Your gift: MLP

[BlueHorseshoe]

Never, ever take a stock tip.

This isn't a stock tip.

I'm only prompting you to read this company's latest 10-K (2007 annual report), which you can get at the SEC Edgar website, to confirm for yourself the summary of my findings below:

Maui Land & Pineapple (MLP) has BV of ~14.3/share. 52% of that BV is land and property. Land holdings principally comprise about 23,000 acres on the island of Maui, including a huge stretch of beachfront property. (The state of Hawai'i retains ownership of all state beaches - essentially the sandy part.)

Three main points, to keep this simple:

1. The land is carried at cost - cost the company incurred over 1911-1930 when it acquired the property.

2. Maui has a finite amount of property - they just ain't makin' no more. (On the Big Island the Kilauea Volcano continues to produce some landmass, but that is a different island altogether, and lava floes are not habitable for generations.)

3. MLP is current selling at under $10/sare, or a 70% discount to BV. Consider that land value is grossly understated, and it is clear MLP is selling at a 50% (or larger) discount to BV.

You might note that a number of value investors already own this stock: DFA, Advisory Research, River Road. That is how they make money. They buy companies like MLP, and then sit on their hands for several years while they watch their investment multiply. And they take their vacation at the Kapalua Resort, which is an MLP property.

You are welcome.

 

[ASav]

I appreciate the analysis and it sounds like a good play but, I have a feeling you secretly want to be living on that beach in Maui instead of just buying shares of MLP!

 

[BlueHorseshoe]

Quote from ASav:

I appreciate the analysis and it sounds like a good play but, I have a feeling you secretly want to be living on that beach in Maui instead of just buying shares of MLP!

Well, I do want to be living on that beach ... but the cursory analysis can more than stand on its own.

Doing some further reading, I see MLP has some residential projects under construction. They are ~+80% complete, but Lehman was providing the construction loan. Has thrown a temporary wrench in the near-term 'story' but provides a great entry.

Also just notice AOL founder and Hawai'i native Steve Case owns 46% of MLP. No skin off my back ...

I'll buy Hawai'i land at a a fraction of its value any chance I can get.

 

[BlueHorseshoe]

Quote from BlueHorseshoe:

3. MLP is current selling at under $10/sare, or a 70% discount to BV ...

Oops. Everyone here knows I meant 30% right? 10/14 is a ~30% discount.

Who am I kidding, daytraders don't care about buying something for less than it is worth. They'd rather buy something that just might go up ... Hahaha!

 

[BlueHorseshoe]

Just revisiting performance here. My original post was on Saturday, Nov 22 so I measure performance from the following Monday's close:
MLP RUT
Nov 24 closing price: 10.9
Dec 19 closing price: 11.6
Change: 10.7%

RUT
Nov 24 closing price: 437
Dec 19 closing price: 486
Change 11.3%

So it looks like we've done alright, but could have done just as well buying the average small cap stock. (MLP market cap ~$95-mil.) Just a couple points to note:

A. Relative returns don't pay the bills - absolute returns do. Anyway, it is very difficult to predict WHEN fundamentals will be more accurately priced into a particular stock. I don't wring my hands over relative performance, but just posting here for information purposes.

B. What makes MLP particularly attractive is its defensive characteristics, which many RUT stocks don't share. That defensive quality only reflects in share price during market weakness. The last month has not been relatively week - stocks are up - so we're very happy with the call.

Book value remains well north of $14/share. I will hold until I get a price somewhere over $20 before I'll consider selling.

 

[Div_Arb]

Not to burst your bubble, but MLP has $13.78 per share in long term debt - a debt to equity ratio af about 1. It sees that MLP's management is literally mortgaging the farm! To make matters worse, they have like 60 cents per share in cash on the books, meaning a low coverage ratio. Oh, and looking at the income statement, this company has negative cash flow and can't even cover their SG&A. Best of luck!

 

[BlueHorseshoe]

Quote from Div_Arb:

Not to burst your bubble, but MLP has $13.78 per share in long term debt - a debt to equity ratio af about 1. It sees that MLP's management is literally mortgaging the farm! To make matters worse, they have like 60 cents per share in cash on the books, meaning a low coverage ratio. Oh, and looking at the income statement, this company has negative cash flow and can't even cover their SG&A. Best of luck!

Div,

It would take more than a cursory look at the balance sheet to shake me out of MLP, but nice try. Great values don't appear out of thin air - there has to be a whiff of bad news to keep the superficial onlookers away and knock the share price down.

In this thread I've focused exclusively on the value of MLP's raw land holdings because it is a simple asset comprising ~50% of book value, and is grossly understated at 1920-era land prices. If you look at a few recent MLP land sales, they are booking healthy gains in the triple-digit percentile range.

But the debt to which you refer relates to several improvements MLP has made to its properties - primarily its Kapalua Resort development:

http://www.kapalua.com/about_kapalua/

The Ritz-Carlton Kapalua is the centerpiece of the development. Its a AAA Five-Diamond 463-room hotel with sunset ocean views and overlooks the neighboring islands of Moloka‘i and Lana‘i. The entire resort just completed a $180-mil refurbishment. The company is also wrapping up construction of luxury homes and villas on subdivisions surrounding the Resort. Kapalua is regularly rated Hawaii's #1 golf resort, and the resort's Fleming beach has been rated #1 in the nation.

The stock has been hit for two reasons: Hawaii tourism is in the dumps due to economic strife on the mainland, and a credit line to fund construction was provided by LEH, but was pulled before MLP fully drew the funds to finish a final phase of construction.

It's a great 'value' stock, by which I mean a great risk/reward profile at current price levels.

These are all short term issues - the kinds that provide a great entry for patient investors ... err, 'traders'. Quick ratio is about 1.4 - no problem. You mentioned coverage ratio and, recent lack of operating income and negative cash flow. I think I've addressed all this, in that recent results have been driven by ongoing refurbishment at the resort, which kept bookings down, refurbishment costs, which are now behind us, and up-front construction costs on incredible Hawaii coastal homes and villas.

Maui land is a finite commodity many would do well to hold in their portfolio. MLP currently presents an attractive vehicle to do so.