AMREP CORPORATION 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 outsidethe 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 endedApril 30, 2020 , which was filed with theSecurities and Exchange Commission onJuly 27, 2020 (the "2020 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 2021 and 2020 are to the fiscal years endingApril 30, 2021 and 2020 and all references to the second quarter and first six months of 2021 and 2020 mean the fiscal three month and six month periods endedOctober 31, 2020 and 2019.
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 2020 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted inthe United States of America and included as part of the 2020 Form 10-K and in Note 1 of the notes 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 2020 Form 10-K. There have been no changes in these critical accounting policies.
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The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 2020 Form 10-K and in Note 1 of the notes to the consolidated financial statements included in this report on Form 10-Q. Information concerning the Company's implementation and the impact of recent accounting standards issued by theFinancial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 2020 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 six months endedOctober 31, 2020 that had a material effect on its consolidated financial statements.
The Company adopted the following accounting policies effective
· In
Accounting Standards Update ("ASU") No. 2018-13, Fair Value Measurement:
Disclosure Framework - Changes to the Disclosure Requirements for Fair Value
Measurement. ASU 2018-13 eliminates certain disclosure requirements for fair
value measurements for all entities, requires public entities to disclose
certain new information and modifies some disclosure requirements to improve
the effectiveness of disclosures in the notes to financial statements. ASU
2018-13 was effective for the Company's fiscal year beginning
adoption of ASU 2018-13 by the Company did not have a material effect on its
consolidated financial statements.
· In
Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure
Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. ASU
2018-14 removes disclosures that no longer are considered cost beneficial,
clarifies the specific requirements of disclosures and adds disclosure
requirements identified as relevant for companies with defined benefit
retirement plans. ASU 2018-14 was effective for the Company's fiscal year
beginning
a material effect on its consolidated financial statements. RESULTS OF OPERATIONS For the three months endedOctober 31, 2020 , the Company recorded net income of$798,000 , or$0.10 per share, compared to a net loss of$2,169,000 , or$0.27 per share, for the three months endedOctober 31, 2019 . For the six months endedOctober 31, 2020 , the Company recorded net income of$1,391,000 , or$0.17 per share, compared to a net loss of$2,365,000 , or$0.29 per share, for the six months endedOctober 31, 2019 .
Revenues. The following presents information on revenues for the Company's operations (dollars in thousands):
Three Months Ended October 31 ,
Six Months Ended
2020 vs. 2020 vs.
2020 2019 2019 2020 2019 2019
Land sale
revenues $ 8,526 161 % $ 3,266 $ 12,013 59 % $ 7,557
Home sale
revenues 202 (a) - 202 (a) -
Rental
revenues 152 (55 )% 341 502 (26 )% 682
Other
revenue 376 7 % 353 745 53 % 488
Total
revenues $ 9,256 134 % $ 3,960 $ 13,462 54 % $ 8,727 (a) Percentage not meaningful.
· Land sale revenues for the three and six months ended
higher than the prior periods by
increased demand for lots by builders. The Company's land sales in
were as follows (dollars in thousands):
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Three Months Ended October 31, 2020 Three Months Ended October 31, 2019
Acres Revenue Acres Revenue
Sold Revenue Per Acre Sold Revenue Per Acre
Developed
Residential 17.4 $ 8,376 $ 481 8.1 $ 3,244 $ 400
Commercial 0.4 134 335 - - -
Total Developed 17.8 8,510 478 8.1 3,244 400
Undeveloped 2.0 16 8 3.5 22 6
Total 19.8 $ 8,526 $ 431 11.6 $ 3,266 $ 282
Six Months Ended October 31, 2020 Six Months Ended October 31, 2019
Acres Revenue Acres Revenue
Sold Revenue Per Acre Sold Revenue Per Acre
Developed
Residential 25.1 $ 11,863 $ 473 18.4 $ 7,534 $ 409
Commercial 0.4 134 335 - - -
Total Developed 25.5 11,997 470 18.4 7,534 409
Undeveloped 2.0 16 8 3.6 23 6
Total 27.5 $ 12,013 $ 437 22 $ 7,557 $ 344
· Home sale revenues for each of the three and six months ended
were higher than the prior periods by
its first home sale to a customer during the three months ended
2020. The Company closed on one home during the three months ended
2020 at a selling price of
(a) a backlog of 11 homes under contract representing
sales revenue when closed, subject to customer cancellations and change orders,
and (b) 17 homes in production.
