Suzy Hollinger - Director, Investor Relations Chris Benjamin - President and Chief Executive Officer Paul Ito - Senior Vice President and Chief Financial Officer.

Sheila McGrath – Evercore.

Good day ladies and gentlemen, and welcome to the Alexander & Baldwin Fourth Quarter 2016 and Full-Year Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Suzy Hollinger, Director of Investor Relations. Ma’am you may begin..

Thank you, Shannon. Hello and welcome to Alexander & Baldwin’s fourth quarter and full year 2016 earnings call. On the call with me today are Chris Benjamin, President and Chief Executive Officer; and Paul Ito, Senior Vice President and Chief Financial Officer.

Joining us for the Q&A portion of the call, are Lance Parker, President of A&B Properties; and George Morvis, A&B Vice President, Corporate Development.

Before we commence, please note that statements in this call and presentation that are not historical facts, including potential benefits, consequences and impact of a potential REIT conversion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements.

These forward-looking statements include, but are not limited to, the company’s plans regarding (i) the possibility of converting to a REIT and the timing thereof; (ii) the potential advantages, benefits, and impact of, and opportunities created by, converting certain assets into a REIT.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including prevailing market conditions.

Additional factors that could cause actual results to differ materially from those contemplated in the forward looking statements include, without limitation, those described on Pages 17 to 29 of the company's 2015 annual report on Form 10-K, and in other subsequent filings with the SEC.

These forward-looking statements are not guarantees of future performance and we do not undertake any obligation to update our forward-looking statements. Management will be referring to non-GAAP financial measures when discussing results today.

Included in the appendix of today's presentation slides is a statement regarding our use of these non-GAAP financial measures and required reconciliations. Slides from this presentation are available for download at our website www.alexanderbaldwin.com.

You note from our release that we’ve changed our reporting segments from leasing, development and sales, agri business, and materials and construction to commercial real estate, land operations, and materials and construction.

A description of these new segments is included in the appendix to this presentation along with a detailed mapping of income statement information from the old segments to the new segments. We’ll start with Chris, who will comment on performance highlights, and provide updates on operations and our evaluation of a REIT conversion.

Paul will take over with an update of the company’s financial performance. Chris will return for closing remarks and to open it up for your questions.

So, Chris you want to start?.

Thanks, Suzy. Good afternoon to our listeners. Our 2016 financial statements reflect a year of change for A&B as we transition the art of sugar cultivation, refocused our strategy on commercial real estate, and announced the evaluation of a possible REIT conversion.

Any one of these events alone would have made 2016 a milestone year for A&B, but we undertook all of them and still made significant progress in our operations with, for example, the completion of the collection project.

It was ultimately a very successful year and I want to commend our employees for making it possible, and thank our shareholders for recognizing the value of the steps we took to position the company for future success. The cessation of sugar operations was emotional, but very smooth.

The exit costs incurred when much lower than we had originally projected in January 2016 about $20 million lower; and operating performance was significantly better than expected. Once again, I want to thank the HC&S employees and the employees across the company really who made these results possible.

During the year, we furthered important strategic initiatives, most notably advancing the growth of our commercial portfolio and realigning the organization to maximize value from commercial real estate. While this might seem like a simple move, it actually was a pretty dramatic shift in the operations, cultural, and identity of the company.

Keep in mind that we’ve historically thought of ourselves as a developer, mostly a fore sale product, and historically thought of the commercial portfolio as a diversification play and a funding source for development.

So, becoming primarily a commercial real estate company as we have over the last few years and intend to do more so going forward entails not only reorganization, but also a shift in mindset.

I'm happy to report that we’ve done the heavy lifting to set us on our new path and we look forward to the strategic initiatives we will undertake in 2017 to grow the portfolio further and its recurring income streams.

These will include the continued migration of capital from the US mainland in the high quality, commercial assets in Hawaii, repositioning and redevelopment of existing Hawaii assets like Lau Hala Shops, which is the former Macy's in Kailua and the Pearl Highlands Center Food Court, as well as the ground up development of new commercial assets like Ho`okele Shopping Center on Maui, which we just announced last week.

