AMREP CORP

Previous wording

Information concerning the Company’s implementation and the impact of recent accounting standards or updates issued by the Financial Accounting Standards Board is included in the notes to the condensed consolidated financial statements contained in the 2023 Form 10-K and in the notes to the unaudited condensed consolidated financial statements included in this report on Form 10-Q. The Company did not adopt any accounting policy in the nine months ended January 31, 2024 that had a material effect on its unaudited condensed consolidated financial statements.

Current wording

Information concerning the Company’s implementation and the impact of recent accounting standards or updates issued by the Financial Accounting Standards Board is included in the notes to the condensed consolidated financial statements contained in the 2024 Form 10-K and in the notes to the unaudited condensed consolidated financial statements included in this report on Form 10-Q. The Company did not adopt any accounting policy in the three months ended July 31, 2024 that had a material effect on its unaudited condensed consolidated financial statements.

Previous wording

For the three months ended January 31, 2024, the Company had net income of $92,000, or $0.02 per diluted share, compared to net income of $16,574,000, or $3.12 per diluted share, for the three months ended January 31, 2023. For the nine months ended January 31, 2024, the Company had net income of $2,546,000, or $0.48 per diluted share, compared to net income of $22,107,000, or $4.17 per diluted share, for the nine months ended January 31, 2023. As discussed in more detail below, during the three months ended January 31, 2023, the Company recognized a non-cash pre-tax pension settlement expense of $2,336,000 as a result of its defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and a non-cash income tax benefit of $16,071,000 as a result of a worthless stock deduction.

Current wording

For the three months ended July 31, 2024, the Company had net income of $4,064,000, or $0.76 per diluted share, compared to net income of $1,346,000, or $0.25 per diluted share, for the three months ended July 31, 2023.

Previous wording

During thenine months ended January 31, 2024 and January 31,2023, the Company experienced delays in municipal approvals and utility response times in both the land development business segment and homebuilding business segment, which caused delays in construction and the realization of revenues and increases in cost of revenues. In addition, in response to inflation, the Federal Reserve increased benchmark interest rates during 2024 and 2023, which has resulted in a significant increase in mortgage interest rates during 2024 and 2023, impacting home affordability and consumer sentiment and tempering demand for new homes and finished residential lots. The rising cost of housing due to increases in average sales prices in recent years and increases in mortgage interest rates, coupled with general inflation in the U.S. economy and other macroeconomic factors, have placed pressure on overall housing affordability and have caused many potential homebuyers to pause and reconsider their housing choices. Given the affordability challenges described above and the resulting impact on demand, the Company has provided sales incentives on certain homes classified as homebuilding model inventory or homebuilding construction in process, opportunistically leased completed homes and slowed the pace of housing starts and land development projects. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of calendar year 2024. In addition, the Company has reduced the number and scope of its active land development projects and delayed proceeding with certain new land development projects due to market headwinds and uncertainty, which is expected to result in reduced developed residential revenues in the Company’s land development business segment during the remainder of 2024 as compared to 2023.

Current wording

During the three months ended July 31, 2024 and July 31, 2023, the Company experienced delays in municipal entitlements, infrastructure availability, approvals and inspections and utility response times in both the land development business segment and homebuilding business segment, which caused delays in construction and the realization of revenues and increases in cost of revenues. In addition, home affordability and consumer sentiment have been adversely affected by mortgage rate levels during the three months ended July 31, 2024 and July 31, 2023, which tempered demand for new homes and finished residential lots. The rising cost of housing due to increases in average sales prices in recent years and increases in mortgage interest rates, coupled with general inflation in the U.S. economy and other macroeconomic factors, have placed pressure on overall housing affordability and have caused many potential homebuyers to pause and reconsider their housing choices. Given the affordability challenges and the resulting impact on demand, the Company has provided sales incentives on certain homes, reduced the size of lots and homes, opportunistically leased completed homes and slowed the pace of housing starts and land development projects. The Company believes these conditions will continue to impact the land development and homebuilding industries for at least the remainder of 2025. During 2024, the Company reduced the number and scope of its active land development projects and delayed proceeding with certain new land development projects due to market headwinds and uncertainty and an increase in entitlement and infrastructure delays as compared to the prior year. This may result in reduced land sale revenues during 2025 and the fiscal year ending April 30, 2026 as compared to 2024.

