MAUI LAND & PINEAPPLE CO INC (MLP)

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our Annual Report on Form 10-K and audited consolidated financial statements and related notes are for the year ended December 31, 2024. 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

We own and manage a diverse portfolio including approximately 22,300 acres of land on the island of Maui, Hawaii along with approximately 247,000 square feet of commercial real estate. For over a century, we have built a legacy of authentic innovation through conservation, agriculture, community building and land management. Our current portfolio of assets includes unimproved land, entitled land allowing for various residential and mixed-use construction, and completed commercial properties.

This past year we began to implement our strategic plan, driven by our steadfast mission of activating our assets into their most productive use. We accelerated a broad spectrum of land development and housing projects crafted to build stronger and more vibrant communities. We continued to strengthen our business foundation with the addition of key experts on our board and management team to ensure we could effectively establish plans for each parcel and self-perform value creating projects. In addition, we created a land management team responsible for risk mitigation strategies and productive use of fallow farm and ranch lands throughout our portfolio. Our local team has enhanced our ability to manage assets effectively and execute value-creating projects. We also established new office locations in West Maui and Upcountry, enabling our team to be present within the community to foster stronger relationships and ensure responsible stewardship of our assets.

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In 2024, we advanced efforts to maximize the productivity of our leasable land and commercial properties. We identified and addressed critical deferred maintenance in our town centers, allowing us to create spaces for many businesses who lost their location in the 2023 Maui wildfires. This effort has increased occupancy and leasing revenue over the past year while adding vibrancy and creating a sense of place in our communities. At December 31, 2024, our commercial properties and land were occupied at the following levels:

During 2024, the team increased commercial property occupancy from 72% to 86%, including tenant relocations and improvements necessary to enhance the variety and quality of experiences in our town centers.  This effort will continue, along with capital improvements necessary to continue attracting top tier tenants. In addition to stable cashflow in a supply-constrained market, our commercial properties allow us to perform value-creating placemaking for our surrounding landholdings.  We anticipate cashflow from our commercial properties to increase in the coming years as we reach stabilization, the Maui market continues to recover from the 2023 wildfire, and we complete the tenant improvements and leasing costs inherent with new tenancies.

To enable the productive use of land for homes, businesses, farms, resort projects, or otherwise, we generally must make improvements to the land. These improvements take the form of master planning, entitlements and zoning, subdivision of large parcels into useful lot sizes, or the addition of infrastructure, enabling it to be placed into productive use. In 2024, we completed portfolio-wide strategic plans across all 22,300 acres to prioritize and guide actions of the Company in the forthcoming quarters.

Our strategic plan for land utilization aligns with our mission to meet the current and future needs of the community, in a significantly supply-constrained market. In 2024, we listed non-strategic assets for sale and began monetizing them through direct customer sales and a structured partnership approach. The plan identified four categories of improved and unimproved land actions as follows in the table below.

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Near-term sales revenues (1-3 years) may be anticipated from our remnant and non-strategic parcels for sale, along with improved land in active marketing for sale and/or development.

In 2024, our team began to self-perform priority land development projects, including the planning and engineering of Kapalua Resort projects and the preliminary subdivision of a 325-acre former ranch site in Upcountry, Maui. Unimproved land in active planning and improvements will likely require three or more years before improvements are completed and revenue generation is realized. Funding for soft cost improvements, if not covered by our commercial properties and land leasing cashflow, will likely be provided by remnant non-strategic parcel sales and our revolving line of credit. As infrastructure and site improvement hard costs are warranted, capital will primarily be provided by project presale deposits and construction financing.

For the Honokeana Homes State Temporary Housing Project, 50 acres has been leased to the State of Hawai‘i and we are administering the construction of improvements necessary to support temporary homes for individuals and families displaced by the Maui wildfires on August 8, 2023.  The land will be leased to the State at no cost for five years, plus the duration of time necessary to construct the temporary homes. The land is a portion of a larger, 1,377-acre parcel owned by MLP. The Agreement provides the State will fund all costs to complete the project, including approximately $35,500,000 to complete the necessary horizontal improvements.  MLP has agreed to administer the construction of the horizontal improvements and, at the State’s election, the subsequent vertical improvements which are yet to be estimated. MLP will provide its administration services to the State at its cost and will not directly profit from these services. After the end of the lease, the State will remove any vertical improvements unless MLP requests that specific improvements remain.

Unimproved land identified for long-term lease and ongoing asset management may be expected to be leased or licensed for diversified agricultural, conservation, and cultural uses for the next ten or more years. Approximately 1,000 acres has been leased to Ka Ike Ranch, a local family-owned and operated business committed to local food production and sustainable ranching. Unimproved land also includes the Pu’u Kukui Watershed, which is over 8,600 acres and is actively managed to maximize rainfall capture and recharge of the aquifer which provides approximately 70% of the water consumed in West Maui. The Company is focused on continuing to increase the occupancy of these agricultural lands to improve productivity via economic activity and local food production.

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RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2024 and 2023

CONSOLIDATED

LAND DEVELOPMENT AND SALES

Land Development and Sales operating revenues include the sales of our real estate inventory. The increase in our land development and sales revenues and expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 was attributed to sales of non-strategic remnant real estate inventory and construction revenues and expenses for the Honokeana Homes Temporary Housing Project incurred during the year.

There were no significant real estate development expenditures during the years ended December 31, 2024 and 2023, respectively.

