AMREP CORP. - Quarter Report: 2022 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, 2022

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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 2, 2022 – 5,254,909.

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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

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

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AMREP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months ended July 31, 2022 and 2021

(Amounts in thousands, except per share amounts)

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

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AMREP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months ended July 31, 2022 and 2021

(Amounts in thousands)

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

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AMREP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

Three Months ended July 31, 2022 and 2021

(Amounts in thousands)

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

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AMREP CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months ended July 31, 2022 and 2021

(Amounts in thousands)

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

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AMREP CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended July 31, 2022 and 2021

(1)           SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES

The accompanying unaudited condensed 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. Unless the context otherwise indicates, all references to the Company in this quarterly report on Form 10-Q include the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited condensed 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 2023 and 2022 are to the fiscal years ending April 30, 2023 and 2022.

The unaudited condensed 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, 2022, which was filed with the SEC on July 21, 2022 (the “2022 Form 10-K”). Certain 2022 balances in these condensed consolidated 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 condensed consolidated financial statements are consistent with the accounting policies described in the 2022 Form 10-K.

New Accounting Pronouncements

There are no new accounting standards or updates to be adopted that the Company currently believes might have a significant impact on its condensed 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

Investment assets consist of land held for long-term investment.

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(4)          OTHER ASSETS

Other assets consist of (in thousands):

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Prepaid expenses as of July 31, 2022 primarily consist of stock compensation, insurance and real estate taxes. Prepaid expenses as of April 30, 2022 primarily consist of insurance, stock compensation, real estate taxes and utility deposits. Amortized lease cost for right-of-use assets associated with the leases of office facilities was $6,000 and $24,000 for the three months ended July 31, 2022 and July 31, 2021. Depreciation expense associated with property and equipment was $8,000 and less than $1,000 for the three months ended July 31, 2022 and July 31, 2021.

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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

The following tables present information on the Company’s notes payable during the three months ended July 31, 2022 (dollars in thousands):

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As of July 31, 2022, the Company was in compliance with the financial covenants contained in the loan documentation for the then outstanding notes payable. Except as described below, refer to Note 6 to the consolidated financial statements contained in the 2022 Form 10-K for additional detail about each of the above notes payable.

Equipment Financing. In June 2022, Rioscapes LLC (“Rioscapes”), a subsidiary of the Company, entered into a Loan Contract-Security Agreement with Deere & Company (“DC”). The loan is secured by a security interest in certain construction equipment. DC lent $50,000 to Rioscapes on a non-revolving line of credit basis to fund the acquisition of the construction equipment. AMREP Southwest Inc. (“ASW”), a subsidiary of AMREP Corporation, guaranteed Rioscapes’s obligations under the loan. The outstanding principal amount of the loan may be prepaid at any time without penalty. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to 2.35%. Rioscapes made certain representations and warranties in connection with this loan and is required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including: Rioscapes’s failure to make principal, interest or other payments when due; the failure of Rioscapes to observe or perform its covenants under the loan documentation; the representations and warranties of Rioscapes being false; the insolvency or bankruptcy of Rioscapes or ASW; the merger by Rioscapes or ASW into another entity; and the sale by Rioscapes or ASW of substantially all of their assets. Upon the occurrence and during the continuance of an event of default, DC may declare the outstanding principal amount and all other obligations under the loan immediately due and payable. Rioscapes incurred customary costs and expenses and paid certain fees to DC in connection with the loan.

As of July 31, 2022, the Company had a letter of credit outstanding under its Revolving Line of Credit in the principal amount of $1,323,000 in favor of a municipality guarantying the completion of improvements in a subdivision being constructed by the Company. As of July 31, 2022, the Company had loan reserves outstanding under its note payable for La Mirada in the aggregate principal amount of $2,364,000 in favor of a municipality guarantying the completion of improvements in a subdivision being constructed by the Company. The amounts under the letter of credit and loan reserves are not reflected as outstanding principal in notes payable.

The following table summarizes the notes payable scheduled principal repayments subsequent to July 31, 2022 (in thousands):

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(7)          REVENUES

Land sale revenues. Substantially all of the land sale revenues were received from two customers for the three months ended July 31, 2022 and three customers for the three months ended July 31, 2021. There were no outstanding receivables from these customers as of July 31, 2022 or July 31, 2021.

