AMREP Corporation — Form 10-Q Summary
Reporting period: Three months ended July 31, 2020, the company’s fiscal first quarter of 2021. Comparisons are with the three months ended July 31, 2019. AMREP primarily operates in the U.S. real estate business, with no foreign sales or activities.
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Total revenue | $4.206 million | $4.767 million |
| Land-sale revenue | $3.487 million | $4.291 million |
| Operating income (loss) | $83,000 | $(454,000) |
| Net income (loss) | $593,000 | $(196,000) |
| Basic and diluted EPS | $0.07 | $(0.02) |
| Cash flow from operations | $(2.060) million | $2.204 million |
| Cash and cash equivalents at period-end | $17.068 million | $15.591 million at July 31, 2019 |
- Land sales involved 7.7 developed residential acres at an average revenue of approximately $453,000 per acre, compared with 10 acres at approximately $438,000 per acre in the prior period.
- Gross profit on New Mexico land sales before indirect costs was 23%, compared with 15% in the prior-year quarter. The company attributed the improvement to builder demand for developed lots.
- Operating margin was approximately 2.0%, compared with negative 9.5% in the prior-year quarter. Net margin was approximately 14.1%, compared with negative 4.1%.
- Rental revenue was $350,000, compared with $341,000. Other revenue increased to $369,000 from $135,000.
- Other income included a nonrecurring $650,000 settlement payment related to a former business segment. The company also received $350,000 of rent under the related settlement arrangement for May through August 2020.
- At July 31, 2020, total assets were $99.991 million, including $57.216 million of real estate inventory and $18.798 million of investment assets. Shareholders’ equity was $85.362 million.
- Notes payable, net were $5.496 million, up from $3.890 million at April 30, 2020. Scheduled principal payments after July 31, 2020 totaled $5.523 million, including $3.094 million in fiscal 2021 and $2.388 million in fiscal 2022.
Material changes versus the prior comparable period
- Revenue declined approximately 12% because land-sale revenue fell approximately 19%, partially offset by higher other revenue.
- Profitability improved despite lower revenue because land-sale margins increased and real estate and corporate general and administrative expenses declined. Real estate operating expenses increased to $677,000 from $559,000, while corporate general and administrative expenses declined to $726,000 from $894,000.
- Interest income declined to $6,000 from $124,000 because of lower cash interest rates and the absence of interest on deferred purchase price related to the former fulfillment-services business.
- Operating cash flow shifted to a $2.060 million use from $2.204 million provided, principally because real estate inventory and investment assets increased by $4.050 million.
- Cash declined $434,000 from April 30, 2020, after $1.629 million of net financing cash inflow and $2.063 million of combined operating and investing cash outflow.
- Real estate inventory increased $3.767 million from April 30, 2020, primarily due to land development, land acquisition and homebuilding construction.
- The company acquired the Meso AM subdivision in June 2020. The acquisition included $1.838 million of deferred purchase price, payable in equal non-interest-bearing installments in June 2021 and June 2022.
Liquidity, debt and outlook
- Management identifies operating cash flow, project-specific bank financing and existing cash as its primary funding sources.
- Outstanding project financing included approximately $1.005 million for Lomas Encantadas, $41,000 for Hawk Site, $2.312 million for Las Fuentes, $27,000 for Meso AM development financing, $1.838 million of Meso AM deferred purchase price and $298,000 under the Paycheck Protection Program loan.
- All disclosed lending subsidiaries were in compliance with their financial covenants at July 31, 2020. The PPP loan bears interest at 1% and may be partially or fully forgiven if applicable conditions are satisfied; forgiveness was not assured.
- The company provided no quantitative revenue or earnings guidance. Management stated that land-sale revenues, prices and margins can vary significantly with transaction timing, property type and location, and that interim results are not necessarily indicative of future results.
- Forward-looking outcomes depend on liquidity, project financing availability, land-development timing, future business conditions and potential PPP loan forgiveness. Management noted that many relevant factors are outside its control.
- In August 2020, the company repurchased and retired 11,847 shares at $4.48 per share. Disclosure controls were assessed as effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the $650,000 settlement payment and related $350,000 rent represent nonrecurring benefits and how the settlement affects future cash flows or obligations.
- The timing and certainty of the $5.523 million of scheduled debt payments, particularly the fiscal 2021 and fiscal 2022 maturities.
- Progress, costs, financing utilization and expected sales timing for the Meso AM acquisition and other New Mexico development projects.
- Whether builder demand and the 23% land-sale gross margin are sustainable given the company’s historically variable transaction timing and mix.
- The company’s ability to fund inventory growth and development while operating cash flow is negative.
- The status and ultimate forgiveness of the $298,000 PPP loan.
- The impact of pension obligations, including accrued pension costs of $5.028 million, on future liquidity.