UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [_______ to _______]

Commission file number 001-35492

(Exact name of registrant as specified in its charter)

Hawaii	45-4849780
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

822 Bishop Street

Post Office Box 3440, Honolulu, Hawaii 96801

(Address of principal executive offices and zip code)

808-525-6611

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

	Name of each exchange
Title of each class	on which registered
Common Stock, without par value	NYSE

Securities registered pursuant to Section 12(g) of the Act:

None

Number of shares of Common Stock outstanding at February 15, 2017:

49,081,500

Aggregate market value of Common Stock held by non-affiliates at June 30, 2016:

$1,664,895,532

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes xNo o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x

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 xNo 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNo o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo x

Documents Incorporated By Reference

Portions of Registrant’s Proxy Statement for the 2017 Annual Meeting of Shareholders (Part III of Form 10-K)

TABLE OF CONTENTS

PART I

			Page
Items 1 & 2.	Business and Properties by Business Segments		1
A.	Commercial Real Estate Segment		4
B.	Land Operations Segment		8
	(1)	Landholdings	8
	(2)	Development-For-Sale Projects	9
	(3)	Renewable Energy	11
C.	Materials and Construction		11
	Employees and Labor Relations		12
	Available Information		12
Item 1A.	Risk Factors		13
Item 1B.	Unresolved Staff Comments		24
Item 3.	Legal Proceedings		24
Item 4.	Mine Safety Disclosures		25

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	29
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Items 7A.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 8.	Financial Statements and Supplementary Data	50

i

		Page
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	101
Item 9A.	Controls and Procedures	101
A.	Disclosure Controls and Procedures	101
B.	Internal Control over Financial Reporting	101
Item 9B.	Other Information	101

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	103
A.	Directors	103
B.	Executive Officers	103
C.	Corporate Governance	104
D.	Code of Ethics	104
Item 11.	Executive Compensation	105
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	105
Item 13.	Certain Relationships and Related Transactions, and Director Independence	105
Item 14.	Principal Accounting Fees and Services	105

PART IV

Item 15.	Exhibits and Financial Statement Schedules	105
A.	Financial Statements	105
B.	Financial Statement Schedules	106
C.	Exhibits Required by Item 601 of Regulation S-K	109
Signatures		115
Consent of Independent Registered Public Accounting Firm		116

ii

ALEXANDER & BALDWIN, INC.

FORM 10-K

Annual Report for the Fiscal Year

Ended December 31, 2016

PART I

ITEM 1. BUSINESS

Business and Strategy

Alexander & Baldwin, Inc. (“A&B” or the “Company”) is a Hawaii real estate company whose history in Hawaii dates back to 1870. Over time, A&B has evolved from a 571-acre sugar plantation on Maui to become one of Hawaii's premier real estate companies and the owner of the largest anchored strip retail center portfolio in the state. Following the separation from Matson, Inc. (NYSE: MATX) in mid-2012, the Company began implementing a focused strategy to concentrate its assets and operations in Hawaii where management is best able to employ its extensive local market knowledge and real estate expertise to create value for both shareholders and the community. Since 2012, the Company has made significant progress in concentrating its commercial portfolio in Hawaii ("Migration Strategy") such that the share of net operating income ("NOI") generated by its Hawaii commercial assets has grown from about 40 percent in 2012 to 85 percent in 2016. In addition to its 15 retail centers in Hawaii, the Company owns seven industrial assets, seven office properties and a portfolio of urban ground leases comprising 106 acres in Hawaii. On the U.S. mainland, the Company owns seven remaining commercial assets. Total portfolio gross leasable area (GLA) was 4.7 million square feet at the end of 2016.

As a result of A&B's agricultural history, the Company's assets include over 87,000 acres in Hawaii, making it the state's fourth largest private landowner (by acreage). The Company started a real estate development company in 1949 to develop the master-planned community of Kahului, Maui, providing homes for sale to its plantation employees. Today, A&B continues its real estate development activities and has a pipeline of over 1,500 residential and commercial units across Hawaii. In addition, through its wholly owned subsidiary, Grace Pacific LLC (“Grace”), the Company operates the largest materials and paving company in Hawaii.

The year 2016 brought significant changes in the Company's business. It began with the announcement that the Company would exit its sugar business after 146 years of sugar cultivation (completed in December 2016) and included the October 2016 announcement that the Company would conduct an in-depth evaluation of a potential conversion to a real estate investment trust (REIT), given its primary focus on Hawaii commercial real estate. In consideration of these two events, the Company completed an internal reorganization of its operations and reporting structure in the fourth quarter of 2016, which will facilitate operational efficiencies and enhance the execution of the Company’s businesses. Prior to October 1, 2016, the Company operated under four reportable operating segments: Commercial Real Estate, Real Estate Development & Sales, Materials & Construction, and Agribusiness. As a result of the reorganization, the Company’s former Real Estate Development & Sales and Agribusiness segments have been combined into the new Land Operations segment. Additionally, the following items were realigned in connection with the segment changes: (1) agricultural leases, which previously were included in the Commercial Real Estate segment, were reclassified to the Land Operations segment, (2) certain industrial leases, which previously were included in the former Agribusiness segment were reclassified to the Commercial Real Estate segment, (3) sales of commercial properties, which previously were included in the former Real Estate Development & Sales segment, were reclassified to the Commercial Real Estate segment, and (4) the Company's solar energy investments, which previously were presented as Corporate investments, were reclassified to Land Operations. A description of each of the Company's reporting segments follows:

• Commercial Real Estate: includes leasing, property management, redevelopment and development-for-hold activities. Significant assets include improved commercial real estate and urban ground leases. Income from this segment is principally generated by leasing real estate assets.

• Land Operations: includes planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; leasing agricultural land; renewable energy; and diversified agribusiness. Primary assets include landholdings, renewable energy assets (investments in hydroelectric and solar facilities and power purchase agreements) and development projects. Income from this segment is principally generated by renewable energy operations, agricultural leases, select farming operations, development sales and fees, and parcel sales.

• Materials & Construction: performs asphalt 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

1

sells various construction- and traffic-control-related products; and manufactures and sells precast concrete products. Assets include two grade A (prime) rock quarries, an asphalt storage terminal, paving hot mix plants and quarry and paving equipment. Income is generated principally by materials supply and paving construction.

Proportionately, the Commercial Real Estate segment represents 53 percent of the Company's business, Land Operations represents 30 percent and Materials & Construction represents 17 percent (determined by its share of 2016 identifiable assets from the three segments). Additional information about our business segments is provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Notes to Consolidated Financial Statements," which are included elsewhere in this Form 10-K.

Strategically, the Company remains principally focused on:

• Growing recurring income streams from its commercial real estate portfolio;

• Employing landholdings at their highest and best use, including for diversified agribusiness purposes;

• Entitling, planning, developing and selling real estate;

• Leveraging its strong Materials & Construction's market position and vertical integration to increase earnings and cash flow; and

• Continuing to practice disciplined and prudent financial management to maintain balance sheet strength and financial flexibility.

Key strategic activities and initiatives by segment are discussed below.

Commercial Real Estate Strategy

The Hawaii market benefits generally from strong economic underpinnings rooted in a resilient and high-performing tourism industry and high levels of military and government spending due to Hawaii's strategic defense location between the continental U.S. and Asia. With a high median income of $73,500, low unemployment of 2.9%, solid personal income growth of 2.7% and a low 12.1 square feet of retail GLA per capita on Oahu, the Hawaii commercial market is a high-quality market that compares favorably with other top-tier retail markets in the U.S., like Austin, Denver, and Boston. Similarly, given the severe shortage of industrial supply in Hawaii, market rents and per square foot values exceed those achieved in other U.S. markets, making Hawaii a high-performing industrial market. As a result of the Company's Migration Strategy, not only have its assets been concentrated where management is best able to enhance portfolio performance, but the overall asset quality of the portfolio has significantly improved.

To further enhance asset quality and increase the recurring income stream from the commercial portfolio, the Company intends to:

• Complete the Migration Strategy primarily through the acquisition of high-quality retail, industrial and leased fee assets in Hawaii.

• Optimize returns on A&B’s commercial portfolio.

◦ Redevelop properties where returns on incremental costs exceed market cap rates.

◦ Develop commercial assets for hold where returns on costs exceed market cap rates.

◦ Enhance marketing and leasing efforts to become the landlord of choice for high-quality retailers with a desire to enter the Hawaii market or to open multiple locations throughout the state.

◦ Migrate property management from an outsourced model to an in-house model to achieve enhanced accountability, more effective management, and cost efficiencies.

◦ Improve information technology platforms to support better decision making.

On October 25, 2016, the Company's Board of Directors approved the in-depth exploration of a potential conversion of the Company to a REIT. Conversion to a REIT could greatly enhance A&B’s ability to pursue its core strategy of investing in Hawaii assets and communities. In particular, the structure could provide A&B greater ability to compete on a level playing field with out-of-state investors for Hawaii commercial properties, positioning A&B to increase investment in the state.

2

Land Operations Strategy

A&B strives to maximize value in its landholdings by employing land at its highest and best use to the benefit of shareholders, employees, its communities and other key stakeholder groups. For a significant portion of A&B’s substantial Hawaii landholdings, this implies a wide spectrum of non-development uses, ranging from conservation/watershed to pasture to active farming, including diversified agriculture. While a majority of A&B’s landholdings has limited or no long-term urban development potential, these landholdings remain valuable for farming and other uses, such as providing access to natural resources or hydro-electric generation capability. Company initiatives to employ landholdings at their highest and best use include:

• Transition the land related to the former Hawaiian Commercial & Sugar Company ("HC&S") sugar plantation to diversified agriculture.

◦ Operate and maintain plantation infrastructure, including roads, irrigation ditches and power distribution systems, among others.

◦ Pursue select farming operations.

◦ Lease land to diversified agricultural producers.

◦ Advance crop, livestock and bioenergy initiatives through trials to commercial operations, as merited.

◦ Maintain access to irrigation water to support current and future diversified agriculture activities.

• Entitle and develop certain Hawaii lands to respond to market demand while meeting community needs.

• Accelerate monetization of development assets.

◦ Actively market and sell available development inventory.

◦ Reassess development-for-sale portfolio to reduce risks and increase returns, which may include "staying the course" on certain, active projects to maximize value, or de-risking of capital through joint venture structures and selective monetization.

◦ Shift emphasis from long-term master-planned community developments to short-term developments. Continue opportunistic development on fully entitled lands, maintain financial discipline through careful assessment of market conditions/risks and prudent structuring of transactions. Maintain internal rates of return in the high-teens adjusted for risk assumed.

Materials & Construction Strategy

A&B owns over 800 acres in the state related to its quarrying operations, including 542 acres on Oahu's growing west side. A&B's Makakilo, Oahu quarry facility completed a multi-year capital improvement program in September 2015, including three crushing plants, which is expected to result in greater operational efficiencies and lower costs going forward. In addition to three Oahu plants, A&B owns strategically placed asphaltic concrete plants located throughout the state, including one quarry each on Maui, Kauai, Hawaii Island and Molokai.

A&B owns one of two operating quarries on the island of Oahu that has suitable grade A material required for the production of hot mix asphalt. A&B's Makakilo quarry is the only quarry located adjacent to the growing region on the west side of Oahu, which is expected to see significant growth over the next two decades. It is proximate to the first two phases of the Honolulu Rail Project and to more than 15,000 planned residential units and various commercial projects. Due to the high cost of transporting aggregate and the limited shelf life of asphaltic concrete once it is produced, A&B’s quarry and hot mix plant locations in west Oahu are ideally located to service the growth in the area for the foreseeable future.

A&B maintains cost benefits through a vertically integrated business model that encompasses the production of aggregate and the importation of liquid asphalt and sand. These activities help ensure that A&B has adequate access to raw materials needed to produce asphaltic concrete and, therefore, also provides for a level of cost certainty that allows A&B to compete effectively on sealed-bid contracts. In addition, A&B and its consolidated and non-consolidated affiliated companies provide and market various construction- and traffic-control-related products and services.

3

To increase cash flow generated by this business, A&B intends to:

• Leverage its vertically integrated business model and new, efficient quarrying equipment to lower costs.

• Capitalize on its large, strategically located quarry adjacent to growing area on Oahu to incrementally grow revenues.

• Identify areas throughout the organization to operate more efficiently and effectively.

Financial Strategy

The Company maintains a strong balance sheet with low levels of debt and adequate capacity to capitalize on opportunities with attractive risk-adjusted returns. To maintain a strong balance sheet and financial flexibility, the Company intends to:

• Target a 5x - 6x net debt to EBITDA ratio over the long-term.

• Ensure well-laddered debt maturities.

• Maintain a high proportion of fixed-rate debt and longer weighted-average maturities.

• Allocate capital in line with strategic priorities and to investments that have attractive risk-adjusted returns relative to market returns and the Company's internal cost of capital.

ITEM 2. PROPERTIES BY BUSINESS SEGMENTS

A.Commercial Real Estate Segment

A summary of GLA and NOI percentage by geographic location and property type as of December 31, 2016 is as follows:

	GLA (square feet in millions)
	Hawaii	Mainland	Total
Retail	1.8	0.2	2.0
Industrial	0.9	1.2	2.1
Office	0.2	0.4	0.6
Total	2.9	1.8	4.7

	NOI% of Total NOI1
	Hawaii		Mainland		Total
Retail	53.8	%	2.5	%	56.3	%
Industrial	13.4	%	5.3	%	18.7	%
Office	4.5	%	7.3	%	11.8	%
Ground	13.2	%	—	%	13.2	%
Total	84.9	%	15.1	%	100.0	%
1 Refer to page 40 for a discussion of management's use of a non-GAAP financial measure and the required reconciliation of non-GAAP measures to GAAP measures.

