NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(1)
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SUMMARY OF SIGNIFICANT ACCOUNTING AND FINANCIAL REPORTING POLICIES
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Organization and principles of consolidation
The consolidated financial statements include
the accounts of AMREP Corporation, an Oklahoma corporation, and its subsidiaries (collectively, the “Company”). The Company,
through its subsidiaries, is primarily engaged in two business segments: land development and homebuilding. The Company has no foreign
sales. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated balance sheets are presented
in an unclassified format since the Company has substantial operations in the real estate industry and its operating cycle is greater
than one year. Certain 2020 balances in these financial statements have been reclassified to conform to the current year presentation
with no effect on the net income or loss or shareholders’ equity.
Fiscal year
The Company’s fiscal year ends on April 30.
All references to 2021 and 2020 mean the fiscal years ended April 30, 2021 and 2021, unless the context otherwise indicates.
Revenue recognition
Land sale revenues: The Company accounts for land sale revenues
in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606).
Revenue from land sales are recognized when the parties are bound by the terms of a contract, consideration has been exchanged, title
and other attributes of ownership have been conveyed to the buyer by means of a closing and the Company is not obligated to perform further
significant development of the specific property sold. In general, the Company’s performance obligation for each of these land sales
is fulfilled upon the delivery of the land, which generally coincides with the receipt of cash consideration from the counterparty.
Land sale cost of revenues includes all direct
acquisition costs and other costs specifically identified with the property, including pre-acquisition costs and capitalized real estate
taxes and interest, and an allocation of certain common development costs associated with the entire project. Common development costs
include the installation of utilities and roads, and may be based upon estimates of cost to complete. The allocation of costs is based
on the relative sales value of the property. Estimates and cost allocations are reviewed on a regular basis until a project is substantially
completed, and are revised and reallocated as necessary on the basis of current estimates.
Home sale revenues: The Company accounts
for revenue from home sales in accordance with ASU 2014-09. Revenues and cost of revenues from home sales are recognized at the
time each home is delivered and title and possession are transferred to the buyer. The Company’s performance obligation to deliver
a home is normally satisfied in less than one year from the date a binding sale agreement is signed. In general, the Company’s performance
obligation for each home sale is fulfilled upon the delivery of the completed home, which generally coincides with the receipt of cash
consideration from the counterparty. If the Company’s performance obligations are not complete upon the home closing, the Company
defers a portion of the home sale revenues related to the outstanding obligations and subsequently recognizes that revenue upon completion
of such obligations. As of April 30, 2021, deferred home sale revenues and costs related thereto were immaterial.
Forfeited customer deposits for homes are recognized in home sale revenues
in the period in which the Company determines that the customer will not complete the purchase of the home and the Company has the right
to retain the deposit. In order to promote sales of homes, the Company may offer home buyers sales incentives. These incentives vary by
type and amount on a community-by-community and home-by-home basis. Incentives are reflected as a reduction in home sale revenues.
Home construction and related costs are capitalized
as incurred within real estate inventory under the specific identification method on the consolidated balance sheet and are charged to
home sale cost of revenues on the consolidated statement of operations when the related home is sold.
Rental revenues: The Company may enter
into leases with tenants with respect to property or buildings it owns. Base rental payments from tenants are recognized as revenue monthly
over the term of the lease. Additional rent related to the reimbursement of real estate taxes, insurance, repairs and maintenance, and
other operating expenses is recognized as revenue in the period the expenses are incurred.
Building sales and other revenues: The Company accounts for
building sales and other revenues in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Building sales
revenues consist of building sales in New Mexico and Florida. Revenue from these building sales are recognized when the parties are bound
by the terms of a contract, consideration has been exchanged, title and other attributes of ownership have been conveyed to the buyer
by means of a closing and the Company is not obligated to perform further significant development of the specific property sold. In general,
the Company’s performance obligation for each of these building sales is fulfilled upon the delivery of the property, which generally
coincides with the receipt of cash consideration from the counterparty.
Building sales and other cost of revenues includes
all direct acquisition costs and other costs specifically identified with the property, including pre-acquisition and acquisition costs,
if applicable, closing and selling costs and construction costs.
Cash, and cash equivalents
Cash equivalents consist of highly liquid investments
that have an original maturity of ninety days or less when purchased and are readily convertible into cash. Restricted cash consists
of cash deposits with a bank that are restricted due to subdivision improvement agreements with a governmental authority. The Company
did not have any restricted cash as of April 30, 2021 or April 30, 2020.
Real estate inventory
Real estate inventory includes land and improvements on land held for
future development or sale. The Company accounts for its real estate inventory in accordance with Accounting Standards Codification (“ASC”)
360-10. The cost basis of the land and improvements includes all direct acquisition costs including development costs, certain amenities,
capitalized interest, capitalized real estate taxes and other costs. Interest and real estate taxes are not capitalized unless active
development is underway. Real estate inventory held for future development or sale is stated at accumulated cost and is evaluated and
reviewed for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable.
Investment assets, net
Investment assets, net consist of (i) investment
land, which represents vacant, undeveloped land not held for development or sale in the normal course of business, and (ii) real
estate assets that are leased or intended to be leased to third parties. Investment assets are stated at the lower of cost or net realizable
value.
Depreciation of investment assets (other than
land) is provided principally by the straight-line method at various rates calculated to amortize the book values of the respective assets
over their estimated useful lives, which generally are 10 to 40 years for buildings and improvements. Land is not subject to depreciation.
Impairment of long-lived assets
Long-lived assets consist of real estate inventory
and investment assets and are accounted for in accordance with ASC 360-10. Long-lived assets are evaluated and tested for impairment when
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Asset impairment tests are based upon
the intended use of assets, expected future cash flows and estimates of fair value of assets. The evaluation of operating asset groups
includes an estimate of future cash flows on an undiscounted basis using estimated revenue streams, operating margins and general and
administrative expenses. The estimation process involved in determining if assets have been impaired and in the determination of estimated
future cash flows is inherently uncertain because it requires estimates of future revenues and costs, as well as future events and conditions.
If the excess of undiscounted cash flows over the carrying value of a project is small, there is a greater risk of future impairment and
any resulting impairment charges could be material. Due to the subjective nature of the estimates and assumptions used in determining
future cash flows, actual results could differ materially from current estimates and the Company may be required to recognize impairment
charges in the future
Leases
Right-of-use assets and lease liabilities are recorded on the balance
sheet for all leases with an initial term over one year. Leases with an initial term of 12 months or less are not recorded on the consolidated
balance sheet. Right-of-use assets are classified within other assets and the corresponding lease liability is included in accounts payable
and accrued expenses in the consolidated balance sheet.
Share-based compensation
The Company accounts for awards of restricted
stock and deferred stock units in accordance with ASC 718-10, which requires that compensation cost for all stock awards be calculated
and amortized over the service period (generally equal to the vesting period). Compensation expense for awards of restricted stock and
deferred stock units are based on the fair value of the awards at their grant dates.
Income taxes
Deferred income tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured by using currently
enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse. The Company provides
a valuation allowance against deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred
tax assets will be realized.
Earnings (loss) per share
Basic earnings (loss) per share is based on the
weighted average number of common shares outstanding during each year. Unvested restricted shares of common stock (see Note 11) are not
included in the computation of basic earnings per share, as they are considered contingently returnable shares. Unvested restricted shares
of common stock are included in diluted earnings per share if they are dilutive. Deferred stock units (see Note 11) are included in both
basic and diluted earnings per share computations.
Pension plan
The Company recognizes the over-funded or under-funded
status of its defined benefit pension plan as an asset or liability as of the date of the plan’s year-end statement of financial
position and recognizes changes in that funded status in the year in which the changes occur through comprehensive income (loss).
Comprehensive income
Comprehensive income is defined as the change
in equity during a period from transactions and other events from non-owner sources. Total comprehensive income is the total of net income
or loss and other comprehensive income or loss that, for the Company, consists of the minimum pension liability net of the related deferred
income tax effect.
