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 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 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 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. 12 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 three months endedJuly 31, 2022 that had a material effect on its condensed consolidated financial statements.
RESULTS OF OPERATIONS
For the three months ended
Revenues. The following presents information on revenues for the Company's operations (dollars in thousands):
Three Months ended July 31, % Increase
2022 2021 (Decrease)
Land sale revenues $ 5,172 $ 7,190 (28) %
Home sale revenues 5,439 2,411 126 %
Other revenues 621 906 (31) %
Total $ 11,232 $ 10,507 7 %
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.
Land sale revenues for the three months ended
three months ended
? availability of developed residential lots for sale partially as a result of
supply chain constraints, shortages of skilled labor and delays in municipal
approvals and inspections. The Company's land sale revenues were as follows
(dollars in thousands):
Three Months ended July 31, 2022 Three Months ended July 31, 2021
Acres Sold Revenue Revenue Per Acre1 Acres Sold Revenue Revenue Per Acre1
Developed
Residential 9.9 $ 5,152 $ 520 17.4 $ 7,190 $ 413
Commercial - - - - - -
Total Developed 9.9 $ 5,152 $ 520 17.4 7,190 413
Undeveloped 2.9 20 7 - - -
Total 12.8 $ 5,172 $ 404 17.4 $ 7,190 $ 413
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 endedJuly 31, 2022 compared to the three months endedJuly 31, 2021 was primarily due to the location and mix of lots sold.
Home sale revenues for the three months ended
the three months ended
? Company's homebuilding operations partially offset by supply chain constraints,
shortages of skilled labor and delays in municipal approvals and inspections.
The Company's home sale revenues consist of:
Three Months ended July 31,
2022 2021
Homes sold 11 8
Average selling price $ 494,000 $ 301,000
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.
Other revenues for the three months ended
? three months ended
(dollars in thousands):
Three Months ended July 31,
2022 2021
Oil and gas royalties $ 57 $ 135
Infrastructure reimbursements 525 606
Miscellaneous other revenues 39 165
Total $ 621 $ 906
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):
Three Months ended July 31, % Increase
2022 2021 (Decrease)
Land sale cost of revenues $ 3,832 $ 5,610 (32) %
Home sale cost of revenues 3,663 1,914 91 %
Land sale cost of revenues for the three months ended
than the three months ended
was 26% for the three months ended
months ended
the location, size and mix of property sold and 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 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.
Home sale cost of revenues for the three months ended
than the three months ended
the Company's homebuilding operations. Home sale gross margins were 33% for the
? three months ended
and mix of homes sold and to efficiencies gained during the growth of the
Company's homebuilding operations.
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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):
Three Months ended July 31, % Increase
2022 2021 (Decrease)
Land development $ 607 $ 584 4 %
Homebuilding 257 187 38 %
Corporate 307 417 (26) %
Total $ 1,171 $ 1,188 (1) %
Land development general and administrative expenses for the three months ended
primarily due to hiring additional employees. The Company did not record any
? non-cash impairment charges on real estate inventory or investment assets for
the three months ended
market conditions and development costs, the Company may experience future
impairment charges.
Homebuilding general and administrative expenses for the three months ended
?
primarily due to hiring additional employees.
Corporate general and administrative expenses for the three months ended July
? 31, 2022 were lower than the three months ended
primarily due to a decline in depreciation as a result of building sales in
prior periods.
Interest income, net. Interest income, net was$7,000 and$1,000 for the three months endedJuly 31, 2022 andJuly 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
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. 15
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Cash Flow. The following presents information on the cash flows for the Company
(dollars in thousands):
Three Months Ended July 31, % Increase
2022 2021 (Decrease)
Net cash provided by (used in) operating
activities $ 262 $ (4,466) (a)
Net cash used in investing activities (118) (1) (a)
Net cash provided by financing activities 50 2,940 (98) %
Increase (decrease) in cash, cash equivalents
and restricted cash $ 194 $ (1,527) (a)
(a)Percentage not meaningful.
Operating Activities. Net cash provided by operating activities for the three months endedJuly 31, 2022 was higher than the three months endedJuly 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
Financing Activities. Net cash provided by financing activities for the three months endedJuly 31, 2022 was lower than the three months endedJuly 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 ofApril 30, 2022 to$2,080,000 as ofJuly 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):
July 31, April 30, % Increase
2022 2022 (Decrease)
Real estate inventory $ 68,604 $ 67,249 2 %
Investment assets 8,961 9,017 (1) %
Other assets 2,082 1,882 11 %
Deferred income taxes, net 928 958 (3) %
Prepaid pension costs 311 90 (a)Accounts payable and accrued expenses 4,976 6,077
(18) % Taxes payable, net 4,428 3,648 21 %
(a) Percentage not meaningful.
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? Real estate inventory increased from
July 31, April 30, % Increase
2022 2022 (Decrease)
Land inventory in New Mexico $ 60,528 $ 59,374 2 %
Land inventory in Colorado 3,435 3,434 0 %Homebuilding finished inventory 1,005 1,135 (11) % Homebuilding construction in process 3,636 3,306
10 %
$ 68,604 $ 67,249 Land inventory inNew Mexico increased fromApril 30, 2022 toJuly 31, 2022 by$1,154,000 primarily due to increased land development activity and the acquisition of land. Homebuilding finished inventory decreased fromApril 30, 2022 toJuly 31, 2022 by$130,000 primarily due to the sale of homes partially offset by the completion of homes not yet sold. Homebuilding construction in process increased fromApril 30, 2022 toJuly 31, 2022 by$330,000 due to increased homebuilding activity.
? Investment assets decreased from
Investment assets consist of (dollars in thousands):
July 31, April 30, % Increase
2022 2022 (Decrease)
Land held for long-term investment
(1) %
Other assets increased from
? primarily due to prepaid expenses of stock compensation, insurance and real
estate taxes.
Deferred income taxes, net decreased from
?
liability.
Accounts payable and accrued expenses decreased from
? 2022 by
an increase in customer deposits.
? Taxes payable, net increased from
Accrued pension costs of the Company's frozen defined benefit pension plan
decreased from
funding levels of the plan. The Company recorded, net of tax, other
? comprehensive income of
2022 and
each period net of the related deferred tax and unrecognized prepaid pension
amounts.
Recent Accounting Pronouncements. Refer to Note 1 to the condensed consolidated financial statements included in this report on Form 10-Q and Note 1 to the consolidated financial statements contained in the 2022 Form 10-K for a discussion of recently issued accounting pronouncements.
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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 utilization of existing bank financing, (4) the market conditions impacting the land development and homebuilding industries for at least the remainder of 2022, (5) the backlog of homes under contract and in production and the dollar amount of expected sales revenues when such homes are closed, (6) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under theAMREP Corporation 2016 Equity Compensation Plan, (7) the future issuance of deferred stock units to directors of the Company and (8) the future business conditions that may be experienced by the Company. 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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