggregate used and sold (tons in thousands)179.7
 158.1
 13.7%
Asphaltic concrete placed (tons in thousands)165.8
 126.9
 30.7%
Backlog1,2 at period end
$211.3
 $242.5
 (12.9)%
1
Backlog represents the total of (1) the amount of revenue that Grace Pacific and Maui Paving, LLC, a 50-percent-owned unconsolidated affiliate, expect to realize on contracts awarded and (2) government contracts in which Grace Pacific has been confirmed to be the lowest bidder and formal communication of the award is perfunctory ($31.8 million as of September 30, 2017). Backlog primarily consists of asphalt paving and, to a lesser extent, Grace Pacific’s consolidated revenue from its Prestress and construction-and traffic control-related products. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders. The length of time that projects remain in backlog can span from a few days for a small volume of work to 36 months for large paving contracts and contracts performed in phases. Maui Paving's backlog at September 30, 2017 and 2016 was $12.9 million and $19.1 million, respectively.
2
As of September 30, 2017 and 2016, the backlog included contractual revenue with related parties of $1.0 million and $1.8 million, respectively.
Materials & Construction revenue for the third quarter of 2017 increased $2.9 million, or 5.6%, as compared to the third quarter of 2016, primarily due to higher paving and Prestress volumes and a bulk sale of imported aggregates, partially offset by lower average prices per unit sold in paving, Prestress and GLP, as well as lower sales volumes for hot mix and liquid asphalt. Revenue during the third quarter of 2017 reflected approximately 179.7 thousand tons of aggregate used and sold and 165.8 thousand tons of asphaltic concrete placed, as compared to 158.1 thousand tons of aggregate used and sold and 126.9 thousand tons of asphaltic concrete placed during 2016. Backlog at the end of September 30, 2017 was $211.3 million compared to $242.9 million as of December 31, 2016. The decrease in backlog from the fourth quarter of 2016 is primarily due to the amount of work completed and billed work during the period and the lack of major bids offered by governmental entities during the first nine months of 2017 compared to first nine months 2016. Backlog reasonably expected to be filled in the current fiscal year is approximately $153.0 million.
Operating profit increased $0.9 million, or 16.1%, in the third quarter of 2017, as compared to the third quarter of 2016, primarily due to higher earnings from unconsolidated affiliates and Prestress, partially offset by lower paving margins resulting from competitive pricing pressures.


31


Materials & Construction -First nine months of 2017compared with 2016
 Nine Months Ended September 30,
(dollars in millions)2017 2016 Change
Revenue$155.7
 $144.7
 7.6%
Operating profit$18.8
 $18.5
 1.6%
Operating profit margin12.1% 12.8%  
Depreciation and amortization$9.2
 $8.8
 4.5%
Aggregate used and sold (tons in thousands)526.3
 500.8
 5.1%
Asphaltic concrete placed (tons in thousands)442.9
 331.7
 33.5%
Materials & Construction revenue for the first nine months of 2017 increase $11.0 million, or 7.6%, as compared to the first nine months of 2016, primarily due to higher paving and Prestress volumes, a bulk sale of imported aggregates and higher levels of construction-related services, partially offset by lower average prices per unit sold in paving, Prestress product and liquid asphalt, as well as lower sales volumes for hot mix and liquid asphalt. Revenue during the first nine months of 2017 reflected approximately 526.3 thousand tons of aggregate used and sold and 442.9 thousand tons of asphaltic concrete placed, as compared to 500.8 thousand tons of aggregate used and sold and 331.7 thousand tons of asphaltic concrete placed during 2016.
Operating profit increased $0.3 million, or 1.6%, in the first nine months of 2017, as compared to the first nine months of 2016, primarily due to higher volumes in paving and Prestress products, an improved mix of Roadway higher margin work, lower unit inventory costs for liquid asphalt, and lower hot mix asphalt production cost per ton partially offset by paving work completed that were bid at lower margins due to competitive pricing pressures and lower volumes of hot mix asphalt and third party aggregate sales. The Company expects the competitive pricing and market conditions that have impacted the segment financial performance to persist.

