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Maui Land and Pineapple Company Inc Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 6, 2009 04:08PM
Maui Land and Pineapple Company Inc (MLP) filed Quarterly Report for the period ended 2009-03-31.
Highlight of Business Operations:
In the first quarter of 2009, all of our operations continued to be negatively affected by the global recession, and a significant amount of management's efforts were directed toward various initiatives to improve our liquidity. In the first quarter of 2009, we incurred a net loss of $13.2 million and had negative cash flows from operations of $9.9 million. In March 2009, we consummated the $50 million sale and leaseback transaction of the Plantation Golf Course (Note 9 to condensed consolidated financial statements) and applied $45 million of the sales proceeds to partially repay outstanding borrowings that were partially collateralized by the golf course. We amended our two revolving lines of credit to suspend or eliminate certain financial covenants for 2009 and to change the maturities of these lines to March 2010, one of which was previously due in November 2009 (Note 1 to condensed consolidated financial statements).
Interest expense was $1.5 million for both the first quarter of 2009 and 2008. Interest of $18,000 and $200,000 in the first quarter of 2009 and 2008, respectively, was capitalized to construction projects. Included in interest expense is a credit of $230,000 and charge of $521,000 for 2009 and 2008, respectively, representing the change in fair value of certain interest rate swap agreements. Also included in interest expense for the first quarter of 2009 is a net credit of $1.4 million representing the change in the estimated fair value of the derivative liability that was bifurcated from our $40 million convertible notes, less interest accretion of $762,000 on the carrying value of the notes. In 2009, the increase in interest expense from higher average borrowings was partially offset by lower average interest rates. Our effective interest rate on borrowings was 4.9% in the first quarter of 2009 compared to 5.6% in the first quarter of 2008.
At March 31, 2009, our total debt, including capital leases, was $90.0 million, compared to $137.0 million at December 31, 2008. The decrease in outstanding debt in the first three months of 2009 was due to proceeds from the sale of the PGC in March 2009 being applied to partially repay our revolving line of credit with Wells Fargo and certain other lenders (Note 9 to condensed consolidated financial statements). At March 31, 2009, we had $3.1 million in cash and cash equivalents and $14.5 million in unused available lines of credit. In March 2010, $55 million of borrowings under our two available lines of credit is scheduled to mature. The lines of credit have financial covenants requiring a minimum of $10 million in liquidity and a limitation on new indebtedness. Failure to satisfy any of the covenants or to otherwise default under either of the credit agreements could result in the outstanding borrowings becoming immediately due, which could result in a default under the other credit agreement as well as the $40 million senior secured convertible notes. Default under the convertible notes could require us to redeem the notes at 115% of the outstanding amount of principal and accrued interest. We are obligated to purchase the spa, beach club improvements and the sundry store from Kapalua Bay Holdings ("Bay Holdings") at actual construction cost upon completion in 2009, which is estimated to be approximately $35 million. We are currently negotiating the terms of the purchase of the improvements with the members of Bay Holdings, and expect that we will fund most of the purchase at a later date. At March 31, 2009, these matters gave rise to significant uncertainty as to our ability to continue as a going concern.
In July 2006, Kapalua Bay Holdings, LLC, or Bay Holdings, in which we have a 51% interest, entered into a syndicated construction loan agreement with Lehman Brothers Holdings Inc. ("Lehman"), for the lesser of $370 million or 61.6% of the total projected cost of the project. Lehman's commitment under the loan agreement was approximately 78% of the total. On September 15, 2008, Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court. In February 2009, Bay Holdings entered into an amended and restated construction loan agreement with Lehman, Swedbank, MH Kapalua Venture, LLC, an affiliate of Marriott, and certain other syndicate lenders, pursuant to which Bay Holdings may borrow an aggregate of approximately $354.5 million, including amounts previously funded under the loan agreement (see Note 10 to condensed consolidated financial statements). We believe that this amount will be sufficient to fund the full development of the Residences at Kapalua Bay project.
Also in March 2009, we executed two amendments of our revolving line of credit agreement with Wells Fargo Bank and certain other lenders, to be in compliance with the financial covenants as of December 31, 2008. The amendments also eliminated all financial covenants except for the maintenance of a minimum liquidity of $10 million and limitations on additional indebtedness; extended the maturity of the facility to March 2010 from November 2009; requires the reappraisal of the properties collateralizing the facility and the reduction of the available credit or addition of collateral to maintain a 50% loan commitment to collateral value; eliminated the restriction on the lenders' recourse to recover against us; and increased the interest rate on loan draws by 275 basis points. In connection with the sale of PGC, we applied $45 million of proceeds against outstanding borrowings under this line of credit, which was partially collateralized by the PGC, and the available credit was reduced from $90 million to $45 million. As of March 31, 2009, we had $30 million outstanding and $14.5 million available under this line.
In 2009, capital expenditures and expenditures for deferred development cost have been reduced, except for expenditures that are expected to have a commensurate return within a relatively short period or are necessary to maintain our operations and standards of quality at the Kapalua Resort. Capital expenditures planned for 2009 total $4.7 million and include $2.7 million for the replacement of equipment, $1.2 million to remodel certain property and $0.8 million for new equipment and facilities. We will seek project specific financing for some of the capital projects where deemed feasible.
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