UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended     JanuaryOctober 31, 2018     2020

OR

¨            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________________________________ to _________________________________

 

Commission File NumberNumber: 1-4702

 

AMREP Corporation
(Exact name of Registrant as specified in its charter)

AMREP Corporation

(Exact Name of Registrant as Specified in its Charter)

 

Oklahoma 59-0936128
(

State or other jurisdictionOther Jurisdiction of

Incorporation or Organization

 (IRSI.R.S. Employer Identification No.
incorporation or organization) Identification No.)

620 West Germantown Pike, Suite 175

Plymouth Meeting, PA

 19462
(Address of principal executive offices)Principal Executive Offices (Zip Code)Code

 

Registrant’s telephone number, including area code:(610) 487-0905

Registrant’s Telephone Number, Including Area Code

Not Applicable

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

 

Not ApplicableTitle of each classTrading Symbol(s)Name of each exchange on which registered
(Former name or former address, if changed since last report)Common Stock $0.10 par valueAXRNew York Stock Exchange

 

Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x     No ¨

YesxNo¨

 

Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 Registrantregistrant was required to submit and post such files).  Yes x    No ¨

YesxNo¨

 

Indicate by check mark whether the Registrantregistrant 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 filerx¨Smaller reporting companyx
(Do not check if a smaller reporting company)
Emerging growth company¨¨

 

If an emerging growth company, indicate by check mark if the Registrantregistrant 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 Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

Yes¨Nox

 

Number of Shares of Common Stock, par value $.10 per share, outstanding at March 15, 2018December 4, 20208,098,704.7,323,370.

 

 

 

 

AMREP CORPORATION AND SUBSIDIARIES

 

INDEX

 

 PAGE
NO.
PART I.   FINANCIAL INFORMATION
  
Item 1.      Financial Statements
  
Consolidated Balance Sheets  January
October 31, 20182020 (Unaudited) and April 30, 201720201
  
Consolidated Statements of Operations and Retained Earnings (Unaudited)
Three Months Ended JanuaryOctober 31, 20182020 and 201720192
  
Consolidated Statements of Operations and Retained Earnings (Unaudited) Nine
Six Months Ended JanuaryOctober 31, 20182020 and 201720193
  
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three and NineSix Months Ended JanuaryOctober 31, 20182020 and 201720194
  
Consolidated Statements of Cash FlowsShareholders’ Equity (Unaudited) Nine
Three Months Ended JanuaryOctober 31, 20182020 and 201720195
  
Consolidated Statements of Shareholders’ Equity (Unaudited)
Six Months Ended October 31, 2020 and 20196
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended October 31, 2020 and 20197
Notes to Consolidated Financial Statements (Unaudited)68
  
Item 2.      Management's Discussion and Analysis of Financial Condition
and Results of Operations1518
  
Item 4.      Controls and Procedures2226
PART II.  OTHER INFORMATION
  
PART II. OTHER INFORMATIONItem 2.      Unregistered Sales of Equity Securities and Use of Proceeds27
  
Item 6.      Exhibits2328
  
SIGNATURE2429
  
EXHIBIT INDEX2530

 

 

PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

Item 1.Financial Statements

 

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except par valueshare and per share amounts)

 

ASSETS October 31,
2020
  April 30,
2020
 
 January 31,
 2018
  April 30,
 2017
  (Unaudited)    
 (Unaudited)    
ASSETS        
Cash and cash equivalents $13,854  $11,811  $15,692  $17,502 
Receivables, net  6,918   6,379 
Real estate inventory  58,271   56,090   53,925   53,449 
Investment assets  9,714   9,715 
Property, plant and equipment, net  10,028   10,852 
Investment assets, net  18,970   18,644 
Other assets  2,238   2,310   1,544   934 
Deferred income taxes, net (Note 9)  4,815   9,519 
Taxes receivable, net  57   57 
Deferred income taxes, net  5,532   6,080 
TOTAL ASSETS $105,838  $106,676  $95,720  $96,666 
              
LIABILITIES AND SHAREHOLDERS’ EQUITY              
LIABILITIES:                
Accounts payable and accrued expenses $9,187  $7,035  $4,700  $3,125 
Notes payable  638   - 
Taxes payable, net  41   465 
Other liabilities and deferred revenue  1,653   3,376 
Notes payable, net  5,803   3,890 
Accrued pension costs  9,707   10,967   3,195   5,014 
TOTAL LIABILITIES  21,226   21,843   13,698   12,029 
                
SHAREHOLDERS’ EQUITY:                
Common stock, $.10 par value; shares authorized – 20,000,000; shares issued – 8,323,954 at January 31, 2018 and 8,303,204 at April 30, 2017  832   830 
Common stock, $.10 par value; shares authorized – 20,000,000;        
shares issued – 7,692,102 at October 31, 2020 and 8,358,154 at April 30, 2020  768   836 
Capital contributed in excess of par value  50,922   50,694   47,216   51,334 
Retained earnings  45,639   46,764   44,540   43,149 
Accumulated other comprehensive loss, net  (8,566)  (9,240)  (6,287)  (6,467)
Treasury stock, at cost; 225,250 shares at January 31, 2018 and April 30, 2017  (4,215)  (4,215)
Treasury stock, at cost – 225,250 shares at October 31, 2020 and April 30, 2020  (4,215)  (4,215)
TOTAL SHAREHOLDERS’ EQUITY  84,612   84,833   82,022   84,637 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $105,838  $106,676  $95,720  $96,666 

 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

 

1


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings (Unaudited)

Three Months Ended JanuaryOctober 31, 20182020 and 20172019

(Amounts in thousands, except per share amounts)

 

  2018  2017 
REVENUES:        
Fulfillment services $7,676  $8,222 
Real estate land sales  2,510   1,461 
Other  193   94 
   10,379   9,777 
COSTS AND EXPENSES:        
Real estate land sales  2,109   848 
Operating and selling expenses:        
Fulfillment services  6,338   6,855 
Real estate  470   370 
General and administrative expenses:        
Fulfillment services  313   345 
Real estate  156   130 
Corporate  690   787 
Impairment of real estate assets  -   150 
Interest expense  18   22 
   10,094   9,507 
Income before income taxes  285   270 
         
Provision for income taxes (Note 9)  3,136   96 
Net income (loss)  (2,851)  174 
         
Retained earnings, beginning of period  48,490   47,521 
Retained earnings, end of period $45,639  $47,695 
Earnings (loss) per share, net - basic and diluted $(0.35) $0.02 
Weighted average number of common shares outstanding – basic  8,075   8,053 
Weighted average number of common shares outstanding – diluted  8,075   8,080 
  2020  2019 
REVENUES:        
Land sale revenues $8,526  $3,266 
Home sale revenues  202   - 
Rental revenues  152   341 
Other  376   353 
Total Revenues  9,256   3,960 
COSTS AND EXPENSES:        
Land sale cost of revenues  6,430   2,771 
Home sale cost of revenues  174   - 
General and administrative expenses  1,523   4,121 
Operating expenses  8,127   6,892 
Operating income (loss)  1,129   (2,932)
Interest (expense) income, net  (12)  141 
Income (loss) from operations before income taxes  1,117   (2,791)
Provision (benefit) for income taxes  319   (622)
Net income (loss) $798  $(2,169)
         
Basic and diluted earnings (loss) per share $0.10  $(0.27)
         
Weighted average number of common shares outstanding – basic  8,122   8,129 
         
Weighted average number of common shares outstanding – diluted  8,152   8,129 

 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

 

2


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings (Unaudited)

NineSix Months Ended JanuaryOctober 31, 20182020 and 20172019

(Amounts in thousands, except per share amounts)

 

  2018  2017 
REVENUES:        
Fulfillment services $22,592  $23,908 
Real estate land sales  6,603   7,710 
Other  1,685   1,832 
   30,880   33,450 
COSTS AND EXPENSES:        
Real estate land sales  4,471   6,370 
Operating and selling expenses:        
Fulfillment services  18,415   20,235 
Real estate  1,563   1,188 
General and administrative expenses:        
Fulfillment services  970   1,025 
Real estate  356   433 
Corporate  2,194   2,364 
Impairment of real estate assets  -   150 
Interest expense  49   328 
   28,018   32,093 
Income before income taxes  2,862   1,357 
         
Provision for income taxes (Note 9)  3,987   441 
Net income (loss)  (1,125)  916 
         
Retained earnings, beginning of period  46,764   46,779 
Retained earnings, end of period $45,639  $47,695 
Earnings (loss) per share, net - basic and diluted $(0.14) $0.11 
Weighted average number of common shares outstanding – basic  8,070   8,048 
Weighted average number of common shares outstanding – diluted  8,070   8,074 
  2020  2019 
REVENUES:        
Land sale revenues $12,013  $7,557 
Home sale revenues  202   - 
Rental revenues  502   682 
Other  745   488 
Total Revenues  13,462   8,727 
         
COSTS AND EXPENSES:        
Land sale cost of revenues  9,109   6,426 
Home sale cost of revenues  174   - 
General and administrative expenses  2,967   5,687 
Operating expenses  12,250   12,113 
Operating income (loss)  1,212   (3,386)
Interest (expense) income, net  (6)  265 
Other income  650   - 
Income (loss) from operations before income taxes  1,856   (3,121)
Provision (benefit) for income taxes  465   (756)
Net income (loss) $1,391  $(2,365)
         
Basic and diluted earnings (loss) per share $0.17  $(0.29)
         
Weighted average number of common shares outstanding – basic  8,136   8,125 
         
Weighted average number of common shares outstanding – diluted  8,168   8,125 

 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

 

3


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three and NineSix Months Ended JanuaryOctober 31, 20182020 and 20172019

(Amounts in thousands)

 

  Three Months Ended January 31, 
  2018  2017 
       
Net income (loss) $(2,851) $174 
Other comprehensive income (loss), net of tax:       
Decrease in pension liability, net of tax ($98 in 2018 and $153 in 2017)  225   248 
Other comprehensive income (loss)  225   248 
Total comprehensive income (loss) $(2,626) $422 
  Three Months ended
October 31,
 
  2020  2019 
       
Net income (loss) $798  $(2,169)
Other comprehensive income, net of tax:        
Pension settlement, net of tax ($880 in 2019)  -   2,049 
Decrease in pension liability, net of tax ($42 in 2020 and $43 in 2019)  90   98 
Other comprehensive income  90   2,147 
Total comprehensive income (loss) $888  $(22)

 

  Nine Months Ended January 31, 
  2018  2017 
       
Net income (loss) $(1,125) $916 
Other comprehensive income (loss), net of tax:       
Decrease in pension liability, net of tax ($296 in 2018 and $456 in 2017)  674   746 
Other comprehensive income (loss)  674   746 
Total comprehensive income (loss) $(451) $1,662 
  Six Months ended
October 31,
 
  2020  2019 
       
Net income (loss) $1,391  $(2,365)
Other comprehensive income, net of tax:        
Pension settlement, net of tax ($880 in 2019)  -   2,049 
Decrease in pension liability, net of tax ($84 in 2020 and $110 in 2019)  180   252 
Other comprehensive income  180   2,301 
Total comprehensive income (loss) $1,571  $(64)

 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

 

4


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows from OperationsShareholders’ Equity (Unaudited)

NineThree Months Ended JanuaryOctober 31, 20182020 and 20172019

(Amounts in thousands)

 

  2018  2017 
       
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss) from operations $(1,125) $916 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization  954   1,058 
Impairment of real estate assets  -   150 
Non-cash credits and charges:        
Non-cash gain on settlement  (1,318)  - 
Non-cash deferred revenue recognized  (61)  - 
Provision for (recovery of) doubtful accounts  28   (5)
Stock-based compensation  136   99 
Pension accrual  750   944 
Changes in assets and liabilities:        
Receivables  (567)  86 
Real estate inventory and investment assets  (2,180)  4,958 
Other assets  146   701 
Accounts payable and accrued expenses  2,172   (1,490)
Taxes payable  (424)  (124)
Other liabilities and deferred revenue  (344)  (248)
Deferred income taxes  4,408   562 
Accrued pension costs  (1,040)  - 
Total adjustments  2,660   6,691 
Net cash provided by operating activities  1,535   7,607 
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures – property, plant and equipment  (130)  (63)
Net cash used in investing activities  (130)  (63)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from debt financing  638   340 
Principal debt payments  -   (895)
Principal debt payments – related party  -   (10,798)
Net cash provided by (used in) financing activities  638   (11,353)
         
Increase (decrease) in cash and cash equivalents  2,043   (3,809)
Cash and cash equivalents, beginning of period  11,811   14,562 
Cash and cash equivalents, end of period $13,854  $10,753 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Interest paid, net of amounts capitalized $42  $314 
Income taxes paid, net $7  $4 
  

 

 

 

Common Stock

  Capital
Contributed
in Excess of
  Retained  Accumulated
Other
Comprehensive
  Treasury
Stock,
at
    
  Shares  Amount  Par Value  Earnings  Loss  Cost  Total 
Balance, August 1, 2020  8,367  $837  $51,375  $43,742  $(6,377) $(4,215) $85,362 
Issuance of common stock settled from deferred common share units  12   -   -   -   -   -   - 
Repurchase of common stock  (687)  (69)  (4,159)  -   -   -   (4,228)
Net income  -   -   -   798   -   -   798 
Other comprehensive income  -   -   -   -   90   -   90 
Balance, October 31, 2020  7,692  $768  $47,216  $44,540  $(6,287) $(4,215) $82,022 
                             
Balance, August 1, 2019  8,362  $836  $51,261  $48,856  $(6,877) $(4,215) $89,861 
Net loss  -   -   -   (2,169)  -   -   (2,169)
Other comprehensive income  -   -   -   -   2,147   -   2,147 
Balance, October 31, 2019  8,362  $836  $51,261  $46,687  $(4,730) $(4,215) $89,839 

 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.