LIQUIDITY AND CAPITAL RESOURCES
Overview: A&B'sThe Company's primary liquidity needs have historically been to support and fund shareholder distributions; satisfaction of its regular debt service requirements and maturities under its notes payable and other debt arrangements; working capital requirementsrequirements; and fund capital expenditures, commercial real estate acquisitions and real estate
39

developments. A&B’sThe Company's principal sources of liquidity have been available cash and cash equivalent balances; cash flows provided by operating activities, available cash and cash equivalent balances,activities; and borrowing capacity under its various credit facilities.
A&B’sThe Company's operating income (loss) is generated by its subsidiaries. There are no material restrictions on the ability of A&B’sthe Company's wholly owned subsidiaries to pay dividends or make other distributions to A&B. A&Bthe Company. The Company regularly evaluates investment opportunities, including developmentdevelopment-for-hold projects, commercial real estate acquisitions, joint venture investments, share repurchases, business acquisitions and other strategic transactions to increase shareholder value. A&BThe Company cannot predict whether or when it may make investments or what impact any such transactions could have on A&B’sthe Company's results of operations, cash flows or financial condition. A&B’s cash flows
As noted above, the COVID-19 pandemic has adversely impacted global commercial activity; has contributed to significant volatility in financial markets; and both its near-term and long-term economic impacts remain uncertain. As a result, the Company proactively drew $120 million on its credit facility at the end of the first quarter ended March 31, 2020 to ensure it had ample access to capital and increase flexibility (and, at the end of the second quarter ended June 30, 2020, elected to repay $50 million of the amounts outstanding, in part, with proceeds from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those describedasset monetization efforts in the section entitled "Risk Factors"quarter). Additionally, the Company announced in the second quarter ended June 30, 2020 that it has temporarily suspended quarterly dividend distributions. The Company will continue to monitor its financial performance and economic outlook each quarter with the intention of paying 100% of REIT taxable income, and ensuring compliance with REIT taxable income distribution requirements for the Company’s 2016 Annual Report on Form 10-K.full year.
Cash Flows: Cash flows used in operating activities totaled $45.2provided by operations were $28.2 million and $81.1 million for the ninesix months ended SeptemberJune 30, 2017 as compared to cash flows provided by operating activities of $48.4 million for the nine months ended September 30, 2016. The decrease in cash2020 and 2019, respectively. Cash flows from operating activities isfor the six months ended June 30, 2020 were primarily attributed todriven by the cash outlays for working capital purposes, including a discretionary pension contribution and employee severance payments relatedgenerated from the CRE segment, which represents its core business. Cash flows from the Land Operations segment has decreased as compared to the cessationprior year comparable period which is attributable to the aforementioned strategic shift to emphasize the monetization of HC&S sugar operations.the Company's landholdings and assets in Land Operations (which resulted in the successful closing out of two development-for-sale projects in 2019).
Cash flows used inprovided by investing activities totaled $38.0was $3.8 million duringfor the first ninesix months of 2017,ended June 30, 2020 as compared to $54.6 million during the first nine months of 2016. The period-to-period change in cash flows used in investing activities was primarily due toof $235.5 million for the six months ended June 30, 2019. The six months ended June 30, 2020 included cash outlays of $82.4$10.9 million related to capital expenditures. The six months ended June 30, 2019 included cash outlays of $245.8 million related to capital expenditures which was largely driven by $218.4 million related to the Company's acquisition of Manoa Marketplacefive commercial real estate assets.
As it relates to CRE segment, the Company differentiates capital expenditures as follows:
•Growth Capital Expenditures - Development and redevelopment activity in order to generate income and cash flow growth.

•Maintenance Capital Expenditures - Activity necessary to maintain building value, the current income stream and position in the first quarter of 2016.market.

