Item 2.
M
ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015 and the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Depending upon the context, the terms the “Company,” “we,” “our,” and “us,” refer to either Maui Land & Pineapple Company, Inc. alone, or to Maui Land & Pineapple Company, Inc. and its subsidiaries collectively.
Overview
Maui Land & Pineapple Company, Inc. is a Hawaii corporation and the successor to a business organized in 1909. The Company consists of a landholding and operating parent company, its principal subsidiary, Kapalua Land Company, Ltd. and certain other subsidiaries of the Company.
We own approximately 23,000 acres of land on Maui and develop, sell, and manage residential, resort, agricultural, commercial, and industrial real estate through the following business segments:
|
•
|
Real Estate
—Our real estate operations consist of land planning and entitlement, development, and sales.
|
|
•
|
Leasing
—Our leasing activities include residential, resort, commercial, industrial and agricultural land and property leases, licensing of our registered trademarks and trade names, and stewardship and conservation efforts.
|
|
•
|
Utilities
—We operate two publicly-regulated utility companies which provide potable and non-potable water and wastewater transmission services to the Kapalua Resort. In addition, we also manage several major non-potable irrigation water systems im West and Upcountry Maui.
|
|
•
|
Resort Amenities
—We manage the operations of the Kapalua Club, a private, non-equity club providing its members special programs, access and other privileges at certain amenities at the Kapalua Resort.
|
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of accounting estimates. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in our most recently filed Form 10-K. There have been no significant changes in our critical accounting policies during the first three months of 2016.
There are no accounting pronouncements or interpretations that have been issued but not yet applied by us that we believe will have a material impact on our consolidated financial statements.
RESULTS OF OPERATIONS
Three Months Ended
March 31, 2016
compared to Three Months Ended
March 31, 2015
CONSOLIDATED
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
2,976
|
|
|
$
|
2,794
|
|
Operating costs and expenses
|
|
|
(1,840
|
)
|
|
|
(1,525
|
)
|
General and administrative
|
|
|
(754
|
)
|
|
|
(582
|
)
|
Share-based compensation
|
|
|
(380
|
)
|
|
|
(549
|
)
|
Depreciation
|
|
|
(495
|
)
|
|
|
(558
|
)
|
Pension and other postretirement expenses
|
|
|
(284
|
)
|
|
|
(76
|
)
|
Operating loss
|
|
|
(777
|
)
|
|
|
(496
|
)
|
Interest expense
|
|
|
(581
|
)
|
|
|
(597
|
)
|
Net loss
|
|
$
|
(1,358
|
)
|
|
$
|
(1,093
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
The increase in operating revenues during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was due to higher commission revenues in our real estate segment, higher sales of potable and non-potable water in our utilities business segment, and higher rent revenues from our leasing business segment. The increase in operating costs and expenses was primarily due to higher legal expenses in our real estate segment and higher maintenance expenses in the leasing segment during the three months ended March 31, 2016. The increase in general and administrative expenses was primarily due to higher professional fees and other repairs and maintenance costs in the current period. The decrease in share-based compensation for the periods compared was due to lower stock awards for annual incentive awards paid to the Company’s officers and certain members of management in March 2016.
REAL ESTATE
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
168
|
|
|
$
|
112
|
|
Operating costs and expenses
|
|
|
(300
|
)
|
|
|
(168
|
)
|
Operating loss
|
|
$
|
(132
|
)
|
|
$
|
(56
|
)
|
We had no sales of real estate inventory during the three months ended March 31, 2016 or 2015.
Operating revenues were real estate sales commissions from resales of properties in the Kapalua Resort and surrounding areas by our wholly-owned subsidiary, Kapalua Realty Company, Ltd.
We did not have any significant real estate development expenditures during the three months ended March 31, 2016 or 2015.
Real estate development and sales are cyclical and depend on a number of factors. Results for one period are therefore not necessarily indicative of future performance trends in this business segment.