 

5


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity (Unaudited)

Six Months Ended October 31, 2020 and 2019

(Amounts in thousands)

  Common Stock  Capital
Contributed
in Excess of
  Retained  Accumulated
Other
Comprehensive
  Treasury
Stock,
at
    
  Shares  Amount  Par Value  Earnings  Loss  Cost  Total 
Balance, May 1, 2020  8,358  $836  $51,334  $43,149  $(6,467) $(4,215) $84,637 
Issuance of restricted common stock  9   1   41   -   -   -   42 
Issuance of common stock settled from deferred common share units  12   -   -   -   -   -   - 
Repurchase of common stock  (687)  (69)  (4,159)  -   -   -   (4,228)
Net income  -   -   -   1,391   -   -   1,391 
Other comprehensive income  -   -   -   -   180   -   180 
Balance, October 31, 2020  7,692  $768  $47,216  $44,540  $(6,287) $(4,215) $82,022 
                             
Balance, May 1, 2019  8,353  $835  $51,205  $49,052  $(7,031) $(4,215) $89,846 
Issuance of restricted common stock  9   1   56   -   -   -   57 
Net loss  -   -   -   (2,365)  -   -   (2,365)
Other comprehensive income  -   -   -   -   2,301   -   2,301 
Balance, October 31, 2019  8,362  $836  $51,261  $46,687  $(4,730) $(4,215) $89,839 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.


AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended October 31, 2020 and 2019

(Amounts in thousands)

  2020  2019 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income (loss) $1,391  $(2,365)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Depreciation  270   289 
Amortization of debt issuance costs  30   56 
Non-cash credits and charges:        
Interest earned on deferred purchase price  -   (160)
Stock-based compensation  42   107 
Deferred income tax provision (benefit)  548   (756)
Net periodic pension cost  208   279 
Pension settlement  -   2,929 
Deferred Rent  -   110 
Changes in assets and liabilities:        
Real estate inventory and investment assets  (1,065)  3,526 
Other assets  (614)  (469)
Accounts payable and accrued expenses  1,575   (466)
Accrued pension costs  (1,847)  (3,600)
Total adjustments  (853)  1,845 
Net cash provided by (used in) operating activities  538   (520)
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures  (3)  (26)
Net cash used in investing activities  (3)  (26)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from debt financing  5,415   583 
Principal debt payments  (3,475)  (1,385)
Payments for debt issuance costs  (57)  - 
Repurchase of common stock  (4,228)  - 
Net cash used in financing activities  (2,345)  (802)
         
Decrease in cash, cash equivalents and restricted cash  (1,810)  (1,348)
Cash, cash equivalents and restricted cash, beginning of period  17,502   14,236 
Cash, cash equivalents and restricted cash, end of period $15,692  $12,888 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Interest paid $52  $4 
Right-of-use assets obtained in exchange for operating lease liabilities $-  $198 

The accompanying notes to consolidated financial statements are an

integral part of these consolidated financial statements.


AMREP CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

NineThree and Six Months Ended JanuaryOctober 31, 20182020 and 20172019

 

(1)BASIS OF PRESENTATION

(1)          SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES

 

The accompanying unaudited consolidated financial statements have been prepared by AMREP Corporation (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company, through its subsidiaries, is primarily engaged in two business segments: the real estate business operated by AMREP Southwest Inc. (“AMREP Southwest”)land development and its subsidiaries and the fulfillment services business operated by Palm Coast Data LLC (“Palm Coast”) and its affiliates.homebuilding. The Company’sCompany has no foreign sales are insignificant.sales. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

In the opinion of management, these unaudited consolidated financial statements include all adjustments, which are of a normal recurring nature, considered necessary to reflect a fair presentation of the results for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of what may occur in future periods. Unless the context otherwise qualified,indicates, all references to 20182021 and 20172020 are to the fiscal years ending April 30, 20182021 and 20172020 and all references to the thirdsecond quarter and first ninesix months of 20182021 and 20172020 mean the fiscal three month and ninesix month periods ended JanuaryOctober 31, 20182020 and 2017.2019.

 

The unaudited consolidated financial statements herein should be read in conjunction with the Company’s annual report on Form 10-K for the year ended April 30, 2017,2020, which was filed with the SEC on July 18, 201727, 2020 (the “2017“2020 Form 10-K”). Certain 20172020 balances in these financial statements have been reclassified to conform to the current year presentation with no effect on either net incomeloss or shareholders’ equity.

 

Summary of Significant Accounting Policies

The significant accounting policies used in preparing these consolidated financial statements are consistent with the accounting policies described in the 2020 Form 10-K, except for those adopted as described below.

Revenue Recognition

·Home sale revenues: The Company accounts for revenue from home sales in accordance with Accounting Standards Codification (“ASC”) 2014-09, Revenue from Contracts with Customers (Topic 606). 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. Generally, the Company’s performance obligation to deliver a home is satisfied in less than one year from the date a binding sale agreement is signed. In general, the Company’s performance obligation for each of the home sales 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 October 31, 2020, the home sale revenues and related costs the Company deferred related to these obligations were immaterial.

·Forfeited customer deposits: 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.

·Sales incentives: 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 sale cost of 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.

Recently IssuedAdopted Accounting Pronouncements

 

In May 2014,August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,2018-13, Revenue from Contracts with CustomersFair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. Since that date,ASU 2018-13 eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements to improve the FASB has issued additional ASUs providing further revenue recognition guidance (collectively, “Topic 606”). Topic 606 clarifieseffectiveness of disclosures in the principlesnotes to financial statements. ASU 2018-13 was effective for recognizing revenues and costs related to obtaining and fulfilling customer contracts, with the objective of improving financial reporting. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Topic 606 defineson May 1, 2020. The adoption of ASU 2018-13 by the Company did not have a five-step process to achieve this core principle, and more judgment and estimates may be required under Topic 606 than are currently required under generally accepted accounting principles. The two permitted transition methods under Topic 606 are (i) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or (ii) the modified retrospective method, in which case the cumulativematerial effect of applying the standard would be recognized at the date of adoption. The Company intends to use the modified retrospective transition method upon adoption. on its consolidated financial statements.

In August 2015,2018, the FASB issued ASU No. 2015-14,2018-14, Revenue from ContractsCompensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant for companies with Customers (Topic 606): Deferral of the Effective Date, which deferred the required adoption date until May 1, 2018defined benefit retirement plans. ASU 2018-14 was effective for the Company although an earlieron May 1, 2020. The adoption is permitted. The Company does not intend to early adopt Topic 606.

The Company has established an implementation team to evaluate the impact of Topic 606 on the Company’s accounting policies, processes and system requirements, as well as its consolidated financial statements. Depending on the results of the evaluation, there could be changes to the timing of recognition of revenues and related costs. The Company continues its evaluation of the impact of Topic 606. As of January 31, 2018,ASU 2018-14 by the Company haddid not determinedhave a reasonable estimate of the impact of these new ASUsmaterial effect on its consolidated financial statements, includingstatements.

In December 2019, the effectFASB issued ASU No. 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes, which removes certain exceptions for companies related to tax allocations and simplifies when companies recognize deferred tax liabilities in an interim period. ASU 2019-12 will be effective for the Company’s fiscal year beginning May 1, 2021. The Company is currently evaluating the impact that this ASU will have on the Company’s operating results, if any. consolidated financial statements.

(2)       RESTRICTED CASH

The implementation team has reported the progress and status of its evaluation to the Audit Committeefollowing provides a reconciliation of the Company’s Boardcash, cash equivalents and restricted cash as reported in the consolidated statement of Directors.cash flows for the six months ended October 31, 2019:

  October 31,  April 30, 
  2019  2019 
  (in thousands) 
Cash and cash equivalents $12,583  $13,267 
Restricted cash  305   969 
Total cash, cash equivalents and restricted cash $12,888  $14,236 

There was no restricted cash at October 31, 2020 and April 30, 2020.

 

6


 

(2)RECEIVABLES

(3)       REAL ESTATE INVENTORY

 

Receivables,Real estate inventory consists of:

  October 31,  April 30, 
  2020  2020 
  (in thousands) 
Land held for development $52,771  $53,405 
Construction in process  1,154   44 
  $53,925  $53,449 

Land held for development represents property located in areas that are planned to be developed in the near term. As of October 31, 2020 and April 30, 2020, the Company held approximately 6,000 acres of land in New Mexico classified as land held for development. Construction in process relates to construction costs for residential homes being built and offered for sale by the homebuilding business segment.

(4)  INVESTMENT ASSETS, NET

Investment assets, net consist of:

 

  January 31,
 2018
  April 30,
 2017
 
  (in thousands) 
Fulfillment services $7,269  $6,725 
Real estate  19   - 
Corporate  6   2 
   7,294   6,727 
Less allowance for doubtful accounts  (376)  (348)
  $6,918  $6,379 
  October 31,  April 30, 
  2020  2020 
  (in thousands) 
Land held for long-term investment $9,775  $9,751 
Construction in process  -   2,320 
Buildings  15,993   13,096 
Less accumulated depreciation  (6,798)  (6,523)
Buildings, net  9,195   6,573 
  $18,970  $18,644 

 

DuringLand held for long-term investment represents property located in areas that are not planned to be developed in the first nine monthsnear term and thus has not been offered for sale. As of 2018, revenues from one major customerOctober 31, 2020 and April 30, 2020, the Company held approximately 12,000 acres of land in New Mexico classified as land held for long-term investment.

Buildings are comprised of 204,000 square feet of warehouse and office buildings in Palm Coast, Florida and a 14,000 square foot retail building in the Company’s fulfillment services business totaled $3,189,000 or approximately 10.3% of total revenuesLas Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico. Depreciation associated with the buildings was $262,000 and $279,000 for the Company. As of Januarysix months ended October 31, 2018, the Company’s fulfillment services business had $682,000 of outstanding accounts receivable from this customer, which was collected in full by March 16, 2018. This customer has given the Company’s fulfillment services business notice that a significant portion of its business will be transferred from Palm Coast at the end of 2018.

(3)PROPERTY, PLANT AND EQUIPMENT

Property, plant2020 and equipment, net consist of:

  January 31,  April 30, 
  2018  2017 
  (in thousands) 
Land, buildings and improvements $15,925  $15,995 
Furniture and equipment  18,473   18,350 
   34,398   34,345 
Less accumulated depreciation  (24,370)  (23,493)
  $10,028  $10,852 

Depreciation of property, plantOctober 31, 2019 and equipment charged to operations was $319,000$140,000 and $954,000$157,000 for the three months ended October 31, 2020 and nine month periods ended JanuaryOctober 31, 2018 and $341,000 and $1,051,000 for2019. Construction in process relates to the construction costs of such retail building, which was completed during the three and nine month periodsmonths ended JanuaryOctober 31, 2017.2020.

