Kaanapali Land - KANP

Being somewhat of a business history nerd (perhaps the least sympathetic or relatable type of nerd) I am always intrigued when I happen across a company that represents the last public vestige of a once-great corporate empire. I own a few of these (one being Retail Holdings NV, the modern remnant of the mighty Singer Manufacturing Company) and beyond the monetary gain I hope to achieve, I also get an odd sense of participation in American and world economic history. (Again, not that sympathetic or relatable.)

One such company is Kaanapali Land LLC. "KLL" traces its roots all the way back to 1849, when German boat captain Heinrich Hackfeld arrive in Hawaii and started a general store. The store was a success, and Hackfeld expanded into many other ventures, including lodging, sugar production, and import/export activities. H. Hackfeld & Company eventually became one of Hawaii's largest land-owners, at one point holding 60,000 acres. All was well until World War I, when the US government confiscated the company under the "Trading with the Enemy Act." At the time, the loyalties of German-Americans, even those who had been US residents for generations, were considered suspect. The government auctioned the company's assets to a group of Hawaiian businessmen, who renamed the business "American Factors." The company's sugar business grow rapidly and was the company's main source of profits until Hawaiian tourism took off in the 1960s. American Factors profited handsomely by expanding its lodging and resort operations and by selling land for development. Over the next few decades, American Factors (renamed "Amfac" to match corporate conventions of the time) followed the 60s and 70s playbook of continual expansion into a wide range of unrelated industries. As often happened in such cases, Amfac eventually found itself unfocused and over-leveraged. A series of divestitures and complicated transactions meant to fend off hostile takeovers left the company less indebted but still not reliably profitable. Multiple loss-making years eventually forced the company to accept a $920 million buyout offer from a major Chicago-based real estate company, JMB Realty. JMB set about slimming Amfac down to its agricultural and property development roots, hiving off or selling all the mainland operations and contributing various other Hawaiian assets to other JMB companies. Unfortunately, sugar production in Hawaii was in terminal decline and Amfac Hawaii declared bankruptcy in 2002.

Amfac Hawaii emerged from bankruptcy in 2005 as Kaanapali Land, LLC. 167 years after Herr Hackfeld opened his shop on Maui, what remains in Kaanapali is 4,000 acres of Maui land, some $25 million in cash, a $22 million pension surplus, and various minor current assets and liabilities. The company's only activities are managing and monetizing its remaining real estate, as well as dealing with some residual legal actions related to bankrupt subsidiaries that are now in liquidation. The company is working on gaining approvals for its Ka'anapali 2020, Wain'e, and Pu'ukoli'i Village developments, and it has successfully created an innovative agricultural/residential development in Ka'anapali Coffee Farms. Of the 51 lots at Ka'anapali Coffee Farms, 12 are still available for purchase.

The company's website contains detailed project plans for each development, with videos and maps.

In all, the three proposed developments will account for just over half of Kaanapali's developable land. (Of the company's 4,000 acres, 1,500 are protected conservation lands.) Problem is, approvals for new development can take a long time in Hawaii, where a fraught history often results in strong local opposition to real estate projects. Kaanapali has made great efforts to work with the local community in planning these developments, including committing to infrastructure improvements and affordable housing. But that is no guarantee that actual development will begin soon, or at all.

Interestingly, Kaanapali has disclosed that it signed an agreement with a third party to sell all of its landholdings for $95 million in January, 2016. However, the unidentified buyer eventually backed out and the deal fell through. The company also had an agreement to sell its Pioneer Mill site (essentially, the proposed Wain'e development) for $20.5 million, but that deal also fell through. The proposed sale price for all of Kaanapali's acreage works out to $38,000 per acre. The price for the 200-acre Pioneer Mill site alone was $102,500 per acre. Though neither deal actually went through, the failed transactions provide a helpful yardstick for valuing Kaanapali's land.

At the current trading price, investors in Kaanapali are buying developable Maui land at a price of just $10,900 per acre, net of corporate cash. If we credit the company for its pension surplus, the effective price falls to just $2,100 per acre. (Crediting the company for the full value of its pension surplus is dubious, as actually accessing a pension asset is a difficult proposition.) Either price is a fraction of what the land is likely worth, but then again there is substantial doubt as to the feasibility and timing of actually developing that land. Still, I don't know of a cheaper way to buy Maui land, even if indirectly.

Potential investors in Kaanapali should be aware that the company is not current on its financial filings, though it is working on filing updated annual and quarterly reports. The company neglected to file these reports for some time, though it has nearly 700 shareholders of record. An SEC notification set the company on the path toward current filing status. (Turns out, there is a point at which the SEC will intervene on behalf of shareholders in an unlisted company. Who knew?) The most recent financial statement data is as of June 30, 2015, though the company has disclosed all material events since that date. Potential investors should also be keenly aware that realizing value from Kaanapali's assets could take an extremely long time, if it ever happens at all. Finally, potential investors should consider Kaanapali's extremely tiny float: only about 330,000 units are free-floating, with a current value of around $10 million.

Author David Waters owns one unit of Kaanapali Land, LLC, so he can talk about his getaway in Maui.