Maui Land & Pineapple Company, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 6, 2019. Unless stated otherwise, amounts are in thousands of dollars. The company owns approximately 23,000 acres on Maui and operates real estate, leasing, utilities, and resort-amenities businesses.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $3,437 | $2,810 | $9,385 | $8,312 |
| Operating income (loss) | $299 | $(1,488) | $(356) | $(2,744) |
| Net loss | $(9) | $(1,627) | $(1,284) | $(3,161) |
| Net loss per share | $0.00 | $(0.09) | $(0.07) | $(0.17) |
| Operating cash flow | Not provided separately | Not provided separately | $968 | $1,072 |
- Q3 revenue increased 22% year over year, while operating results improved by $1.8 million, moving to operating income. The company reported a small net loss; pension-related other comprehensive income of $211,000 resulted in comprehensive income of $202,000.
- Nine-month revenue rose 13%, and net loss narrowed by $1.9 million. Operating loss improved by $2.4 million, but pension and post-retirement expense rose to $768,000 from $306,000, and interest expense increased to $160,000 from $111,000.
- For the first nine months, investing cash outflow was $453,000, financing cash outflow was $520,000, and cash declined $5,000 to $619,000. Interest paid was $118,000.
- At September 30, total assets were $47.6 million, total liabilities $16.3 million, and stockholders’ equity $31.3 million. Debt was $1.235 million. Accrued retirement benefits totaled $10.0 million. Income tax receivables totaled approximately $5.0 million.
Changes and operating drivers
- Leasing revenue grew to $5.226 million for nine months, driven by higher commercial rental income, increased percentage rent, and renegotiated tenant terms; segment income rose to $3.464 million from $2.701 million.
- Utilities revenue increased, but higher deferred-maintenance and repair costs contributed to increased segment expenses. Nine-month utility segment income was $824,000, versus $780,000.
- Real estate segment loss narrowed to $202,000 from $1.418 million, principally reflecting lower legal-defense costs related to the former Ritz-Carlton Club and Residences, Kapalua Bay project. Real estate development expenditures were $252,000.
- Resort-amenities revenue and expenses declined, primarily following the Kapalua Plantation Golf Course closure for renovations in February 2019.
- Share-based compensation increased to $1.346 million for nine months from $1.206 million. The company adopted new lease accounting guidance on January 1, 2019, with no material financial-statement impact.
Liquidity, outlook, and risks
- The company had $619,000 in cash and $13.8 million available under its $15 million revolving credit facility. The facility matures December 31, 2019, with two optional one-year extensions; interest was 5.60% at quarter-end. It is secured by the 800-acre Kapalua Mauka project and approximately 30,000 square feet of commercial space.
- Management reported compliance with the facility’s covenants, including minimum defined liquidity of $2.0 million and a maximum $45.0 million in total liabilities. The filing does not explain the detailed calculation of covenant-defined liquidity.
- Management plans to invest in operating infrastructure and continue development planning and entitlement work. Borrowing may be needed; repayment could depend on asset sales at acceptable prices and within compressed timeframes. No numerical earnings or revenue guidance is provided.
- A Hawaii Department of Health order alleges wastewater-effluent violations at the Upcountry Maui facility and calls for a $230,000 penalty and a new treatment plant. The company requested a hearing, postponed by mutual agreement while corrective work continues. The company could not estimate any probable liability and recorded no provision.
- The company expects $2.5 million of AMT credit refunds in 2020 and the remaining $2.5 million over the following two years. A 33-acre parcel and wastewater facility held for sale was written down to zero in March 2019; the remaining held-for-sale asset was valued at $156,000.
- Risks include real estate and Hawaii tourism conditions, entitlement and development execution, weather and natural disasters, environmental obligations, pension funding, refinancing or extending debt, access to capital, and the ability to sell real estate. Management said disclosure controls were effective and reported no significant changes in internal controls.
Important facts for investors to verify
- Whether the credit facility was extended or refinanced before its December 31, 2019 maturity, and whether covenant liquidity remained compliant.
- Progress, potential costs, and any eventual liability from the wastewater order and corrective-action process.
- Timing and collection of the approximately $5 million in tax-credit receivables.
- Whether leasing growth continues and utilities maintenance costs or resort-amenities activity change materially.
- Funding needs for development and infrastructure plans, including the company’s ability to sell assets at acceptable prices.