Land Development and Sales activities are cyclical and depend on several factors. Results for one period are therefore not necessarily 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 Lahaina wildfire have accelerated our efforts to get land into productive use to meet these critical needs.

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LEASING

Operating revenues from leasing activities for the year ended December 31, 2024, were comprised of $8.0 million from commercial, industrial, and agricultural leases, $0.2 million of licensing fees from our registered trademarks and trade names, $1.1 million from potable and non-potable water system sales and $0.3 million in grant revenue from the State of Hawai‘i for conservation management of our Pu‘u Kukui Watershed, compared to $5.9 million from commercial, industrial, and agricultural leases, $0.8 million of licensing fees from our registered trademarks and trade names, $1.5 million from potable and non-potable water system sales and $0.3 million in grant revenue from the State of Hawai‘i for conservation management of our Pu‘u Kukui Watershed for the year ended December 31, 2023.

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 was increasing 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 impacted West Maui tourism and reduced percentage rents and licensing revenues for tourism-based tenants. Revenue recognized from percentage rents and land licensing in 2024 amounted to $2.3 million as compared to $2.2 million in 2023, an increase of $0.1 million. Tourist traffic has started increasing again post wildfire, and as a result, it is anticipated that percentage rents will return to pre-wildfire levels in 2025 to 2026.

The increase in leasing operating costs and expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to higher insurance costs and property maintenance costs for our commercial leasing portfolio properties and the hiring of a property management and leasing firm to grow our leasing portfolio and the associated start-up costs and fees.

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

RESORT AMENITIES

Our Resort Amenities segment includes the operations of the Kapalua Club, a private, non-equity club providing its members special programs, 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 year ended December 31, 2024, compared to the year ended December 31, 2023, was due to the increase in members in 2024. Following the Maui wildfires on August 8, 2023, the Kapalua Club operations were temporarily closed. Additionally, the Kapalua Club issued refunds of membership fees during a two-month period following the wildfires.

Contracted amenity fees decreased for the year ended December 31, 2024, compared to the year ended December 31, 2023, attributable to a change in policy regarding amenity fees paid for member utilization.

The Club was restructured in 2023 and revised policies and practices were implemented to reduce the impact of the amenity fees and to better match club dues with club expenses. The Club has begun accepting new membership applications beginning late 2023.

OTHER INCOME

Investment income of approximately $0.3 million and $0.5 million was earned from our money market and bond investment portfolio during the years ended December 31, 2024 and 2023, respectively

We also recorded approximately $0.6 million of return of equity from our investment in the BRE2 LLC joint venture during the year ended December 31, 2024. This was due to the sale of a ranch lot from a land development joint venture in Hali‘imaile, based on the gross sales price of $1.8 million for a lot of approximately 6 usable acres resulting in price per usable acre of $0.3 million. In February 2025, the joint venture sold the second and final lot of the subdivision for $2.4 million for a 25-acre parcel with usable acreage of 16 acres resulting in a value of $150,000 per usable acre.

PENSION EXPENSE

The termination notification of the Qualified Plan originally made on August 31, 2023, was amended to November 30, 2023. The change in timing allowed for the Company to issue lump sum distributions in the fourth quarter of 2024 amounting to approximately $1.1 million and final annuitization of plan participants to take place in the first and second quarters of 2025. An estimated settlement charge (non-cash GAAP expense) between $7.0 million to $8.0 million will be recognized at the time of final annuitization and plan termination.

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SHARE-BASED COMPENSATION PLANS

The Company accounts for share-based compensation, including grants of restricted shares of common stock and options to purchase common shares, as compensation expense over the respective vesting periods in the consolidated financial statements based on their fair values on the grant dates. The impact of any forfeitures that may occur prior to vesting is estimated and considered in the expense recognized. The increase in share-based compensation expenses were primarily attributed to a $3.5 million increase in non-cash stock compensation costs due to valuation expenses for stock options issued to the directors of the company and the Chief Executive Officer, accelerated vesting expense for option and restricted grants cancelled in August 2024, which amounted to $0.6 million.

INTEREST EXPENSE

There was $3.0 million of borrowings outstanding on our credit facility with a bank at December 31, 2024. There were no borrowings outstanding at December 31, 2023. On December 31, 2024 and 2023, interest rates on our credit facility were 6.375% and 7.38%, respectively. Interest expense paid during the year ended December 31, 2024 equaled approximately $55,000.

LIQUIDITY AND CAPITAL RESOURCES

We had cash on hand of $6.8 million and $5.7 million at December 31, 2024 and 2023, respectively. We hold deposit accounts with several local banks in Hawai‘i. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. We rely on the financial strength and stability of these banks and have no reason to believe that our deposits would be unavailable on demand.

Our investments consisted of corporate bond securities maturing over various dates through the end of 2025. The fair value of our investments was $2.7 million at December 31, 2024. We intend to hold our bond investments until maturity.

We also had $12.0 million and $15.0 million of available credit under a revolving line of credit facility with First Hawaiian Bank (the “Bank”) (the “Credit Facility”) as of December 31, 2024 and 2023, respectively. In 2021, we executed a Fourth Loan Modification Agreement and Second Amended and Restated Credit Agreement (collectively the “Agreements”) extending the maturity date of the Credit Facility to December 31, 2025. The Agreements provide revolving or term loan borrowing options. Interest on revolving borrowing is calculated based on 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 under the Credit Facility at December 31, 2024.

