AMREP Corporation 10-Q Summary
Business Context and Reporting Period
AMREP operates primarily as a U.S. real estate company, with land development and sales, rental properties, and related activities. The fulfillment services business was sold on April 26, 2019 and is presented as discontinued operations.
This filing covers the three months ended July 31, 2019, AMREP’s fiscal first quarter of 2020, compared with the three months ended July 31, 2018. The filing is unaudited and should be read with the fiscal 2019 Form 10-K.
Key Financial Metrics
| Metric | Quarter Ended July 31, 2019 | Quarter Ended July 31, 2018 |
|---|---|---|
| Revenue | $4.767 million | $4.238 million |
| Real estate land sales | $4.382 million | $4.181 million |
| Rental income | $341,000 | $0 |
| Operating loss from continuing operations | $(454,000) | $(884,000) |
| Loss from continuing operations | $(196,000) | $(662,000) |
| Net income/(loss) | $(196,000) | $61,000 |
| Basic and diluted EPS | $(0.02) | $0.01 |
| Cash flow from continuing operations | $2.204 million provided | $206,000 used |
| Total cash, including restricted cash | $15.896 million | $15.100 million |
Revenue increased approximately 12.5% year over year. Operating loss margin improved to approximately 9.5% of revenue from 20.9% in the prior-year quarter. Land-sale gross profit before indirect costs was approximately 17% of land-sale revenue, compared with 11% in the prior-year quarter.
At July 31, 2019, total assets were $100.077 million and shareholders’ equity was $89.861 million. Real estate inventory was $55.515 million, and investment assets, net were $17.108 million. Notes payable, net were $842,000, down from $1.319 million at April 30, 2019. Accrued pension costs were $6.365 million.
Material Changes Versus the Prior Comparable Period
- Continuing-operations revenue increased by $529,000, primarily from higher land-sale revenue and $341,000 of new rental income from lease agreements associated with the fulfillment-services sale.
- Land sales involved 10 acres of developed residential property, compared with 12.3 total acres in the prior-year quarter. Revenue per acre increased to approximately $438,000 from $340,000.
- Real estate land-sale gross profit improved because of higher demand for lots from builders.
- Real estate operating expenses increased to $559,000 from $276,000, primarily due to employee bonuses, cost allocations, real estate tax accruals, and healthcare costs.
- Real estate general and administrative expense declined to $113,000 from $188,000, while corporate general and administrative expense declined to $894,000 from $927,000.
- The prior-year quarter included $723,000 of income from discontinued operations. The current quarter had no discontinued-operations income, making year-over-year net income comparisons less meaningful.
- Cash flow from continuing operations improved to $2.204 million provided, principally reflecting a $2.255 million favorable change in real estate inventory and investment assets, compared with $206,000 used in the prior-year quarter.
Liquidity, Debt, and Cash Flow
- Cash and cash equivalents increased to $15.591 million from $13.267 million at April 30, 2019. Restricted cash declined to $305,000 from $969,000 after $664,000 was released under subdivision improvement agreements.
- Cash increased by $1.660 million during the quarter. Financing activities used $543,000, including $572,000 of principal repayments; capital expenditures were $1,000.
- The Hawksite development loan had $813,000 outstanding at July 31, 2019 at a 7.88% interest rate and was fully repaid and terminated in August 2019.
- The prior Lomas Encantadas loan was fully repaid and terminated in June 2019. A new Lomas Encantadas loan had $28,000 outstanding at July 31, 2019 at a 5.39% interest rate, secured by property with a $922,000 book value.
- Management states that the company was in compliance with applicable financial covenants at July 31, 2019. Primary funding sources are operating cash flow, project-specific bank financing, and existing cash balances.
Guidance, Outlook, Risks, and Unusual Items
- No formal revenue or earnings guidance was provided. Management cautions that land-sale revenue, selling prices, and gross profits may vary significantly based on transaction timing, property type, and location.
- The company expects to recognize an estimated $2.960 million non-cash, pre-tax pension settlement charge in the quarter ending October 31, 2019, following approximately $7.2 million of lump-sum pension payments to 309 former employees in September 2019.
- The company adopted the new lease accounting standard effective May 1, 2019. Right-of-use assets obtained in exchange for operating lease liabilities were $198,000; management reported no material overall effect on the financial statements.
- Approximately 12,000 acres of New Mexico land were held for long-term investment as of April 30, 2019. The value and timing of monetization may depend on real estate demand and development conditions.
- Key risks include fluctuations in builder demand, timing and concentration of land sales, availability of project financing, real estate market conditions, covenant compliance, pension obligations, and the accuracy of forward-looking estimates.
- Management concluded that disclosure controls and procedures were effective as of July 31, 2019, and reported no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the effect of the fulfillment-services sale and the discontinued-operations presentation when comparing future results.
- Verify the timing and final amount of the expected approximately $2.960 million pension settlement charge.
- Monitor land-sale volume, builder demand, gross margins, and the conversion of real estate inventory into cash.
- Review remaining debt terms, collateral, repayment schedules, and compliance with financial covenants.
- Assess liquidity after the pension lump-sum payments and any additional land-development spending.
- Review the company’s disclosures regarding long-term investment land, subdivision improvement agreements, and restricted cash.