Maui Land & Pineapple Company, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Amounts below are in millions of dollars unless stated otherwise. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities, and resort amenities businesses.
Financial performance and condition
- Q2 revenue: $17.98 million, compared with $2.77 million in Q2 2015. Six-month revenue: $20.95 million, versus $5.56 million.
- Q2 operating income / net income: $13.85 million / $13.40 million, versus an operating loss of $0.20 million and net loss of $0.82 million in Q2 2015. Six-month operating income / net income: $13.03 million / $12.01 million, versus losses of $0.71 million / $1.92 million.
- Results were driven primarily by the June sale of the Pulelehua project, which generated $15.0 million in proceeds and an approximately $14.3 million gain. Profit and reported margins therefore do not indicate recurring operating performance.
- Operating cash flow: $14.14 million for the first six months, compared with cash used of $0.48 million in 2015. Investing activities used $0.02 million; financing activities used $14.46 million. Cash declined from $1.09 million to $0.74 million.
- Debt: $26.37 million at June 30, versus $40.57 million at December 31, 2015. The company used the Pulelehua sale proceeds to repay its $14.70 million American AgCredit term loan. Total liabilities were $43.15 million; stockholders’ equity was $1.93 million, improving from a $10.94 million deficiency.
- Liquidity: Current assets were $2.91 million and current liabilities $3.32 million at June 30. On August 5, the company refinanced its outstanding bank loans under a $27.0 million First Hawaiian Bank revolving facility, maturing December 31, 2019, with two optional one-year extensions. Borrowings bear interest at LIBOR plus 3.75%, potentially decreasing to LIBOR plus 3.50% upon regulatory approval.
Material changes versus prior period
- The Pulelehua sale accounts for most of the year-over-year improvement in revenue and earnings. Real estate segment revenue was $15.67 million for the first six months, compared with $0.32 million in 2015.
- Six-month leasing revenue was broadly stable at $2.89 million versus $2.84 million; utilities revenue increased to $1.73 million from $1.62 million, mainly due to higher rates and increased non-potable water sales in drier conditions. Resort amenities revenue fell to $0.67 million from $0.78 million, partly because of nonrecurring items in 2015.
- Interest expense declined to $1.03 million for the first six months from $1.21 million. The June 30 balance sheet reflects the reclassification of debt from current to long-term; the subsequent August refinancing established the new facility terms.
Outlook, risks, and unusual items
- Management plans to pursue cash generation through leasing and other use of real estate, selected property sales, and cost reductions. Sale proceeds are expected principally to repay debt. No significant development or capital expenditures were planned, and management did not expect minimum pension contributions in 2016.
- The credit facility requires, among other things, minimum defined liquidity of $0.5 million beginning December 31, 2016, total liabilities not exceeding $45 million, and limits on new indebtedness. Management said it believed the company was in compliance. A covenant breach could accelerate repayment; the filing warns the company would not have sufficient liquidity to repay outstanding borrowings. Sale proceeds from pledged property must repay facility debt and permanently reduce the revolving commitment.
- Key risks include dependence on real estate sales and access to financing, property-market and tourism conditions, obtaining entitlements, competition, environmental obligations, weather and natural disasters, pension funding, and compliance with debt covenants. Management said pending claims and legal actions were not expected to have a material adverse effect.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Pulelehua transaction’s gain and related cash-flow treatment are understood as nonrecurring, and what property sales may follow.
- Current availability under the $27.0 million credit facility after required repayments, collateral pledges, and commitment reductions; also monitor covenant compliance and the liquidity minimum.
- Cash needs and operating performance excluding real estate dispositions, including leasing occupancy, utility rates and water sales, and pension-related expenses.
- Potential future funding needs or liabilities involving pension plans, environmental matters, and other contingencies.