Maui Land & Pineapple Company, Inc. — FY2016 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2016, compared with 2015. The Hawaii-based company owns approximately 22,800 acres on Maui and operates in real estate, leasing, utilities, and resort amenities. Real estate is its largest segment; the company reported 17 full-time employees.
Financial performance and condition
| Metric | 2016 | 2015 |
|---|---|---|
| Operating revenue | $47.4 million | $22.8 million |
| Operating income | $23.5 million | $9.3 million |
| Net income | $21.8 million | $6.8 million |
| Net income per share, basic and diluted | $1.15 | $0.36 |
| Net cash provided by operating activities | $33.9 million | $10.6 million |
| Cash at year-end | $0.6 million | $1.1 million |
| Long-term debt at year-end | $6.9 million | $40.6 million |
| Total assets | $38.9 million | $46.6 million |
| Stockholders’ equity (deficiency) | $17.7 million | $(10.9) million |
Operating and net margins were approximately 49.6% and 46.1%, respectively. These results were materially affected by real estate dispositions and should not be viewed as solely recurring operating performance. The filing reports no income tax expense or benefit in either year; deferred tax assets of $47.0 million were fully offset by a valuation allowance.
Year-end available credit was $3.1 million under a $10.0 million revolving facility, in addition to $0.6 million cash. The company reported compliance with its credit covenants. The facility requires at least $0.5 million of defined liquidity and limits total liabilities to $45.0 million, among other restrictions.
Material changes versus 2015
- Revenue more than doubled, largely because the company sold three real estate assets in 2016 for a combined $36.0 million: Kapalua Village Center ($18.0 million), Pulelehua ($15.0 million), and a workforce-housing project ($3.0 million). Reported gains were $12.9 million, approximately $14.3 million, and approximately $2.8 million, respectively.
- Net income rose to $21.8 million from $6.8 million. In contrast, pension and other post-retirement expense increased to $5.0 million from $0.3 million, including $4.0 million of settlement/curtailment expense related to a pension lump-sum offer.
- Net proceeds from property sales were principally applied to debt. The company refinanced $26.4 million of bank loans in August; after the Village Center sale, it repaid $17.6 million, and the revolving commitment was permanently reduced from $27.0 million to $10.0 million. The borrowing rate was reduced to LIBOR plus 3.50%.
- Segment results were uneven: real estate operating revenue rose to $37.1 million from $12.5 million; leasing revenue fell to $5.3 million from $5.5 million and operating income fell to $2.4 million from $3.3 million; utilities revenue was broadly flat at $3.3 million; resort amenities revenue increased to $1.6 million from $1.4 million.
- Cash from operations included $35.6 million of net real estate sale receipts. Cash receipts from other operations, net, were $1.8 million, so reported operating cash flow was substantially supported by dispositions.
Outlook, risks, contingencies, and unusual items
- No specific financial guidance was provided. Management said its next-twelve-month priorities include operating-infrastructure investment and continued planning and entitlement work. Development financing may depend on borrowing, private investment, joint ventures, or asset sales.
- Development plans include Kapalua Resort projects and Hali’imaile Town. Entitlement, permitting, infrastructure costs, timing, capital availability, and market conditions could delay or prevent development; projected costs to complete are substantial, and project timing is long term.
- The company’s results are exposed to cyclical Maui real estate demand, tourism and travel costs, interest rates, access to financing, competition, weather and natural disasters, environmental regulation, and pension-asset and discount-rate changes.
- Defined-benefit pension plans remained underfunded by approximately $9.2 million at year-end. In the fourth quarter, 325 participants accepted lump-sum benefits; approximately $9.3 million was paid from the plan trust. The company said it expected no minimum pension contribution requirement for 2017.
- Litigation related to the former Ritz-Carlton Club and Residences, Kapalua Bay seeks unspecified damages, including treble damages. The company disputes the allegations, is defending the cases, and cannot estimate any probable liability; no provision was recorded.
- Deferred development costs were $8.8 million; management considered them recoverable, but recoverability depends on future development. No impairment charges were recorded in 2016 or 2015.
- The company paid no dividends in 2015 or 2016 and does not expect to pay cash dividends in the foreseeable future. The filing also highlights concentrated insider ownership and limited stock trading volume.
Most important facts for investors to verify
- How much future earnings and cash generation can be sustained without additional land sales, given that 2016 results depended heavily on dispositions.
- Current borrowing availability, covenant headroom, collateral requirements, and the effect of the reduced $10.0 million credit commitment on liquidity.
- Progress, financing, entitlement status, and expected costs and timing for planned developments, including whether deferred development costs remain recoverable.
- Developments in the Kapalua Bay litigation and any change in the company’s ability to estimate or record a potential liability.
- Future pension funding exposure and sensitivity of the underfunded position to investment returns and actuarial assumptions.
The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2016.