Amrep Corp (AXR) SEC Quarterly Report (10-Q) for Q4 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended      October 31, 2015     

OR

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number        1-4702        

Registrant's telephone number, including area code: (609) 716-8200

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Number of Shares of Common Stock, par value $.10 per share, outstanding at December 4, 2015 – 8,059,454.

AMREP CORPORATION AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands, except par value and share amounts)

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings (Unaudited)

Three Months Ended October 31, 2015 and 2014

(Amounts in thousands, except per share amounts)

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings (Unaudited)

Six Months Ended October 31, 2015 and 2014

(Amounts in thousands, except per share amounts)

AMREP CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows from Continuing Operations (Unaudited)

Six Months Ended October 31, 2015 and 2014

(Amounts in thousands)

AMREP CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Six Months Ended October 31, 2015 and 2014

The accompanying unaudited consolidated financial statements have been prepared by AMREP Corporation (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial information, and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company, through its subsidiaries, is primarily engaged in two business segments: the Fulfillment Services business operated by Palm Coast Data LLC ("Palm Coast") and its subsidiary and the real estate business operated by AMREP Southwest Inc. ("AMREP Southwest") and its subsidiaries. The Company's foreign sales are insignificant. All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, these unaudited consolidated financial statements include all adjustments, which are of a normal recurring nature, considered necessary to reflect a fair presentation of the results for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of what may occur in future periods. Unless otherwise qualified, all references to 2016 and 2015 are to the fiscal years ending April 30, 2016 and 2015 and all references to the second quarter and first six months of 2016 and 2015 mean the fiscal three and six month periods ended October 31, 2015 and 2014.

The unaudited consolidated financial statements herein should be read in conjunction with the Company's annual report on Form 10-K for the year ended April 30, 2015, which was filed with the SEC on July 29, 2015 (the "2015 Form 10-K").

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance defines how companies report revenues from contracts with customers and also requires enhanced disclosures. In July 2015, the Financial Accounting Standards Board voted to defer the effective date by one year, with early adoption on the original effective date permitted. The Company will be required to adopt the standard as of May 1, 2018 and early adoption is permitted as of May 1, 2017. The Company has not determined the transition approach that will be utilized nor has it estimated the impact of adopting the new accounting standard.

Prior to February 9, 2015, the Company had been engaged in the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business. On February 9, 2015, the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business were sold. In addition, prior to April 10, 2015, the Company had also been engaged in the Staffing Services business. On April 10, 2015, the Staffing Services business was sold. The Newsstand Distribution Services business, the Product Packaging and Fulfillment Services business and the Staffing Services business have been classified as "discontinued operations" in the Company's financial statements. Financial information from prior periods has been reclassified to conform to this presentation. Refer to Item 1 of Part I of the 2015 Form 10-K for more detail about the sale of the Newsstand Distribution Services business, the Product Packaging and Fulfillment Services business and the Staffing Services business. The following table provides a reconciliation of the carrying amounts of the major classes of assets and liabilities of the discontinued operations in the accompanying balance sheet (in thousands):

The following tables provide a reconciliation of the carrying amounts of components of pretax income or loss of the discontinued operations to the amounts reported in the accompanying statement of operations (in thousands):

The following table provides the total operating and investing cash flows of the discontinued operations for the period in which the results of operations of the discontinued operations are presented in the accompanying statement of operations (in thousands):

Receivables, net consist of the following (in thousands):

Refer to Item 1 of Part I of the 2015 Form 10-K for detail about the buyer promissory note and line of credit issued in connection with the sale of the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business.

During the second quarter and first six months of 2016, revenues from one major customer of the Company's Fulfillment Services business totaled $1,289,000 and $2,787,000, or 11.5% and 13.4% of total revenues of the Company for those periods. As of November 30, 2015, the Company's Fulfillment Services business had $424,000 of outstanding accounts receivable from this customer.