Management’s estimates and assumptions
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Significant estimates that affect the financial statements include,
but are not limited to, (i) land sale cost of revenue calculations, which are based on land development budgets and estimates of costs
to complete; (ii) cash flows, asset groupings and valuation assumptions in performing asset impairment tests of long-lived assets and
assets held for sale; (iii) actuarially determined benefit obligations and other pension plan accounting and disclosures; (iv) risk assessment
of uncertain tax positions; and (v) the determination of the recoverability of net deferred tax assets. The Company bases its significant
estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual
results could differ from these estimates.
Recent accounting pronouncements
In December 2019, the Financial Accounting Standards Board (the “FASB”)
issued ASU 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 consolidated financial statements.
In August 2018, the FASB issued ASU 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 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.
There are no other new accounting standards or
updates to be adopted that the Company currently believes might have a significant impact on its consolidated financial statements.
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(2)
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REAL ESTATE INVENTORY
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Real estate inventory consists of (in thousands):
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April 30,
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2021
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2020
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Land held for development or sale in New Mexico
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$
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49,918
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$
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49,462
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Land held for development or sale in Colorado
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3,975
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|
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3,943
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Homebuilding finished inventory
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417
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|
|
|
-
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Homebuilding construction in process
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|
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1,279
|
|
|
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44
|
|
|
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$
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55,589
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|
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$
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53,449
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Land held for development or sale represents property located in areas
that are planned to be developed or sold in the near term. A substantial majority of the Company’s real estate assets are located
in or adjacent to Rio Rancho, New Mexico. As a result of this geographic concentration, the Company has been and will be affected by changes
in economic conditions in that region.
Land held for development or sale in Colorado represents an approximately
160-acre property in Brighton, Colorado and an approximately 5-acre property in Parker, Colorado zoned for commercial use.
Homebuilding finished inventory represents costs
for residential homes that are completed and ready for sale. Homebuilding construction in process represents costs for residential homes
being built.
Interest and loan costs of $105,000 and real
estate taxes of $29,000 were capitalized in real estate inventory for the year ending April 30, 2021. Interest and loan costs of $182,000
and real estate taxes of $78,000 were capitalized in real estate inventory for the year ending April 30, 2020.
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(3)
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INVESTMENT ASSETS, NET
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Investment assets, net consist of (in thousands):
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April 30,
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2021
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2020
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Land held for long-term investment
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$
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9,775
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|
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$
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9,751
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Construction in process
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-
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|
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2,320
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Buildings
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10,003
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|
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13,096
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Less accumulated depreciation
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(6,196
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)
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(6,523
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)
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Buildings, net
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3,807
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|
|
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6,573
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|
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$
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13,582
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|
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$
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18,644
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Land held for long-term investment represents property located in areas
that are not planned to be developed in the near term and that has not been offered for sale in the normal course of business.
Construction in process relates primarily to construction
costs of a 14,000 square foot, single tenant retail building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico,
which was completed during 2021.
As of April 30, 2021, buildings were comprised of a 143,000 square
foot warehouse and office facility located in Palm Coast, Florida. As of April 30, 2020, buildings were comprised of a 143,000 square
foot warehouse and office facility located in Palm Coast, Florida and a 61,000 square foot warehouse and office facility located in Palm
Coast, Florida. During 2021, the Company sold the 14,000 square foot retail building and the 61,000 square foot warehouse and office facility.
Depreciation associated with the buildings was $542,000 and $517,000 for 2021 and 2020.
In connection with the sale of a former
business segment in April 2019, the Company leased warehouse and office facilities located in Palm Coast, Florida to the former
business segment. The Company recognized a deferred purchase price asset based on the present value of the portion of the lease
rates in the lease agreements that exceeded estimated market rates. The deferred purchase price was being amortized as payments from
the tenant were received. Following the failure of the tenant to pay rent for the warehouse and office facilities in 2020, the
Company (i) recognized net non-cash pre-tax impairment charges on other assets of $5,046,000 of the remaining deferred purchase
price, (ii) entered into a settlement agreement in 2020 that resulted in the Company receiving $625,000 and (iii) entered into a
second settlement agreement in 2021 that resulted in the Company receiving $650,000 and the leases for the warehouse and office
facilities terminating in August 2020 with a rental payment of $350,000.
Other assets consist of (in thousands):
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April 30,
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|
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2021
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|
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2020
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Prepaid expenses
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$
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324
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|
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$
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464
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|
Receivables
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|
|
37
|
|
|
|
156
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Right-of-use assets associated with leases of office facilities
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|
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84
|
|
|
|
109
|
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Other assets
|
|
|
172
|
|
|
|
170
|
|
Property and equipment
|
|
|
222
|
|
|
|
217
|
|
Less accumulated depreciation
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|
|
(194
|
)
|
|
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(182
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)
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Property and equipment, net
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|
|
28
|
|
|
|
35
|
|
|
|
$
|
645
|
|
|
$
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934
|
|
Prepaid expenses as of April 30, 2021 primarily
consist of prepaid insurance, stock compensation, prepayments for office rent, brokers commission related to a building lease and security
deposits for the buildings in Palm Coast, Florida. Prepaid expenses as of April 30, 2020 primarily consist of prepaid insurance,
stock compensation and in-process prepayments of amounts due under a public improvement district.
Right-of-use assets associated with the leases
of office facilities were $84,000 as of April 30, 2021, net of $85,000 of amortized lease cost during 2021, and $109,000 as of April 30,
2020, net of $104,000 of amortized lease cost during 2020. Depreciation expense associated with property and equipment was $11,000 and
$20,000 for 2021 and 2020.
(5) ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of (in thousands):
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April 30,
|
|
|
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2021
|
|
|
2020
|
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Real estate operations
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|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
658
|
|
|
$
|
518
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|
Trade payables
|
|
|
1,377
|
|
|
|
1,146
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|
Real estate customer deposits
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|
|
1,769
|
|
|
|
1,117
|
|
|
|
|
3,804
|
|
|
|
2,781
|
|
Corporate operations
|
|
|
654
|
|
|
|
344
|
|
|
|
$
|
4,458
|
|
|
$
|
3,125
|
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(6) NOTES
PAYABLE
Notes payable, net consist of (in thousands):
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|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Real estate notes payable
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|
$
|
3,482
|
|
|
$
|
3,894
|
|
Unamortized debt issuance costs
|
|
|
(34
|
)
|
|
|
(4
|
)
|
|
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$
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3,448
|
|
|
$
|
3,890
|
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The following presents information
on the Company’s notes payable in effect as of April 30, 2021 (dollars in thousands):
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|
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Maximum Available
|
|
|
Outstanding
Principal Amount
|
|
|
Interest Rate
|
|
|
|
|
|
|
Principal
|
|
April 30,
|
|
|
April 30,
|
|
Loan Identifier
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|
Lender
|
|
|
Amount
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
Revolving Line of Credit
|
|
|
BOKF
|
|
|
$
|
4,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
3.75
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%
|
Lomas Encantadas U2B P3
|
|
|
BOKF
|
|
|
|
2,400
|
|
|
|
409
|
|
|
|
NA
|
|
|
|
3.75
|
%
|
Hawk Site U37
|
|
|
SLFCU
|
|
|
|
3,000
|
|
|
|
-
|
|
|
|
41
|
|
|
|
4.50
|
%
|
Hawk Site U23 U40
|
|
|
BOKF
|
|
|
|
2,700
|
|
|
|
30
|
|
|
|
NA
|
|
|
|
3.75
|
%
|
Lavender Fields – acquisition
|
|
|
Seller
|
|
|
|
1,838
|
|
|
|
1,748
|
|
|
|
-
|
|
|
|
0
|
%
|
Lavender Fields – development
|
|
|
BOKF
|
|
|
|
3,750
|
|
|
|
1,293
|
|
|
|
-
|
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
$
|
3,482
|
|
|
$
|
41
|
|
|
|
|
|
Additional information regarding each of the above
notes payable is provided below:
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·
|
Revolving Line of Credit. In February 2021, AMREP Southwest Inc. (“ASW”), a subsidiary
of the Company, entered into a Loan Agreement with BOKF, NA dba Bank of Albuquerque (“BOKF”). The Loan Agreement is evidenced
by a Revolving Line of Credit Promissory Note and is secured by a Line of Credit Mortgage, Security Agreement and Fixture Filing, between
ASW and BOKF, with respect to a 298-acre property within the Paseo Gateway subdivision located in Rio Rancho, New Mexico. Pursuant to
the loan documentation, BOKF has agreed to lend up to $4,000,000 to ASW on a revolving line of credit basis for general corporate purposes,
including up to $250,000 dedicated for use in connection with a company credit card. The outstanding principal amount of the loan may
be prepaid at any time without penalty. The loan is scheduled to mature in February 2024. 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%.
