AMREP CORP. - Quarter Report: 2021 October (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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For the quarterly period ended October 31, 2021

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For the transition period from ___________ to ___________

Commission File Number: 1-4702

AMREP Corporation

(Exact Name of Registrant as Specified in its Charter)

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Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ⌧

Number of Shares of Common Stock, par value $.10 per share, outstanding at December 3, 2021 – 7,336,370.

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AMREP CORPORATION AND SUBSIDIARIES

INDEX

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PART I. FINANCIAL INFORMATION

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Item 1.  Financial Statements

AMREP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share amounts)

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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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AMREP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three and Six Months ended October 31, 2021 and 2020

(Amounts in thousands, except per share amounts)

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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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AMREP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three and Six Months ended October 31, 2021 and 2020

(Amounts in thousands)

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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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AMREP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three and Six Months ended October 31, 2021 and 2020

(Amounts in thousands)

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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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AMREP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months ended October 31, 2021 and 2020

(Amounts in thousands)

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The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.

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AMREP CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Three and Six Months Ended October 31, 2021 and 2020

(1)           SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared by AMREP Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company, through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales or activities outside the United States. All references to the Company in this quarterly report on Form 10-Q include the Registrant and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited consolidated financial statements include all adjustments, which are of a normal recurring nature, considered necessary to reflect a fair presentation of the results for the interim periods presented.  The results of operations for such interim periods are not necessarily indicative of what may occur in future periods.  Unless the context otherwise indicates, all references to 2022 and 2021 are to the fiscal years ending April 30, 2022 and 2021.

The unaudited consolidated financial statements herein should be read in conjunction with the Company’s annual report on Form 10-K for the year ended April 30, 2021, which was filed with the SEC on July 27, 2021 (the “2021 Form 10-K”).  Certain 2021 balances in these financial statements have been reclassified to conform to the current year presentation with no effect on net income or shareholders’ equity.

Summary of Significant Accounting Policies

The significant accounting policies used in preparing these consolidated financial statements are consistent with the accounting policies described in the 2021 Form 10-K, except for those adopted as described below.

New Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which removes certain exceptions for companies related to tax allocations and simplifies when companies recognize deferred tax liabilities in an interim period. ASU 2019-12 was effective for the Company’s fiscal year beginning May 1, 2021. The adoption of ASU 2019-12 by the Company did not have any effect on its consolidated financial statements.

There are no other new accounting standards or updates to be adopted that the Company currently believes might have a significant impact on its consolidated financial statements.

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(2)         REAL ESTATE INVENTORY

Real estate inventory consists of (in thousands):

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(3)          INVESTMENT ASSETS, NET

Investment assets, net consist of (in thousands):

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As of April 30, 2021, buildings were comprised of a 143,000 square foot warehouse and office facility located in Palm Coast, Florida. In October 2021, the Company sold this 143,000 square foot warehouse and office facility. Depreciation associated with buildings was $98,000 and $140,000 for the three months ended October 31, 2021 and October 31, 2020 and $201,000 and $262,000 for the six months ended October 31, 2021 and October 31, 2020.

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(4)          OTHER ASSETS

Other assets consist of (in thousands):

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Prepaid expenses as of October 31, 2021 primarily consisted of stock compensation, insurance and utility deposits. Amortized lease cost for right-of-use assets associated with the leases of office facilities was $24,000 and $26,000 for the three months ended October 31, 2021 and October 31, 2020 and $36,000 and $63,000 for the six months ended October 31, 2021 and October 31, 2020. In August 2021, the Company acquired a 7,000 square foot office building in Rio Rancho, New Mexico from which its real estate business now operates. Depreciation expense associated with property and equipment was $2,000 for each of the three months ended October 31, 2021 and October 31, 2020 and $3,000 and $8,000 for the six months ended October 31, 2021 and October 31, 2020.

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(5)          ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of (in thousands):

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(6)          NOTES PAYABLE

Notes payable, net consist of (in thousands):

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The following tables present information on the Company’s notes payable in effect during the six months ended October 31, 2021 (dollars in thousands):

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As of October 31, 2021, the Company and each of its subsidiaries were in compliance with the financial covenants contained in the loan documentation for the then outstanding notes payable. Refer to Notes 6 and 19 to the consolidated financial statements contained in the 2021 Form 10-K for additional detail about each of the above notes payable.

The note payable identified as “Hawk Site U37” was terminated in October 2021. The outstanding principal amount of the note payable identified as “Lavender Fields – acquisition” was prepaid in full without penalty in June 2021 following the parties agreeing to reduce the outstanding principal amount by $45,000, which was recognized as Other income during the six months ended October 31, 2021.

The following table summarizes the notes payable scheduled principal repayments subsequent to October 31, 2021 (in thousands):

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(7)          REVENUES

Land sale revenues. Substantially all of the land sale revenues were received from three customers for the three and six months ended October 31, 2021 and four customers for the three and six months ended October 31, 2020. There were no outstanding receivables from these customers as of October 31, 2021 or October 31, 2020.

Building sales and other revenues. Building sales and other revenues consist of (in thousands):

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The Company owned a 143,000 square foot warehouse and office facility located in Palm Coast, Florida during the three and six months ended October 31, 2021, which was leased to a third party through August 2020 and a portion of which was leased to the same third party after August 2020. Sale of building during the three and six months ended October 31, 2021 consisted of the sale of this 143,000 square foot warehouse and office facility in October 2021.

