10-K
1
tm2121795d1_10k.htm
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
OR
Commission File Number 1-4702
AMREP CORPORATION
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
620 West Germantown Pike, Suite 175, Plymouth Meeting, PA 19462
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including
area code: (610) 487-0905
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock $0.10 par value AXR New York Stock Exchange
Securities registered pursuant to Section 12(g) of
the Act: None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ̈ No x
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”). Yes ̈ No x
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of 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 x 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 x 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.
Large accelerated filer ̈ Accelerated filer ̈
Non-accelerated filer x Smaller reporting company x
Emerging growth company ̈
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 has filed a report on
and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ̈
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ̈ No x
As of October 30, 2020, which was the last
business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Common Stock held
by non-affiliates of the registrant was $25,714,897. Such aggregate market value was computed by reference to the closing sale price of
the registrant’s Common Stock as quoted on the New York Stock Exchange on such date. For purposes of making this calculation only,
the registrant has defined affiliates as including all directors and executive officers and certain persons related to them. In making
such calculation, the registrant is not making a determination of the affiliate or non-affiliate status of any holders of shares of Common
Stock.
As of July 19, 2021, there were 7,336,370 shares
of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
As stated in Part III of this annual report
on Form 10-K, portions of the registrant’s definitive proxy statement to be filed within 120 days after the end of the fiscal
year covered by this annual report on Form 10-K are incorporated herein by reference.
All references to the Company in this annual report
on Form 10-K include the Registrant and its subsidiaries. Many of the amounts and percentages presented in this annual report on
Form 10-K have been rounded for convenience of presentation. All references in this annual report on Form 10-K to 2021 and 2020
mean the Company’s fiscal years ended April 30, 2021 and 2020, unless the context otherwise indicates.
PART I
Item 1. Business
AMREP Corporation was organized in 1961 as an
Oklahoma corporation and, 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. The Company conducts a substantial portion of its business in
the City of Rio Rancho and certain adjoining areas of Sandoval County, New Mexico. References below to Rio Rancho include the City of
Rio Rancho and such adjoining areas. The City of Rio Rancho is the third largest city in New Mexico with a population of approximately
99,000.
Land Development
As of July 1, 2021, the Company owned approximately
18,000 acres in Rio Rancho. The Company offers for sale both developed and undeveloped lots to national, regional and local homebuilders,
commercial and industrial property developers and others. Activities conducted or arranged by the Company include land and site planning,
obtaining governmental and environmental approvals (“entitlements”), installing utilities and necessary storm drains, ensuring
the availability of water service, building or improving roads necessary for land development and constructing community amenities. The
Company develops both residential lots and sites for commercial and industrial use as demand warrants. Engineering work is performed by
both the Company’s employees and outside firms, but all development work is performed by outside contractors.
The Company markets land both directly and
through brokers. The Company actively markets its commercial properties in Rio Rancho for sale or lease. With respect to residential
development, the Company generally focuses its sales efforts on a limited number of homebuilders, with 97% of 2021 land sales in Rio
Rancho having been made to four homebuilders. The number of new construction single-family residential starts in Rio Rancho by the
Company’s customers and other builders was 1,139 in 2021 and 621 in 2020. The development of residential, commercial and
industrial properties requires, among other things, financing or other sources of funding, which may not be available.
The Company opportunistically acquires land, focusing
primarily in New Mexico, after completion of market research, soil tests, environmental studies and other engineering work, a review of
zoning and other governmental requirements, discussions with homebuilders or other prospective end-users of the property and financial
analysis of the project and estimated development costs, including the need for and extent of offsite work required to obtain project
entitlements.
The continuity and future growth of the Company’s
real estate business, if the Company pursues such growth, will require that the Company acquire new properties in New Mexico or expand
to other markets to provide sufficient assets to support a meaningful real estate business. The Company competes with other owners and
developers of land, including in the Rio Rancho and Albuquerque area, that offer for sale developed and undeveloped residential lots and
sites for commercial/industrial use.
1
The following table presents information on the
large land development projects of the Company in New Mexico as of July 1, 2021:
Developed1 Under Development2
Lots Acres Planned Lots Acres Acres Acres
Enchanted Hills/ Commerce Center 31 35 - - - -
Paseo Gateway - - - - - 298
Lomas Encantadas is located in the eastern section
of Unit 20 in the City of Rio Rancho. Hawk Site is located in the northern section of Unit 25 in the City of Rio Rancho. Enchanted Hills/Commerce
Center is located in the eastern section of Unit 20 in the City of Rio Rancho. Paseo Gateway is located in the southern section of Unit
20 in the City of Rio Rancho. La Mirada is located in the City of Albuquerque, New Mexico.