Property, plant and equipment, net consist of the following (in thousands):

Intangible and other assets, net consist of the following (in thousands):

Customer contracts and relationships are amortized on a straight line basis over twelve years. Deferred order entry costs represent costs incurred in connection with the data entry of customer subscription information to database files and are charged directly to operations generally over a twelve month period.

Accounts payable and accrued expenses consist of the following (in thousands):

The October 31, 2015 accounts payable and accrued expenses total consists of customer postage deposits of $4,202,000, accrued expenses of $2,378,000, trade payables of $1,611,000 and other of $1,854,000. The April 30, 2015 accounts payable and accrued expenses total consists of customer postage deposits of $4,832,000, accrued expenses of $1,142,000, trade payables of $1,641,000 and other of $2,669,000.

Notes payable consist of the following (in thousands):

Real Estate Loan

AMREP Southwest has a loan from a company owned by Nicholas G. Karabots, a significant shareholder of the Company and in which another director of the Company has a 20% participation. The loan had an outstanding principal amount of $13,183,000 at October 31, 2015, is scheduled to mature on December 1, 2017, bears interest payable monthly at 8.5% per annum and is secured by a mortgage on all real property of AMREP Southwest in Rio Rancho, New Mexico and by a pledge of the stock of its subsidiary, Outer Rim Investments, Inc. The total book value of the real property collateralizing the loan was approximately $63,103,000 as of October 31, 2015. No payments of principal are required until maturity, except that the following amounts are required to be applied to the payment of the loan: (a) 25% of the net cash proceeds from any sales of real property by AMREP Southwest and (b) 25% of any royalty payments received by AMREP Southwest under the oil and gas lease described in Note 8.

Other Notes Payable

Other notes payable is a mortgage note payable with an outstanding principal balance of $4,025,000 on a warehouse with a maturity date of February 2018 and an interest rate of 6.35%. The amount of Other notes payable due within one year is $132,000.

PNC Credit Facility

The Company's Fulfillment Services business had a revolving credit and security agreement with PNC Bank, N.A. (the "PNC Credit Facility"). The PNC Credit Facility expired by its terms on August 12, 2015. There were no borrowings on this facility in 2016 prior to its expiration.

Refer to Item 8 of Part II of the 2015 Form 10-K for detail about the Oil and Gas Lease and the Addendum thereto with Thrust Energy, Inc. and Cebolla Roja, LLC. No royalties under the Lease were received during the first six months of 2016. Deferred revenue of approximately $910,000 from this transaction is being recorded over the four-year lease term. Approximately $57,000 and $114,000 of such deferred revenue was recognized during the second quarter and first six months of 2016 and $38,000 for the second quarter and first six months of 2015, which is included in Other revenues in the accompanying financial statements. At October 31, 2015, there was $644,000 of deferred revenue remaining to be recognized in future periods.

Refer to Item 8 of Part II of the 2015 Form 10-K for detail about a lease agreement for a warehouse facility owned by El Dorado Utilities, Inc., a subsidiary of the Company, in Fairfield, Ohio. The amount of deferred rent revenue in connection with this lease totaled $984,000 and $1,042,000 at October 31, 2015 and April 30, 2015. The credit related to the amortization of the deferred rent revenue is accounted for as a reduction of general and administrative expenses for real estate operations and corporate in the accompanying financial statements and totaled $29,000 and $58,000 for the three and six month periods ended October 31, 2015 and also for the same periods ended October 31, 2014.

The Financial Instruments Topic of the Financial Accounting Standards Board 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. 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, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments.

The Company did not have any long-term, fixed-rate notes receivables at October 31, 2015 or April 30, 2015. The estimated fair values of the Company's long-term, fixed-rate notes payable were $15,772,000 and $16,365,000 compared with carrying amounts of $17,208,000 and $18,090,000 at October 31, 2015 and April 30, 2015.