(1)Hawaii Commercial Properties

A&B’s Hawaii commercial real estate portfolio consists of retail, industrial and office properties, comprising approximately 2.9 million square feet of GLA as of December 31, 2016. Most of the commercial properties are located on Oahu and Maui, with smaller holdings on Kauai and the Island of Hawaii. The average occupancy for the Hawaii portfolio was 93 percent in 2016, unchanged from 2015.

The Hawaii commercial properties owned as of year-end 2016 were as follows:

4

# of Properties	Property		Island	Year built / renovated	GLA at 12/31/16 (sq. ft.)	Leased %	Annualized Base Rent (ABR) ($ in 000s)		ABR per leased sq. ft.
	Retail					(a)
1	Pearl Highlands Center		Oahu	1992-1994	415,200	96	$	9,478	$	24.11
2	Kailua Retail		Oahu	1947-2014	316,400	97	9,186		29.96
3	Waianae Mall		Oahu	1975	170,300	86	2,701		18.39
4	Manoa Marketplace		Oahu	1977	139,300	98	4,492		33.79
5	Kaneohe Bay Shopping Center	(b)	Oahu	1971	124,800	100	2,872		22.90
6	Waipio Shopping Center		Oahu	1986,2004	113,800	98	2,901		26.12
7	Aikahi Park Shopping Center		Oahu	1971	98,000	82	1,313		16.50
8	The Shops at Kukui'ula		Kauai	2009	89,000	96	3,828		46.08
9	Lanihau Marketplace		Hawaii	1987	88,300	99	1,843		20.87
10	Kunia Shopping Center		Oahu	2004	60,600	80	1,769		37.98
11	Lahaina Square		Maui	1973	50,200	76	665		17.43
12	Kahului Shopping Center		Maui	1951	49,900	90	621		15.89
13	Napili Plaza		Maui	1991	45,700	89	1,117		27.46
14	Gateway at Mililani Mauka		Oahu	2008, 2013	34,900	92	1,678		51.21
15	Port Allen Marina Center		Kauai	2002	23,600	88	507		23.39
	Subtotal – Retail				1,820,000	93	$	44,971	$	26.67
	Industrial
16	Komohana Industrial Park	(c)	Oahu	1990	238,300	99	$	2,552	$	11.50
17	Kaka'ako Commerce Center		Oahu	1969	206,000	83	2,255		12.48
18	Waipio Industrial		Oahu	1988-1989	158,400	100	2,308		14.65
19	P&L Warehouse		Maui	1970	104,100	100	1,324		12.71
20	Kailua Industrial/Other		Oahu	1951-1974	68,800	96	847		13.27
21	Port Allen		Kauai	1983,1993	63,800	100	645		10.11
22	Harbor Industrial		Maui	1930	53,400	87	104		10.47
	Subtotal – Industrial				892,800	95	$	10,035	$	12.51
	Office
23	Kahului Office Building		Maui	1974	59,600	84	$	1,400	$	27.50
24	Gateway at Mililani Mauka South	(d)	Oahu	1992, 2006	37,100	97	1,419		41.14
25	Kahului Office Center		Maui	1991	33,400	88	769		26.06
26	Stangenwald Building		Oahu	1901, 1980	27,100	89	447		18.62
27	Judd Building		Oahu	1898, 1979	20,200	86	316		18.09
28	Maui Clinic Building		Maui	1958	16,600	31	119		25.60
29	Lono Center		Maui	1973	13,700	87	319		25.38
	Subtotal – Office				207,700	83	$	4,789	$	27.59
	Subtotal – Excluding Ground Leases				2,920,500	93	$	59,795	$	22.47
	Ground Leases
30	Kailua		Oahu	19 acres	—	—	—		—
31	Other Oahu		Oahu	23 acres	—	—	—		—
32	Neighbor Island	(e)	Neighbor Island	74 acres	—	—	—		—
	Subtotal - Ground Leases			116 acres	—	—	—		—
32	Total Hawaii				2,920,500	93	$	59,795	$	22.47
(a)	Represents the average percentage of space leased during the period referenced or A&B's ownership period, whichever is shorter.
(b)	A&B owns the leasehold improvements of this center and does not own the fee interest.
(c)	Includes ground lease income.
(d)	An 18,415-square-foot expansion was completed and added to the commercial portfolio in June 2016.
(e)	Includes 64 ground leased urban acres.

5

(2)U.S. Mainland Commercial Properties

On the Mainland, A&B owns a portfolio of seven commercial properties, acquired primarily by way of tax-deferred 1031 exchanges and consisting of retail, industrial and office properties, comprising approximately 1.8 million square feet of leasable space as of December 31, 2016.

A&B’s Mainland commercial properties owned as of December 31, 2016 were as follows:

	Property	City/State	Year built / renovated	GLA at 12/31/16 (sq. ft.)	Leased % (a)	Annualized Base Rent (ABR) ($ in 000s)		ABR per leased sq. ft.
	Retail:
1	Little Cottonwood Center	Sandy, UT	1998, 2008	141,500	93	$	1,514	$	11.27
2	Royal MacArthur Center	Dallas, TX	2006	44,900	95	941		23.28
	Subtotal – Retail			186,400	94	$	2,455	$	14.05
	Industrial:
3	Midstate 99 Distribution Center	Visalia, CA	2002, 2008	790,200	94	$	2,795	$	4.21
4	Sparks Business Center	Sparks, NV	1996-1998	396,100	97	1,917		5.03
	Subtotal – Industrial			1,186,300	95	$	4,712	$	4.51
	Office:
5	1800 and 1820 Preston Park	Plano, TX	1997,1998	198,800	88	$	3,085	$	18.16
6	Concorde Commerce Center	Phoenix, AZ	1998	138,700	91	2,579		20.42
7	Deer Valley Financial Center	Phoenix, AZ	2001	126,600	81	1,566		16.87
	Subtotal – Office			464,100	90	$	7,230	$	18.59
	Total Mainland			1,836,800	93	$	14,397	$	8.95
(a)	Represents the average percentage of space leased during the period referenced or A&B's ownership period, whichever is shorter.

(3)    Tenant Concentrations

A&B’s top ten tenants as of December 31, 2016 were as follows:

Tenant	ABR ($ in 000s)		% of ABR	GLA (sq. ft.)	% of total GLA
Sam's Club	$	3,307.9	4.5%	180,908	3.8%
CVS Corporation	2,623.5		3.5%	150,411	3.1%
United Healthcare Services, Inc.	2,216.1		3.0%	108,100	2.3%
Foodland Supermarket, Ltd. & related companies	1,832.0		2.5%	112,929	2.4%
24 Hour Fitness USA, Inc.	1,375.0		1.9%	45,870	1.0%
Albertsons Companies, Inc.	1,316.1		1.8%	168,621	3.5%
Whole Foods Market, Inc.	1,120.3		1.5%	31,647	0.7%
Office Depot, Inc.	1,016.7		1.3%	75,824	1.6%
Keystone Automotive Operations, Inc.	1,016.0		1.3%	230,300	4.8%
International Paper	977.7		1.3%	252,040	5.3%
Total	$	16,801.3	22.6%	1,356,650	28.5%

6

(4)Lease Expirations

The Company’s schedule of lease expirations for its Hawaii and U.S. Mainland commercial portfolio is as follows:

Total Improved Portfolio(a)
Expiration year	Number of leases	Sq. ft. of expiring leases	% of total leased GLA	ABR expiring ($ in 000s)		% of total ABR
2017	186	1,077,711	26.0	$	14,700	19.1
2018	148	820,354	19.8	9,800		12.7
2019	134	540,188	13.0	12,400		16.1
2020	96	390,894	9.4	9,000		11.7
2021	97	479,485	11.6	10,600		13.7
2022	33	153,597	3.7	4,200		5.4
2023	26	163,378	3.9	2,600		3.4
2024	14	175,748	4.2	4,500		5.8
2025	21	58,481	1.4	2,500		3.2
2026	10	37,328	0.9	1,600		2.1
Thereafter	23	249,949	6.1	5,200		6.8
Total	788	4,147,113	100.0	$	77,100	100.0
(a) Improved portfolio lease expirations and percentages of GLA and ABR do not include month-to-month leases.

The Company’s schedule of lease expirations for its ground leases is as follows:

Ground Lease Expirations
Expiration year	ABR expiring ($ in 000s)		% of total ABR
Month-to-month	$	700	5.4
2017	1,200		9.3
2018	300		2.3
2019	500		3.9
2020	900		7.0
2021	900		7.0
2022	200		1.6
2023	—		—
2024	—		—
2025	—		—
2026	700		5.4
Thereafter	7,500		58.1
	$	12,900	100.0

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B.    Land Operations Segment

A&B's Land Operations segment creates value through actively managing and deploying the Company's land and real estate-related assets to their highest and best use. Primary activities of the Land Operations segment include leasing agricultural land, planning, zoning, financing, constructing, purchasing, managing, selling, and investing in real property; renewable energy; and diversified agribusiness.

(1)    Landholdings

As of December 31, 2016, A&B and its subsidiaries owned 87,218 acres, consisting of 87,093 acres in Hawaii and 125 acres on the U.S. Mainland as follows:

	Acres
	Maui	Kauai	Oahu	Molokai	Big Island	Hawaii Total Acres	Mainland Total Acres	Total Acres
Land under commercial properties/ urban ground leases	97	19	184	—	9	309	125	434
Land in active development	213	—	5	—	—	218	—	218
Land used in other operations	21	20	—	—	—	41	—	41
Land Operations
Urban land, not in active development/use	342	42	—	—	—	384	—	384
Agriculture	48,207	6,631	76	—	—	54,914	—	54,914
Agriculture in urban entitlement process	357	260	—	—	—	617	—	617
Conservation & preservation	15,855	13,309	639	—	—	29,803	—	29,803
Materials & Construction	1	—	542	264	—	807	—	807
Total landholdings	65,093	20,281	1,446	264	9	87,093	125	87,218

The table above does not include 997 acres under joint venture development that are shown below. An additional 2,500 acres on Maui, Kauai and Oahu are leased from third parties and are not included in any of the tables.

Joint Venture Projects as of December 31, 2016	Original Acres	Acres at December 31, 2016
Kukui'ula (Kauai, HI)	1,000	905
California joint ventures	75	75
Ka Milo (Big Island, HI)	31	10
Keala o Wailea (Maui, HI)	7	7
The Collection (Oahu, HI)	3	—
Total	1,116	997

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Land Designation and Water:

The land related to the former HC&S sugar plantation consists of 43,300 acres, of which approximately 36,000 acres were actively used for the cultivation of sugar cane. As of December 31, 2016, the sugar operations have concluded, and the Company is transitioning to a diversified agriculture model, which will occur over a multi-year period.

On Kauai, approximately 3,000 acres are cultivated in coffee by Massimo Zanetti Beverage USA, Inc. on land leased from A&B. Additional acreage is leased to third-party operators, with uses ranging from seed corn cultivation to pasture land.

The Hawaii Legislature, in 2005, passed Important Agricultural Lands (“IAL”) legislation to fulfill the State's constitutional mandate to protect agricultural lands, promote diversified agriculture, increase the state’s agricultural self-sufficiency, and assure the long-term availability of agriculturally suitable lands. In 2008, the Legislature passed a package of incentives, which was necessary to trigger the IAL system of land designation. In 2009, A&B received approval from the State Land Use Commission for the designation of over 27,000 acres on Maui and over 3,700 acres on Kauai as IAL. These designations were the result of voluntary petitions filed by A&B.

A&B holds rights to an irrigation system in West Maui, which provided approximately 13 percent of the irrigation water used by HC&S over the last ten years. A&B also owns 16,000 acres of watershed lands in East Maui, which supply a portion of the irrigation water used by HC&S. A&B also held four water licenses to another 30,000 acres owned by the State of Hawaii in East Maui which, over the last ten years, have supplied approximately 56 percent of the irrigation water used by HC&S. The last of these water license agreements expired in 1986, and all four agreements were then extended as revocable permits that were renewed annually. For information regarding legal proceedings involving A&B’s irrigation systems, see “Legal Proceedings” below.

Planning and Zoning:

The entitlement process for development of property in Hawaii is complex (involving numerous State and County regulatory approvals), lengthy (spanning multiple years) and costly (requiring costs to comply with the conditions for approval). For example, conversion of an agriculturally-zoned parcel usually requires the following approvals:

• County amendment of the County Community/General Plan to reflect intended use;

• State Land Use Commission approval to reclassify the parcel from the Agricultural district to the Urban district;

• County approval to rezone the property to the precise land use desired.

The entitlement process is complicated by the conditions, restrictions and exactions that are placed on these approvals, including, among others, requirements to construct infrastructure improvements, payment of impact fees, restrictions on the permitted uses of the land, requirements to provide affordable housing and required phased development of projects.

A&B actively works with regulatory agencies, commissions and legislative bodies at various levels of government to obtain zoning reclassification of land to its highest and best use for both investment and development. A&B designates a parcel as “fully entitled” or “fully zoned” when all of the above-mentioned land use approvals have been obtained.