The following table presents information on the
small land development projects of the Company in New Mexico as of July 1, 2021:
Developed1 Under Development2
Residential Residential
Lots Planned Lots Acres Location
Lavender Fields 78 - - Bernalillo County, New Mexico
Mariposa 15 - - North of Unit 25 in the City of Rio Rancho
North Hills 6 Eastern section of Unit 12 in the City of Rio Rancho
Vista Entrada 7 - - Eastern section of Unit 20 in the City of Rio Rancho
Tierra Contenta - 50 5 City of Santa Fe, New Mexico
In addition to the property listed in the tables
above, undeveloped property in New Mexico of the Company as of July 1, 2021 included approximately 17,000 acres, of which approximately
20% was property that the Company had 90% contiguous ownership, approximately 30% was property that the Company had at least 50% but less
than 90% contiguous ownership and approximately 50% was property that the Company had less than 50% contiguous ownership. High contiguous
ownership areas may be suitable for special assessment districts or city redevelopment areas that may allow for future development under
the auspices of local government. Low contiguous ownership areas may require the purchase of a sufficient number of adjoining lots to
create tracts suitable for development or may be offered for sale individually or in small groups.
Infrastructure Reimbursement Mechanisms.
A portion of the Lomas Encantadas subdivision and a portion of the Enchanted Hills subdivision are subject to a public improvement district.
The public improvement district reimburses the Company for certain on-site and off-site costs of developing the subdivisions by imposing
a special levy on the real property owners within the district. The Company has accepted discounted prepayments of amounts due under the
public improvement district.
1
Developed lots/acreage are any tracts of land owned by the Company that have been entitled with infrastructure work that
is substantially complete.
2
Acreage under development is real estate owned by the Company for which entitlement or infrastructure work is currently
being completed. However, there is no assurance that the acreage under development will be developed because of the nature and cost of
the approval and development process and market demand for a particular use. In addition, the mix of residential and commercial acreage
under development may change prior to final development. The development of this acreage will require significant additional financing
or other sources of funding, which may not be available.
3
There is no assurance that undeveloped acreage will be developed because of the nature and cost of the approval and development
process and market demand for a particular use. Undeveloped acreage is real estate that can be sold “as is” (e.g., where
no entitlement or infrastructure work has begun on such property).
2
The Company instituted private infrastructure
reimbursement covenants on a portion of the property in Hawk Site and Lavender Fields. Similar to a public improvement district, the covenants
are expected to reimburse the Company for certain on-site and off-site costs of developing the subject property by imposing a special
levy on the real property owners subject to the covenants. The Company has accepted discounted prepayments of amounts due under the private
infrastructure reimbursement covenants.
Mineral Rights. The Company owns certain
minerals and mineral rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico The lease to a third
party with respect to such mineral rights expired in September 2020 and no drilling had commenced with respect to such mineral rights.
The Company owns certain minerals and mineral
rights in and under approximately 147 surface acres of land in Brighton, Colorado leased to a third party for as long as oil or gas is
produced and marketed in paying quantities from the property or for additional limited periods of time if the lessee undertakes certain
operations or makes certain de minimis shut-in royalty payments. The lessee has pooled various minerals and mineral
rights, including the Company’s minerals and mineral rights, for purposes of drilling and extraction. After applying the ownership
and royalty percentages of the pooled minerals and mineral rights, the lessee is required to pay the Company a royalty on oil and gas
produced from the pooled property of 1.42% of the proceeds received by the lessee from the sale of such oil and gas, and such royalty
will be charged with 1.42% of certain post-production costs associated with such oil and gas.
Commercial Property. During 2021, the Company
completed construction of a 14,000 square foot, single tenant retail building on a 1.3 acre property in the Las Fuentes at Panorama Village
subdivision in Rio Rancho, New Mexico. The Company sold this property in 2021. In June 2021, the Company acquired a 15-acre property
in the La Mirada subdivision located in Albuquerque, New Mexico, which is expected to be developed into a mixed-use project with residential
and commercial uses.
Other Real Estate Interests. The Company
owns an approximately 160-acre property in Brighton, Colorado planned for 410 homes and an approximately 5-acre property in Parker, Colorado
zoned for commercial use. The Company also owns a 143,000 square foot warehouse and office facility located in Palm Coast, Florida. The
Company sold its 61,000 square foot warehouse and office facility located in Palm Coast, Florida in 2021.
