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
continue operations at normal levels or at all, (17) the duration, effect and severity of the COVID-19 pandemic and (18) the
measures that governmental authorities may take to address the COVID-19 pandemic which may precipitate or exacerbate one or more of
the above-mentioned or other risks and significantly disrupt or prevent the Company from operating in the ordinary course for an
extended period of time. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
15
Item 8. Financial Statements and Supplementary Data
Management’s Annual Report on Internal
Control Over Financial Reporting
Management is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America.
Because of the inherent limitations of internal
control over financial reporting, including the possibility of human error and the circumvention or overriding of controls, material misstatements
may not be prevented or detected on a timely basis. Accordingly, even internal controls determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation. Furthermore, projections of any evaluation of the effectiveness
of internal controls to future periods are subject to the risk that such controls may become inadequate due to changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of internal
control over financial reporting as of April 30, 2021 based upon the criteria set forth in a report entitled “Internal Control-Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on its assessment, management
has concluded that, as of April 30, 2021, internal control over financial reporting was effective.
This annual report on Form 10-K does not
include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission
that permit the Company to provide only management’s report on internal control over financial reporting in this annual report on
Form 10-K.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and Board of Directors of
AMREP Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of AMREP Corporation and Subsidiaries (the “Company”) as of April 30, 2021 and 2020, the related consolidated
statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the two years in the period
ended April 30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion,
the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2021 and
2020, and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below
is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to
the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on
the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
Allocation of Common Development Costs
For the year ended April 30, 2021, the Company’s
land sale cost of revenues was approximately $17.3 million, which includes all direct acquisition costs and other costs specifically
identified with the land and an allocation of common development costs associated with its land development projects. As discussed in
Note 1 to the consolidated financial statements, common development costs are allocated based on the relative sales value of the individual
parcels of land being sold. At the time of the closings of the sales of individual land parcels, certain common development costs may
not yet be incurred. To recognize the appropriate amount of cost of revenues, the Company estimates the total remaining common development
costs associated with its land development projects. Estimates are affected by changes to zoning laws, land development requirements
and the cost of labor, material, and subcontractors.
Auditing the Company’s allocation of common
development costs associated with its land development projects was complex and subject to sensitive management assumptions.
To test the Company’s allocation of common
development costs associated with its land development projects, our audit procedures included, among others, testing the significant
assumptions used to develop the estimated costs to complete the land development projects and testing the completeness and accuracy of
the underlying data and allocation calculation. For example, we compared the estimated land development costs to actual costs of similar
communities developed by the Company; agreed the actual development costs to supporting documentation, including underlying contracts;
and reviewed margins disaggregated by project for reasonableness.
/s/ Marcum llp
Marcum LLP
We have served as the Company’s auditor since 2017.
Philadelphia, Pennsylvania
July 27, 2021
17
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2021 AND 2020
(Amounts in thousands, except share and per share
amounts)
ASSETS
Taxes receivable, net - 57
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses $ 4,458 $ 3,125
Taxes payable, net 95 -
Commitments and contingencies (Note 15)
Shareholders’ Equity:
Capital contributed in excess of par value 45,072 51,334
Accumulated other comprehensive loss, net (4,623 ) (6,467 )
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 97,366 $ 96,666
The accompanying notes to consolidated financial
statements are an
integral part of these consolidated financial statements.
18
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except
per share amounts)
Year Ended April 30,
REVENUES:
Home sale revenues 3,079 -
Building sales and other revenues 11,099 2,011
COSTS AND EXPENSES:
Home sale cost of revenues 2,584 -
Building sales and other cost of revenues 5,722 477
General and administrative expenses 5,420 12,957
Interest (expense) income, net (40 ) 334
Income (loss) before income taxes 10,035 (7,625 )
Provision (benefit) for income taxes 2,643 (1,722 )
Basic earnings (loss) per share $ 0.95 $ (0.73 )
Diluted earnings (loss) per share $ 0.95 $ (0.73 )
Weighted average number of common shares outstanding – basic 7,743 8,134
Weighted average number of common shares outstanding – diluted 7,773 8,134
The accompanying notes to consolidated financial
statements are an
integral part of these consolidated financial statements.
19
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(Amounts in thousands)
Year Ended April 30,
Other comprehensive income, net of tax:
Other comprehensive income 1,844 564
Total comprehensive income (loss) $ 9,236 $ (5,339 )
The accompanying notes to consolidated financial
statements are an
integral part of these consolidated financial statements.