(2)Development-For-Sale Projects

The Company has an active development pipeline encompassing primary residential, resort residential and commercial units for sale across the State of Hawaii. The following is a summary of the Company’s real estate development for sale portfolio as of December 31, 2016:

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							(Dollars in millions)
Project	Location	Product	Estimated Economic Interest	Units, acres or gross leasable sq. ft.	Units/ acres closed	Target price range per sq. ft.	Est. Project Cost		Capital Committed (JV)		Investment
			(a)				(b)		(c)
Residential units
Kamalani (Increment 1)	Kihei, Maui	Primary residential	100%	170 units	—	$400	$	64	N/A		$	18
Ka Milo at Mauna Lani	Kona, Hawaii	Resort residential	50%	137 units	86 units	$530-$800	$	125	$	16	$	16
Keala o Wailea (MF-11)	Wailea, Maui	Resort residential	65%+/-5%	70 units	—	$600-$1,000	$	64	$	9	$	9
The Collection	Honolulu, Oahu	Primary residential	90% +/-5%	465 units	451 units	$785	$	281	$	54	$	54
Total							$	534	$	79	$	97
Lot sales
Kahala Avenue Portfolio	Honolulu, Oahu	Residential	100%	30 lots	23 lots	$150-$385	$	135	N/A		$	134
Maui Business Park II	Kahului, Maui	Light industrial lots	100%	125 acres	30 acres	$38-$60	$	77	N/A		$	57
The Ridge at Wailea (MF-19)	Wailea, Maui	Resort residential	100%	9 lots (4.5 acres)	1 lot	$60-$100	$	10	N/A		$	9
Kukui'ula	Poipu, Kauai	Resort residential	85% +/- 5%	Up to 1,500 units (640 saleable acres)	145 lots	$40-$110	N/A		N/A		$	301
Total							$	222	—		$	501

(a) Economic interest represents the Company's estimated share of distributions after return of capital contributions based on current forecasts of sales activity. Actual results could differ materially from projected results due to the timing of expected sales, increases or decreases in estimated sales prices or costs and other factors. As a result, estimated economic interests are subject to change.

(b) Includes land cost at book value and capitalized interest but excludes sales commissions and closing costs.

(c) Includes land cost at contribution value and total expected A&B capital contributed and to be contributed. The estimate includes due diligence costs and capitalized interest but excludes capital projected to be contributed by equity partners, third-party debt, and amounts expected to be funded from project cash flows and/or buyer deposits.

Kukui'ula: A&B’s largest active development project is Kukui'ula, a fully amenitized luxury resort residential master planned community in Poipu, Kauai. In April 2002, A&B entered into a joint venture with DMB Communities II (“DMBC”), an affiliate of DMB Associates, Inc. ("DMB"), an Arizona-based developer of master-planned communities, for the development of Kukui'ula on 1,000 acres of A&B's historical landholdings. The project is planned for up to 1,500 resort residential units. As of December 31, 2016, total capital contributed to the joint venture by A&B was approximately $301 million, which included $30 million representing the value of land initially contributed by the Company. As of December 31, 2016, DMB has contributed approximately $193 million.

Various vertical construction programs are being pursued at Kukui'ula in joint ventures with five third-party developers. In 2016, the joint venture recorded 14 closings. An additional four units are under binding contracts as of December 31, 2016.

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Maui Business Park: Maui Business Park II (“MBP II”) represents the second phase of the Company's Maui Business Park project in Kahului, Maui. MBP II is a light industrial project zoned for light industrial, retail and office use. As of December 31, 2016, approximately 95 saleable acres remain available.

Wailea: The Company's landholdings related to active, development-for-sale projects in Wailea, Maui, include the following projects:

• At the Keala o Wailea (MF-11) project, A&B’s 70 multi-family unit joint venture development with Armstrong Builders, sitework construction commenced in December 2015. As of December 31, 2016, 49 units were under binding contracts. Closings are projected to commence in 2017.

• At the Ridge at Wailea (MF-19) project, eight residential lots remain available for sale.

Kamalani: A&B’s Kamalani project is a 630-unit residential project on 95 acres in Kihei, Maui. Preliminary subdivision approval was secured in April 2015. Grading and site-work on the 170-unit Increment 1 commenced in 2016 and vertical construction on 34 workforce housing units commenced in February 2017, with initial closings projected by year-end.

Kahala Avenue Portfolio: The Kahala Avenue Portfolio, on Oahu, was acquired for $128 million in September and December 2013, and included a total of 30 properties in the prestigious Kahala neighborhood of East Honolulu. Through December 31, 2016, revenue from sales totaled $128.6 million. As of December 31, 2016, seven lots were available for purchase totaling approximately 210,000 square feet. The seven available properties include four higher-value oceanfront properties totaling approximately 175,000 square feet or 83% of the total square footage available for purchase.

(3)    Renewable Energy

    A&B has renewable hydroelectric and solar facilities on the island of Kauai, operated by McBryde Resources, Inc. (“McBryde”), and has two financial investments in solar projects on Kauai and Oahu.

In 2016, McBryde produced 28,099 MWH of hydroelectric power (compared with 27,600 MWH in 2015) and 10,700 MWH of solar power from its Port Allen Solar Facility (compared with 11,400 MWH in 2015). To the extent it is not used in A&B-related operations, McBryde sells electricity to Kauai Island Utility Cooperative (“KIUC”). Power sales in 2016 amounted to 30,783 MWH (compared with 30,800 MWH in 2015). The decrease in power sold was primarily due to higher internal power consumption.

In 2016, HC&S also generated a limited amount of hydroelectric power in connection with its final sugar harvest. To the extent it was not used in factory and farming operations, HC&S sold electricity under a power purchase agreement ("PPA") with Maui Electric. In 2016, HC&S produced and sold, respectively, approximately 84,700 megawatt hours (MWH) and 4,300 MWH of electric power (compared with 150,300 MWH produced and 51,100 MWH sold in 2015). The decrease in power sold was due to the 2015 amendment to the PPA that eliminated regularly scheduled dispatched power.

C.Materials & Construction

(1)Quarries and Quarry Facilities

Grace owns 542 acres in Makakilo, Oahu, approximately 200 acres of which are used for its quarrying operations. Approximately 900,000 tons of rock were mined and processed by Grace in 2016. The operation of the quarry is governed by special and conditional use permits, which allow Grace to extract aggregate through 2032. Grace also owns approximately 264 acres on Molokai, which are licensed to a third-party operator for quarrying operations.

Grace completed and placed into service its primary and secondary crushing plants at the Makakilo quarry during 2015. The new facilities have increased the productivity and efficiency of the operations, resulting in lower production costs. Total costs of approximately $43.0 million were incurred related to the quarry improvements.

(2)     Equipment

Grace owns approximately 530 pieces of on- and off-highway rolling stock, which consist of heavy duty trucks, passenger vehicles and various road paving, quarrying and operations equipment. Additionally, Grace owns approximately 550 pieces of non-rolling stock items used in its operations, such as generators, transit tankers, light towers, message boards and nuclear gauges. The Materials & Construction segment has six rock crushing plants and seven asphaltic concrete plants (three on Oahu, one on Maui, one on Kauai, one on Hawaii Island, and one on Molokai).

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(3)    Backlog

As of December 31, 2016, total backlog, including the backlog of Grace, GPRS, GP/RM and Maui Paving, LLC, a 50-percent-owned non-consolidated affiliate, was approximately $242.9 million, compared to $226.5 million at December 31, 2015. For purposes of calculating backlog, the entire estimated revenue attributable to Grace's consolidated subsidiaries and the entire backlog of Maui Paving, which was approximately $15.0 million and $13.9 million at December 31, 2016 and 2015, respectively, was included. Backlog represents the amount of revenue that Grace and Maui Paving expect to realize on contracts awarded or government contracts in which Grace Pacific has been confirmed to be the lowest bidder and formal communication of the award is perfunctory.

The length of time that projects remain in backlog can span from a few days for a small volume of work to approximately 36 months for large paving contracts and contracts performed in phases. Backlog includes estimated revenue from the remaining portion of contracts not yet completed, as well as revenue from approved change orders.

Employees and Labor Relations

As of December 31, 2016, A&B and its subsidiaries had 806 regular full-time employees, as compared to 1,496 regular full-time employees in the prior year. The reduction in the number of employees from the prior year was primarily attributable to the cessation of the Company's sugar operations in 2016.  At the end of 2016, the Commercial Real Estate segment employed 50 regular full-time employees, Land Operations segment employed 101 regular full-time employees, the Materials & Construction segment employed 589 regular full-time employees, and the remaining full-time employees were employed in administration.  Approximately 54 percent of A&B's employees are covered by collective bargaining agreements with unions.

The 19 bargaining unit employees at KT&S are covered by a collective bargaining agreement with the ILWU that expires on March 31, 2018.  There are two collective bargaining agreements with 22 A&B Fleet Services employees on the Big Island and Kauai, represented by the ILWU.  Both the Kauai and Big Island agreements expire on August 31, 2017.

A collective bargaining agreement with the International Union of Operating Engineers AFL-CIO, Local Union 3 (“IUOE”) covers 195 of Grace’s employees, who are primarily classified as heavy duty equipment operators, paving construction site workers, quarry workers, truck drivers and mechanics. The agreement expires on September 2, 2019.

Collective bargaining agreements with Laborers International Union of North America Local 368 (“Laborers”) cover 201 Grace employees. The traffic and rentals Laborers’ agreement expires on August 31, 2018; the precast/prestress concrete Laborers’ agreement expires on August 31, 2019; and the Laborers' agreement with fence, guardrail and sign installation workers expires on September 30, 2019.

Available Information

A&B files reports with the Securities and Exchange Commission (the “SEC”). The reports and other information filed include: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports and information filed under the Securities Exchange Act of 1934 (the “Exchange Act”).

The public may read and copy any materials A&B files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov, which contains reports, proxy and information statements, and other information regarding A&B and other issuers that file electronically with the SEC.

A&B makes available, free of charge on or through its Internet website, A&B’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the SEC. A&B’s website address is www.alexanderbaldwin.com.

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ITEM 1A. RISK FACTORS

A&B’s business and its common stock are subject to a number of risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K and the Company’s filings with the U.S. Securities and Exchange Commission. Based on information currently known, A&B believes that the following information identifies the most significant risk factors affecting A&B’s business and its common stock. However, the risks and uncertainties faced by A&B are not limited to those described below, nor are they listed in order of significance. Additional risks and uncertainties not presently known to A&B or that it currently believes to be immaterial may also materially adversely affect A&B’s business, liquidity, financial condition, results of operation and cash flows. This Form 10-K also contains forward-looking statements that involve risks and uncertainties.

If any of the following events occur, A&B’s business, liquidity, financial condition, results of operations and cash flows could be materially adversely affected, and the trading price of A&B common stock could materially decline.

Risks Relating to A&B’s Business

Note: All references to “A&B” and "the Company" in this section refer to, and include, each segment and line of business comprising A&B, and any reference to any particular segment or line of business does not limit the foregoing.

Changes in economic conditions may result in a decrease in market demand for A&B’s real estate assets in Hawaii and the Mainland and its material and construction products.

The Company's business, including its assets and operations, are concentrated in Hawaii. A weakening of economic drivers in Hawaii, which include tourism, military and consumer spending, public and private construction starts and spending, personal income growth, and employment, or the weakening of consumer confidence, market demand, or economic conditions on the Mainland, may adversely affect the demand for or sale of Hawaii real estate, the level of real estate leasing activity in Hawaii and on the Mainland, and demand for the Company's materials and construction products. In addition, an increase in interest rates or other factors could reduce the market value of the Company's real estate holdings, as well as increase the cost of buyer financing that may reduce the demand for A&B's real estate assets.

A&B may face new or increased competition.

There are numerous other developers, buyers, managers and owners of commercial and residential real estate and undeveloped land that compete or may compete with A&B for management and leasing revenues, land for development, properties for acquisition and disposition, and for tenants and purchasers of properties. Intense competition could lead to increased vacancies, decreased rents, sales prices or sales volume, or lack of development opportunities.

Grace competes in an industry that favors the lowest bid. An increase in competition, including out-of-state contractors competing for a limited number of projects available, could lead to lost bids and lower prices and volume. Grace also mines aggregate and imports asphalt for sale. Grace's customers could seek alternative sources of supply, similar to some of its competitors that are importing liquid asphalt and aggregate.

A&B may face potential difficulties in obtaining operating and development capital.

The successful execution of A&B’s strategy requires substantial amounts of operating and development capital. Sources of such capital could include banks, life insurance companies, public and private offerings of debt or equity, including rights offerings, sale of certain assets and joint venture partners. If A&B’s credit profile deteriorates significantly, its access to the debt capital markets or its ability to renew its committed lines of credit may become restricted, the cost to borrow may increase, or A&B may not be able to refinance debt at the same levels or on the same terms. Further, A&B relies on its ability to obtain and draw on a revolving credit facility to support its operations. Volatility in the credit and financial markets or deterioration in A&B’s credit profile may prevent A&B from accessing funds. There is no assurance that any capital will be available on terms acceptable to A&B or at all to satisfy A&B’s short or long-term cash needs.

A&B may raise additional capital in the future on terms that are more stringent to A&B, that could provide holders of new issuances rights, preferences and privileges that are senior to those currently held by A&B common stockholders, or that could result in dilution of common stock ownership.

