Maui Land & Pineapple Company, Inc. — Q2 2020 Form 10-Q
Business context and period. The company owns approximately 23,000 acres on Maui and operates in real estate, leasing, and resort amenities. This unaudited report covers the quarter and six months ended June 30, 2020; amounts below are in thousands of dollars unless noted.
Financial performance and position
- Q2 revenue: $1,710, down 31% from $2,495 in Q2 2019. Operating loss was $762 versus operating income of $74. Net loss was $157 versus $181; loss per share was $0.01 in both periods. Q2 included $894 of other income, which nearly offset the continuing-operations loss of $15 before discontinued operations.
- First-half revenue: $3,744, down 22% from $4,829. Operating loss widened to $1,756 from $708; net loss was $1,231 versus $1,275. Loss per share improved to $0.06 from $0.07.
- Segment trends: First-half leasing revenue fell to $3,172 from $3,954, and segment income declined to $1,569 from $2,515. Resort amenities reported a first-half segment loss of $326 versus $24. Real estate segment loss was $209 versus $155.
- Cash flow and liquidity: First-half operating cash flow was $435, compared with an outflow of $91 a year earlier. Cash fell to $340 at June 30 from $683 at year-end. The company reported no outstanding balance on its $15 million revolving credit facility at June 30; the full facility was available, subject to its terms and covenants.
- Debt and obligations: Balance-sheet long-term debt was zero at June 30, versus $1,035 at year-end. The company paid $1,982 of long-term debt and received $947 of borrowings during the first half. Accrued retirement benefits totaled $9,618, including $165 current. The credit facility matures December 31, 2021, and bears interest at LIBOR plus 3.50%.
- Balance sheet: Total assets were $38,708 and stockholders’ equity was $22,518 at June 30. Assets held for sale totaled $7,615. The company reported $2,190 of current liabilities.
Material changes and unusual items
- COVID-19 sharply reduced tenant percentage rents: $37 in Q2 2020 versus $458 in Q2 2019. Management did not expect significant percentage rental income for the rest of 2020. Leasing also recorded additional doubtful-account reserves of $18 for Q2 and $80 for the first half.
- Kapalua Club access restrictions led to partial refunds of member dues. First-half resort amenities costs also reflected higher golf course rates and the timing of a golf course renovation.
- The company received a $2 million single-payment trademark license royalty in March, with revenue recognized over the agreement’s estimated economic life. The $894 of Q2 and first-half other income arose from return of cash collateral in connection with the dissolution of Kapalua Bay Holdings, LLC.
- The company entered into a February agreement to sell the 46-acre Kapalua Central Resort project for $43.9 million. COVID-related travel restrictions extended due diligence; closing remains contingent on customary conditions. The proposed sale of Kapalua Water and Waste Treatment assets also remains subject to conditions, including regulatory approval.
- The company received and returned a $246,500 Paycheck Protection Program loan after revised government guidance.
Outlook, risks, and contingencies
- Management said prolonged COVID-19 disruption could significantly affect operations, cash flows, and financial position, and expected it might need to borrow under the credit facility if conditions persisted. Maui visitor volume was approximately 4,000 in Q2 2020 versus 608,000 in Q2 2019; first-half volume was approximately 445,000 versus 1.089 million.
- The credit facility includes a minimum liquidity covenant of $2 million, a maximum total-liabilities covenant of $45 million, and limits on new indebtedness. Management stated it was compliant at June 30. It also said approximately $542,000 of required 2020 pension contributions could be deferred until January 1, 2021 under the CARES Act.
- A Hawaii Department of Health order concerns alleged wastewater effluent violations at the Upcountry Maui treatment facility. Additional leach fields were expected to be completed by December 31, 2020. The company could not estimate any probable liability and recorded no provision.
- Other risks include tenant payment deferrals or abatements, reduced tourism and real estate demand, development and entitlement uncertainty, asset-sale timing and prices, pension funding, and compliance with debt covenants. Management reported disclosure controls were effective and no significant changes in internal control over financial reporting.
Key facts for investors to verify
- Whether the $43.9 million Kapalua Central Resort sale and the water and wastewater asset sale satisfy due diligence, regulatory, and other closing conditions.
- How COVID-19 restrictions and tenant financial health affect rent collections, doubtful-account reserves, club dues, and future cash needs.
- How the company meets the credit facility’s defined $2 million minimum-liquidity covenant despite reported cash of $340,000, and whether borrowing becomes necessary.
- The timing and final cost of wastewater remediation, and any liability arising from the Department of Health order.
- The treatment and timing of deferred pension contributions and the company’s longer-term pension funding requirements.