 

7


(5)       OTHER ASSETS

(4)OTHER ASSETS

 

Other assets consist of:

 

  January 31,  April 30, 
  2018  2017 
  (in thousands) 
Prepaid expenses $1,426  $1,491 
Deferred order entry costs  533   553 
Other  279   266 
  $2,238  $2,310 
  October 31,  April 30, 
  2020  2020 
  (in thousands) 
Prepaid expenses $931  $464 
Receivables  281   156 
Right-of-use assets associated with leases of office facilities  133   109 
Other assets  170   170 
Property and equipment  219   217 
Less accumulated depreciation  190   182 
Property and equipment, net  29   35 
  $1,544  $934 

 

Deferred order entry costs represent costs incurredPrepaid expenses as of October 31, 2020 primarily consist of prepaid insurance, stock compensation, prepayments for office rent, in-process prepayments of amounts due under the public improvement district and security deposits for the buildings in connection with the data entryPalm Coast, Florida. Prepaid expenses as of customer subscription information to database filesOctober 31, 2019 primarily consist of prepaid insurance and are charged directly to operations generally over a twelve month period.stock compensation.

 

(5)ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Depreciation expense associated with property and equipment was $8,000 and $9,000 for the six months ended October 31, 2020 and October 31, 2019 and $2,000 and $5,000 for the three months ended October 31, 2020 and October 31, 2019.

(6)       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of:

 

  January 31,  April 30, 
  2018  2017 
  (in thousands) 
Fulfillment services $5,420  $5,637 
Real estate  3,356   1,138 
Corporate  411   260 
  $9,187  $7,035 
  October 31,  April 30, 
  2020  2020 
  (in thousands) 
Real estate operations        
Accrued expenses $884  $518 
Trade payables  1,087   1,146 
Real estate customer deposits  1,795   1,117 
Other  60   - 
   3,826   2,781 
Corporate operations  875   344 
  $4,700  $3,125 

 

Fulfillment Services: As of January 31, 2018, the accounts payable and accrued expenses total for the Company’s fulfillment services business included customer postage deposits of $3,362,000, accrued expenses of $496,000, trade payables of $443,000 and other of $1,119,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s fulfillment services business included customer postage deposits of $3,178,000, accrued expenses of $488,000, trade payables of $617,000 and other of $1,354,000.(7)       NOTES PAYABLE

 

Real Estate: AsNotes payable, net consist of:

  October 31,  April 30, 
  2020  2020 
  (in thousands) 
Real estate notes payable $5,834  $3,894 
Unamortized debt issuance costs  (31)  (4)
  $5,803  $3,890 

Refer to Notes 8 and 17 to the consolidated financial statements contained in the 2020 Form 10-K for additional detail about each of January 31, 2018, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $900,000, trade payables of $1,961,000, real estate customer deposits of $490,000 and other of $5,000. As of April 30, 2017, the accounts payable and accrued expenses total for the Company’s real estate business included accrued expenses of $967,000, trade payables of $0, real estate customer deposits of $155,000 and other of $16,000.following outstanding financing facilities that were entered into prior to May 1, 2020.

 


8·Lomas Encantadas Subdivision.

 

(6)oNOTES PAYABLEIn June 2019, BOKF, NA dba Bank of Albuquerque (“BOKF”) provided a non-revolving line of credit to Lomas Encantadas Development Company LLC (“LEDC”), a subsidiary of the Company. The initial available principal amount of the loan was $2,475,000. The outstanding principal amount of the loan was $105,000 as of October 31, 2020. LEDC made principal repayments of $1,538,000 during the six months ended October 31, 2020 and $675,000 during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 3.14%. The Company capitalized interest and fees related to this loan of $16,000 and $2,000 for the six months ended October 31, 2020 and October 31, 2019 and $4,000 and $2,000 for the three months ended October 31, 2020 and October 31, 2019. The total book value of the property mortgaged pursuant to this loan was $3,049,000 as of October 31, 2020. At October 31, 2020, LEDC was in compliance with the financial covenants contained within the loan documentation.

 

Notes payable consist of:

oIn September 2020, LEDC entered into a Development Loan Agreement with BOKF. The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and BOKF with respect to certain planned residential lots within the Lomas Encantadas subdivision located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement entered into by AMREP Southwest Inc. (“ASW”), a subsidiary of the Company, in favor of BOKF, ASW guaranteed LEDC’s obligations under each of the above agreements.

 

  January 31,  April 30, 
  2018  2017 
  (in thousands) 
Real estate $638  $- 
  $638  $- 
§Initial Available Principal: Pursuant to the loan documentation, BOKF agrees to lend up to $2,400,000 to LEDC on a non-revolving line of credit basis to partially fund the development of certain planned residential lots within the Lomas Encantadas subdivision.

 

During December 2017, Lomas Encantadas Development Company LLC (“LEDC”), an indirect subsidiary of AMREP Corporation, entered into a Development Loan Agreement with BOKF, NA dba Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note, dated December 18, 2017, and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respect to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations under each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referred to as the “Loan Documentation.”

§Outstanding Principal Amount and Repayments: The outstanding principal amount of the loan was $26,500 as of October 31, 2020. LEDC made no principal repayments during the six months ended October 31, 2020. LEDC is required to make periodic principal repayments of borrowed funds not previously repaid as follows: $1,144,000 on or before December 22, 2022, $572,000 on or before March 22, 2023, $572,000 on or before June 22, 2023 and $112,000 on or before September 22, 2023. The outstanding principal amount of the loan may be prepaid at any time without penalty.

 

§Maturity Date: The loan is scheduled to mature in September 2023.

Pursuant to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the development of the Mortgaged Property. LEDC expects to fully utilize the $4,750,000 for its land development activities. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC making a principal payment of $43,000 or $53,000 depending on the location of the lot. LEDC is required to make periodic principal repayments to the extent not previously paid as follows: $1,370,000 on or before August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May 18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount of the loan as of January 31, 2018 was $638,000. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on December 18, 2021. LEDC incurred certain customary costs and expenses and paid certain fees to Lender in connection with the loan.

§Interest Rate: Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly, subject to a minimum interest rate of 3.75%. The interest rate on the loan at October 31, 2020 was 3.75%.

§Lot Release Price: BOKF is required to release the lien of its mortgage on any lot upon LEDC making a principal payment of $44,000.

 

LEDC and AMREP Southwest haveASW made certain representations and warranties in the Loan Documentationconnection with this loan and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentationloan documentation contains customary events of default for similar financing transactions, including:including LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP SouthwestASW to observe or perform their respective covenants under the Loan Documentation;loan documentation; the representations and warranties of LEDC or AMREP SouthwestASW being false; the insolvency or bankruptcy of LEDC or AMREP Southwest;ASW; and the failure of AMREP SouthwestASW to maintain a tangible net worth of at least $35$32 million. Upon the occurrence and during the continuance of an event of default, LenderBOKF may declare the outstanding principal amount and all other obligations under the Loan Documentationloan immediately due and payable. LEDC incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. At JanuaryOctober 31, 2018, both2020, LEDC and AMREP Southwest werewas in compliance with the financial covenants contained withinin the Loan Documentation.loan documentation. The total book value of the property mortgaged pursuant to this loan was $289,000 as of October 31, 2020. The Company’s capitalized interest and fees related to this loan were immaterial during the three and six months ended October 31, 2020.

 


9·Hawk Site Subdivision. In February 2020, Sandia Laboratory Federal Credit Union (“SLFCU”) provided a revolving line of credit to Mountain Hawk East Development Company LLC (“MHEDC”), a subsidiary of the Company. The initial available principal amount of the loan was $3,000,000, subject to certain limitations. The outstanding principal amount of the loan was $201,000 as of October 31, 2020. MHEDC made principal repayments of $1,935,000 during the six months ended October 31, 2020; MHEDC made no principal repayments during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 4.5%. The Company capitalized interest and fees related to this loan of $1,000 during each of the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $2,374,000 as of October 31, 2020. At October 31, 2020, MHEDC was in compliance with the financial covenants contained within the loan documentation.

 

(7)·OTHER LIABILITIES AND DEFERRED REVENUE; OTHER REVENUESLas Fuentes at Panorama Village Subdivision. In January 2020, BOKF provided a non-revolving line of credit to Las Fuentes Village II, LLC (“LFV”), a subsidiary of the Company. The initial available principal amount of the loan was $2,750,000. The outstanding principal amount of the loan was $2,514,000 as of October 31, 2020. LFV made no principal repayments during the six months ended October 31, 2020 or during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 3.06%. The Company capitalized interest and fees related to this loan of $1,000 and $18,650 during the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $2,884,000 as of October 31, 2020. At October 31, 2020, LFV was in compliance with the financial covenants contained within the loan documentation.

·Meso AM Subdivision.

oAcquisition Financing: The acquisition of the Meso AM subdivision in Bernalillo County, New Mexico in June 2020 by Lavender Fields, LLC (“LF”), a subsidiary of the Company, included $1,838,000 of deferred purchase price, of which $919,000 is payable without interest on or before June 2021 and $919,000 is payable without interest on or before June 2022. The total book value of the property mortgaged to secure payment of a note reflecting the deferred purchase price was $4,511,000 as of October 31, 2020. At October 31, 2020, LF was in compliance with the financial covenants contained within the loan documentation.

oDevelopment Financing. In June 2020, BOKF provided a non-revolving line of credit to LF. The initial available principal amount of the loan was $3,750,000. The outstanding principal amount of the loan was $852,000 as of October 31, 2020. LF made no principal repayments during the six months ended October 31, 2020. The interest rate on the loan at October 31, 2020 was 3.75%. The Company capitalized interest and fees related to this loan of $3,000 during each of the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $4,511,000 as of October 31, 2020. At October 31, 2020, LF was in compliance with the financial covenants contained within the loan documentation.

·SBA Paycheck Protection Program. In April 2020, BOKF provided a loan to the Company pursuant to the Paycheck Protection Program administered by the U.S. Small Business Administration. The amount of the loan was $298,000. The outstanding principal amount of the loan was $298,000 as of October 31, 2020. The Company made no principal repayments during the six months ended October 31, 2020 or during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 1.0%. The Company did not capitalize any interest or fees related to this loan during the six months ended October 31, 2020. At October 31, 2020, the Company was in compliance with the financial covenants contained within the loan documentation. The loan provides that all or a portion of the principal balance may be forgiven if certain conditions are met.


Refer to Note 8 to the consolidated financial statements contained in the 2020 Form 10-K for additional detail about each of the following expired or terminated financing facilities:

·Lomas Encantadas Subdivision. In fiscal year 2018, BOKF provided a non-revolving line of credit to LEDC. The initial available principal amount of the loan was $4,750,000. During the six months ended October 31, 2019, LEDC made principal repayments of $182,000 and the Company capitalized interest and fees related to this loan of $4,000. The loan was terminated in June 2019.

·Hawk Site Subdivision. In 2019, Main Bank provided a non-revolving line of credit to Hawksite 27 Development Company, LLC (“HDC”), a subsidiary of the Company. The initial available principal amount of the loan was $1,800,000. During the six months ended October 31, 2019, HDC made principal repayments of $390,000 and the Company capitalized interest and fees related to this loan of $20,000. The loan was terminated in August 2019.

 

The following table summarizes the scheduled principal repayments subsequent to October 31, 2020:

Fiscal Year Scheduled Payments
(in thousands)
 
2021 $3,532 
2022  2,101 
2023  201 
Total $5,834 

(8)       REVENUES

Land sale revenues. Substantially all of the land sale revenues were received from four customers during each of the three and six months ended October 31, 2020 and from three customers during each of the three and six months ended October 31, 2019.

Home sale revenues. Home sale revenues are from homes constructed and sold by the Company in the Albuquerque metropolitan area. All home sale revenues were received from one customer during the three months ended October 31, 2020.

