AMREP Corporation Form 10-Q Summary
Reporting period: Three and six months ended October 31, 2020, representing the second quarter and first six months of fiscal 2021. The filing was signed December 8, 2020. AMREP operates primarily in land development and homebuilding in the United States.
Financial Performance and Position
| Metric | Three Months Ended October 31, 2020 | Three Months Ended October 31, 2019 | Six Months Ended October 31, 2020 | Six Months Ended October 31, 2019 |
|---|---|---|---|---|
| Total revenue | $9.256 million | $3.960 million | $13.462 million | $8.727 million |
| Operating income (loss) | $1.129 million | $(2.932) million | $1.212 million | $(3.386) million |
| Net income (loss) | $0.798 million | $(2.169) million | $1.391 million | $(2.365) million |
| Basic and diluted EPS | $0.10 | $(0.27) | $0.17 | $(0.29) |
| Operating margin | 12.2% | (74.0%) | 9.0% | (38.8%) |
- Land sale revenue increased 161% in the quarter to $8.526 million and 59% for the six-month period to $12.013 million, driven primarily by increased builder demand for New Mexico lots.
- Land-sale gross profit percentages before indirect costs were 25% for the quarter and 24% for the six months, compared with 15% in each prior-year period.
- Home sale revenue was $202,000 from the first completed home sale; reported home-sale gross margin was 14%. At October 31, 2020, backlog consisted of 11 homes under contract with expected revenue of $2.311 million, and 17 homes were in production.
- Rental revenue declined 55% for the quarter and 26% for the six months, primarily because of lower rent from Palm Coast, Florida properties, partly offset by a new retail lease.
- Cash provided by operating activities was $538,000 for the six months, compared with $520,000 used in the prior-year period. Capital expenditures were $3,000.
- Cash and cash equivalents were $15.692 million at October 31, 2020, compared with $17.502 million at April 30, 2020.
- Real estate inventory was $53.925 million, including approximately 6,000 acres of New Mexico land held for development. Investment assets were $18.970 million, including approximately 12,000 acres held for long-term investment.
- Notes payable, net increased to $5.803 million from $3.890 million at April 30, 2020. Scheduled principal payments after October 31, 2020 totaled $5.834 million, including $3.532 million in fiscal 2021.
- Total liabilities were $13.698 million and shareholders’ equity was $82.022 million at October 31, 2020. The filing does not present a formal current ratio or other liquidity ratio.
Material Changes Versus the Prior Comparable Period
- The Company moved from operating losses to profitability, primarily because of higher land sales and improved land-sale margins.
- General and administrative expense declined to $1.523 million for the quarter and $2.967 million for the six months, compared with $4.121 million and $5.687 million, respectively. The prior-year periods included a $2.929 million non-cash pension settlement charge.
- The Company recorded $650,000 of other income in the six-month period from a settlement with a former business segment. The settlement also included $350,000 of rent for May through August 2020; the filing does not clearly state whether that rent is included in the reported other income amount.
- Corporate general and administrative expense declined 79% for the quarter and 67% for the six months, while homebuilding became a separately reported segment and incurred $118,000 and $231,000 of general and administrative expense, respectively.
- The Company repurchased and retired 11,847 shares in August for $4.48 per share and 675,616 shares in October for $6.18 per share. Total cash used for repurchases during the six months was $4.228 million.
- In November 2020, after quarter-end, the Company repurchased an additional 143,482 shares at $6.18 per share and terminated its share repurchase program.
Debt, Liquidity, Outlook, and Risks
- Management identifies operating cash flow, project-specific bank financing, and existing cash as its primary funding sources. Additional borrowings were used to fund land development activity.
- Outstanding project financing included facilities for Lomas Encantadas, Hawk Site, Las Fuentes, and the Meso AM subdivision, plus a $298,000 Paycheck Protection Program loan at 1.0%. The Company and its subsidiaries were reported to be in compliance with applicable financial covenants at October 31, 2020.
- The Paycheck Protection Program loan may be forgiven in whole or in part if specified conditions are satisfied; the filing does not provide a conclusion regarding forgiveness.
- Management states that land-sale results can vary significantly based on the timing and type of transactions, location, selling prices, and gross margins. Prior-period results may not be indicative of future performance.
- Key operating risks include dependence on a limited number of land-sale customers, builder demand, homebuyer cancellations, execution of the homebuilding backlog, real estate market conditions, availability of project financing, debt maturities, covenant compliance, pension funding requirements, and the potential forgiveness of the PPP loan.
- The Company’s mineral-rights lease expired in September 2020 without drilling, and no related 2021 revenue was recorded.
- No formal revenue, earnings, or margin guidance was provided. Management’s forward-looking statements address expected liquidity, bank financing, land development timing, home backlog, sales incentives, business conditions, and PPP loan forgiveness, but are subject to substantial uncertainty.
- Management concluded that disclosure controls and procedures were effective as of October 31, 2020, and reported no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Whether the higher land-sale volume and 24%–25% gross margins are sustainable given the Company’s stated transaction timing and customer concentration.
- The status and timing of the $5.834 million of scheduled debt repayments and continued compliance with project-loan covenants.
- The collectability, timing, and accounting treatment of the $2.311 million homebuilding backlog, including cancellation and change-order exposure.
- The final treatment and forgiveness status of the $298,000 PPP loan.
- The effects of the November 2020 share repurchase and termination of the repurchase program on share count, liquidity, and per-share results.
- The sustainability of the $650,000 settlement-related other income, which appears nonrecurring.
- The adequacy of cash resources and operating cash flow to fund land development, homebuilding activity, pension obligations, and scheduled debt payments.