AMREP Corporation Form 10-Q Summary
Business context and reporting period
AMREP Corporation operates primarily through two U.S. business segments: land development and homebuilding. This quarterly report covers the three and nine months ended January 31, 2023, representing the third quarter and first nine months of fiscal 2023. The financial statements are unaudited.
Key financial metrics
| Metric | Three months ended Jan. 31, 2023 | Three months ended Jan. 31, 2022 | Nine months ended Jan. 31, 2023 | Nine months ended Jan. 31, 2022 |
|---|---|---|---|---|
| Total revenue | $9.1 million | $9.4 million | $36.0 million | $35.4 million |
| Operating income (loss) | $(0.5) million | $1.2 million | $6.6 million | $7.3 million |
| Net income | $16.6 million | $0.9 million | $22.1 million | $5.9 million |
| Diluted EPS | $3.12 | $0.12 | $4.17 | $0.80 |
| Net cash provided by (used in) operating activities | Not presented for the quarter | $(1.4) million | $1.4 million |
- Land sale revenue increased 8% in the quarter to $6.4 million and 13% for the nine months to $24.4 million.
- Home sale revenue decreased 22% in the quarter to $2.6 million but increased 66% for the nine months to $11.0 million. Homes sold declined to 5 from 11 in the quarter, while average selling price increased to $549,000 from $307,000.
- Land sale gross margin was 43% for the quarter and 37% for the nine months, compared with 30% in both prior-year periods. Home sale gross margin was 22% for the quarter and 29% for the nine months, compared with 22% in both prior-year periods.
- Cash and cash equivalents were $12.4 million at January 31, 2023, down from $15.7 million at April 30, 2022.
- Real estate inventory was $70.7 million, including $61.4 million of New Mexico land inventory, $3.4 million of Colorado land inventory, $3.1 million of homebuilding model inventory and $2.7 million of construction in process.
- Total assets were $113.1 million and shareholders’ equity was $107.4 million at January 31, 2023, compared with $94.9 million and $83.2 million, respectively, at April 30, 2022.
- Notes payable declined to $250,000 from $2.0 million at April 30, 2022. The Company reported $4.2 million available for new borrowings under its revolving line of credit, subject to facility terms and availability.
- Capital expenditures were $124,000 for the nine months, compared with $1.3 million in the prior-year period.
Material changes versus the prior comparable period
- Quarterly revenue declined 3% because higher land sale revenue was more than offset by lower home sales and lower other revenue. Nine-month revenue increased 2%; the prior-year period included $6.8 million from the sale of a 143,000-square-foot warehouse and office facility.
- Quarterly operating results were reduced by a $2.3 million non-cash pension settlement expense related to $4.7 million of lump-sum payments to 96 former employees.
- Net income benefited from a $16.1 million non-cash income tax benefit associated with a worthless stock deduction for the former fulfillment services business. The deduction generated a $62.2 million tax loss and increased net deferred income taxes to $14.7 million from $1.0 million at April 30, 2022.
- The Company recorded $1.8 million of other income from the sale of minerals and mineral rights covering approximately 147 surface acres in Brighton, Colorado.
- Operating cash flow changed from $1.4 million provided in the prior-year period to $1.4 million used, primarily because of increased real estate and investment assets and reductions in payables and taxes payable.
- Shareholders’ equity increased primarily through net income and other comprehensive income. The common share count was approximately 5.3 million at January 31, 2023 versus approximately 7.3 million at January 31, 2022.
Guidance, outlook, risks and unusual items
- Management expects supply chain constraints, higher building-material costs, skilled-labor shortages, municipal approval and inspection delays, inflation and elevated mortgage rates to continue affecting land development and homebuilding at least through the remainder of calendar 2023.
- The Company has increased sales incentives on certain homes, opportunistically leased completed homes, and slowed housing starts and land development projects in response to affordability-related demand pressure.
- As of January 31, 2023, 25 homes were in production, including 12 under contract representing approximately $6.3 million of expected revenue at closing, subject to cancellations and change orders.
- Management reported two buildings under construction leased to commercial tenants and four homes leased to residential tenants. Completed homes may continue to be leased when market conditions make sales less attractive.
- The tax benefit from the worthless stock deduction depends on generating sufficient future taxable income and may be challenged or adjusted by the IRS. A rejection or reduction could require additional cash tax payments and adversely affect results, liquidity and cash flows. The Company did not record a valuation allowance against the related deferred tax assets.
- Land sale revenue is concentrated among a small number of customers: substantially all land sale revenue came from two customers in the quarter and three customers for the nine months.
- The Company had a $1.3 million letter of credit and $2.4 million of municipal loan reserves outstanding at January 31, 2023, neither of which was recorded as notes payable.
- Management reported no material impairment charges for the periods presented but noted that future impairments could result from changes in market conditions and development costs.
Most important facts for investors to verify
- Whether the $16.1 million tax benefit is ultimately sustained and fully realized, including the potential impact of IRS review and Section 382 limitations.
- Homebuilding demand, cancellations, incentives, backlog conversion and the effect of mortgage rates on sales volumes and margins.
- The timing and profitability of land sales, given customer concentration and variability in transaction mix and gross margins.
- Cash generation and liquidity, particularly the effect of inventory investment, municipal obligations, construction delays and future financing needs.
- Exposure to higher construction costs, labor shortages, supply chain disruptions and municipal approval delays.
- The status of the $4.2 million revolving borrowing availability, financial covenants, the $1.3 million letter of credit and $2.4 million of municipal loan reserves.