Rental revenues. Rental revenues consist of rent received from tenants at the Company’s warehouse and office buildings in Palm Coast, Florida and at a retail building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico.


Other revenues for the third quarter and first nine months of 2018 and 2017. Other revenues consist of:

 

  Third Quarter of
2018
  Third Quarter of
2017
 
  (in thousands) 
Deferred revenue and other $193  $94 
  $193  $94 

  First Nine
Months of 2018
  First Nine
Months of 2017
 
  (in thousands) 
Settlement gain $1,318  $- 
Sale of commercial building  -   1,496 
Deferred revenue and other  367   336 
  $1,685  $1,832 

Deferred revenue and other includes the recognition of deferred revenue related to an oil and gas lease noted below, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.

  Three Months Ended
October 31,
  Six Months Ended
October 31,
 
  2020  2019  2020  2019 
  (in thousands)  (in thousands) 
Oil & gas royalties $25  $-  $36  $- 
Private infrastructure reimbursement covenants  245   140   378   231 
Public improvement district reimbursements  69   26   244   26 
Miscellaneous other revenue  37   187   87   231 
  $376  $353  $745  $488 

 

Refer to Note 9 to the consolidated financial statements contained in the 20172020 Form 10-K for additional detail about the settlement agreement entered into between Palm Coast and the Stateeach category of Florida in the first quarter of 2018. In June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the incentives made available in connection with the consolidation of the Company’s fulfillment services operations at its Palm Coast, Florida location. The Award Agreement included certain performance requirements in terms of job retention, job creation and capital investment which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm Coast had not met certain of the performance requirements in the Award Agreement. During the first quarter of 2018, Palm Coast entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the State of Florida. Pursuant to the Settlement Agreement, (1) the Award Agreement was terminated, (2) each of the parties released all claims relating to the Award Agreement that the releasing party may have had against the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, leaving a balance owed to the State of Florida of $1,520,000 as of January 31, 2018.revenues.

 

In the Company’s consolidated financial statementsThe Company owns certain minerals and asmineral rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico. The lease to a result of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first nine months of 2018. The $302,000 deferred revenue will be recognized over the remaining life of these assets (approximately seven years from January 31, 2018), with $61,000 having been recognized during the first nine months of 2018 resulting in a deferred revenue balance of $241,000 as of January 31, 2018. As a result of paying the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values of these deferred non-interest bearing obligations. In February 2018, the Company, Palm Coast and the State of Florida entered into an agreementparty with respect to the remaining payment obligations under the Settlement Agreement (see Note 10).such mineral rights expired in September 2020 and no drilling had commenced with respect to such mineral rights. The Company did not record any revenue in 2021 related to this lease.

 

Miscellaneous other revenue for the three and six months ended October 31, 2020 primarily consist of payments for impact fee credits and a land condemnation. Miscellaneous other revenue for the three and six months ended October 31, 2019 primarily consist of forfeited deposits and non-refundable option payments.

10(9)GENERAL AND ADMINISTRATIVE EXPENSES

 

In addition, referGeneral and administrative expenses consist of:

  Three Months Ended
October 31,
  Six Months Ended
October 31,
 
  2020  2019  2020  2019 
  (in thousands)  (in thousands) 
Land development $665  $602  $1,271  $1,274 
Homebuilding  118   -   231   - 
Corporate  740   3,519   1,465   4,413 
  $1,523  $4,121  $2,967  $5,687 

Corporate general and administrative expenses included a non-cash pre-tax pension settlement charge of $2,929,000 in the three and six months ended October 31, 2019, 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. No such settlement expense was incurred in the same periods of 2020.

(10)BENEFIT PLANS

Pension Plan

Refer to Note 1011 to the consolidated financial statements contained in the 20172020 Form 10-K for detail aboutregarding the Oil and Gas Lease and the Addendum thereto with Thrust Energy, Inc. and Cebolla Roja, LLC. No royalties under the Lease were received during the first nine months of 2018. Revenue from this transaction is being recorded over the lease term and approximately $57,000 and $171,000 was recognized during the third quarter and first nine months of each of 2018 and 2017. At January 31, 2018, there was approximately $133,000 of deferred revenue remaining to be recognized before the end of the lease term in September 2018.

During the first quarter of 2017, a subsidiary of AMREP Southwest sold a single tenant retail commercial building in Rio Rancho, New Mexico, which resulted in a pre-tax gain of $1,496,000 that was recognized in Other revenues during the first nine months of 2018.

(8)BENEFIT PLANS

Retirement plan

The Company has aCompany’s defined benefit retirement plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. The Company has secured $4,535,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the Pension Benefit Guaranty Corporation (the “PBGC”). On an annual basis, the Company is required to provide updated appraisals on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount equal to one-half of the amount of the shortfall. During the third quarter of 2018, there was no change in the appraised value of the mortgaged properties that required the Company to make any additional payments to its pension plan.

The Company recognizes the known changes in the funded status of the pension plan in the period in which the changes occur through other comprehensive income, (loss) net of the related deferred income tax effect. The Company recognized other comprehensive income of $225,000$180,000 and $674,000$252,000 for the six months ended October 31, 2020 and October 31, 2019 and $90,000 and $98,000 for the three and nine months ended JanuaryOctober 31, 2018,2020 and $248,000 and $746,000 for the same periods of 2017,October 31, 2019 related to the amortization of the plan’s unrecognized net loss includeda decrease in the Accumulated other comprehensive loss,Company’s pension liability, net in the accompanying financial statements.

of tax. The Company funds the pension plan in compliance with IRS funding requirements. The Company contributed $1,040,000made voluntary contributions to the pension plan of $1,847,000 during the ninethree and six months ended JanuaryOctober 31, 20182020 and none for$3,600,000 during the same period of 2017.three and six months ended October 31, 2019.

 


Equity compensation planCompensation Plan

 

In September 2016,Refer to Note 11 to the consolidated financial statements contained in the 2020 Form 10-K for detail regarding the AMREP Corporation 2016 Equity Compensation Plan (the “2016 Equity“Equity Plan”) replaced the AMREP Corporation 2006 Equity Compensation Plan (together with the 2016 Equity Plan, the “Equity Plans”). The Company issued 25,7509,000 shares of restricted common stock under the 2016 Equity Plan during each of the first ninesix months of 2018. In addition, 5,000 shares of restricted common stock issued under the 2006 Equity Plan prior to 2018 were returned to the Company during the second quarter of 2018ended October 31, 2020 and will not vest due to the retirement of an employee.October 31, 2019. During the first ninesix months of 2018, 10,500ended October 31, 2020 and October 31, 2019, 12,834 shares and 14,833 shares of restricted common stock previously issued under the Equity Plans vested leaving 34,750Plan vested. As of October 31, 2020 and October 31, 2019, 29,000 shares and 36,834 shares of restricted sharescommon stock previously issued under the Equity Plans thatPlan had not vested as of January 31, 2018. For the third quarter and first nine months of 2018, thevested. The Company recognized $31,000 and $76,000 of non-cash compensation expense related to the vesting of restricted shares of common stock issued,net of forfeitures of $7,000 and $19,000 and $48,000$54,000 for the same periods of 2017.six months ended October 31, 2020 and October 31, 2019 and $25,000 and $30,000 for the three months ended October 31, 2020 and October 31, 2019. As of JanuaryOctober 31, 2018,2020 and October 31, 2019, there was $138,000$73,000 and $135,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity PlansPlan which had not vested as of that date,those dates, which is expected to be recognized over the remaining vesting term not to exceed three years.

 

11

OnIn connection with the last trading dayresignation of a director, the Company (i) issued 12,411 shares of common stock during the three months ended October 31, 2020 pursuant to an equivalent number of deferred common share units previously issued to such director and (ii) paid $20,000 to such director in lieu of issuance of deferred common share units earned for calendar year 2017, and based upon days of service, each2020. The Company recognized non-cash expense related to deferred common share units expected to be issued to non-employee membermembers of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the 2016 Equity Plan equal to $20,000 divided by the closing price per share of common stock reported on the New York Stock Exchange on such date. Based on the closing price per share of $7.02 on December 29, 2017, the Company issued a total of 11,396 deferred common share units to members of the Company’s Board of Directors. Director compensation expense is recognized$35,000 and $53,000 for the annual grant of deferred common share units ratably oversix months ended October 31, 2020 and October 31, 2019 and $21,000 and $23,000 for the director’s service in office during the calendar year.During the first ninethree months of 2018,the total non-cash director fee compensation related to the deferred common share units was $60,000.ended October 31, 2020 and October 31, 2019.

 

(9)(11)INTEREST (EXPENSE) INCOME, TAXESNET

 

The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law in December 2017. The Act significantly revised the future ongoing U.S. corporateInterest (expense) income, tax by, among other things, lowering U.S. corporate income tax rates. The Act reduces the federal corporate tax rate to 21.0% effective January 1, 2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.net consists of:

 

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

As of January 31, 2018, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reduction in corporate tax rate and the re-measurement of deferred tax balances:

·The Company’s current income tax expense reported for the first nine months of 2018 was adjusted to reflect the lower statutory corporate federal tax rate, which will be 29.7% for 2018 compared to 34.0% for 2017. This resulted in a decrease in income tax expense of $202,000 for the third quarter and first nine months of 2018.

12

·The Company made a reasonable estimate of the effect on its deferred tax balances by applying the 21% federal corporate tax rate to the Company’s (i) opening year deferred tax balances and (ii) a discrete deferred tax asset related to amortization of intangible assets for the nine month period ending January 31, 2018, resulting in a provisional estimate of $3,259,000 of income tax expense and a reduction of net deferred tax assets for the same amount during the third quarter of 2018. This provisional estimate did not result in any current income taxes payable. As of January 31, 2018, the Company does not have all needed information regarding the current year impact on deferred tax balances to finalize the accounting for the tax effects of the Act. The Company continues to address the tax effects of the Act, analyzing certain aspects of the Act and refining calculations. This could potentially affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts. The Company expects to finalize the accounting for the tax effects of enactment of the Act prior to filing its Form 10-K for 2018.

The Company’s effective tax rate for the third quarter and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7% and 32.5% for the third quarter and first nine months of 2018 compared to 35.5% and 32.5% for the same periods of 2017. The difference between the statutory rate and the effective rate of the tax provision after excluding the $3,057,000 was primarily due to state taxes.

The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both January 31, 2018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.

(10)SUBSEQUENT EVENTS
  Three Months Ended
October 31,
  Six Months Ended
October 31,
 
  2020  2019  2020  2019 
  (in thousands)  (in thousands) 
Interest income on savings $2  $43  $8  $102 
Interest income on notes  1   2   1   3 
Interest on deferred purchase price  -   96   -   160 
Interest expense  (15)  -   (15)  - 
  $(12) $141  $(6) $265 

 

Refer to Note 72 to the consolidated financial statements contained in the 2020 Form 10-K for detail aboutregarding the Settlement Agreement between the State of Florida and Palm Coast entered into in the first quarter of 2018. In February 2018, Palm Coast and the Company entered intodeferred purchase price with respect to a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) eachformer business segment of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gain related to the Release Agreement of approximately $257,000 during the fourth quarter of 2018.Company.

13

 

(11)(12)OTHER INCOME

Other income for the three and six months ended October 31, 2020 consist of a settlement payment of $650,000 from a former business segment of the Company.-Refer to Note 2 to the consolidated financial statements contained in the 2020 Form 10-K for detail regarding the former business segment of the Company. During the six months ended October 31, 2020, affiliates of the Company and affiliates of this former business segment entered into a settlement agreement pursuant to which, among other things, the Company received $650,000 as a settlement payment and $350,000 for rent with respect to properties in Palm Coast, Florida for the period May 2020 through August 2020.

(13)STOCK REPURCHASES

In August 2020, the Company repurchased 11,847 shares of common stock of the Company at a price of $4.48 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.