To execute its business strategy, A&B may require additional capital. If A&B incurs additional debt or raises equity, the terms of the debt or equity issued may give the holders rights, preferences and privileges senior to those of holders of A&B common stock, particularly in the event of liquidation. The terms of any new debt may also impose additional and more stringent restrictions on A&B’s operations than currently in place. If A&B issues additional common equity, either through

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public or private offerings or rights offerings, your percentage ownership in A&B would decline if you do not participate on a ratable basis.

Failure to comply with certain restrictive financial covenants contained in A&B’s credit facilities could impose restrictions on A&B’s business segments, capital availability or the ability to pursue other activities.

A&B’s credit facilities contain certain restrictive financial covenants. If A&B breaches any of the covenants and such breach is not cured in a timely manner or waived by the lenders, and results in default, A&B’s access to credit may be limited or terminated and the lenders could declare any outstanding amounts immediately due and payable.

Increasing interest rates would increase A&B’s overall interest expense.

Interest expense on A&B's floating-rate debt ($101.6 million of debt outstanding for the year ending December 31, 2016) would increase if interest rates rise.

A&B’s significant operating agreements and leases could be replaced on less favorable terms or may not be replaced.

A&B's various businesses have significant operating agreements and leases that expire at various points in the future. These agreements and leases may not be renewed or could be replaced on less favorable terms.

An increase in fuel prices may adversely affect A&B’s operating environment and costs.

Fuel prices have a direct impact on the health of the Hawaii economy. Increases in the price of fuel may result in higher transportation costs to Hawaii and adversely affect visitor counts and the cost of goods shipped to Hawaii, thereby affecting the strength of the Hawaii economy and its consumers. Increases in fuel costs also can lead to other non-recoverable, direct expense increases to A&B through, for example, increased costs of energy and petroleum-based raw materials used in the production of aggregate, and the manufacture, transportation, and placement of hot mix asphalt. Increases in energy costs for A&B’s leased real estate portfolio are typically recovered from lessees, although A&B’s share of energy costs increases as a result of lower occupancies, and higher operating cost reimbursements impact the ability to increase underlying rents. Rising fuel prices also may increase the cost of construction, including delivery costs to Hawaii, and the cost of materials that are petroleum-based, thus affecting A&B’s real estate development projects.

Noncompliance with, or changes to, federal, state or local law or regulations may adversely affect A&B’s business.

A&B is subject to federal, state and local laws and regulations, including government rate, land use, environmental, and tax regulations. Noncompliance with, or changes to, the laws and regulations governing A&B’s business could impose significant additional costs on A&B and adversely affect A&B’s financial condition and results of operations. For example, the real estate segments are subject to numerous federal, state and local laws and regulations, which, if changed, or not complied with may adversely affect A&B’s business. The Company frequently utilizes Section 1031 of the IRS Code to defer taxes when selling qualifying real estate and reinvesting the proceeds in replacement properties. This often occurs when the Company sells bulk parcels of land in Hawaii or commercial properties in Hawaii or on the Mainland, all of which typically have a very low tax basis. A repeal of or adverse amendment to Section 1031, which has often been considered by Congress, could impose significant additional costs on A&B. A&B is subject to Occupational Safety and Health Administration regulations, Environmental Protection Agency regulations, and state and county permits related to its operations. The Materials and Construction segment is additionally subject to Mine Safety and Health Administration regulations. The Land Operations segment is subject the Hawaii Public Utilities Commission’s regulation of agreements between A&B and Hawaii’s utilities regarding the sale of electric power, and various county, state and federal environmental laws, regulations and permits governing farming operations and generation of electricity (including, for example, the use of pesticides).

Changes to, or A&B’s violation of or inability to comply with any of the laws, regulations and permits mentioned above could increase A&B’s operating costs or ability to operate the affected line of business.

Work stoppages or other labor disruptions by the unionized employees of A&B or other companies in related industries may increase operating costs or adversely affect A&B's ability to conduct business.

As of December 31, 2016, approximately 54 percent of A&B's 806 regular full-time employees were covered by collective bargaining agreements with unions. A&B may be adversely affected by actions taken by employees of A&B or other companies in related industries against efforts by management to control labor costs, restrain wage or benefits increases or modify work practices. Strikes and disruptions may occur as a result of the failure of A&B or other companies in its industry to negotiate collective bargaining agreements with such unions successfully. For example, in its Land Operations segment, A&B

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may be unable to complete construction of its projects if building materials or labor are unavailable due to labor disruptions in the relevant trade groups.

The loss of or damage to key vendor and customer relationships may impact A&B’s ability to conduct business and adversely affect its profitability.

A&B’s business is dependent on its relationships with key vendors, customers and tenants. The loss of or damage to any of these key relationships may impact A&B’s ability to conduct business and adversely affect its profitability.

Interruption, breaches or failure of A&B’s information technology and communications systems could impair A&B’s ability to operate, adversely affect its profitability and damage its reputation.

A&B is dependent on information technology systems. All information technology and communication systems are subject to reliability issues, integration and compatibility concerns and security-threatening intrusions. Further, A&B may experience failures caused by the occurrence of a natural disaster or other unanticipated problems at A&B’s facilities. Any failure, or security breaches of, A&B’s systems could result in interruptions in its service or production, lower profitability and damage to its reputation.

A&B is susceptible to weather and natural disasters.

A&B’s real estate operations are vulnerable to natural disasters, such as hurricanes, earthquakes, tsunamis, floods, fires, tornadoes and unusually heavy or prolonged rain, which could damage its real estate holdings and which could result in substantial repair or replacement costs to the extent not covered by insurance, a reduction in property values, or a loss of revenue, and could have an adverse effect on its ability to develop, lease and sell properties. The occurrence of natural disasters could also cause increases in property insurance rates and deductibles, which could reduce demand for, or increase the cost of owning or developing A&B’s properties.

Drought, greater than normal rainfall, hurricanes, low-wind conditions, earthquakes, tsunamis, floods, fires, other natural disasters, agricultural pestilence, or negligence or intentional malfeasance by individuals, may also adversely impact the conditions of the land and thereby harming the prospects for the Land Operations segment, including agribusiness-related activities, the Company's renewable energy operations, and A&B's land infrastructure and facilities, including dams and reservoirs.

For the Materials and Construction segment, because nearly all of the segment's activities are performed outdoors, its operations are substantially dependent on weather conditions. For example, periods of wet or other adverse weather conditions could interrupt paving activities, resulting in delayed or loss of revenue, under-utilization of crews and equipment and less efficient rates of overhead recovery. Adverse weather conditions also restrict the demand for aggregate products, increase aggregate production costs and impede its ability to efficiently transport material.

A&B maintains casualty insurance under policies it believes to be adequate and appropriate. These policies are generally subject to large retentions and deductibles. Some types of losses, such as losses resulting from physical damage to dams or crop damage, generally are not insured. In some cases A&B retains the entire risk of loss because it is not economically prudent to purchase insurance coverage or because of the perceived remoteness of the risk. Other risks are uninsured because insurance coverage may not be commercially available. Finally, A&B retains all risk of loss that exceeds the limits of its insurance.

Heightened security measures, war, actual or threatened terrorist attacks, efforts to combat terrorism and other acts of violence may adversely impact A&B’s operations and profitability.

War, terrorist attacks and other acts of violence may cause consumer confidence and spending to decrease, or may affect the ability or willingness of tourists to travel to Hawaii, thereby adversely affecting Hawaii’s economy and A&B. Additionally, future terrorist attacks could increase the volatility in the U.S. and worldwide financial markets.

Loss of A&B’s key personnel could adversely affect its business.

A&B’s future success will depend, in significant part, upon the continued services of its key personnel, including its senior management and skilled employees. The loss of the services of key personnel could adversely affect its future operating results because of such employee’s experience, knowledge of its business and relationships. If key employees depart, A&B may have to incur significant costs to replace them, and A&B’s ability to execute its business model could be impaired if it cannot replace them in a timely manner. A&B does not maintain key person insurance on any of its personnel.

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A&B is subject to, and may in the future be subject to, disputes, legal or other proceedings, or government inquiries or investigations, that could have an adverse effect on A&B.

The nature of A&B’s business exposes it to the potential for disputes, legal or other proceedings, or government inquiries or investigations, relating to labor and employment matters, contractual disputes, personal injury and property damage, environmental matters, construction litigation, business practices, and other matters, as discussed in the other risk factors disclosed in this section. These disputes, individually or collectively, could harm A&B’s business by distracting its management from the operation of its business. If these disputes develop into proceedings, these proceedings, individually or collectively, could involve or result in significant expenditures or losses by A&B. For more information, see Item 3 entitled “Legal Proceedings.” As a real estate developer, A&B may face warranty and construction defect claims, as described below under “Risks Related to A&B’s Real Estate Activities.”

Changes in the value of pension assets, or a change in pension law or key assumptions, may result in increased expenses or plan contributions.

The amount of A&B’s employee pension and postretirement benefit costs and obligations are calculated on assumptions used in the relevant actuarial calculations. Adverse changes in any of these assumptions due to economic or other factors, changes in discount rates, higher health care costs, or lower actual or expected returns on plan assets, may result in increased cost or required plan contributions. In addition, a change in federal law, including changes to the Employee Retirement Income Security Act and Pension Benefit Guaranty Corporation premiums, may adversely affect A&B’s single-employer pension plans and plan funding. These factors, as well as a decline in the fair value of pension plan assets, may put upward pressure on the cost of providing pension and medical benefits and may increase future pension expense and required funding contributions. Although A&B has actively sought to control increases in these costs, there can be no assurance that it will be successful in limiting future cost and expense increases.

Risks Relating to A&B’s Real Estate Activities

A&B is subject to risks associated with real estate construction and development.

A&B’s development projects are subject to risks relating to A&B’s ability to complete its projects on time and on budget. Factors that may result in a development project exceeding budget or being prevented from completion include, but are not limited to:

• an inability of A&B or buyers to secure sufficient financing or insurance on favorable terms, or at all;

• construction delays, defects, or cost overruns, which may increase project development costs;

• an increase in commodity or construction costs, including labor costs;

• the discovery of hazardous or toxic substances, or other environmental, culturally-sensitive, or related issues;

• an inability to obtain, or a significant delay in obtaining, zoning, construction, occupancy and other required governmental permits and authorizations;

• difficulty in complying with local, city, county and state rules and regulations regarding permitting, zoning, subdivision, utilities, affordable housing and water quality, as well as federal rules and regulations regarding air and water quality and protection of endangered species and their habitats;

• an inability to have access to sufficient and reliable sources of water or to secure water service or meters for its projects;

• an inability to secure tenants or buyers necessary to support the project or maintain compliance with debt covenants;

• failure to achieve or sustain anticipated occupancy or sales levels;

• buyer defaults, including defaults under executed or binding contracts;

• condemnation of all or parts of development or operating properties, which could adversely affect the value or viability of such projects; and

• an inability to sell A&B’s constructed inventory.

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Instability in the financial industry could reduce the availability of financing.

Significant instability in the financial industry like that experienced during the financial crisis of 2008-2009, may result in, among other things, declining property values and increasing defaults on loans. This, in turn, could lead to increased regulations, tightened credit requirements, reduced liquidity and increased credit risk premiums for virtually all borrowers. Fewer loan products and strict loan qualifications make it more difficult for borrowers to finance the purchase of units in A&B’s projects. Additionally, more stringent requirements to obtain financing for buyers of commercial properties make it significantly more difficult for A&B to sell commercial properties and may negatively impact the sales prices and other terms of such sales. Deterioration in the credit environment may also impact A&B in other ways, including the credit or solvency of customers, vendors, tenants, or joint venture partners, the ability of partners to fund their financial obligations to joint ventures and A&B's access to mortgage financing for its own properties.

A&B is subject to a number of factors that could cause leasing rental income to decline.

A&B owns a portfolio of commercial income properties. Factors that may adversely affect the portfolio’s profitability include, but are not limited to:

• a significant number of A&B’s tenants are unable to meet their obligations;

• increases in non-recoverable operating and ownership costs;

• A&B is unable to lease space at its properties when the space becomes available;

• the rental rates upon a renewal or a new lease are significantly lower than prior rents or do not increase sufficiently to cover increases in operating and ownership costs;

• the providing of lease concessions, such as free or discounted rents and tenant improvement allowances; and

• the discovery of hazardous or toxic substances, or other environmental, culturally-sensitive, or related issues at the property.

The bankruptcy of key tenants may adversely affect A&B’s cash flows and profitability.

A&B may derive significant cash flows and earnings from certain key tenants. If one or more of these tenants declare bankruptcy or voluntarily vacates from the leased premise and A&B is unable to re-lease such space or to re-lease it on comparable or more favorable terms, A&B may be adversely impacted. Additionally, A&B may be further adversely impacted by an impairment or “write-down” of intangible assets, such as lease-in-place value, favorable lease asset, or a deferred asset related to straight-line lease rent, associated with a tenant bankruptcy or vacancy.

Governmental entities have adopted or may adopt regulatory requirements that may restrict A&B’s development activity.

A&B is subject to extensive and complex laws and regulations that affect the land development process, including laws and regulations related to zoning and permitted land uses. Government entities have adopted or may approve regulations or laws that could negatively impact the availability of land and development opportunities within those areas. It is possible that increasingly stringent requirements will be imposed on developers in the future that could adversely affect A&B’s ability to develop projects in the affected markets or could require that A&B satisfy additional administrative and regulatory requirements, which could delay development progress or increase the development costs to A&B.

Real estate development projects are subject to warranty and construction defect claims in the ordinary course of business that can be significant.

