AMREP Corporation — Fiscal Q1 2022 Form 10-Q
Reporting period: Three months ended July 31, 2021, compared with the three months ended July 31, 2020. AMREP operates primarily through land development and homebuilding segments in the United States.
Financial performance and position
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Total revenue | $10.507 million | $4.206 million | +150% |
| Operating income | $1.795 million | $0.083 million | +$1.712 million |
| Net income | $1.637 million | $0.593 million | +176% |
| Diluted EPS | $0.22 | $0.07 | + $0.15 |
| Total comprehensive income | $1.703 million | $0.683 million | +149% |
| EBITDA | $2.131 million | $0.874 million | +144% |
| Net cash used in operating activities | $4.466 million | $2.060 million | Greater use of cash |
- Revenue mix: Land sales were $7.190 million, up 106%; home sales were $2.411 million versus none in the prior period; and other revenues were $0.906 million, up 26%.
- Sales activity: The company sold 17.4 developed residential acres at an average of approximately $413,000 per acre, compared with 7.7 acres at approximately $453,000 per acre in the prior period. It closed eight homes at an average selling price of approximately $301,000.
- Margins: Consolidated operating margin was approximately 17.1% versus 2.0% in the prior-year quarter, and net margin was approximately 15.6% versus 14.1%. Land gross margin before indirect costs was 22% versus 23%; homebuilding gross margin was 21%.
- Costs: Land sale costs increased 109% to $5.610 million, home sale costs were $1.914 million, and general and administrative expenses decreased 18% to $1.188 million.
- Cash and liquidity: Cash and cash equivalents were $23.274 million at July 31, 2021, down from $24.801 million at April 30, 2021, but up from $17.068 million at July 31, 2020.
- Debt: Notes payable, net increased to $6.377 million from $3.448 million at April 30, 2021. Gross outstanding principal was $6.427 million, with scheduled repayments of $0.929 million in fiscal 2023 and $5.498 million in fiscal 2024. The company reported compliance with its financial covenants.
- Balance sheet: Total assets were $101.103 million and shareholders’ equity was $90.742 million at July 31, 2021. Real estate inventory increased 10% to $61.298 million, primarily because of increased New Mexico land development activity and land acquisitions.
Material changes versus the prior comparable period
- Results benefited from increased demand for lots from builders and the launch of homebuilding sales, which did not generate revenue in the prior-year quarter.
- Homebuilding had 33 homes in production at July 31, 2021, including 21 under contract representing approximately $5.934 million of expected revenue at closing, subject to cancellations and change orders.
- Operating cash flow remained negative because $5.709 million was invested in real estate inventory and investment assets, partially offset by net income and noncash items.
- Financing activities generated $2.940 million of net cash, including $6.857 million of debt proceeds and $3.867 million of principal repayments.
- Other income fell to $0.230 million from $0.650 million. The current period included $0.185 million related to a warranty-provider bankruptcy and $0.045 million of debt forgiveness; the prior period included a $0.650 million settlement from a former business segment.
- Deferred income taxes declined to $2.261 million from $2.749 million, primarily due to a reduction in federal net operating loss carryforwards. The adoption of ASU 2019-12 had no reported financial statement impact.
Outlook, risks and unusual items
- The filing provides no quantitative revenue or earnings guidance.
- Management states that results from land sales can vary significantly based on the timing, location, type and mix of transactions, and that prior results may not indicate future performance.
- Real estate and homebuilding properties are not readily liquid. Future development, construction and other projects may require financing that may be unavailable or available only on unfavorable terms.
- Future liquidity depends on property sales, project-specific bank financing, a revolving line of credit, existing cash and cash flows from subsidiaries. The filing emphasizes exposure to real estate market and broader economic conditions.
- Management notes that volatility in market conditions and development costs could result in future impairment charges.
- Major customer concentration increased in importance: two customers accounted for revenues of $4.2 million and $1.7 million in the current quarter, with both revenues reported in land development.
- In August 2021, the company acquired a 7,000-square-foot office building in Rio Rancho, New Mexico. The filing does not provide the acquisition price.
- The company’s disclosure controls and procedures were effective as of July 31, 2021, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether elevated land-sale activity and the 21-home contracted backlog convert into recurring cash flow and completed closings.
- The timing and funding of the $6.427 million of scheduled debt principal repayments, particularly the $5.498 million due in fiscal 2024.
- Available borrowing capacity under the revolving line of credit and other project financing, including applicable covenants and collateral.
- Cash requirements from the $61.298 million real estate inventory balance and the company’s ability to monetize New Mexico and Colorado holdings.
- Customer concentration and the effect of cancellations, change orders, builder demand and changes in land-sale mix on margins.
- Potential impairment charges arising from market conditions, development costs or changes in real estate valuations.
- The sustainability of current earnings excluding the $0.230 million of unusual other income and the favorable comparison created by the prior-year period’s lack of home sales.