· Rental revenues for the three and six months ended
than the prior periods by
received from tenants at the Company's warehouse and office buildings in Palm
Coast,
Panorama Village subdivision inRio Rancho, New Mexico .
· Other revenues for the three and six months ended
than the prior periods by$23,000 and$257,000 . Other revenues consist of: Three Months Ended Six Months Ended October 31, October 31, 2020 2019 2020 2019 (in thousands) (in thousands) Oil & gas royalties$ 25 $ -$ 36 $ - Private infrastructure reimbursement covenants 245 140 378 231 Public improvement district reimbursements 69 26 244 26 Miscellaneous other revenue 37 187 87 231$ 376 $ 353 $ 745 $ 488
Miscellaneous other revenue for the three and six months endedOctober 31, 2020 primarily consist of payments for impact fee credits and a land condemnation. Miscellaneous other revenue for the three and six months endedOctober 31, 2019 primarily consist of forfeited deposits and non-refundable option payments.
Cost of Revenues. The following presents information on cost of revenues for the Company's operations (dollars in thousands):
Three Months Ended October 31, Six Months Ended October 31,
2020 2020 vs. 2019 2019 2020 2020 vs. 2019 2019
Land sale costs $ 6,430 132 % $ 2,771 $ 9,109 42 % $ 6,426
Home sale costs $ 174 (a) - $ 174 (a) -
(a) Percentage not meaningful.
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· Land sale cost of revenues for the three and six months ended
were higher than the prior periods by
gross profit percentage on land sales in
25% and 24% for the three and six months ended
for each of the three and six months ended
percentage increase was attributable to the demand for lots by builders
resulting in higher revenue per developed lot. As a result of many factors,
including the nature and timing of specific transactions and the type and
location of land being sold, revenues, average selling prices and related
average gross profits from land sales can vary significantly from period to
period and prior results are not necessarily a good indication of what may
occur in future periods.
· Home sale cost of revenues for the three and six months ended
were higher than the prior periods by
Company completing its first home sale to a customer during the three months
ended
and six months endedOctober 31, 2020 . General and Administrative Expenses. The following presents select information on general and administrative expenses for the Company's operations (dollars in thousands): Three Months Ended October 31, Six Months Ended October 31, 2020 2020 vs. 2019 2019 2020 2020 vs. 2019 2019 Land development$ 665 10 %$ 602 $ 1,271 <1%$ 1,274 Homebuilding$ 118 (a) $ -$ 231 (a) $ - Corporate$ 740 (79 )%$ 3,519 $ 1,465 (67 )%$ 4,413
(a) Percentage not meaningful.
· Land development general and administrative expenses for the three months ended
primarily due to homebuilding expenses transitioning to a new business segment
offset by increased employee hiring, increased health care benefit costs and
reduced professional fees. Land development general and administrative expenses
for the six months ended
period by$3,000 .
· Homebuilding general and administrative expenses for the three and six months
ended
$231,000 , due to homebuilding being a new business segment.
· Corporate general and administrative expenses for the three and six months
ended
months ended
pension plan paying an aggregate of
benefits to former employees.