|
ASW made certain representations and
warranties in connection with this loan and is required to comply with various covenants, reporting requirements and other customary requirements
for similar loans, including the loan having a zero balance for two periods of fifteen consecutive days during each calendar year and
ASW and its subsidiaries having at least $3.0 million of unencumbered and unrestricted cash, cash equivalents and marketable securities
in order to be entitled to advances under the loan. The loan documentation contains customary events of default for similar financing
transactions, including ASW’s failure to make principal, interest or other payments when due; the failure of ASW to observe or perform
its covenants under the loan documentation; the representations and warranties of ASW being false; the insolvency or bankruptcy of
ASW; and the failure of ASW to maintain a net worth of at least $32 million. Upon the occurrence and during the continuance of an
event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately due and payable.
As of April 30, 2021, ASW was in compliance with the financial covenants contained in the loan documentation. ASW incurred customary
costs and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized no interest or fees related to this
loan during 2021. The total book value of the property mortgaged pursuant to this loan was $1,693,000 as of April 30, 2021.
|
·
|
Lomas Encantadas U2B P3. In September 2020, Lomas Encantadas Development Company LLC (“LEDC”),
a subsidiary of the Company, 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 ASW in favor of BOKF, ASW guaranteed LEDC’s obligations under each of the above agreements. Pursuant to
the loan documentation, BOKF has agreed 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. LEDC made no principal repayments during 2021.
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. The loan is scheduled to mature in September 2023.
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%. BOKF is required
to release the lien of its mortgage on any lot upon LEDC making a principal payment of $44,000.
|
LEDC and ASW made certain representations
and warranties in connection with this loan and are required to comply with various covenants, reporting requirements and other customary
requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including
LEDC’s failure to make principal, interest or other payments when due; the failure of LEDC or ASW to observe or perform their respective
covenants under the loan documentation; the representations and warranties of LEDC or ASW being false; the insolvency or bankruptcy of
LEDC or ASW; and the failure of ASW to maintain a net worth of at least $32 million. Upon the occurrence and during the continuance of
an event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately due and payable.
As of April 30, 2021, LEDC was in compliance with the financial covenants contained in the loan documentation. LEDC incurred customary
costs and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized interest and fees related to this
loan of $30,000 during 2021. The total book value of the property mortgaged pursuant to this loan was $2,343,000 as of April 30,
2021.
|
·
|
Hawk
Site U37. In February 2020, Mountain Hawk East Development Company LLC (“MHEDC”),
a subsidiary of the Company, entered into a Business Loan Agreement with Sandia Laboratory
Federal Credit Union (“SLFCU”). The Business Loan Agreement is evidenced by a
Promissory Note, and is secured by a Line of Credit Mortgage, between MHEDC and SLFCU, with
respect to certain planned residential lots within the Hawk Site subdivision located in Rio
Rancho, New Mexico. Pursuant to a Commercial Guaranty entered into by ASW in favor of SLFCU,
ASW guaranteed MHEDC’s obligations under each of the above agreements. Pursuant to
the loan documentation, SLFCU has agreed to lend up to $3,000,000 to MHEDC on a revolving
line of credit basis to partially fund the development of certain planned residential lots
within the Hawk Site subdivision. The maximum principal available under the loan will be
limited to 75% of the bulk discounted value of the lots to be developed with the loan proceeds.
The maximum principal available under the loan is estimated to be $1,462,000 as of April
30, 2021. MHEDC made principal repayments of $2,139,000 during 2021 and MHEDC did not make
any principal repayments during 2020. The outstanding principal amount of the loan may be
prepaid at any time without penalty. The loan is scheduled to mature in August 2022. Interest
on the outstanding principal amount of the loan is payable monthly at the fixed annual rate
of 4.5%. SLFCU is required to release the lien of its mortgage on any lot upon MHEDC making
a principal payment equal to $52,000 per lot.
|
MHEDC and ASW made certain representations
and warranties in connection with this loan and are required to comply with various covenants, reporting requirements and other customary
requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including:
MHEDC’s failure to make principal, interest or other payments when due; the failure of MHEDC or ASW to observe or perform their
respective covenants under the loan documentation; the representations and warranties of MHEDC or ASW being false; the insolvency
or bankruptcy of MHEDC or ASW; and the failure of ASW to maintain a tangible net worth of at least $29 million. Upon the occurrence
and during the continuance of an event of default, SLFCU may declare the outstanding principal amount and all other obligations under
the loan immediately due and payable. As of April 30, 2021, MHEDC was in compliance with the financial covenants contained in the
loan documentation. MHEDC incurred certain customary costs and expenses and paid certain fees to SLFCU in connection with the loan. The
Company capitalized interest and fees related to this loan of $7,000 during 2021 and $42,000 during 2020. The total book value of the
property mortgaged pursuant to this loan was $2,648,000 as of April 30, 2021.
|
·
|
Hawk Site U23 U40. In January 2021, Mountain Hawk West Development Company LLC (“MHWDC”),
a subsidiary of the Company, 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 MHWDC and BOKF, with
respect to certain planned residential lots within the Hawk Site subdivision located in Rio Rancho, New Mexico. Pursuant to a Guaranty
Agreement entered into by ASW in favor of BOKF, ASW guaranteed MHWDC’s obligations under each of the above agreements. Pursuant
to the loan documentation, BOKF has agreed to lend up to $2,700,000 to MHWDC on a non-revolving line of credit basis to partially fund
the development of certain planned residential lots within the Hawk Site subdivision. MHWDC made no principal repayments during 2021.
MHWDC is required to make periodic principal repayments of borrowed funds not previously repaid as follows: $1,033,600 on or before October 21,
2022, $760,050 on or before January 21, 2023, $760,050 on or before April 21, 2023 and $146,300 on or before July 21, 2023.
The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature in July 2023.
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%. BOKF is required
to release the lien of its mortgage on any lot upon MHWDC making a principal payment of $35,250 or $48,650 depending on the size of the
lot.
|
MHWDC and ASW made certain representations
and warranties in connection with this loan and are required to comply with various covenants, reporting requirements and other customary
requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including:
MHWDC’s failure to make principal, interest or other payments when due; the failure of MHWDC or ASW to observe or perform their
respective covenants under the loan documentation; the representations and warranties of MHWDC or ASW being false; the insolvency
or bankruptcy of MHWDC or ASW; and the failure of ASW to maintain a net worth of at least $32 million. Upon the occurrence and during
the continuance of an event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately
due and payable. As of April 30, 2021, MHWDC was in compliance with the financial covenants contained in the loan documentation.