Cash Flows

Net cash flow provided by (used in) our operating activities totaled $0.4 million and ($1.4) million for the years ended December 31, 2024 and 2023, respectively.

Minimum funding contributions to our defined benefit pension plan were not required during the year ended December 31, 2024 or 2023.

Interest income from our investment portfolio was $0.3 million and $0.5 million during the years ended December 31, 2024 and 2023, respectively. Our bond investments yielded approximately 5.6% and 5.7% in aggregate at December 31, 2024 and 2023, respectively.

Future Cash Inflows and Outflows

In 2023, the Company entered into a joint venture, BRE2 LLC with Stone Properties, a Hawai‘i based LLC to develop and sell ranch lots in Hali‘imaile, Hawai‘i. The first lot sold for $1.8 million in December 2024 and the second lot sold for $2.4 million in February 2025. The Company received a distribution from BRE2 LLC in the amount of $1.0 million in December 2024, the remaining distributions of approximately $1.1 million is expected during 2025 which is comprised of $0.6 million in remaining return of equity and approximately $0.5 million in net profit.

Land development costs to be capitalized are budgeted at $6.0 million for 2025. This includes costs for planning, engineering, permitting, subdivision, and preliminary site improvements on various projects totaling approximately 7,900 acres. These projects include three Kapalua resort projects (Central Resort, Mauka, and Makai) along with farm subdivision projects in Upcountry and West Maui. This investment reflects the expanding volume of active, value-adding projects in the pipeline to create value and meet Maui's need for increased housing inventory, job opportunities, and farms for local food production.

Maintenance and capital improvements on the Company’s commercial assets in the Kapalua Town Center, Alaeloa Business Center and the Hali‘imaile Town Center are budgeted at $0.6 million and $2.8 million will be expended on our water assets and infrastructure which includes our West Maui water wells, Honolua ditch system, Ka‘ili‘ili ditch system in upcountry Maui and our Hali‘imaile Waste Water Treatment system. Budgeted amounts are approximate estimates and can vary significantly based on a number of factors, Costs in excess of billings amounts may materially and adversely affect our operating results, liquidity and financial condition.

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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 revolving 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 12 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

Our accounting policies are described in Note 1 to our financial statements set forth in Item 8 of this Annual Report. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as being critical to our financial statements are as follows:

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IMPACT OF INFLATION AND CHANGING PRICES

Most land holdings we own were acquired from 1911 to 1932 and are carried at cost. At the Kapalua Resort, some of the fixed assets were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if fixed assets were stated at current replacement cost.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2024, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our Annual Report on Form 10-K and audited consolidated financial statements and related notes are for the year ended December 31, 2023. 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 Annual 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 Hawai‘i corporation. The Company reincorporated from Hawai‘i 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 (“NYSE”) under the ticker symbol “MLP.”

We are a legacy company on Maui, energized by global best practices and local values. The Company owns and stewards approximately 22,300 acres of land on the island of Maui, Hawai‘i along with approximately 268,000 square feet of commercial real estate. Our focus is activating our assets to their most productive use with a mission to meet critical needs and preserve a sense of place for future generations. We have identified critical needs as increasing housing inventory, job creation, water and food security, and renewed connection to people, place, and culture.

A leadership transition began in April 2023 with the addition of a CEO and Board Chair, both experienced in real estate planning, development, and asset management. Between April and December, the transition continued with the addition of three team members with planning, community development, and land management experience. In this new chapter for Maui Land & Pineapple Company, we will build capable, multi-disciplinary team of internal experts and external partners to become a considerate thought-leader who can turn vision into reality. We aim to build trust and deepen relationships through ongoing engagement with stakeholders, community, and other partners. This will enable us to implement scalable, disciplined business processes via a lean team to thoughtfully manage a growing pipeline of projects.

As an initial step by the new leadership team, we have audited our assets under management and available for lease and development. The initial results of this review identified opportunities to increase the level of utilization, occupancy, and stabilized income from our operating assets.

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As of December 31, 2023, our commercial properties and land were occupied at the following levels:

To improve the stable operating revenue from our commercial real estate, we have updated tenanting plans for our properties, with a focus on placemaking in our town centers. Among other things, the plans include tenant improvements designed to improve occupancy and reposition spaces and land with tenancies at market rents.  As these plans are implemented, we expect the occupancy of our existing land and commercial real estate portfolio to increase.

Our commercial real estate is located in three areas surrounded by our landholdings. Kapalua Village Center is a mixed-use, luxury coastal property offering spaces that foster convenience, well-being, adventure, and culture in the core of Kapalua Resort. Hali‘imaile Town Center is adjacent to Makawao Town and houses an eclectic collection of local businesses, art galleries, and makers spaces, mixed with a renowned Hawai‘i Regional Cuisine restaurant and a Maui distillery. Lastly, the ‘Alaeloa Business Center is where agriculture meets adventure in the former pineapple base yard whose tenants primarily steward land and natural resources in West Maui.

To establish and execute our land utilization strategies, we intend to make investments in our internal and external teams to ensure we have the capabilities, market research, planning, engineering, and other consultant services necessary. Our primary goal is to establish executable strategies for the conversion of land from current uses to meet the long-term needs of the community, including the provision of land for agriculture and housing in a supply-constrained market. We also intend to identify non-strategic lands for sale and strategic land developments to advance to completion.

