Description

Introduction: Kaanapali Land (“KANP” or the “Company”) is an extremely illiquid and underfollowed company that owns approximately 3,900 acres of land on the island of Maui in the state of Hawaii.  The Company’s land holdings are primarily located near the resort community of Kaanapali and include several parcels suitable for development.  Kaanapali Land also conducts agricultural operations which primarily consist of the cultivation and sale of coffee.  Kaanapali Land was formerly known as Amfac Inc. (previously American Factors) and at its peak was the dominate sugar producer in Hawaii with over 60,000 acres of land.  In 2000, Amfac ceased sugar operations.  In 2002, Amfac filed for bankruptcy with Kaanapali Land emerging as the surviving entity.  Kaanapali Land is currently controlled and run by JMB Realty, a Chicago real estate company.  Kaanapali Land currently has a market capitalization of $59 million and with $23.5 million in cash has an enterprise value of just $35.5 million. 

For years, Kaanapali Land muddled along as its land development plans were repeatedly delayed due to the challenging regulatory environment in Hawaii.  In August 2023, the Maui wildfires destroyed the town of Lahaina.  The Company’s corporate headquarters and coffee mill operations that were located on a 20-acre parcel of industrial land in Lahaina were also destroyed in the fire.  As the rebuilding process for Lahaina commenced, the Company’s land holdings have received significant attention from developers and outside investors.  Kaanapali Land responded to the increase in demand by agreeing to sell two parcels of land at premium prices.  On June 3, 2024, the Company announced that it had agreed to sell its 241-acre Puukolii Village development for $29.9 million (plus potential royalties).  On June 13, 2024, the Company agreed to sell the 20-acre Pioneer Mill site in Lahaina for $20 million.  The combined potential sale proceeds of $49.5 million nearly equal the Company’s current market cap of $59 million and easily exceed the Company’s current enterprise value of $35.5 million (KANP has $23.5 million in cash).  Following the expected sale of these two properties, the Company will continue to own 3,600 acres of pristine Hawaiian real estate. With few development projects remaining, Kaanapali Land could be in a position return capital to shareholders and pursue strategic alternatives to maximize value for the remainder of the Company. 

Source: http://www.kaanapalidevelopment.com/images/2020_map.pdf

Puukolii Village Development: Puukolii Village is a 241-acre residential development site located adjacent to the resort community of Kaanapali and just south of the Company’s Kaanapali Coffee Farms development.  Puukolii Village is fully entitled, and the engineering and development plans have been completed.  The master plan includes 20 developable parcels with plans for 940 residential units including a mix of affordable and market priced homes.  On June 3, 2024, the Company entered into an agreement to sell Puukolii Village for a base sales price of $29.9 million ($124,000/acre).  The agreement assumes the development of a 940-unit subdivision and includes a density adjustment payment to Kaanapali Land for each additional unit in which the buyer obtains building permits.  Additionally, Kaanapali Land is entitled to 2.5% of the sales price of each market priced unit sold.  We expect the average price of a market priced home in Maui to exceed $1 million, which could make the royalty payments quite valuable to the Kaanapali Land.  The deal is scheduled to close by October 11, 2024 (30 calendar days after the expiration of a 100-day due diligence period commencing June 3, 2024). 

Pioneer Mill: Kaanapali Land owns 20 acres of land in Lahaina known as the Pioneer Mill site.  The land is primarily zoned industrial and was the former location of the Company’s corporate headquarters and coffee mill operations.  These facilities were destroyed by the Lahaina wildfire.  The Army Corps of Engineers has leased the Pioneer Mill site which is currently being utilized to facilitate the cleanup of Lahaina.  On June 13, 2024, Kaanapali Land entered into an agreement to sell the Pioneer Mill site for $20 million ($1 million/acre).  The due diligence period commenced on June 13, 2024, and expires in ninety calendar days.  The buyer has an additional option to conduct environmental testing for a 120-calendar day period following the termination of the lease by the Army Corps of Engineers.  Industrial-zoned land is quite rare in Maui and has historically commanded a valuation of around $1 million / acre. 

