AMREP CORPORATION 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 . 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 unaudited condensed consolidated results of operations and financial condition. The information contained in this Item 2 should be read in conjunction with the unaudited 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 endedApril 30, 2022 , which was filed with theSecurities and Exchange Commission onJuly 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 endingApril 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 inthe United States of America and included as part of the 2022 Form 10-K and in Note 1 to the unaudited condensed consolidated financial statements included in this report on Form 10-Q. The preparation of those unaudited 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 unaudited 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. 14 Table of Contents
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 theFinancial 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 nine months endedJanuary 31, 2023 that had a material effect on its unaudited condensed consolidated financial statements.
RESULTS OF OPERATIONS
For the three months endedJanuary 31, 2023 , the Company had net income of$16,574,000 , or$3.12 per diluted share, compared to net income of$910,000 , or$0.12 per diluted share, for the three months endedJanuary 31, 2022 . For the nine months endedJanuary 31, 2023 , the Company had net income of$22,107,000 , or$4.17 per diluted share, compared to net income of$5,873,000 , or$0.80 per diluted share, for the nine months endedJanuary 31, 2022 . As discussed in more detail below, during the three months endedJanuary 31, 2023 , the Company recognized a non-cash pre-tax pension settlement expense of$2,336,000 as a result of its defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and a non-cash income tax benefit of$16,071,000 as a result of a worthless stock deduction related to its former fulfillment services business. During the three and nine months endedJanuary 31, 2023 , 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, in response to inflation, theFederal Reserve increased benchmark interest rates during 2023 and has signaled it expects additional future interest rate increases, which has resulted in a significant increase in mortgage interest rates during 2023, impacting home affordability and consumer sentiment and tempering demand for new homes and finished residential lots. 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 theU.S. economy and other macroeconomic factors, 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 model inventory or homebuilding construction in process, opportunistically leased completed homes and slowed the pace of housing starts and land development projects. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of calendar year 2023.
Revenues. The following presents information on revenues for the Company's operations (dollars in thousands):
Three Months ended January 31,
2023 2022 Increase (decrease)
Land sale revenues $ 6,367 $ 5,879 $ 488 8 %
Home sale revenues 2,639 3,376 (737) (22) %Building sales and other revenues 111 136 (25)
(18) %
Total $ 9,117 $ 9,391 (274) (3) %
Nine Months ended January 31,
2023 2022 Increase (decrease)
Land sale revenues $ 24,389 $ 21,535 $ 2,854 13 %
Home sale revenues 10,984 6,606 4,378 66 %Building sales and other revenues 602 7,263 (6,661)
(92) % Total$ 35,975 $ 35,404 571 2 % 15 Table of Contents
The change in land sale revenues for the three and nine months ended January
? 31, 2023 compared to the prior periods was primarily due to the availability of
developed residential lots and the sale of commercial lots. The Company's land
sale revenues consist of (dollars in thousands):
Three Months ended January 31, 2023 Three Months ended January 31, 2022
Acres Sold Revenue Revenue Per Acre1 Acres Sold Revenue Revenue Per Acre1
Developed
Residential 9.5 $ 6,357 $ 668 11.4 $ 5,879 $ 516
Commercial - - - - - -
Total Developed 9.5 $ 6,357 $ 668 11.4 $ 5,879 $ 516
Undeveloped 2.0 10 5 - - -
Total 11.5 $ 6,367 $ 553 11.4 $ 5,879 $ 516
Nine Months ended January 31, 2023 Nine Months ended January 31, 2022
Acres Sold Revenue Revenue Per Acre1 Acres Sold Revenue Revenue Per Acre1
Developed
Residential 36.3 $ 22,396 $ 617 44.7 $ 21,535 $ 482
Commercial 2.2 1,888 870 - - -
Total Developed 38.5 $ 24,284 $ 631 44.7 $ 21,535 $ 482
Undeveloped 8.4 105 13 - - -
Total 46.9 $ 24,389 $ 520 44.7 $ 21,535 $ 482
1 Revenue per acre may not calculate precisely due to the rounding of revenues to the nearest thousand dollars
The change in the average selling price per acre of developed residential land
for the three and nine months ended
The change in home sale revenues for the three months ended
compared to the prior period was primarily due to a decrease in the number of
homes sold as a result of decreases in demand (including from the affordability
challenges described above), supply chain constraints, shortages of skilled
labor and delays in municipal approvals and inspections offset in part by an
? increase in average selling prices. The change in home sale revenues for the
nine months ended
due to an increase in average selling prices and the growth of the Company's
homebuilding operations offset in part by supply chain constraints, shortages
of skilled labor and delays in municipal approvals and inspections. The
Company's home sale revenues consist of (dollars in thousands):
Three Months ended January 31, Nine Months ended January 31,
2023 2022 2023 2022Homes sold 5 11 21 22 Average selling price $ 549 $ 307 $ 528 $ 300 As ofJanuary 31, 2023 , the Company had 25 homes in production, including 12 homes under contract, which homes under contract represented$6,300,000 of expected home sale revenues when closed, subject to customer cancellations
and
change orders.