Additionally, we are enhancing asset management and reducing cost by bringing property management in-house. Our strategic shift also caused us to explore the appropriate corporate structure for the company going forward.

In October, we announced in the evaluation of a potential REIT structure, which we believe could present us with several benefits, not the least of which is an expanded investor base. Another important benefit could be the enhancement of her ability to invest in Hawaii.

We believe that a REIT structure could put us on a level playing field with myriad large investors, insurers, pension funds, REITs, and others who are active in the market. Since October, two key steps in our REIT evaluation were completed.

First, we received a favorable private letter ruling allowing distribution of up to 80% of our aggregate accumulated earnings and profits in stock and 20% in cash. Because of a long history, the estimated E&P purge is rather large.

The ability to pay out 80% of the purge in the form of a stock dividend is therefore crucial in affecting a potential conversion. Second, we completed the allocation and transfer of assets between the entities that could constitute the REIT and taxable REIT subsidiary or TRS in the future, in the event that we were to convert.

What’s left? While we continue to finalize the accumulated earnings and profits study, model and test compliance with REIT income and assets requirements, and modifying and enhance the company's IT infrastructure and internal accounting processes. We expect to make a decision on conversion sometime this summer.

While we are obviously excited about the strategic steps we took in 2016, we also made important operating progress during the year. Net operating income or NOI increased 2.9% for the year. NOI growth was tempered by $1.5 million of payments received in 2015, related to retroactive ground lease rent and a mainland lease termination payment.

These payments totaled just under $1 million for the fourth quarter of 2015, and had a more dramatic impact on comparability of fourth quarter NOI, which was down 2.4%, compared to the fourth quarter of 2015. Our Hawaii retail properties, however, continued to perform very well with same store NOI up 5.6% for the year, compared to 2015.

We achieved positive results on renewals in 2016. 142 comparable leases, representing 14.9% of total portfolio of gross leasable area or GLA were renewed or released at an ABR spread of 13.2%.

Hawaii occupancy remain stable at 93%, and mainland occupancy fell from 95% to 93% due to a mainland industrial tenant downsizing by 154,000 square feet in July 2016. To date 118,000 square feet of that space or 76% has been released. As a result of the lower mainland occupancy, overall, portfolio occupancy was at 93%, compared to 94% in 2015.

The Hawaii commercial market fundamentals continue to strengthen. This slide shows a snapshot of the Oahu commercial market, which comprises the bulk of the states commercial inventory. Over the last three fourth quarters, average asking rents for retail, industrial, and office have grown year-over-year and vacancies have generally trended downward.

One exception is in retail where a significant amount of new GLA was added to the market in 2015 and 2016, but primarily in regional malls, including the expansion of all-in-one center and the development of the international marketplace in [indiscernible] on the west side of a Oahu.

Some of that square footage is still being absorbed, but our primarily grocery anchored stripped retail assets are not directly impacted by this expansion in regional mall GLA. In commercial real estate, construction of Lau Hala Shops is underway and is expected to be complete in early 2018 with the first tenant slated to open soon thereafter.

Several new leases have been signed and we're very pleased by the strong tenant and community interest.

Down to Earth, one of Hawaii's leading retailers of organic and natural foods, Harley-Davidson apparel, Maui Brewing Company, Hawaii's largest craft and brewing; and a new restaurant concept by renowned Chef Roy Yamaguchi will all open at Lau Hala Shops early next year.

The shops will total 48,400 square feet and include 10 leasable spaces ranging in size from 800 square feet to 20,000 square feet. We expect the Lau Hala Shops to become a focal point for the vibrant Kailua community, and leases or letters of intent have been signed for nearly 90% of the availability to date.

I’m also very excited to have recently added Ho`okele Shopping Center to this list of projects to expand our Hawaii portfolio GLA and NOI.

This 94,000 square-foot shopping centre will be anchored by a 57,400 square foot Safeway store and gas station, and will be built on a commercial parcel that we adjacent to Maui Business Park to our industrial development project in Maui. Construction is expected to start in the first quarter of 2018 and be completed by mid-2019.

Leasing efforts for the remaining 36,600 square feet in the centre are ongoing. We estimate that the project will provide a 7.5% to 8.5% stabilized yield on total costs of $41.9 million. In land operations, we closed 451 units at the collection in the fourth quarter with an average price per unit of $674,000.

