Maui Land & Pineapple Company, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; comparisons are with 2016. The company owns approximately 22,800 acres on Maui and operates real estate, leasing, utilities, and resort amenities businesses. This is an annual filing, not a quarterly report.
Key financial results
| Metric | 2017 | 2016 |
|---|---|---|
| Operating revenue | $24.377 million | $47.364 million |
| Operating income | $11.090 million | $23.470 million |
| Net income | $10.900 million | $21.814 million |
| Net income per share, basic and diluted | $0.57 | $1.15 |
| Net cash provided by operating activities | $8.350 million | $33.877 million |
| Cash at year-end | $1.029 million | $0.602 million |
| Long-term debt | $1.235 million | $6.857 million |
| Total assets | $44.801 million | $38.883 million |
| Stockholders’ equity | $31.144 million | $17.742 million |
Operating margin was approximately 45.5% in 2017 versus 49.5% in 2016; net margin was approximately 44.7% versus 46.0%. The company reported no income-tax expense or benefit in either year, with a full valuation allowance against deferred tax assets.
Business segments and material changes
- Real estate: Revenue was $14.575 million, down from $37.116 million. The decrease chiefly reflects fewer and smaller property sales: 2017 included the $7.0 million sale of a 15-acre golf practice course, generating a gain of approximately $6.4 million; 2016 included several larger property sales. Real estate operating income was $13.118 million versus $29.656 million.
- Leasing: Revenue increased to $5.527 million from $5.324 million, and segment operating income rose to $3.083 million from $2.353 million. Occupancy fell in other West Maui (79% from 95%) and Upcountry Maui (73% from 90%); Kapalua Resort occupancy rose to 98% from 96%.
- Utilities: Revenue was $3.153 million versus $3.345 million; operating income increased to $1.261 million from $1.020 million, primarily from cost savings and efficiency measures.
- Resort amenities: Revenue declined to $1.122 million from $1.579 million, and operating income fell to $0.089 million from $0.632 million. Membership declined to 457 from 504; 2016 revenue included approximately $0.2 million of previously deferred membership revenue.
Real estate sales proceeds were $6.990 million in 2017 versus $35.570 million in 2016. The 2017 sale proceeds included $5.6 million used to repay debt. The company also received approximately $6.7 million of completed land improvements for its Kapalua Mauka project. No significant real estate development expenditures were reported for either year.
Cash, debt, liquidity, and obligations
- Operating cash flow was $8.350 million. Investing activities used $1.521 million and financing activities used $6.402 million; cash increased by $0.427 million during the year.
- The First Hawaiian Bank revolving credit facility is $15.0 million, matures December 31, 2019, and has two optional one-year extensions. At year-end, $13.8 million was available; together with cash, reported liquidity was approximately $14.8 million. Borrowings bear interest at LIBOR plus 3.50%.
- The company reported compliance with facility covenants, including minimum defined liquidity of $1.5 million, maximum total liabilities of $45.0 million, and restrictions on additional indebtedness. Certain Kapalua property is pledged as collateral.
- Accrued retirement benefits totaled $8.031 million, including a defined-benefit pension underfunding of approximately $8.010 million. The plans were frozen; the company expected no required minimum pension contribution in 2018.
Outlook, risks, and unusual items
- Near-term priorities include investment in operating infrastructure and continued planning and entitlement work. Management says some initiatives may require facility borrowings or other debt, with repayment potentially dependent on timely property sales at acceptable prices. No revenue or earnings guidance is provided.
- Long-term development plans include Kapalua Resort projects and Hali’imaile Town. Reported projected costs to complete were $500 million–$1 billion for Kapalua Resort and $100 million–$200 million for Hali’imaile Town; these are project estimates, not committed spending guidance. Entitlements, financing, timing, and construction remain uncertain.
- Principal risks include cyclical Maui real estate demand and tourism, entitlement and development delays or cost overruns, access to financing and covenant compliance, environmental rules, weather and natural disasters, and pension funding and valuation assumptions. Management reported $10.4 million of deferred development costs and no impairment in 2017.
- Owners of units and fractional interests in the former Ritz-Carlton Club and Residences, Kapalua Bay have brought lawsuits alleging, among other things, misrepresentation and deceptive conduct. Damages sought are unspecified; the company cannot estimate any probable liability and recorded no provision.
- The 2017 Tax Cuts and Jobs Act prompted a $12.1 million adjustment to deferred tax assets and the valuation allowance. Federal net operating loss carryforwards were $83.3 million and state carryforwards $97.4 million at year-end; deferred tax assets remained fully reserved.
- The company paid no dividends in 2017 or 2016 and does not anticipate cash dividends in the foreseeable future. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also assessed controls as effective.
Important facts for investors to verify
- How much of future earnings and cash generation depends on additional real estate sales, given the sharp year-over-year revenue and operating cash flow declines?
- Whether planned development projects can secure entitlements, financing, partners, and buyers, and how the large estimated completion costs compare with available resources.
- Current borrowing, covenant headroom, and liquidity under the $15.0 million credit facility, including its December 2019 maturity and collateral requirements.
- Updates on the Kapalua Bay litigation, including whether a loss becomes estimable or a provision is recorded.
- Changes in pension underfunding, deferred tax asset realizability, and lease-accounting adoption impacts.