LEASING
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,615
|
|
|
$
|
1,415
|
|
Operating costs and expenses
|
|
|
(712
|
)
|
|
|
(532
|
)
|
Operating income
|
|
$
|
903
|
|
|
$
|
883
|
|
|
|
|
|
|
|
|
|
|
Average Occupancy Rates:
|
|
|
|
|
|
|
|
|
Kapalua Resort
|
|
|
86
|
%
|
|
|
83
|
%
|
Hali'imaile Town
|
|
|
90
|
%
|
|
|
89
|
%
|
Other West Maui
|
|
|
37
|
%
|
|
|
37
|
%
|
We have contracted a third-party property management company to manage our commercial leasing portfolio. The increase in operating revenues and operating income during the three months ended March 31, 2016 compared to the prior period was primarily due to higher occupancy levels for our Kapalua Resort and Hali’imaile Town commercial spaces.
Other West Maui leased properties are mainly large-acre former pineapple field parcels and maintenance facilities.
Our leasing operations face substantial competition from other property owners in Maui and Hawaii.
UTILITIES
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
847
|
|
|
$
|
817
|
|
Operating costs and expenses
|
|
|
(631
|
)
|
|
|
(612
|
)
|
Operating income
|
|
$
|
216
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
Consumption (in million gallons):
|
|
|
|
|
|
|
|
|
Potable
|
|
|
41
|
|
|
|
38
|
|
Non-potable/irrigation
|
|
|
168
|
|
|
|
130
|
|
We have contracted a third-party water engineering and management company to manage the operations of our wholly-owned subsidiaries: Kapalua Water Company, Ltd. and Kapalua Waste Treatment Company, Ltd. We have contracted a water maintenance company to manage our non-potable/irrigation water systems in West and Upcountry Maui.
The increase in operating revenues during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was primarily due to an increase in sales of non-potable water resulting from drier weather conditions in West Maui in the current period. The increase in operating costs and expenses for the periods compared was due to higher County of Maui utilities costs and repair and maintenance of our non-potable/ irrigation water system reservoirs in West Maui.
RESORT AMENITIES AND OTHER
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
346
|
|
|
$
|
450
|
|
Operating costs and expenses
|
|
|
(197
|
)
|
|
|
(213
|
)
|
Operating income
|
|
$
|
149
|
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
Kapalua Club Members
|
|
|
508
|
|
|
|
496
|
|
Operating revenues for the three months ended March 31, 2015 includes a $70,000 payment for a property easement and $40,000 received for the cash surrender value of an insurance policy terminated in prior years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
We had outstanding borrowings under two credit facilities totaling $40.6 million and cash on hand of $0.8 million as of March 31, 2016. We had $3.5 million of available credit under our First Hawaiian Bank credit facility as of March 31, 2016.
Revolving Line of Credit with Wells Fargo
We have a $25.9 million revolving line of credit with Wells Fargo that matures on August 1, 2016. Interest on borrowings is at LIBOR plus 3.65% and the line of credit is collateralized by approximately 850 acres of the Company’s real estate holdings at the Kapalua Resort. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a required minimum liquidity (as defined) of $3 million, maximum total liabilities of $175 million, and a limitation on new indebtedness. The credit agreement includes predetermined release prices for the real property securing the credit facility. There are no commitment fees on the unused portion of the revolving facility. Absent the sale of some of our real estate holdings or refinancing, we do not expect to be able to pay the outstanding balance of the revolving line of credit on the maturity date.
Term Loan with American AgCredit
We have a term loan with an outstanding principal balance of $14.7 million with American AgCredit that matures on August 1, 2016. Interest on the loan is based on the greater of 7.00% or the 30-day LIBOR rate plus 6.75%. Interest on the loan balance decreases by 1.25% if the loan balance is reduced below $10 million and an additional 1.25% if the loan balance is reduced below $5 million. Interest is paid monthly at the greater of 5.50% or LIBOR plus 5.25%, with the remaining amount deferred until the maturity date. The loan is collateralized by approximately 3,700 acres of the Company’s real estate holdings in West Maui and Upcountry Maui and a pledge of the Company’s 100% equity interests in the Kapalua Water Company, Ltd. and the Kapalua Waste Treatment Company, Ltd.
The loan agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a required minimum liquidity (as defined) of $3 million, maximum total liabilities of $175 million and a limitation on new indebtedness. It also requires mandatory principal repayments of 100% of the net proceeds of the sale of any real property pledged as collateral for the loan and mandatory principal repayments of 75% of the net proceeds from the sale of non-collateralized real property. The Company has until June 15, 2016 to deliver: (a) a refinancing loan commitment, (b) escrowed real estate sales contracts, (c) a filed registration statement for an equity offering, or a combination thereof, in an amount sufficient to repay the outstanding balance of the term loan on the maturity date.