MHWDC incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized no interest
or fees related to this loan during 2021. The total book value of the property mortgaged pursuant to this loan was $3,915,000 as of April 30,
2021.
|
·
|
Lavender Fields. In June 2020, Lavender Fields, LLC (“LF”), a subsidiary of the
Company, acquired 28 acres in Bernalillo County, New Mexico comprising the Meso AM subdivision, which has been developed into 82 finished
residential lots.
|
|
o
|
Acquisition. The acquisition included $1,838,000 of deferred purchase price, of which $919,000
is payable on or before June 2021 and $919,000 is payable on or before June 2022. The deferred purchase price is evidenced by
a non-interest bearing Promissory Note and is secured by a Mortgage, Security Agreement and Fixture Filing with respect to the acquired
property. The outstanding principal amount of the loan may be prepaid at any time without penalty. The lien of the mortgage on any portion
of the property will be released as to such property upon payment of that percentage of the then unpaid principal balance of the Promissory
Note equal to the number of acres of land within the property being released divided by the number of acres of land within the property
then remaining encumbered by the mortgage (including the property being released). Any prepayment shall be credited toward the next payment
due under the Promissory Note. LF made principal prepayments of $90,000 during 2021.
|
LF made certain representations and
warranties in connection with this loan and is required to comply with various covenants, reporting requirements and other customary requirements
for similar loans. The loan documentation contains customary events of default for similar financing transactions, including: LF’s
failure to make principal or other payments when due; the failure of LF to observe or perform its covenants under the loan documentation;
and the representations and warranties of LF being false. Upon the occurrence and during the continuance of an event of default, the outstanding
principal amount and all other obligations under the loan may be declared immediately due and payable. As of April 30, 2021, LF was
in compliance with the financial covenants contained in the loan documentation. LF incurred customary costs and expenses in connection
with the loan. The Company capitalized no interest or fees related to this loan during 2021. The total book value of the property mortgaged
pursuant to this loan was $6,450,000 as of April 30, 2021. Refer to Note 19 for detail regarding the payment of this deferred purchase
price.
|
o
|
Development. In June 2020, LF 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 LF and BOKF with respect to the acquired property. Pursuant to a Guaranty Agreement entered into by ASW in favor of
BOKF, ASW has guaranteed LF’s obligations under each of the above agreements. BOKF has agreed to lend up to $3,750,000 to LF on
a non-revolving line of credit basis to partially fund the development of the acquired property. LF made principal repayments of $263,000
during 2021. LF is required to make periodic principal repayments of borrowed funds not previously repaid as follows: $657,500 on or before
March 19, 2022; $394,500 on or before June 19, 2022; $394,500 on or before September 19, 2022; $394,500 on or before December 19,
2022; $394,500 on or before March 19, 2023; $394,500 on or before June 19, 2023; $394,500 on or before September 19, 2023;
$394,500 on or before December 19, 2023; and $331,000 on or before March 19, 2024. The outstanding principal amount of the loan
may be prepaid at any time without penalty. The loan is scheduled to mature in June 2024. 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%. BOKF is required to release the lien of its mortgage on any lot
upon LF making a principal payment of $65,750.
|
LF and ASW have made certain representations
and warranties in connection with this loan and are required to comply with various covenants, reporting requirements and other customary
requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including:
LF’s failure to make principal, interest or other payments when due; the failure of LF or ASW to observe or perform their respective
covenants under the loan documentation; the representations and warranties of LF or ASW being false; the insolvency or bankruptcy
of LF or ASW; and the failure of ASW to maintain a tangible net worth of at least $32 million. Upon the occurrence and during the
continuance of an event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately
due and payable. As of April 30, 2021, LF was in compliance with the financial covenants contained in the loan documentation. LF
incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized no interest or
fees related to this loan during 2021. The total book value of the property mortgaged pursuant to this loan was $6,450,000 as of April 30,
2021.
The following presents information
on the Company’s notes payable in effect as of April 30, 2020 and terminated prior to April 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
Available
Principal
|
|
|
|
Outstanding
Principal Amount
|
|
Loan Identifier
|
|
Lender
|
|
|
Amount
|
|
|
|
April 30, 2020
|
|
Lomas Encantadas U2C P3
|
|
BOKF
|
|
$
|
2,475
|
|
|
$
|
1,576
|
|
Las Fuentes at Panorama Village
|
|
BOKF
|
|
|
2,750
|
|
|
|
1,979
|
|
SBA Paycheck Protection Program
|
|
BOKF
|
|
|
298
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
$
|
3,853
|
|
Additional information regarding each of the above
notes payable is provided below:
|
·
|
Lomas Encantadas U2C P3. In June 2019, LEDC entered into a Development Loan Agreement with
BOKF. The Development Loan Agreement was evidenced by a Non-Revolving Line of Credit Promissory Note and was 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 ASW in favor of BOKF, ASW guaranteed LEDC’s
obligations under each of the above agreements. BOKF agreed to lend up to $2,475,000 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. LEDC incurred customary costs
and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized interest and fees related to this loan
of $16,000 during 2021 and $79,000 during 2020. The loan was scheduled to mature in June 2022. The outstanding principal amount of
the loan was prepaid without penalty and the loan was terminated in January 2021.
|
|
·
|
Las Fuentes at Panorama Village Subdivision. In January 2020, Las Fuentes Village II, LLC
(“LFV”), a subsidiary of the Company, entered into a Loan Agreement with BOKF. The Loan Agreement was evidenced by a Non-Revolving
Line of Credit Promissory Note and was secured by a Mortgage, Security Agreement and Financing Statement, between LFV and BOKF, with respect
to the construction of a building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico. Pursuant to a Limited
Guaranty Agreement entered into by ASW in favor of BOKF, ASW guaranteed LFV’s obligations under each of the above agreements. BOKF
agreed to lend up to $2,750,000 to LFV on a non-revolving line of credit basis to partially fund the construction of the building. LFV
incurred certain customary costs and expenses and paid certain fees to BOKF in connection with the loan. The Company capitalized interest
and fees related to this loan of $23,000 during 2021 and $7,000 during 2020. The loan was scheduled to mature in January 2027. The
outstanding principal amount of the loan was prepaid without penalty and the loan was terminated in April 2021.
|
|
·
|
SBA
Paycheck Protection Program. In April 2020, the Company received a loan from BOKF pursuant
to the Paycheck Protection Program loan program administered by the U.S. Small Business Administration.
The loan was evidenced by a note and was unsecured. The Company received $298,000 pursuant
to the loan. The Company capitalized no interest or fees related to this loan during 2021
and 2020. The loan was scheduled to mature in April 2022. In accordance with the provisions
of the Paycheck Protection Program loan program, the Company may apply for forgiveness of
that part of the loan which was used during the 24 weeks from the receipt of the loan funds
to pay eligible payroll costs, interest on a mortgage obligation incurred before February
2020, rent obligations under leases dated before February 2020 and utility obligations under
services agreements dated before February 2020; provided that at least 75% of the forgivable
amount was used for payroll costs. The Company received notice of forgiveness in 2021 pursuant
to the terms of the program of the entire principal amount of the loan and all accrued interest.
The Company recognized a related gain on debt forgiveness in the amount of $300,000 in other
income.
|
The following table summarizes the scheduled principal repayments subsequent
to April 30, 2021 (in thousands):
Fiscal Year
|
|
|
Scheduled Payments
|
|
2022
|
|
|
$
|
1,225
|
|
2023
|
|
|
|
2,257
|
|
Total
|
|
|
$
|
3,482
|
|
Land sale revenues.
Substantially all of the land sale revenues were received from 4 customers
for 2021 and 4 customers for 2020. There were no outstanding receivables from these customers as of April 30, 2021 or April 30, 2020.
Home sale revenues. Home sale revenues
are from homes constructed and sold by the Company in the Albuquerque, New Mexico metropolitan area.
Rental revenues. Rental revenues consist
of rent received from tenants at buildings in Palm Coast, Florida and at a retail building in the Las Fuentes at Panorama Village subdivision
in Rio Rancho, New Mexico.