Interest (expense) income, net decreased to$(12,000) and$(6,000) for the three and six months endedOctober 31, 2020 from$141,000 and$265,000 for the three and six months endedOctober 31, 2019 , primarily due to a reduction in interest rates on cash balances and the elimination of the deferred purchase price and interest accrual related thereto with respect to the sale of the Company's fulfillment services business (refer to Note 2 to the consolidated financial statements contained in the 2020 Form 10-K for detail regarding the non-cash impairment charge of the deferred purchase price related to the sale of the Company's fulfillment services business), partially offset by a reduction in interest expense. Other income for the six months endedOctober 31, 2020 consist of a settlement payment of$650,000 from a former business segment of the Company (refer to Note 2 to the consolidated financial statements contained in the 2020 Form 10-K for detail regarding the settlement agreement). 21 The Company had a provision for income taxes of$319,000 and$465,000 for the three and six months endedOctober 31, 2020 compared to a benefit for income taxes of$622,000 and$756,000 for the three and six months endedOctober 31, 2019 . This change is caused by the three and six months endedOctober 31, 2020 reporting income in both periods, compared to the three and six months endedOctober 31, 2019 reporting losses in both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects and existing cash balances. 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. 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 2020 Form 10-K. Operating Activities Real estate inventory increased from$53,449,000 atApril 30, 2020 to$53,925,000 atOctober 31, 2020 , primarily due to increased land development activity, the acquisition of land and homebuilding construction, offset in part by real estate land sales. Investment assets, net increased from$18,644,000 atApril 30, 2020 to$18,970,000 atOctober 31, 2020 , primarily due to capitalization of costs related to the construction of a single tenant retail building, offset in part by depreciation. Other assets increased from$934,000 atApril 30, 2020 to$1,544,000 atOctober 31, 2020 , primarily due to an increase in prepaid expenses. Accounts payable and accrued expenses increased from$3,125,000 atApril 30, 2020 to$4,700,000 atOctober 31, 2020 , primarily due to an increase in builders' deposits and land development activity inNew Mexico . Accrued pension costs decreased from$5,014,000 atApril 30, 2020 to$3,195,000 atOctober 31, 2020 , primarily due to a voluntary contribution of$1,847,000 to the Company's defined benefit pension plan. Financing Activities
Notes payable, net increased from
Refer to Notes 8 and 17 to the consolidated financial statements contained in the 2020 Form 10-K for additional detail about each of the following outstanding financing facilities that were entered into prior toMay 1, 2020 :
· Lomas Encantadas Subdivision.
o In
non-revolving line of credit to
("LEDC"), a subsidiary of the Company. The initial available principal amount
of the loan was
during the six months ended
The Company capitalized interest and fees related to this loan of
2019. The total book value of the property mortgaged pursuant to this loan was
with the financial covenants contained within the loan documentation.
o In
The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit
Promissory Note and is secured by a Mortgage, Security Agreement and Financing
Statement, between LEDC and BOKF with respect to certain planned residential
lots within the Lomas Encantadas subdivision located in
Pursuant to a Guaranty Agreement entered into by
a subsidiary of the Company, in favor of BOKF, ASW guaranteed LEDC's
obligations under each of the above agreements.
22
§ Initial Available Principal: Pursuant to the loan documentation, BOKF agrees to
lend up to
partially fund the development of certain planned residential lots within the
Lomas Encantadas subdivision.
§ Outstanding Principal Amount and Repayments: The outstanding principal amount
of the loan was
repayments during the six months ended
make periodic principal repayments of borrowed funds not previously repaid as
follows:
at any time without penalty.
§ Maturity Date: The loan is scheduled to mature in
§ Interest Rate: Interest on the outstanding principal amount of the loan is
payable monthly at the annual rate equal to the London Interbank Offered Rate
for a thirty-day interest period plus a spread of 3.0%, adjusted monthly,
subject to a minimum interest rate of 3.75%. The interest rate on the loan at
October 31, 2020 was 3.75%.
§ Lot Release Price: BOKF is required to release the lien of its mortgage on any
lot upon LEDC making a principal payment of$44,000 .
