Maui Land & Pineapple Co Inc: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis of our unaudited condensed consolidated interim financial condition and results of operations should be read in conjunction with our annual audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (our “Annual Report") and the unaudited condensed consolidated interim financial statements and related notes included in this Quarterly Report on Form 10-Q (this “Quarterly Report”). The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied by the forward-looking statements below. Factors that could cause or contribute to those differences in our actual results include, but are not limited to, those discussed below and those discussed elsewhere within this Quarterly Report, particularly in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” 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 Delaware corporation and the successor to a business organized in 1909 as a Hawaii corporation. The Company reincorporated from Hawaii to Delaware pursuant to a plan of conversion completed on July 18, 2022. Total authorized capital stock of the Company includes 48,000,000 shares, consisting of 43,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share. Shares of the Company’s common stock are listed on the New York Stock Exchange under the ticker symbol “MLP.” The Company consists of a landholding and operating parent company, has a principal subsidiary, Kapalua Land Company, Ltd., and certain other subsidiaries

We own and steward a portfolio including approximately 22,300 acres of land on the island of Maui, Hawaii along with 266,000 square feet of commercial properties. For over a century, we have built a legacy of authentic innovation through conservation, agriculture, community building and land management. To continue this legacy, we are driven by a renewed mission to carefully maximize our assets to be actively used to their fullest potential, resulting in added value to the company by building resiliency for future generations.

In April 2023, we began a leadership transition with the addition of a Chief Executive Officer and Chairman of the Board, both of whom are experienced in real estate planning, development, and asset management. The transition continued with the addition of three executive leadership team members with planning, community development, land and natural resource stewardship and real estate expertise. To further establish and execute land utilization strategies, we intend to make investments to build a lean, experienced team with the necessary capabilities to accomplish market research, project management and planning, and engineering services.

Under an initiative by the new leadership team, we have audited our diverse portfolio of assets. The initial results of this review identified a material opportunity to increase the level of utilization, occupancy, and stabilized income from our operating assets that will enable future growth.

At March 31, 2024, our commercial properties and land were occupied at the following levels:

To improve our operating revenue from our commercial properties, we have developed updated tenanting plans with a focus on thoughtful placemaking in our Kapalua, Haliimaile and Alaeloa commercial centers. Despite the challenges following the 2023 Maui wildfires, the effort to increase occupancy in the town centers resulted in an 8% year-over-year growth in revenue and an 18% improvement in overall occupancy for the period April 1, 2023 to March 31, 2024. Paired with these placemaking efforts, we have begun executing land strategies for the surrounding, undeveloped areas adjacent to the town centers. We anticipate short-term fluctuations in earnings as we improve tenant occupancy. We intend to attract a diverse merchant mix to reposition our spaces at market rents. Long-term positive impacts to operating revenues are expected as the occupancy of our existing commercial real estate and utilization of our land holdings continue to improve.

Our primary goal is to execute our established strategies to activate our land holdings to meet the long-term needs of the community, including the provision of land for agriculture and housing in a supply-constrained market. We expect long-term positive changes in land development and sales revenues as we have begun to list our non-strategic lands for sale, list large tracts of agricultural land for lease, and strategically develop land.

Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

CONSOLIDATED

(unaudited)

(in thousands except per share amounts)

LAND DEVELOPMENT AND SALES

(unaudited)

(in thousands)

Real estate operating revenues include the sales of our real estate inventory. There were no sales of real estate during the three months ended March 31, 2024 and the three months ended March 31, 2023. This is purposeful as the Company is evaluating its commercial assets and land holdings to determine better utilization to value creation of its assets.

In December 2021, we entered into an agreement to sell the Kapalua Central Resort project for $40.0 million. On May 13, 2022, terms of the agreement were amended to include a closing condition requiring the Maui Planning Commission to approve a five-year extension of a Special Management Area (SMA) permit issued by the County of Maui. We allowed the agreement to expire on April 11, 2023. The development plans for our real estate holdings continue to be reviewed and evaluated. We continue to manage the application process of the SMA permit extension for the Kapalua Central Resort project while the project continues to be marketed for sale or joint venture.

In December 2023, we contributed approximately 30-acres of land in Upcountry Maui, valued at $1.6 million, to BRE2 LLC, a joint venture between the Company and Stone Properties, for the development and sales of ranch lots. There were no proceeds from the transaction as the land was an equity contribution to the joint venture and was recognized as real estate operating revenues. We anticipate sales of the ranch lots to total approximately $4.1 million, with approximately $2.2 million constituting our share of the sales proceeds, which we expect to occur between late 2024 to mid-2025.

