AMREP Corporation — Form 10-Q Summary
Reporting period: Three and nine months ended January 31, 2024, corresponding to the third quarter of fiscal 2024. The filing was signed March 8, 2024. AMREP operates primarily through two segments: land development and homebuilding, solely in the United States.
Financial performance and position
| Metric | Three months ended January 31, 2024 | Three months ended January 31, 2023 | Nine months ended January 31, 2024 | Nine months ended January 31, 2023 |
|---|---|---|---|---|
| Total revenue | $12.7 million | $9.1 million | $31.8 million | $36.0 million |
| Operating income (loss) | $(0.1) million | $(0.5) million | $2.9 million | $6.6 million |
| Net income | $0.1 million | $16.6 million | $2.5 million | $22.1 million |
| Diluted EPS | $0.02 | $3.12 | $0.48 | $4.17 |
| Net cash from operating activities | Not provided for the quarter | Not provided for the quarter | $3.4 million | $(1.4) million |
- Revenue mix: Nine-month land sale revenue was $15.6 million, down 36%; home sale revenue was $9.5 million, down 13%; and other revenue was $6.7 million versus $0.6 million. Other revenue included $5.7 million from selling two commercial buildings and $0.6 million from landscaping services.
- Gross margins: Land-sale gross margin was 34% for the quarter and 33% year to date, compared with 43% and 37%, respectively, in the prior-year periods. Home-sale gross margin was 22% for the quarter and 27% year to date, compared with 22% and 29%.
- Expenses: Operating general and administrative expense increased 21% for the quarter and 29% year to date. The prior-year periods included a $2.3 million non-cash pension settlement expense; no comparable expense was recorded in 2024.
- Taxes and unusual items: The prior-year periods benefited from a $16.1 million income-tax benefit related to a worthless stock deduction, including $13.1 million of federal and $3.0 million of New Mexico benefits. This benefit did not recur. Fiscal 2024 included no impairment charges on real estate inventory or investment assets.
- Balance sheet: Total assets were $119.0 million at January 31, 2024, compared with $115.9 million at April 30, 2023. Real estate inventory increased to $68.1 million from $65.6 million, primarily because homebuilding construction in process increased to $6.4 million from $1.6 million.
- Liquidity: Cash and cash equivalents were $18.0 million, supplemented by $5.0 million of short-term investments, for total reported cash and short-term investments of $23.1 million. At April 30, 2023, the Company had $20.0 million of cash and no short-term investments.
- Debt: Notes payable were $37,000, down from $44,000 at April 30, 2023. The Company had a $4.2 million revolving line available for new borrowings, with no principal outstanding, and reported compliance with loan covenants. A $172,000 letter of credit and $250,000 credit-card reserve reduced availability.
- Equity: Shareholders’ equity increased to $113.8 million from $111.0 million. Shares outstanding were 5,271,309 at March 6, 2024.
Material changes versus the prior comparable periods
- Quarterly revenue increased 39% because the $5.7 million investment-asset sale more than offset a 37% decline in land-sale revenue; year-to-date revenue declined 12% because of lower land and home sales.
- Quarterly net income fell to $0.1 million from $16.6 million, and year-to-date net income fell to $2.5 million from $22.1 million, primarily because the prior-year results included the large tax benefit from the worthless stock deduction and the 2024 period did not.
- Land sales declined to 75.8 acres year to date from 46.9 acres in the prior-year period only when comparing reported acreage? The filing reports 75.8 acres in 2024 versus 46.9 acres in 2023, while revenue declined because of sales mix, including fewer developed residential and commercial sales.
- Homes sold declined to 18 year to date from 21, while average selling price was broadly stable at $529,000 versus $528,000.
- Homes in production increased to 62 from 25, including 19 under contract versus 12. Contracted homes represented approximately $8.3 million of expected revenue at closing, subject to cancellations and change orders.
- The prior-year pension plan settlement and related other comprehensive income did not recur. AMREP terminated its defined benefit pension plan and Simple IRA plan in December 2023.
- The prior-year development loan was terminated in October 2023 after $1.8 million of principal repayments during the first nine months of fiscal 2023.
Outlook, management commentary, risks and contingencies
- Management expects higher mortgage rates, inflation, elevated housing costs and affordability pressures to continue affecting land and home demand through at least the remainder of calendar year 2024.
- AMREP has provided sales incentives on certain homes, opportunistically leased completed homes, slowed housing starts and land-development activity, and reduced the number and scope of active development projects.
- Management expects developed residential land revenue during the remainder of 2024 to be lower than in 2023 because of market headwinds and delayed projects.
- Municipal approval delays and utility response times have delayed construction, lengthened construction cycles and increased costs in both operating segments.
- Land-sale margins were pressured by higher-than-estimated costs on certain completed projects and by the location, size and mix of properties sold. Costs related to the two commercial buildings sold were also higher than originally projected.
- Future results may be affected by housing affordability, mortgage rates, customer cancellations, construction costs, municipal approvals, utility availability, development timing, customer concentration and potential impairment of real estate assets. The filing states that no impairment charges were recorded during the periods presented but that future charges are possible.
- As of January 31, 2024, one customer represented more than 10% of quarterly revenue, and two customers represented more than 10% of year-to-date revenue, indicating concentration in land-sale activity.
- The filing reports no off-balance-sheet arrangements and states that disclosure controls were effective as of January 31, 2024.
Most important facts for investors to verify
- Whether housing affordability and mortgage-rate pressures continue to reduce land-sale demand, home sales and developed-lot revenue.
- The timing and profitability of the 62 homes in production, particularly the 19 homes under contract and the $8.3 million of associated expected revenue.
- Whether construction-in-process growth, municipal delays and higher development costs lead to additional cash needs, margin pressure or impairment charges.
- The sustainability of operating cash flow after the nonrecurring $5.7 million investment-asset sale.
- The concentration and timing of major land-sale customers and the potential effect of cancellations or delayed closings.
- The status of the terminated pension plan, any transfer of prepaid pension costs to a new 401(k) plan, and related cash or accounting effects.
- The terms and continuing availability of the revolving credit facility, including the letter of credit and credit-card reserve.