20
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
(Amounts in thousands)
Shares Amount Par Value Earnings Loss at Cost Total
Issuance of restricted common stock 5 1 29 - - - 30
Issuance of deferred common stock units - - 100 - - - 100
Other comprehensive income - - - - 564 - 564
Issuance of restricted common stock 9 1 41 - - - 42
Issuance of deferred common stock units - - 90 - - - 90
Issuance of deferred common share units 12 - - - - - -
Other comprehensive income - - - - 1,844 - 1,844
The accompanying notes to consolidated financial
statements are an
integral part of these consolidated financial statements.
21
AMREP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Amounts in thousands)
Year Ended April 30,
CASH FLOWS FROM OPERATING ACTIVITIES:
Amortization of debt issuance costs 59 65
Non-cash credits and charges:
Stock-based compensation 132 113
Deferred income tax provision (benefit) 2,494 (1,798 )
Net periodic pension cost (36 ) 98
Gain on debt forgiveness (300 ) -
Pension settlement - 2,929
Write off of deferred purchase price - 5,636
Changes in assets and liabilities:
Real estate inventory and investment assets 2,380 2,390
Accounts payable and accrued expenses 1,333 161
Taxes receivable and payable 152 226
Net cash provided by operating activities 12,609 765
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5 ) (9 )
Net cash used in investing activities (5 ) (9 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal debt payments (6,680 ) (2,057 )
Payments for debt issuance costs (120 ) (95 )
Repurchase of common stock (5,116 ) -
Net cash (used in) provided by financing activities (5,305 ) 2,510
Increase in cash, cash equivalents and restricted cash 7,299 3,266
Cash, cash equivalents and restricted cash, beginning of year 17,502 14,236
Cash, and cash equivalents, end of year $ 24,801 $ 17,502
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes refunded, net $ (153 ) $ (153 )
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Forgiveness of debt $ 300 $ -
The accompanying notes to consolidated financial
statements are an
integral part of these consolidated financial statements.
22
AMREP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
Organization and principles of consolidation
The consolidated financial statements include
the accounts of AMREP Corporation, an Oklahoma corporation, and its subsidiaries (collectively, the “Company”). The Company,
through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign
sales. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheets are presented
in an unclassified format since the Company has substantial operations in the real estate industry and its operating cycle is greater
than one year. Certain 2020 balances in these financial statements have been reclassified to conform to the current year presentation
with no effect on the net income or loss or shareholders’ equity.
Fiscal year
The Company’s fiscal year ends on April 30.
All references to 2021 and 2020 mean the fiscal years ended April 30, 2021 and 2021, unless the context otherwise indicates.
Revenue recognition
Land sale revenues: The Company accounts for land sale revenues
in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606).
Revenue from land sales are recognized when the parties are bound by the terms of a contract, consideration has been exchanged, title
and other attributes of ownership have been conveyed to the buyer by means of a closing and the Company is not obligated to perform further
significant development of the specific property sold. In general, the Company’s performance obligation for each of these land sales
is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty.
Land sale cost of revenues includes all direct
acquisition costs and other costs specifically identified with the property, including pre-acquisition costs and capitalized real estate
taxes and interest, and an allocation of certain common development costs associated with the entire project. Common development costs
include the installation of utilities and roads, and may be based upon estimates of cost to complete. The allocation of costs is based
on the relative sales value of the property. Estimates and cost allocations are reviewed on a regular basis until a project is substantially
completed, and are revised and reallocated as necessary on the basis of current estimates.
Home sale revenues: The Company accounts
for revenue from home sales in accordance with ASU 2014-09. Revenues and cost of revenues from home sales are recognized at the
time each home is delivered and title and possession are transferred to the buyer. The Company’s performance obligation to deliver
a home is normally satisfied in less than one year from the date a binding sale agreement is signed. In general, the Company’s performance
obligation for each home sale is fulfilled upon the delivery of the completed home, which generally coincides with the receipt of cash
consideration from the counterparty. If the Company’s performance obligations are not complete upon the home closing, the Company
defers a portion of the home sale revenues related to the outstanding obligations and subsequently recognizes that revenue upon completion
of such obligations. As of April 30, 2021, deferred home sale revenues and costs related thereto were immaterial.
Forfeited customer deposits for homes are recognized in home sale revenues
in the period in which the Company determines that the customer will not complete the purchase of the home and the Company has the right
to retain the deposit. In order to promote sales of homes, the Company may offer home buyers sales incentives. These incentives vary by
type and amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sale revenues.
Home construction and related costs are capitalized
as incurred within real estate inventory under the specific identification method on the consolidated balance sheet and are charged to
home sale cost of revenues on the consolidated statement of operations when the related home is sold.
23
Rental revenues: The Company may enter
into leases with tenants with respect to property or buildings it owns. Base rental payments from tenants are recognized as revenue monthly