There were no significant real estate development expenditures during the three months ended March 31, 2024 and 2023.

Real estate development and sales are cyclical and depend on several factors, such as interest rates and demand. Results from one period are not indicative of future performance trends in this business segment. Prior to the Maui wildfires which occurred on August 8, 2023, there was a shortage of primary housing supply on Maui. While the provision of land to generate primary housing and additional jobs was a priority of ours prior to the wildfires, the loss of over 2,000 homes and over 3,000 jobs in the Maui wildfire accelerated our efforts to get land into productive use to meet these critical needs.

LEASING

(unaudited)

(in thousands)

Operating revenues from leasing activities for the three months ended March 31, 2024, were comprised primarily of $1.9 million from commercial, industrial, and agricultural leases, and the remaining $0.3 million was comprised of $33,000 of licensing fees from our registered trademarks and trade names, $175,000 from potable and non-potable water system sales and $85,000 in grant revenue from the State of Hawai‘i for conservation management of our Pu‘u Kukui Watershed. Operating revenue from leasing activities for the three months ended March 31, 2023, were primarily comprised of $1.8 million from commercial, industrial, and agricultural leases, and the remaining $0.3 million was comprised of $33,000 of licensing fees from our registered trademarks and trade names, $183,000 from potable and non-potable water system sales and $72,000 in grant revenue from the State of Hawai‘i for conservation management.

Certain rental income is contingent upon the sales of tenants exceeding a defined threshold and recognized as a percentage of sales after those thresholds are achieved. As the COVID-19 pandemic waned, visitor traffic to Maui increased and these percentage rents, leasing revenues in general and land licensing from adventure tourism tenants were returning to pre-pandemic levels until August 8, 2023, the date of the devastating Maui wildfires. The wildfires directly and critically impacted West Maui and took its toll on percentage rents and revenues for tourism based tenants. The $1.9 million of operating revenues from leasing activities for the three months ended March 31, 2024, compared to $1.8 million for the three months ended March 31, 2023 is an indication that tourism and visitor traffic is returning to pre-pandemic levels.

The increase in leasing operating costs and expenses for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, can be attributed to higher property maintenance costs for our commercial leasing portfolio properties, which had been deferred in prior years, hiring a property management and leasing firm to grow our leasing portfolio, and the start-up costs and fees associated with our leasing portfolio.

Our leasing operations face substantial competition from other property owners in Maui and Hawai‘i.

RESORT AMENITIES AND OTHER

(unaudited)

(in thousands)

Our Resort Amenities segment includes the operations of the Kapalua Club, a private, non-equity club that provides its members special programs and access and other privileges at certain of the amenities at the Kapalua Resort including a 30,000 square foot full-service spa and fitness center, a private pool-side dining beach club, and two 18-hole championship golf courses. The Kapalua Club does not own or operate any resort amenities and the member dues collected are primarily used to pay contracted fees to provide access for its members to the spa, beach club and other resort amenities.

The increase in operating revenues for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was due to new memberships being sold for the first time since 2019 and the Kapalua Club management team focusing on offering fee-based club events to members.

Contracted fee expenses decreased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, due to decreased fees for access and utilization of golf privileges.

The Kapalua Club has undergone restructuring in 2023. Its revised policies and practices have been implemented to reduce the impact of the amenity fees and to better align club dues and club expenses. The Kapalua Club began to accept new membership applications beginning late 2023.

GENERAL AND ADMINISTRATIVE COSTS, SHARE-BASED COMPENSATION

General and administrative costs and share-based compensation for each of the three months ended March 31, 2024 and March 31, 2023, amounted to $2.0 million.

Share-based compensation costs and share-based compensation for each of the three months ended March 31, 2024 and March 31, 2023 amounted to $1.0 million. Although the costs were consistent in amount, the composition of the share-based compensation for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was vastly different. These differences are explained in the paragraphs below.

An option to purchase 400,000 shares of the Company’s common stock under the Equity Plan was granted to the Company's Chief Executive Officer during the three months ended March 31, 2024, none of these options shares vested during this period. Additional information of the option issuance to the CEO is detailed in Note 11 of the financial statements. For the three months ended March 31, 2024, director options to purchase 82,000 shares and 164,000 shares vested for annual board and committee service, respectively. This expense was not incurred during the three month period ending March 31, 2023. During the three months ended March 31, 2023, $0.7 million was incurred for restricted stock vesting for the former Chief Executive Officer upon his separation from the Company – there was no comparable expense in the three months ended March 31, 2024.