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

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Refer to Note 7 to the consolidated financial statements contained in the 2022 Form 10-K for additional detail about each category of other revenues. Miscellaneous other revenues for the three months ended July 31, 2022 primarily consist of a non-refundable option payment and a forfeited deposit. 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, a non-refundable option payment and proceeds from the sale of equipment.

Major customers. There were two customers with revenues in excess of 10% of the Company’s revenues during the three months ended July 31, 2022. The revenues for each such customer during the three months ended July 31, 2022 were as follows: $2,360,000 and $2,341,000, with each of these revenues reported in the Company’s land development business segment. 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 were as follows: $4,200,000 and $1,700,000, with each of these revenues reported in the Company’s land development business segment.

(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 2022 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 income tax effect. The Company recorded, net of tax, other comprehensive income of $66,000 during each of the three months ended July 31, 2022 and July 31, 2021 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, 2022 or July 31, 2021.

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Equity compensation plan

Refer to Note 11 to the consolidated financial statements contained in the 2022 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, 2022 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 $22,000 and $16,000 during the three months ended July 31, 2022 and July 31, 2021. As of July 31, 2022, there was $221,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plan that had not vested as of those dates, which is expected to be recognized over the remaining vesting term not to exceed three years.

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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 during each of the three months ended July 31, 2022 and July 31, 2021. As of July 31, 2022, there was $53,000 of accrued compensation expense related to the deferred stock units expected to be issued in December 2022. As of July 31, 2021, there was $53,000 of accrued compensation expense related to the deferred stock units issued in December 2021.

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(10)          OTHER INCOME

There was no other income for the three months ended July 31, 2022. Other income for the three months ended July 31, 2021 consists of $185,000 received in connection with a bankruptcy of a warranty provider and $45,000 of debt forgiveness with respect to a note payable.

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(11)         RISKS AND UNCERTAINTIES

During the three months ended July 31, 2022, the Company has experienced supply chain constraints, increases in the prices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land development business segment and homebuilding business segment, which have caused delays in construction and the realization of revenues and increases in cost of revenues. In addition, a significant increase in mortgage interest rates during the first half of 2022 has tempered demand for new homes. The rising cost of housing due to increases in average sales prices in recent years and the recent increases in mortgage interest rates, coupled with general inflation in the U.S. economy, have placed additional pressure on overall housing affordability and have caused many potential home buyers to pause and reconsider their housing choices. Given the affordability challenges described above and the resulting impact on demand, the Company has increased sales incentives on certain homes classified as homebuilding finished inventory or homebuilding construction in process. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of 2022.

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(12)         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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(13)         SUBSEQUENT EVENTS

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Refer to Note 6 to the consolidated financial statements contained in the 2022 Form 10-K for detail regarding the Loan Agreement (the “Loan Agreement”) entered into between BOKF, NA dba Bank of Albuquerque (“BOKF”) and ASW, in which BOKF agrees to lend up to $4,000,000 to ASW on a revolving line of credit basis for general corporate purposes. In August 2022, ASW and BOKF entered into the Third Modification Agreement to the Loan Agreement and ASW entered into the First Amended and Restated Revolving Line of Credit Promissory Note in favor of BOKF. These documents resulted in the following changes to the revolving line of credit financing facility: (a) the maximum amount available for borrowing increased by $1,750,000 to a new total maximum amount of $5,750,000, (b) the interest rate on borrowed amounts is equal to the one-month secured overnight financing rate as administered by the CME Group Benchmark Administration Limited plus a spread of 3.15%, adjusted monthly, and (c) the scheduled maturity date of the loan is August 15, 2025. ASW incurred customary costs and expenses and paid certain fees to BOKF in connection with this modification.

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

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. Unless the context otherwise indicates, all references to the Company in this quarterly report on Form 10-Q include the Company and its subsidiaries. The following provides information that management believes is relevant to an assessment and understanding of the Company’s condensed consolidated results of operations and financial condition. The information contained in this Item 2 should be read in conjunction with the condensed 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, 2022, which was filed with the Securities and Exchange Commission on July 21, 2022 (the “2022 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 2023 and 2022 are to the fiscal years ending April 30, 2023 and 2022.

