Maui Land & Pineapple Company, Inc. — Q2 2018 Form 10-Q
Period: Quarter and six months ended June 30, 2018. Unaudited results. The company owns about 23,000 acres on Maui and operates real estate, leasing, utility, and resort-amenity businesses.
Financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $2.960 million | $9.336 million | $5.502 million | $19.019 million |
| Operating income (loss) | ($431,000) | $6.702 million | ($1.256 million) | $12.830 million |
| Net income (loss) | ($570,000) | $6.481 million | ($1.534 million) | $12.313 million |
| Basic and diluted EPS | ($0.03) | $0.34 | ($0.08) | $0.65 |
| Operating cash flow | Not provided by quarter | $805,000 | $7.611 million |
Six-month cash used in investing activities was $211,000, primarily deferred development costs; financing activities used $467,000. Cash rose by $127,000 to $1.156 million. Total operating costs and expenses were $3.391 million in Q2 and $6.758 million for six months. Financial-statement operating margins were approximately negative 14.6% and negative 22.8%, respectively.
At June 30, cash was $1.156 million, current assets $2.444 million, and current liabilities $2.079 million. Long-term debt was $1.235 million, under a $15 million revolving facility, with $13.8 million available. The facility bears interest at LIBOR plus 3.50% (5.48% at quarter-end), matures December 31, 2019, and has two optional one-year extensions. The company reported compliance with its covenants, including minimum defined liquidity of $1.5 million and maximum total liabilities of $45 million.
Accrued retirement benefits totaled $7.854 million, including $5.600 million for defined-benefit pension plans. Total assets were $44.191 million and stockholders’ equity was $30.626 million. The company reported no material exposure to interest-rate or foreign-currency risk.
Changes and drivers
- Revenue fell 68% in Q2 and 71% for the six-month period, primarily because 2017 included the $7.0 million sale of a 15-acre golf practice course and approximately $6.7 million of land improvements conveyed to the company.
- The 2017 course sale generated an approximately $6.4 million gain; $5.6 million of proceeds was applied to debt. These unusual prior-year items make the comparisons less representative of recurring performance.
- Leasing revenue increased to $1.558 million in Q2, attributed to improved occupancy and renegotiated lease terms. Higher repairs and maintenance costs reduced segment income; six-month leasing income declined to $1.769 million from $1.900 million.
- Utilities revenue was broadly stable, but utility costs rose with deferred maintenance. General and administrative expense increased, primarily due to higher legal and outside-consultant fees. Share-based compensation was $899,000 for six months.
Outlook, risks, and other items
No quantified earnings or revenue guidance was provided. Management expects continued investment in operating infrastructure and planning and entitlement work on development projects. It cautioned that this may require borrowing and that repayment could depend on selling real estate at acceptable prices within constrained timeframes.
Key risks include cyclical real estate sales and development, obtaining land-use entitlements, Hawaii real estate and tourism demand, competition, weather and natural disasters, environmental obligations, pension funding, and access to capital and compliance with debt covenants. Management said pending claims and legal actions were not expected to have a material adverse effect. Disclosure controls were assessed as effective. The company adopted the new revenue-recognition standard in January 2018 without a retained-earnings adjustment and expected to adopt the lease standard on January 1, 2019.
Investor verification points
- Assess recurring real estate activity separately from the 2017 asset-sale gain and land-improvement conveyance.
- Review the definition and calculation of covenant liquidity: reported cash was below the stated $1.5 million minimum, while the company reported covenant compliance.
- Monitor the $1.235 million revolver balance, its 2019 maturity, collateral, and availability for future borrowing.
- Evaluate pension obligations, future funding needs, and the effect of higher legal, consulting, maintenance, and share-based compensation costs.
- Track development entitlements, asset-sale prospects, and the company’s ability to fund planned investments without relying on timely property sales.