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? Building sales and other revenues consist of (in thousands):
Three Months ended January 31, Nine Months ended January 31,
2023 2022 2023 2022
Sale of building $ - $ - $ - $ 6,750
Oil and gas royalties 34 49 140 223
Miscellaneous other revenues 77 88 462 290
Total $ 111 $ 136 $ 602 $ 7,263
Refer to Note 7 to the consolidated financial statements contained in the 2022
Form 10-K for additional detail about the categories of building sales and other
revenues.
The Company owned a 143,000 square foot warehouse and office facility located in
Palm Coast, Florida during the nine months ended January 31, 2022 . Sale of
building during the nine months ended January 31, 2022 consists of the sale of
this 143,000 square foot warehouse and office facility.
Miscellaneous other revenues for the three and nine months ended January 31,
2023 primarily consist of extension fees for purchase contracts and residential
rental revenues. Miscellaneous other revenues for the three and nine months
ended January 31, 2022 primarily consist of rent received from a tenant at a
building in Palm Coast, Florida and tenants at a shopping center in Albuquerque,
New Mexico , 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):
Three Months ended
2023 2022 Increase (decrease)
Land sale cost of revenues, net $ 3,636 $ 4,070 $ (434) (11) %
Home sale cost of revenues 2,047 2,623 (576) (22) %
Building sales and other cost of revenues - -
- -
Total $ 5,683 $ 6,693 (1,010) (15) %
Nine Months ended January 31,
2023 2022 Increase (decrease)Land sale cost of revenues, net$ 15,415 $ 15,104 $ 311 2 % Home sale cost of revenues 7,762 5,167 2,595 50 % Building sales and other cost of revenues - 3,837
(3,837) (a) Total$ 23,177 $ 24,108 (931) (4) %
(a) Percentage not meaningful.
? Land sale cost of revenues, net consist of (in thousands):
Three Months ended January 31, Nine Months ended January 31,
2023 2022 2023 2022
Land sale cost of revenues $ 4,330 $ 4,495 $ 17,317 $ 16,259
Less:Public improvement district reimbursements 366 291 691 615 Private infrastructure covenant reimbursements 228 48 522 131 Payments for impact fee credits 100 86 689 409 Land sale cost of revenues, net $ 3,636 $
4,070
Land sale gross margins were 43% and 37% for the three and nine months endedJanuary 31, 2023 compared to 30% for each of the three and nine months endedJanuary 31, 2022 . The changes in gross margin were primarily due to lower than estimated costs associated with certain completed projects and the location, size and mix of property sold. 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 17
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prices and related gross margin 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.
The change in home sale cost of revenues for the three and nine months ended
location and amenities available in the communities. Home sale gross margins
? were 22% and 29% for the three and nine months ended
to 22% for each of the three and nine months ended
increase in gross margin was primarily due to the location and mix of homes
sold and to efficiencies gained during the expansion of the Company's homebuilding operations.
Building sales and other cost of revenues during the nine months ended January
? 31, 2022 consists of the sale of a 143,000 square foot warehouse and office
facility located in
General and Administrative Expenses. The following presents information on
general and administrative expenses for the Company's operations (dollars in
thousands):
Three Months ended January 31,
2023 2022 Increase (decrease)
Operations
Land development $ 907 $ 1,098 $ (191) (17) %
Homebuilding 264 222 42 19 %
Corporate 402 220 182 83 %
Total 1,573 1,540 33 2 %
Pension settlement 2,336 - - (a)
Nine Months ended January 31,
2023 2022 Increase (decrease)
Operations
Land development $ 2,156 $ 2,359 $ (203) (9) %
Homebuilding 795 621 175 28 %
Corporate 947 1,003 (56) (6) %
Total 3,898 3,983 (85) (2) %
Pension settlement 2,336 - - (a)
(a) Percentage not meaningful.
