Alexander & Baldwin(ALEX) - 2022 Q4 - Annual Report

Part I Item 1. Business Alexander & Baldwin (A&B) is a Hawai'i-focused REIT managing a large commercial real estate portfolio and simplifying its business by divesting non-core assets - A&B is a Hawai'i-based REIT owning 22 retail centers, 12 industrial assets, and four office properties, totaling 3.9 million square feet of gross leasable area (GLA)[10] - The company's core business objectives are: growing the Commercial Real Estate portfolio, maintaining balance sheet strength, and completing its strategic simplification by divesting the Grace Disposal Group (Grace Pacific and Maui Quarries)[11] - The company operates two reportable segments: Commercial Real Estate, which focuses on owning, operating, and leasing real estate assets, and Land Operations, which includes legacy landholdings subject to monetization[19] - As of December 31, 2022, the Grace Disposal Group was classified as held for sale and discontinued operations, leading to the elimination of the former Materials and Construction (M&C) segment[20] - As of December 31, 2022, the company had 144 regular full-time employees in its continuing operations, a decrease from 168 in the prior year[24] - The company is advancing its ESG initiatives, including converting common area lighting to LED at 17 properties, installing a 1.3-megawatt photovoltaic system at its largest retail asset, and adding electric vehicle (EV) charging stations[32][33] Item 1A. Risk Factors The company faces significant risks including maintaining REIT status, Hawai'i's economic concentration, rising interest rates, tenant bankruptcies, and water shortages impacting land operations - Risks to REIT Status: The company may fail to maintain its REIT qualification due to complex tax provisions Additionally, potential legislative changes in Hawai'i could eliminate the REIT dividends paid deduction for state income tax purposes, leading to double taxation[44][45][47] - General Business Risks: The company's business is concentrated in Hawai'i, making it vulnerable to local economic downturns It faces challenges in disposing of illiquid non-strategic assets and may not successfully complete the sale of its Grace Disposal Group[61][64][65] - Financial Risks: Rising interest rates could increase interest expenses and decrease the value of the real estate portfolio The phase-out of LIBOR may also lead to less favorable financing terms[69][70] - Commercial Real Estate Risks: The business is exposed to tenant bankruptcies, the shift from brick-and-mortar to online retail, and the risk of co-tenancy provisions that could allow other tenants to reduce rent or terminate leases if an anchor tenant vacates[88][92][93] - Land Operations Risks: A lack of sufficient water for agricultural irrigation could trigger financial obligations related to the 2018 sale of Maui agricultural land to Mahi Pono[104] Item 1B. Unresolved Staff Comments The company reported that it has no unresolved staff comments from the Securities and Exchange Commission - None[107] Item 2. Description of Properties by Segment The company's portfolio as of December 31, 2022, includes 3.9 million square feet of CRE properties with 95.0% occupancy and 4,168 acres in Land Operations Commercial Real Estate Improved Property Portfolio by GLA (SF) | Asset Class | GLA (Square Feet) | | :--- | :--- | | Retail | 2,503,700 | | Industrial | 1,255,200 | | Office | 145,700 | | Total | 3,904,600 | - The leased occupancy for the improved properties portfolio was 95.0% as of December 31, 2022, an increase from 94.3% as of December 31, 2021[110] - The company's portfolio of commercial ground leases totaled 140.7 acres with a current Annualized Base Rent (ABR) of $18.8 million[115][116] - The Land Operations segment holds 4,168 acres of real estate investments with a total carrying value of $75.5 million[118] - The primary active development-for-sale project within the Land Operations segment is Maui Business Park II, where the company sold 4.9 acres in 2022[120] Item 3. Legal Proceedings This section incorporates by reference the information on legal proceedings and other contingencies detailed in Note 10 of the Notes to Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 10 – Commitments and Contingencies of Notes to Consolidated Financial Statements[122] Item 4. Mine Safety Disclosures This section incorporates by reference the information concerning mine safety violations required by the Dodd-Frank Act, which is included in Exhibit 95 of the annual report - Information concerning mine safety disclosures is included in Exhibit 95 to this Annual Report on Form 10-K[123] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Alexander & Baldwin's common stock (ALEX) is listed on the NYSE, with the company maintaining REIT status and an active $150 million stock repurchase program - The company's Board of Directors reauthorized a stock repurchase