As a developer, A&B is subject to warranty and construction defect claims arising in the ordinary course of business. The amounts payable under these claims, both in legal fees and remedying any construction defects, can be significant and could exceed the profits made from the project. As a consequence, A&B may maintain liability insurance, obtain indemnities and certificates of insurance from contractors generally covering claims related to workmanship and materials, and create warranty and other reserves for projects based on historical experience and qualitative risks associated with the type of project built. Because of the uncertainties inherent in these matters, A&B cannot provide any assurance that its insurance coverage, contractor arrangements and reserves will be adequate to address some or all of A&B’s warranty and construction defect claims in the future. For example, contractual indemnities may be difficult to enforce, A&B may be responsible for applicable self-insured retentions, and certain claims may not be covered by insurance or may exceed applicable coverage limits. Additionally,

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the coverage offered and the availability of liability insurance for construction defects could be limited or costly. Accordingly, A&B cannot provide any assurance that such coverage will be adequate, available at an acceptable cost, or available at all.

A&B is involved in joint ventures and is subject to risks associated with joint venture relationships.

A&B is involved in joint venture relationships and may initiate future joint venture projects. A joint venture involves certain risks such as, among others:

• A&B may not have voting control over the joint venture;

• A&B may not be able to maintain good relationships with its venture partners;

• the venture partner at any time may have economic or business interests that are inconsistent with A&B’s economic or business interests;

• the venture partner may fail to fund its share of capital for operations and development activities or to fulfill its other commitments, including providing accurate and timely accounting and financial information to A&B;

• the joint venture or venture partner could lose key personnel

• the venture partner could become insolvent, requiring A&B to assume all risks and capital requirements related to the joint venture project, and any resulting bankruptcy proceedings could have an adverse impact on the operation of the project or the joint venture; and

• A&B may be required to perform on guarantees it has provided or agrees to provide in the future related to the completion of a joint venture's construction and development of a project, joint venture indebtedness, or on indemnification of a third party serving as surety for a joint venture's bonds for such completion.

A&B’s financial results are significantly influenced by the economic growth and strength of Hawaii.

Virtually all of A&B’s real estate development activity is conducted in Hawaii. Consequently, the growth and strength of Hawaii’s economy has a significant impact on the demand for A&B’s real estate development projects. As a result, any adverse change to the growth or health of Hawaii’s economy could have an adverse effect on A&B’s real estate business.

The value of A&B’s development projects and its commercial properties are affected by a number of factors.

The Company has significant investments in various commercial real estate properties, development projects, and joint venture investments. Weakness in the real estate sector, especially in Hawaii, difficulty in obtaining or renewing project-level financing, and changes in A&B’s investment and development strategy, among other factors, may affect the fair value of these real estate assets owned by A&B or by its joint ventures. If the fair value of A&B’s joint venture development projects were to decline below the carrying value of those assets, and that decline was other-than-temporary, A&B would be required to recognize an impairment loss. Additionally, if the undiscounted cash flows of its commercial properties or development projects were to decline below the carrying value of those assets, A&B would be required to recognize an impairment loss if the fair value of those assets were below their carrying value.

A&B’s ability to use or lease agricultural lands for agricultural purposes may be limited by government regulation.

Given the large scale of its agricultural landholdings on Maui and Kauai, many of the third parties to whom A&B leases land for agricultural purposes may be characterized as large scale commercial agricultural operations. Legislation passed on Kauai placed restrictions on the ability of such operations to use land within specified distances of highways, schools, oceans, streams, residences, parks, care homes, hospitals and other similar uses, to grow crops other than ground cover. This legislation also put significant restrictions regarding, and public notification obligations concerning, pesticide use on such operations and limited their ability to use genetically modified organism (GMO) crops. On Maui, similar legislation passed by a voter initiative placed a moratorium on the ability to farm GMO crops. In November 2016, the Kauai and Maui legislation was invalidated by the courts. If additional legislative agricultural restrictions are passed, such as restrictions on the use of pesticides, the ability of A&B to use or lease its lands for large scale agricultural purposes, and any rents that it can achieve for those lands, may be adversely affected.

The transition to a diversified agricultural model is subject to both the risks affecting the business generally and the inherent difficulties associated with implementing a new strategy. 

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The ability to transition to a new diversified model and improve the operating results depends upon a number of factors, including:

• the extent to which management has properly understood and is able to manage the dynamics and demands of the various farming operations comprising the diversified agricultural model, in which the Company may have limited or no prior experience;

• the ability to transition from the sugar operations in an orderly and efficient manner;

• the time required to prepare the land previously under sugar cane cultivation and ready it for a new purpose under the diversified model;

• the ability to respond to any unanticipated changes in expected cash flows, liquidity, cash needs and cash expenditures with respect to the new diversified model, including the Company's ability to obtain any additional financing or other liquidity enhancing transactions, if and when needed;

• the ability to execute strategic initiatives in a cost-effective manner, including identifying business partners to explore potential opportunities;

• The Company's ability to access adequate, affordable and uninterrupted sources of water (see the "The lack of water for agricultural irrigation could adversely affect the operations and profitability of the Land Operations segment" risk factor below);

There is no assurance that the Company will be able to transition to and implement a new diversified agricultural model, which could have an adverse impact on the Company's results of operations.

The diversified agricultural model may not achieve the financial results expected.

The Company is currently evaluating several categories of replacement agricultural activities in the transition to the diversified model, including but not limited to energy crops, agroforestry, grass finished livestock operations, diversified food crops/agricultural park, and orchard crops. There is no assurance that the Company's replacement agricultural activities will be economically feasible or improve the Land Operations segment's operating results.

A&B’s power sales contracts could be replaced on less favorable terms or may not be replaced.

A&B’s power sales contracts expire at various points in the future and may not be replaced or could be replaced on less favorable terms, which could adversely affect Land Operations profitability.

The market for power sales in Hawaii is limited.

The power distribution systems in Hawaii are small and island-specific; currently, there is no ability to move power generated on one island to any other island. In addition, Hawaii law limits the ability of independent power producers, such as A&B, to sell their output to firms other than the respective utilities on each island, without themselves becoming utilities and subject to the State’s Public Utilities Commission (PUC) regulation. Further, any sales of electricity by A&B to the utilities on each island are subject to the approval of the PUC. Unlike some areas in the Mainland, Hawaii’s independent power producers have no ability to use utility infrastructure to transfer power to other locations.

Risks Relating to A&B’s Agribusiness-related Activities

The lack of water for agricultural irrigation could adversely affect the operations and profitability of the land Operations segment.

It is crucial for the Company's land to have access to sufficient, reliable and affordable sources of water in order to conduct any agricultural activity. As further described in “Legal Proceedings,” there are regulatory and legal challenges to the Company’s ability to divert water from streams in Maui. In addition, access to water is subject to weather patterns that cannot be reliably predicted. If A&B is limited in its ability to divert stream waters for its use or there is insufficient rainfall on an extended basis, it would have a significant, adverse effect on the utility of the land and our ability to employ the land in active agricultural use.

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Risks Relating to A&B’s Materials and Construction Operations

A&B's Materials and Construction segment's revenue growth and profitability are dependent on factors outside of its control.

A&B's Materials and Construction segment's ability to grow its revenues and improve profitability are dependent on factors outside of its control, which include, but are not limited to:

• decreased government funding for infrastructure projects (see the "Economic downturns or reductions in government funding of infrastructure projects could reduce A&B's revenues and profits from its materials and construction businesses." risk factor below);

• reduced spending by private sector customers resulting from poor economic conditions in Hawaii;

• an increased number of competitors;

• less success in competitive bidding for contracts;

• a decline in transportation and logistical costs, which may result in customers purchasing material from sources located outside of Hawaii in a more cost-efficient manner;

• limitations on access to necessary working capital and investment capital to sustain growth; and

• inability to hire and retain essential personnel and to acquire equipment to support growth.

Economic downturns or reductions in government funding of infrastructure projects could reduce A&B's revenues and profits from its materials and construction businesses.

The segment's products are used in public infrastructure projects, which include the construction, maintenance and improvement of highways, streets, roads, airport runways and similar projects. A&B's materials and construction businesses, including its aggregates business, are highly dependent on the amount and timing of infrastructure work funded by various governmental entities, which, in turn, depends on the overall condition of the economy, the need for new or replacement infrastructure, the priorities placed on various projects funded by governmental entities and federal, state or local government spending levels. A&B cannot be assured of the existence, amount and timing of appropriations for spending on these and other future projects, including state and federal spending on roads and highways. Spending on infrastructure could decline for numerous reasons, including decreased revenues received by state and local governments for spending on such projects (including federal funding), and other competing priorities for available state, local and federal funds. State spending on highway and other projects can be adversely affected by decreases or delays in, or uncertainties regarding, federal highway funding. The segment is reliant upon contracts with the City and County of Honolulu, the State of Hawaii and the Federal Government for a significant portion of its revenues. If revenues and profits are impacted by economic downturns or reductions in government funding, the segment’s long-lived assets and goodwill may become impaired.

A&B may face community opposition to the operation or expansion of quarries or other facilities.

Quarries and other segment facilities require special and conditional use permits to operate. Permitting and licensing applications and proceedings and regulatory enforcement proceedings are all matters open to public scrutiny and comment. In addition, the Makakilo quarry is adjacent to residential areas and heavy equipment and explosives are used in the mining process. As a result, from time to time, A&B's Materials and Construction segment operations may be subject to community opposition and adverse publicity that may have a negative effect on operations and delay or limit any future expansion or development of segment operations.

A&B's materials and construction businesses operate only in Hawaii, and adverse changes to the economy and business environment in Hawaii could adversely affect operations and profitability.

Because of its operations are concentrated in a specific geographic location, A&B's materials and construction businesses are susceptible to fluctuations in operations and profitability caused by changes in economic or other conditions in Hawaii.

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Significant contracts may be canceled or A&B may be disqualified from bidding for new contracts.

Governmental entities typically have the right to cancel their contracts with A&B's construction businesses at any time with payment generally only for the work already completed plus a negotiated compensatory overhead recovery amount. In addition, A&B's construction businesses could be prohibited from bidding on certain governmental contracts if it fails to maintain qualifications required by those entities, such as maintaining an acceptable safety record.

If A&B's materials and construction businesses are unable to accurately estimate the overall risks, requirements or costs when bidding on or negotiating a contract that it is ultimately awarded, the segment may achieve a lower than anticipated profit or incur a loss on the contract.

The majority of the Materials and Construction segment's revenues are derived from “quantity pricing” (fixed unit price) contracts. Approximately 40 percent of 2016 segment revenues and backlog are derived from “lump sum” (fixed total price) contracts. Quantity pricing contracts require the provision of line-item materials at a fixed unit price based on approved quantities irrespective of actual per unit costs. Lump sum contracts require that the total amount of work be performed for a single price irrespective of actual quantities or actual costs. Expected profits on contracts are realized only if costs are accurately estimated and then successfully controlled. If cost estimates for a contract are inaccurate, or if the contract is not performed within cost estimates, then cost overruns may result in losses or cause the contract not to be as profitable as expected.

If A&B's materials and construction businesses are unable to attract and retain key personnel and skilled labor, or encounter labor difficulties, the ability to bid for and successfully complete contracts may be negatively impacted.

The ability to attract and retain reliable, qualified personnel is a significant factor that enables A&B's materials and construction businesses to successfully bid for and profitably complete its work. This includes members of management, project managers, estimators, supervisors, and foremen. The segment's future success will also depend on its ability to hire, train and retain, or to attract, when needed, highly skilled management personnel. If competition for these employees is intense, it could be difficult to hire and retain the personnel necessary to support operations. If A&B does not succeed in retaining its current employees and attracting, developing and retaining new highly skilled employees, segment operations and future earnings may be negatively impacted.

A majority of segment personnel are unionized. Any work stoppage or other labor dispute involving unionized workforce, or inability to renew contracts with the unions, could have an adverse effect on operations.

A&B's construction and construction-related businesses may fail to meet schedule or performance requirements of its paving contracts.

Asphalt paving contracts have penalties for late completion. In most instances, projects must be completed within an allotted number of business or calendar days from the time the notice to proceed is received, subject to allowances for additional days due to weather delays or additional work requested by the customer. If A&B's construction businesses subsequently fail to complete the project as scheduled, A&B may be responsible for contractually agreed-upon liquidated damages, an amount assessed per day beyond the contractually allotted days, at the discretion of the customer. Under these circumstances, the total project cost could exceed original estimates and could result in a loss of profit or a loss on the project. Additionally, A&B's construction businesses enter into lump sum and quantity pricing contracts where profits can be adversely affected by a number of factors beyond its control, which can cause actual costs to materially exceed the costs estimated at the time of its original bid.

Timing of the award and performance of new contracts could have an adverse effect on Materials and Construction segment operating results and cash flow.

It is generally very difficult to predict whether and when bids for new projects will be offered for tender, as these projects frequently involve a lengthy and complex design and bidding process, which is affected by a number of factors, such as market conditions, funding arrangements and governmental approvals. Because of these factors, segment results of operations and cash flows may fluctuate from quarter to quarter and year to year, and the fluctuation may be substantial.

The uncertainty of the timing of contract awards after a winning bid is submitted may also present difficulties in matching the size of equipment fleet and work crews with contract needs. In some cases, A&B's materials and construction businesses may maintain and bear the cost of more equipment than is currently required, in anticipation of future needs for existing contracts or expected future contracts.

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In addition, the timing of the revenues, earnings and cash flows from contracts can be delayed by a number of factors, including delays in receiving material and equipment from suppliers and services from subcontractors and changes in the scope of work to be performed.