In September 2020, the Board of Directors of the Company authorized the Company to purchase up to 1,000,000 shares of common stock of the Company from time to time pursuant to a share repurchase program, subject to the total expenditure for the purchase of shares under the share repurchase program not exceeding $5,000,000, exclusive of any fees, commissions and other expenses related to such repurchases. Under the share repurchase program, the Company may have repurchased its common stock from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. The Company’s repurchases may have been executed using open market purchases, unsolicited or solicited privately negotiated transactions or other transactions, and may have been effected pursuant to trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program did not obligate the Company to repurchase any specific number of shares and may have been suspended, modified or terminated at any time without prior notice. The share repurchase program did not contain a time limitation during which repurchases are permitted to occur. In October 2020, the Company repurchased 675,616 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction pursuant to the share repurchase program. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.

(14)INFORMATION ABOUT THE COMPANY’S OPERATIONS IN DIFFERENT INDUSTRY SEGMENTS

 

The following tables set forth summarized data relative to the industry segments in which the Company operated for the three and nine month periods ended January 31, 2018 and 2017indicated (in thousands):

 

  Real Estate  Fulfillment
Services (c)
  Corporate
and
Other
  Consolidated 
Three months ended January 31, 2018 (a):                
Revenues $2,671  $7,676  $32  $10,379 
                 
Net income (loss) from operations $(727) $(2,043) $(81) $(2,851)
Provision for income taxes  29   2,539   568   3,136 
Interest expense (income), net  575   288   (845)  18 
Depreciation and amortization  30   289   -   319 
EBITDA (b) $(93) $1,073  $(358)  622 
Capital expenditures $52  $49  $-  $101 
                 
Three months ended January 31, 2017 (a):                
Revenues $1,518  $8,222  $37  $9,777 
                 
Net income (loss) from operations $(425) $95  $504  $174 
Provision (benefit) for income taxes  (249)  54   291   96 
Interest expense (income), net  521   274   (773)  22 
Depreciation and amortization  20   321   -   341 
Impairment of real estate assets  150   -   -   150 
EBITDA (b) $17  $744  $22  $783 
Capital expenditures $-  $14  $-  $14 
                 
Nine months ended January 31, 2018 (a):                
Revenues $6,894  $23,910  $76  $30,880 
                 
Net income (loss) from operations $(1,124) $(443) $442  $(1,125)
Provision (benefit) for income taxes  (175)  3,364   798   3,987 
Interest expense (income), net  1,623   884   (2,458)  49 
Depreciation and amortization  65   889   -   954 
EBITDA (b) $389  $4,694  $(1,218) $3,865 
Capital expenditures $52  $78  $-  $130 
Total assets, as of January 31, 2018 $74,519  $22,312  $9,007  $105,838 
                 
Nine months ended January 31, 2017 (a):                
Revenues $9,485  $23,908  $57  $33,450 
                 
Net income (loss) from operations $(580) $21  $1,475  $916 
Provision (benefit) for income taxes  (340)  16   765   441 
Interest expense (income), net  1,742   811   (2,225)  328 
Depreciation and amortization  64   994   -   1,058 
Impairment of real estate assets  150   -   -   150 
EBITDA (b) $1,036  $1,842  $15  $2,893 
Capital expenditures $-  $63  $-  $63 
Total assets, as of January 31, 2017 $75,294  $28,531  $5,714  $109,539 
  Land Development  Homebuilding  Corporate  Consolidated 
Three months ended October 31, 2020 (a):                
Revenues $8,989  $202  $65  $9,256 
                 
Net income (loss) $1,693  $(66) $(829) $798 
Provision (benefit) for income taxes  313   (24)  30   319 
Interest expense (income), net (b)  13   -   (1)  12 
Depreciation  8   -   124   132 
EBITDA (c) $2,027  $(90) $(676) $1,261 
Capital expenditures $-  $3  $0  $3 
                 
Three months ended October 31, 2019 (a):                
Revenues $3,620  $-  $340  $3,960 
                 
Net income (loss) $(352) $-  $(1,817) $(2,169)
Provision (benefit) for income taxes  (103)  -   (519)  (622)
Interest expense (income), net (b)  (10)  -   (131)  (141)
Depreciation  4   -   157   161 
EBITDA (c) $(461) $-  $(2,310) $(2,771)
Capital expenditures $5  $-  $-  $5 
                 
Six months ended October 31, 2020 (a):                
Revenues $12,845  $202  $415  $13,462 
                 
Net income (loss) $2,399  $(152) $(856) $1,391 
Provision (benefit) for income taxes  327   (51)  189   465 
Interest expense (income), net (b)  11   -   (5)  6 
Depreciation  22   -   248   270 
EBITDA (c) $2,759  $(203) $(424) $2,132 
Capital expenditures $-  $3  $-  $3 
Total assets as of October 31, 2020 $76,777  $1,494  $17,449  $95,720 
                 
                 
Six months ended October 31, 2019 (a):                
Revenues $8,045  $-  $682  $8,727 
                 
Net income (loss) $(785) $-  $(1,580) $(2,365)
Provision (benefit) for income taxes  (226)  -   (530)  (756)
Interest expense (income), net (b)  (14)  -   (251)  (265)
Depreciation  9   -   280   289 
EBITDA (c) $(1,016) $-  $(2,081) $(3,097)
Capital expenditures $5  $-  $-  $5 
Total assets as of October 31, 2019 $71,680  $-  $23,949  $95,629 

 

(a)Revenue information provided for each segment includesmay include amounts groupedclassified as Otherrental revenues and other revenues in the accompanying consolidated statements of operations. Corporate and Other is net of intercompany eliminations.

 

(b)Interest expense (income), net includes inter-segment interest expense (income) that is eliminated in consolidation.


(c)The Company uses EBITDA (which the Company defines as income (loss) before net interest expense, income taxes, depreciation and amortization, and non-cash impairment charges) in addition to net income (loss) as a key measure of profit or loss for segment performance and evaluation purposes.

 

Prior to 2020, the Company operated in primarily one business segment: the real estate business.

(c)(15)Fulfillment services revenues and EBITDA for the nine months ending January 31, 2018 included a pre-tax gain of $1,318,000 resulting from the settlement agreement with the State of Florida (see Note 7).SUBSEQUENT EVENTS

 

14

In November 2020, the Company repurchased 143,482 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock. The share repurchase was not completed pursuant to the Company’s share repurchase program.

 

In November 2020, the Company’s share repurchase program was terminated.

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

INTRODUCTION

 

AMREP Corporation (the “Company”), through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign sales or activities outside the real estate business operated by AMREP Southwest Inc. (“AMREP Southwest”) and its subsidiaries and the fulfillment services business operated by Palm Coast Data LLC (“Palm Coast”) and its affiliates. Information concerning industry segments is set forth in Note 11 of the notesUnited States. All references to the consolidated financial statements includedCompany in this quarterly report on Form 10-Q. All significant intercompany accounts10-Q include the Registrant and transactions have been eliminated in consolidation. The Company’s foreign sales and activities are not significant.

its subsidiaries. The following provides information that management believes is relevant to an assessment and understanding of the Company’s consolidated results of operations and financial condition. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and related notes thereto appearing elsewhereincluded in this quarterly report on Form 10-Q and with the Company’s annual report on Form 10-K for the year ended April 30, 2017,2020, which was filed with the Securities and Exchange Commission on July 18, 201727, 2020 (the “2017“2020 Form 10-K”). Many of the amounts and percentages presented in this Item 2 have been rounded for convenience of presentation. Unless the context otherwise qualified,indicates, all references to 20182021 and 20172020 are to the fiscal years ending April 30, 20182021 and 20172020 and all references to the thirdsecond quarter and first ninesix months of 20182021 and 20172020 mean the fiscal three month and ninesix month periods ended JanuaryOctober 31, 20182020 and 2017.2019.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Management’s discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the 20172020 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the 20172020 Form 10-K.10-K and in Note 1 of the notes to the consolidated financial statements included in this report on Form 10-Q. The preparation of those consolidated financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates.estimates and assumptions.

 

The Company’s critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 20172020 Form 10-K. There have been no changes in these critical accounting policies.

 


The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 20172020 Form 10-K.10-K and in Note 1 of the notes to the consolidated financial statements included in this report on Form 10-Q. Information concerning the Company’s implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 20172020 Form 10-K and in the notes to the unaudited consolidated financial statements included in this quarterly report on Form 10-Q. The Company did not adopt any accounting policy in the first ninesix months of 2018ended October 31, 2020 that had a material impacteffect on its consolidated financial statements.

 

The Company adopted the following accounting policies effective May 1, 2020:

15·In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements to improve the effectiveness of disclosures in the notes to financial statements. ASU 2018-13 was effective for the Company’s fiscal year beginning May 1, 2020. The adoption of ASU 2018-13 by the Company did not have a material effect on its consolidated financial statements.

 

·In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant for companies with defined benefit retirement plans. ASU 2018-14 was effective for the Company’s fiscal year beginning May 1, 2020. The adoption of ASU 2018-14 by the Company did not have a material effect on its consolidated financial statements.

 

RESULTS OF OPERATIONS

 

For the third quarter of 2018,three months ended October 31, 2020, the Company recorded net income of $798,000, or $0.10 per share, compared to a net loss of $2,851,000,$2,169,000, or $0.35$0.27 per share, for the three months ended October 31, 2019. For the six months ended October 31, 2020, the Company recorded net income of $1,391,000, or $0.17 per share, compared to a net incomeloss of $174,000,$2,365,000, or $0.02$0.29 per share, for the third quarter of 2017. For the first ninesix months of 2018, the Company recorded a net loss of $1,125,000, or $0.14 per share, compared to net income of $916,000, or $0.11 per share,ended October 31, 2019.

Revenues. The following presents information on revenues for the same period of 2017. Operating results included an increase in income tax expense of $3,057,000, or $0.38 per share, for the third quarter and first nine months of 2018 as a result federal tax law changes enacted during the third quarter of 2018.

Revenues were $10,379,000 and $30,880,000 for the third quarter and first nine months of 2018 compared to $9,777,000 and $33,450,000 for the same periods of the prior year.

Revenues from land sales at AMREP Southwest and its subsidiaries were $2,510,000 and $6,603,000 for the third quarter and first nine months of 2018 compared to $1,461,000 and $7,710,000 for the same periods of 2017. $2,044,000 of the $6,603,000 of revenues from land sales for the first nine months of 2018 was for an approximate five acre undeveloped commercial property in Colorado, which was sold in the first quarter of 2018 and had a gross profit percentage of 65%.

For the third quarter and first nine months of 2018 and 2017, the Company’s land sales in New Mexico were as followsoperations (dollars in thousands):

 

  Ended January 31, 2018  Ended January 31, 2017 
  Acres
Sold
  Revenue  Revenue
Per Acre
  Acres
Sold
  Revenue  Revenue
Per Acre
 
Three months:                  
Developed                  
Residential  7.2  $2,450  $340   2.8  $984  $351 
Commercial  -   -   -   0.4   467   1,168 
Total Developed  7.2   2,450   340   3.2   1,451   453 
Undeveloped  4.8   60   13   2.0   10   5 
Total  12.0  $2,510  $209   5.2  $1,461  $281 
                         
Nine months:                        
Developed                        
Residential  12.9  $4,459  $346   20.9  $7,124  $341 
Commercial  -   -   -   0.4   467   1,168 
Total Developed  12.9   4,459   346   21.3   7,591   356 
Undeveloped  8.4   100   12   11.1   119   11 
Total  21.3  $4,559  $214   32.4  $7,710  $238 

The average gross profit percentage on New Mexico land sales was 16% and 17% for the third quarter and first nine months of 2018 compared to 42% and 17% for the same periods of 2017. The profit percentage is attributable to the mix of lots sold with developed lots having a lower profit percentage compared to undeveloped lots. As a result of many factors, including the nature and timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.

Operating and selling expenses for real estate increased from $370,000 and $1,188,000 for the third quarter and first nine months of 2017 to $470,000 and $1,563,000 for the same periods of 2018, primarily due to increased costs of storm water pollution prevention, broker commissions on sales activity and personnel costs, offset in part by lower consulting fees.

