Maui Land & Pineapple (NYSE:MLP) is a Hawaiian real estate company. The company began in 1909 as an agricultural operation growing pineapples. It purchased most of its land in the early 1900s. In more recent years, however, agriculture has become less cost competitive in Hawaii as compared to other tropical regions. As such, Maui Land & Pineapple has transitioned from being an agriculture company to primarily being a resort operator and land development company.
I find land bank stocks interesting. They offer a unique sort of investment, giving investors inflation protection while potentially giving significant right tail upside if the land in question experiences a catalyst which would transform its valuation. For example, Texas Pacific Land (TPL) shares enjoyed a parabolic run-up over the past decade as its rural Texan land became dramatically more valuable thanks to the fracking boom.
Maui Land & Pineapple, by contrast, has not managed to enjoy any such hard catalyst in recent times. Shares exploded higher in 2017 amid a flurry of articles and discussion about the company in the value investing community. Since then, however, MLP stock has given up those gains and largely traded sideways. Shares have dipped a little bit more in recent months, and are now near a 5-year low in price:
As such, it's time to revisit Maui Land & Pineapple. After all, these sorts of land plays tend to be dormant for extended periods of time and then suddenly spring to life when new projects emerge, activists take a position, or other such catalysts emerge. The time to go hunting for these sorts of companies tends to be during these extended dormant periods before they start making headlines again.
What Maui Land & Pineapple Owns
Nowadays, the firm primarily operates as a real estate company and land bank. It operates the Kapalua Resort and club. It also seeks to develop and profit from its real estate holdings, along with operating leasing operations for its existing properties.
As of Dec. 31, 2021, here is the land that Maui Land & Pineapple owns:
As you can see, the majority of the company's land holdings are in West Maui, with the balance in Upcountry Maui.
On paper, the company owns 22,800 acres in total. However, 9,000 of this is unavailable for development due to being conservation or watershed land. In addition, another 12,900 acres are currently zoned for agriculture. Given Hawaii's development practices, it would take a long time, if ever, for much of this land to be converted to higher-value usages.
That leaves the company with its crown jewels, the 900 acres of fully entitled urban land. These 900 acres are at the Kapalua Resort, where the company already has the proper zoning in places and plans to further develop this property between today and 2039. Given the gradual pace of planned development, it shouldn't have too much trouble coming up with funding for pushing this project forward.
This land should be exceptionally valuable. Hawaii has among the most restrictive development laws in the country, and Maui County in particular has rigorous standards even in comparison to the rest of Hawaii. In Hawaii, the median single family home price is roughly two and a half times the national average. Given that Maul Land & Pineapple can sell lots next to its existing resort facilities, this should help power even higher land values. Based on prior comparable transactions in the area in the past, it's not hard to imagine this land being worth several hundred thousand dollars an acre if developed properly and sold in a strategic manner.
Ongoing Results Near Break-Even
Maui Land & Pineapple does have some ongoing operations, mainly in the form of its resort and associated leasing activities.
The company's results are quite variable from year-to-year, with significant variation due to economic activity and one-off deals and opportunities. I'd note that the company's net income has generally been right around zero, and it wasn't significantly profitable on an operations basis even prior to the onset of COVID-19:
The company did generate more than $5 million in net income over the past year, which is a meaningful improvement from past results. Regardless, given the relatively small amount of income and the significant variability of it, I wouldn't assign too much value to the day-to-day operations of the company. The real value is in the underlying land.
An Underfollowed & Off-The-Radar Stock
Maui Land & Pineapple is not a widely followed company. It has minimal analyst coverage, little retail investor attention, and not much in the way of average trading volume either. In addition, management does little to market or shine light on the business.
Speaking to this point, this is the entirety of the company's investor relations web page:
There is no investor presentation or any sort of flashy information about the company. Just some .pdfs of routine documents, along with links to SEC filings. This lack of any focus on marketing the company could lead to a lower valuation, compared to other firms in the industry.
In theory, this should be appealing for value investors, who care more about the underlying assets than and glitz and glamor around the investment. However, unless the company takes concrete steps to start getting its story more publicity, there is no reason to assume this valuation gap will close anytime soon.
Some companies with a low profile are incredibly savvy, like Berkshire Hathaway (BRK.A) (BRK.B) which is known for its low-tech website.
That said, Maui Land & Pineapple's management has not necessarily earned this same level of trust. The company's balance sheet management, historically, has left a lot to be desired. For example, the firm was carrying close to $100 million of debt, including $60 million of short-term debt, during the 2008 financial crisis. The combination of this large debt with a lack of cash or meaningful revenues led to the firm having a liquidity shortage and having to issue shares at depressed prices. MLP stock plunged from $30 to $5 during the crisis and has largely failed to recover subsequently.
For another example, Maui Land & Pineapple ended up having $40 million of debt come due at one point in 2016. The company was able to navigate that maturity more successfully, however, in different economic conditions, that could have potentially impaired shareholder value as well.
Finally, I'd note that insiders own 65% of the company's outstanding stock. This could be an obstacle to outside shareholders who seek to maximize total value of the company's assets, depending on how insiders decide to manage and develop the various land holdings at the company.
MLP Stock Bottom Line
Maui Land & Pineapple currently has a market cap of about $180 million. There's not much going on with the balance sheet to impact that number either. The company held $11 million in cash as of last report, and has minimal long-term liabilities. So, investors are paying around $175 million or so in total value for the company's land and operations.
I believe the operations aren't worth all that much, as they tend to break even or generate a minimal profit on an annual basis. That said, it's enough to cover the company's operating costs and thus prevent the company from having to sell land or dilute shareholders to keep functioning. So there is some value from that. However, most of the valuation here comes from future land sales.
Valuing the 900 acres of prime zoned land at $300,000 an acre would give us $270 million of future valuation. Value the agricultural land at $10k/acre and that's another $129 million, or $399 million in total. I have seen some bulls value the agricultural land at far more than this figure. And that may be possible. Certainly, small parcels of agricultural land on Maui sell for far more than $10,000/acre. However, I'm not sure what sort of price the company would obtain if it tried to move large chunks of agricultural land in a single transaction.
There's also the proposed Hali’imaile Town plan. This is far from certain, but there is some probability on the Hali’imaile Town project getting favorable zoning, and that would transform 300 acres from a relatively low valuation into something worth hundreds of thousands of dollars an acre. Be it from Hali’imaile Town, general inflation in asset prices, or some other catalyst that would monetize existing value, I think you can reasonably get to a $400-$500 million range for fair value for the company's assets.
Does this make the stock a pound-the-table buy at today's $175 million valuation? No, not really. That's because of the time value of money, along with execution risk.
The company is planning to develop the key 900 acres of land between now and 2039 according to the company's 10-K. Additionally, Hali’imaile Town, if it becomes a reality, is likely to be developed in the 2030s. Investors should discount profits from those future land sales dramatically given that it could be a decade or more between now and when Maui Land & Pineapple gets its cash from much of these sales.
In addition, there is uncertainty around what Steve Case and other insiders want to do with the company. Assuming Maui Land & Pineapple does generate windfall cash from property development, would the company start to return significant cash to shareholders, or would those funds remain sitting on the company's balance sheet?
I think you can make a fairly compelling discount to net asset value calculation argument for MLP stock today. As such, I view shares as a buy if you want exposure to Hawaii and this sort of land bank/call option on development asset. That said, particularly with a slowing housing market and unfavorable interest rate environment, I see little catalyst for shares to perform in 2023. However, with the stock near 5-year lows, this seems like a fine entry point for folks that want to sit on shares for a while.
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