It was the largest Hawaii condominium project closed in 2016 and is the sixth successful high-rise condominium project A&B has developed or partnered in since 2000. 11 townhomes remain available and we expect the four commercial units on the ground floor will be leased in the near term.

Also in the quarter, we closed two vacant parcels on Maui and a home on Kahala Avenue. In our other development projects, we had ten sales at Ka Milo on the big Island in 2016 ranging in price from $900,000 to $2.1 million. The project continues to be self-funded with sales proceeds.

And at Kukui`ula six units were closed in the fourth quarter at an average price of $2.3 million. These sales bringing total sales at Kukui`ula for 2016 to 14. In addition, we expect to close all seven units currently under binding contract by year-end and construction activity remains very positive there with 30 homes currently under construction.

And then shifting back to Maui, construction of units at Keala o Wailea is in full swing. The 70-unit multifamily joint venture project is 77% sold to 54 binding contracts totaling $64.2 million in sales revenue. The project remains on track for completion and initial closings in December 2017.

In November, we told you about a change in our development strategy as we redouble our focus on commercial real estate. We’ll continue to build out most of our existing projects and pursue select new development opportunities, but we’re shifting our focus prospectively to development for hold and shorter-term developments.

As a result, we’ve taken a look at all the developments in our pipeline and made a determination regarding whether to stay the course, de-risk by bringing in outside capital sources, or in some cases not continue with development at all.

In this latter category, we’ve included a few projects that were initiated before the recession and for which the market simply hasn't recovered. These include a residential condominium project in Port Alan, Kauai. Preliminary planning for our residential for sale project in Kahului town on Maui.

As a result, we wrote down these projects by a total of $11.7 million. In addition, a couple of our joint ventures wrote down the value of two Southern California development projects reducing our share of joint venture earnings by $3.5 million.

Together, the impact to our land operations operating profit line was $15.2 million as a result of this strategic shift and these impairments. Materials and construction struggled to perform through wet weather conditions in the fourth quarter with 16% of available crew days lost to weather.

Further a $2.6 million environmental reserve related to a leased former quarry side negatively impacted fourth quarter segment performance. As a result, operating profit for the quarter was $4.8 million, compared to $9.2 million in the fourth quarter of 2015.

Adjusted EBITDA for the quarter was lower at $6.4 million for the fourth quarter of 2016, compared to $11.6 million in the fourth quarter of 2015. Similar forces impacted the full-year performance of the segment with operating profit of $23.3 million, which is 25% lower than 2015.

The side’s wet weather in the environmental reserve, a $1.6 million third quarter write-down of the surplus vacant land parcel held by an unconsolidated affiliate also impacted results. The parcel was subsequently sold. Offsetting these negative impacts was a $600,000 gain on another parcel sale by an unconsolidated affiliate.

Excluding the $1.6 million parcel write-down and $600,000 gain on the parcel sale, adjusted EBITDA for 2016 was $34.2 million, compared to $41 million in 2015. With that, let me turn it over to Paul to comment on our financial performance..

Thank you, Chris. On Slide 17, we provide a snapshot of fourth quarter results. The company recorded net income available to A&B shareholders of $300,000 or $0.01 per diluted share. These results included an after-tax loss from discontinued operations from the cessation of sugar operations of $13 million or $0.26 per diluted share.

Income from continuing operations available to A&B shareholders net of taxes for the fourth quarter of 2016 was $13.3 million or $0.27 per share, which included $4.8 million of after-tax costs related to REIT evaluation of $9.3 million of after-tax write-downs of development projects and joint venture impacts that Chris mentioned earlier.

Adjusted income from continuing operations available to A&B shareholders, net of taxes, excluding the impact of these items was $27.4 million. Comparative amounts for the fourth quarter of 2015 are shown on the on this slide.

As Chris mentioned, growth in CRE operating profit and NOI for the fourth quarter of 2016, compared to 2015 was affected by the receipt in the fourth quarter of 2015 of retroactive ground lease rent and lease termination payments.