32



Capital expenditures for the third quarter of 2017 and 2016 was $10.3 million and $5.5 million, respectively. Capital expenditures for the first nine months of 2017 totaled $33.7 million as compared to $105.3 million for the first nine months of 2016. Net cash flows used in investing activities for capital expendituresrespective periods were as follows:
Six Months Ended June 30,
(in millions, unaudited)20202019Change
CRE property acquisitions, development and redevelopment$5.5  $235.2  (97.7)%
Building/area improvements (Maintenance Capital Expenditures)2.3  4.8  (52.1)%
Tenant space improvements (Maintenance Capital Expenditures)1.3  1.4  (7.1)%
Quarrying and paving1.1  3.5  (68.6)%
Agribusiness and other0.7  0.9  (22.2)%
Total capital expenditures¹$10.9  $245.8  (95.6)%
 Quarter Ended September 30,
(dollars in millions)2017 2016 Change
Commercial real estate property acquisitions/improvements$5.6
 $1.6
 250.0%
Tenant improvements2.5
 0.6
 316.7%
Quarrying and paving1.1
 1.7
 (35.3)%
Agribusiness and other1.1
 1.6
 (31.3)%
Total capital expenditures1
$10.3
 $5.5
 87.3%
      
 Nine Months Ended September 30,
(dollars in millions)2017 2016 Change
Commercial real estate property acquisitions/improvements$22.0
 $88.1
 (75.0)%
Tenant improvements4.0
 3.0
 33.3%
Quarrying and paving5.1
 7.1
 (28.2)%
Agribusiness and other2.6
 7.1
 (63.4)%
Total capital expenditures1
$33.7
 $105.3
 (68.0)%
1 Excludes capital expenditures for real estate developments to be held and sold as real estate development inventory, which are classified in the condensed consolidated statement of cash flows as operating activities and are excluded from the tabletables above.
CashGiven the uncertainty around the duration and economic impact of the COVID-19 pandemic, the Company is not able to project capital expenditures in 2020 related to any of its segments.
40

Net cash flows provided by financing activities were $94.3was $49.0 million for the first ninesix months of 2017,ended June 30, 2020, as compared to $10.7net cash used in financing activities for the six months ended June 30, 2019 of $74.8 million. The change in cash flows from financing activities in 2020 as compared to 2019 was due primarily to the Company drawing $120 million on its credit facility as a safeguard due to uncertainty caused by the COVID-19 pandemic during the first nine monthsquarter ended March 31, 2020.
Other Sources of 2016. The change from the prior year was primarily dueLiquidity: In addition to higher repayment amounts made on the Company's long term debt, offsetting the higher amounts borrowed under the Company's revolving senior credit facility during the nine months ended September 30, 2016.
The Company believes that funds generated from results of operations, available cash and cash equivalents and available borrowings under credit facilities will be sufficient to finance the Company’s business requirements for the next fiscal year, including working capital, capital expenditures, and potential acquisitions and stock repurchases. There can be no assurance, however, that the Company will continue to generate cash flows at or above current levels or that it will be able to maintain its ability to borrow under its available credit facilities.
Other Sources of Liquidity: Additional$96.2 million as of June 30, 2020, other sources of liquidity for the Company consisted of cash and cash equivalents,include trade and income tax receivables, contracts retention, and inventories, that totaled $114.3totaling $72.4 million at SeptemberJune 30, 2017, an increase2020, a decrease of $13.9$25.1 million from December 31, 2016. This net increase is primarily due to an increase in cash and cash equivalents of $11.1 million, income tax receivables of $15.3 million, partially offset by a decrease in sugar inventories of $17.5 million as a result of the cessation of the sugar operations.2019.
The Company also hasCompany's revolving credit and term facilities that provide additional sources of liquidity for working capital requirements or investment opportunities on a short-term as well as longer-term basis. On September 15, 2017,With respect to the Company entered into a Second Amended and Restated Credit Agreement ("A&B Revolver") with Bank of America N.A., as administrative agent, First Hawaiian Bank, and other lenders party thereto, which amended and restated its existing $350 million committed revolving credit facility, ("Revolving Credit Facility"). as of June 30, 2020, the Company had $181.0 million of borrowings outstanding, $1.1 million letters of credit issued against and $267.9 million of available capacity on such revolving credit facility.
Known Trends, Events and Uncertainties: As noted above, the COVID-19 pandemic has adversely impacted the global economy; has contributed to significant volatility in financial markets; and both its near-term and long-term economic impacts remain uncertain. This uncertainty includes the potential need for additional capital resources to maintain the Company's business and operations during a period of potential declining or delayed rent payments from CRE tenants and/or potential declining revenue from its other businesses.
The A&B Revolver increasedCompany's ability to retain outstanding borrowings and utilize remaining amounts available under its revolving credit facility will depend on its continued compliance with the total revolving commitments to $450 million, extended the term of the Revolving Credit Facility to September 15, 2022, amended certainapplicable financial covenants and reduced the interest rates and fees charged under the Revolving Credit Facility. All other terms of the Revolving Credit Facility remain substantially unchanged.
Total debt as of September 30, 2017 was $625.8 million compared to $515.1 million as of December 31, 2016. The increase in debt of 21.5% during the first nine months of 2017 was primarily attributed to net borrowings of $108.9 million, inclusive of net draws on the A&B Revolver of $140.3 million and a new second mortgage of $5.0 million related to Kailua Town Center, offset by amortizationCompany's notes payable and other repayments of the Company's term loans. As of September 30, 2017, available capacity under the unsecured, committed credit facility totaled $283.0 million.