Homebuilding
In 2020, the Company commenced operations in New
Mexico of its internal homebuilder, Amreston Homes. The Company offers a variety of home floor plans and elevations at different prices
and with varying levels of options and amenities to meet the needs of homebuyers. The Company focuses on selling single-family detached
homes and attached townhomes. The Company selects locations for homebuilding based on available land inventory and completion of a feasibility
study. The Company utilizes third-party sales brokers for the majority of home sales. Model homes are generally used to showcase the Company’s
homes and their design features. The Company provides built-to-order homes where construction of the homes does not begin until the customer
signs the purchase agreement and speculative (“spec”) homes for homebuyers that require a home within a short time frame.
Sales contracts with homebuyers generally require payment of a deposit at the time of contract signing and sometimes additional deposits
upon selection of certain options or upgrade features for their homes. Sales contracts also typically include a financing contingency
that provides homebuyers with the right to cancel if they cannot obtain mortgage financing at specified interest rates within a specified
period. Contracts may also include other contingencies, such as the sale of an existing home.
The construction of homes is conducted under the
supervision of the Company’s on-site construction field managers. Substantially all construction work is performed by independent
subcontractors under contracts that establish a specific scope of work at an agreed-upon price. Generally, construction materials are
readily available from numerous sources. However, the cost of certain building materials, especially lumber, steel, concrete, copper and
petroleum-based materials, is influenced by changes in local and global commodity prices as well as government regulation, such as government-imposed
tariffs or trade restrictions on supplies such as steel and lumber. The ability to consistently source qualified labor at reasonable prices
remains challenging as labor supply growth has not kept pace with construction demand. During 2021 and 2020, the Company experienced supply
chain constraints, increases in the prices of building materials and shortages of skilled labor. Increased costs or shortages of skilled
labor or materials cause increases in construction costs and could cause construction delays. To protect against changes in construction
costs, labor and materials costs are generally established prior to or near the time when related sales contracts are signed with homebuyers.
However, the Company cannot determine the extent to which necessary building materials and labor will be available at reasonable prices
in the future.
3
A significant variable affecting the timing of
homebuilding sales, other than housing demand, is the opening of a property for sale, which generally occurs promptly after receipt of
land regulatory approvals. Receipt of approvals allows the Company to begin the process of obtaining executed sales contracts from homebuyers.
Although the Company does not yet have sufficient historical experience to observe any seasonal effect on sales and construction activities,
the Company does expect some seasonality in sales and construction activities which can effect the timing of closings. But any such seasonal
effect is expected to be relatively insignificant compared to the effect of the timing of receipt of final regulatory approvals, the opening
of a property for sale and the subsequent timing of closings.
The housing industry in the Albuquerque metro
is highly competitive. Numerous national, regional and local homebuilders compete for homebuyers on the basis of location, price, quality,
reputation, design, community amenities and homebuyers’ overall sales and homeownership experiences. This competition with other
homebuilders could reduce the number of homes the Company delivers or cause the Company to accept reduced margins to maintain sales volume.
The Company also competes with resales of existing homes and available rental housing. Increased competitive conditions in the residential
resale or rental market could decrease demand for new homes or unfavorably impact pricing for new homes.
Regulatory and Environmental Matters
The Company’s operations are subject to
extensive regulations imposed and enforced by various federal, state and local governing authorities. These regulations are complex and
include building codes, land zoning and other entitlement restrictions, health and safety regulations, labor practices, marketing and
sales practices, environmental regulations and various other laws, rules and regulations. The applicable governing authorities frequently
have broad discretion in administering these regulations. The Company may experience extended timelines for receiving required approvals
from municipalities or other government agencies that can delay anticipated development and construction activities.
Government restrictions, standards or regulations
intended to reduce greenhouse gas emissions or potential climate change impacts may result in restrictions on land development or homebuilding
in certain areas and may increase energy, transportation or raw material costs, which could reduce the Company’s profit margins
and adversely affect the Company’s results of operations. Weather conditions and natural disasters can harm the Company. The occurrence
of natural disasters or severe weather conditions can delay or increase costs of land development and home construction, adversely affect
the cost or availability of materials or labor or damage homes or land development under construction. These matters may result in delays,
may cause the Company to incur substantial compliance, remediation, mitigation and other costs, and can prohibit or severely restrict
land development and homebuilding activity in environmentally sensitive areas.
Human Capital Resources
As of July 1, 2021, the Company employed
19 full-time employees and 1 part-time employee. The Company believes the people who work for the Company are its most important resource
and are critical to the Company’s continued success. The Company focuses significant attention on attracting and retaining talented
and experienced individuals to manage and support the Company’s operations. The Company strives to reward employees through competitive
industry pay, benefits and other programs; instill the Company's culture with a focus on ethical behavior; and enhance employees’
performance through investment in technology, tools and training to enable employees to operate at a high level. The Company’s employees
are not represented by any union. The Company considers its employee relations to be good. The Company offers employees a broad range
of company-paid benefits, and the Company believes its compensation package and benefits are competitive with others in the industry.
All employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All employees must adhere to
a code of conduct that sets standards for appropriate ethical behavior.
AVAILABLE INFORMATION
The Company maintains a website at www.amrepcorp.com.
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments
to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended,
are available free of charge through the Company’s website as soon as reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange Commission. The information found on the Company’s website is not part
of this or any other report that the Company files with, or furnishes to, the Securities and Exchange Commission.
4
In addition to the Company’s website, the
Securities and Exchange Commission maintains an Internet site that contains the Company’s reports, proxy and information statements,
and other information that the Company electronically files with, or furnishes to, the Securities and Exchange Commission at www.sec.gov.
Item 1A. Risk Factors
As a smaller reporting company, the Company has
elected not to provide the disclosure under this item.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
The Company’s executive offices are located
in approximately 2,400 square feet of leased space in an office building in Plymouth Meeting, Pennsylvania. The Company’s real estate
business is located in approximately 4,900 square feet of leased space in an office building in Rio Rancho, New Mexico. In addition, real
estate inventory and investment properties are described in Item 1 of Part I of this annual report on Form 10-K with certain
mortgages associated with such real estate described in Item 7 of Part II of this annual report on Form 10-K. The Company believes
its facilities are adequate for its current requirements.
Item 3. Legal Proceedings
The Company and its subsidiaries
are involved in various pending or threatened claims and legal actions arising in the ordinary course of business. While the ultimate
results of these other matters cannot be predicted with certainty, management believes that they will not have a material adverse effect
on the Company’s consolidated financial position, liquidity or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
Information about the Company’s Executive
Officers
Set forth below is certain information concerning
persons who are the current executive officers of the Company.
Christopher V. Vitale, age 45, has been
President and Chief Executive Officer of the Company since September 2017. From 2014 to September 2017, Mr. Vitale was
Executive Vice President, Chief Administrative Officer and General Counsel of the Company and, from 2013 to 2014, he was Vice President
and General Counsel of the Company. From 2012 to 2013, Mr. Vitale was Vice President, Legal at Franklin Square Holdings, L.P. and,
from 2011 to 2012, he was Assistant Vice President, Legal at Franklin Square Holdings, L.P., a national sponsor and distributor of investment
products, where he was responsible for securities matters, corporate governance and general corporate matters. During 2011, Mr. Vitale
was the Chief Administrative Officer at WorldGate Communications, Inc. (“WorldGate”), and from 2009 to 2011 he was
Senior Vice President, General Counsel and Secretary at WorldGate, a provider of digital voice and video phone services and video phones.
In 2012, WorldGate filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the District of Delaware. Prior to joining WorldGate, Mr. Vitale was an attorney with the law firms of Morgan, Lewis &
Bockius LLP and Sullivan & Cromwell LLP.
Adrienne M. Uleau, age 53, has been Vice
President, Finance and Accounting of the Company since March 2020. From August 2018 to March 2020, Ms. Uleau
was Controller of the Company. Prior to joining the Company, Ms. Uleau had been Controller of United Tectonics Corp., a construction
services company, from 2016 to August 2018. From 2014 to 2016, Ms. Uleau was Financial Manager of Cushman and Wakefield. Prior
to 2014, Ms. Uleau held various senior accounting positions. In 2012, Ms. Uleau declared bankruptcy in connection with unsecured
credit card debt.
5
The executive officers are elected or appointed
by the board of directors of the Company or its appropriate subsidiary to serve until the appointment or election and qualification of
their successors or their earlier death, resignation or removal.
PART II
The Company’s common stock is traded
on the New York Stock Exchange under the symbol “AXR”. On July 19, 2021, there were 303 holders of record of the common stock.
The Company’s common stock is often
thinly traded. As a result, large transactions in the Company’s common stock may be difficult to execute in a short time frame and
may cause significant fluctuations in the price of the Company’s common stock. Among other reasons, the stock is thinly traded due
to the fact that five of the Company’s shareholders beneficially owned approximately 68% of the outstanding common stock as of July
19, 2021. The average trading volume in the Company’s common stock on the New York Stock Exchange over the thirty-day trading period
ending on April 30, 2021 was 13,439 shares per day.
The Company is an Oklahoma
corporation and the anti-takeover provisions of its certificate of incorporation and of Oklahoma law generally prohibit the Company from
engaging in “business combinations” with an “interested shareholder,” as those terms are defined therein, unless
the holders of at least two-thirds of the Company’s then outstanding common stock approve the transaction. Consequently, the concurrence
of the Company’s largest shareholders would generally be needed for any “interested shareholder” to acquire control
of the Company, even if a change in control would be beneficial to the Company’s other shareholders.