Commercial real estate operating profit for the fourth quarter was $13.5 million, a slight improvement compared to the fourth quarter of 2015, and net operating income was $20.7 million, a 2.4% decrease compared to the fourth quarter of 2015, due to the previously referenced 2015 payments.

Notwithstanding the 2015 payments, Hawaii same-store performance was up slightly and Hawaii retail same-store NOI was up 6.3% for the same comparative period.

Land operations posted operating profit of $13.9 million, which included joint venture income from 451 closing of collection units, and associated developer fees, as well as sales of two vacant parcels on Maui, a residential unit on Kahala Avenue and results from our agricultural operations.

Operating profit also included $15.2 million of noncash write-downs of development and joint venture projects Chris described previously and $9.8 million of similar tax credits, investment, write-downs as these investments were reclassified into land operations.

Operating profit for the fourth quarter of 2015 was $10.6 million and included the sales of eight vacant parcels, five on Maui, and three on Kauai, a one-acre parcel at Maui Business Park, as well as results from our agricultural operations.

The materials and construction segment posted operating profit of $4.8 million for the fourth quarter of 2016 and $9.2 million for the fourth quarter of 2015, and adjusted EBITDA of $6.4 million for the fourth quarter of 2016, as compared to $11.6 million for the fourth quarter of 2015.

Operating profit for the fourth quarter of 2016 was affected by the $2.6 million accrual for environmental-related costs, but was partially offset by the $600,000 gain on the sale of a vacant parcel by an unconsolidated affiliate.

Fourth quarter 2016 operating profit was also affected by the decreased paving, quarrying, and material sales resulting from the increment weather. Oahu crew days lost to weather in the quarter were 28% higher than the fourth quarter of 2015.

Adjusted EBITDA was also lower due to the environmental cost accrual, as well as decreased paving, quarrying, and material sales resulting from the increment weather.

For the full year, the company reported a 2016 net loss available to A&B shareholders of $8.9 million or $0.18 per diluted share, compared to 2015 net income available to A&B shareholders of $26.5 million or $0.54 per diluted share.

Results for 2016 and 2015 included $41.1 million and $29.7 million of after-tax losses from discontinued HC&S operations, respectively. 2016 income from continuing operations available to A&B shareholders, net of taxes was $32.2 million or $0.65 per diluted share.

Results included $8.1 million of after-tax costs related to the evaluation of a REIT conversion and $9.3 million of after-tax non-cash write downs of development projects and joint venture impacts discussed earlier.

Adjusted income from continuing operations available to A&B shareholders, net of taxes, excluding the impact of these items was $49.6 million. Income from continuing operations available to A&B shareholders net of taxes from 2015 was $56.2 million or $1.14 per diluted share.

In addition to the items mentioned, comparative performance was negatively affected by lower development sales paving margins, and material sales, but partially offset by solid commercial real estate segment performance. Turning to Slide 20, we have our balance sheet at the end of the quarter and at the end of 2015.

Our debt to debt plus equity ratio of 29.8% at December 31, 2016 was lower than the end of last year, primarily due to the pay down of debt using cash proceeds from sales at the collection, as well as cash from our commercial real estate materials and construction and agri business operations. Debt-to-EBITDA at year-end was lower at 4.5 times.

On Slide 21 is our debt maturity schedule and as you can see, maturities are well laddered. In August, we borrowed $60 million on a secured basis for a 13-year term loan at a fixed rate interest rate of 3.135% that we locked under our slop arrangement earlier in the year.

This borrowing, which is secured by Manoa marketplace, effectively fund the repayment of $32 million of secured debt on the shops at Kukui`ula and Kahala Avenue lots that matured in the fourth quarter. These actions increased our weighted average maturities to 6.2 years and reduce our floating rate exposure.

Our fixed rate debt percentage was 95% of total debt at year-end. Moving on to Slide 22, we invested $165 million of growth investment capital in 2016, including $94 million for commercial property acquisitions, which includes Manoa marketplace and repositioning opportunities in the commercial portfolio.

Additionally, $69 million went to land operations, growth capital, including active real estate projects, and joint ventures and the Waihonua and solar farm investment that we made in the second quarter. In addition to this growth capital, $17 million was for maintenance capital.

