AMREP CORP. annual report, FY2022

AMREP Corporation — Form 10-K Summary

Reporting period: Fiscal year ended April 30, 2022, compared with fiscal year ended April 30, 2021. Although the request metadata references “2021 Q4,” the filing is the Company’s fiscal 2022 annual report, not a calendar-quarter filing.

Business Context

AMREP operates primarily through two segments: land development and homebuilding. Its business is concentrated in Rio Rancho and adjoining areas of Sandoval County, New Mexico, with additional real estate interests in New Mexico and Colorado. The Company owned approximately 17,000 acres in Sandoval County as of July 1, 2022 and had 22 full-time employees. The common stock trades on the NYSE under the symbol AXR.

Financial Performance and Metrics

Metric	FY 2022	FY 2021	Change
Total revenues	$62.479 million	$40.069 million	+56%
Operating income	$21.303 million	$9.047 million	+135%
Net income	$15.862 million	$7.392 million	+115%
Diluted EPS	$2.21	$0.95	+133%
Net cash from operating activities	$15.476 million	$12.609 million	+23%
Cash, cash equivalents and restricted cash	$15.721 million	$24.801 million	-$9.080 million
Notes payable, net	$2.030 million	$3.448 million	-41%

Land sale revenue increased to $38.564 million from $25.175 million, primarily because of significant undeveloped-land sales, commercial land sales and stronger builder demand. The Company sold 1,288.8 acres in FY 2022, including 1,233.5 acres of undeveloped land, compared with 133.7 acres in FY 2021.

Home sale revenue increased to $13.565 million from $3.079 million as homebuilding expanded. Homes sold increased to 41 from 14, while average selling price increased to approximately $331,000 from $220,000.

Building sales and other revenue decreased to $10.350 million from $11.815 million. FY 2022 included the sale of a La Mirada retail building and a 143,000-square-foot Palm Coast, Florida warehouse and office facility. These property sales are not expected to be indicative of recurring results.

Land sale gross margin increased to 45.0% from 31.3%, and home sale gross margin increased to 24.5% from 16.1%. Consolidated operating margin was approximately 34.1% in FY 2022 versus 22.6% in FY 2021. The filing does not present a consolidated gross margin percentage.

Financial Position, Liquidity and Debt

Real estate inventory increased 21% to $67.249 million, including $59.374 million of New Mexico land inventory and $4.441 million of homebuilding inventory and construction in process.
Investment assets decreased to $9.017 million from $13.582 million, primarily following the sale of the Palm Coast facility.
Shareholders’ equity was $83.162 million at April 30, 2022, compared with $88.889 million at April 30, 2021, reflecting the substantial share repurchase.
Net cash used in investing activities was $1.195 million, primarily reflecting the acquisition of a 7,000-square-foot Rio Rancho office building.
Net cash used in financing activities was $23.361 million, including $21.904 million for share repurchases.
The Company had $2.030 million of outstanding notes payable at year-end. Existing facilities included a revolving line of credit with up to $4.0 million of commitments and a La Mirada development facility with up to $7.375 million of commitments; amounts available for new borrowings were subject to applicable conditions and covenants.
A $1.323 million letter of credit and $2.364 million of loan reserves supported municipal improvement obligations and were not recorded as outstanding debt.
Management stated that available cash, bank financing and operating cash flows were adequate for anticipated FY 2023 spending. Real estate assets are illiquid, and future development and acquisitions may require additional financing.

Material Changes Versus Prior Period

Revenue growth was driven by a large increase in undeveloped-land sales and expansion of the homebuilding operation.
Gross margins improved due to the mix and location of land sold, higher selling prices and homebuilding efficiencies.
General and administrative expense was broadly stable at $5.354 million versus $5.420 million; land development and homebuilding costs increased, while corporate costs declined.
The Company repurchased and retired 2,096,061 shares in March 2022 at $10.45 per share for approximately $21.904 million. Shares outstanding declined to approximately 5.240 million at April 30, 2022 from 7.323 million at April 30, 2021.
Homebuilding inventory and construction in process increased materially as the business expanded.
The frozen defined benefit pension plan improved from an underfunded position of $476,000 to an overfunded position of $90,000, with no cash contribution required in FY 2022.

Guidance, Outlook, Risks and Unusual Items

The Company provided no formal revenue or earnings guidance. Management expected adequate funding for anticipated FY 2023 spending but cautioned that past performance, including the FY 2022 undeveloped-land sale, should not be viewed as indicative of future results.

Supply-chain constraints, higher material costs, skilled-labor shortages and delays in municipal approvals and inspections increased costs and delayed construction and revenue recognition.
Higher mortgage rates, inflation, limited housing inventory, economic uncertainty and COVID-19-related disruptions could reduce demand, pricing, margins, cash flow and access to financing.
Approximately 99% of FY 2022 developed residential land-sale revenue came from four homebuilders, creating customer concentration risk. Four customers each contributed more than 10% of consolidated revenue.
Operations are geographically concentrated in New Mexico, exposing the Company to regional economic and real estate conditions.
Land development cost allocations and impairment testing rely on estimates of future selling prices, development costs, holding periods and costs to complete. Future impairment charges could be material; no non-cash impairment charges were recorded in FY 2022 or FY 2021.
FY 2022 other income of $261,000 included $185,000 related to a warranty-provider bankruptcy, $45,000 of debt forgiveness and $30,000 from a life insurance policy. FY 2021 other income included a $650,000 tenant settlement and $300,000 of Paycheck Protection Program debt forgiveness.
The CEO entered into a November 2021 employment agreement providing, under specified termination circumstances, severance equal to 200% of the applicable annual base salary plus accelerated vesting of outstanding equity awards.
The Company had pending or threatened ordinary-course claims and legal actions, but management believed they would not materially affect consolidated financial position, liquidity or results of operations.

Important Facts for Investors to Verify

Whether FY 2022 land-sale revenue and margins can be sustained without another unusually large undeveloped-land transaction.
Homebuilding order volume, cancellations, backlog conversion and the profitability of the 38 homes in production at April 30, 2022, including 17 under contract representing $8.713 million of expected revenue.
Availability and covenant conditions on the revolving credit and development facilities, including the requirement for qualifying subsidiaries to maintain specified cash and net-worth levels.
Exposure to material, labor, municipal-approval and mortgage-rate changes, and their effect on costs, delivery timing and demand.
Recoverability of the $67.249 million real estate inventory balance and sensitivity of land-sale cost allocations to revised development costs and selling prices.
Customer concentration, geographic concentration in New Mexico and the liquidity impact of any future share repurchases.
State net operating loss carryforwards of $93.603 million, related valuation allowances and expiration beginning in fiscal 2025.
The Company’s ability to maintain cash generation after the $21.904 million FY 2022 share repurchase and while funding expanded homebuilding and land development.