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AMREP CORPORATION
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July 31, 2020
To Our Owners:
AMREP Corporation ended fiscal year 2020
with a clear sense of purpose and a strong balance sheet. Despite the coronavirus pandemic and the economic problems that the country
currently faces, we expect fiscal year 2021 to be one of considerable progress in our business.
Our goal is to be a leading New Mexico
real estate company focused on sustainable long-term success and profitability. Our strategy is to leverage our talented and highly
dedicated team of employees to expand our operations through the monetization of our land inventory, acquisition of new land for
development, expansion of our new homebuilding business and growing related real estate capabilities in an opportunistic manner.
Our goal, strategy and operations are grounded in an overarching intent of generating strong returns on capital and maximizing
per share equity value on a long-term basis.
New Mexico, where we own more than 18,000
acres of land, is our primary operational focus. Our land development operations include land entitlement, installation of infrastructure
and sales of finished lots to homebuilders. During fiscal year 2020, we launched an organic expansion of our operations with our
new internal homebuilder, which will help monetize our land holdings, capture a greater share of the financial returns generated
from our subdivisions and enhance our negotiating position when selling lots to external homebuilders. We have retained various
mineral rights in New Mexico and Colorado, which are the subject of leases to third parties. We also own office and warehouse buildings
in Florida and raw land in Colorado, all of which we are seeking to monetize.
Over the past few years, our significant
cash flow and liquidation of non-real estate assets has allowed us to repay outstanding debt, reduce significantly the liability
to our frozen pension plan and pursue expanded real estate operations, including land acquisition and development and homebuilding
projects, all of which require substantial capital. We plan to continue to monetize our non-core assets and redeploy that capital
to increase per share equity value.
Now, as we look to the future, our sole
focus is on real estate. We have assembled a small entrepreneurial team with the ability to identify and effectively evaluate the
time adjusted risk and profitability of projects – whether in traditional land development or homebuilding, commercial build-to-suit
developments or other real estate activities. While still at an early stage, we are proud of their efforts to date and their demonstrated
ability to timely deliver on projects. We believe that we can leverage that ability to accelerate the monetization of our Rio Rancho
core asset and build a profitable, differentiated real estate company in the Rio Rancho/Albuquerque/Santa Fe area.
We remain grounded in our expectations
given our broad experience through many different real estate business cycles. We emphasize thoughtful advance planning and conservatism,
which will allow us to weather the inevitable business cycle downturns and provide us with a sound basis to make balanced decisions
for short-term results and long-term success. Our advance planning and conservative business principles will guide and inform how
we use our cash in these efforts. We regularly evaluate the best use of our funds, including borrowing for projects and capital
allocation alternatives. We try to maintain a reasonable level of cash to support our growth plans and new opportunities, and our
net cash after deducting outstanding amounts on traditional debt facilities has been stable over the past three years: $13,600,000
as of April 30, 2020, $11,950,000 as of April 30, 2019, $12,200,000 as of April 30, 2018 and $11,800,000 as of April 30, 2017.
We believe this stable net cash balance provides us with the optionality to engage in value creation when the right opportunities
arise.
For example, when a local builder in Albuquerque
was restructuring itself, we were able to invest some of our funds through land banking of finished lots on their behalf. We had
the expertise to quickly evaluate the investment and the funds to invest in a low-risk project with a significant percentage return
on capital. This process was repeated on a second land banking project. As a result of these investments, we have developed a strong
and mutually beneficial relationship with a top regional homebuilder through which we have sourced additional projects, including
Mariposa, Tierra Contenta and Lavender Fields as disclosed in our annual report.
AMREP
CORPORATION
620 West Germantown Pike, Suite 175 ● Plymouth Meeting, PA 19462
We are also aware that many of the projects
we evaluate may take several years to bring to fruition or grow into a significant part of our operation. In the land development
business, our historical experience has taught us patience – where acquisition, entitlement, development and sale of land
projects may take many years for even a mid-sized project. We factor this requirement for patience into our project evaluations
to ensure an appropriate return on capital is achieved for our shareholders. This conservatism makes for a highly selective process
so that only the best projects are ultimately pursued. For example, in 2020, we acquired 28 acres of land in Bernalillo County,
New Mexico following almost two years of diligence and obtaining of entitlements, and our patience will be further required as
we spend the next ten months constructing the subdivision before revenue from the first closing of finished lots will be realized.
Similarly, our internal homebuilding operation has been under development with a minimal cash investment for the past two years
after we realized that the acquisition of a local production homebuilder was not achievable in the near-term on terms that met
our risk/return hurdles – having capital available enabled us to pursue this operational expansion. Our start-up homebuilding
operation is well-positioned and we have high hopes for this business in fiscal year 2021 and beyond.
Successfully executing our strategy also
requires strong corporate governance. We have an active and informed Board of Directors that both oversees and provides guidance
to our management. Our directors own 22.6% of the outstanding shares of AMREP, which ensures alignment of shareholder interests
with the execution of our strategy. The Board regularly reviews our corporate governance to determine whether any changes are warranted.
For example, we reduced the size of the Board from seven directors in 2010, to six directors in 2011, to five directors in 2013
and to four directors in 2015 to better align the size of the Board with the smaller size of the company. We also reduced director
compensation during this period and converted a substantial portion of that compensation from cash to equity.
As we have learned from our evaluations
of various real estate projects, listening is one of the keys to resiliency in our business. To that end, we are always happy to
engage with our shareholders. Your ideas and viewpoints help to provide additional context for our decision-making and also point
out those areas where additional information in our public statements may be helpful to more effectively communicate our strategy
and execution plans.
We recognize that you as shareholders are
not privy to our project and operational evaluations, including their required cash investments. We can assure you, however, that
with our current Board and management team, we intend to use our human talent and financial resources to grow and increase the
value of our real estate business, both absolutely and on a per share basis. Our aim is not growth for growth’s sake; rather,
it is to build a business with high returns on the capital we employ. In so doing, we will be patient in executing on our strategy
but will act quickly when the right opportunities present themselves. We will continue to support a strong entrepreneurial management
team, we will evaluate our capital allocation in light of available and planned business opportunities and the possible return
of excess capital to shareholders and we will be good stewards of AMREP. We want this to be a business you are proud to own, whose
identity is clearly appreciated and which can help you achieve your investment goals as a long-term shareholder.
We appreciate your continued support.
Sincerely,
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Christopher V. Vitale
President and Chief Executive Officer
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Edward B. Cloues, II
Chairman of the Board
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