AMREP CORP. - Quarter Report: 2021 July (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 July 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 September 9, 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 Months ended July 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 Months ended July 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)

(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)

Three Months ended July 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 Months Ended July 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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Depreciation associated with the buildings was $103,000 and $105,000 for the three months ended July 31, 2021 and July 31, 2020.

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(4)          OTHER ASSETS

Other assets consist of (in thousands):

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Prepaid expenses as of July 31, 2021 primarily consist of stock compensation and prepayments for a public improvement district. Amortized lease cost for right-of-use assets associated with the leases of office facilities was $24,000 and $26,000 for three months ended July 31, 2021 and July 31, 2020. Depreciation expense associated with property and equipment was less than $1,000 and $7,000 for three months ended July 31, 2021 and July 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 three months ended July 31, 2021 (dollars in thousands):

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As of July 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.

During the three months ended July 31, 2021, the outstanding principal amount of the note payable identified as “Lavender Fields – acquisition” was prepaid in full without penalty following the parties agreeing to reduce the outstanding principal amount by $45,000, which was recognized as Other income.

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

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(7)          REVENUES

Land sale revenues. Substantially all of the land sale revenues were received from 3 customers for the three months ended July 31, 2021 and 4 customers for the three months ended July 31, 2020. There were no outstanding receivables from these customers as of July 31, 2021 or July 31, 2020.

Other revenues. Other revenues consist of (in thousands):

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Refer to Note 7 to the consolidated financial statements contained in the 2021 Form 10-K for additional detail about each category of Other revenues. Miscellaneous other revenues for the three months ended July 31, 2021 primarily consist of rent received from a tenant at a building in Palm Coast, Florida, payments for impact fee credits, a non-refundable option payment and sale of equipment. Miscellaneous other revenues for the three months ended July 31, 2020 primarily consist of payments for impact fee credits and rent received from a tenant at a building in Palm Coast, Florida.

Major customers: There were two customers with revenues in excess of 10% of the Company’s revenues during the three months ended July 31, 2021. The revenues for each such customer during the three months ended July 31, 2021 are as follows: $4,200,000 and $1,700,000, with each of these revenues reported in the Company’s land development business segment. There were three customers with revenues in excess of 10% of the Company’s revenues during the three months ended July 31, 2020. The revenues for each such customer during the three months ended July 31, 2020 are as follows: $1,900,000, $1,000,000 and $433,000, with each of these revenues reported in the Company’s land development business segment.

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(8)          GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist of (in thousands):

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(9)          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 $66,000 and $90,000 during the three months ended July 31, 2021 and July 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 months ended July 31, 2021 or July 31, 2020.

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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 three months ended July 31, 2021 and July 31, 2020 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 $16,000 and $18,000 during the three months ended July 31, 2021 and July 31, 2020. As of July 31, 2021 and July 31, 2020, there was $167,000 and $94,000 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.

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 $23,000 and $22,000 during the three months ended July 31, 2021 and July 31, 2020.  As of July 31, 2021 and July 31, 2020, there was $53,000 and $62,000 of accrued compensation expense related to the deferred stock units expected to be issued in December 2021.

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(10)          OTHER INCOME

Other income for the three months ended July 31, 2021 consisted of $185,000 received in connection with a bankruptcy of a warranty provider and $45,000 of debt forgiveness with respect to the note payable identified as “Lavender Fields – acquisition” in Note 6. Other income for the three months ended July 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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(11) 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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Prior to July 31, 2020, the Company operated in primarily one business segment: the real estate business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

AMREP Corporation (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. The following provides information that management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The information contained in this section should be read in conjunction with the consolidated financial statements and related notes thereto included in this report on Form 10-Q and with the Company’s annual report on Form 10-K for the year ended April 30, 2021, which was filed with the Securities and Exchange Commission on July 27, 2021 (the “2021 Form 10-K”). Many of the amounts and percentages presented in this Item 2 have been rounded for convenience of presentation. Unless the context otherwise indicates, all references to 2022 and 2021 are to the fiscal years ending April 30, 2022 and 2021.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the 2021 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the 2021 Form 10-K and in Note 1 to the consolidated financial statements included in this report on Form 10-Q. The preparation of those consolidated financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates and assumptions.