Our landholdings include residential, agricultural and conservation areas. Residential parcels include 83 acres within Kapalua Resort area, zoned for higher density, mixed-use, allowing more than 700 residential units, hospitality, and commercial uses. Also included in Kapalua Resort are 800 acres zoned for lower density residential use of approximately 650 homes. Agriculturally zoned parcels total 9,500 acres sitting on the slopes of West Maui, with another 1,400 acres sitting on the slopes of Upcountry Maui. All 10,350 acres of land in perpetual conservation are along the West Maui coastline, including the largest private nature preserve in Hawai‘i where the focus is to ensure rainfall capture in the pristine native forest to replenish the aquifers.

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RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2023 and 2022

CONSOLIDATED

LAND DEVELOPMENT AND SALES

Real estate operating revenues include the sales of our real estate inventory. The decrease in our consolidated operating income for the year ended December 31, 2023 compared to year ended December 31, 2022 was attributed to decreased sales of real estate inventory during the year.

In December 2023, we contributed approximately 30 acres of land in Upcounty Maui, valued at $1.6 million to BRE2 LLC, a joint venture between the Company and Stone Properties for 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 be approximately $4.1 million, and with approximately $2.2 million being our share of sales proceeds, which we expect to occur in late 2024 to mid-2025.

In August 2023, we received a return of restricted cash, in the amount of $20,000 that was held in escrow as part of a parcel sale transaction that did not close and was terminated in April 2023. The return of the $20,000 cash was included in operating revenues.

There were no significant real estate development expenditures during the years ended December 31, 2023 and 2022, respectively.

Real estate development and sales are cyclical and depend on several factors. Results for one period are therefore not necessarily 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 Lahaina wildfire have accelerated our efforts to get land into productive use to meet these critical needs.

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LEASING

Operating revenues from leasing activities for the year ended December 31, 2023, were comprised of $5.9 million from commercial, industrial, and agricultural leases, $0.8 million of licensing fees from our registered trademarks and trade names, $ 1.5 million from potable and non-potable water system sales and $0.3 million in grant revenue from the State of Hawai‘i for conservation management of our Pu‘u Kukui Watershed, compared to $6.1 million from commercial, industrial, and agricultural leases, $1.0 million of licensing fees from our registered trademarks and trade names, $1.0 million from potable and non-potable water system sales and $0.4 million for grant revenues from the State of Hawai‘i for conservation management for the year ended December 31, 2022.

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 was increasing 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 licensing revenues for tourism based tenants. Income recognized from percentage rents and land licensing in 2023 amounted to $2.2 million as compared to $2.9 million in 2022, a decrease of $0.7 million as a direct impact of the wildfires. Tourist traffic has started increasing again post wildfire, and as a result, it is anticipated that percentage rents will return to pre-wildfire levels in 2024 to 2025.

The increase in leasing operating costs and expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to higher property maintenance costs for our commercial leasing portfolio properties and the hiring of a property management and leasing firm to grow our leasing portfolio and the associated start-up costs and fees.

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

RESORT AMENITIES

Our Resort Amenities segment includes the operations of the Kapalua Club, a private, non-equity club providing its members special programs, 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 decrease in operating revenues for year ended December 31, 2023, compared to the year ended December 31, 2022, was due to the refunds of membership fees during a two-month period following the Maui wildfires on August 8, 2023 as Club operations were temporarily closed.

Contracted fee expenses increased for the year ended December 31, 2023, compared to the year ended December 31, 2022. However, with the closing of Club amenities as described above, the amenity fees were also suspended, resulting in a net decrease of operating costs in 2023 as compared to 2022.

The Club has undergone restructuring in 2023 and revised policies and practices have been implemented to reduce the impact of the amenity fees and to better match club dues with club expenses. The Club has begun accepting new membership applications beginning late 2023.

OTHER INCOME

Investment income of approximately $0.5 million and $0.1 million was earned from our money market and bond investment portfolio during the years ended December 31, 2023 and 2022, respectively

In July 2023, we received $0.2 million of cash collateral returned from an owner-controlled insurance program of our partnership interest in Kapalua Bay Holdings, LLC (“KBH”). The investment was previously written down to zero in 2009.

PENSION EXPENSE

The termination notification of the Qualified Plan originally made on August 31, 2023, was amended to November 30, 2023. The change in timing provides for the Company to do lump sum payments, the total to be determined by participant election, in the third or fourth quarters of 2024 and final annuitization of plan participants to take place in the first or second quarters of 2025. An estimated settlement charge (GAAP expense) between $7.0 million to $8.0 million will be recognized at the time of final annuitization and plan termination.

In November 2022, we signed a purchase agreement with an insurer to annuitize the scheduled pension payments of certain plan participants. Approximately $14.5 million were disbursed from plan assets for the group annuity contract. A settlement charge of $7.5 million was recognized in pension expense for the year ended December 31, 2022 as a result of the annuity purchase.

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SHARE-BASED COMPENSATION PLANS

The Company accounts for share-based compensation, including grants of restricted shares of common stock and options to purchase common shares, as compensation expense over the respective vesting periods in the consolidated financial statements based on their fair values on the grant dates. The impact of forfeitures that may occur prior to vesting is estimated and considered in the expense recognized.