Additional Potential Development - Kaanapali Coffee Farms II: The Company is in the planning stages for the development of a 295-acre parcel of land known as Kaanapali Coffee Farms phase II.  The parcel is comprised of 61 agricultural lots that will be offered to individual buyers.  The Company has submitted finalized plans to the County of Maui and believes that the final approval letter is pending.  The second phase of the project is located adjacent to the Company’s successful development known as Kaanapali Coffee Farms.  Phase I consisted of 52 agricultural lots ranging from 4 to 8 acres in size.  The land buyers obtain the right to construct a residence on the land while the Company retains the right to grow and cultivate coffee on the property.  The average purchase price of these 52 lots was approximately $850,000 and many of the buyers have since constructed luxury homes on their lots.   Upon county approval, the Company should be able to market the Coffee Farms II lots to potential buyers, and we expect the 61 lots could command prices north of $1 million/lot.  

Source: https://nicolekovachhomes.com/neighbourhood-a/

Remaining Land: In addition to the Puukolii Village, Pioneer Mill, and Kaanapali Coffee Farms Phase II developments, the Company has an additional 3,300 acres of land on Maui.  Of this remaining land, approximately 1,500 acres is conservation land which precludes development.  The Company also owns approximately 900 acres of land included in the Kaanapali 2020 Development Plan, a long-term development plan for the Company’s land holdings adjacent to Kaanapali.  The remaining approximately 900 acres is primarily agricultural land.  These land holdings all have ocean views, amazing weather, and are in close proximity to the beaches of Kaanapali. 

Insurance Proceeds: The Lahaina fires caused significant damage to the Company’s properties including the destruction of the corporate headquarters, coffee mill operations, and various other structures.  Kaanapali Land had insurance on these properties and has filed claims with its insurance carriers.  In October 2023, the Company received an initial advance payment of $1 million from one of its insurance carrier.  In light of the $1 million advance payment, it is likely that the Company receives additional sizeable insurance payments given the level of destruction and loss caused by the fire. 

Corporate Governance / Potential Sale:  Kaanapali Land is a controlled company with Pacific Trail Holdings, LLC and its affiliates owing almost 82% of the common shares.  Pacific Trail Holdings is an affiliate of JMB Realty Corporation, a Chicago-based real estate company.  JMB Realty also provides management, insurance, and other administrative services to Kaanapali Land.  Controlled companies typically present numerous corporate governance concerns, but we believe JMB Realty wishes to maximize the value of its investment.  Of note, in late 2015 and early 2016, Kaanapali Land entered into contracts to sell all of the Company’s land holdings for $115.5 million (~$62/share in value).  We do not think these sales would have been initiated if JMB wished to run the Company in perpetuity.  Additionally, over the last decade the Company has removed many of the potential obstacles that could have impeded a full sale of the Company.  These actions include immunizing the pension plan, settling outstanding lawsuits, and curing prior environmental liabilities.  We suspect there are numerous developers and high-net worth individuals that would be interested in part or all of the Company’s remaining land holdings.  Additionally, the Company’s lands share an extended border with land owned by Maui Land & Pineapple (MLP), another publicly traded company.  A merger between Kaanapali Land and Maui Land & Pineapple would likely create significant synergies and allow for a more coordinated approach in future land development. 

Capital Allocation:  The proposed sales of Puukolii Village and Pioneer Mill would result in a cash inflow of nearly $50 million for Kaanapali Land.  While the land holdings at both locations likely have a low tax basis, the Company has significant Federal NOLs that should offset much of the taxable gains associated with a sale.  The sale of these properties would also greatly reduce the future capex spending that would have been required to develop these projects internally.  While the future allocation of these cash proceeds remains uncertain, given the lack of liquidity in the stock and the controlled nature of the Company, we believe that large, special dividends could be the best option to return significant capital to Company shareholders.

Valuation:  We value Kaanapali Land at a price of approximately $64/share (over 100% upside), equivalent to a market capitalization of $118.8 million.  The value includes $29.5 million for Puukolii Village, $5.5 million for potential royalty payments at Puukolii Village, $20 million for the Pioneer Mill site, $20 million for Kaanapali Coffee Farms Phase 2, $30 million for the Company’s remaining 1,800 acres ($15,000/acre) and $23.5 million for cash on the balance sheet.  No value is assigned for either the Company’s conservation land or potential future insurance proceeds.  Cash taxes are estimated using a 25% tax rate offset by a $20 million basis and $40 million in NOLs.  At the current share price, we see attractive upside combined with the potential for a large return of capital to shareholders.  We see minimal downside or risk of a permanent loss of capital (even if the current transactions do not close) given the Company’s net cash balance sheet and significant land holdings. 

Catalyst

Closure of asset sales, receipt of property insurance payments, special dividends, other strategic alternatives