Maui Land & Pineapple Company, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Unaudited consolidated financial statements. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities, and resort amenities businesses. Dollar amounts below are in millions unless noted.
Financial results and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Operating revenue | $9.34 | $17.98 | $19.02 | $20.95 |
| Operating income | $6.50 | $13.85 | $12.43 | $13.03 |
| Net income | $6.48 | $13.40 | $12.31 | $12.01 |
| Diluted EPS | $0.34 | $0.71 | $0.65 | $0.63 |
| Operating cash flow | Not provided separately | Not provided separately | $7.61 | $14.14 |
- Q2 operating margin was approximately 69.6%, versus 77.0% a year earlier; first-half margin was approximately 65.3%, versus 62.2%.
- At June 30, cash was $0.57; current assets were $2.39 and current liabilities $1.78. Long-term debt was $1.24, down from $6.86 at year-end 2016. Total liabilities were $14.88, versus $21.14 at year-end.
- Stockholders’ equity was $30.87, compared with $17.74 at year-end. Accrued retirement benefits totaled $9.23, including $7.51 for defined benefit pension plans.
- Six-month investing cash use was $1.43, primarily deferred development costs; financing cash use was $6.22, including $5.62 of debt repayments. Cash declined $0.04 to $0.57.
Material changes and unusual items
- Q2 revenue fell 48% year over year, mainly reflecting the prior-year sale of the 304-acre Pulelehua project, which generated $15.0 million proceeds and an approximately $14.3 million gain in June 2016. First-half revenue declined 9%.
- Q2 2017 real estate revenue included approximately $6.7 million of land improvements conveyed to the company for the Mahana Estates property. This was a non-cash conveyance and materially affected reported quarterly revenue and income.
- In February 2017, the company sold the 15-acre Kapalua Golf Academy practice course for $7.0 million, recognizing an approximately $6.4 million gain, and applied $5.6 million of proceeds to its revolving credit line.
- For the first half, leasing revenue increased modestly as commercial occupancy and lease terms improved. Utilities revenue declined, attributed mainly to lower water consumption; resort amenities revenue also fell with lower club membership and dues.
- Interest expense decreased substantially year over year following debt reduction and refinancing. Management attributed higher share-based compensation to increased performance-based awards.
Liquidity, outlook, and risks
- The company has a $15.0 million revolving credit facility maturing December 31, 2019, with two optional one-year extensions. Borrowings bear interest at LIBOR plus 3.50% (4.55% at June 30, 2017). Certain Kapalua assets secure the facility; sale proceeds from collateral must reduce borrowings and permanently reduce the commitment.
- Facility covenants include minimum defined liquidity of $1.0 million, maximum total liabilities of $45.0 million, and restrictions on new debt. Management stated it believed the company was in compliance.
- Management plans to generate cash through leasing arrangements, sales of non-core property, and cost containment; it also expects to use resources for development planning and permitting, and commercial-property maintenance. It did not expect minimum pension contributions in 2017. No quantified earnings or revenue guidance was provided.
- Key disclosed risks include real-estate demand and tourism conditions, development costs and entitlement approvals, environmental obligations, weather and natural disasters, pension funding, access to capital, and compliance with debt terms and refinancing needs. Management said pending claims were not expected to have a material adverse effect; no changes to previously reported commitments and contingencies were noted.
Important facts for investors to verify
- How much of reported earnings and real-estate revenue reflects the $6.7 million non-cash Mahana Estates improvements and the Kapalua Golf Academy sale gain, versus recurring operations.
- Actual borrowing and remaining availability under the revolving facility after the required commitment reduction, as well as compliance with its defined-liquidity covenant.
- Whether operating cash generation can support development spending, maintenance, and the company’s substantial retirement-benefit obligations.
- The timing and variability of future land sales, development entitlements, and recurring leasing, utilities, and resort revenues.