Building sales and other revenues.
Building sales and other revenues consist of (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Sales of buildings and other land
|
|
$
|
9,493
|
|
|
$
|
665
|
|
Oil and gas royalties
|
|
|
135
|
|
|
|
608
|
|
Public improvement district reimbursements
|
|
|
390
|
|
|
|
113
|
|
Private infrastructure reimbursement covenants
|
|
|
549
|
|
|
|
324
|
|
Miscellaneous other revenues
|
|
|
532
|
|
|
|
301
|
|
|
|
$
|
11,099
|
|
|
$
|
2,011
|
|
Sales of buildings and other land during 2021
consists of $5,493,000 with respect to the sale of a 14,000 square foot, single tenant retail building in the Las Fuentes at Panorama
Village subdivision in Rio Rancho, New Mexico and $4,000,000 with respect to the sale of a 61,000 square foot warehouse and office facility
located in Palm Coast, Florida in 2021. Sales of buildings and other land for 2020 consisted of the sale of two undeveloped properties
in Palm Coast, Florida.
The Company owns certain minerals and mineral rights in and under approximately
147 surface acres of land in Brighton, Colorado leased to a third party for as long as oil or gas is produced and marketed in paying quantities
from the property or for additional limited periods of time if the lessee undertakes certain operations or makes certain de minimis shut-in
royalty payments. The lessee has pooled various minerals and mineral rights, including the Company’s minerals and mineral rights,
for purposes of drilling and extraction. After applying the ownership and royalty percentages of the pooled minerals and mineral rights,
the lessee is required to pay the Company a royalty on oil and gas produced from the pooled property of 1.42% of the proceeds received
by the lessee from the sale of such oil and gas, and such royalty will be charged with 1.42% of certain post-production costs associated
with such oil and gas. The lessee commenced drilling with respect to the pooled property in fiscal year 2019, with initial royalty payments
made in 2020. The Company received $135,000 and $608,000 of royalties during 2021 and 2020 with respect to the pooled property.
The Company owns certain minerals and mineral
rights in and under approximately 55,000 surface acres of land in Sandoval County, New Mexico. The lease to a third party with respect
to such mineral rights expired in September 2020 and no drilling had commenced with respect to such mineral rights. The Company did
not record any revenue in 2021 or 2020 related to this lease.
A portion of the Lomas Encantadas subdivision
and a portion of the Enchanted Hills subdivision are subject to a public improvement district. The public improvement district reimburses
the Company for certain on-site and off-site costs of developing the subdivisions by imposing a special levy on the real property owners
within the district. The Company has accepted discounted prepayments of amounts due under the public improvement district. The Company
collected $390,000 and $113,000 during 2021 and 2020 in connection with this public improvement district.
The Company instituted private infrastructure
reimbursement covenants on a portion of the property in Hawk Site. Similar to a public improvement district, the covenants are expected
to reimburse the Company for certain on-site and off-site costs of developing the subject property by imposing a special levy on the real
property owners subject to the covenants. The Company has accepted discounted prepayments of amounts due under the public improvement
district. The Company collected $549,000 and $324,000 during 2021 and 2020 in connection with these private infrastructure reimbursement
covenants.
Miscellaneous other revenues for 2021 primarily consist of payments
for impact fee credits, installation of telecommunications equipment in subdivisions and profit on land used in homebuilding. Miscellaneous
other revenues for 2020 primarily consist of forfeited deposits and non-refundable option payments.
Major customers:
There were three customers with revenues in excess of 10% of the Company’s revenues during 2021. The revenues for each such customer
during 2021 are as follows: $10,582,000, $6,606,000 and $4,858,000, with each of these revenues reported in the Company’s land
development business segment. There were three customers with revenues in excess of 10% of the Company’s revenues during 2020.
The revenues for each such customer during 2020 are as follows: $8,364,000, $3,105,000 and $2,703,000, with each of these revenues reported
in the Company’s land development business segment.
Land sale cost of revenues includes all direct acquisition costs and other costs specifically identified with
the property and an allocation of certain common development costs associated with the entire project.
Home sale cost of revenues includes costs for residential homes that
were sold.
Building sales and other cost of revenues during 2021 consist of $3,308,000 with respect to the sale of a 14,000
square foot, single tenant retail building in the Las Fuentes at Panorama Village subdivision in Rio Rancho, New Mexico and $2,414,000
with respect to the sale of a 61,000 square foot warehouse and office facility located in Palm Coast, Florida.
|
(9)
|
GENERAL AND ADMINISTRATIVE EXPENSES
|
General and administrative expenses consist
of (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Land development
|
|
$
|
2,532
|
|
|
$
|
2,422
|
|
Homebuilding
|
|
|
626
|
|
|
|
23
|
|
Corporate
|
|
|
2,262
|
|
|
|
10,512
|
|
|
|
$
|
5,420
|
|
|
$
|
12,957
|
|
Corporate general and administrative expenses
included two non-cash expenses in 2020: (i) a pre-tax pension settlement loss of $2,929,000 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 and (ii) an impairment
charge on other assets of $5,046,000 which represented the remaining present value of lease payments expected to be received by the Company
for buildings located in Palm Coast, Florida deemed to be consideration with respect to the sale of a former business segment partially
offset by the receipt of $625,000 received in connection with a settlement agreement related to such sale (refer to Note 3 for detail
regarding the sale of a former business segment and related settlement agreement). No such non-cash expenses were incurred in 2021.
|
(10)
|
FAIR VALUE MEASUREMENTS
|
The FASB’s accounting guidance defines fair
value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs
to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The
FASB’s guidance classifies the inputs to measure fair value into the following hierarchy:
|
Level 1
|
Unadjusted quoted prices for identical assets or liabilities
in active markets.
|
|
Level 2
|
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable
for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or
other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the
full term of the asset or liability.
|
|
Level 3
|
Inputs for the asset or liability are unobservable and reflect
the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.
|
The fair value measurement level of an asset or
liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques need to maximize the use of observable inputs and minimize the use of unobservable inputs. There were no transfers
between Levels 1, 2 or 3 during 2021 or 2020.
The Financial Instruments Topic of the FASB Accounting
Standards Codification requires disclosure of fair value information about financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. The Topic excludes all nonfinancial instruments from its disclosure requirements.
Fair value is determined under the hierarchy discussed above. Accordingly, the aggregate fair value amounts presented do not represent
the underlying value of the Company. The following methods and assumptions are used in estimating fair value disclosure for financial
instruments: the carrying amounts of cash and cash equivalents and trade payables approximate fair value because of the short maturity
of these financial instruments; and debt that bears variable interest rates indexed to prime or LIBOR also approximates fair value as
it reprices when market interest rates change.
Pension plan
The Company has a defined
benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Under
generally accepted accounting principles, the Company’s defined benefit pension plan was underfunded as of April 30, 2021 by
$476,000, with $21,102,000 of assets and $21,578,000 of liabilities and was underfunded as of April 30, 2020 by $5,014,000, with
$18,260,000 of assets and $23,274,000 of liabilities. The pension plan liabilities were determined using a weighted average discount interest
rate of 2.48% per year as of April 30, 2021 and 2.29% per year as of April 30, 2020, which are based on the FTSE Pension Discount
Curve as of such dates as it corresponds to the projected liability requirements of the pension plan.
The Company made voluntary contributions to the
pension plan of $1,847,000 and $3,600,000 during 2021 and 2020. The Company recognized a non-cash pre-tax pension settlement loss of $2,929,000
in 2020 due to the Company’s defined benefit pension plan paying an aggregate of $7,280,000 in lump sum payouts of pension benefits
to former employees. There were no such charges in 2021.
Pension assets and liabilities are measured at
fair value (measured in accordance with the guidance described in Note 10) and are subject to fair value adjustment in certain circumstances
(for example, when there is evidence of impairment). There were no impairments resulting in a change in fair value during 2021 and 2020.