33


Balance Sheet: debt arrangements. The Company has a working capital surplus of $110.2 million as of September 30, 2017, which is an increase of $137.0 million, from a $26.8 million deficit as of December 31, 2016. The change in the working capital surplus is primarily due to an increase in prepaid and other assets, cash, real estate held for sale, and income tax receivables.
At September 30, 2017, the Company believes it was in compliance with its financial covenants for all outstanding balances as of June 30, 2020. However, as a result of the various uncertainties and factors surrounding COVID-19 it may be unable to continue to maintain compliance with certain of its financial covenants. Failure to maintain compliance with its financial covenants or obtain waivers or agree to modifications with its lenders would have a material adverse impact on the Company's financial condition. The Company intends to closely monitor the impact of COVID-19 on its business and intends to operate in compliance with these covenants or seek to obtain waivers or modifications to these financial covenants to enable the Company to maintain compliance.
As of June 30, 2020, the Company had $0.1 million of future payments related to maturities of notes payable and other debt coming due in the next twelve months (based on the filing date of this report) and $14.9 million of future payments related to maturities of notes payable and other debt coming due in 2021.
Based on its current outlook, the Company believes that funds generated from results of operations; available cash and cash equivalents; and available borrowings under credit facilities will be sufficient to finance the Company's business requirements for the next twelve months, including debt service and maturities under its credit facilities. While there can be no assurance thatnotes payable and other debt arrangements; working capital; capital expenditures; and distributions to shareholders. However, as the circumstances underlying its current outlook may change, the Company will remain in compliance with its covenants,continue to actively monitor the Company expectssituation and may take further actions that it will remaindetermines is in compliance.the best interest of its business, financial condition and liquidity and capital resources.