INTEREST EXPENSE

There were no outstanding borrowings on our credit facility with a bank at December 31, 2023 and 2022. On December 31, 2023 and 2022, interest rates on our credit facility were 7.38% and 6.38%, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We had cash on hand of $5.7 million and $8.5 million at December 31, 2023 and 2022, respectively. We hold deposit accounts with several local banks in Hawai‘i. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. We rely on the financial strength and stability of these banks and have no reason to believe that our deposits would be unavailable on demand.

Our investments consisted of corporate bond securities maturing over various dates through June 2025. The fair value of our investments was $3.1 million at December 31, 2023. We intend to hold our bond investments until maturity.

We also had $15.0 million of available credit under a revolving line of credit facility with First Hawaiian Bank (the “Bank”) (the “Credit Facility”) as of December 31, 2023 and 2022, respectively. In 2021, we executed a Fourth Loan Modification Agreement and Second Amended and Restated Credit Agreement (collectively the “Agreements”) extending the maturity date of the Credit Facility to December 31, 2025. The Agreements provide revolving or term loan borrowing options. Interest on revolving borrowing is calculated based on 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 under the Credit Facility at December 31, 2023.

Cash Flows

Net cash flow provided by (used in) our operating activities totaled ($1.4) million and $6.3 million for the years ended December 31, 2023 and 2022, respectively.

Minimum funding contributions to our defined benefit pension plan were not required during the year ended December 31, 2023. A voluntary contribution of $5.7 million was made during the year ended December 31, 2022. No minimum funding contributions are required in 2024.

Interest income from our investment portfolio was $0.5 million and $0.1 million during the years ended December 31, 2023 and 2022, respectively. Our bond investments yielded approximately 5.7% and 5.0% in aggregate at December 31, 2023 and 2022, respectively.

Future Cash Inflows and Outflows

The Company entered into a joint venture, BRE2 LLC with Stone Properties, a Hawai‘i based LLC to develop and sell ranch lots in Hali‘imaile, Hawai‘i. We anticipate sales of the ranch lots to be $4.1 million and $2.2 million being our share of sales proceeds which will occur in late 2024 to mid 2025.

Land development costs to be capitalized are budgeted at $0.9 million, maintenance and capital expenditures on the Company’s operating assets are budgeted at $1.3 million and capital expenditures to the Company’s water assets and infrastructure is budgeted at $3.4 million in 2024.

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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 revolving 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 12 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

Our accounting policies are described in Note 1 to our financial statements set forth in Item 8 of this Annual Report. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as being critical to our financial statements are as follows:

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IMPACT OF INFLATION AND CHANGING PRICES

Most land holdings we own were acquired from 1911 to 1932 and are carried at cost. At the Kapalua Resort, some of the fixed assets were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if fixed assets were stated at current replacement cost.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2023, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the forward-looking statements disclaimer set forth at the beginning of this Annual Report, the risk factors set forth in Item 1A of this Annual Report, and our financial statements and the notes to those statements set forth in Item 8 of this Annual Report.

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RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2022 and 2021

CONSOLIDATED

REAL ESTATE

Real estate operating revenues include the sales of our real estate inventory. The increase in our consolidated operating income for the year ended December 31, 2022 compared to year ended December 31, 2021 was primarily attributed to the sales of real estate inventory during the year.

In June 2022, we sold approximately 50 acres in West Maui to the County of Maui for development of a regional park. Net proceeds of $1.9 million were collected upon closing.

In February 2022, we entered into an agreement to sell a 646-acre parcel of agricultural land in Upcountry Maui. Terms of the agreement, as amended, included a purchase price of $9.6 million, a diligence period of three months, and other customary closing conditions. Net proceeds of $9.2 million were collected upon closing in May 2022.

In December 2021, we sold to the County of Maui the fee simple interest in a 1.065-acre property in West Maui, otherwise known as Lot B-1 of the Gorilla Foundation Subdivision, for $0.1 million.

In November 2021, we received twelve residential workforce housing credits valued at $0.6 million pursuant to Maui County Code Section 2.96.050 from the buyer of a 5.27-acre parcel located in Kapalua Resort, also known as Site 6-0. As a condition of the sale in 2016, the buyer of the parcel was required to transfer these credits within five years of closing.

In June 2021, we sold and granted to a conservation organization a perpetual, non-exclusive conservation easement consisting of approximately 791 acres of unimproved land in Honolua Valley for $0.9 million. This easement permits the buyer right of entry to perform improvements to the property and enhance its conservation and preservation efforts in the area.

In May 2021, we sold the property commonly known as the Steeple House located in the Kapalua Resort for $1.8 million. The sale included the fee simple interest of the 1.1-acre parcel as well as buildings and improvements located on the property.

There were no significant real estate development expenditures during the years ended December 31, 2022 and 2021, respectively.

Real estate development and sales are cyclical and depend on several factors. Results for one period are therefore not necessarily indicative of future performance trends in this business segment.

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LEASING

Operating revenues from leasing activities for the year ended December 31, 2022, were comprised of $6.5 million from commercial, industrial, and agricultural leases, $1.0 million of licensing fees from our registered trademarks and trade names, and $1.0 million from potable and non-potable water system sales compared to $6.2 million from commercial, industrial, and agricultural leases, $0.7 million of licensing fees from our registered trademarks and trade names, and $1.2 million from potable and non-potable water system sales for the year ended December 31, 2021.

