AMREP Corporation — Form 10-Q Summary
Business context and reporting period
AMREP Corporation operates primarily through two segments: land development and homebuilding, with activities limited to the United States. This unaudited Form 10-Q covers the three and six months ended October 31, 2021, the second quarter of fiscal 2022, compared with the corresponding fiscal 2021 periods.
Key financial metrics
| Metric | Three months ended October 31, 2021 | Three months ended October 31, 2020 | Six months ended October 31, 2021 | Six months ended October 31, 2020 |
|---|---|---|---|---|
| Revenue | $16.236 million | $9.256 million | $26.743 million | $13.462 million |
| Operating income | $4.359 million | $1.129 million | $6.155 million | $1.212 million |
| Net income | $3.326 million | $0.798 million | $4.963 million | $1.391 million |
| Diluted EPS | $0.45 | $0.10 | $0.67 | $0.17 |
| Operating margin | 26.9% | 12.2% | 23.0% | 9.0% |
| Net margin | 20.5% | 8.6% | 18.6% | 10.3% |
Land sale revenue was $8.466 million in the quarter and $15.656 million year to date. Home sale revenue was $0.819 million and $3.230 million, respectively. Building sales and other revenue was $6.951 million and $7.857 million, including $6.750 million from the October 2021 sale of a 143,000-square-foot warehouse and office facility.
Land sale gross margin was 27% for the quarter and 25% year to date, compared with 25% and 24% in the prior-year periods. Home sale gross margin was 23% for the quarter and 21% year to date, compared with 14% in both prior-year periods. General and administrative expense declined 17% in the quarter and 18% year to date, primarily due to lower corporate pension and professional-fee costs.
Net cash provided by operating activities was $2.930 million for the six months ended October 31, 2021, compared with $0.538 million in the prior-year period. Cash provided by investing activities was $0.081 million, while cash provided by financing activities was $2.515 million. Cash increased to $30.327 million from $24.801 million at April 30, 2021.
Real estate inventory was $61.772 million, up 11% from April 30, 2021, primarily due to increased New Mexico land development and homebuilding activity. Notes payable, net, increased to $5.952 million from $3.448 million. Scheduled principal repayments after October 31, 2021 totaled $6.002 million, consisting of $0.504 million in fiscal 2023 and $5.498 million in fiscal 2024. The company reported compliance with its financial covenants.
Material changes versus the prior comparable period
- Quarterly revenue increased 76%; year-to-date revenue increased 99%.
- Quarterly net income increased 317%; year-to-date net income increased 257%.
- Land sales benefited from increased builder demand; year-to-date land sale revenue increased 30% and developed residential acres sold increased to 33.3 from 25.1.
- Homebuilding expanded substantially, with 11 homes closed year to date versus one in the prior-year period. As of October 31, 2021, 42 homes were in production, including 26 under contract representing $8.980 million of expected revenue, subject to cancellations and change orders.
- Second-quarter home closings were constrained by material and labor shortages.
- The company sold its Palm Coast warehouse and office facility in October 2021, generating $6.750 million of revenue and reducing net investment assets by $3.807 million from fiscal year-end.
- The company acquired a 7,000-square-foot office building in Rio Rancho, New Mexico, in August 2021.
- Other income was $0.260 million year to date, including $0.185 million related to a warranty provider bankruptcy, $0.045 million of debt forgiveness and $0.030 million from a life insurance policy. The prior-year period included a $0.650 million settlement payment.
Outlook, risks, contingencies and unusual items
The filing does not provide formal quantitative earnings or revenue guidance. Management states that future liquidity depends on operating cash flow, project-specific bank financing, a revolving credit facility and existing cash. Real estate assets may not be readily saleable, and financing for additional land development, home construction or other projects may be unavailable or available only on unfavorable terms.
Key operating risks include real estate market conditions, the timing and pricing of land sales, dependence on a limited number of customers, material and labor shortages, customer cancellations and change orders, and the availability of project financing. Substantially all land sale revenue came from three customers in both the quarter and six-month period; the largest customers accounted for significant portions of revenue.
In November 2021, the company entered into a CEO employment agreement providing for a $335,000 annual base salary and potentially substantial severance, accelerated equity vesting and benefit-related payments upon certain terminations. The company also granted the CEO an option to purchase 50,000 shares at $14.24 per share, generally vesting in November 2026 subject to continued service, with acceleration provisions for specified termination events or a change in control.
Management concluded that disclosure controls and procedures were effective as of October 31, 2021, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the one-time warehouse sale materially affects comparability of future revenue and earnings.
- The sustainability of land sale demand, pricing and margins, given customer concentration and transaction-to-transaction variability.
- Progress, costs, margins and delivery timing for the homebuilding backlog, particularly amid material and labor shortages.
- Availability, terms and covenant compliance of project financing, including the $5.498 million scheduled repayment in fiscal 2024.
- Conversion of the $8.980 million contracted-home backlog into cash and reported revenue, including cancellation risk.
- Potential cash obligations under the CEO employment agreement and related equity acceleration provisions.
- The filing’s interim results are unaudited and are not necessarily indicative of future periods.