AMREP Corporation Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended October 31, 2023, filed December 11, 2023. AMREP operates primarily through land development and homebuilding segments in the United States.
Financial Results and Position
| Metric | Three months ended Oct. 31, 2023 | Three months ended Oct. 31, 2022 | Six months ended Oct. 31, 2023 | Six months ended Oct. 31, 2022 |
|---|---|---|---|---|
| Total revenue | $8.854 million | $16.149 million | $19.143 million | $26.856 million |
| Operating income | $1.051 million | $4.471 million | $3.074 million | $7.038 million |
| Net income | $1.108 million | $3.621 million | $2.454 million | $5.533 million |
| Diluted EPS | $0.21 | $0.68 | $0.46 | $1.04 |
| Operating margin | 11.9% | 27.7% | 16.1% | 26.2% |
| Net margin | 12.5% | 22.4% | 12.8% | 20.6% |
Land sale revenue was $4.884 million for the quarter and $11.542 million for the six-month period, down 62% and 36%, respectively. Home sale revenue was $3.521 million for the quarter and $6.923 million for the six-month period, up 21% and down 17%, respectively. Other revenue increased to $449,000 for the quarter and $678,000 for the six-month period, including landscaping revenue.
Land sale gross margins were 27% for the quarter and 32% for the six-month period, compared with 34% and 35% in the prior-year periods. Home sale gross margins were 29% and 30%, compared with 29% and 32%, respectively. General and administrative expense increased 34% to $1.546 million for the quarter and 34% to $3.121 million for the six-month period.
Cash flow from operating activities was $1.867 million for the six months ended October 31, 2023, compared with cash used of $934,000 in the prior-year period. Investing cash outflow was $5.134 million, primarily due to purchases of short-term investments, while financing cash outflow was $5,000.
Cash and cash equivalents totaled $16.721 million at October 31, 2023, supplemented by $4.999 million of short-term investments. Cash declined from $19.993 million at April 30, 2023, primarily because $4.999 million was invested in short-term securities.
Real estate inventory was $63.879 million, down from $65.625 million at April 30, 2023. Net investment assets increased to $16.800 million from $13.747 million. Total assets were $117.761 million and shareholders’ equity was $113.543 million. Total liabilities were $4.218 million.
Debt and Liquidity
- Notes payable were only $39,000 at October 31, 2023, compared with $44,000 at April 30, 2023.
- The revolving line of credit had $4.177 million available for new borrowings and no outstanding principal; it carried an 8.47% interest rate and was scheduled to mature in August 2025.
- A $1.323 million letter of credit supported completion of subdivision improvements, and $250,000 was reserved for credit card usage. These amounts were not recorded as outstanding debt.
- The Company stated that it was in compliance with its debt covenants.
- Management indicated that the Company depends on cash held by AMREP and cash generated by subsidiaries to fund operations and corporate obligations.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue decreased 45%, and six-month revenue decreased 29%, primarily because of lower land sale activity.
- Quarterly net income declined 69%, and six-month net income declined 56%; diluted EPS declined from $0.68 to $0.21 for the quarter and from $1.04 to $0.46 for six months.
- Home sales increased to seven homes from five in the quarter, but declined to 13 from 16 for the six-month period. The average selling price was $503,000 for the quarter and $532,000 for six months.
- Homebuilding construction in process increased 135% to $3.879 million, reflecting more homes under construction and longer construction cycles.
- Investment assets increased 22%, including a 61% increase in owned real estate leased or intended to be leased. Nine homes and two commercial buildings were leased at October 31, 2023.
- Interest income increased to $163,000 for the quarter and $211,000 for six months as the Company held cash and short-term investments.
- The prior-year periods included pension-related other comprehensive income of $77,000 for the quarter and $143,000 for six months; no such income was recorded in 2023.
Outlook, Commentary, Risks and Unusual Items
Management cited higher mortgage rates, inflation, housing affordability pressure, weaker consumer sentiment, skilled-labor and building-material shortages, and delays in municipal approvals and inspections. The Company expects these conditions to affect land development and homebuilding through at least the remainder of fiscal 2024.
AMREP has provided sales incentives on certain homes, opportunistically leased completed homes, slowed housing starts and land development, reduced the number and scope of active land projects, and delayed certain new projects. Management expects reduced developed residential land revenue during the remainder of fiscal 2024 compared with fiscal 2023.
At October 31, 2023, 41 homes were in production, including 16 under contract. These contracted homes represented approximately $7.7 million of expected revenue at closing, subject to cancellations and change orders.
No real estate inventory or investment-asset impairment charges were recorded in either comparative period, but management noted that market volatility and development costs could result in future impairment charges. Revenue concentration is material: one customer represented $3.2 million of quarterly revenue, and two customers represented $3.5 million and $6.0 million of six-month revenue.
The filing reports no off-balance-sheet arrangements and no material changes to internal control over financial reporting. Disclosure controls were deemed effective as of October 31, 2023.
Important Facts for Investors to Verify
- Whether lower land-sale activity and reduced project starts persist through the remainder of fiscal 2024.
- The conversion of the $7.7 million homebuilding backlog into closings, including cancellations, incentives and change orders.
- The effect of mortgage rates, affordability, labor and material costs, and municipal delays on volumes and gross margins.
- The valuation and recoverability of $63.879 million of real estate inventory and $16.800 million of investment assets, including potential impairment exposure.
- Customer and transaction concentration in land development revenue.
- The availability and terms of the revolving credit facility, including the $1.323 million letter of credit and $250,000 card reserve.
- The filing’s interim results are unaudited and are not necessarily indicative of full-year performance.