Equity Compensation Plan Information
See Item 12, which incorporates such information
by reference from the Company’s Proxy Statement for its 2021 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission.
Dividend Policy
The Company has paid no cash dividends on its
common stock since fiscal year 2008. The Company may consider dividends from time-to-time in the future in light of conditions then existing,
including earnings, financial condition, cash position, capital requirements and other needs. No assurance is given that there will be
any such future dividends declared.
Share Repurchases
Refer to Note 17 to the consolidated financial
statements contained in this annual report on Form 10-K for detail regarding the Company’s share repurchase activity.
Item 6. [Reserved]
For a description of the Company’s business, refer to Item 1
of Part I of this annual report on Form 10-K. As indicated in Item 1, the Company, through its subsidiaries, is primarily engaged
in two business segments: land development and homebuilding. The Company has no foreign sales. 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 discussion should be read in conjunction with the consolidated financial statements and accompanying notes.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company prepares its financial statements
in conformity with accounting principles generally accepted in the United States of America. The Company discloses its significant accounting
policies in the notes to its audited consolidated financial statements.
6
The preparation of such financial statements requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the dates of those financial statements as well as the reported amounts of revenues and expenses during the
reporting periods. Areas that require significant judgments and estimates to be made include: (1) real estate land development cost
of sales calculations, which are based on land development budgets and estimates of costs to complete; (2) cash flows, asset groupings
and valuation assumptions in performing asset impairment tests of long-lived assets (including real estate inventories) and assets held
for sale; (3) actuarially determined defined benefit pension plan obligations and other pension plan accounting and disclosures;
(4) risk assessment of uncertain tax positions; and (5) the determination of the recoverability of net deferred tax assets.
Actual results could differ from those estimates.
There are numerous critical assumptions that may
influence accounting estimates in these and other areas. Management bases its critical assumptions on historical experience, third-party
data and various other estimates that it believes to be reasonable under the circumstances. The most critical assumptions made in arriving
at these accounting estimates include the following:
RESULTS OF OPERATIONS
Year Ended April 30, 2021 Compared
to Year Ended April 30, 2020
For 2021, the Company had net income of $7,392,000,
or $0.95 per diluted share, compared to a net loss of $5,903,000, or $0.73 per share, in 2020. The net loss in 2020 included $8,600,000
of non-cash charges which included (1) a non-cash pre-tax pension settlement loss of $2,929,000 due to the payment of lump sum payouts
of pension benefits to former employees and (2) net non-cash pre-tax impairment charges on other assets of $5,046,000 in connection with
the termination of certain real estate leases.
7
Revenues.
The following presents information on revenues for the Company’s operations (dollars in thousands):
Year Ended April 30, % Increase
Home sale revenues 3,079 - (a )
Building sales and other revenues 11,099 2,011 (a )
(a) Percentage not meaningful.
Acres Sold Revenue Revenue Per Acre1 Acres Sold Revenue Revenue Per Acre1
Developed
The increase in the average selling
price per acre of developed residential land in 2021 compared to 2020 was primarily due to the location of the sold property and increased
demand for lots by builders. The increase in the average selling price per acre of undeveloped residential land in 2021 compared to 2020
was primarily due to the location of the sold property and increased demand in the market.
1Revenues per lot may not calculate precisely due to the rounding of revenues to the nearest thousand dollars.
8
Year Ended April 30,
Sales of buildings and other land $ 9,493 $ 665
Public improvement district reimbursements 390 113
Private infrastructure reimbursement covenants 549 324
Miscellaneous other revenues 532 301
Sales of buildings and other land for
2021 consisted of $5,493,000 with respect to the sale of a 14,000 square foot, single tenant retail building in the Las Fuentes at Panorama
Village subdivision in Rio Rancho, New Mexico and $4,000,000 with respect to the sale of a 61,000 square foot warehouse and office facility
located in Palm Coast, Florida. Sales of buildings and other land for 2020 consisted of the sale of two undeveloped properties in Palm
Coast, Florida.
Miscellaneous other revenues for 2021
primarily consisted of payments for impact fee credits, installation of telecommunications equipment in subdivisions and profit on land
used in homebuilding. Miscellaneous other revenues for 2020 primarily consisted 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):
Year Ended April 30, % Increase
Home sale cost of revenues 2,584 - (a)
Building sale and other cost of revenues 5,722 477 (a)
(a) Percentage not meaningful.