Retirement plan

The Company has a defined benefit retirement plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. The Company has secured $5,019,000 of accrued pension-related obligations with first lien mortgages on certain real property in favor of the Pension Benefit Guaranty Corporation (the "PBGC"). On an annual basis, the Company is required to provide updated appraisals on each mortgaged property and, if the appraised value of the mortgaged properties is less than two times the amount of the accrued pension-related obligations secured by the mortgages, the Company is required to make a payment to its pension plan in an amount equal to one-half of the amount of the shortfall. During the first quarter of 2016, the Company substituted certain real property subject to the first lien mortgage in favor of the PBGC. During the first six months of 2016, there was no change in the appraised value of the mortgaged property that required the Company to make any additional payments to its pension plan.

Equity compensation plan

The Company issued 3,000 shares of restricted common stock under the AMREP Corporation 2006 Equity Compensation Plan (the "Equity Plan") during the first six months of 2016. During the first six months of 2016, 10,000 share s of common stock previously issued under the Equity Plan vested leaving 21,000 shares issued under the Equity Plan that have not vested as of October 31, 2015. For the second quarter and first six months of 2016, the Company recognized $16,000 and $37,000 of compensation expense related to the restricted share s of common stock issued, and $30,000 and $66,000 for the same periods of 2015. As of October 31, 2015 , there was $60,000 of total unrecognized compensation expense related to share s of common stock issued under the Equity Plan which had not vested as of that date , which expense is expected to be recognized over the remaining vesting term not to exceed three years.

During the first quarter of 2015, the Company and certain of its subsidiaries entered into a settlement agreement with a significant customer, Heinrich Bauer (USA) LLC. As a result of the settlement agreement, the Company recognized a pretax gain of $11,155,000, which is included in the results of discontinued operations in the accompanying financial statements for the six months ended October 31, 2014. Refer to Item 1 of Part I of the 2015 Form 10-K for additional detail about the settlement agreement.

During the first quarter of 2015, the Company's Fulfillment Services business recognized a $925,000 impairment charge relating to the discontinuance of the development of certain software. The impairment charge included previously capitalized software costs, internal labor costs and third party consulting costs.

The following tables set forth summarized data relative to the industry segments in which the Company operated (other than with respect to discontinued operations) for the three and six month periods ended October 31, 2015 and 2014 (in thousands):

INTRODUCTION

AMREP Corporation (the "Company"), through its subsidiaries, is primarily engaged in two business segments: the real estate business operated by AMREP Southwest Inc. ("AMREP Southwest") and its subsidiaries and the Fulfillment Services business operated by Palm Coast Data LLC ("Palm Coast") and its subsidiary. Data concerning industry segments is set forth in Note 13 of the notes to the consolidated financial statements included in this report on Form 10-Q. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's foreign sales and activities are not significant.

Prior to February 9, 2015, the Company had been engaged in the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business. On February 9, 2015, the Newsstand Distribution Services business and the Product Packaging and Fulfillment Services business were sold. In addition, prior to April 10, 2015, the Company had also been engaged in the Staffing Services business. On April 10, 2015, the Staffing Services business was sold. The Newsstand Distribution Services business, the Product Packaging and Fulfillment Services business and the Staffing Services business have been classified as "discontinued operations" in the Company's financial statements. Financial information from prior periods has been reclassified to conform to this presentation. Refer to Item 1 of Part I of the Company's annual report on Form 10-K for the year ended April 30, 2015, which was filed with the Securities Exchange Commission on July 29, 2015 (the "2015 Form 10-K"), for more detail about the sale of the Newsstand Distribution Services business, the Product Packaging and Fulfillment Services business and the Staffing Services business.

The following provides information that management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q and with the 2015 Form 10-K. Many of the amounts and percentages presented in this section have been rounded for convenience of presentation. Unless otherwise qualified, all references to 2016 and 2015 are to the fiscal years ending April 30, 2016 and 2015 and all references to the second quarter and first six months of 2016 and 2015 mean the fiscal three and six month periods ended October 31, 2015 and 2014.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis of financial condition and results of operations is based on the accounting policies used and disclosed in the 2015 consolidated financial statements and accompanying notes that were prepared in accordance with accounting principles generally accepted in the United States of America and included as part of the 2015 Form 10-K. The preparation of those consolidated financial statements required management to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts or results could differ from those estimates.