The elimination of COVID-19 related travel restrictions and social distancing measures resulted in increased visitor traffic to the island of Maui. Income recognized from our commercial leasing portfolio was correspondingly higher for the year ended December 31, 2022 compared to the year ended December 31, 2021, specifically higher percentage rental income. Certain rental income is contingent upon the sales of the tenant exceeding a defined threshold and recognized as a percentage of sales after those thresholds are achieved. Percentage rental income was $1.9 million and $1.5 million during the years ended December 31, 2022 and 2021, respectively.

The increase in leasing operating costs and expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to higher property maintenance costs for our commercial leasing portfolio properties.

Our leasing operations face substantial competition from other property owners in Maui and Hawaii.

RESORT AMENITIES

Our Resort Amenities segment includes the operations of the Kapalua Club, a private, non-equity club providing its members special programs, access and other privileges at certain of the amenities at the Kapalua Resort including a 30,000 square foot full-service spa, 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 decrease in operating revenues for year ended December 31, 2022, compared to the year ended December 31, 2021, was due to lower membership levels of the Kapalua Club.

Contracted fee expenses correspondingly increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to higher contracted golf course fees charged to the Company.

Member dues may be affected in future periods depending on the impact of COVID-19 on public health measures and travel regulations.

OTHER INCOME

We earned approximately $67,000 of investment income from our interest-bearing cash and investment accounts established in October 2022.

In March 2021, we received a final closing distribution of $13,000 from our 51% ownership interest in Kapalua Bay Holdings, LLC (“KBH”). The investment was previously written down to zero in 2009.

PENSION EXPENSE

In November 2022 and 2021, the Company signed purchase agreements with insurers to annuitize the scheduled pension payments of certain plan participants. Approximately $14.5 million and $10.5 million were disbursed from plan assets for the group annuity contracts in 2022 and 2021, respectively. Settlement charges of $7.5 million and $4.3 million were recognized in pension expense for the years ended December 31, 2022 and 2021, respectively, as a result of the annuity purchases.

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INTEREST EXPENSE

There were no outstanding borrowings on our credit facility with a bank at December 31, 2022 and 2021. Interest expense for the years ended December 31, 2022 and 2021 were zero and $0.1 million, respectively. On December 31, 2022 and 2021, interest rates on our credit facility were 6.38% and 2.12%, respectively.

DISCONTINUED OPERATIONS

In December 2019, we entered into an Asset Purchase Agreement (“Agreement”) to sell the assets of Kapalua Water Company, Ltd. (“KWC”) and Kapalua Waste Treatment Company, Ltd. (“KWT”) located in the Kapalua Resort subject to certain closing conditions, including completion of due diligence and approval by the State of Hawaii Public Utilities Commission (“PUC”). In March 2021, the sale was approved by the PUC subject to certain closing conditions of its Decision and Order. The Company received net proceeds of approximately $4.2 million upon closing of the sale in May 2021.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We had cash on hand of $8.5 million and $5.6 million at December 31, 2022 and 2021, respectively. We hold deposit accounts with several local banks in Hawaii. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. We rely on the financial strength and stability of these banks and have no reason to believe that our deposits would be unavailable on demand.

Our investments consisted of corporate bond securities maturing over various dates through February 2024. The fair value of our investments was $3.0 million at December 31, 2022. We intend to hold our bond investments until maturity.

We also had $15.0 million of available credit under a revolving line of credit facility with First Hawaiian Bank (“Credit Facility”) as of December 31, 2022 and 2021, respectively. In 2021, we executed a Fourth Loan Modification Agreement and Second Amended and Restated Credit Agreement (“Agreements”) extending the maturity date of the Credit Facility to December 31, 2025. The Agreements provide revolving or term loan borrowing options. Interest on revolving borrowing is calculated based on 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 under the Credit Facility at December 31, 2022,

Cash Flows

Net cash flow provided by our operating activities totaled $6.3 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively. Net proceeds from sales of real estate were approximately $11.2 million and $2.7 million for the years ended December 31, 2022 and 2021, respectively.

Voluntary contributions of $5.7 million and $1.0 million were made to our defined benefit pension plan during the years ended December 31, 2022 and 2021, respectively. A minimum funding contribution of $0.6 million was also made in January 2021. No minimum funding contributions are required in 2023.

In October 2022, we invested $3.0 million of our increased cash balance from operating cash flows in shorter term bond securities. These bond investments yielded approximately 4.98% in aggregate at December 31, 2022.

Future Cash Inflows and Outflows

In December 2021, we entered into an agreement to sell the Kapalua Central Resort property 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 (5) five-year extension of a Special Management Area (“SMA”) permit issued by the County of Maui by April 10, 2023. If the extension is not approved by April 10, 2023, the purchase agreement will terminate. If the extension is approved, the closing date is expected to be no later than (30) thirty days after the date of the extension approval.

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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 cash equivalents balances, cash provided from ongoing operating activities, and available borrowings under our revolving credit facility, will provide sufficient liquidity to enable us to meet our working capital requirements, contractual obligations, and timely service our debt obligations for at least the next 12 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

Our accounting policies are described in Note 1 to our financial statements set forth in Item 8 of this Annual Report. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as being critical to our financial statements are as follows:

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IMPACT OF INFLATION AND CHANGING PRICES

Most land holdings we own were acquired from 1911 to 1932 and are carried at cost. At the Kapalua Resort, some of the fixed assets were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if fixed assets were stated at current replacement cost.