Dependence on a limited number of customers could adversely affect A&B's materials and construction businesses and results of operations.

Due to the size and nature of the segment's construction contracts, one or a few customers have in the past and may in the future represent a substantial portion of consolidated segment revenues and gross profits in any one year or over a period of several consecutive years. For example, in 2016, approximately 90 percent of Grace's construction related revenue was generated from projects administered by the federal government, State of Hawaii, or the various counties in Hawaii where Grace served as general contractor or subcontractor. Similarly, segment backlog frequently reflects multiple contracts for certain customers; therefore, one customer may comprise a significant percentage of backlog at a certain point in time. For example, the State of Hawaii comprised approximately 37 percentof Grace’s construction backlog at December 31, 2016. The loss of business from any such customer, or a default or delay in payment on a significant scale by a customer, could have an adverse effect on A&B's materials and construction businesses or results of operations.

A&B's materials and construction businesses are likely to require more capital over the longer term.

The property and machinery needed to produce aggregate products and perform asphaltic concrete paving contracts are expensive. Although capital needs over the next five years are expected to be relatively modest, over the longer term, A&B's materials and construction businesses may require increasing annual capital expenditures. The segment's ability to generate sufficient cash flow to fund these expenditures depends on future performance, which will be subject to general economic conditions, industry cycles and financial, business, and other factors affecting operations, many of which are beyond A&B's control. If the segment is unable to generate sufficient cash to operate its business, it may be required, among other things, to further reduce or delay planned capital or operating expenditures.

An inability to obtain bonding could limit the aggregate dollar amount of contracts that A&B's materials and construction businesses are able to pursue.

As is customary in the construction industry, A&B may be required to provide surety bonds to its customers to secure its performance under construction contracts. A&B's ability to obtain surety bonds primarily depends upon its capitalization, working capital, past performance, management expertise and reputation and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relationship to the amount of backlog and their underwriting standards, which may change from time to time. Events that adversely affect the insurance and bonding markets generally may result in bonding becoming more difficult to obtain in the future, or being available only at a significantly greater cost. The inability to obtain adequate bonding would limit the amount that A&B's construction businesses are to able bid on new contracts and could have an adverse effect on the segment's future revenues and business prospects.

A&B's Materials and Construction segment operations are subject to hazards that may cause personal injury or property damage, thereby subjecting A&B to liabilities and possible losses, which may not be covered by insurance.

Segment employees are subject to the usual hazards associated with performing construction activities on road construction sites, plants and quarries. Operating hazards can cause personal injury and loss of life, damage to or destruction of property, plant and equipment and environmental damage. A&B maintains general liability and excess liability insurance, workers’ compensation insurance, auto insurance and other types of insurance, all in amounts consistent with A&B’s materials and construction businesses' risk of loss and industry practice, but this insurance may not be adequate to cover all losses or liabilities incurred in operations.

Insurance liabilities are difficult to assess and quantify due to unknown factors, including the severity of an injury, the determination of liability in proportion to other parties, the number of incidents not reported and the effectiveness of the segment's safety program. If insurance claims or costs were above its estimates, A&B's materials and construction businesses might be required to use working capital to satisfy these claims, which could impact its ability to maintain or expand its operations.

Environmental and other regulatory matters could adversely affect A&B's materials and construction businesses' ability to conduct its business and could require significant expenditures.

Segment operations are subject to various environmental laws and regulations relating to the management, disposal and remediation of hazardous substances, climate change and the emission and discharge of pollutants into the air and water.

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A&B's materials and construction businesses could be held liable for such contamination created not only from their own activities but also from the historical activities of others on properties that the segment acquires or leases. Segment operations are also subject to laws and regulations relating to workplace safety and worker health, which, among other things, regulate employee exposure to hazardous substances. Violations of such laws and regulations could subject A&B to substantial fines and penalties, cleanup costs, third-party property damage or personal injury claims. In addition, these laws and regulations have become, and enforcement practices and compliance standards are becoming, increasingly stringent. Moreover, A&B cannot predict the nature, scope or effect of legislation or regulatory requirements that could be imposed, or how existing or future laws or regulations will be administered or interpreted, with respect to products or activities to which they have not been previously applied. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could require substantial expenditures for, among other things, equipment not currently possessed, or the acquisition or modification of permits applicable to segment activities.

Short supplies and volatility in the costs of fuel, energy and raw materials may adversely affect A&B's materials and construction businesses.

A&B's materials and construction businesses require a continued supply of diesel fuel, electricity and other energy sources for production and transportation. The financial results of these businesses have at times been affected by the high costs of these energy sources. Significant increases in costs or reduced availability of these energy sources have and may in the future reduce financial results. Moreover, fluctuations in the supply and costs of these energy sources can make planning business operations more difficult. A&B does not hedge its fuel price risk, but instead focuses on volume-related price reductions, fuel efficiency, alternative fuel sources, consumption and the natural hedge created by the ability to increase aggregates prices.

Similarly, segment operations also require a continued supply of liquid asphalt, which serves as a key raw material in the production of asphaltic concrete. Liquid asphalt is subject to potential supply constraints and significant price fluctuations, which are generally correlated to the price of crude oil, though not as closely as diesel or gasoline, and are beyond the control of A&B's materials and construction business. Accordingly, significant increases in the price of crude oil will have an adverse impact on the financial results of the materials and construction segment due to higher costs of production of asphaltic concrete. Conversely, significant declines in the price of oil had, and in the future, may have an adverse impact on A&B's material and construction sales of liquid asphalt concrete, due to lower costs of importing asphalt to Hawaii, which may result in customers sourcing liquid asphalt from competition located outside of Hawaii.

Risks Relating to the Separation from Matson Navigation Company

If the Separation were to fail to qualify as tax-free for U.S. federal income tax purposes, then A&B, Matson, Inc. ("Matson") and the shareholders who received their shares of A&B common stock in the Separation could be subject to significant tax liability or tax indemnity obligations.

Prior to June 29, 2012, A&B’s businesses included Matson Navigation Company, a wholly owned subsidiary that provided ocean transportation, truck brokerage and intermodal services. As part of a strategic initiative designed to allow A&B to independently execute its strategies and to enhance and maximize its earnings, growth prospects and shareholder value, A&B made a decision to separate the transportation businesses from the Hawaii real estate and agriculture businesses. In preparation for the separation, A&B modified its legal-entity structure and became a wholly owned subsidiary of a newly created entity, Alexander & Baldwin Holdings, Inc. (“Holdings”). On June 29, 2012, Holdings distributed to its shareholders all of the shares of A&B stock in a tax-free distribution (the “Separation”). Holders of Holdings common stock continued to own the transportation businesses, but also received one share of A&B common stock for each share of Holdings common stock held at the close of business on June 18, 2012, the record date. Following the Separation, Holdings changed its name to Matson. On July 2, 2012, A&B began regular trading on the New York Stock Exchange under the ticker symbol “ALEX” as an independent, public company.

Matson received a private letter ruling from the Internal Revenue Service ("IRS Ruling") that, for U.S. federal income tax purposes, (i) certain transactions to be effected in connection with the Separation qualify as a reorganization under Sections 355 and/or 368 of the Internal Revenue Code of 1986, as amended ("Code"), or as a complete liquidation under Section 332(a) of the Code and (ii) the Separation qualifies as a transaction under Section 355 of the Code. In addition to obtaining the IRS Ruling, Matson received a tax opinion ("Tax Opinion") from the law firm of Skadden, Arps, Slate, Meagher & Flom LLP (which Tax Opinion relies on the effectiveness of the IRS Ruling) substantially to the effect that, for U.S. federal income tax purposes, the Separation and certain related transactions qualify as a reorganization under Section 368 of the Code. The IRS Ruling and Tax Opinion rely on certain facts and assumptions, and certain representations from A&B and Matson regarding the past and future conduct of their respective businesses and other matters. Notwithstanding the IRS Ruling and Tax Opinion, the Internal Revenue Service ("IRS") could determine on audit that the Separation and related transactions should be treated as a taxable transaction if it determines that any of these facts, assumptions, representations or undertakings

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are not correct or have been violated, or that the Separation and related transactions should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the Separation or if the IRS were to disagree with the conclusions in the Tax Opinion that are not covered by the IRS Ruling. If the Separation and related transactions ultimately were determined to be taxable, the distribution of A&B stock in the Separation could be treated as taxable for U.S. federal income tax purposes to the shareholders who received their shares of A&B common stock in the Separation, and such shareholders could incur significant U.S. federal income tax liabilities. In addition, Matson would recognize a gain in an amount equal to the excess of the fair market value of the shares of A&B common stock distributed to Matson's shareholders on the Separation date over Matson tax basis in such shares.

In addition, under the terms of the Tax Sharing Agreement that A&B entered into with Matson, A&B also generally is responsible for any taxes imposed on Matson that arise from the failure of the Separation and certain related transactions to qualify as tax-free for U.S. federal income tax purposes within the meaning of Sections 355 and 368 of the Code, to the extent such failure to qualify is attributable to actions, events or transactions relating to A&B’s stock, assets or business, or a breach of the relevant representations or covenants made by A&B and its subsidiaries in the Tax Sharing Agreement, the materials submitted to the IRS in connection with the request for the IRS Ruling or the representation letter provided to counsel in connection with the Tax Opinion. The amounts of any such taxes could be significant.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 3. LEGAL PROCEEDINGS

Legal Proceedings and Other Contingencies: A&B owns 16,000 acres of watershed lands in East Maui that supplied a significant portion of the irrigation water used by the Company's HC&S division for its sugar operations. A&B also held four water licenses to another 30,000 acres owned by the State of Hawaii in East Maui which, over the last ten years, have supplied approximately 56 percent of the irrigation water used by HC&S. 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 request 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 re-affirm 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 in the 4/10/15 Lawsuit ruled 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 take 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 exceed three years. The governor signed this bill into law as Act 186 in June 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 all of the taro streams identified by the petitioners in their filings.

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Re-opened evidentiary hearings will take place in the first half of 2017 and a final decision on the petitions from the Commission is not expected until at least the second quarter of 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 interim instream flow standards (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 Hawai`i 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 consolidated financial statements as a whole.

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 Annual Report on Form 10-K.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of February 14, 2017, there were 2,326 shareholders of record of A&B common stock. In addition, Cede & Co., which appears as a single record holder, represents the holdings of thousands of beneficial owners of A&B common stock.     

The following performance graph compares the monthly dollar change in the cumulative shareholder return on the Company’s common stock:

Trading volume averaged 178,858 shares a day in 2016, 172,542 shares a day in 2015, and 203,642 shares a day in 2014.     

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The quarterly intra-day high and low sales prices and end of quarter closing prices, as reported by the New York Stock Exchange, were as follows:

	Dividends Paid Per Share		Market Price
			High		Low		Close
2015
First Quarter	$	0.05	$	43.33	$	36.95	$	43.18
Second Quarter	$	0.05	$	43.68	$	39.12	$	39.40
Third Quarter	$	0.05	$	40.00	$	32.15	$	34.33
Fourth Quarter	$	0.06	$	39.00	$	33.87	$	35.31
2016
First Quarter	$	0.06	$	37.83	$	28.82	$	36.68
Second Quarter	$	0.06	$	39.36	$	32.94	$	36.14
Third Quarter	$	0.06	$	42.80	$	35.12	$	38.42
Fourth Quarter	$	0.07	$	46.43	$	36.98	$	44.87

A&B increased the quarterly dividend rate by $0.01 in the fourth quarters of 2016 and 2015. Although A&B expects to continue paying quarterly cash dividends on its common stock, the declaration and payment of dividends in the future are subject to the discretion of the Board of Directors and will depend upon A&B's financial condition, results of operations, cash requirements and other factors deemed relevant by the Board of Directors.

A&B common stock is included in the Dow Jones U.S. Real Estate Index, the Russell 2000 Index, the Russell 3000 Index, the Dow Jones U.S. Composite Average and the S&P MidCap 400.

In October 2015, A&B's Board of Directors authorized A&B to repurchase up to two million shares of its common stock beginning on January 1, 2016. The authorization expires on December 31, 2017. No shares were repurchased in 2016, 2015, or 2014.

Securities authorized for issuance under equity compensation plans as of December 31, 2016, included:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	903,500	$17.78	1,186,541
Total	903,500	$17.78	1,186,541*

* Under the 2012 Incentive Compensation Plan, 1,186,541 shares may be issued either as restricted stock grants, restricted stock unit grants, or stock option grants.

The following are the Company's recent sales of equity securities and use of proceeds for the fourth quarter of fiscal year 2016.

