While iconic island company Maui Land & Pineapple made strides in reducing its financial liabilities in 2013, a May 1 maturity date on two loans totaling about $50 million looms over the company as an auditor said there is "substantial doubt" about ML&P's ability to continue as a going concern.
This information from the Kapalua-based company's annual report, filed with the Securities and Exchange Commission last month, comes as ML&P holds its shareholders meeting at 9:30 a.m. April 23 in the Kapalua Village Center Conference Room. The main meeting agenda items include electing five current directors to another one-year term and approving on a nonbinding advisory basis compensation paid to executive officers.
"The company's recurring negative cash flows from operations and deficiency in stockholders' equity raise substantial doubt about the company's ability to continue as a going concern," said auditor Deloitte & Touche in the company's annual report filed March 20.
The "substantial doubt" reference also appeared in last year's annual audit.
The audit cited a net loss of $1.2 million for the year and an excess of current liabilities over assets of $51.7 million and a stockholders' deficiency of $27.2 million.
It also noted two loans with Wells Fargo, a $32.7 million revolving line of credit with $29 million drawn, and with American AgCredit, a $20 million loan. Both loans mature May 1, and the company has pledged nearly 4,000 acres, "a significant portion of its real estate holdings," as security for the loans, the audit and annual report say.
Both loans are classified as "currently due," and the company made a required $4.1 million principal payment on the American AgCredit loan in 2013, the audit said.
The company said that it is "actively working with our lenders to extend the maturity dates of our credit facilities. We believe the extensions will be executed prior to the May 1, 2014, maturity date."
The company and the audit note that if the loans become due and the company is unable to meet requirements of the loans, it would not be able to make repayment.
"The company's cash outlook for the next 12 months and its ability to continue to meet its loan covenants is highly dependent on selling certain real estate assets at acceptable prices," the audit said. "If the company is unable to meet its loan covenants, borrowings under the company's credit facilities may become immediately due, and the company would not have sufficient liquidity to repay such outstanding borrowings."
Other negative impacts cited in the audit include required funding of the company's defined benefit pension plans and ongoing legal disputes with time-share and condo owners of The Residences of Kapalua Bay project, which went into bankruptcy and is currently undergoing renovations under the Montage brand.
On the positive side, the $1.2 million net loss was lower than the $4.6 million net loss in 2012. And a major liability hanging over the company regarding the spa, beach club and sundry store tied to The Residences project - estimated at $35 million - was resolved in 2013.
An entity mostly owned by ML&P, Kapalua Bay LLC, built The Residences of Kapalua Bay on the site of the old Kapalua Bay Hotel and a spa and a sundry store, and made improvements to a beach club on an adjacent parcel owned by ML&P. The Residences ended up in a foreclosure proceeding with Island Acquisitions Kapalua LLC claiming the property in an auction last year for $100 million.
ML&P had agreed to purchase from Kapalua Bay the amenities that were built in 2009 at an actual construction cost of $35 million. ML&P said that it did not have $35 million in cash.
On Nov. 25, the purchase agreement was dissolved with the lenders and the new owners of The Residences, the annual report said. The company paid $2.4 million toward deferred maintenance at the project, conveyed a 3-acre leased parcel under the spa and a 5-acre parking lot and committed to pay $600,000 annually for the next four years, the report said.
Most of the proceeds of the sale of a 10-acre light industrial zoned parcel in West Maui in November, which resulted in a gain of $2.1 million, was used to fund the deferred maintenance of The Residences agreement, the audit said. Some of the money from the sale also went to pay down the American AgCredit loan.
Earlier in the year, the company sold a 7-acre parcel and building, the last vestige of the company's pineapple canning operations in Kahului, for $4 million. It resulted in a $1.9 million gain.
The audit also indicated that as of Dec. 31 ML&P was in the process of selling a 4-acre parcel that serves as the maintenance facility for the Kapalua Plantation Course. No terms were disclosed.
Another major land sale in the works involves about 270 acres of agricultural land at Lipoa Point. The report said that the state Department of Land and Natural Resources, in consultation with the Hawaiian Islands Land Trust, and the company are engaged in negotiations.
Last session, the Legislature appropriated $20 million for the purchase of the Lipoa Point land. The measure also required DLNR to ensure as much as possible that the proceeds go to the company's defined benefit pension plans, the report said.
The company's best hope for survival and viability lies in the 1,500 acres in various stages of the development process.
The three major developments are Kapalua with 900 acres, Pulelehua with 300 acres on the west side and Haliimaile with 300 acres. The earliest completion dates are 2019, with Haliimaile even further out at 2029 because it lacks proper zoning.
Kapalua Mauka, on 800 acres upslope of the resort, is planned to include 639 residential units and 27 holes of golf; Kapalua Central Resort in the core of the resort is a 46-acre project with 61,000 square feet of commercial space and 188 condominium and multifamily units, the report said.
The 312-acre Pulelehua project is designed as a working-class community with 882 single and multifamily residences, 95,000 square feet of commercial and retail space, a school, churches and a community center.
State and county land use entitlements have been secured for the Kapalua and Pulelehua projects.
"Projected development costs are expected to be financed by debt financing, through joint ventures with other development or construction companies, or a combination of these methods," the report said.
Formed in 1909, the company once employed as many as 1,000 workers with a pineapple farming and canning operation. Now, it has only 19 employees. At one time, ML&P owned the Queen Ka'ahumanu Center in Kahului and led its expansion, and ran resort operations in Kapalua.
The directors to lead the current company, to be voted on at the shareholders' meeting, are Stephen Case, 55, a director since December 2008; Warren Haruki, 61, the company's chief executive officer since May 2009 and chairman of the board since January 2009; David Heenan, 74, a director since 1999; Duncan MacNaughton, 70, a director since May 2004; and Arthur
Tokin, 69, a director since May 2010.
The leading shareholder is Case, who owns 11,930,437 shares of common stock, or 63.5 percent. The shares are actually owned by the Stephen M. Case Revocable Trust with him as its sole trustee. Interestingly, Case has pledged "substantially all of his shares" to Bank of Hawaii as collateral for "certain obligations."
Other top shareholders of ML&P are Charles Lemonides and ValueWorks of New York City, which own 1,298,110 shares, or 6.9 percent, and TSP Capital Management Group of Summit, N.J., 1,121,502 shares, or 6 percent.
Haruki was the highest paid company executive in 2013 with a total salary and compensation package of $385,112 ($250,000 salary and $135,112 in bonuses). Company President Ryan Churchill made a total of $271,842 ($225,000 salary, $46,071 in bonuses and $771 for life insurance and the value of participation in the defined benefit pension plan), and Chief Financial Officer Tim Esaki earned a total of $189,324 ($160,000 salary, $28,777 in bonuses and $547 in restricted shares of common stock).
Bonuses were paid in common stock.
Attempts to reach ML&P officials Friday afternoon were unsuccessful.
* Lee Imada can be reached at email@example.com.