Business context and reporting period
Maui Land & Pineapple Company, Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2015. The company owns approximately 23,000 acres on Maui and operates in real estate, leasing, utilities and resort amenities.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $14.480 | $2.739 | $20.039 | $10.217 |
| Operating income (loss) | $10.394 | $(0.151) | $9.681 | $0.486 |
| Net income (loss) | $9.663 | $(0.749) | $7.737 | $(1.181) |
| Net income (loss) per share | $0.51 | $(0.04) | $0.41 | $(0.07) |
| Operating cash flow | Not separately provided for quarter | $11.018 | $(0.210) |
The sharp earnings improvement primarily reflects a September sale of the Kapalua Golf Academy parcel for $12.0 million, generating an approximately $10.5 million gain. Results therefore should not be viewed as representative of recurring performance. Nine-month interest expense was $1.944 million, versus $1.667 million a year earlier.
At September 30, cash was $1.933 million (up from $0.415 million at year-end 2014); current assets were $3.788 million and current liabilities $44.590 million. Total assets were $48.184 million, and stockholders’ deficiency was $6.327 million. Debt totaled $40.965 million, all classified as current and due August 1, 2016. The company reported $3.1 million of available credit under its First Hawaiian Bank facility.
Material changes versus prior comparable periods
- Revenue and earnings rose substantially, principally because of the Golf Academy sale; 2014’s comparable quarter had no real estate sale revenue.
- Nine-month operating cash flow improved to $11.018 million from cash used of $0.210 million, primarily due to the sale.
- Debt declined from $50.176 million at December 31, 2014 to $40.965 million at September 30, 2015. The sale proceeds were applied partly to debt reduction and property releases, with $1.8 million used for working capital.
- Leasing revenue increased as occupancy improved at Kapalua Resort and Hali’imaile Town. Utility revenue and segment income fell, mainly due to wetter weather reducing non-potable water sales and higher utility and maintenance costs.
Outlook, risks and unusual items
Management stated that the company’s cash outlook, covenant compliance and ability to continue as a going concern depend heavily on selling real estate at acceptable prices, refinancing or extending debt maturities, and cost-reduction and leasing efforts. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Without asset sales, refinancing or maturity extensions, management does not expect to repay outstanding borrowings when due. Sale proceeds are subject to mandatory debt repayments, limiting cash available for operations.
Credit facilities require minimum liquidity of $3 million and include other covenants; the company believed it was compliant at quarter-end. A covenant breach could allow lenders to accelerate repayment, and the filing says the company would not have sufficient liquidity to repay the debt. The American AgCredit loan also requires the company to provide by May 1, 2016 a refinancing commitment, escrowed sale contracts, an equity-offering registration statement, or a combination sufficient to repay that loan. Management reported no significant development or capital expenditures planned and no required minimum pension contributions expected for 2015. No quantified earnings or revenue guidance was provided.
Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. Pending claims and legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Progress and achievable timing for refinancing or extending the August 1, 2016 debt maturities, including the American AgCredit repayment plan deadline.
- Whether the company can maintain the $3 million defined liquidity covenant; the filing does not clarify how the reported $3.1 million of available credit factors into covenant liquidity.
- Prospects, pricing and timing for additional real estate sales, and the portion of proceeds that will be available for working capital after required lender repayments.
- Recurring operating performance excluding the one-time Golf Academy sale and gain, as well as the company’s ability to fund ongoing operations.