For 2017, we are targeting $145 million in growth capital expenditures, including $50 million for undesignated commercial property acquisitions, which we anticipate will be funded primarily through 1031 exchanges, $35 million for development for hold and renovation and repositioning projects, $60 million for land operations in growth capital, which includes ongoing development projects and diversified agriculture, and $21 million of routine maintenance capital.

A little over a third of the land operations capital is for funding of the Keauhou B-note. We expect to see a return of, and return on this capital in 2017. As in past years, our budget includes capital for opportunistic investments, the size and timing of which is of course unpredictable.

So, with that let me turn the call back to Chris for closing remarks..

Thanks, Paul. A central tenant of the investment thesis for A&B is that a Hawaii is an attractive market with compelling fundamentals and excellent positioning as an exotic, but safe travel destination. The Hawaii economic indicators in the appendix bear this out.

Tourist arrivals and expenditures set a record for a fifth consecutive year in 2016, largely on the strength of domestic rivals, arrivals from the US mainland. At the same time real estate and unemployment figures are all demonstrating the strength and apparent stamina of the market.

This continues to provide a very positive environment for our businesses. Another tenant of our investment thesis is that we are uniquely positioned in Hawaii to identify and pursue opportunities to grow and create value and real estate, while enhancing the communities in which we operate.

In 2016, we advanced or completed several value creating initiatives that demonstrate this. Including up market acquisitions, effective growth in same store and total NOI, and planning of redevelopments and new developments to further expand our portfolio.

We also embarked on the evaluation of a potential REIT conversion, which is a potential game changer in our efforts to expand our commercial real estate portfolio.

I’m pleased with the progress we've made in 2016 towards the pursuit of our strategic objectives and look forward to further progress in 2017 as we complete our REIT evaluation and advance Ho`okele Shopping Center, Lau Hala Shops, Keala o Wailea, and many other projects.

We look forward to sharing more details about our progress and strategy next week at the City CEO conference. That concludes our presentation this afternoon, and we’ll be happy to take your questions now..

Thank you. [Operator Instructions] Our first question comes from Sheila McGrath with Evercore. You may begin..

Yes, good afternoon. I had a couple of accounting questions, can you explain the accounting treatment of the closings at the collection in the quarter, I would think those 451 units there should have been $300 million of revenue, but was that only - I'm just not exactly sure how it flowed through these new segments..

Hi Sheila, this is Paul. So yes you are correct. The total revenues was about in excess of $300 million and so that’s recorded as the JV level. The way that A& B picks up its earnings is a share of that and there is a waterfall structure under the terms of the JV agreement where we get a little bit more of that waterfall.

So although we closed a number of units, we still do have some total units available, as well as the commercial units, but effectively the income is based on the waterfalls.

So, from a cash perspective we recovered about 70%, and the remaining amount is subject to sales of those units, and for the commercial units it’s dependent on whether we sell them or we lease them out..

Okay. So these wouldn't be in the top line income statement revenue because of the JV.

So, in the world way of reporting it would have gone straight into leasing sales into operating profit, correct?.

So, for a wholly-owned project, the last couple of condominium projects we did where joint ventures. So those revenues did not show up in our revenues. For our early condominium projects, those were wholly-owned not JV’d and so those did show up in revenues.

For the JV projects, we just pick up the margin kind of the equity and earnings from those joint venture. So they just show up in operating profit and not in revenue..

So, which bucket in the new organization, which bucket will these condo sales be going into, the CRE bucket or the land operations?.

The land operations..

And then if I look at Page 26 on the changes in presentation, it says development and sales for operating profit would have been 26.9, and then under the new segment that translates into 6.6, where does the delta of that operating profit move to?.

So, starting with the 26.9 of development and sales, so that includes the margin on the collection, but of course impacted by the fact that we took $15.2 million of impairments on wholly-owned projects, as well as some impacts from some joint venture equity losses that we picked up, and if that amount is further reduced, one of the bigger items is, if you recall, we invested in solar projects, tax equity investments and those losses, so we effectively write those investments down as we realize the tax benefits, those were formally not in any segment, but because we are realigning the segment and putting all renewable energy related type of investments into land operations, we move that noncash reduction or loss into the land operations segment.

