Maui Land & Pineapple Company, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 28, 2020. This is an annual report, not a standalone fourth-quarter report. The company owns about 22,800 acres on Maui and operates real estate, leasing, and resort-amenities businesses.
Financial results and liquidity
- Revenue: $10.045 million, up 13.4% from $8.860 million in 2018. Leasing generated $8.148 million (about 81% of revenue); real estate $0.915 million; resort amenities and other $0.982 million.
- Operating result: Operating loss narrowed to $0.796 million from $3.982 million. Operating margin was approximately negative 7.9%, versus negative 45.0% in 2018.
- Net result: Net loss was $10.366 million, or $0.54 per share, compared with net income of $0.498 million, or $0.03 per share, in 2018. Continuing-operations loss was $7.009 million.
- Cash flow: Operating activities provided $1.772 million, compared with $0.882 million in 2018. Investing activities used $0.990 million and financing activities used $0.723 million. Cash increased $0.059 million to $0.683 million.
- Debt and liquidity: Year-end long-term debt was $1.035 million; $14.0 million was available under the $15 million revolving credit facility. The facility matures December 31, 2021, bears interest at LIBOR plus 3.50%, and is secured by specified Kapalua properties. The company reported covenant compliance at year-end. Credit covenants include minimum defined liquidity of $2.0 million and maximum total liabilities of $45.0 million.
- Balance sheet: Total assets were $39.119 million, down from $48.192 million; stockholders’ equity was $22.692 million, down from $30.919 million. Accrued retirement benefits totaled $9.867 million.
Material changes and unusual items
- Leasing revenue increased $0.882 million, driven mainly by higher percentage rent and improved renegotiated lease terms. Leasing operating costs also rose, primarily from repairs and maintenance.
- Real estate operating costs fell substantially as legal, mediation, and settlement costs associated with prior litigation declined. Real estate revenue included brokerage commissions; no real estate asset-sale revenue was recognized in 2019 or 2018.
- A $4.999 million income-tax expense in 2019 reversed the benefit recognized in 2018 for alternative minimum tax credits. The U.S. Treasury applied $2.5 million of the expected refund to a “Non-Tax Federal Debt”; the company disputes the application and reserved the full $5.0 million tax benefit pending clarification.
- Discontinued operations recorded a $3.357 million loss, including a $3.614 million write-down of Kapalua water and wastewater assets held for sale. Those operations generated $2.415 million of revenue in 2019.
- Defined-benefit pension and other postretirement expense increased to $1.016 million from $0.514 million. The company expects approximately $0.542 million in required pension contributions in 2020.
Outlook, risks, and contingencies
- No quantified company-wide financial guidance is provided. Management expects to invest in operating infrastructure and continue planning and entitlement work; funding may require credit-facility borrowing or asset sales.
- In February 2020, the company agreed to sell the 46-acre Kapalua Central Resort project for $43.9 million. Closing is contingent on customary conditions, including due diligence ending July 31, 2020; the expected closing is 45 days thereafter. Proceeds are not assured until closing.
- A December 2019 agreement provides for sale of Kapalua Water Company and Kapalua Waste Treatment Company assets for approximately $3.8 million, plus a potential capital-expenditures adjustment. Closing is subject to conditions including Hawaii Public Utilities Commission approval. The company would continue delivering water under defined rates for an initial 20-year period.
- A Hawaii Department of Health order concerning alleged wastewater-effluent violations seeks a $230,000 penalty and development of a new treatment plant. The company requested a hearing, now deferred during discussions; it cannot estimate any probable liability and recorded no provision.
- Key risks include Maui tourism and real-estate market cyclicality, entitlement and development costs and delays, financing and covenant compliance, natural disasters, environmental regulation, pension funding, and the potential effects of contagious disease outbreaks. The filing specifically identifies coronavirus-related travel disruption as a risk.
- The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Most important facts for investors to verify
- Whether the $43.9 million Kapalua Central Resort sale closed, and the net proceeds and use of proceeds.
- Status and final terms of the water and wastewater asset sale, including PUC approval and the continuing water-delivery obligations.
- Resolution of the $2.5 million tax-refund offset and the company’s ability to recover the disputed amount.
- Outcome and potential cost of the wastewater enforcement matter, including any required treatment-plant construction.
- Cash needs, covenant headroom, and progress on pension contributions and planned development spending.