Previous wording

The changes in the revenue per acre of developed residential land, developed commercial land and undeveloped land for the three and nine months ended January 31, 2024 compared to the prior periods were primarily due to the location and mix of land sold.

Current wording

The changes in the revenue per acre of developed residential land, developed commercial land and undeveloped land for the three months ended July 31, 2024 compared to the prior period were primarily due to the location and mix of land sold.

Previous wording

As of January 31, 2024, the Company had 62 homes in production, including 19 homes under contract, which homes under contract represented $8,300,000 of expected home sale revenues when closed, subject to customer cancellations and change orders. As of January 31, 2023, the Company had 25 homes in production, including 12 homes under contract, which homes under contract represented $6,300,000 of expected home sale revenues when closed, subject to customer cancellations and change orders.

Current wording

As of July 31, 2024, the Company had 64 homes in production, including 17 homes under contract, which homes under contract represented $7,852,000 of expected home sale revenues when closed, subject to customer cancellations and change orders. As of July 31, 2023, the Company had 23 homes in production, including 19 homes under contract, which homes under contract represented $9,524,000 of expected home sale revenues when closed, subject to customer cancellations and change orders.

Previous wording

Miscellaneous other revenues for the three and nine months ended January 31, 2024 primarily consist of extension fees for purchase contracts, forfeited deposits and residential rental revenues. Miscellaneous other revenues for the three and nine months ended January 31, 2023 primarily consist of extension fees for purchase contracts and residential rental revenues.

Current wording

Miscellaneous other revenues for the three months ended July 31, 2024 primarily consist of extension fees for purchase contracts and residential rental revenues. Miscellaneous other revenues for the three months ended July 31, 2023 primarily consist of extension fees for purchase contracts, forfeited deposits from land sale contracts and residential rental revenues.

Previous wording

Land sale gross margins were 34% and 33% for the three and nine months ended January 31, 2024 compared to 43% and 37% for the three and nine months ended January 31, 2023. The changes in gross margin were primarily due to higher than estimated costs associated with certain completed projects and the location, size and mix of property sold.

Current wording

Land sale gross margins were 48% for the three months ended July 31, 2024 compared to 36% for the three months ended July 31, 2023. The changes in gross margin was primarily due to an increase in public improvement district reimbursements, private infrastructure covenant reimbursements and payments for impact fee credits and the location, size and mix of property sold.

Previous wording

The Company did not record any non-cash impairment charges on real estate inventory or investment assets in the three and nine months ended January 31, 2024 or January 31, 2023. Due to volatility in market conditions and development costs, the Company may experience future impairment charges.

Current wording

The Company did not record any non-cash impairment charges on real estate inventory or investment assets in the three months ended July 31, 2024 or July 31, 2023. Due to volatility in market conditions and development costs, the Company may experience future impairment charges.

Previous wording

Interest Income, net. For the three months ended January 31, 2024, the Company had interest income, net of $262,000 compared to no interest income, net for the three months ended January 31, 2023. For the nine months ended January 31, 2024, the Company had interest income, net of $473,000 compared to interest income, net of $6,000 for the nine months ended January 31, 2023. There were no interest or loan costs capitalized in real estate inventory in the three and nine months ended January 31, 2024. Interest and loan costs of $11,000 and $55,000 were capitalized in real estate inventory in the three and nine months ended January 31, 2023.

Current wording

Interest Income, net. The Company had interest income, net of $281,000 and $48,000 for the three months ended July 31, 2024 and July 31, 2023. There were no interest or loan costs capitalized in real estate inventory in the three months ended July 31, 2024 or July 31, 2023.

Previous wording

Income Taxes. The Company had a provision for income taxes of $22,000 and $853,000 for the three and nine months ended January 31, 2024 and a benefit for income taxes of $15,246,000 and $13,734,000 for the three and nine months ended January 31, 2023 related to the amount of income before income taxes during each period. Refer to Note 13 to the unaudited condensed consolidated financial statements included in this report on Form 10-Q for detail regarding the Company’s worthless stock deduction. As a result of the worthless stock deduction, the Company incurred an operating tax loss during the three and nine months ended January 31, 2023 that yielded an income tax benefit of $13,058,000 for U.S. federal corporate income taxes and an income tax benefit of $3,013,000 for New Mexico state corporate income taxes.

Current wording

Income Taxes. The Company had a provision for income taxes of $1,209,000 and $725,000 for the three months ended July 31, 2024 and July 31, 2023 related to the amount of income before income taxes during each period.