16

Revenues from the Company’s fulfillment services operations decreased from $8,222,000 and $23,908,000 for the third quarter and first nine months of 2017 to $7,676,000 and $22,952,000 for the same periods in 2018. The lower revenues were attributable to reduced business volumes from existing customers, certain price concessions on renewed contracts and lost business. Magazine publishers are one of the principal customers of the Company’s fulfillment services operations, and these customers have continued to be negatively impacted by increased competition from new media sources, alternative technologies for the distribution, storage and consumption of media content, weakness in advertising revenues and increases in paper costs, printing costs and postal rates. The result has been reduced subscription sales, which has caused publishers to close some magazine titles, change subscription fulfillment providers and seek more favorable terms from Palm Coast and its competitors when contracts are up for bid or renewal. One customer of the fulfillment services business whose revenues were approximately 10.3% of the total Company revenues for the first nine months of 2018 has given notice that a significant portion of its business will be transferred from Palm Coast at the end of 2018. Operating and selling expenses for fulfillment services decreased from $6,855,000 and $20,235,000 for the third quarter and first nine months of 2017 to $6,338,000 and $18,415,000 for the same periods in 2018, primarily due to lower payroll and benefits and order entry costs, resulting from reduced business volumes, together with lower communications, software and equipment maintenance costs, offset in part by increased bad debt expense.

Other revenues were $193,000 and $1,685,000 for the third quarter and first nine months of 2018 compared to $94,000 and $1,832,000 for the same periods of 2017. Other revenues for the first nine months of 2018 were primarily due to a pre-tax gain of $1,318,000 related to a settlement agreement with the State of Florida by Palm Coast (refer to Note 7 of the notes to the consolidated financial statements included in this report on Form 10-Q). Other revenues for the first nine months of 2017 were primarily the result of the sale of a retail commercial property by AMREP Southwest, which resulted in a pre-tax gain of $1,496,000. In addition to these pre-tax gains, Other revenues includes the recognition of deferred revenue related to an oil and gas lease, as well as fees and forfeited deposits from customers earned by AMREP Southwest, together with miscellaneous other income items.

Fulfillment services general and administrative expenses decreased from $345,000 and $1,025,000 for the third quarter and first nine months of 2017 to $313,000 and $970,000 for the same periods of 2018, primarily due to lower payroll and benefits, professional costs, bank fees and amortization of intangible assets. Real estate general and administrative expenses increased from $130,000 for the third quarter of 2017 to $156,000 for the same period of 2018, primarily due to an increase in payroll and benefit costs. Real estate general and administrative expenses decreased from $433,000 for the first nine months in 2017 to $356,000 for the same period of 2018, primarily due to reductions in rent, legal expense and insurance. Corporate general and administrative expenses decreased from $787,000 and $2,364,000 in the third quarter and first nine months of 2017 to $690,000 and $2,194,000 for the same periods of 2018, primarily due to lower pension costs, consulting fees and legal expenses, offset in part by higher payroll costs.

Interest expense was $18,000 and $49,000 for the third quarter and first nine months of 2018 compared to $22,000 and $328,000 for the same periods of 2017. Interest expense in 2018 was primarily related to the settlement and remaining liability with the State of Florida noted above and interest expense in 2017 was primarily related to two notes payable of AMREP Southwest that were paid in full during 2017. There was no capitalized interest for the first nine months of 2018 compared to $45,000 and $83,000 for the third quarter and first nine months of 2017.

The U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law in December 2017. The Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering U.S. corporate income tax rates. The Act reduces the federal corporate tax rate to 21.0% effective January 1, 2018. As the Company has an April 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal corporate tax rate of approximately 29.7% for our fiscal year ending April 30, 2018, and a 21% rate for subsequent fiscal years. The 29.7% federal corporate tax rate is a blended rate for the April 30, 2018 fiscal year-end based on a prorated percentage of the number of days prior and subsequent to the January 1, 2018 effective date.

17

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. SAB 118 provides for a measurement period that should not extend beyond one year from the Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Act.

As of January 31, 2018, the Company had not completed its accounting for the tax effects of the Act, but was able to make reasonable estimates of the impact of the reduction in corporate tax rate and the re-measurement of deferred tax balances:

  Three Months Ended October 31,  Six Months Ended October 31, 
  2020  2020 vs.
2019
  2019  2020  2020 vs.
2019
  2019 
Land sale revenues $8,526   161% $3,266  $12,013   59% $7,557 
Home sale revenues  202   (a)   -   202   (a)   - 
Rental revenues  152   (55)%  341   502   (26)%  682 
Other revenue  376   7%  353   745   53%  488 
Total revenues $9,256   134% $3,960  $13,462   54% $8,727 

 

·(a)The Company’s current income tax expense reported for the first nine months of 2018 was adjusted to reflect the lower statutory corporate federal tax rate, which will be 29.7% for 2018 compared to 34.0% for 2017. This resulted in a decrease in income tax expense of $202,000 for the third quarter and first nine months of 2018.Percentage not meaningful.

 

·Land sale revenues for the three and six months ended October 31, 2020 were higher than the prior periods by $5,260,000 and $4,456,000, primarily due to increased demand for lots by builders. The Company’s land sales in New Mexico were as follows (dollars in thousands):


  Three Months Ended October 31, 2020  Three Months Ended  October 31, 2019 
  Acres
Sold
  Revenue  Revenue
Per Acre
  Acres
Sold
  Revenue  Revenue
Per Acre
 
Developed                        
       Residential  17.4  $8,376  $481   8.1  $3,244  $400 
       Commercial  0.4   134   335   -   -   - 
Total Developed  17.8   8,510   478   8.1   3,244   400 
Undeveloped  2.0   16   8   3.5   22   6 
      Total  19.8  $8,526  $431   11.6  $3,266  $282 

  Six Months Ended October 31, 2020  Six Months Ended October 31, 2019 
  Acres
Sold
  Revenue  Revenue
Per Acre
  Acres
Sold
  Revenue  Revenue
Per Acre
 
Developed                        
       Residential  25.1  $11,863  $473   18.4  $7,534  $409 
       Commercial  0.4   134   335   -   -   - 
Total Developed  25.5   11,997   470   18.4   7,534   409 
Undeveloped  2.0   16   8   3.6   23   6 
      Total  27.5  $12,013  $437   22  $7,557  $344 

·Home sale revenues for each of the three and six months ended October 31, 2020 were higher than the prior periods by $202,000 due to the Company completing its first home sale to a customer during the three months ended October 31, 2020. The Company madeclosed on one home during the three months ended October 31, 2020 at a reasonable estimateselling price of $202,000. As of October 31, 2020, the Company had (a) a backlog of 11 homes under contract representing $2,311,000 of expected sales revenue when closed, subject to customer cancellations and change orders, and (b) 17 homes in production.

·Rental revenues for the three and six months ended October 31, 2020 were lower than the prior periods by $189,000 and $180,000 due to a decrease in rent received from tenants at the Company’s warehouse and office buildings in Palm Coast, Florida offset by a new lease at a retail building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico.

·Other revenues for the three and six months ended October 31, 2020 were higher than the prior periods by $23,000 and $257,000. Other revenues consist of:

  Three Months Ended
October 31,
  Six Months Ended
October 31,
 
  2020  2019  2020  2019 
  (in thousands)  (in thousands) 
Oil & gas royalties $25  $-  $36  $- 
Private infrastructure reimbursement covenants  245   140   378   231 
Public improvement district reimbursements  69   26   244   26 
Miscellaneous other revenue  37   187   87   231 
  $376  $353  $745  $488 

Miscellaneous other revenue for the three and six months ended October 31, 2020 primarily consist of payments for impact fee credits and a land condemnation. Miscellaneous other revenue for the three and six months ended October 31, 2019 primarily consist of forfeited deposits and non-refundable option payments.

Cost of Revenues. The following presents information on cost of revenues for the Company’s operations (dollars in thousands):

  Three Months Ended October 31,  Six Months Ended October 31, 
  2020  2020 vs. 2019  2019  2020  2020 vs. 2019  2019 
Land sale costs $6,430   132% $2,771  $9,109   42% $6,426 
Home sale costs $174   (a)   -  $174   (a)   - 

(a)Percentage not meaningful.


·Land sale cost of revenues for the three and six months ended October 31, 2020 were higher than the prior periods by $3,659,000 and $2,683,000. The average gross profit percentage on land sales in New Mexico before indirect costs was 25% and 24% for the three and six months ended October 31, 2020 compared to 15% for each of the effect on its deferred tax balances by applying the 21% federal corporate tax ratethree and six months ended October 31, 2019. The profit percentage increase was attributable to the Company’s (i) opening year deferred tax balancesdemand for lots by builders resulting in higher revenue per developed lot. As a result of many factors, including the nature and (ii)timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period to period and prior results are not necessarily a discrete deferred tax asset related to amortizationgood indication of intangible assetswhat may occur in future periods.

·Home sale cost of revenues for the nine monththree and six months ended October 31, 2020 were higher than the prior periods by $174,000 for each period ending January 31, 2018, resulting indue to the Company completing its first home sale to a provisional estimate of $3,259,000 of income tax expense and a reduction of net deferred tax assets for the same amountcustomer during the third quarter of 2018. This provisional estimate did not result in any current income taxes payable. As of Januarythree months ended October 31, 2018, the Company does not have all needed information regarding the current year impact on deferred tax balances to finalize the accounting2020. Home sale gross margins was 14% for the tax effectseach of the Act. The Company continues to address the tax effects of the Act, analyzing certain aspects of the Actthree and refining calculations. This could potentially affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts. The Company expects to finalize the accounting for the tax effects of enactment of the Act prior to filing its Form 10-K for 2018.six months ended October 31, 2020.

 

General and Administrative Expenses. The Company’s effective tax rate following presents select information on general and administrative expenses for the third quarterCompany’s operations (dollars in thousands):

  Three Months Ended October 31,  Six Months Ended October 31, 
  2020  2020 vs. 2019  2019  2020  2020 vs. 2019  2019 
Land development $665   10% $602  $1,271   <1%  $1,274 
Homebuilding $118   (a)  $-  $231   (a)  $- 
Corporate $740   (79)% $3,519  $1,465   (67)% $4,413 

(a)Percentage not meaningful.

·Land development general and administrative expenses for the three months ended October 31, 2020 were higher than the prior three month period by $63,000, primarily due to homebuilding expenses transitioning to a new business segment offset by increased employee hiring, increased health care benefit costs and reduced professional fees. Land development general and administrative expenses for the six months ended October 31, 2020 were lower than the prior six month period by $3,000.

·Homebuilding general and administrative expenses for the three and six months ended October 31, 2020 were higher than the prior periods by $118,000 and $231,000, due to homebuilding being a new business segment.

·Corporate general and administrative expenses for the three and six months ended October 31, 2020 were lower than the prior periods by $2,779,000 and $2,948,000, primarily due to a non-cash pre-tax pension settlement charge of $2,929,000 partially offset by the monthly pension accrual in the three and six months ended October 31, 2019 as a result of the Company’s defined benefit pension plan paying an aggregate of $7,280,000 in lump sum payouts of pension benefits to former employees.

Interest (expense) income, net decreased to $(12,000) and first nine months was increased by the effect of a net income tax expense increase of $3,057,000 related to accounting$(6,000) for the tax effects of the Act. Excluding this increase, the Company’s effective tax rate was 27.7%three and 32.5%six months ended October 31, 2020 from $141,000 and $265,000 for the third quarterthree and first ninesix months of 2018 compared to 35.5% and 32.5% for the same periods of 2017. The difference between the statutory rate and the effective rate of the tax provision after excluding the $3,057,000 wasended October 31, 2019, primarily due to state taxes.a reduction in interest rates on cash balances and the elimination of the deferred purchase price and interest accrual related thereto with respect to the sale of the Company’s fulfillment services business (refer to Note 2 to the consolidated financial statements contained in the 2020 Form 10-K for detail regarding the non-cash impairment charge of the deferred purchase price related to the sale of the Company’s fulfillment services business), partially offset by a reduction in interest expense.

 

The total tax effectOther income for the six months ended October 31, 2020 consist of gross unrecognized tax benefitsa settlement payment of $650,000 from a former business segment of the Company (refer to Note 2 to the consolidated financial statements contained in the accompanying financial statements at both January 31, 2018 and April 30, 2017 was $58,000, which, if recognized, would have an impact on2020 Form 10-K for detail regarding the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.settlement agreement).