34


Tax-Deferred Real Estate Exchanges:
Sales & Purchases- Sales: During the thirdsecond quarter of 2017, the Company hadended June 30, 2020, there were no cash proceeds from sales activity that qualified for potential tax-deferral treatment under Internal Revenue Code Section 1031.  §1031 or §1033.
Purchases: During the second quarter of 2017, the Company utilized $10.1 millionended June 30, 2020, there were no acquisitions utilizing proceeds from tax-deferred sales to acquire Honokohau Industrial Park under a reverse 1031 exchange transaction. During the first quarter of 2016, the Company acquired both the leasehold and leased fee interests of Manoa Marketplace, a retail center on Oahu for $82.4 million. The proceeds from the sales of the three Mainland properties that were completed during the second quarter of 2016 were applied to the Manoa Marketplace acquisition under a reverse 1031 transaction that qualifies for tax-deferral treatment under Internal Revenue Code 1031.or condemnations.
Proceeds from 1031§1031 tax-deferred sales are held in escrow pending future use to purchase new real estate assets. The proceeds from 1033§1033 condemnations are held by the Company until the funds are redeployed. As of SeptemberJune 30, 2017,2020, there wereare no cash proceeds from tax-deferred sales and approximately $3.6$14.5 million from tax-deferred sales or condemnations that had not yet been reinvested.
Commitments, Contingencies and Off-balance Sheet Arrangements: A description of other commitments, contingencies, and off-balance sheet arrangements at September 30, 2017, and herein incorporated by reference, is included in Note 3 to the condensed consolidated financial statements of Item 1 in this Form 10-Q.
OTHER MATTERS
Significant Accounting Policies:  The Company’s significant accounting policies are describedCommitments, Contingencies and Off-balance Sheet Arrangements:A description of other commitments, contingencies, and off-balance sheet arrangements at June 30, 2020, and herein incorporated by reference, is included in Note 210 to the condensed consolidated financial statements includedof Item 1 in Item 8 of the Company’s 2016this Form 10-K.10-Q.
41

Critical Accounting Estimates:The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which the Management’sManagement's Discussion and Analysis is based, requires that management exercise judgment when making estimates and assumptions about future events that may affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material. The most significant accounting estimates inherent in the preparation of A&B’sthe Company's financial statements were described inManagement’s Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s 2016Company's 2019 Form 10-K.


35
42



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning market risk is incorporated herein by reference to Item 7A of the Company’sCompany's Form 10-K for the fiscal year ended December 31, 2016.2019. There hashave been no material changechanges in the quantitative and qualitative disclosures about market risk since December 31, 2016.2019.

As noted above, the COVID-19 pandemic has adversely impacted the global economy; has contributed to significant volatility in financial markets; and both its near-term and long-term economic impacts remain uncertain. With respect to material market risk exposures, as the Company is exposed to changes in interest rates, primarily as a result of its borrowing and investing activities used to maintain liquidity and to fund business operations, the Company will continue to actively monitor the situation and its impact on interest rates and may take further actions that it determines is in the best interest of its business, financial condition and liquidity and capital resources.
ITEM 4. CONTROLS AND PROCEDURES
(a)Disclosure Controls and Procedures
Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as amended (the "Exchange Act")Act) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2020, the end of such period, the Company'sCompany’s disclosure controls and procedures arewere effective.
(b)    Changes in Internal Control Over Financial Reporting
There have not been noany changes in the Company's internal controlscontrol over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's fiscal second quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

43
36



PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under the "Legal Proceedings and Other Contingencies" section in Note 310 of Notes to Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

ITEM 1A. RISK FACTORS
With the exception of the following, there have been no material changes to the risk factors previously disclosed in Item 1A. "Risk Factors" in our most recent annual report on Form 10-K.
Risks Relating to Our Business
The COVID-19 pandemic and measures intended to prevent its spread has had, and could continue to have, an adverse effect on our business, results of operations, cash flows and financial condition.