The change in land development general and administrative expenses for the
three and nine months ended
primarily due to a refund of certain property taxes. The Company did not record
? any non-cash impairment charges on real estate inventory or investment assets
for the three and nine months ended
to volatility in market conditions and development costs, the Company may
experience future impairment charges.
The change in homebuilding general and administrative expenses for the three
? and nine months ended
primarily due to hiring additional employees.
The change in corporate general and administrative expenses for the three
months ended
? increases in pension benefit expenses. The change in corporate general and
administrative expenses for the nine months ended
the prior period was primarily due to decreases in office rent and expenses and
depreciation.
The pension settlement expense was a result of the Company's defined benefit
? pension plan paying an aggregate of
benefits to 96 former employees. No such pension settlement expense was
incurred in the same periods of 2022.
Interest income, net. Interest income, net for the nine months endedJanuary 31, 2023 was higher than the prior period by$6,000 primarily due to interest earned in connection with a refund of federal income taxes. 18
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Other income. Refer to Note 11 to the unaudited 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 benefit for income taxes of$15,246,000 and$13,734,000 for the three and nine months endedJanuary 31, 2023 compared to a provision for income taxes of$248,000 and$1,701,000 for the three and nine months endedJanuary 31, 2022 . The benefit for income taxes for the three and nine months endedJanuary 31, 2023 was primarily due to the income tax benefit related to the Company's worthless stock deduction offset in part by income taxes for the amount of income before income taxes during each period. The provision for income taxes for the three and nine months endedJanuary 31, 2022 correlated to the amount of income before income taxes during each period. Refer to Note 12 to the unaudited condensed consolidated financial statements included in this report on Form 10-Q for detail regarding the Company's worthless stock deduction.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of$12,403,000 and$15,721,000 as ofJanuary 31, 2023 andApril 30, 2022 .AMREP Corporation is a holding company that conducts substantially all of its operations through subsidiaries. As a holding company,AMREP Corporation is dependent on its available cash and on cash from subsidiaries to pay expenses and fund operations. The Company's liquidity is affected by many factors, including some that are based on normal operations and some that are related to the real estate industry and the economy generally. The Company's primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects, a revolving line of credit and existing cash balances. Land and homebuilding properties generally cannot be sold quickly, and the ability of the Company to sell properties has been and will continue to be affected by market conditions. The ability of the Company to generate cash flow from operations is primarily dependent upon its ability to sell the properties it has selected for disposition at the prices and within the timeframes the Company has established for each property. The development of additional lots for sale, construction of homes or pursuing other real estate projects may require financing, which may not be available on acceptable terms (or at all). If the Company is unable to obtain such financing, the Company's results of operations could be adversely affected. Except as described below, there have been no material changes to the Company's liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2022 Form 10-K. Cash Flow . The following presents information on the cash flows for the Company (dollars in thousands): Nine Months Ended January 31, 2023 2022 Increase (decrease) Net cash provided by (used in) operating activities$ (1,413) $ 1,413$ (2,826) (a) Net cash provided by (used in) investing activities (124) (1,167) 1,043 89 % Net cash provided by (used in) financing activities (1,781) 2,253 (4,034) (a) Increase (decrease) in cash and cash equivalents$ (3,318) $ 2,499 (5,817) (a)
(a) Percentage not meaningful.
Operating Activities. The net cash used in operating activities for the nine months endedJanuary 31, 2023 was primarily due to an increase in real estate inventory and investment assets and other assets and a reduction in accounts payable and accrued expenses and taxes payable offset in part by cash generated from business operations. The net cash provided by operating activities for the nine months endedJanuary 31, 2022 was primarily due to cash generated from business operations offset in part by an increase in real estate inventory and investment assets and other assets and a reduction in accounts payable and accrued expenses and taxes payable. Investing Activities. The net cash used in investing activities for each of the nine months endedJanuary 31, 2023 andJanuary 31, 2022 was primarily due to an increase in capital expenditures of property and equipment. Financing Activities. The net cash used in financing activities for the nine months endedJanuary 31, 2023 was primarily due to principal debt repayments. The net cash provided by financing activities for the nine months endedJanuary 31, 2022 was primarily due to proceeds from debt financing offset in part by principal debt repayments. Notes payable decreased from$2,030,000 as ofApril 30, 2022 to$250,000 as ofJanuary 31, 2023 due to principal debt repayments. Refer to Note 6 to the 19 Table of Contents unaudited 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):
January 31, April 30,
2023 2022 Increase (decrease)
Real estate inventory $ 70,730 $ 67,249 $ 3,481 5 %
Investment assets 11,729 9,017 2,712 30 %
Other assets 2,944 1,882 1,062 56 %
Deferred income taxes, net 14,688 958 13,730 (a)
Prepaid pension costs 646 90 556 (a)
Accounts payable and accrued expenses 4,815 6,077 (1,262) (21) %
Taxes payable, net 694 3,648 (2,954) (81) %
(a) Percentage not meaningful.