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2022, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the forward-looking statements disclaimer set forth at the beginning of this Annual Report, the risk factors set forth in Item 1A of this Annual Report, and our financial statements and the notes to those statements set forth in Item 8 of this Annual Report.

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RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2021 and 2020

CONSOLIDATED

REAL ESTATE

Real estate operating revenues include the sales of real estate inventory and sales commissions from resales of properties by our wholly owned subsidiary, Kapalua Realty Company, Ltd.

In May 2021, we sold the property commonly known as the Steeple House located in the Kapalua Resort for $1.8 million. The sale included the fee simple interest of the 1.1 acre parcel as well as buildings and improvements located on the property.

In June 2021, we sold and granted to a conservation organization a perpetual, non-exclusive conservation easement consisting of approximately 791 acres of unimproved land in Honolua Valley for $0.9 million. This easement permits the buyer right of entry to perform improvements to enhance and improve conservation and preservation efforts to the property. Limited commercial activity relating to conservation education, guided hikes and eco-tourism site visits are permitted.

In November 2021, we received twelve residential workforce housing credits valued at $0.6 million pursuant to Maui County Code Section 2.96.050 from the buyer of a 5.27 acre parcel located in Kapalua, also known as Site 6-0. As a condition of the sale in 2016, the buyer of the parcel was required to transfer these credits within five years of closing.

In December 2021, we sold to the County of Maui the fee simple interest in a 1.065 acre property in West Maui, otherwise known as Lot B-1 of the Gorilla Foundation Subdivision, for $0.1 million.

In December 2020, we sold to the County of Maui a 5.1 acre, agricultural zoned parcel in West Maui for $0.6 million expanded storage capacity of its recycled water system.

During the six months ended June 30, 2020, Kapalua Realty Company, Ltd., provided licensed, general brokerage services for properties in the Kapalua Resort and surrounding areas. We earned sales commissions of $0.2 million during the year ended December 31, 2020. Effective July 1, 2020, we entered into an office lease agreement and license agreement with a real estate company to provide general brokerage services to the area. Under terms of the license agreement, monthly royalty fees are received for the use of certain of our trademarks. No sales commissions were earned during the year ended December 31, 2021.

Real estate development expenditures were $0.1 million and $0.4 million during the years ended December 31, 2021 and 2020, respectively.

Real estate development and sales are cyclical and depend on several factors. Results for one period are therefore not necessarily indicative of future performance trends in this business segment.

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LEASING

Leasing operating revenues for the year ended December 31, 2021, were comprised of $6.2 million from commercial, industrial, and agricultural leases, $0.7 million of licensing fees from our registered trademarks and trade names, and $1.2 million from potable and non-potable water system sales. This compares to $4.3 million from commercial, industrial, and agricultural leases, $0.5 million of licensing fees from our registered trademarks and trade names, and $1.1 million from potable and non-potable water system sales for the year ended December 31, 2020.

The increase in leasing operating revenues for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to higher percentage rental income from our commercial leasing portfolio. Certain rental income is contingent upon the sales of the tenant exceeding a defined threshold and recognized as a percentage of sales after those thresholds are achieved. Percentage rental income was $1.5 million and $0.4 million during the years ended December 31, 2021 and 2020, respectively. The impact of COVID-19 travel restrictions and social distancing measures reduced visitor traffic on the island of Maui which affected tenants’ sales in 2020. Rent abatements of $0.4 million were granted to tenants during 2020.

The increase in leasing operating costs and expenses for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to higher repairs and maintenance costs for our commercial leasing portfolio properties. In addition, expenses related to the repair of non-potable irrigation ditch and transmission systems damaged from Tropical Storm Olivia in October 2018 were reduced by insurance reimbursements of $0.2 million in 2020.

Our leasing operations face substantial competition from other property owners in Maui and Hawaii.

RESORT AMENITIES

Our Resort Amenities segment includes the operations of the Kapalua Club, a private, non-equity club providing its members special programs, access and other privileges at certain of the amenities at the Kapalua Resort including a 30,000 square foot full-service spa, 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.

Kapalua Club membership dues rates were increased for the year ended December 31, 2021 to offset higher contracted fee expenses. During a portion of the year ended December 31, 2020, access to certain facilities and amenities was restricted due to public health measures and regulations related to COVID-19. As a result of these facility closures, a partial refund of member dues was issued resulting in lower than anticipated operating revenues in 2020.

Contracted fee expenses correspondingly increased for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to higher contracted golf course fees charged to the Company.

Member dues may be affected in future periods depending on the impact of COVID-19 on public health measures and travel regulations.

OTHER INCOME

We held a 51% ownership interest in Kapalua Bay Holdings, LLC (“KBH”). In 2009, the investment was written down to zero. In May 2020, as part of the dissolution of KBH, we received $0.9 million as a return of cash collateral related to an owner-controlled insurance program. We received final closing distribution of $13,000 from KBH in March 2021.

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PENSION EXPENSE

In November 2021, the Company signed a purchase agreement with an insurer to annuitize the scheduled pension payments of 384 participants currently receiving benefits. Approximately $10.4 million was paid to the insurer from plan assets for the group annuity contract. A settlement charge of $4.3 million was recognized in pension expense as a result of the annuity purchase.

INTEREST EXPENSE

In 2021 and 2020, our interest expense was approximately $0.1 million. At December 31, 2021 and 2020, the interest rate on our Credit Facility with First Hawaiian Bank was 2.12% and 3.65%, respectively.