Net periodic pension cost for 2021 and 2020 was
comprised of the following components (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Interest cost on projected benefit obligation
|
|
$
|
504
|
|
|
$
|
716
|
|
Expected return on assets
|
|
|
(1,409
|
)
|
|
|
(1,591
|
)
|
Plan expenses
|
|
|
340
|
|
|
|
410
|
|
Recognized net actuarial loss
|
|
|
529
|
|
|
|
563
|
|
Settlement loss
|
|
|
-
|
|
|
|
2,929
|
|
Net periodic pension cost
|
|
$
|
(36
|
)
|
|
$
|
3,027
|
|
The estimated net loss, transition obligation
and prior service cost for the pension plan that will be amortized from accumulated other comprehensive income into net periodic pension
cost over fiscal year 2022 are $392,000, $0 and $0. Assumptions used in determining net periodic pension cost and the benefit obligation
were:
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Discount rate used to determine net periodic pension cost
|
|
|
2.29
|
%
|
|
|
3.54
|
%
|
Discount rate used to determine pension benefit obligation
|
|
|
2.48
|
%
|
|
|
2.29
|
%
|
Expected long-term rate of return on assets used for pension cost on assets
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
The following table sets forth changes in the
pension plan’s benefit obligation and assets, and summarizes components of amounts recognized in the Company’s consolidated
balance sheet (in thousands):
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
23,274
|
|
|
$
|
30,304
|
|
Interest cost
|
|
|
504
|
|
|
|
716
|
|
Actuarial loss (gain)
|
|
|
(537
|
)
|
|
|
1,550
|
|
Benefits paid
|
|
|
(1,663
|
)
|
|
|
(2,016
|
)
|
Settlement paid
|
|
|
-
|
|
|
|
(7,280
|
)
|
Benefit obligation at end of year
|
|
$
|
21,578
|
|
|
$
|
23,274
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
18,260
|
|
|
$
|
23,903
|
|
Actual return on plan assets
|
|
|
2,808
|
|
|
|
393
|
|
Company contributions
|
|
|
1,847
|
|
|
|
3,600
|
|
Benefits paid
|
|
|
(1,663
|
)
|
|
|
(2,016
|
)
|
Settlement paid
|
|
|
-
|
|
|
|
(7,280
|
)
|
Plan expenses
|
|
|
(150
|
)
|
|
|
(340
|
)
|
Fair value of plan assets at end of year
|
|
$
|
21,102
|
|
|
$
|
18,260
|
|
Underfunded status
|
|
$
|
(476
|
)
|
|
$
|
(5,014
|
)
|
The funded status of the pension plan is equal
to the net liability recognized in the consolidated balance sheets. The following table summarizes the amounts recorded in accumulated
other comprehensive loss, which have not yet been recognized as a component of net periodic pension costs (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Pretax accumulated comprehensive loss
|
|
$
|
8,426
|
|
|
$
|
11,082
|
|
The following table summarizes the changes in
accumulated other comprehensive loss related to the pension plan for the years ended April 30, 2021 and 2020 (in thousands):
|
|
Pension Benefits
|
|
|
|
Pretax
|
|
|
Net of Tax
|
|
Accumulated comprehensive loss, May 1, 2019
|
|
$
|
11,896
|
|
|
$
|
7,031
|
|
Net actuarial loss
|
|
|
2,678
|
|
|
|
1,868
|
|
Recognized settlement gain
|
|
|
(2,929
|
)
|
|
|
(2,049
|
)
|
Amortization of net loss
|
|
|
(563
|
)
|
|
|
(383
|
)
|
Accumulated comprehensive loss, April 30, 2020
|
|
$
|
11,082
|
|
|
$
|
6,467
|
|
Net actuarial gain
|
|
|
(2,127
|
)
|
|
|
(1,483
|
)
|
Amortization of net loss
|
|
|
(529
|
)
|
|
|
(361
|
)
|
Accumulated comprehensive loss, April 30, 2021
|
|
$
|
8,426
|
|
|
$
|
4,623
|
|
The Company recorded, net of tax, other comprehensive income of $1,844,000
and $564,000, including the pension settlement, net of tax, of $2,049,000 in 2021 and 2020 to account for the net effect of changes to
the unfunded portion of pension liability.
The asset allocation for the pension plan by asset category was as
follows:
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Equity securities
|
|
|
51
|
%
|
|
|
27
|
%
|
Fixed income securities
|
|
|
39
|
|
|
|
59
|
|
Other (principally cash and cash equivalents)
|
|
|
10
|
|
|
|
14
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
The investment mix between equity securities and
fixed income securities seeks to achieve a desired return by balancing equity securities and fixed-income securities. Pension plan assets
are invested in portfolios of diversified public-market equity securities and fixed income securities. The pension plan holds no securities
of the Company. Investment allocations are made across a range of markets, industry sectors, market capitalization sizes and, in the case
of fixed income securities, maturities and credit quality.
The expected return on assets for the pension
plan is based on management’s expectation of long-term average rates of return to be achieved by the underlying investment portfolio.
In establishing this assumption, management considers historical and expected returns for the asset classes in which the pension plan
is invested, as well as current economic and market conditions. For 2021, the Company used a 7.75% assumed rate of return for purposes
of the expected return rate on assets for the development of net periodic pension costs for the pension plan. For years following 2021,
the assumed rate of return for purposes of the expected return rate on assets is anticipated to be 7.75%.
The Company funds the pension plan in compliance
with IRS funding requirements. The Company made voluntary contributions to the pension plan of $1,847,000 in 2021 and $3,600,000 in 2020.
The Company is required to make minimum contributions to the pension plan; however, no minimum contributions are expected to be required
during fiscal year 2022.
The amount of future annual benefit payments to
pension plan participants payable from plan assets is expected to be as follows: 2022 - $2,580,000, 2023 - $1,712,000, 2024 - $1,640,000,
2025 - $1,577,000 and 2026 - $1,539,000 and an aggregate of $6,674,000 is expected to be paid in the fiscal five-year period 2027 through
2031.
The Company has adopted the disclosure requirements
in ASC 715, which requires additional fair value disclosures consistent with those required by ASC 820. The following is a description
of the valuation methodologies used for pension plan assets measured at fair value: common stock – valued at the closing price reported
on a listed stock exchange; corporate bonds, debentures and government agency securities – valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash flow; and U.S. Treasury securities – valued at the closing price reported
in the active market in which the security is traded.
The methods described above may produce a fair
value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company
believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions
to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level within the fair value hierarchy the pension plan’s assets at fair value as of April 30,
2021 and 2020 (in thousands):
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
2,215
|
|
|
$
|
2,215
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
10,707
|
|
|
|
10,707
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income securities
|
|
|
8,180
|
|
|
|
8,180
|
|
|
|
-
|
|
|
|
-
|
|
Total assets at fair value
|
|
$
|
21,102
|
|
|
$
|
21,102
|
|
|
$
|
-
|
|
|
$
|
-
|
|
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
2,655
|
|
|
$
|
2,655
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
4,880
|
|
|
|
4,880
|
|
|
|
-
|
|
|
|
-
|
|
Fixed income securities
|
|
|
10,725
|
|
|
|
10,725
|
|
|
|
-
|
|
|
|
-
|
|
Total assets at fair value
|
|
$
|
18,260
|
|
|
$
|
18,260
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Simple IRA
The Company provides a Simple IRA plan as a retirement
plan for eligible employees who earned at least $5,000 of annual compensation. Under the Simple IRA plan, eligible employees may contribute
a portion of their pre-tax yearly salary, up to the maximum contribution limit for Simple IRA plans as set forth under the Internal Revenue
Code of 1986, as amended, with the Company matching on a dollar-for-dollar basis up to 3% of the employees’ annual pre-tax compensation.