In December 2019, a new strain of coronavirus ("COVID-19") was first reported in Wuhan, China, and on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has led governments around the world, including federal, state and local authorities in the United States, to implement measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. The pandemic has caused a decline in Hawai‘i tourism, visitor arrivals and commercial activity, which, if prolonged, may have an adverse impact on Hawai‘i’s economy.
The impact of the COVID-19 pandemic and measures to prevent its spread has adversely affected, and could continue to adversely affect, our businesses, results of operations, cash flows and financial condition. Our leasing rental revenue and operating results depend significantly on the occupancy levels at our properties and the ability of our tenants to meet their rent and other obligations to us. Tenants that experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent in full on a timely basis or at all. Certain of our tenants may incur significant costs or losses responding to the pandemic, lose business due to any interruption in the operations of our properties, or incur other losses or liabilities related to shelter-in-place orders, quarantines, infection or other related factors. Federal, state, local and industry-initiated efforts may also limit our ability to collect rent or enforce remedies for the failure to pay rent. In addition, the deterioration of economic conditions as a result of the pandemic may decrease occupancy levels and rents across our portfolio as tenants reduce or defer their spending, which could adversely affect the value of our properties.
The COVID-19 pandemic has caused, and may continue to cause, severe economic, market and other disruptions worldwide. Conditions in the lending, capital and other financial markets may continue to deteriorate as a result of the pandemic, and our access to capital and other sources of funding may become constrained, which could adversely affect the availability and terms of future borrowings, renewals, or refinancings.
Failure to comply with certain restrictive financial covenants contained in our credit facilities could impose restrictions on our business segments, capital availability or the ability to pursue other activities.

Our credit facilities and term debt contain certain restrictive financial covenants. If we breach any of the covenants and such breach is not cured in a timely manner or waived by the lenders, and such event results in default, our access to credit may be limited or terminated and the lenders could declare any outstanding amounts immediately due and payable. We further may be limited in our ability to make distributions to our shareholders in event of default.
An economic downturn, which may be brought on by the COVID-19 pandemic, could challenge our ability to maintain ongoing compliance with these financial covenants. While we, if in breach of such covenants, intend to apply for temporary waivers of such requirements, our failure to receive such waivers would have an adverse effect on our liquidity and capital resources.
The COVID-19 pandemic has led to remote working by our employees, which may result in certain increases in cyber and privacy risks, which could have an adverse effect on us.

We have transitioned a significant subset of our employees to a remote work environment in compliance with State and local orders pertaining to individuals and businesses and safe practices, which may exacerbate certain risks to our businesses, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information.
44

Risks Relating to Our Commercial Real Estate Segment

The COVID-19 pandemic may have an adverse effect on our tenants' operations and financial condition and could adversely impact our profitability.

Considerable uncertainty surrounds the COVID-19 pandemic and its effects on the population, as well as the effectiveness of any responses taken by government authorities. The pandemic has caused a decline in Hawai‘i tourism, visitor arrivals and commercial activity, which, if prolonged, may have an adverse impact on Hawai‘i’s economy and our tenants' operations and financial condition.
On March 21, 2020, the Hawai‘i governor issued a proclamation requiring all persons arriving or returning to the State of Hawai‘i to comply with a mandatory fourteen day (or the duration the individual's presence in the State, if shorter) self-quarantine. Following this order, the governor issued and continues to issue proclamations and orders in response to the pandemic restricting activities and mandating safe practices and procedures for individuals and businesses. Such proclamations and orders continue to evolve and such restrictions could be in place for an extended period.
These restrictions have adversely impacted, and could continue to adversely impact, our tenants, as governmental instructions regarding safe practices and travel to the State have reduced and, in some cases, eliminated customer foot traffic and has also caused certain of our tenants to close their brick-and-mortar stores and spaces.
The COVID-19 pandemic may have a continued adverse impact on economic and market conditions and may trigger a protracted period of economic slowdown globally and in Hawai‘i. The rapidly evolving nature of the COVID-19 pandemic makes it difficult to ascertain the long-term impact it will have on commercial real estate markets and our real estate investments.
Risks Relating to Our Materials & Construction Segment
The COVID-19 pandemic may have an adverse effect on infrastructure and other projects and could reduce our revenues and profits from our materials and construction businesses.

Considerable uncertainty surrounds the COVID-19 pandemic and its effect on the economy globally and in Hawai‘i. Any resulting slowdown or delays in, or work stoppages or workforce disruptions relating to, infrastructure and other projects could reduce the revenues and profits from our materials and construction businesses.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2020—  $—  —  —  
May 1-31, 202026  $9.24  —  —  
June 1-30, 2020—  $—  —  —  
1Represents shares accepted in satisfaction of Equity Securitiestax withholding obligations arising upon the vesting of restricted stock unit awards.
 
