Business Context and Reporting Period
AMREP Corporation is primarily a U.S. real estate company operating in one reportable segment. This Form 10-Q covers the fiscal third quarter and first nine months ended January 31, 2020; the filing labels the comparative periods as fiscal 2019. The fulfillment services business sold in April 2019 is presented as discontinued operations in prior-period results.
Key Financial Metrics
| Metric | Three Months Ended January 31 | Nine Months Ended January 31 |
|---|---|---|
| Revenue | $5.287 million, versus $2.381 million | $14.014 million, versus $9.239 million |
| Operating income (loss) from continuing operations | $676,000, versus $(761,000) | $(2.710) million, versus $(2.414) million |
| Income (loss) from continuing operations | $338,000, versus $(1.455) million | $(2.027) million, versus $(2.696) million |
| Net income (loss) | $338,000, or $0.04 per share, versus $(32,000) | $(2.027) million, or $(0.25) per share, versus $84,000 |
| Cash flow from operating activities | Not separately provided | $652,000 provided, versus $4.122 million used |
Third-quarter revenue increased approximately 122%, while first-nine-month revenue increased approximately 52%. Revenue included New Mexico land sales of $3.812 million and $11.626 million, corporate land sales of $665,000, rental income of $114,000 and $796,000, and other revenue of $696,000 and $927,000, respectively.
New Mexico land-sale gross profit before indirect costs was approximately 19% for the quarter and 18% for the nine months, compared with 17% and 12% in the prior-year periods. The filing does not provide a consolidated gross margin.
At January 31, 2020, cash and cash equivalents were $14.166 million and restricted cash was $305,000, for total cash, cash equivalents and restricted cash of $14.471 million. Real estate inventory was $54.084 million, investment assets were $17.658 million, total assets were $97.314 million, and shareholders’ equity was $90.354 million.
Notes payable, net declined to $982,000 from $1.319 million at April 30, 2019. Total liabilities were $6.960 million, including $2.527 million of accrued pension costs. The company reported compliance with applicable loan covenants at January 31, 2020.
Material Changes Versus Prior Comparable Period
- Quarterly results improved to net income from a small net loss, primarily because of higher land-sale revenue, improved land-sale margins, and lower corporate general and administrative expenses.
- First-nine-month results remained a net loss, although the continuing-operations loss narrowed from $2.696 million to $2.027 million. The 2020 period included a $2.929 million non-cash pension settlement charge.
- Prior-year net income included $2.780 million from discontinued fulfillment services operations; 2020 results contain no discontinued-operations income.
- Real estate inventory decreased $3.689 million from April 30, 2019, primarily from land sales, partially offset by increased development activity.
- Accrued pension costs decreased $3.874 million after a $3.600 million voluntary pension contribution. The contribution eliminated the company’s remaining obligation under an accelerated $5.194 million pension-funding requirement.
- Operating cash flow improved by $4.774 million year over year, while debt repayments exceeded new borrowings by $399,000 during the first nine months.
- The company adopted lease accounting and related standards effective May 1, 2019; management stated that adoption did not materially affect the consolidated financial statements.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- No quantitative earnings or revenue guidance was provided. Management expects liquidity to come from operations, real estate project financing, and existing cash balances, but emphasizes that financing availability, economic conditions, transaction timing, and real estate demand may affect results.
- Other revenue included $499,000 of oil and gas royalties received during the quarter for production from March through November 2019. This is an unusual and potentially nonrecurring contributor.
- In January 2020, a subsidiary entered into a non-revolving credit facility of up to $2.750 million to fund construction of an approximately 14,000-square-foot retail building. The loan matures January 10, 2027, is guaranteed by a subsidiary, and had $21,000 outstanding at January 31, 2020.
- In February 2020, a subsidiary entered into a revolving line of credit of up to $3.0 million for Hawk Site subdivision development. The facility matures August 1, 2022, bears interest at 4.5%, and is subject to collateral and covenant requirements.
- Litigation with the former fulfillment services business tenant concerning unpaid rent and eviction claims was addressed by a February 2020 settlement. As of March 9, 2020, $525,000 of scheduled settlement payments had been received; additional payments and lease amendments remained subject to the settlement terms.
- A proposed sale of the 11 Commerce property for $12.5 million was subject to a financing contingency and other conditions. The transaction contemplated $10.125 million of cash and a $2.375 million purchaser note, but closing was not assured.
- The company temporarily discontinued recognizing certain rent revenue because of collection uncertainty. The settlement also involved potential forgiveness, subordinated financing, lease amendments, and a possible obligation related to support services for the Smithsonian Institution.
- Future results may vary materially because land-sale revenue depends on the timing, type, location, and pricing of individual transactions. The filing also identifies risks from project financing, covenant compliance, construction completion, tenant collections, litigation, pension obligations, and general economic conditions.
Important Facts for Investors to Verify
- Verify the status and final economics of the February 2020 tenant settlement and the proposed 11 Commerce property sale, including all payments, financing, lease amendments, and contingencies.
- Assess the sustainability of improved land-sale margins and the extent to which quarterly revenue depended on specific transactions and the $499,000 royalty receipt.
- Reconcile the first-nine-month net loss and operating cash flow with the non-cash pension settlement charge and the $3.600 million pension contribution.
- Review collateral, guarantees, interest-rate provisions, maturity dates, construction deadlines, and default triggers for the company’s real estate financing.
- Monitor liquidity after pension funding, development spending, debt repayments, and any required contributions or obligations under the tenant settlement.
- Confirm that the company’s disclosure controls remained effective; management reported effective controls and no material change in internal control over financial reporting.