9
General and Administrative Expenses. The
following presents information on general and administrative expenses for the Company’s
operations (dollars in thousands):
Year Ended April 30, % Increase
(a) Percentage
not meaningful.
Interest (expense) income, net decreased to $(40,000)
for 2021 from $334,000 for 2020, 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 a former business segment (refer to Note 3 to the consolidated
financial statements contained in this annual report on Form 10-K for detail regarding the non-cash impairment charge of the deferred
purchase price related to the sale of a former business segment).
Other income of $1,028,000 for 2021 primarily consisted of a settlement
payment of $650,000 from a former business segment (refer to Note 3 to the consolidated financial statements contained in this annual
report on Form 10-K for detail regarding the settlement agreement) and $300,000 of debt forgiveness with respect to a loan received
by the Company pursuant to the Paycheck Protection Program administered by the U.S. Small Business Administration (refer to Note 6 to
the consolidated financial statements contained in this annual report on Form 10-K for detail regarding the debt forgiveness).
The Company had a provision for income taxes
of $2,643,000 for 2021 compared to a benefit for income taxes of $1,722,000 for 2020.
LIQUIDITY AND CAPITAL RESOURCES
AMREP Corporation is a holding company that conducts
substantially all of its operations through subsidiaries. As a holding company, AMREP Corporation is dependent on its available cash and
on cash from subsidiaries to pay expenses and fund operations. The Company’s liquidity is affected by many factors, including some
that are based on normal operations and some that are related to the real estate industry and the economy generally.
The Company’s primary sources of funding
for working capital requirements are cash flow from operations, bank financing for specific real estate projects, a revolving line of
credit and existing cash balances. Land and homebuilding properties generally cannot be sold quickly, and the ability of the Company to
sell properties has been and will continue to be affected by market conditions. The ability of the Company to generate cash flow from
operations is primarily dependent upon its ability to sell the properties it has selected for disposition at the prices and within the
timeframes the Company has established for each property. The development of additional lots for sale, construction of homes or pursuing
other real estate projects will require financing or other sources of funding, which may not be available on acceptable terms (or at all).
If the Company is unable to obtain such financing, the Company’s results of operations could be adversely affected.
10
COVID-19
Impact and Response
In
March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment
and mitigation measures worldwide. Subsequently, the COVID-19 pandemic has continued to spread and various state and local governments
have issued or extended “shelter-in-place” orders, which have impacted and restricted various aspects of the Company’s
operations.
In
response to the pandemic, the Company allowed all employees to work remotely during March and April 2020, with most operations
in New Mexico returning to an office setting beginning in May 2020. In New Mexico, the Company’s construction operations have
continued functioning during this period subject to regulated restrictions and safety constraints in order to protect the Company’s
employees, trade contractors and homebuilder customers. The Company modified many of its common interactions to be virtual and attempted
to minimize in-person interactions. While the above-referenced steps are necessary and appropriate in light of the COVID-19 pandemic,
they did, and in some cases still do, impact the Company’s ability to operate in its ordinary and traditional course. Those restrictions,
combined with a reduction in the availability, capacity and efficiency of municipal and private services necessary to progress land development
and homebuilding, have reduced the Company’s sales pace and delayed certain projects and deliveries. The potential magnitude and
duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19
are uncertain. In addition, the Company can provide no assurance as to whether the COVID-19 public health effort will be intensified to
such an extent that the Company will not be able to conduct any business operations for an indefinite period.
While
we cannot reasonably estimate the length or severity of this pandemic or if there will be additional periods of increases or spikes in
the number of COVID-19 cases, future mutations or related strains of the virus in areas in which the Company operates, an extended economic
slowdown could materially impact the Company’s consolidated financial position, consolidated results of operations and consolidated
cash flows. The Company could be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 (a) decrease
consumer confidence generally or with respect to purchasing a home or cause civil unrest, (b) precipitate a prolonged economic downturn
or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for the Company’s products, impair
the Company’s ability to sell and build finished lots and homes in a typical manner or at all, impair the Company’s ability
to generate revenues and cash flows, or impair the Company’s ability to access the capital or lending markets (or significantly
increase the costs of doing so), (c) increase the costs or decrease the supply of construction materials or the availability of subcontractors
and other talent, including as a result of infections or medically necessary or recommended self-quarantining, or governmental mandates
to direct production activities to support public health efforts or (d) result in the Company recognizing charges in future periods,
which may be material, for impairments related to the Company’s inventory or investment assets. The unprecedented uncertainty surrounding
COVID-19, due to rapidly changing governmental directives, public health challenges and progress, macroeconomic consequences and market
reactions thereto, also makes it more challenging for the Company to estimate the future performance of the business and develop strategies
to generate growth.