The critical accounting policies, assumptions and estimates are described in Item 7 of Part II of the 2015 Form 10-K. There have been no changes in these accounting policies.

The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements contained in the 2015 Form 10-K. Information concerning the Company's implementation and the impact of recent accounting standards issued by the Financial Accounting Standards Board is included in the notes to the consolidated financial statements contained in the 2015 Form 10-K. The Company did not adopt any accounting policy in the first quarter of 2016 that had a material impact on its consolidated financial statements.

RESULTS OF OPERATIONS

Continuing Operations

For the second quarter of 2016, the Company's continuing operations recorded a net loss of $676,000, or $0.08 per share, compared to a net loss of $97,000 or $0.01 per share, for the second quarter of 2015. For the first six months of 2016, the Company's continuing operations recorded a net loss of $1,855,000, or $0.23 per share, compared to a net loss of $733,000, or $0.10 per share, for the same period of 2015. Revenues from continuing operations were $11,221,000 and $20,796,000 for the second quarter and first six months of 2016 compared to $14,357,000 and $26,678,000 for the same periods of the prior year.

Revenues from the Company's Fulfillment Services operations decreased from $11,803,000 and $23,712,000 for the second quarter and first six months of 2015 to $8,726,000 and $17,907,000 for the same periods in 2016. These decreases were due in part to lower revenues of $1,226,000 and $2,664,000 for the second quarter and first six months of 2016 from a significant customer that changed fulfillment service providers, and the revenues from this customer in the second quarter and first six months of 2015 consisted largely of contract termination fees that had little or no operating expenses associated with them. Magazine publishers are the principal customers of the Company's Fulfillment Services operations, and these customers have continued to be negatively impacted by increased competition from new media sources, alternative technologies for the distribution, storage and consumption of media content, weakness in advertising revenues and increases in paper costs, printing costs and postal rates. The result has been reduced subscription sales, which has caused publishers to close some magazine titles, change subscription fulfillment providers and seek more favorable terms from Palm Coast and its competitors when contracts are up for bid or renewal. Operating expenses for Fulfillment Services decreased from $9,565,000 and $18,957,000 for the second quarter and first six months of 2015 to $7,867,000 and $16,647,000 for the same periods in 2016, primarily reflecting lower payroll and benefits, as well as lower facilities and equipment expenses, including depreciation. In addition, during the first quarter of 2015, the Fulfillment Services business recorded a non-cash impairment charge of $925,000 due to the discontinuance of the development of certain software. This impairment charge included previously capitalized software costs, internal labor costs and third party consulting costs. Should the adverse Fulfillment Services business conditions continue, the Fulfillment Services business may experience future impairment charges related to its long-lived assets.

Revenues from the Company's real estate land sales were $2,180,000 and $2,290,000 for the second quarter and first six months of 2016 compared to $2,513,000 and $2,897,000 for the same periods of 2015. For the second quarter and first six months of 2016 and 2015, the Company's land sales in New Mexico were as follows:

The average gross profit percentage on land sales was 13.7% and 16.2% for the second quarter and first six months of 2016 compared to 12.9% and 16.8% for the same periods of 2015. As a result of many factors, including the nature and timing of specific transactions and the type and location of land being sold, revenues, average selling prices and related average gross profits from land sales can vary significantly from period to period and prior results are not necessarily a good indication of what may occur in future periods.

Other revenues were $315,000 and $599,000 for the second quarter and first six months of 2016 compared to $41,000 and $69,000 for the same periods of 2015. Other revenues consisted primarily of revenues from the rental of a warehouse in Fairfield, Ohio and also from the amortization of deferred revenue related to an oil and gas lease entered into by AMREP Southwest and one of its subsidiaries during the second quarter of 2015. Refer to Item 8 of Part II of the 2015 Form 10-K for further detail regarding the oil and gas lease.