 

18

The Company had a provision for income taxes of $319,000 and $465,000 for the three and six months ended October 31, 2020 compared to a benefit for income taxes of $622,000 and $756,000 for the three and six months ended October 31, 2019. This change is caused by the three and six months ended October 31, 2020 reporting income in both periods, compared to the three and six months ended October 31, 2019 reporting losses in both periods.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s primary sources of funding for working capital requirements are cash flow from operations, bank financing for specific real estate projects and existing cash balances. The Company’s liquidity is affected by many factors, including some that are based on normal operations and some that are related to the industries in which the Company operatesreal estate industry and the economy generally. Except as described below, there have been no material changes to the Company’s liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20172020 Form 10-K.

 

Refer to Note 9 to the consolidated financial statements contained in the 2017 Form 10-K for detail about the settlement agreement entered into between Palm Coast and the State of Florida in the first quarter of 2018. In June 2009, Palm Coast received $3,000,000 pursuant to an agreement with the State of Florida (the “Award Agreement”) as part of the incentives made available in connection with the consolidation of the Company’s fulfillment services operations at its Palm Coast, Florida location. The Award Agreement included certain performance requirements in terms of job retention, job creation and capital investment which, if not met by Palm Coast, entitled the State of Florida to obtain the return of a portion, or all, of the $3,000,000. Palm Coast had not met certain of the performance requirements in the Award Agreement. During the first quarter of 2018, Palm Coast entered into a Settlement Agreement and Mutual General Release (the “Settlement Agreement”) with the State of Florida. Pursuant to the Settlement Agreement, (1) the Award Agreement was terminated, (2) each of the parties released all claims relating to the Award Agreement that the releasing party may have had against the other party and (3) Palm Coast agreed to pay the State of Florida $1,763,000 as follows: (a) $163,000 during the first quarter of 2018 and (b) 40 quarterly payments of $40,000 each, without interest, on the first business day of each calendar quarter starting on October 1, 2017 and ending on July 1, 2027. Palm Coast timely paid the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, leaving a balance owed to the State of Florida of $1,520,000 as of January 31, 2018.Operating Activities

 

InReal estate inventory increased from $53,449,000 at April 30, 2020 to $53,925,000 at October 31, 2020, primarily due to increased land development activity, the Company’s consolidated financial statements acquisition of land and as a resulthomebuilding construction, offset in part by real estate land sales. Investment assets, net increased from $18,644,000 at April 30, 2020 to $18,970,000 at October 31, 2020, primarily due to capitalization of entering into the Settlement Agreement, Palm Coast reduced its previously recorded liability of $3,000,000 and a related $26,000 interest accrual by $1,620,000 to $1,406,000 by recognizing a pre-tax gain of $1,318,000 and recording deferred revenue of $302,000. The $1,318,000 pre-tax gain was determined based on depreciation previously taken on assets acquired with Award Agreement funds that were retained by Palm Coast and was recognized in Other revenues during the first nine months of 2018. The $302,000 deferred revenue will be recognized over the remaining life of these assets (approximately seven years from January 31, 2018), with $61,000 having been recognized during the first nine months of 2018 resulting in a deferred revenue balance of $241,000 as of January 31, 2018. As a result of paying the State of Florida $163,000 during the first quarter of 2018, $40,000 during the second quarter of 2018 and $40,000 during the third quarter of 2018, Palm Coast recognized $41,000 of imputed interest expense and reduced its remaining balance sheet liability of $1,406,000 as of the date of the Settlement Agreement to $1,204,000 as of January 31, 2018. These balance sheet liability numbers are less than the amounts owed to the State of Florida of $1,763,000 as of the date of the Settlement Agreement and $1,520,000 as of January 31, 2018 because they have been adjusted to reflect the present values of these deferred non-interest bearing obligations.

In February 2018, Palm Coast and the Company entered into a Release Agreement (the “Release Agreement”) with the State of Florida. Pursuant to the Release Agreement, (1) Palm Coast paid the State of Florida $956,000, (2) each of the parties released all claims relating to the guaranty agreement (the “Guaranty Agreement”) between the Company and the State of Florida entered into in the first quarter of 2018 and the payment obligations under the Settlement Agreement that the releasing party may have had against each of the other parties and (3) each of the Guaranty Agreement and the payment obligations under the Settlement Agreement shall be deemed terminated and none of the parties shall have any further liabilities or obligations with respect thereto. The Company expects to recognize a gaincosts related to the Release Agreementconstruction of approximately $257,000 during the fourth quarter of 2018.

19

Operating Activitiesa single tenant retail building, offset in part by depreciation. Other assets increased from $934,000 at April 30, 2020 to $1,544,000 at October 31, 2020, primarily due to an increase in prepaid expenses.

 

Accounts payable and accrued expenses increased from $7,035,000$3,125,000 at April 30, 20172020 to $9,187,000$4,700,000 at JanuaryOctober 31, 2018,2020, primarily due to an increase in builders’ deposits and land development activity in Rio Rancho, New Mexico.

Real estate inventory increased from $56,090,000 at April 30, 2017 to $58,271,000 at January 31, 2018, primarily due to an increase in land development activity in Rio Rancho, New Mexico, offset in part by real estate land sales. Property, plant and equipment decreased from $10,852,000 at April 30, 2017 to $10,028,000 at January 31, 2018 due to normal depreciation of fixed assets.

Other liabilities and deferred revenue decreased from $3,376,000 at April 30, 2017 to $1,653,000 at January 31, 2018, primarily due to the previously described settlement agreement between Palm Coast and the State of Florida.

Accrued pension costs decreased from $10,967,000$5,014,000 at April 30, 20172020 to $9,707,000$3,195,000 at JanuaryOctober 31, 2018,2020, primarily due to $1,040,000a voluntary contribution of Company contributions$1,847,000 to the Company’s defined benefit pension plan.

Investing Activities

Capital expenditures totaled $130,000 for the first nine months of 2018 and $63,000 for the same period of 2017, primarily for the fulfillment services business.

 

Financing Activities

 

During December 2017, Lomas Encantadas Development Company LLC (“LEDC”), an indirect subsidiary of AMREP Corporation, entered into a Development Loan Agreement with BOKF, NA dba Bank of Albuquerque (“Lender”). The Development Loan Agreement is evidencedNotes payable, net increased from $3,890,000 at April 30, 2020 to $5,803,000 at October 31, 2020, primarily due to additional borrowings to fund land development activities, partially offset by a Non-Revolving Line of Credit Promissory Note, dated December 18, 2017,repayments made on outstanding borrowings.

Refer to Notes 8 and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and Lender, dated November 16, 2017, with respect17 to 343 planned residential lots within the Lomas Encantadas subdivision (the “Mortgaged Property”) locatedconsolidated financial statements contained in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement, dated December 18, 2017, entered into by AMREP Southwest in favor of Lender, AMREP Southwest has guaranteed LEDC’s obligations underthe 2020 Form 10-K for additional detail about each of the above agreements. The Development Loan Agreement, Non-Revolving Line of Credit Promissory Note, Mortgage, Security Agreement and Financing Statement, Guaranty Agreement and other related transaction documents are collectively referredfollowing outstanding financing facilities that were entered into prior to as the “Loan Documentation.”May 1, 2020:

 

·Lomas Encantadas Subdivision.

Pursuant to the Loan Documentation, Lender agrees to lend up to $4,750,000 to LEDC on a non-revolving line of credit basis to partially fund the development of the Mortgaged Property. LEDC expects to fully utilize the $4,750,000 for its land development activities. Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly. Lender is required to release the lien of its mortgage on any lot included in the Mortgaged Property upon LEDC making a principal payment of $43,000 or $53,000 depending on the location of the lot. LEDC is required to make periodic principal repayments to the extent not previously paid as follows: $1,370,000 on or before August 18, 2019, $599,000 on or before November 18, 2019, $599,000 on or before February 18, 2020, $599,000 on or before May 18, 2020, $599,000 on or before August 18, 2020 and $599,000 on or before November 18, 2020. The outstanding principal amount of the loan as of January 31, 2018 was $638,000. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature on December 18, 2021. LEDC incurred certain customary costs and expenses and paid certain fees to Lender in connection with the loan.

oIn June 2019, BOKF, NA dba Bank of Albuquerque (“BOKF”) provided a non-revolving line of credit to Lomas Encantadas Development Company LLC (“LEDC”), a subsidiary of the Company. The initial available principal amount of the loan was $2,475,000. The outstanding principal amount of the loan was $105,000 as of October 31, 2020. LEDC made principal repayments of $1,538,000 during the six months ended October 31, 2020 and $675,000 during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 3.14%. The Company capitalized interest and fees related to this loan of $16,000 and $2,000 for the six months ended October 31, 2020 and October 31, 2019 and $4,000 and $2,000 for the three months ended October 31, 2020 and October 31, 2019. The total book value of the property mortgaged pursuant to this loan was $3,049,000 as of October 31, 2020. At October 31, 2020, LEDC was in compliance with the financial covenants contained within the loan documentation.

oIn September 2020, LEDC entered into a Development Loan Agreement with BOKF. The Development Loan Agreement is evidenced by a Non-Revolving Line of Credit Promissory Note and is secured by a Mortgage, Security Agreement and Financing Statement, between LEDC and BOKF with respect to certain planned residential lots within the Lomas Encantadas subdivision located in Rio Rancho, New Mexico. Pursuant to a Guaranty Agreement entered into by AMREP Southwest Inc. (“ASW”), a subsidiary of the Company, in favor of BOKF, ASW guaranteed LEDC’s obligations under each of the above agreements.

 


20§Initial Available Principal: Pursuant to the loan documentation, BOKF agrees to lend up to $2,400,000 to LEDC on a non-revolving line of credit basis to partially fund the development of certain planned residential lots within the Lomas Encantadas subdivision.

 

§Outstanding Principal Amount and Repayments: The outstanding principal amount of the loan was $26,500 as of October 31, 2020. LEDC made no principal repayments during the six months ended October 31, 2020. LEDC is required to make periodic principal repayments of borrowed funds not previously repaid as follows: $1,144,000 on or before December 22, 2022, $572,000 on or before March 22, 2023, $572,000 on or before June 22, 2023 and $112,000 on or before September 22, 2023. The outstanding principal amount of the loan may be prepaid at any time without penalty.

§Maturity Date: The loan is scheduled to mature in September 2023.

§Interest Rate: Interest on the outstanding principal amount of the loan is payable monthly at the annual rate equal to the London Interbank Offered Rate for a thirty-day interest period plus a spread of 3.0%, adjusted monthly, subject to a minimum interest rate of 3.75%. The interest rate on the loan at October 31, 2020 was 3.75%.

§Lot Release Price: BOKF is required to release the lien of its mortgage on any lot upon LEDC making a principal payment of $44,000.

 

LEDC and AMREP Southwest haveASW made certain representations and warranties in the Loan Documentationconnection with this loan and are required to comply with various covenants, reporting requirements and other customary requirements for similar loans. The Loan Documentationloan documentation contains customary events of default for similar financing transactions, including:including LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or AMREP SouthwestASW to observe or perform their respective covenants under the Loan Documentation;loan documentation; the representations and warranties of LEDC or AMREP SouthwestASW being false; the insolvency or bankruptcy of LEDC or AMREP Southwest;ASW; and the failure of AMREP SouthwestASW to maintain a tangible net worth of at least $35$32 million. Upon the occurrence and during the continuance of an event of default, LenderBOKF may declare the outstanding principal amount and all other obligations under the Loan Documentationloan immediately due and payable. LEDC incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. At JanuaryOctober 31, 2018, both2020, LEDC and AMREP Southwest werewas in compliance with the financial covenants contained withinin the Loan Documentation.loan documentation. The total book value of the property mortgaged pursuant to this loan was $289,000 as of October 31, 2020. The Company’s capitalized interest and fees related to this loan were immaterial during the three and six months ended October 31, 2020.