Should
the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, the Company would
expect to experience, among other things, increases in defaults under customer contracts, and decreases in future demand for finished
lots and homes, possibly resulting in reduced revenues and profitability. Such impacts could be material to the Company’s consolidated
financial statements. The Company could also be forced to reduce its average selling prices in order to generate homebuilder or homebuyer
demand or in reaction to competitive pressures. In addition, should the COVID-19 public health effort intensify to such an extent that
the Company cannot operate in Rio Rancho, the Company could generate few or no sales during the applicable period, which could be prolonged.
If there are prolonged government restrictions on the Company’s operations or the Company’s employees, trade contractors or
customers, or an extended economic recession, the Company could be unable to produce revenues and cash flows sufficient to conduct operations,
meet the terms of the Company’s covenants and other requirements under its financing arrangements or service the Company’s
outstanding debt. Such a circumstance could, among other things, exhaust the Company’s available liquidity (and ability to access
liquidity sources) or trigger an acceleration to pay a significant portion or all of the Company’s then-outstanding debt obligations,
which the Company may be unable to do.
11
Pension Plan
The Company has a defined benefit pension plan
for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Under generally accepted
accounting principles, the Company’s defined benefit pension plan was underfunded as of April 30, 2021 by $476,000, with $21,102,000
of assets and $21,578,000 of liabilities, and was underfunded as of April 30, 2020 by $5,014,000, with $18,260,000 of assets and
$23,274,000 of liabilities. The pension plan liabilities were determined using a weighted average discount interest rate of 2.48% per
year as of April 30, 2021 and 2.29% per year as of April 30, 2020, which are based on the FTSE Pension Discount Curve as of
such dates as it corresponds to the projected liability requirements of the pension plan. As of April 30, 2021, for each 0.25% increase
in the weighted average discount interest rate, the pension plan liabilities are forecasted to decrease by $457,000 and for each 0.25%
decrease in the weighted average discount interest rate, the pension plan liabilities are forecasted to increase by $475,000. As of April 30,
2021, the effect of every 0.25% change in the investment rate of return on pension plan assets would increase or decrease the subsequent
year’s pension expense by $49,500, and the effect of every 0.25% change in the weighted average discount interest rate would increase
or decrease the subsequent year’s pension expense by $13,000. The Company made voluntary contributions to the pension plan of $1,847,000
and $3,600,000 during 2021 and 2020. The Company recognized a non-cash pre-tax pension settlement loss of $2,929,000 in 2020 due to the
Company’s defined benefit pension plan paying an aggregate of $7,280,000 in lump sum payouts of pension benefits to former employees.
There were no such charges in 2021.
Operating Activities
The following
presents information on the Company’s operating activities (dollars in thousands):
April 30, % Increase
Taxes receivable, net - 57 (a )
Accounts payable and accrued expenses 4,458 3,125 43 %
Taxes payable, net 95 - (a )
(a) Percentage not meaningful.
April 30, % Increase
Homebuilding finished inventory 417 - (a)
Homebuilding construction in process 1,279 44 (a)
(a) Percentage not meaningful.
Land inventory in New Mexico increased
from 2020 to 2021 by $456,000 primarily due to increased land development activity and the acquisition of land. Homebuilding finished
inventory increased from 2020 to 2021 by $417,000 due to the construction of model and spec homes. Homebuilding construction in process
increased from 2020 to 2021 by $1,235,000 due to increased homebuilding activity.
12
April 30, % Increase
Land held for long-term investment $ 9,775 $ 9,751 1 %
Construction in process - 2,320 (a)
Less accumulated depreciation (6,196 ) (6,523 ) (5 )%
(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. As of April 30, 2021 and April 30, 2020, the Company held approximately 12,000 acres of land in New Mexico classified
as land held for long-term investment.
Construction in process relates primarily
to construction costs of a 14,000 square foot, single tenant retail building in the Las Fuentes at Panorama Village subdivision in Rio
Rancho, New Mexico, which was completed during 2021. As of April 30, 2021, buildings were comprised of a 143,000 square foot warehouse
and office facility located in Palm Coast, Florida. As of April 30, 2020, buildings were comprised of a 143,000 square foot warehouse
and office facility located in Palm Coast, Florida and a 61,000 square foot warehouse and office facility located in Palm Coast, Florida.
During 2021, the Company sold the 14,000 square foot retail building and the 61,000 square foot warehouse and office facility. Depreciation
associated with the buildings was $542,000 and $517,000 for 2021 and 2020.