Revolving Line of Credit with
First Hawaiian Bank
We have a $3.5 million revolving line of credit with First Hawaiian Bank that matures on August 1, 2016. Interest on borrowings is at the Bank’s Prime Rate and the line of credit is collateralized by the 1-acre Honolua Store property in the Kapalua Resort. The line of credit agreement contains various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a required minimum liquidity (as defined) of $3 million, maximum total liabilities of $175 million, and a limitation on new indebtedness. There are no commitment fees on the unused portion of the revolving facility.
As of March 31, 2016, we believe we are in compliance with the covenants under our Wells Fargo, American AgCredit and First Hawaiian Bank credit facilities.
Cash Flows
During the first three months of 2016, net cash used in our operating activities was $0.1 million as compared to $0.2 million of net cash provided by our operating activities for the first three months of 2015.
Future Cash Inflows and Outflows
Our plans include continued efforts to generate cash flow by employing our real estate assets in leasing and other arrangements, by the sale of several real estate assets, and by continued cost reduction efforts. Proceeds from the sale of any of our real estate assets will be used principally to repay our outstanding indebtedness.
We presently do not expect to be required to make minimum contributions to our pension plans in 2016. Our current development activities are limited to planning, permitting and other efforts to secure and maintain project entitlements and we do not have any significant development or capital expenditures planned at this time.
Our cash outlook for the next twelve months and our ability to continue to meet our loan covenants and to continue as a going concern is highly dependent on successfully implementing our business initiatives and selling real estate assets at acceptable prices. There can be no assurance that we will be able to sell any of our real estate assets on acceptable terms, if at all. If we are unable to meet our loan covenants, borrowings under our credit facilities may become immediately due, and we would not have sufficient liquidity to repay such outstanding borrowings. In addition, absent the sale of some of our real estate holdings, refinancing, or extending the maturity date of our credit facilities, we do not expect to be able to repay our outstanding borrowings on the maturity date.
FORWARD-
LOOKING STATEMENTS AND RISKS
This and other reports filed by us with the Securities and Exchange Commission, or SEC, contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They contain words such as “may,” “will,” “project,” “might,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “continue” or “pursue,” or the negative or other variations thereof or comparable terminology. Actual results could differ materially from those projected in forward-looking statements as a result of the following factors, among others:
|
•
|
unstable macroeconomic market conditions, including, but not limited to, energy costs, credit markets, interest rates and changes in income and asset values;
|
|
•
|
risks associated with real estate investments generally, and more specifically, demand for real estate and tourism in Hawaii;
|
|
•
|
risks due to joint venture relationships;
|
|
•
|
our ability to complete land development projects within forecasted time and budget expectations, if at all;
|
|
•
|
our ability to obtain required land use entitlements at reasonable costs, if at all;
|
|
•
|
our ability to compete with other developers of real estate in Maui;
|
|
•
|
potential liabilities and obligations under various federal, state and local environmental regulations with respect to the presence of hazardous or toxic substances;
|
|
•
|
changes in weather conditions or the occurrence of natural disasters;
|
|
•
|
our ability to maintain the listing of our common stock on the New York Stock Exchange;
|
|
•
|
our ability to comply with funding requirements of our defined benefit pension plans;
|
|
•
|
our ability to comply with the terms of our indebtedness, including the financial covenants set forth therein, and to extend maturity dates, or refinance such indebtedness, prior to its maturity date;
|
|
•
|
our expectation, absent the sale of some of our real estate holdings or refinancing, that we do not expect to be able to repay any significant amount of our debt;
|
|
•
|
our ability to raise capital through the sale of certain real estate assets; and
|
|
•
|
availability of capital on terms favorable to us, or at all.
|
Such risks and uncertainties also include those risks and uncertainties discussed in the sections entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015 and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Quarterly Report on Form 10-Q, as well as other factors described from time to time in our reports filed with the SEC. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable as of the date of this report, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this report. Thus, you should not place undue reliance on any forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Further, any forward-looking statements speak only as of the date made and, except as required by law, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this report.