·Hawk Site Subdivision. In February 2020, Sandia Laboratory Federal Credit Union (“SLFCU”) provided a revolving line of credit to Mountain Hawk East Development Company LLC (“MHEDC”), a subsidiary of the Company. The initial available principal amount of the loan was $3,000,000, subject to certain limitations. The outstanding principal amount of the loan was $201,000 as of October 31, 2020. MHEDC made principal repayments of $1,935,000 during the six months ended October 31, 2020; MHEDC made no principal repayments during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 4.5%. The Company capitalized interest and fees related to this loan of $1,000 during each of the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $2,374,000 as of October 31, 2020. At October 31, 2020, MHEDC was in compliance with the financial covenants contained within the loan documentation.

·Las Fuentes at Panorama Village Subdivision. In January 2020, BOKF provided a non-revolving line of credit to Las Fuentes Village II, LLC (“LFV”), a subsidiary of the Company. The initial available principal amount of the loan was $2,750,000. The outstanding principal amount of the loan was $2,514,000 as of October 31, 2020. LFV made no principal repayments during the six months ended October 31, 2020 or during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 3.06%. The Company capitalized interest and fees related to this loan of $1,000 and $19,000 during the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $2,884,000 as of October 31, 2020. At October 31, 2020, LFV was in compliance with the financial covenants contained within the loan documentation.


·Meso AM Subdivision.

oAcquisition Financing: The acquisition of the Meso AM subdivision in Bernalillo County, New Mexico in June 2020 by Lavender Fields, LLC (“LF”), a subsidiary of the Company, included $1,838,000 of deferred purchase price, of which $919,000 is payable without interest on or before June 2021 and $919,000 is payable without interest on or before June 2022. The total book value of the property mortgaged to secure payment of a note reflecting the deferred purchase price was $4,511,000 as of October 31, 2020. At October 31, 2020, LF was in compliance with the financial covenants contained within the loan documentation.

oDevelopment Financing. In June 2020, BOKF provided a non-revolving line of credit to LF. The initial available principal amount of the loan was $3,750,000. The outstanding principal amount of the loan was $852,000 as of October 31, 2020. LF made no principal repayments during the six months ended October 31, 2020. The interest rate on the loan at October 31, 2020 was 3.75%. The Company capitalized interest and fees related to this loan of $3,000 during each of the three and six months ended October 31, 2020. The total book value of the property mortgaged pursuant to this loan was $4,511,000 as of October 31, 2020. At October 31, 2020, LF was in compliance with the financial covenants contained within the loan documentation.

·SBA Paycheck Protection Program. In April 2020, BOKF provided a loan to the Company pursuant to the Paycheck Protection Program administered by the U.S. Small Business Administration. The amount of the loan was $298,000. The outstanding principal amount of the loan was $298,000 as of October 31, 2020. The Company made no principal repayments during the six months ended October 31, 2020 or during the year ended April 30, 2020. The interest rate on the loan at October 31, 2020 was 1.0%. The Company did not capitalize any interest or fees related to this loan during the six months ended October 31, 2020. At October 31, 2020, the Company was in compliance with the financial covenants contained within the loan documentation. The loan provides that all or a portion of the principal balance may be forgiven if certain conditions are met.

The Company’s share repurchase activity is described below:

·In August 2020, the Company repurchased 11,847 shares of common stock of the Company at a price of $4.48 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.

·In September 2020, the Board of Directors of the Company authorized the Company to purchase up to 1,000,000 shares of common stock of the Company from time to time pursuant to a share repurchase program, subject to the total expenditure for the purchase of shares under the share repurchase program not exceeding $5,000,000, exclusive of any fees, commissions and other expenses related to such repurchases. Under the share repurchase program, the Company may have repurchased its common stock from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. The Company’s repurchases may have been executed using open market purchases, unsolicited or solicited privately negotiated transactions or other transactions, and may have been effected pursuant to trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program did not obligate the Company to repurchase any specific number of shares and may have been suspended, modified or terminated at any time without prior notice. The share repurchase program did not contain a time limitation during which repurchases are permitted to occur. In October 2020, the Company repurchased 675,616 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction pursuant to the share repurchase program. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock.


·In November 2020, the Company repurchased 143,482 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction during the three months ended October 31, 2020. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock. The share repurchase was not completed pursuant to the Company’s share repurchase program.

·In November 2020, the Company’s share repurchase program was terminated.

Investing Activities

Capital expenditures were $3,000 and $3,000 for the three and six months ended October 31, 2020 compared to $1,000 and $26,000 for the three and six months ended October 31, 2019, primarily due to purchases of office furniture and computer equipment.

 

Statement of Forward-Looking Information

 

The Private Securities Litigation Reform Act of 1995 (the “Act”) provides a safe harbor for forward-looking statements made by or on behalf of the Company. The Company and its representatives may from time to time make written or oral statements that are “forward-looking”, including statements contained in this report and other filings with 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 Act.Private Securities Litigation Reform Act of 1995. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and contingencies that are difficult to predict. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of the Company are qualified by the cautionary statements in this section. Many of the factors that will determine the Company’s future results are beyond the ability of management to control or predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.

 

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s expected lossliquidity sources, (2) the availability of a material customerbank financing for projects, (3) the utilization of existing bank financing, (4) the timing of development of land held as investment assets, (5) the backlog of homes under contract and the effectdollar amount of expected sales revenue when such loss,homes are closed, (6) the offering of sales incentives to home buyers, (7) the effect of recent accounting pronouncements, on the Company,(8) the timing of recognizing unrecognized compensation expense related to shares of restricted common stock issued under the AMREP Corporation 2016 Equity Plans,Compensation Plan, (9) the liability for unrecognized tax benefits not changing in the next twelve months, the availabilityfuture issuance of bank financing for projects, the expected utilization of existing bank financing, the impactdeferred common share units to directors of the U.S. Tax Cuts and Jobs Act on the Company, and(10) the future business conditions that may be experienced by the Company.Company and (11) the forgiveness of any amounts due under the loan issued pursuant to the Paycheck Protection Program. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

 

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Item 4.Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s chief executive officerChief Executive Officer and chief financial officer,Vice President, Finance and Accounting, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. As a result of such evaluation, the Company’s chief executive officerChief Executive Officer and chief financial officerVice President, Finance and Accounting have concluded that such disclosure controls and procedures arewere effective as of October 31, 2020 to provide reasonable assurance that the information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including its chief executive officerthe Company’s Chief Executive Officer and chief financial officer,Vice President, Finance and Accounting, as appropriate, to allow timely decisions regarding disclosure. The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Changes in Internal Control over Financial Reporting

 

No change in the Company’s system of internal control over financial reporting“financial reporting” (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth all purchases made by or on behalf of the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act, of shares of common stock of the Company made during each month within the three months ended October 31, 2020:

Period Total
Number of
Shares
Purchased
  Average
Price Paid
Per Share
  Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
  Maximum Number of
Shares that May Yet Be
Purchased Under the Plans
or Programs (1)
 
August 1, 2020 – August 31, 2020  11,847 (2)  $4.48   -   - 
September 1, 2020 – September 30, 2020  -   -   -   1,000,000 
October 1, 2020 – October 31, 2020  675,616 (3)   6.18   675,616   324,384 
Total  687,463  $6.15   675,616   324,384 

_____________________________

(1)            In September 2020, the Board of Directors of the Company authorized the Company to purchase up to 1,000,000 shares of common stock of the Company from time to time pursuant to a share repurchase program, subject to the total expenditure for the purchase of shares under the share repurchase program not exceeding $5,000,000, exclusive of any fees, commissions and other expenses related to such repurchases. As of October 31, 2020, the share repurchase program had 324,384 shares that may yet be purchased under the program, subject to the total expenditure for the purchase of such shares not exceeding an additional $824,693, exclusive of any fees, commissions and other expenses related to such repurchases. Under the share repurchase program, the Company may have repurchased its common stock from time to time, in amounts, at prices, and at such times as the Company deems appropriate, subject to market conditions, legal requirements and other considerations. The Company’s repurchases may have been executed using open market purchases, unsolicited or solicited privately negotiated transactions or other transactions, and may have been effected pursuant to trading plans intended to qualify under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The share repurchase program did not obligate the Company to repurchase any specific number of shares and may have been suspended, modified or terminated at any time without prior notice. The share repurchase program did not contain a time limitation during which repurchases are permitted to occur. In November 2020, the Company’s share repurchase program was terminated.

(2)           In August 2020, the Company repurchased 11,847 shares of common stock of the Company at a price of $4.48 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock. The share repurchase was not completed pursuant to a publicly announced share repurchase program of the Company.

(3)           In October 2020, the Company repurchased 675,616 shares of common stock of the Company at a price of $6.18 per share in a privately negotiated transaction. As of the date of the repurchase, the repurchased shares were retired and returned to the status of authorized but unissued shares of common stock. The share repurchase was completed pursuant to a publicly announced share repurchase program of the Company.


Item 6.Exhibits

Item 6. Exhibits

 

Exhibit
Number
Description
 
Description3.1By-laws, as amended. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed September 9, 2020)
10.1Development Loan Agreement, dated as of December 18, 2017,September 22, 2020, between BOKF, NA dba Bank of Albuquerque and Lomas Encantadas Development Company, LLC. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.2Non-Revolving Line of Credit Promissory Note, dated December 18, 2017,September 22, 2020, by Lomas Encantadas Development Company, LLC in favor of BOKF, NA dba Bank of Albuquerque. (Incorporated by reference to Exhibit 10.1210.2 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.3Mortgage, Security Agreement and Financing Statement, dated as of November 16, 2017,September 22, 2020, between BOKF, NA dba Bank of Albuquerque and Lomas Encantadas Development Company, LLC. (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.4Guaranty Agreement, dated as of December 18, 2017,September 22, 2020, made by AMREP Southwest Inc. for the benefit of BOKF, NA dba Bank of Albuquerque. (Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.5 Release Agreement, dated February 22, 2018, between the Florida Department of Economic Opportunity, Palm Coast Data LLC and AMREP Corporation. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed February 28, 2018)
31.1Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934
32Certification required pursuant to 18 U.S.C. Section 1350
101.INS 
101.INSXBRL Instance Document
101.SCH 
101.SCHXBRL Taxonomy Extension Schema
101.CAL 
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEF 
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LAB 
101.LABXBRL Taxonomy Extension Label Linkbase
101.PRE 
101.PREXBRL Taxonomy Extension Presentation Linkbase

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:  March 19, 2018December 8, 2020

AMREP CORPORATION
           (Registrant)

(Registrant)
  
 By:/s/  JamesAdrienne M. McMonagleUleau 
  JamesName: Adrienne M. McMonagleUleau
  Title: Vice President, Finance and Chief Financial Officer
(PrincipalAccounting (Principal Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
Number
Description
 
Description3.1By-laws, as amended. (Incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed September 9, 2020)
10.1Development Loan Agreement, dated as of December 18, 2017,September 22, 2020, between BOKF, NA dba Bank of Albuquerque and Lomas Encantadas Development Company, LLC. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.2Non-Revolving Line of Credit Promissory Note, dated December 18, 2017,September 22, 2020, by Lomas Encantadas Development Company, LLC in favor of BOKF, NA dba Bank of Albuquerque. (Incorporated by reference to Exhibit 10.1210.2 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.3Mortgage, Security Agreement and Financing Statement, dated as of November 16, 2017,September 22, 2020, between BOKF, NA dba Bank of Albuquerque and Lomas Encantadas Development Company, LLC. (Incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.4Guaranty Agreement, dated as of December 18, 2017,September 22, 2020, made by AMREP Southwest Inc. for the benefit of BOKF, NA dba Bank of Albuquerque. (Incorporated by reference to Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed December 20, 2017)September 23, 2020)
10.5 Release Agreement, dated February 22, 2018, between the Florida Department of Economic Opportunity, Palm Coast Data LLC and AMREP Corporation. (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed February 28, 2018)
31.1Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2Certification required by Rule 13a-14(a) under the Securities Exchange Act of 1934
32Certification required pursuant to 18 U.S.C. Section 1350
101.INS 
101.INSXBRL Instance Document
101.SCH 
101.SCHXBRL Taxonomy Extension Schema
101.CAL 
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEF 
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LAB 
101.LABXBRL Taxonomy Extension Label Linkbase
101.PRE 
101.PREXBRL Taxonomy Extension Presentation Linkbase

 

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