Maui Land & Pineapple Company, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The company owns approximately 23,000 acres on Maui and reports real estate, leasing, utilities, and resort amenities operations. Amounts below are in millions unless otherwise noted.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Operating revenue | $6.062 | $14.480 | $27.017 | $20.039 |
| Operating income | $2.688 | $10.394 | $15.724 | $9.681 |
| Net income | $2.475 | $9.663 | $14.397 | $7.737 |
| Net income per share | $0.13 | $0.51 | $0.76 | $0.41 |
| Operating cash flow | Not provided quarterly | $15.974 | $11.018 |
- Nine-month operating margin was approximately 58.2%, versus 48.3% in 2015; Q3 margin was approximately 44.3%, versus 71.8%. Net income and margins were materially affected by real estate sales.
- 2016 real estate sales included the $15.0 million Pulelehua project sale, with a reported $14.3 million gain, and the $3.0 million sale of a workforce housing project, with a reported $2.8 million gain. Sale proceeds were applied to debt. The 2015 comparison included a $12.0 million property sale and a $10.5 million gain.
- At September 30, cash was $0.448 million, total assets $44.643 million, net property $31.143 million, and stockholders’ equity $5.336 million, compared with a $10.939 million deficiency at year-end 2015.
- Debt was $24.5 million, all classified as long-term, versus $40.565 million at December 31, 2015. The company refinanced its prior bank loans with a $27.0 million First Hawaiian Bank revolving facility; stated interest was 4.38% at quarter-end. Interest expense for the first nine months was $1.327 million, down from $1.944 million.
- Operating cash flow increased to $15.974 million, primarily reflecting real estate sales. Investing activities used $0.256 million and financing activities used $16.357 million; cash declined $0.639 million from the start of the year.
Changes and operating drivers
- Nine-month revenue rose 34.8%, mainly from the 2016 land sales; Q3 revenue fell 58.1%, reflecting the timing and scale of property sales compared with the 2015 quarter.
- Leasing revenue increased, but segment operating income fell: management cited a roughly $0.5 million write-off of rent due from an agricultural tenant. Kapalua Resort average occupancy was 86%, down from 94%.
- Utility revenue rose with non-potable water consumption, while Q3 utility income declined because of higher repair and maintenance costs. Resort amenities revenue and nine-month segment income were below prior year.
- A one-time settlement with non-qualified retirement plan participants produced an approximately $0.7 million reduction in pension expense; payment was made in October 2016. The company also recorded pension-related other comprehensive loss of $1.481 million for the nine-month period.
Liquidity, outlook, and risks
- The credit facility matures December 31, 2019, with two optional one-year extensions. It is secured by substantial real estate holdings. The company says it believes it is in covenant compliance; covenants include minimum defined liquidity of $0.5 million beginning December 31, 2016, maximum total liabilities of $45.0 million, and restrictions on new debt.
- Proceeds from sales of pledged property must reduce borrowings and permanently reduce the revolving commitment. The filing cautions that covenant default could make borrowings immediately due and that the company would not have sufficient liquidity to repay them.
- Management plans to generate cash through leasing and other uses of land, further asset sales, and cost reductions. It expects no significant development or capital expenditures and no minimum pension contributions in 2016. No quantified earnings or revenue guidance is provided.
- Risks include dependence on real estate sales and favorable financing, cyclical property demand, leasing competition, development and entitlement uncertainty, environmental and natural-disaster exposure, pension obligations, and the ability to meet debt covenants or refinance. Management says other pending claims are not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether the company maintains the credit facility’s defined minimum liquidity and other covenants, especially given quarter-end cash of $0.448 million.
- Debt availability after collateral requirements and mandatory repayment of sale proceeds; confirm how much borrowing capacity remains available for working capital.
- Repeatability of earnings and operating cash flow apart from land-sale gains, including the timing and value of future property dispositions.
- Collection and recoverability of amounts due from the agricultural tenant, and the continued effect of lower Kapalua occupancy on leasing performance.
- Settlement payment, pension obligations, and any future contribution requirements; also monitor the stated liabilities ceiling and contingent claims.