After markets closed on a Friday Maui Land & Pineapple Company, Inc. (MLP), a residential, resort, commercial, agricultural, and industrial real estate developer, revealed it would restate its financials after the SEC disagreed with the company’s characterization of a revenue misstatement as immaterial.

In 2023, Maui overstated revenue by $1.6 million— or 17.2%.

The company waited until after the market closed on a Friday to disclose the news despite learning of the SEC’s disagreement seven days earlier (January 3, 2025).

The regulatory scrutiny began after Maui contributed a 30-acre parcel of land in Haliimaile, Hawaii to its BRE2 LLC joint venture.

The company classified the equity contribution as operating revenue, which prompted the SEC to examine the treatment.

Maui’s after hours disclosure revealed this:

“In subsequent discussions and correspondence with the SEC, the Company concluded that the $1.6 million land contribution originally classified as operating revenue within the Land Development and Sales business segment should have been reported as a gain on the derecognition of a land asset rather than operating revenue.”

The company concluded the error was immaterial, which would allow it to avoid a restatement.

The determination prompted another letter from the SEC and ultimately resulted in Maui relenting and agreeing to a restatement:

“On January 3, 2025, following receipt of a further comment letter, in which the SEC informed the Company it disagreed with its materiality conclusion, the Board, after discussions with senior management, Accuity LLP, the Company’s independent registered public accounts (“Accuity”), and outside counsel, concluded that the Company’s previously issued audited consolidated financial statements as of and for the fiscal year ended December 31, 2023, should no longer be relied upon as a result of the error in recognition of operating revenue described above.”

It’s not the first time Maui has struggled with its accounting.

In August 2024, the company was unable to file its second quarter report on time after its auditor requested additional time following the cancellation of equity awards and the impact on compensation expense.

With an Enterprise Value (EV) of approximately $373.8 million, Maui is priced as if it will grow annual sales to more than $200 million, up from an estimated $10.5 million in 2024. To justify its current share price of $19.05 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Maui must:

—Grow sales 35% annually for the next decade, significantly faster than our 3-year average estimate of 28.6%
—Immediately increase NOPAT margin to 25%, significantly higher than our 3-year average estimate of (1.75%)
—Increase Invested Capital (IC) Turns to 1 from our 3-year average estimate of 0.41

Notably, the current share price also implies Maui increases Return on Invested Capital (ROIC) to 25% from our 3-year average estimate of 1.06%: