Maui Land & Pineapple Company, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with the three months ended March 31, 2014 unless otherwise noted. The company owns about 23,000 acres on Maui and operates real estate, leasing, utilities, and resort-amenities businesses. Figures below are in millions of dollars unless stated otherwise.
Financial results and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $2.794 | $2.469 |
| Operating loss | $(0.496) | $(0.432) |
| Net loss | $(1.093) | $(0.909) |
| Net loss per share | $(0.06) | $(0.05) |
| Operating cash flow | $0.243 provided | $1.287 used |
| Cash at period end | $0.973 | $0.415 at December 31, 2014 |
| Total debt | $50.776 | $50.176 at December 31, 2014 |
| Total assets | $49.539 | $49.271 at December 31, 2014 |
| Stockholders’ deficiency | $(15.674) | $(15.182) at December 31, 2014 |
Revenue increased 13.2%; operating loss widened by $64,000 and net loss by $184,000. Operating margin was approximately negative 17.8%, versus negative 17.5%; net margin was approximately negative 39.1%, versus negative 36.8%. No real estate inventory was sold in either quarter. No significant development or capital expenditures were reported. Cash rose by $558,000, supported by $243,000 of operating cash flow and $600,000 of debt proceeds, partly offset by $285,000 of debt and stock issuance costs and other financing outflows.
Current assets were $2.938 million and current liabilities $4.213 million at March 31, a $1.275 million working-capital deficit. The company reported $3.1 million of available credit under its First Hawaiian Bank facility. The filing says it believed it was in compliance with its credit covenants at quarter-end.
Performance changes and management commentary
- Leasing revenue rose to $1.415 million from $1.312 million, and segment income increased to $883,000 from $762,000; management cited higher occupancy at Kapalua Resort commercial properties.
- Utilities revenue increased to $817,000 from $722,000. Higher non-potable water sales, associated with drier weather, more than offset increased utility, repair, and reservoir-maintenance costs; segment income rose to $205,000 from $149,000.
- Real estate revenue was $112,000 versus $83,000, consisting of resale commissions; there were no inventory sales. Lower legal expenses reduced the segment loss to $56,000 from $196,000.
- Resort-amenities revenue rose to $450,000 from $352,000, primarily due to increased annual membership dues. The filing’s segment table has inconsistent comparative-period labels; verify the underlying figures before relying on that segment comparison.
- Lower real estate legal costs contributed to reduced operating costs. General and administrative expense increased to $582,000 from $351,000, which management attributed primarily to a change in estimated uncertain tax positions in the prior period. Share-based compensation increased to $549,000 from $142,000, largely due to annual incentive stock awards issued in March 2015. Interest expense rose to $597,000 from $477,000.
Liquidity, debt, risks, and unusual items
- Going-concern warning: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Its next-12-month cash outlook and covenant compliance depend heavily on selling real estate at acceptable prices. It says it could not repay outstanding borrowings at maturity absent asset sales, refinancing, or maturity extensions, and would lack sufficient liquidity if lenders accelerated debt after a covenant breach.
- Three credit facilities totaled $50.8 million and mature in 2016, except the First Hawaiian Bank line, which was due June 5, 2015. The company was negotiating an extension of that $3.5 million facility to August 1, 2016; $400,000 was drawn at quarter-end.
- On April 24, 2015, American AgCredit amended the $19.5 million term loan, eliminating previously required principal-reduction payments, changing interest rates and payments, and adding collateral. The loan matures August 1, 2016. The amendment requires the company to provide by May 1, 2016 a refinancing commitment, escrowed real-estate sale contracts, a filed equity-offering registration statement, or a combination sufficient to repay the loan.
- Credit agreements include a $2 million minimum-liquidity covenant, a $175 million maximum-liabilities covenant, and limits on new debt. Real-estate sale proceeds are subject to mandatory debt repayment provisions, limiting proceeds available for working capital.
- Management plans to generate cash through leasing and other uses of land, asset sales, and cost reductions. Pension plans were funded using $19.4 million of proceeds from the October 2014 Lipoa Point sale; management did not expect minimum pension contributions in 2015.
- Ryan Churchill informed the company on April 27 that he would resign as president effective May 31, 2015. Other stated risks include real-estate demand and tourism, development entitlements, competition, weather and natural disasters, environmental obligations, pension funding, debt compliance and refinancing, and access to capital.
Important facts for investors to verify
- Progress and expected proceeds from planned real-estate sales, and whether they can support working capital and required debt repayments.
- Status of the First Hawaiian Bank maturity extension and the company’s ability to refinance or repay all facilities before their 2016 maturities.
- Compliance with the $2 million minimum-liquidity covenant, including how contractual “liquidity” is defined, and the consequences of any covenant breach.
- Terms and practical effect of the American AgCredit amendment, including deferred interest, rate step-ups, collateral, and the May 1, 2016 repayment-support requirement.
- The inconsistent period labels in the resort-amenities segment table and the exact comparative-period figures.