So that was one of the bigger impacts..

And how much was that impact from the solar in the, is that in….

Sheila that would be Column E of $9.8 million on Slide 26 that you referred to..

Okay..

And then the other change Sheila that you should note is that we moved the 8.1 million in commercial real estate gains on sale from above the line to below the line and so the net impact, the net change there that you are speaking of, roughly $18 million of that is a change in moving operating profit both up and down from where it was previously presented.

So that’s why you are noticing such a large change in that area, but if you follow along the columns from A to F on Slide 26, it will give you a note on the following slide, Slide 27 of what each of those columns is, and so that’s how we try to reconcile those differences for you..

Okay. Well, what was the margin on the collection, is it possible for you to disclose that in terms of profit margin..

Well historically, we haven't given out the margin. We have given out the IRR and although we haven't sold out the units at this point, we expect the IRR to be in the high teens..

Okay.

And will you be changing the segments again for, when you can, if you convert to a REIT, I would assume that if the reporting is going to look different again, is that correct?.

Actually, we wouldn't expect to change the segment presentation under a REIT structure and while the segments are similar to what would be under restructure is not exactly the same, but we don't expect it to change because this is how we sort of view and operate the business..

Okay.

And just on the question on the build-to-hold, which is great news on Maui, the 7.5% to 8.5% return, do you just take a market value of the commercial acreage because this isn’t a acreage that you are purchasing, it is on legacy acreage, is that correct?.

That is correct Sheila and so that 7.5% to 8.5% is actually off of book value. And so it incorporates sort of the value creation that we have in the land piece as well. So that’s roughly call it 100, 130 bips of that return is reflected in actual land creation as opposed to just the vertical, value creation piece.

So when we look, while we are reporting it that way when we do the evaluation on development for whole, we still use that 150 to 300 basis point spread our market cap rates. So we’re seeing deals in those 4% to 6% cap rate range in the retail side.

And so on a mark-to-market basis, we would expect to get those sorts of yields in order to justify doing these types of developments..

Okay, thank you..

Okay..

Thank you. [Operator Instructions] Our next question comes from Michael [indiscernible] with Sidoti & Company. You may begin..

Hi good afternoon and thank you for taking my questions today.

Just two for you, one being, how does the potential tax reform impact your decision to convert to the REIT structure? And secondly if you can speak to the potential providing additional metrics for the development portfolio in the agricultural land, to better assist with the valuation process that would be helpful?.

Okay thanks. Good question. With respect to tax reform, I guess a couple of things. One is obviously there is not a lot of clarity about what tax reform will entail although there are some preliminary proposals of course out of Congress and then some speculation about what the administration will propose.

As we’ve read it so far, nothing in there makes us think that it will significantly alter our view of the merits of being a REIT, but I think we’re at the same time just being cautious because we don't know exactly what it will entail.

So, we’re hoping to have more clarity by this summer so that we will have no black swans or unexpected developments in tax reform, but we do expect that corporate rates could very well come down that marginally reduces the merits to that REIT, but we’ve always said that the tax savings are not the primary driver of our desire to look at the REIT, it’s really more strategic opening up ourselves to a broader investor pool and we feel that those merits are still very much relevant.

So at this time we don't think that it will affect the financial decision, but it could affect the timing of this decision just as we wait for a little bit more clarity.

And then Suzy you want to comment on metrics as far as development and land go?.

Yes, so Michael we're going to be issuing our real estate supplement tomorrow. And in that supplement there is detailed information about each of the active development projects that you can use to model your valuation for the development portfolio.

We also give some book value information that you can use if you wanted to put a premium on the book value and value it that way. There is also going to be some information about land sales and if you want to call me tomorrow we can walk through that..

Great, thank you very much. That's all I had..

Thank you. I'm showing no further questions at this time. I would like to turn the call back over to Suzy Hollinger for closing remarks..

Thanks Shannon. Thanks for everybody for being on the call today. My number is 808-525-8422; if you have follow-on questions please call me. Like I said, our supplement is going to be filed or furnished tomorrow with the SEC and should be posted to our website along with the filing of our Form 10 K. So, more information to come. Thank you..

Thank you. Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day..