The Company’s employer contribution was $36,000 and $14,000 for 2021 and 2020.
Equity compensation plan
The AMREP Corporation 2016 Equity Compensation
Plan (the “Equity Plan”) authorizes stock-based awards of various kinds to non-employee directors and employees covering up
to a total of 500,000 shares of common stock of the Company. The Equity Plan will expire by its terms on, and no award will be granted
under the Equity Plan on or after, September 19, 2026. As of April 30, 2021, the Company had 372,000 shares of common stock
of the Company available for issuance under the Equity Plan.
Shares of restricted common stock that are issued
under the Equity Plan (“restricted shares”) are considered to be issued and outstanding as of the grant date and have the
same dividend and voting rights as other common stock. Compensation expense related to the restricted shares is recognized over the vesting
period of each grant based on the fair value of the shares as of the date of grant. The fair value of each grant of restricted shares
is determined based on the trading price of the Company’s common stock on the date of such grant, and this amount will be charged
to expense over the vesting term of the grant. Forfeitures are recognized as reversals of compensation expense on the date of forfeiture.
The summary of the 2020 and 2021 restricted share
award activity presented below represents the maximum number of shares issued to employees that could be vested:
Restricted share awards
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date Fair Value
Per Share
|
|
Non-vested at May 1, 2019
|
|
|
42,667
|
|
|
$
|
6.87
|
|
Granted during 2020
|
|
|
9,000
|
|
|
|
6.35
|
|
Vested during 2020
|
|
|
(14,833
|
)
|
|
|
6.59
|
|
Forfeited during 2020
|
|
|
(4,000
|
)
|
|
|
6.76
|
|
Non-vested as of April 30, 2020
|
|
|
32,834
|
|
|
$
|
6.86
|
|
Granted during 2021
|
|
|
9,000
|
|
|
|
4.63
|
|
Vested during 2021
|
|
|
(12,834
|
)
|
|
|
6.86
|
|
Forfeited during 2021
|
|
|
-
|
|
|
|
-
|
|
Non-vested as of April 30, 2021
|
|
|
29,000
|
|
|
$
|
6.18
|
|
The Company recognized non-cash compensation expense
related to the vesting of restricted shares of common stock net of forfeitures of $78,000 and $113,000 for 2021 and 2020. As of April 30,
2021, there was $34,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the
Equity Plan which had not vested as of those dates, which is expected to be recognized over the remaining vesting term not to exceed three
years.
On December 31, 2019, each non-employee member
of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the Equity Plan equal
to $25,000 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 $5.98 on December 31, 2019, the Company issued a total of 16,720 deferred common share units to members of the
Company’s Board of Directors.
On December 31, 2020, each non-employee member
of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the Equity Plan equal
to $30,000 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 $8.54 on December 31, 2020, the Company issued a total of 10,536 deferred common share units to members of the
Company’s Board of Directors.
Each deferred common share unit represents the
right to receive one share of Common Stock within 30 days after the first day of the month to follow such director’s termination
of service as a director of the Company. In connection with the resignation of a director in September 2020, the Company (i) issued
12,411 shares of common stock in October 2020 pursuant to an equivalent number of deferred common share units previously issued to
such director and (ii) paid $20,000 in September 2020 to such director in lieu of issuance of deferred common share units earned
for calendar year 2020.
Director compensation non-cash expense, which
is recognized for the annual grant of deferred common share units ratably over the director’s service in office during the calendar
year, was $90,000 and $100,000 for 2021 and 2020. At April 30, 2021 and 2020, there was $30,000 and $33,000 of accrued compensation
expense related to the deferred stock units expected to be issued in December of the following fiscal year.
Other income of $1,028,000 for 2021 primarily consisted of a settlement
payment of $650,000 from a former business segment (refer to Note 3 for detail regarding the settlement agreement) and $300,000 of debt
forgiveness with respect to a loan received by the Company pursuant to the Paycheck Protection Program administered by the U.S. Small
Business Administration (refer to Note 6 for detail regarding the debt forgiveness).
The provision (benefit) for income taxes consists of the following
(in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
69
|
|
|
$
|
(36
|
)
|
State and local
|
|
|
80
|
|
|
|
112
|
|
|
|
|
149
|
|
|
|
76
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,219
|
|
|
|
(1,597
|
)
|
State and local
|
|
|
275
|
|
|
|
(201
|
)
|
|
|
|
2,494
|
|
|
|
(1,798
|
)
|
Total provision (benefit) for income taxes
|
|
$
|
2,643
|
|
|
$
|
(1,722
|
)
|
The components of the net deferred income taxes are as follows (in
thousands):
|
|
April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
State tax loss carryforwards
|
|
$
|
4,296
|
|
|
$
|
4,622
|
|
U.S. federal NOL carryforward
|
|
|
1,384
|
|
|
|
3,746
|
|
Accrued pension costs
|
|
|
-
|
|
|
|
1,258
|
|
Vacation accrual
|
|
|
14
|
|
|
|
52
|
|
Real estate basis differences
|
|
|
3,976
|
|
|
|
4,096
|
|
Other
|
|
|
303
|
|
|
|
194
|
|
Total deferred income tax assets
|
|
|
9,973
|
|
|
|
13,968
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable assets
|
|
|
(749
|
)
|
|
|
(1,341
|
)
|
Deferred gains on investment assets
|
|
|
(2,300
|
)
|
|
|
(2,277
|
)
|
Prepaid pension costs
|
|
|
(178
|
)
|
|
|
-
|
|
Other
|
|
|
(31
|
)
|
|
|
-
|
|
Total deferred income tax liabilities
|
|
|
(3,258
|
)
|
|
|
(3,618
|
)
|
Valuation allowance for realization of certain deferred income tax assets
|
|
|
(3,966
|
)
|
|
|
(4,270
|
)
|
Net deferred income tax asset
|
|
$
|
2,749
|
|
|
$
|
6,080
|
|
A valuation allowance
is provided when it is considered more likely than not that certain deferred tax assets will not be realized. The valuation allowance
relates primarily to deferred tax assets, including net operating loss carryforwards, in states where the Company either has no current
operations or its operations are not considered likely to realize the deferred tax assets due to the amount of the applicable state net
operating loss or its expected expiration date. The $304,000 decrease in the valuation allowance in 2021 is related to the decrease in
state net operating losses that are not expected to be realizable.
The Company has federal net operating loss carryforwards of $6,589,000,
which has an indefinite time to utilize and will not expire. In addition, the Company has state net operating loss carryforwards of $107,232,000
that expire beginning in fiscal year ending April 30, 2022.
The following table reconciles taxes computed
at the U.S. federal statutory income tax rate from continuing operations to the Company’s actual tax provision (in thousands):
|
|
Year Ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Computed tax provision (benefit) at statutory rate
|
|
$
|
2,108
|
|
|
$
|
(1,603
|
)
|
Increase (reduction) in tax resulting from:
|
|
|
|
|
|
|
|
|
Deferred tax rate changes
|
|
|
139
|
|
|
|
163
|
|
Change in valuation allowances
|
|
|
(304
|
)
|
|
|
262
|
|
State income taxes, net of federal income tax effect
|
|
|
366
|
|
|
|
(481
|
)
|
Permanent items
|
|
|
(63
|
)
|
|
|
1
|
|
Other
|
|
|
397
|
|
|
|
(64
|
)
|
Actual tax provision (benefit)
|
|
$
|
2,643
|
|
|
$
|
(1,722
|
)
|
The Company is subject to U.S. federal income
taxes and various state and local income taxes. Tax regulations within each jurisdiction are subject to interpretation and require significant
judgment to apply. The Company is currently under examination by the Internal Revenue Service for their income tax return filed for the
tax year ended April 30, 2019. The examination is in the discovery stages and there are no proposed adjustments at this time. Other
than the U.S. federal tax return, in nearly all jurisdictions, the tax years through the fiscal year ended April 30, 2018 are no
longer subject to examination due to the expiration of the applicable statutes of limitations.