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Issuer Purchases of Equity Securities

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
October 1-31, 2016	2,190	$40.20	—	—
November 1-30, 2016	10,546	$42.64	—	—
December 1-31, 2016	2,656	$44.46	—	—

1 Represents shares accepted in satisfaction of tax withholding obligations arising upon option exercises.

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ITEM 6. SELECTED FINANCIAL DATA

The following should be read in conjunction with Item 8, “Financial Statements and Supplementary Data,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (dollars and shares in millions, except per-share amounts):

	2016			2015			2014		2013 1		2012 2
Consolidated statements of operations data (in millions)3:
Net revenues	$	387.5		$	472.8		$	456.3	$	238.1	$	102.5
Operating profit	$	84.7		$	145.8		$	88.5	$	28.7	$	3.0
Income (loss) from continuing operations	$	32.7		$	60.8		$	36.8	$	5.4	$	(7.4	)
Income (loss) from discontinued operations, net of income taxes	$	(41.1	)	$	(29.7	)	$	27.7	$	29.4	$	26.2
Net income (loss)	$	(8.4	)	$	31.1		$	64.5	$	34.8	$	18.8
Net income (loss) attributable to A&B Shareholders	$	(10.2	)	$	29.6		$	61.4	$	34.3	$	18.8
Capital expenditures4, 5, 6	$	119.6		$	44.7		$	75.1	$	505.3	$	54.8
Depreciation and amortization8	$	119.5		$	55.7		$	55.0	$	41.7	$	35.1
Earnings (loss) per share:7
Basic:
Continuing operations available to A&B Shareholders	$	0.66		$	1.15		$	0.69	$	0.11	$	(0.17	)
Discontinued operations available to A&B Shareholders	(0.84		)	(0.61		)	0.57		0.66		0.61
Basic earnings per share available to A&B Shareholders	$	(0.18	)	$	0.54		$	1.26	$	0.77	$	0.44
Diluted:
Continuing operations available to A&B Shareholders	$	0.65		$	1.14		$	0.68	$	0.11	$	(0.17	)
Discontinued operations available to A&B Shareholders	$	(0.83	)	(0.60		)	0.57		0.65		0.61
Diluted earnings per share available to A&B Shareholders	$	(0.18	)	$	0.54		$	1.25	$	0.76	$	0.44
Cash dividends declared per common share	$	0.25		$	0.21		$	0.17	$	0.04	$	—
	2016			2015			2014		2013		2012
Consolidated balance sheet data (in millions):
Investment in real estate and joint ventures	$	1,573.9		$	1,564.6		$	1,639.9	$	1,606.8	$	1,203.4
Total assets9	$	2,156.3		$	2,242.3		$	2,321.1	$	2,274.7	$	1,429.3
Total liabilities9	$	932.3		$	1,003.6		$	1,107.3	$	1,108.2	$	519.2
Redeemable noncontrolling interest	$	10.8		$	11.6		$	—	$	—	$	—
Total equity (includes noncontrolling interest)	$	1,213.2		$	1,227.1		$	1,213.8	$	1,166.5	$	910.1
Long-term debt – non-current9	$	472.7		$	496.6		$	632.0	$	606.6	$	220.4

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SELECTED FINANCIAL DATA (CONTINUED)

¹  2013 includes the results, capital expenditures, and depreciation and amortization of Grace from the acquisition date of October 1, 2013 through December 31, 2013.

²  The financial statements and related financial information pertaining to the year ended 2012 has been presented on a combined basis and reflect the financial position, results of operations and cash flows of the commercial real estate and land operations businesses and corporate functions of Alexander & Baldwin, Inc., all of which were under common ownership and common management prior to the Separation. The financial statements for periods prior to the Separation included herein may not necessarily reflect what A&B’s results of operations, financial position and cash flows would have been had A&B been a stand-alone company during the periods presented.

³  Amounts recast to reflect discontinued operations.

⁴ Represents gross capital additions to and acquisitions in or for the commercial real estate portfolio, including gross tax-deferred property purchases, but excluding the assumption of debt, that are reflected as non-cash transactions in the Consolidated Statements of Cash Flows.

⁵  Excludes expenditures for real estate developments held for sale, which are classified as Cash Flows from Operating Activities within the Consolidated Statements of Cash Flows, and excludes investment in joint ventures classified as Cash Flows from Investing Activities. Operating cash flows for expenditures related to real estate developments were $15.2 million, $7.2 million, $41.7 million, $150.6 million, and $37.2 million for 2016, 2015, 2014, 2013 and 2012, respectively. Investments in real estate joint ventures were $20.8 million $25.8 million, $28.7 million, $22.2 million, and $17.4 million in 2016, 2015, 2014, 2013 and 2012, respectively.

⁶ Includes $21.8 million of capital in 2012 related to the Company’s Port Allen solar project before tax credits.

⁷ The computation of basic and diluted earnings per common share for all periods prior to Separation is calculated using 42.4 million, the number of shares of A&B common stock outstanding on July 2, 2012, which was the first day of trading following the June 29, 2012 distribution of A&B common stock to Holdings shareholders, as if those shares were outstanding for those periods. For all periods prior to Separation, there were no dilutive shares because no actual A&B shares or share-based awards were outstanding prior to the Separation.

⁸ Includes depreciation and amortization from discontinued operations.

⁹  Amounts recast to reflect the adoption of Financial Accounting Standards Update No. 2015-03, Interest- Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

We have made forward-looking statements in this Form 10-K that are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "anticipate," "estimate," "predict," "potential," "continue," "may," "might," "should," "could" or the negative of these terms or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this Form 10-K. We do not have any intention or obligation to update forward-looking statements after we file this Form 10-K.

The risk factors discussed in "Risk Factors" could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our financial position, results of operations or cash flows. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.

Introduction

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information about A&B’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’s financial statements. MD&A is organized as follows:

• Business Overview: This section provides a general description of A&B’s business, as well as recent developments that A&B believes are important in understanding its results of operations and financial condition or in understanding anticipated future trends.

• Critical Accounting Estimates: This section identifies and summarizes those accounting policies that significantly impact A&B’s reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.

• Consolidated Results of Operations: This section provides an analysis of A&B’s results of operations for the three years ended December 31, 2016, 2015 and 2014.

• 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 years ended December 31, 2016, 2015 and 2014, 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.

• Contractual Obligations, Commitments, Contingencies and Off-Balance-Sheet Arrangements: This section provides a discussion of A&B’s contractual obligations and other commitments and contingencies that existed at December 31, 2016.

• 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.

• Outlook: This section provides a discussion of management’s general outlook about its markets and A&B’s competitive position.

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Business Overview

A&B, whose history dates back to 1870, is headquartered in Honolulu and operates through three reportable segments: Commercial Real Estate; Land Operations; and Materials and Construction. The Company's three reportable segments reflect an internal reorganization of the operations and reporting structure that the Company completed in the fourth quarter of 2016 in order 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: Commercial Real Estate, Real Estate Development and Sales, Materials and Construction, and Agribusiness. 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.

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 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. As a result of the previously mentioned segment realignment, the Company has reclassified the HC&S sugar operations, which completed its final harvest and ceased operations in December 2016, to the Land Operations segment and also presented the operations as discontinued operations for all periods.

Materials and Construction

The Materials and Construction segment performs asphalt 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-related products; and manufactures and sells precast concrete products.

Critical Accounting Estimates

A&B’s significant accounting policies are described in Note 2 to the Consolidated Financial Statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, upon which the MD&A 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 certainty and actual results will, inevitably, differ from those critical accounting estimates. These differences could be material.

A&B considers an accounting estimate to be critical if: (i)(a) the accounting estimate requires A&B to make assumptions that are difficult or subjective about matters that were highly uncertain at the time that the accounting estimate was made, (b) changes in the estimate are reasonably likely to occur in periods subsequent to the period in which the estimate was made, or (c) different estimates by A&B could have been used, and (ii) changes in those assumptions or estimates would have had a material impact on the financial condition or results of operations of A&B. The critical accounting estimates inherent in the preparation of A&B’s financial statements are described below.

Principles of Consolidation

The consolidated financial statements include the accounts of Alexander & Baldwin, Inc. and all wholly owned and controlled subsidiaries, after elimination of significant intercompany amounts. Significant investments in businesses, partnerships and limited liability companies in which the Company does not have a controlling financial interest, but has the ability to exercise significant influence, are accounted for under the equity method. A controlling financial interest is one in which the Company has a majority voting interest or one in which the Company is the primary beneficiary of a variable interest entity. In determining whether the Company is the primary beneficiary of a variable interest entity in which it has an interest,

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the Company is required to make significant judgments with respect to various factors including, but not limited to, the Company’s ability to direct the activities that most significantly impact the entity’s economic performance, the rights and ability of other investors to participate in decisions affecting the economic performance of the entity, and kick-out rights, among others. Activities that significantly affect the economic performance of the entities in which the Company has an interest include, but are not limited to, establishing and modifying detailed business, development, marketing and sales plans, approving and modifying the project budget, approving design changes and associated overruns, if any, and approving project financing, among others. The Company has not consolidated any variable interest entity in which the Company does not also have voting control because it has determined that it is not the primary beneficiary since decisions to direct the activities that most significantly impact the entity’s performance are shared by the joint venture partners.

Impairment of Long-Lived Assets and Finite-Lived Intangible Assets

A&B’s long-lived assets, including finite-lived intangible assets, are reviewed for possible impairment when events or circumstances indicate that the carrying value may not be recoverable. In such an evaluation, the estimated future undiscounted cash flows generated by the asset are compared with the amount recorded for the asset to determine if its carrying value is not recoverable. If this review determines that the recorded value will not be recovered, the amount recorded for the asset is reduced to estimated fair value. These asset impairment analyses are highly subjective because they require management to make assumptions and apply considerable judgments to, among others, estimates of the timing and amount of future cash flows, expected useful lives of the assets, uncertainty about future events, including changes in economic conditions, changes in operating performance, changes in the use of the assets, and ongoing costs of maintenance and improvements of the assets and, thus, the accounting estimates may change from period to period. If management uses different assumptions or if different conditions occur in future periods, A&B’s financial condition or its future operating results could be materially impacted. A&B has evaluated certain long-lived assets, including intangible assets, for impairment.

During the fourth quarter of 2016, as a result of a change in its strategy for development activities, the Company recorded non-cash impairment charges of $11.7 million related to certain non-active, long-term development projects. The impairment loss recorded reduced the carrying amounts to the estimated fair value, reflecting the change to the Company’s development-for-sale strategy to de-risk its portfolio by not pursuing certain long-term projects that were not in active development and instead focus on projects with a shorter-term lifespan, generally 3 to 5 years. The impairment charges are presented within Impairment of real estate assets in the accompanying consolidated statements of operations. There were no material long-lived asset impairment charges recorded in 2015 or 2014.

Impairment of Investments

A&B’s investments in unconsolidated affiliates are reviewed for impairment whenever there is evidence that fair value may be below carrying cost. An investment is written down to fair value if fair value is below carrying cost and the impairment is believed to be other-than-temporary. In evaluating the fair value of an investment and whether any identified impairment is other-than-temporary, significant estimates and considerable judgments are involved. These estimates and judgments are based, in part, on A&B’s current and future evaluation of economic conditions in general, as well as a joint venture’s current and future plans. Additionally, these impairment calculations are highly subjective because they also require management to make assumptions and apply judgments to estimates regarding the timing and amount of future cash flows and take into account various factors, including sales prices, development costs, market conditions, and absorption rates, probabilities related to various cash flow scenarios, and appropriate discount rates based on the perceived risks, among others. In evaluating whether an impairment is other-than-temporary, A&B considers all available information, including the length of time and extent of the impairment, the financial condition and near-term prospects of the affiliate, A&B’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value, and projected industry and economic trends, among others. Changes in these and other assumptions could affect the projected operational results and fair value of the unconsolidated affiliates, and accordingly, may require valuation adjustments to A&B’s investments that may materially impact A&B’s financial condition or its future operating results. For example, if current market conditions deteriorate significantly or a joint venture’s plans change materially, impairment charges may be required in future periods, and those charges could be material.

The Company invested $23.8 million in 2014 and $15.4 million in 2016 in tax equity investments related to the construction and operation of (1) a 12-megawatt solar farm on Kauai and (2) two photovoltaic facilities with a combined capacity of 6.5 megawatts on Oahu, respectively. The Company recovers its investments primarily through tax credits and tax benefits, which are recorded in the Income tax expense (benefit) line item in the consolidated statements of operations. As these tax benefits were received and recognized, the Company recorded non-cash reductions of the investments' carrying value. For the years ended December 31, 2016 and 2015, the Company recorded net, non-cash reductions of the investments' carrying value of $9.8 million and $2.6 million, respectively.

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Weakness in particular real estate markets, difficulty in obtaining or renewing project-level financing or development approvals, and changes in A&B’s development strategy, among other factors, may affect the value or feasibility of certain development projects owned by A&B or by its joint ventures and could lead to additional impairment charges in the future.

Goodwill

The Company reviews goodwill for impairment at the reporting unit level annually and whenever events or changes in circumstances indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The goodwill impairment test involves a two-step process. Step one of the goodwill impairment test estimates the fair value of a reporting unit using various methodologies, including discounted cash flows and market multiples. The discounted cash flow approach relies on a number of assumptions, including future macroeconomic conditions, market factors specific to the reporting unit, the amount and timing of estimated future cash flows to be generated by the business over an extended period of time, long-term growth rates for the business, and a discount rate that considers the risks related to the amount and timing of the cash flows, among others. Although the assumptions used by the Company in its discounted cash flow model are based on the best available market information and are consistent with the assumptions the Company used to generate its internal strategic plans and forecasts, significant judgment is required to estimate the amount and timing of future cash flows and the risk of achieving those cash flows. Under the market multiple methodology, the estimate of fair value may be based on market multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) or revenues. When using market multiples of EBITDA or revenues, the Company must make judgments about the comparability of those multiples in closed and proposed transactions. Accordingly, changes in assumptions and estimates, including, but not limited to, changes driven by external factors, such as industry and economic trends, and those driven by internal factors, such as changes in business strategy and its internal forecasts, could have a material effect on the reporting unit's business, financial condition and results of operations. Additionally, the foregoing assumptions could be adversely impacted by any of the risks discussed in "Risk Factors."

