Maui Land & Pineapple Company, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017; comparisons are with the same 2016 periods. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities, and resort-amenities businesses. Financial amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $2.840 | $6.062 | $21.859 | $27.017 |
| Operating income (loss) | $(0.445) | $2.688 | $11.981 | $15.724 |
| Net income (loss) | $(0.484) | $2.475 | $11.829 | $14.397 |
| Basic and diluted EPS | $(0.03) | $0.13 | $0.62 | $0.76 |
- Q3 operating and net margins were approximately (15.7)% and (17.0)%; nine-month margins were approximately 54.8% and 54.1%, respectively. Nine-month profitability included a substantial real-estate sale gain.
- Nine-month operating cash flow was $7.746 million, down from $15.974 million. Investing used $1.440 million, mainly for deferred development costs; financing used $6.299 million, including $5.622 million of debt repayment. Cash rose $7,000 to $609,000.
- At September 30, cash was $609,000 and working capital was approximately $779,000. Long-term debt was $1.235 million, versus $6.857 million at year-end 2016; the company had a $15 million revolving facility maturing December 31, 2019, bearing LIBOR plus 3.50% (4.46% at quarter-end).
- Total assets were $45.362 million; stockholders’ equity was $30.626 million. Accrued retirement benefits totaled $9.144 million. The company reported compliance with credit-facility covenants, including a defined minimum-liquidity requirement of $1 million.
Changes versus the prior comparable periods
- Q3 revenue fell 53%, primarily reflecting the absence of comparable real-estate activity; real-estate revenue was $290,000 versus $3.210 million. The 2016 comparison included sales of major development properties earlier that year.
- Nine-month revenue declined 19%, and net income declined 18%. Real-estate revenue fell to $14.281 million from $18.876 million, while operating income fell to $11.981 million from $15.724 million.
- Q3 results moved from profit to loss. Lower interest expense partly reflected reduced and refinanced debt. Higher share-based compensation reflected increased performance-based awards.
- Leasing operating income improved for the nine months to $2.592 million from $2.195 million, despite lower revenue; management cited the December 2016 sale of Kapalua Village Center and a prior-year agricultural lease-rent write-off. Utility operating income increased to $936,000 from $630,000, reflecting operating efficiencies and reduced potable-water loss.
Outlook, notable items, and risks
- In February 2017, the company sold the 15-acre Kapalua Golf Academy practice course for $7.0 million, recording an approximately $6.4 million gain and applying $5.6 million of proceeds to its revolving facility. In April, it received approximately $6.7 million of land improvements related to Mahana Estates.
- Management plans to generate cash through leasing, sales of non-core real estate, and cost containment, while pursuing development planning and entitlements and addressing deferred maintenance. It gave no quantified earnings or revenue guidance and did not expect minimum pension-plan contributions in 2017.
- Real-estate results are cyclical. Risks identified include property and tourism demand, obtaining entitlements and completing development on time and budget, environmental obligations, natural disasters, pension funding, access to capital, and refinancing or complying with debt terms. Management said pending claims were not expected to have a material adverse effect; it reported no changes in previously disclosed commitments and contingencies.
- The 2016 comparison includes an approximately $0.7 million pension-settlement-related expense reduction. The company stated that it expected to use its 2008 alternative-minimum-tax net operating loss carryforward fully in 2017.
Important facts for investors to verify
- How much of nine-month 2017 earnings came from the $6.4 million golf-course gain, and what recurring earnings capacity remains without property-sale gains?
- Current borrowing, availability, and covenant headroom under the revolving facility, including how the defined $1 million liquidity test is calculated.
- Cash needs and funding risks tied to the $9.144 million retirement-benefit liability, development spending, and deferred property maintenance.
- Progress, timing, and funding for planned development and entitlement work, and prospects for further non-core asset sales.
- Whether leasing and utility operating improvements can continue, given competition, changing occupancy and usage, and the company’s concentrated Maui real-estate exposure.