The Company’s critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 2021 Form 10-K. There have been no changes in these critical accounting policies.

Information concerning the Company’s implementation and the impact of recent accounting standards or updates issued by the Financial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 2021 Form 10-K and in the notes to the consolidated financial statements included in this report on Form 10-Q. The Company did not adopt any accounting policy in the three months ended July 31, 2021 that had a material effect on its consolidated financial statements.

RESULTS OF OPERATIONS

For the three months ended July 31, 2021, the Company had net income of $1,637,000, or $0.22 per diluted share, compared to net income of $593,000, or $0.07 per diluted share, for the three months ended July 31, 2020.

Revenues. The following presents information on revenues for the Company’s operations (dollars in thousands):

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¹ Revenues per acre may not calculate precisely due to the rounding of revenues to the nearest thousand dollars.

The decrease in the average selling price per acre of developed residential land for the three months ended July 31, 2021 compared to the three months ended July 31, 2020 was primarily due to the location and mix of lots sold.

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Refer to Note 7 to the consolidated financial statements contained in the 2021 Form 10-K for additional detail about each category of Other revenues. Miscellaneous other revenues for the three months ended July 31, 2021 primarily consist of rent received from a tenant at a building in Palm Coast, Florida, payments for impact fee credits, a non-refundable option payment and sale of equipment. Miscellaneous other revenues for the three months ended July 31, 2020 primarily consist of payments for impact fee credits and rent received from a tenant at a building in Palm Coast, Florida.

As of July 31, 20201, the Company owns a 143,000 square foot warehouse and office facility located in Palm Coast, Florida, which was leased to a third party through August 2020 and a portion of which is leased to a third party after August 2020. The Company owned a 61,000 square foot warehouse and office facility located in Palm Coast, Florida in 2021, which was leased to a third party through August 2020 and which was sold in April 2021.

Cost of Revenues. The following presents information on cost of revenues for the Company’s operations (dollars in thousands):

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General and Administrative Expenses. The following presents information on general and administrative expenses for the Company’s operations (dollars in thousands):

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Interest income, net decreased to $1,000 for the three months ended July 31, 2021 from $6,000 for the three months ended July 31, 2020, primarily due to lower interest rates on cash balances.

Other income for the three months ended July 31, 2021 consisted of $185,000 received in connection with a bankruptcy of a warranty provider and $45,000 of debt forgiveness with respect to the note payable identified as “Lavender Fields – acquisition” in Note 6 to the consolidated financial statements included in this report on Form 10-Q. Other income for the three months ended July 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).

The Company had a provision for income taxes of $389,000 for the three months ended July 31, 2021 compared to a provision for income taxes of $146,000 for the three months ended July 31, 2020.

LIQUIDITY AND CAPITAL RESOURCES

AMREP Corporation is a holding company that conducts substantially all of its operations through subsidiaries. As a holding company, AMREP Corporation is dependent on its available cash and on cash from subsidiaries to pay expenses and fund operations. The Company’s liquidity is affected by many factors, including some that are based on normal operations and some that are related to the real estate industry and the economy generally.

The Company’s primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects, a revolving line of credit and existing cash balances. Land and homebuilding properties generally cannot

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be sold quickly, and the ability of the Company to sell properties has been and will continue to be affected by market conditions. The ability of the Company to generate cash flow from operations is primarily dependent upon its ability to sell the properties it has selected for disposition at the prices and within the timeframes the Company has established for each property. The development of additional lots for sale, construction of homes or pursuing other real estate projects will require financing or other sources of funding, which may not be available on acceptable terms (or at all). If the Company is unable to obtain such financing, the Company’s results of operations could be adversely affected. Except as described below, there have been no material changes to the Company’s liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2021 Form 10-K.

Operating Activities

The following presents information on the Company’s operating activities (dollars in thousands):

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