If the results of the Company's step one test indicates that a reporting unit's estimated fair value is less than its carrying value, a step two analysis is performed. In the step two analysis, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. The implied value of goodwill is compared to the carrying value of goodwill. If the implied value of the goodwill exceeds the carrying value of goodwill, then goodwill is not considered to be impaired. If the implied value of goodwill is less than the carrying value of goodwill, the goodwill is considered to be impaired.

At December 31, 2016, the Company's goodwill totaled $102.3 million, primarily related to the 2013 acquisition of Grace Pacific. Of the total goodwill, $93.6 million relates to three reporting units in the Materials and Construction segment. The valuation of each reporting unit assumes that each is an unrelated business to be sold separately and independently from the other reporting units. As of the date of the last impairment test in the fourth quarter of 2016, the weighted average percentage (using reporting units’ carrying value) by which the fair values of the reporting units exceeded their carrying values was estimated to be between 7 and 8 percent. The Company's fair value estimate for reporting units include a number of assumptions, including increased levels of road infrastructure spending by governmental and private entities, expectations about the Company's share of governmental contracts, and material input and labor costs, among others. If actual revenues are lower (for example, due to a lower level of government or private contracts bid or won by the reporting units), or costs are higher than anticipated and cannot be recovered as part of the price of the work performed, as well as other factors that result in adverse changes in the key assumptions used in the fair value estimates mentioned above, the fair value of the Company's reporting units could be negatively impacted.

Revenue Recognition for Certain Long-Term Real Estate Developments

As discussed in Note 2 to the Consolidated Financial Statements, revenues from real estate sales are generally recognized when sales are closed and title, risks and rewards pass to the buyer. For certain real estate sales, A&B and its joint venture partners account for revenues on long-term real estate development projects that have continuing post-closing involvement, such as Kukui'ula, using the percentage-of-completion method. Following this method, the amount of revenue recognized is based on the percentage of development costs that have been incurred through the reporting period in relation to total expected development cost associated with the subject property. Accordingly, if material changes to total expected development costs or revenues occur, A&B’s financial condition or its future operating results could be materially impacted.

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Pension and Post-Retirement Estimates

The estimation of A&B’s pension and post-retirement expenses and liabilities requires that A&B make various assumptions. These assumptions include the following factors:

• Discount rates

• Expected long-term rate of return on pension plan assets

• Health care cost trend rates

• Salary growth

• Inflation

• Retirement rates

• Mortality rates

• Expected contributions

Actual results that differ from the assumptions made with respect to the above factors could materially affect A&B’s financial condition or its future operating results. The effects of changing assumptions are included in unamortized net gains and losses, which directly affect accumulated other comprehensive income. Additionally, these unamortized gains and losses are amortized and reclassified to income (loss) over future periods.

The benefit obligations for qualified pension and post-retirement plans, as of December 31, 2016, were determined using a discount rate of 4.2 percent. For A&B’s non-qualified benefit plans, the December 31, 2016 obligation was determined using a discount rate of 3.9 percent. The discount rate used for determining the year-end benefit plan obligation was generally calculated using a weighting of expected benefit payments and rates associated with high-quality U.S. corporate bonds for each year of expected payment to derive a single estimated rate at which the benefits could be effectively settled at December 31, 2016.

The expected return on plan assets assumption of 7.1 percent is principally based on the long-term outlook for various asset class returns, asset mix, the historical performance of the plan assets under the liability-driven investment strategy and a comparison of the estimated long-term return calculated to the distribution of assumptions adopted by other plans.

As of December 31, 2016, A&B’s post-retirement obligations were measured using an initial 6.8 percent health care cost trend rate in 2016, and reducing that rate by approximately 0.3 percent each year through 2037, with an ultimate rate of 4.5 percent in 2037.

Lowering the expected long-term rate of return on A&B’s qualified plan assets by one-half of one percent would have increased pre-tax pension expense for 2016 by approximately $0.7 million. Lowering the discount rate assumption by one-half of one percentage point would have increased pre-tax pension expense by approximately $0.9 million. Additional information about A&B’s benefit plans is included in Note 11 to the Consolidated Financial Statements.

As of December 31, 2016, the market value of A&B’s defined benefit plan assets totaled approximately $143.1 million, compared with $146.2 million as of December 31, 2015. The recorded net pension liability was approximately $53.9 million as of December 31, 2016 and approximately $48.4 million as of December 31, 2015. A&B’s contributions to its pension plans were approximately $0.5 million in 2016 and $2.6 million in 2015. As of December 31, 2016 and 2015, the recorded net liability related to the Company's post-retirement plans was $11.9 million and $12.2 million, respectively.

Income Taxes

A&B makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are applied in the calculation of tax credits, tax benefits and deductions, and in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. Significant changes to these estimates may result in an increase or decrease to A&B’s tax provision in a subsequent period.

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In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertain tax positions taken or expected to be taken with respect to the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could materially affect A&B’s financial condition or its future operating results.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for a full description of the impact of recently issued accounting standards, which is incorporated herein by reference, including the expected dates of adoption and estimated effects on A&B’s results of operations and financial condition.

CONSOLIDATED RESULTS OF OPERATIONS

The following analysis of the consolidated financial condition and results of operations of Alexander & Baldwin, Inc. and its subsidiaries (collectively, the “Company”) should be read in conjunction with the consolidated financial statements and related notes thereto. Amounts in this narrative are rounded to millions, 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 more accurate amounts included herein. As previously described, the financial information included in the following table and narrative reflects the segment realignment, as well as the presentation of the HC&S sugar operations as discontinued operations for all periods presented.

(dollars in millions, except per-share amounts)	2016			Chg.	2015			Chg.	2014
Operating Revenue	$	387.5		(18.0)%	$	472.8		3.6%	$	456.3
Operating Costs and Expenses	345.9			(9.6)%	382.5			0.8%	379.6
Operating Income	41.6			(53.9)%	90.3			17.7%	76.7
Other Income (Expense)	(6.3		)	NM	6.8			NM	(35.8		)
Income Tax Expense (Benefit)	2.6			(92.8)%	36.3			9X	4.1
Income From Continuing Operations	32.7			(46.2)%	60.8			65.2%	36.8
Discontinued Operations (net of income taxes)	(41.1		)	38.4%	(29.7		)	NM	27.7
Net Income (Loss)	(8.4		)	NM	31.1			(51.8)%	64.5
Income attributable to noncontrolling interest	(1.8		)	20.0%	(1.5		)	(51.6)%	(3.1		)
Net income (loss) attributable to A&B	$	(10.2	)	NM	$	29.6		(51.8)%	$	61.4
Basic Earnings (Loss) Per Share - Continuing operations	$	0.66		(43.0)%	$	1.15		66.7%	$	0.69
Basic Earnings (Loss) Per Share - Discontinued operations	$	(0.84	)	38.0%	$	(0.61	)	NM	$	0.57
Net income (loss) available to A&B shareholders	$	(0.18	)	NM	$	0.54		(57.1)%	$	1.26
Diluted Earnings (Loss) Per Share - Continuing operations	$	0.65		(43.0)%	$	1.14		68.0%	$	0.68
Diluted Earnings (Loss) Per Share - Discontinued operations	$	(0.83	)	38.3%	$	(0.60	)	NM	$	0.57
Net income (loss) available to A&B shareholders	$	(0.18	)	NM	$	0.54		(57.0)%	$	1.25

2016 vs. 2015

Operating Revenue for 2016 decreased 18 percent, or $85.3 million, to $387.5 million, primarily due to lower revenue from the Land Operations and Materials and Construction segments, offset by increased revenue from the Commercial Real Estate segment. The reasons for business- and segment-specific year-to-year fluctuations in revenue are further described below in the Analysis of Operating Revenue and Profit by Segment.

Operating Costs and Expenses for 2016 decreased 10 percent, or $36.6 million, to $345.9 million, primarily due to lower operating expenses incurred by the Land Operations and Materials and Construction segments. The reasons for the operating cost and expense changes are described below, by business segment, in the Analysis of Operating Revenue and Profit by Segment. Operating costs and expenses for 2016 also included costs of $9.5 million related to the Company's evaluation of a potential REIT conversion.

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Other Income (Expense) was $(6.3) million in 2016 compared with $6.8 million in 2015. The change in other income (expense) from the prior year was primarily due to $17.6 million lower income from joint ventures, a $7.2 million increase in the adjustment to reduce the carrying amount of tax equity solar investments, partially offset by the net gain on commercial property sales of $8.1 million during 2016, as compared to the net loss of $1.8 million on commercial property sales during 2015.

Income Taxes declined due to lower earnings in 2016 as compared to 2015. Income taxes also reflected a lower effective income tax rate for the year ended December 31, 2016 primarily driven by the non-refundable federal tax credit related to the Company’s solar investment.

Income attributable to noncontrolling interest increased $0.3 million in 2016 compared to 2015. The noncontrolling interest represents third-party minority interests in two entities consolidated by Grace and in which Grace owns a 70 percent and 51 percent share.

2015 vs. 2014

Operating Revenue for 2015 increased 3.6 percent, or $16.5 million, to $472.8 million, primarily due to increased revenue from the Land Operations and Commercial Real Estate segments, partially offset by lower revenue from the Materials and Construction segment. The reasons for business- and segment-specific year-to-year fluctuations in revenue are further described below in the Analysis of Operating Revenue and Profit by Segment.

Operating Costs and Expenses for 2015 increased 0.8 percent, or $2.9 million, to $382.5 million. Operating costs increased due to higher Land Operations and Commercial Real Estate segment costs, offset by lower Materials and Construction segment costs. The reasons for changes in business- and segment-specific year-to-year fluctuations in operating costs, which affect segment operating profit, are more fully described below in the Analysis of Operating Revenue and Profit by Segment.

Other Income (Expense) was $6.8 million in 2015 compared with $(35.8) million in 2014. The change in other income (expense) was principally due to increased joint venture earnings from the closing of 329 Waihonua units in 2015, and a higher non-cash reduction in the carrying value of a tax equity investment in 2014. The Company made a $23.8 million investment in a 12-megawatt solar farm on Kauai ("KRS II") in July 2014, and the tax benefits associated with the KRS II investment are accompanied by non-cash reductions of the investment's carrying value. Tax benefits associated with the investment are included in the Income tax expense (benefit) line item in the consolidated statements of operations. Interest expense decreased by $2.2 million due to higher average debt levels in 2014 as a result of acquisitions made in late 2013.

Income Taxes and the effective rate were higher in 2015 compared with 2014, due principally to higher tax credits in 2014 associated with the Company's investment in KRS II.

Income attributable to noncontrolling interest decreased $1.6 million in 2015 compared to 2014. The noncontrolling interest represents third-party minority interests in two entities that Grace consolidates and in which Grace owns a 70 percent share and 51 percent share.

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ANALYSIS OF OPERATING REVENUE AND PROFIT BY SEGMENT

Additional detailed information related to the operations and financial performance of the Company’s Operating Segments is included in Part II Item 6 and Note 19 to the Consolidated Financial Statements. The following information should be read in relation to the information contained in those sections.

During the fourth quarter of 2016, the Company completed an internal reorganization of its operations and reporting structure in order to facilitate operational efficiencies and enhance the execution of the Company’s businesses. Prior to October 1, 2016, the Company operated under four reportable operating segments: Commercial Real Estate, Real Estate Development and Sales, Materials and Construction, and Agribusiness. 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 Company’s reportable segments, as realigned and presented, reflect the revised operational structure and internal management reporting. The financial information for all prior periods has been recast in the following segment tables and discussion to reflect these segment changes.

Commercial Real Estate

2016 vs. 2015

(dollars in millions)	2016			2015			Change
Commercial Real Estate segment revenue	$	134.7		$	133.6		0.8	%
Commercial Real Estate operating costs and expenses	79.0			80.4			(1.7	)%
Selling, general and administrative	3.0			1.8			66.7	%
Other segment expense/(income)	(2.1		)	(1.8		)	16.7	%
Commercial Real Estate operating profit	$	54.8		$	53.2		3.0	%
Operating profit margin	40.7		%	39.8		%	2.3	%
Net Operating Income1	$	86.4		$	84.0		2.9	%
Gross Leasable Area (million sq. ft.) - Improved (at year end)
Hawaii - improved	2.9			2.7
Mainland - improved	1.8			2.2
Total improved	4.7			4.9
Hawaii urban ground leases (acres at year end)	106			106

¹  Refer to page 40 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 revenue for 2016 was 0.8 percent higher than 2015, principally due to the revenue impact from the acquisitions of Manoa Marketplace (January 2016) and Aikahi Shopping Center leasehold improvements (May 2015), as well as improved performance from Hawaii properties, partially offset by the disposition of three Mainland properties in 2015 and three Mainland properties in 2016 as described in the acquisitions and dispositions table for 2016 and 2015.

Operating profit was 3.0 percent higher in 2016, compared with 2015, principally due to improved performance from Hawaii properties and the favorable impact from the previously mentioned Hawaii acquisitions, partially offset by the Mainland dispositions and higher selling, general and administrative expenses due to approximately $1.3 million of transaction costs primarily related to the acquisition of Manoa Marketplace in 2016.

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The Company's commercial portfolio's weighted average occupancy summarized by geographic location and property type for the year ended December 31, 2016 was as follows:

Weighted average occupancy - percent	Hawaii	Mainland	Total
Retail	93%	94%	93%
Industrial	95%	95%	95%
Office	83%	90%	88%
Total portfolio