Maui Land & Pineapple Company, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results are compared with the corresponding 2019 periods. The company owns approximately 23,000 acres on Maui and operates in real estate, leasing, and resort amenities.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.697 million | $2.714 million | $5.441 million | $7.543 million |
| Operating income (loss) | $(454,000) | $165,000 | $(2.210) million | $(543,000) |
| Net income (loss) | $(633,000) | $(9,000) | $(1.864) million | $(1.284) million |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $545,000 | $968,000 |
Amounts are in U.S. dollars. Nine-month 2020 results included $894,000 of other income from returned cash collateral related to a former investment. Basic and diluted net loss per share was $0.03 for Q3 and $0.10 for the first nine months, versus approximately break-even and $0.07 loss, respectively, in 2019.
- Revenue and segment performance: Nine-month leasing revenue fell to $4.620 million from $6.121 million; leasing segment income declined to $2.342 million from $3.888 million. Real estate revenue was $173,000 versus $671,000, and the segment recorded a $284,000 loss versus a $202,000 loss. Resort amenities recorded a $245,000 nine-month segment loss, compared with break-even.
- Liquidity and debt: Cash was $324,000 at September 30, down from $683,000 at year-end 2019. The company reported no outstanding credit-facility borrowing at quarter-end; its $15 million revolving facility was fully available and matures December 31, 2021. Total liabilities were $16.242 million, including $9.493 million of accrued retirement benefits. The company reported compliance with facility covenants.
- Cash flows: Investing activities provided $746,000, including $894,000 received from the collateral return, partly offset by $148,000 of property and development spending. Financing used $1.650 million, including $2.232 million of debt repayments and $1.197 million of debt proceeds. Cash declined by $359,000 over the nine months.
- Assets and equity: Total assets were $38.451 million, compared with $39.119 million at December 31, 2019. Stockholders’ equity was $22.209 million, down from $22.692 million.
Material changes and management commentary
- COVID-19 restrictions and reduced tourism materially affected commercial tenants, leasing revenue, real estate activity, and Kapalua Club access. Third-quarter passenger volume to Maui County was 11,550, down 98% from 671,559 a year earlier. The company cited no percentage-rent income in Q3 2020, compared with approximately $488,000 in Q3 2019, and did not expect significant percentage rent for the rest of 2020.
- Management said continued disruption could materially affect operations, cash flows, and financial position, and that it might need to borrow under its credit facility if conditions persisted. No financial guidance was provided.
- A trademark license agreement generated a $2.0 million payment in March 2020; revenue is recognized over the agreement’s estimated economic life. The balance sheet included $1.8 million of deferred license-fee revenue at September 30.
- In July 2020, the company entered into an office and license arrangement for brokerage services. It expects monthly trademark royalties but will no longer receive commissions on resales in the Kapalua area.
- The company deferred approximately $542,000 of required 2020 pension contributions until January 1, 2021 under CARES Act relief. It returned the $246,500 Paycheck Protection Program loan after revised government guidance.
Outlook, risks, and contingencies
- A February 2020 agreement to sell the 46-acre Kapalua Central Resort project for $43.9 million remained subject to closing conditions. COVID-19 travel restrictions extended due diligence to February 15, 2021; closing was expected 30 days afterward.
- The proposed sale of Kapalua Water Company and Kapalua Waste Treatment Company regulated assets remained subject to due diligence and Public Utilities Commission approval.
- Hawaii’s Department of Health had issued an order concerning alleged wastewater effluent violations at the Upcountry Maui 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.
- Management identified possible impacts from continued COVID-19 restrictions, tenant rent deferrals or abatements, reduced tourism and real estate demand, pension funding needs, and the company’s ability to comply with debt covenants or sell assets on acceptable terms. It reported no material changes in internal control over financial reporting and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether the $43.9 million Kapalua Central Resort sale completed after the extended due-diligence period, and whether the regulated water and wastewater asset sale received required approvals.
- Current cash, borrowing availability, and covenant liquidity calculations; reported cash was $324,000 despite stated compliance with a $2.0 million minimum-liquidity covenant.
- Subsequent tourism, tenant collections, percentage rents, and Kapalua Club access trends, which drove significant revenue declines.
- Completion and regulatory status of the Upcountry wastewater corrective work and any resulting liability.
- Timing and amount of pension contributions deferred under CARES Act relief and any subsequent funding requirements.