Previous wording

As of January 31, 2024, the Company had cash and cash equivalents and short-term investments as follows (in thousands):

Current wording

As of July 31, 2024 and April 30, 2024, the Company had cash, cash equivalents and restricted cash as follows (in thousands):

Previous wording

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 2023 Form 10-K.

Current wording

Except as described herein, 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 2024 Form 10-K.

Previous wording

Refer to Note 2 to the consolidated financial statements contained in 2023 Form 10-K for detail regarding real estate inventory. From April 30, 2023 to January 31, 2024, the change in land inventory in New Mexico was primarily due to the sale of land offset in part by land development activity, the change in homebuilding model inventory was primarily due to the sale of homes

Current wording

From April 30, 2024 to July 31, 2024, the change in land inventory in New Mexico was primarily due to the sale of land offset in part by land development activity, the change in homebuilding model inventory was primarily due to the sale of homes offset in part by the completion of homes not yet sold and the change in homebuilding construction in process was primarily due to an increase in the number of homes that started construction.

Previous wording

Owned real estate leased or intended to be leased represents homes and buildings leased or intended to be leased to third parties. As of January 31, 2024, nine homes were leased to residential tenants. As of April 30, 2023, eight homes were leased to residential tenants and two buildings under construction were leased to commercial tenants. Given the impact on demand as a result of affordability challenges described above, the Company has opportunistically leased completed homes. Depreciation associated with owned real estate leased or intended to be leased was $12,000 and $60,000 for the three and nine months ended January 31, 2024 and $3,000 for the three and nine months ended January 31, 2023.

Current wording

As of July 31, 2024, eleven homes were leased to residential tenants. As of April 30, 2024, ten homes were leased to residential tenants. Given the impact on demand as a result of affordability challenges, the Company has opportunistically leased completed homes. Depreciation associated with owned real estate leased or intended to be leased was $24,000 and $19,000 for the three months ended July 31, 2024 and July 31, 2023.

Previous wording

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s ability to finance its future working capital, land development, acquisition of land, homebuilding, commercial projects, general and administrative expenses and capital expenditure needs, (2) the Company’s expected liquidity sources, including the availability of bank financing for projects and the utilization of existing bank financing, (3) the conditions resulting in homebuyer affordability challenges persisting through 2024, (4) the amount of developed residential revenues in the Company’s land development business segment during the remainder of 2024, (5) the backlog of homes under contract and in production, the dollar amount of expected sale revenues when such homes are closed and homes and buildings leased or intended to be leased to third parties, (6) the establishment of a new 401(k) retirement plan, the transfer of any prepaid pension costs to a new 401(k) retirement plan and the timing of such establishment and transfer, (7) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under the AMREP Corporation 2016 Equity Compensation Plan, (8) the future issuance of deferred stock units to directors of the Company, (9) the dilution to earnings per share that outstanding options to purchase shares of common stock of the Company may cause in the future and (10) the future business conditions that may be experienced by the Company. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Current wording

The forward-looking statements contained in this report include, but are not limited to, statements regarding (1) the Company’s ability to finance its future working capital, land development, acquisition of land, homebuilding, commercial projects, general and administrative expenses and capital expenditure needs, (2) the Company’s expected liquidity sources, including the availability of bank financing for projects and the utilization of existing bank financing, (3) estimates of the Company’s exposure to warranty claims and liabilities for litigation and legal claims, estimates of the cost to complete of common land development costs and the estimated relative sales value of individual parcels of land in connection with the allocation of common land development costs, (4) the adequacy of warranty reserves, subcontractor indemnities and third-party insurance to cover the ultimate resolution of any potential liabilities associated with known and anticipated warranty and construction defect related claims and litigation, (5) the conditions resulting in homebuyer affordability challenges persisting through 2025, (6) the amount of land sale revenues during 2025 and the fiscal year ending April 30, 2026, (7) the backlog of homes under contract and in production and the dollar amount of expected sale revenues when such homes are closed, (8) the categorization of homes and buildings leased or intended to be leased to third parties, (9) the timing of recognizing unrecognized compensation expense related to shares of common stock issued under the AMREP Corporation 2016 Equity Compensation Plan, (10) the future issuance of deferred stock units to directors of the Company, (11) the dilution to earnings per share that unvested shares of restricted common stock or shares issuable upon the exercise of stock options may cause in the future and (12) the future business conditions that may be experienced by the Company. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.