Maui Land & Pineapple Company, Inc. — Q1 2016 Form 10-Q
Business context and reporting period. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities, and resort-amenity businesses. This unaudited filing covers the three months ended March 31, 2016, compared with the same period in 2015; balance-sheet figures are compared with December 31, 2015. Amounts below are in millions unless stated otherwise.
Financial results and key metrics
- Revenue: $2.976, up 6.5% from $2.794. Leasing revenue rose to $1.615 from $1.415 and utilities revenue to $0.847 from $0.817. Resort amenities and other revenue declined to $0.346 from $0.450.
- Profitability: Operating loss was $0.777, versus $0.496; net loss was $1.358, versus $1.093. Loss per share was $0.07, versus $0.06. Operating costs and expenses increased to $3.753 from $3.290; higher legal, leasing maintenance, professional-fee, and repair costs were cited. Pension and postretirement expense rose to $0.284 from $0.076.
- Cash flow: Operating activities used $0.063, compared with $0.243 provided in Q1 2015. Investing activities used $0.016; financing activities used $0.236. Cash fell $0.315 during the quarter, ending at $0.772.
- Liquidity and debt: Total assets were $46.360 and total liabilities were $58.084, leaving stockholders’ deficiency of $11.724. Debt was $40.565, all classified as current, comprising a $25.868 Wells Fargo line and a $14.697 American AgCredit term loan. Cash was $0.772, and $3.5 of capacity was available under the First Hawaiian Bank line. All three facilities mature August 1, 2016. The company reported believing it was covenant-compliant at quarter-end; facilities require at least $3 million of defined liquidity.
- Segment results: Leasing operating income increased to $0.903 from $0.883; utilities operating income was $0.216 versus $0.205. Real estate reported a $0.132 operating loss versus $0.056, and resort amenities and other operating income fell to $0.149 from $0.237. No real-estate inventory sales occurred in either quarter.
Material changes and notable items
- Total revenue increased, but the operating loss widened as expenses grew faster. Net loss also worsened year over year.
- Leasing revenue and income benefited primarily from higher occupancy at Kapalua Resort and Hali’imaile Town; reported occupancy was 86% and 90%, respectively. Utilities revenue benefited from increased non-potable water sales amid drier weather, while utility costs also rose.
- In March, the company contracted to sell the 304-acre Pulelehua project for $15 million. The agreement includes a 90-day buyer due-diligence period and a 15-day closing period. The property secures the American AgCredit loan, and sale proceeds are subject to mandatory debt repayment.
- Management attributed lower resort-amenity revenue partly to prior-year one-time items: a $70,000 easement payment and $40,000 insurance cash-surrender value.
Outlook, risks, and contingencies
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. The company does not expect to repay its outstanding borrowings at maturity without real-estate sales, refinancing, or an extension. It said its next-12-month cash outlook and covenant compliance depend heavily on selling real estate at acceptable prices; failure to meet covenants could make debt immediately due, and available liquidity would be insufficient to repay it.
- Near-term financing milestones: American AgCredit required, by June 15, 2016, a refinancing commitment, escrowed sale contracts, a filed equity-offering registration statement, or a combination sufficient to repay its loan at maturity. The company cited continued efforts to generate cash through leasing, asset sales, and cost reductions; it had no significant development or capital expenditures planned and did not expect minimum pension contributions in 2016.
- No specific revenue or earnings guidance was provided. Results are subject to real-estate demand and sale execution, refinancing and capital availability, loan covenants, tourism and broader market conditions, development entitlements, weather and natural-disaster risks, environmental obligations, and pension funding requirements. Management said pending claims were not expected to materially adversely affect results.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Pulelehua sale closes, on what timing and terms, and the net proceeds available after required debt repayment.
- Whether the company meets the June 15 American AgCredit requirement and secures refinancing, sale contracts, an equity offering, or another repayment solution.
- Whether all credit facilities are extended or refinanced before their August 1, 2016 maturities, and whether covenant compliance and required liquidity are maintained.
- How much unrestricted liquidity is available in practice, given quarter-end cash of $0.772 million, the stated $3 million covenant minimum, and the undrawn $3.5 million First Hawaiian Bank facility.
- Whether operating cash generation improves and whether higher costs, pension expense, and the company’s recurring losses continue.