program of up to $150 million, effective from January 1, 2022, to December 31, 2023[128] Q4 2022 Stock Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share ($) | Approximate Value Remaining ($ thousands) | | :--- | :--- | :--- | :--- | | Oct 1-31, 2022 | 80,960 | $16.95 | $145,400 | | Nov 1-30, 2022 | — | $— | $145,400 | | Dec 1-31, 2022 | — | $— | $145,400 | | Total | 80,960 | $16.95 | $145,400 | Item 6. Reserved This item is reserved and contains no information - None Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, A&B reported a net loss of $50.6 million, primarily due to pension termination and discontinued operations impairment, despite strong CRE segment performance and adequate liquidity Business Overview This section outlines the company's CRE and Land Operations segments, its simplification strategy, the classification of Grace Disposal Group as discontinued operations, and the 2022 pension plan termination - The company's simplification strategy led to the classification of the Grace Disposal Group (Grace Pacific and Maui Quarries) as held for sale and discontinued operations as of December 31, 2022[140] - In 2022, the company sold approximately 18,900 acres of land on Kauai and its interest in McBryde Resources, Inc. for $76.0 million, recognizing a net gain of $54.0 million[140] - The company completed the termination of its Defined Benefit Pension Plans in June 2022, making cash contributions of $28.7 million and recording a pre-tax settlement charge of $76.9 million[142] Consolidated Results of Operations For 2022, A&B reported a net loss of $50.6 million, a significant decline from 2021, primarily due to a $76.9 million pension charge and an $86.6 million loss from discontinued operations Consolidated Results of Operations (2022 vs. 2021) | Metric (in millions) | 2022 | 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Operating Revenue | $230.5 | $254.0 | $(23.5) | (9.3)% | | Operating Income | $115.7 | $85.4 | $30.3 | 35.5% | | Income from Continuing Operations | $37.1 | $75.4 | $(38.3) | (50.8)% | | Loss from Discontinued Operations | $(86.6) | $(39.6) | $(47.0) | (118.7)% | | Net Income (Loss) Attributable to A&B | $(50.6) | $35.4 | $(86.0) | NM | - A pension termination loss of $76.9 million was recorded in 2022 due to the settlement of the company's Defined Benefit Plans[147] - The loss from discontinued operations increased significantly to $86.6 million in 2022, primarily due to an $89.8 million impairment charge related to the Grace Disposal Group's classification as held for sale[148] Analysis of Operating Revenue and Profit by Segment The CRE segment's operating revenue increased 7.5% to $187.2 million and profit grew 12.3% to $81.5 million, while Land Operations revenue declined to $43.3 million, resulting in a $1.4 million operating loss Liquidity and Capital Resources The company maintains strong liquidity with $33.3 million cash and $486.9 million available on its credit facility, despite a decrease in operating cash flow to $67.2 million in 2022 - As of December 31, 2022, the company had $33.3 million in cash and cash equivalents and $486.9 million of available capacity on its $500 million revolving credit facility[199] - Cash flows from continuing operations provided by operating activities decreased by $50.9 million to $67.2 million for the year ended December 31, 2022, largely driven by cash contributions related to the termination of the company's Defined Benefit Plans[196] - For 2023, the company anticipates capital expenditures between $50.0 million and $60.0 million, with the majority allocated to the Commercial Real Estate segment[204] - The company acknowledges that high inflation in 2022 increased construction and operating costs, though this impact is partially mitigated by lease structures that pass through operating expenses to tenants[209] Critical Accounting Estimates Impairment of long-lived assets is a critical accounting estimate, leading to a $5.0 million charge in Land Operations and an $89.8 million charge for the Grace Disposal Group in 2022 - Impairment of long-lived assets is a critical accounting estimate due to the high degree of subjectivity in assumptions about future cash flows and fair value[213] - In 2022, the company recorded impairment charges of $5.0 million for its Land Operations segment (continuing operations) and $89.8 million for the Grace Disposal Group (discontinued operations)[213][214] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure from borrowing, managed through fixed and variable-rate debt and interest rate swaps - The company's main market risk is interest rate risk, managed through a mix of fixed and variable-rate debt and interest rate swaps[217] Debt Composition as of December 31, 2022 | Debt Type | Principal Amount (in millions) | | :--- | :--- | | Fixed-rate debt (after swaps) | $460.4 | | Variable-rate debt | $12.0 | Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, with