DISCONTINUED OPERATIONS

In December 2019, we entered into an Asset Purchase Agreement (“Agreement”) to sell the assets of Kapalua Water Company, Ltd. (“KWC”) and Kapalua Waste Treatment Company, Ltd. (“KWT”) located in the Kapalua Resort subject to certain closing conditions, including completion of due diligence and approval by the State of Hawaii Public Utilities Commission (“PUC”). As part of the agreement, the purchaser commited to serve the future expansion areas of Kapalua as they are developed. In return, we agreed to deliver water from our wells and ditches to certain delivery points at defined rates over an initial period of 20 years from the date of closing. The purchase price did not include approximately $3.6 million of water system infrastructure and other related assets conveyed to us by the owner of a 125-acre portion of the Kapalua Mauka project.

Upon entering the Agreement, these assets were classified as held for sale, written down to their fair value, and included in discontinued operations for the years ended December 31, 2021 and 2020.

In March 2021, the sale was approved by the PUC subject to certain closing conditions of its Decision and Order. The Company received net proceeds of approximately $4.2 million upon closing of the sale in May 2021.

IMPACT OF COVID-19

In March 2020, the Governor of the State of Hawaii issued “stay-at-home” orders for its residents and visitors, followed by subsequent “safer-at-home” and “act with care” proclamations in response to the COVID-19 pandemic. In addition, the Governor issued emergency proclamations, pursuant to which all transpacific passengers into the State of Hawaii were required to self-quarantine upon entry. Beginning in October 2020, travelers to the State of Hawaii were able avoid the 10-day quarantine requirement under a pre-travel testing program by presenting a proof of a negative result from a valid COVID-19 Nucleic Acid Amplification Test. Throughout the year ended December 31, 2021, several state and local laws have eased social distancing guidelines and travel restrictions, including the elimination of quarantine restrictions for domestic travelers by providing evidence of full vaccination.

However, the ongoing impacts and disruptions caused by the COVID-19 pandemic in the geographic region in which we operate remain uncertain as of the date of this filing. State and local regulations and measures, including physical distancing, capacity, and proof of vaccination requirements at certain establishments, are periodically adjusted based on public health data such as positivity rates, vaccination counts, and hospital occupancies. The extent to which the COVID-19 pandemic will impact our business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors. These include the duration and extent of the COVID-19 pandemic, the development of new variants of the COVID-19 virus that may be more contagious or virulent than prior versions, the scope of mandated or recommended containment and mitigation measures, the effect of government stabilization and recovery efforts, and the success of vaccine distribution programs.

We continue to monitor the effects of the COVID-19 pandemic on us, our customers, and our vendors. While we are not able to accurately predict the magnitude or scope of such impacts at this time, should the existence of the COVID-19 pandemic continue for an extended period, our future business operations, including the results of operations, cash flows and financial position will be significantly affected. Appropriate remote work arrangements continue to be established for our employees in order to maintain our financial reporting systems.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We had cash on hand of $5.6 million and $0.9 million as of December 31, 2021 and 2020, respectively. We also had $15.0 million and $14.8 million of available credit under a $15.0 million revolving line of credit facility with First Hawaiian Bank (“Credit Facility”) as of December 31, 2021 and 2020, respectively.

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On December 23, 2021, we executed a Fourth Loan Modification Agreement and Second Amended and Restated Credit Agreement (“Agreements”) extending the maturity date of the Credit Facility to December 31, 2025. The Agreements provide revolving or term loan borrowing options. Interest on revolving borrowing is calculated based on 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.

As of December 31, 2021, we were in compliance with the covenants under the Credit Facility.

Cash Flows

Net cash flow provided by our operating activities totaled $1.4 million for the year ended December 31, 2021. Interest payments on our long-term debt totaled $9,000 for the year ended December 31, 2021.

Minimum funding contributions of $0.6 million were made to our defined benefit pension plan in January 2021. We made an additional voluntary contribution of $1.0 million to the plan in August 2021. We are not required to make any additional contributions in 2022.

Future Cash Inflows and Outflows

In December 2021, the Company entered into a purchase and sale agreement in an amount of $40.0 million for a 46-acre parcel located within Kapalua Central Resort. The sale is subject to customary diligence and closing conditions. We anticipate the transaction to close no later than March 31, 2022.

In February 2022, we entered into an agreement to sell a 646-acre parcel located in Upcountry Maui for $9.7 million. Terms of the agreement include a 30-day due diligence period, a closing date 30 days after the last day of the due diligence period, and other customary closing conditions. A $2.0 million refundable deposit was received into escrow.

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.

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

Our accounting policies are described in Note 1 to our financial statements set forth in Item 8 of this Annual Report. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of accounting estimates. Some of these estimates and assumptions involve a high level of subjectivity and judgment and therefore the impact of a change in these estimates and assumptions could materially affect the amounts reported in our financial statements. The accounting policies and estimates that we have identified as being critical to our financial statements are as follows:

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IMPACT OF INFLATION AND CHANGING PRICES

Most of the land we own was acquired from 1911 to 1932 and is carried at cost. At the Kapalua Resort, some of the fixed assets were constructed and placed in service in the mid-to-late 1970’s. Depreciation expense would be considerably higher if fixed assets were stated at current replacement cost.

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OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2021, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.