LEDC and ASW made certain representations and warranties in connection with this loan and are 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 LEDC's failure to make principal, interest or other payments when due; the failure of LEDC or ASW to observe or perform their respective covenants under the loan documentation; the representations and warranties of LEDC or ASW being false; the insolvency or bankruptcy of LEDC or ASW; and the failure of ASW to maintain a net worth of at least$32 million . Upon the occurrence and during the continuance of an event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately due and payable. LEDC incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. AtOctober 31, 2020 , LEDC was in compliance with the financial covenants contained in the loan documentation. The total book value of the property mortgaged pursuant to this loan was$289,000 as ofOctober 31, 2020 . The Company's capitalized interest and fees related to this loan were immaterial during the three and six months endedOctober 31, 2020 .
· Hawk Site Subdivision. In
("SLFCU") provided a revolving line of credit to
principal amount of the loan was
The outstanding principal amount of the loan was
2020. MHEDC made principal repayments of
Company capitalized interest and fees related to this loan of
each of the three and six months ended
of the property mortgaged pursuant to this loan was$2,374,000 as ofOctober 31, 2020 . AtOctober 31, 2020 , MHEDC was in compliance with the financial covenants contained within the loan documentation.
· Las Fuentes at Panorama Village Subdivision. In
non-revolving line of credit to
subsidiary of the Company. The initial available principal amount of the loan
was
of
ended
rate on the loan at
interest and fees related to this loan of
and six months ended
mortgaged pursuant to this loan was
within the loan documentation.
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· Meso AM Subdivision.
o Acquisition Financing: The acquisition of the Meso AM subdivision in
County,
the Company, included
is payable without interest on or before
without interest on or before
mortgaged to secure payment of a note reflecting the deferred purchase price
was
compliance with the financial covenants contained within the loan
documentation.
o Development Financing. In
credit to LF. The initial available principal amount of the loan was
The Company capitalized interest and fees related to this loan of
each of the three and six months ended
of the property mortgaged pursuant to this loan was
covenants contained within the loan documentation.
· SBA Paycheck Protection Program. In
Company pursuant to the Paycheck Protection Program administered by the
outstanding principal amount of the loan was
The Company made no principal repayments during the six months ended
the loan at
interest or fees related to this loan during the six months ended
2020. At
covenants contained within the loan documentation. The loan provides that all
or a portion of the principal balance may be forgiven if certain conditions are
met.
The Company's share repurchase activity is described below:
· In
Company at a price of
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
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
such repurchases. Under the share repurchase program, the Company may have
repurchased its common stock from time to time, in amounts, at prices, and at
such times as the Company deems appropriate, subject to market conditions,
legal requirements and other considerations. The Company's repurchases may have
been executed using open market purchases, unsolicited or solicited privately
negotiated transactions or other transactions, and may have been 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 may
have been suspended, modified or terminated at any time without prior notice.
The share repurchase program did not contain a time limitation during which
repurchases are permitted to occur. In
675,616 shares of common stock of the Company at a price of
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.
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· In
Company at a price of
during the three months ended
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
Investing Activities Capital expenditures were$3,000 and$3,000 for the three and six months endedOctober 31, 2020 compared to$1,000 and$26,000 for the three and six months endedOctober 31, 2019 , primarily due to purchases of office furniture and computer equipment.
Statement of Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are "forward-looking", including statements contained in this report and other filings with theSecurities and Exchange Commission , reports to the Company's shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "projects", "forecasts", "may", "should", variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company's expected liquidity sources, (2) the availability of bank financing for projects, (3) the utilization of existing bank financing, (4) the timing of development of land held as investment assets, (5) the backlog of homes under contract and the dollar amount of expected sales revenue when such homes are closed, (6) the offering of sales incentives to home buyers, (7) the effect of recent accounting pronouncements, (8) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under theAMREP Corporation 2016 Equity Compensation Plan, (9) the future issuance of deferred common share units to directors of the Company, (10) the future business conditions that may be experienced by the Company and (11) the forgiveness of any amounts due under the loan issued pursuant to the Paycheck Protection Program. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise. 25
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