To summarize the composition of the share-based compensation, for the three month period ended March 31, 2024, the $1.0 million of expense was comprised of $0.7 million of stock option expense and $0.3 million of restricted stock vesting, and for the three month period ended March 31, 2023, $1.0 million was due to restricted stock vesting, with $0.7 million of that amount directly attributed to the vesting of the former Chief Executive Officer’s incentive shares upon separation from the Company.

OTHER INCOME

Interest income of $0.1 million was earned on our money market and bond investment portfolio during the three months ended March 31, 2024 and March 31, 2023. The Company does not maintain or possess any off-balance sheet financing nor transactions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our cash and cash equivalents were $5.4 million and $5.7 million (audited) at March 31, 2024 and December 31, 2023, respectively.

We also had investments of $3.2 million and $3.1 million at March 31, 2024 and December 31, 2023, respectively. Our investments consist of corporate bond securities maturing on various dates through January 2025. These bond investments yield approximately 5.5% at March 31, 2024. We intend to hold our bond securities until maturity.

At March 31, 2024, $15.0 million was available from our revolving line of credit facility (“Credit Facility”) with First Hawaiian Bank (“Bank”). The Credit Facility, which matures on December 31, 2025, provides for revolving or term loan borrowing options. Interest on revolving loan borrowings is calculated using the Bank’s prime rate minus 1.125 percentage points. Interest on term loan borrowing is fixed at the Bank’s commercial loan rates with interest rate swap options available. We have pledged approximately 30,000 square feet of commercial leased space in the Kapalua Resort as security for the Credit Facility. Net proceeds from the sale of any collateral are required to be repaid toward outstanding borrowings and will permanently reduce the Credit Facility’s revolving commitment amount. There are no commitment fees on the unused portion of the Credit Facility.

The terms of the Credit Facility include various representations, warranties, affirmative, negative and financial covenants and events of default customary for financings of this type. Financial covenants include a minimum liquidity (as defined) of $2.0 million, a maximum of $45.0 million in total liabilities, and a limitation on new indebtedness.

We were in compliance with the covenants of our Credit Facility at March 31, 2024. We may borrow under our credit facility to invest in, and build value in, our assets and fund working capital if economic conditions are negatively impacted in future periods.

Cash Flows

Net cash flow provided by (used in) our operating activities for the three months ended March 31, 2024 was $(10) thousand and $0.7 million for the three months ended March 31, 2023.

There were no sales of real estate during the three months ended March 31, 2024, or the three months ended March 31, 2023.

Interest income earned from our money market and bond investments was $0.1 million for each of the three months ended March 31, 2024, and March 31, 2023.

The outstanding balance of our Credit Facility remained zero at March 31, 2024. There were no interest payments due on our Credit Facility during the three months ended March 31, 2024.

No contributions are required to be made to our defined benefit pension plan in 2024.

Capital Resources

Our business initiatives include investing in our operating infrastructure and continued planning and entitlement efforts on our development projects. At times, this may require borrowing under our Credit Facility or other indebtedness, repayment of which may be dependent on selling of our real estate assets at acceptable prices in condensed timeframes. We believe our cash and investment balances, cash provided from ongoing operating activities, and available borrowings under our Credit Facility, will provide sufficient liquidity to enable us to meet our working capital requirements, contractual obligations, and timely service our debt obligations for the next months and the foreseeable longer term.

Our indebtedness could have the effect of, among other things, increasing our exposure to general adverse economic and industry conditions, limiting our flexibility in planning for, or reacting to, changes in our business and industry, and limiting our ability to borrow additional funds

Critical Accounting Policies and Estimates

The preparation of the unaudited condensed consolidated interim financial statements in conformity with GAAP requires the use of accounting estimates. Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on the unaudited condensed consolidated interim financial statements and thus actual results could differ from the amounts reported and disclosed herein. For additional information regarding our critical accounting policies, see the section title Critical Accounting Policies and Estimates in Part II, Item 7, within our Annual Report. There have been no material changes to the critical accounting policies and key estimates and assumptions disclosed in our Annual Report.

We have no material exposure to changes in interest rates related to our borrowing and investing activities used to maintain liquidity and to fund business operations. We have no material exposure to foreign currency risks.

We are subject to potential changes in consumer behavior and regulatory risks through travel and social distancing restrictions due to our location as a vacation destination. Potential deferrals and abatements may impact our rental income.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s (“SEC”) rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the end of the fiscal quarter covered by this report. Based upon the foregoing, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective during the three months ended March 31, 2024 to provide reasonable assurance that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in applicable SEC rules and forms.

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f)) during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.