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 2022 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 2022 Form 10-K and in Note 1 to the condensed consolidated financial statements included in this report on Form 10-Q. The preparation of those condensed 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 condensed 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.

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The Company’s critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 2022 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 2022 Form 10-K. The Company did not adopt any accounting policy in the three months ended July 31, 2022 that had a material effect on its condensed consolidated financial statements.

RESULTS OF OPERATIONS

For the three months ended July 31, 2022, the Company had net income of $1,912,000, or $0.36 per diluted share, compared to net income of $1,637,000, or $0.22 per diluted share, for the three months ended July 31, 2021.

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

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During the three months ended July 31, 2022, the Company has experienced supply chain constraints, increases in the prices of building materials, shortages of skilled labor and delays in municipal approvals and inspections in both the land development business segment and homebuilding business segment, which have caused delays in construction and the realization of revenues and increases in cost of revenues per lot and per home. In addition, a significant increase in mortgage interest rates during the first half of 2022 has tempered demand for new homes. The rising cost of housing due to increases in average sales prices in recent years and the recent increases in mortgage interest rates, coupled with general inflation in the U.S. economy, have placed additional pressure on overall housing affordability and have caused many potential home buyers to pause and reconsider their housing choices. Given the affordability challenges described above and the resulting impact on demand, the Company has increased sales incentives on certain homes classified as homebuilding finished inventory or homebuilding construction in process. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of 2022.

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

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The change in the average selling price per acre of developed residential land for the three months ended July 31, 2022 compared to the three months ended July 31, 2021 was primarily due to the location and mix of lots sold.

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As of July 31, 2022, the Company had 32 homes in production, including 13 homes under contract, which homes under contract represented $7,535,000 of expected home sale revenues when closed, subject to customer cancellations and change orders.

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Refer to Note 7 to the consolidated financial statements contained in the 2022 Form 10-K for additional detail about the categories of other revenues. Miscellaneous other revenues for the three months ended July 31, 2022 primarily consist of a non-refundable option payment and a forfeited deposit. 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, a non-refundable option payment and proceeds from the sale of equipment.

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. Interest income, net was $7,000 and $1,000 for the three months ended July 31, 2022 and July 31, 2021. The change in interest income, net was primarily due to interest earned in connection with a refund of federal income taxes.

Other income. Refer to Note 10 to the condensed consolidated financial statements included in this report on Form 10-Q for detail regarding other income.

Provision for income taxes. The Company had a provision for income taxes of $661,000 and $389,000 for the three months ended July 31, 2022 and July 31, 2021. The provision for income taxes correlated to the amount of income before income taxes during each period.

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 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 may require financing, 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 2022 Form 10-K.

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Cash Flow. The following presents information on the cash flows for the Company (dollars in thousands):

Operating Activities. Net cash provided by operating activities for the three months ended July 31, 2022 was higher than the three months ended July 31, 2021 by $4,728,000 primarily due to an increase in the Company’s net income and the amount of change during each period in real estate inventory and investment assets and in accounts payable and accrued expenses.

Investing Activities. Net cash used in investing activities for the three months ended July 31, 2022 was higher than the three months ended July 31, 2021 by $117,000 primarily due to the purchase of equipment.

Financing Activities. Net cash provided by financing activities for the three months ended July 31, 2022 was lower than the three months ended July 31, 2021 by $2,890,000 primarily due to a reduction in proceeds from debt financing partially offset by a reduction in principal debt repayments. Notes payable increased from $2,030,000 as of April 30, 2022 to $2,080,000 as of July 31, 2022 due to equipment purchases. Refer to Note 6 to the condensed consolidated financial statements included in this report on Form 10-Q and Note 6 to the consolidated financial statements contained in the 2022 Form 10-K for detail regarding each of the Company’s notes payable.

Asset and Liability Levels. The following presents information on certain asset and liability levels (dollars in thousands):

(a) Percentage not meaningful.

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