ASC 740 clarifies the accounting for uncertain
tax positions, prescribing a minimum recognition threshold a tax position is required to meet before being recognized, and providing guidance
on the derecognition, measurement, classification and disclosure relating to income taxes. The Company has no unrecognized tax benefits
for 2021 and 2020.
The Company has elected to include interest and
penalties in its income tax expense. The Company had no accrued interest or penalties as of April 30, 2021 and 2020.
The Company leases offices and office equipment
in Pennsylvania and New Mexico. The leases are generally non-cancelable operating leases with an initial term of two to five years. The
Company recognizes lease expense for these leases on a straight-line basis over the lease term. The lease agreements do not contain any
residual value guarantees or material restrictive covenants. As of April 30, 2021, right-of-use assets and lease liabilities were
$84,000 and $86,000. As of April 30, 2020, right-of-use assets and lease liabilities were $109,000 and $113,000. Total operating
lease expense was $114,000 and $113,000 for 2021 and 2020.
Remaining operating lease payments subsequent
to April 30, 2021 are $84,000 in fiscal year 2022 and none in subsequent years. Remaining operating lease payments had immaterial
imputed interest resulting in a present value of lease liabilities of $84,000. For 2021, the weighted average remaining lease term and
weighted average discount rate of the Company’s operating leases were less than one year and 5.50%. For 2020, the weighted average
remaining lease term and weighted average discount rate of the Company’s operating leases were 1.2 years and 5.50%. The lease contracts
for the Company generally do not provide a readily determinable implicit rate. For these contracts, the Company estimated the incremental
borrowing rate based on information available upon the adoption of ASU 2016-02. The Company applied a consistent method in periods after
the adoption of ASU 2016-02 to estimate the incremental borrowing rate.
|
(15)
|
OTHER COMMITMENTS AND CONTINGENCIES
|
In
March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment
and mitigation measures worldwide. Subsequently, the COVID-19 pandemic has continued to spread and various state and local governments
have issued or extended “shelter-in-place” orders, which have impacted and restricted various aspects of the Company’s
operations. While the Company cannot reasonably estimate the length or severity of this pandemic or if there will be additional periods
of increases or spikes in the number of COVID-19 cases, future mutations or related strains of the virus in areas in which the Company
operates, an extended economic slowdown could materially impact the Company’s consolidated financial position, consolidated results
of operations, and consolidated cash flows in fiscal year 2022 or beyond.
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 was authorized to repurchase its common stock from time to time, in amounts, at prices, and at such times as the Company deemed
appropriate, subject to market conditions, legal requirements and other considerations. The Company’s repurchases could be executed
using open market purchases, unsolicited or solicited privately negotiated transactions or other transactions, and could be 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 could be suspended, modified or terminated at any time without
prior notice. The share repurchase program did not contain a time limitation during which repurchases were 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. 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.
During 2021, 225,250 shares of common stock of
the Company held as treasury stock were retired and returned to the status of authorized but unissued shares of common stock.
|
(18)
|
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 periods indicated (in thousands):
2021(a)
|
|
Land Development
|
|
|
Homebuilding
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
32,431
|
|
|
$
|
3,081
|
|
|
$
|
4,557
|
|
|
$
|
40,069
|
|
Net income (loss)
|
|
|
10,091
|
|
|
|
(84
|
)
|
|
|
(2,615
|
)
|
|
|
7,392
|
|
Provision (benefit) for income taxes
|
|
|
(765
|
)
|
|
|
(45
|
)
|
|
|
3,453
|
|
|
|
2,643
|
|
Interest expense (income), net (b)
|
|
|
43
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
40
|
|
Depreciation
|
|
|
51
|
|
|
|
-
|
|
|
|
503
|
|
|
|
554
|
|
EBITDA (c)
|
|
$
|
9,420
|
|
|
$
|
(129
|
)
|
|
$
|
1,338
|
|
|
$
|
10,629
|
|
Capital expenditures
|
|
$
|
-
|
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
5
|
|
Total assets as of April 30, 2021
|
|
$
|
81,892
|
|
|
$
|
1,999
|
|
|
$
|
13,475
|
|
|
$
|
97,366
|
|
2020(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,316
|
|
|
$
|
-
|
|
|
$
|
1,467
|
|
|
$
|
18,783
|
|
Net income (loss)
|
|
|
2,249
|
|
|
|
-
|
|
|
|
(8,152
|
)
|
|
|
(5,903
|
)
|
Benefit for income taxes
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
(1,472
|
)
|
|
|
(1,722
|
)
|
Interest income, net (b)
|
|
|
22
|
|
|
|
-
|
|
|
|
(312
|
)
|
|
|
(334
|
)
|
Depreciation
|
|
|
45
|
|
|
|
-
|
|
|
|
492
|
|
|
|
537
|
|
EBITDA (c)
|
|
$
|
2,022
|
|
|
$
|
-
|
|
|
$
|
(9,444
|
)
|
|
$
|
(7,422
|
)
|
Capital expenditures
|
|
$
|
5
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
18
|
|
Total assets as of April 30, 2020
|
|
$
|
73,023
|
|
|
$
|
-
|
|
|
$
|
23,643
|
|
|
$
|
96,666
|
|
|
(a)
|
Revenue information provided for each segment may include amounts classified as rental revenues and
building sales and other revenues in the accompanying consolidated statements of operations. Corporate is net of intercompany
eliminations.
|
|
(b)
|
Interest expense (income), net excludes 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 2021, the Company operated in primarily
one business segment: the real estate business.
Notes Payable – Lavender Fields.
Refer to Note 6 for detail about the deferred purchase price with respect to the acquisition of 28 acres in Bernalillo County, New Mexico
comprising the Meso AM subdivision. In May 2021, LF and the holder of the promissory note evidencing the deferred purchase price
agreed to reduce the deferred purchase price by $45,000 and the remaining outstanding deferred purchase price of 1,704,000 was fully paid
by LF.
Notes Payable – La Mirada. In June 2021,
Wymont LLC (“Wymont”), a subsidiary of the Company, completed the acquisition of a 15-acre property in the La Mirada subdivision
located in Albuquerque, New Mexico. In June 2021, Wymont 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 Wymont and BOKF, with respect to the acquired property. Pursuant to a Guaranty Agreement entered into by ASW in favor
of BOKF, ASW guaranteed Wymont’s obligations under each of the above agreements.
Pursuant to the loan documentation, BOKF has agreed
to lend up to $7,375,000 to Wymont on a non-revolving line of credit basis to partially fund the acquisition and development of the acquired
property. The outstanding principal amount of the loan may be prepaid at any time without penalty. The loan is scheduled to mature in
June 2024. 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%. Generally,
BOKF is required to release the lien of its mortgage on any commercial lot within the acquired property upon Wymont making a principal
payment equal to the net sales proceeds with respect to the sale of such lot. BOKF is required to release the lien of its mortgage on
any residential lot within the acquired property upon Wymont making a principal payment equal to $60,600 per such released lot.
Wymont and ASW made certain representations and
warranties in connection with this loan and are required to comply with various covenants, reporting requirements and other customary
requirements for similar loans. The loan documentation contains customary events of default for similar financing transactions, including:
Wymont’s failure to make principal, interest or other payments when due; the failure of Wymont or ASW to observe or perform their
respective covenants under the loan documentation; the representations and warranties of Wymont or ASW being false; the insolvency
or bankruptcy of Wymont or ASW; and the failure of ASW to maintain a net worth of at least $32 million. Upon the occurrence and during
the continuance of an event of default, BOKF may declare the outstanding principal amount and all other obligations under the loan immediately
due and payable. Wymont incurred customary costs and expenses and paid certain fees to BOKF in connection with the loan. The outstanding
principal amount of the loan was $5,448,000 as of June 30, 2021.