Refer to Note 7 to the consolidated financial statements contained in the 2021 Form 10-K for additional detail about each category of building sales and other revenues. Miscellaneous other revenues for the three and six months ended October 31, 2021 primarily consisted of rent received from a tenant at a building in Palm Coast, Florida and tenants at a shopping center in Albuquerque,New Mexico, payments for impact fee credits, a non-refundable option payment and sale of equipment. Miscellaneous other revenue for the three and six months ended October 31, 2020 primarily consisted of rent received from a tenant at a building in Palm Coast, Florida, payments for impact fee credits and a land condemnation.

Major customers:

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(8)          COST OF REVENUES

Building sales and other cost of revenues during the three and six months ended October 31, 2021 consist of the sale of a 143,000 square foot warehouse and office facility located in Palm Coast, Florida.

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(9)          GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist of (in thousands):

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(10)          BENEFIT PLANS

Pension plan

Refer to Note 11 to the consolidated financial statements contained in the 2021 Form 10-K for detail regarding the Company’s defined benefit pension plan. The Company recognizes the known changes in the funded status of the pension plan in the period in which the changes occur through other comprehensive income, net of the related deferred income tax effect. The Company recorded, net of tax, other comprehensive income of $67,000 and $90,000 during the three months ended October 31, 2021 and October 31, 2020 and $133,000 and $180,000 during the six months ended October 31, 2021 and October 31, 2020 to account for the net effect of changes to the unfunded portion of pension liability. The Company funds the pension plan in compliance with IRS funding requirements. The Company did not make any contributions to the pension plan during the three and six months ended October 31, 2021. The Company made voluntary contributions to the pension plan of $1,847,000 during the three and six months ended October 31, 2020.

Equity compensation plan

Refer to Note 11 to the consolidated financial statements contained in the 2021 Form 10-K for detail regarding the AMREP Corporation 2016 Equity Compensation Plan (the “Equity Plan”).  The summary of the restricted share award activity during the six months ended October 31, 2021 presented below represents the maximum number of shares that could become vested after these dates:

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The Company recognized non-cash compensation expense related to the vesting of restricted shares of common stock net of forfeitures of $31,000 and $25,000 during the three months ended October 31, 2021 and October 31, 2020 and $47,000 and $54,000 during the six months ended October 31, 2021 and October 31, 2020. As of October 31, 2021 and October 31, 2020, there was $137,000 and $73,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plan which had not vested as of those dates, which is expected to be recognized over the remaining vesting term not to exceed three years.

In connection with the resignation of a director in September 2020, the Company (i) issued 12,411 shares of common stock in October 2020 pursuant to an equivalent number of deferred common share units previously issued to such director and (ii) paid $20,000 in September 2020 to such director in lieu of issuance of deferred common share units earned for calendar year 2020.

Director compensation non-cash expense, which is recognized for the expected annual grant of deferred common share units to non-employee members of the Company’s Board of Directors ratably over the director’s service in office during the calendar year, was $22,000 and $21,000 during the three months ended October 31, 2021 and October 31, 2020 and $45,000 and $35,000 during the six months ended October 31, 2021 and October 31, 2020. As of October 31, 2021, there was $75,000 of accrued compensation expense

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related to the deferred stock units expected to be issued in December 2021. As of October 31, 2020, there was $82,000 of accrued compensation expense related to the deferred stock units issued in December 2020.

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(11)          OTHER INCOME

Other income for the three months ended October 31, 2021 consisted of $30,000 received for a life insurance policy for a retired executive of the Company. Other income for the six months ended October 31, 2021 consisted of $185,000 received in connection with a bankruptcy of a warranty provider, $45,000 of debt forgiveness with respect to the note payable identified as “Lavender Fields – acquisition” in Note 6 above and $30,000 received for a life insurance policy for a retired executive of the Company. Other income for the six months ended October 31, 2020 consisted of a settlement payment of $650,000 from a former business segment (refer to Note 3 to the consolidated financial statements contained in the 2021 Form 10-K for detail regarding the settlement agreement).

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(12)         STOCK REPURCHASES

In August 2020, the Company repurchased 11,847 shares of common stock of the Company at a price of $4.48 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.

In September 2020, the Board of Directors of the Company authorized the Company to purchase up to 1,000,000 shares of common stock of the Company from time to time pursuant to a share repurchase program, subject to the total expenditure for the purchase of shares under the share repurchase program not exceeding $5,000,000, exclusive of any fees, commissions and other expenses related to such repurchases. Under the share repurchase program, the Company was authorized to repurchase its common stock from time to time, in amounts, at prices, and at such times as the Company deemed appropriate, subject to market conditions, legal requirements and other considerations. The Company’s repurchases could be executed using open market purchases, unsolicited or solicited privately negotiated transactions or other transactions, and could be effected pursuant to trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program did not obligate the Company to repurchase any specific number of shares and could be suspended, modified or terminated at any time without prior notice. The share repurchase program did not contain a time limitation during which repurchases were permitted to occur. In October 2020, the Company repurchased 675,616 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction pursuant to the share repurchase program. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.

In November 2020, the Company repurchased 143,482 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock. The share repurchase was not completed pursuant to the Company’s share repurchase program.

In November 2020, the Company’s share repurchase program was terminated.

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(13)         INFORMATION ABOUT THE COMPANY’S OPERATIONS IN DIFFERENT INDUSTRY SEGMENTS

The following tables set forth summarized data relative to the industry segments in which the Company operated for the periods indicated (in thousands):

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