Maui Land & Pineapple Company, Inc. (NYSE:MLP) has been aggressively paying off debt and could be worth $71.73 per share
Thomas Chapman | June 2, 2017 | SmallCapPower: Maui Land & Pineapple Company, Inc. (NYSE: MLP) is a landholding and operating company based in Maui, Hawaii, United States. The company’s business activities include: selling, developing, and managing residential, resort, commercial, agricultural and industrial real estate through the following business segments: Real Estate, Leasing, Utilities, and Resort Amenities.
Investment Thesis
- The Company acquired 23,000 acres of land nearly 100 years ago and it is held at cost on the balance sheet approx. $220/acre
- They have sold 78 acres of land over the past five years at an average of $900k per acre
- The Company is trading at a significant discount to its NAV
Maui Land & Pineapple had $40mm in long-term debt at the end of 2015. The Company has essentially paid all of this off and the balance of their debt is now $1mm. The maturity of these loans is what has forced the Company to show its true value, as they have stated to sell off some of their land holding to pay off the debt, and have been doing so at a significant premium to what the land is carried at on their books. It should also be noted that the Company has mild liquidity problems as they have a current ratio of 0.9, however this should not be a concern as they are in line with their debt covenants, can generate positive EBITDA before property sales and does not affect the fundamental investment thesis.
The Company owns 22,800 acres of land in Maui, Hawaii, some of which was acquired nearly 100 years ago and is carried on the book at $220/acre. About 20,700 acres of this land is in West Maui, with 900 acres located on the pristine Kapalua Resort. The remaining 2,100 acres are in Upcountry Maui. Here is the breakdown of their land holdings.
Over the past five years, the Company has sold a total of 78 acres for an average price of $900k per acre. Here is a summary of the land sales by area type.
This chart shows that the Company has been selling off land holdings at significant premiums to their stated book value. Most of these land sales have been used to pay off the Company’s significant debt load. Valuing the Company based on this information would give it a NAV of $54.39 per share. Doing a sensitivity analysis and applying a 50% margin of safety to the land value would estimate the Company’s NAV at $28.34 per share. This is also using a conservative tax rate of 35%, and using the book value of the Company’s other assets and liabilities. So even at conservative assumptions it appears this Company is trading at a 66% discount to NAV.
To further prove the Company has land on its books that is severely undervalued, let’s look at the transaction and listing prices of comparable parcels of land in Maui.
West Maui – Kapalua Resort
We already know the Company has been offloading parcels of land in this area for an average of $830k per acre.
Now let’s look at the surrounding pieces of land and see what they are selling for, then we will have a good idea of what the 900 parcel of land on Kapalua Resort is worth. If you take the average of the land surrounding the golf course, as well as the land located to the left of the highway (which is near the Company HQ) we get a land value of $1.2mm per acre.
To further prove the Company has land on its books that is severely undervalued, let’s look at the transaction and listing prices of comparable parcels of land in Maui.
Kapalua Real Estate
Source: https://www.mauirealestate.net/Kapalua-Land.html
West Maui – Agricultural zoned
Getting data for the agricultural and zoned land in West Maui is more of a challenge, however applying the same logic as above to properties listed here, we get a value of $23k per acre. Although this seems conservative given the Company has sold land in this area at an average of 3x this value.
West Maui – Conservation/Watershed
Since the rules governing this type of land are complex, we will presume the value of this land to be 0 just to be conservative.
Upcountry Maui – Agricultural zoned
Applying the same logic to parcels of land located in Upcountry Maui in the Haliimaile area (as most of the Company’s land is located here), we get a value of $110k per acre, although this seems aggressive give the Company has not been able to sell their land in this area anywhere close to that price
Applying a 50% margin of safety to inputs described above we can see the estimated NAV is $28.61 per share. Ever being super conservative and taking the lowest values from both valuation methods and applying a 50% margin of safety with a conservative 35% tax rate implies the Company is worth $19.94 per share, a 17% premium to what they are currently trading at.
Conclusion
The sensitivity table shows the Company should be priced between $19.94 and $71.73 per share, however, more weight should be given to an upper range of $54.94 per share as the Company reaching $71.73 seems like a stretch. The Company has the potential to generate big capital gains through asset sales with limited downside, as even the most conservative assumptions suggest it is undervalued.
Disclosure: The author owns shares of Maui Land & Pineapple Company, Inc.
Neither any of the principals at Small Cap Power, nor their family members, own shares in any of the companies mentioned above.
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