an unqualified auditor opinion, detailing assets, liabilities, and net loss Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on A&B's financial statements, identifying the classification of Grace Pacific as a critical audit matter - The auditor, Deloitte & Touche LLP, provided an unqualified opinion, stating the financial statements are presented fairly in all material respects[224] - A critical audit matter was identified concerning the significant judgments made by management in classifying the Grace Pacific and Maui quarries as 'Held for Sale and Discontinued Operations'[228][230] Consolidated Financial Statements The consolidated financial statements show total assets of $1.79 billion and shareholders' equity of $1.04 billion, with a 2022 net loss of $50.6 million Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account (in millions) | Amount | | :--- | :--- | | Total Assets | $1,787.3 | | Assets held for sale | $126.8 | | Total Liabilities | $743.6 | | Liabilities associated with assets held for sale | $81.0 | | Total A&B Shareholders' Equity | $1,035.7 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, 2022) | Account (in millions) | Amount | | :--- | :--- | | Total Operating Revenue | $230.5 | | Income from Continuing Operations | $37.1 | | Loss from Discontinued Operations | $(86.6) | | Net Loss Attributable to A&B Shareholders | $(50.6) | Notes to Consolidated Financial Statements The notes detail accounting policies, including the reclassification of Grace Disposal Group, the $472.2 million debt portfolio, Maui water rights contingencies, and the pension plan termination impact Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[437] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, affirmed by an unqualified audit report - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[438] - Management assessed the company's internal control over financial reporting as effective as of December 31, 2022, based on the COSO framework[441] - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified audit report on the company's internal control over financial reporting[441][444] Item 9B. Other Information The company reported no other information for this item - None[449] Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[449] Part III Item 10. Directors, Executive Officers and Corporate Governance This section provides information on directors and executive officers as of February 15, 2023, incorporating details on corporate governance from the 2023 Proxy Statement - Information about directors, the Audit Committee, and the Code of Ethics is incorporated by reference from the company's 2023 Annual Meeting of Shareholders Proxy Statement[451][459] - Provides a list and brief biographies of the company's executive officers as of February 15, 2023[452][453][454] Item 11. Executive Compensation This section incorporates by reference information regarding executive and director compensation from the company's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 'Executive Compensation' and 'Compensation of Directors' sections of the 2023 Proxy Statement[459] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section incorporates by reference information on security ownership by certain beneficial owners, directors, and executive officers from the company's 2023 Proxy Statement - Information regarding security ownership is incorporated by reference from the 'Shareholders' Security Ownership' section of the 2023 Proxy Statement[460] Item 13. Certain Relationships and Related Transactions, and Director Independence This section incorporates by reference information regarding certain relationships, related party transactions, and director independence from the company's 2023 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the 'Election of Directors' and 'Relationships and Transactions' sections of the 2023 Proxy Statement[460] Item 14. Principal Accounting Fees and Services This section incorporates by reference information concerning fees paid to the principal accountant and the services provided, as detailed in the company's 2023 Proxy Statement - Information concerning principal accountant fees and services is incorporated by reference from the 'Ratification of Appointment of Independent Registered Public Accounting Firm' section of the 2023 Proxy Statement[460] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K report, including financial statements from Item 8 and Schedule III - Lists the financial statements included in Item 8 of the report[461] - Includes Schedule III, which details the company's real estate holdings and accumulated depreciation as of December 31, 2022[464] - Provides a detailed list of all exhibits filed with the report, including material contracts, incentive plans, and required certifications[468] Item 16. Form 10-K Summary The company did not provide a summary for this item - None[482]