? Real estate inventory consists of (in thousands):
January 31, April 30,
2023 2022 Increase (decrease)
Land inventory in New Mexico $ 61,403 $ 59,374 $ 2,029 3 %
Land inventory in Colorado 3,441 3,434 7 -
Homebuilding model inventory 3,138 1,135 2,003 (a)
Homebuilding construction in process 2,748 3,306 (558) (17) %
$ 70,730 $ 67,249 (a) Percentage not meaningful.
FromApril 30, 2022 toJanuary 31, 2023 , the change in land inventory inNew Mexico was primarily due to land development activity and the acquisition and sale of land, the change in homebuilding model inventory was primarily due to the sale of homes offset in part by the completion of homes not yet sold and the change in homebuilding construction in process was primarily due to supply chain constraints, shortages of skilled labor and delays in municipal approvals and inspections causing construction cycle time to lengthen.
? Investment assets consist of (in thousands):
January 31, April 30,
2023 2022 Increase (decrease)Land held for long-term investment$ 8,962 $ 9,017 $ (55) (1) % Owned real estate leased or intended to be leased 2,767
- 2,767 (a)
$ 11,729 $ 9,017 (a) Percentage not meaningful.
Land held for long-term investment represents property located in areas that are not planned to be developed in the near term and that has not been offered for sale in the normal course of business. Owned real estate leased or intended to be leased represents homes and buildings leased or intended to be leased to third parties. As ofJanuary 31, 2023 , four homes are leased to residential tenants and two buildings under construction have been leased to commercial tenants. Given the impact on demand as a result of affordability challenges described in Note 13 to the unaudited condensed consolidated financial statements included in this report on Form 10-Q, the Company has opportunistically leased completed homes. 20
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? From
The change in other assets was primarily due to an increase in prepaid expenses
? related to a land development cash collateralized performance guaranty and
stock compensation.
The change in deferred income taxes, net was primarily due to the income tax
effect of the Company's worthless stock deduction offset in part by the income
tax effect of the pension settlement expense related to lump sum payouts of
? pension benefits. Refer to Note 12 to the unaudited condensed consolidated
financial statements included in this report on Form 10-Q for detail regarding
the Company's worthless stock deduction and refer to Note 10 to the unaudited
condensed consolidated financial statements included in this report on Form
10-Q for detail regarding the pension settlement expense.
? The change in accounts payable and accrued expenses was primarily due to the
payment of invoices offset in part by an increase in customer deposits.
? The change in taxes payable, net was primarily due to the payment of taxes
offset by the elimination of the current year tax provision.
The change in prepaid pension costs was primarily due to the funding levels of
the Company's frozen defined benefit pension plan. The Company recorded, net of
tax, other comprehensive income of
? months ended
months ended
during each period net of the related deferred tax and unrecognized prepaid
pension amounts.
Recent Accounting Pronouncements. Refer to Note 1 to the consolidated financial statements contained in the 2022 Form 10-K for a discussion of recently issued accounting pronouncements.
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 ability to finance its future working capital, land development, homebuilding and capital expenditure needs, (2) the Company's expected liquidity sources, (3) the availability and utilization of existing bank financing, (4) the market conditions impacting the land development and homebuilding industries, including possible future increases in benchmark interest rates by theFederal Reserve and demand for new homes and finished residential lots, (5) the future business conditions that may be experienced by the Company, including the pace of the Company's housing starts and land development projects, (6) the backlog of homes under contract and in production and the dollar amount of expected sales revenues when such homes are closed, (7) homes and buildings leased or intended to be leased to third parties, (8) estimates of the Company's exposure to warranty claims, estimates of the cost to complete of common land development costs and the estimated relative sales value of individual parcels of land in connection with the allocation of common land development costs, (9) the timing of recognizing unrecognized compensation expense related to shares of common stock (and option related thereto) issued under theAMREP Corporation 2016 Equity Compensation Plan, (10) the future issuance of deferred stock units to directors of 21
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the Company, (11) the timing and amount of the recognition of a loss for tax purposes only related to worthless stock ofPalm Coast Data Holdco, Inc. owned by the Company and (12) projections of future earnings for the future recoverability of deferred tax assets. 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.
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