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 filing covers the three months ended July 31, 2023, the Company’s fiscal 2024 first quarter, with comparisons to the three months ended July 31, 2022. The financial statements are unaudited.
Key financial metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Total revenue | $10.289 million | $10.707 million | Down 4% |
| Operating income | $2.023 million | $2.566 million | Down 21% |
| Net income | $1.346 million | $1.912 million | Down 30% |
| Diluted EPS | $0.25 | $0.36 | Down $0.11 |
| Operating margin | 19.7% | 24.0% | Down 4.3 percentage points |
| Net margin | 13.1% | 17.9% | Down 4.8 percentage points |
| Operating cash flow | $1.827 million | $0.262 million | Increase of $1.565 million |
| Cash and equivalents | $21.777 million | $15.915 million | Prior-year quarter-end comparison |
- Land sale revenue increased 29% to $6.658 million, supported by higher developed land sales and 18.8 acres sold versus 12.8 acres in the prior-year quarter.
- Home sale revenue decreased 37% to $3.402 million. Homes sold declined to six from 11, while average selling price increased to approximately $567,000 from $494,000.
- Land sale gross margin was 36% in both periods. Home sale gross margin declined to 29% from 33%.
- General and administrative expenses increased 35% to $1.575 million, primarily due to higher property tax accruals, pension benefit expenses, professional services and homebuilding expansion.
- Cash increased $1.784 million during the quarter. Investing cash use was $40,000 and financing cash use was $3,000.
- Total assets were $116.907 million and shareholders’ equity was $112.358 million at July 31, 2023. Total liabilities were $4.549 million.
- Real estate inventory was $63.443 million, down from $65.625 million at April 30, 2023. Investment assets increased to $16.544 million from $13.747 million, principally because of owned real estate leased or intended to be leased.
- Outstanding notes payable were $41,000, down from $44,000 at April 30, 2023. The Company had a $4.177 million revolving credit facility available for new borrowings, with no principal outstanding, subject to stated reserves and commitments.
Material changes versus the prior comparable period
- Revenue mix shifted toward land sales and away from homebuilding. Land development segment revenue increased to $7.486 million from $6.166 million, while homebuilding revenue decreased to $2.803 million from $4.541 million.
- Consolidated profitability declined despite stable land margins, primarily because of lower home volumes, lower homebuilding margins and higher general and administrative expenses.
- Operating cash flow improved materially, partly reflecting reduced real estate inventory and changes in other operating assets and liabilities.
- Construction in process increased 35% to $2.233 million, while New Mexico land inventory decreased 5% to $56.688 million.
- Investment assets increased 20%, including a 55% increase in owned real estate leased or intended to be leased. Nine homes were leased to residential tenants at July 31, 2023, compared with eight at April 30, 2023.
- No impairment charges were recorded in either comparable period, and no other comprehensive income was recorded in the current quarter versus $66,000 in the prior-year quarter.
Guidance, outlook, risks and unusual items
- Management expects housing affordability challenges, elevated mortgage rates, inflation, supply chain constraints, labor shortages and delays in municipal approvals and inspections to affect the land development and homebuilding businesses through at least the remainder of fiscal 2024.
- The Company has provided sales incentives on certain homes, opportunistically leased completed homes, slowed housing starts and reduced the number and scope of active land development projects.
- Management expects reduced developed residential land revenue during the remainder of fiscal 2024 compared with fiscal 2023 because certain new projects have been delayed.
- At July 31, 2023, 23 homes were in production, including 19 under contract. Contracted homes represented approximately $9.524 million of expected revenue upon closing, subject to cancellations and change orders.
- Two customers each contributed more than 10% of quarterly revenue; their contributions were $2.914 million and $2.795 million. This concentration should be considered when evaluating quarterly results.
- The Company was in compliance with its debt covenants. A $1.323 million letter of credit and $250,000 reserved for credit-card usage were outstanding or reserved under the revolving facility. Additional loan reserves of $2.364 million supported municipal improvement obligations related to the La Mirada loan.
- Management cautions that volatility in market conditions and development costs could result in future impairment charges. No off-balance-sheet arrangements were reported.
- On September 7, 2023, the Board amended the bylaws to establish Oklahoma courts as the exclusive forum for specified corporate claims and federal courts as the exclusive forum for Securities Act claims, subject to the Company’s consent to an alternative forum.
Important facts for investors to verify
- Confirm the sustainability and timing of land-sale activity, given customer concentration and the quarter’s reliance on land revenue.
- Monitor home orders, cancellations, closings, incentives and the $9.524 million contracted backlog, particularly amid affordability and mortgage-rate pressures.
- Assess whether the 29% homebuilding gross margin and elevated construction-in-process balance are affected by labor, materials and municipal delays.
- Review the availability, covenants, collateral, letter of credit and municipal reserves associated with the revolving credit facility and La Mirada financing.
- Evaluate potential impairment exposure for real estate inventory and investment assets if housing demand or land values weaken.
- Reconcile the strong operating cash flow with future land development, homebuilding and project funding requirements.
- Review the amended exclusive-forum bylaw provisions and their potential effect on shareholder litigation rights.