Financing Activities
Notes payable, net decreased from $3,890,000 as
of April 30, 2020 to $3,448,000 as of April 30, 2021, primarily due to repayments made on outstanding borrowings partially offset
by additional borrowings to fund land development activities.
13
The following
presents information on the Company’s notes payable in effect as of April 30, 2021 (dollars in thousands):
Maximum Available Outstanding Principal Amount Interest Rate
Principal April 30, April 30,
Revolving Line of Credit $ 4,000 $ - $ - 3.75 %
Lavender Fields – acquisition 1,838 1,748 - 0 %
The following
presents information on the Company’s notes payable in effect as of April 30, 2020 and terminated prior to
April 30, 2021 (in thousands):
Maximum Available Principal Outstanding Principal Amount
Loan Identifier Amount April 30, 2020
Las Fuentes at Panorama Village 2,750 1,979
SBA Paycheck Protection Program 298 298
Refer to Note 6 to the consolidated financial
statements contained in this annual report on Form 10-K for detail regarding each of the Company’s notes payable.
Refer to Note 17 to the consolidated financial
statements contained in this annual report on Form 10-K for detail regarding the Company’s share repurchase activity.
Investing Activities
Capital expenditures were $5,000 for 2021 and
$9,000 for 2020 primarily for upgrades related to technology in both years. The Company believes that it has adequate cash, bank financing
and cash flows from operations to provide for anticipated capital expenditures and land development spending in fiscal year 2021.
Off-Balance Sheet Arrangements
As of April 30, 2021 and April 30, 2020,
the Company did not have any off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).
Recent Accounting Pronouncements
Refer to Note 1 to the consolidated financial
statements contained in this annual report on Form 10-K for a discussion of recently issued accounting pronouncements.
IMPACT OF INFLATION
The Company’s operations can be impacted
by inflation. Inflation can cause increases in the cost of land, materials, services, interest and labor. Unless such increased costs
are recovered through increased sales prices or improved operating efficiencies, operating margins will decrease. The Company’s
homebuilding segment as well as homebuilders that are customers of the Company’s land development business segment face inflationary
concerns that rising housing costs, including interest costs, may substantially outpace increases in the incomes of potential purchasers
and make it difficult for them to purchase a new home or sell an owned home. If this situation were to exist, the demand for homes produced
by the Company’s homebuilding segment could decrease and the demand for the Company’s land by homebuilder customers could
decrease. In general, in recent years interest rates have been at historically low levels and other price increases have been commensurate
with the general rate of inflation in the Company’s markets, and as a result the Company has not found the inflation risk to be
a significant problem in its business. Despite low inflation, the Company’s operations are experiencing price increases as a result
of recent tariffs and labor and material shortages. Inflation may also increase the Company’s financing costs. While the Company
attempts to pass on to its customers increases in costs through increased sales prices, market forces may limit the Company’s ability
to do so. If the Company is unable to raise sales prices enough to compensate for higher costs, or if mortgage interest rates increase
significantly, the Company’s revenues, gross margins and net income could be adversely affected.
14
FORWARD-LOOKING STATEMENTS
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 annual
report on Form 10-K and other filings with the Securities 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 annual report on Form 10-K 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 annual report on Form 10-K 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, including the amount of principal available for borrowing under the Company’s financing
arrangements, (3) anticipated future development of the Company’s real estate holdings, including the 15-acre property in
the La Mirada subdivision, (4) the development and construction of possible future commercial properties to be marketed to
tenants, (5) the designs, pricing and levels of options and amenities with respect to the Company’s homebuilding
operations, (6) the timing of reimbursements under, and the
general effectiveness of, the Company’s public improvement districts and private infrastructure reimbursement covenants,
(7) the number of planned residential lots in the Company’s subdivisions, (8) estimates and assumptions used in
determining future cash flows of real estate projects, (9) the utilization of existing bank financing, (10) the effect of
recent accounting pronouncements, (11) contributions by the Company to the pension plan, the amount of future annual benefit
payments to pension plan participants payable from plan assets, the appropriateness of valuation methods to determine the fair value
of financial instruments in the pension plan, the expected return on assets in the pension plan, the expected long-term rate of
return on assets in the pension plan, the effect of changes in the weighted average discount interest rate on the amount of pension
plan liabilities and the effect of changes in the investment rate of return on pension plan assets with respect to pension expense,
(12) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under the AMREP
Corporation 2016 Equity Compensation Plan, (13) the future issuance of deferred stock units to directors of the Company, (14) the
adequacy of the Company’s facilities, (15) the materiality of claims and legal actions arising in the normal course of the
Company’s business, (16) the negative impact of the COVID-19 pandemic on the Company’s financial position and ability to