 
 
 
Period
 
 
 
Total number of
shares purchased1
 
 
 
Average price
paid per share
Total number of
shares purchased as
part of publicly
announced plans
or programs
Maximum number
of shares that
may yet be purchased
under the plans
or programs
July 1-31, 201760$42.19——
August 1-31, 201716,954$43.53——
September 1-30, 20173,025$43.68——
1
Represents shares accepted in satisfaction of tax withholding obligations arising upon option exercises.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulations S-K (17 CFR 229.104) is included in Exhibit 95 to this periodic report on Form 10-Q.

ITEM 5. OTHER INFORMATION
None.On August 4, 2020, Stanley M. Kuriyama, who has been serving as the Company’s Chairman of the Board of Directors, informed the Company’s Board of Directors (the “Board”) that he will be retiring from the Board, effective as of the close of business on September 30, 2020. As previously discussed in the proxy statement that was filed for the Company’s 2020 annual meeting, Mr. Kuriyama’s retirement is not due to any disagreement with the Company on any matter relating to the Company’s operations, policies, practices or otherwise.
45

Effective as of October 1, 2020, Eric K. Yeaman, a member of the Board, will serve as Chairman of the Board.
On August 4, 2020, the Board elected John T. Leong as a member of the Board, to be effective as of October 1, 2020. Mr. Leong is the Co-founder and Chief Executive Officer of Kupu, a Hawaii non-profit organization (2007 - present) and the Co-founder, Chairman and Chief Executive Officer of Pono Pacific Land Management LLC (2000 - present). Pursuant to the Automatic Grant Program under the Alexander & Baldwin, Inc. Amended and Restated 2012 Incentive Compensation Plan, Mr. Leong will receive an equity award of $52,500. This award represents a prorated amount of the restricted stock unit award made to non-employee Board members at the 2020 annual meeting of shareholders, which covers the period from the appointment of Mr. Leong to the date of the 2021 annual meeting of shareholders. The award will vest, and the underlying shares will be issued, upon Mr. Leong’s completion of one year of continued Board service measured from his October 1, 2020 appointment date. Mr. Leong will receive other compensation as a non-employee Board member as described in the proxy statement that was filed for the Company’s 2020 annual meeting.
46

ITEM 6. EXHIBITS
EXHIBIT INDEX
31.1 Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95 Mine Safety Disclosure
101 The following information from Alexander & Baldwin, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019, (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the six months ended June 30, 2020 and 2019, (iii) Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, (iv) Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2020 and 2019, (v) Condensed Consolidated Statements of Equity for the six months ended June 30, 2020 and 2019, and (vi) the Notes to the Condensed Consolidated Financial Statements.
47

SIGNATURES
31.1Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the nine months ended September 30, 2017 and September 30, 2016, (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, (v) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2017 and September 30, 2016, and (vi) the Notes to the Condensed Consolidated Financial Statements.
95Mine Safety Disclosure

37


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALEXANDER & BALDWIN, INC.
(Registrant)
Date:November 8, 2017/s/ James E. Mead
James E. Mead
Chief Financial Officer
Date:November 8, 2017/s/ Paul K. Ito
Paul K. Ito
Senior Vice President, Finance and Treasurer


38


EXHIBIT INDEX
31.1
Certification of Chief Executive Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32August 7, 2020
Certification of Chief
By: /s/ Brett A. Brown
Brett A. Brown
Executive OfficerVice President and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following information from Alexander & Baldwin, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and September 30, 2016, (ii) Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and September 30, 2016, (iii) Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2017 and September 30, 2016, (v) Condensed Consolidated Statements of Equity for the nine months ended September 30, 2017 and September 30, 2016 and (vi) the Notes to the Condensed Consolidated Financial Statements.
95August 7, 2020
Mine Safety Disclosure
By: /s/ Clayton K.Y. Chun
Clayton K.Y. Chun
Senior Vice President, Chief Accounting Officer and Controller


39
48