Other operating expenses were $333,000 and $680,000 for the second quarter and first six months of 2016 compared to $328,000 and $769,000 for the same periods of 2015. The decrease in the six month expenses was primarily due to reduced land maintenance costs and employee benefits, partially offset by increased consulting costs, at AMREP Southwest and its subsidiaries.

General and administrative expenses of Fulfillment Services operations declined to $880,000 and $1,745,000 for the second quarter and first six months of 2016 from $1,112,000 and $2,219,000 for the same periods of 2015, primarily due to lower payroll and benefit costs. Real estate operations and corporate general and administrative expenses increased from $818,000 and $1,645,000 for the second quarter and first six months of 2015 to $946,000 and $1,965,000 for the same periods of 2016, primarily due to increased pension costs resulting from the Company's corporate office having assumed responsibility in 2016 for the pension expense associated with former employees of the discontinued operations.

Interest expense for continuing operations was $364,000 and $743,000 for the second quarter and first six months of 2016 compared to $370,000 and $762,000 for the same periods of 2015, primarily due to a slightly lower average principal loan balance at AMREP Southwest.

The Company's effective tax rate for continuing operations was 38.9% and 38.4% for the second quarter and first six months of 2016 compared to 6.6% and 35.5% for the same periods of 2015. The total tax effect of gross unrecognized tax benefits in the accompanying financial statements at both October 31, 2015 and April 30, 2015 was $58,000, which, if recognized, would have an impact on the effective tax rate. The Company believes it is reasonably possible that the liability for unrecognized tax benefits will not change in the next twelve months.

Discontinued Operations

Prior to fiscal 2016, the Company had been engaged in the Newsstand Distribution Services, Product Packaging and Fulfillment Services and Staffing Services businesses. During 2015, these businesses were sold and the operations of those businesses have been classified as "discontinued operations" in the Company's financial statements. Financial information for prior periods has been reclassified to conform to this presentation. The net income from discontinued operations for the first six months of 2015 included a pre-tax gain of $11,155,000 ($7,028,000 after tax, or $0.90 per share) from a settlement agreement in the Newsstand Distribution Services business with a major customer.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of funding for working capital requirements is cash flow from operations. The Company's liquidity is affected by many factors, including some that are based on normal operations and some that are related to the industries in which the Company operates and the economy generally. Except as described below, there have been no material changes to the Company's liquidity and capital resources as reflected in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2015 Form 10-K.

Operating Activities

Receivables, net decreased from $11,265,000 at April 30, 2015 to $9,535,000 at October 31, 2015 primarily due to a $2,000,000 reduction in borrowings under a line of credit made available to the buyers of the Company's former Newsstand Distribution Services and Product Packaging and Fulfillment Services businesses. Accounts payable and accrued expenses decreased from $10,284,000 at April 30, 2015 to $10,045,000 at October 31, 2015, primarily due to lower business volumes and the timing of payments to vendors.

Real estate inventory decreased from $66,321,000 at April 30, 2015 to $65,533,000 at October 31, 2015 due to land sales in Rio Rancho, New Mexico. Property, plant and equipment decreased from $15,763,000 at April 30, 2015 to $15,516,000 at October 31, 2015, primarily due to normal depreciation of fixed assets.

Other liabilities and deferred revenue decreased from $4,827,000 at April 30, 2015 to $4,686,000 at October 31, 2015, primarily reflecting the amortization of deferred revenue related to the oil and gas lease entered into by AMREP Southwest and one of its subsidiaries during the second quarter of 2015.

Investing Activities

Capital expenditures totaled $271,000 for the first six months of 2016 and $555,000 for the same period of 2015, with all expenditures being in the Fulfillment Services business.

Financing Activities

AMREP Southwest has a loan from a company owned by Nicholas G. Karabots, a significant shareholder of the Company and in which another director of the Company has a 20% participation. The loan had an outstanding principal amount of $13,183,000 at October 31, 2015, is scheduled to mature on December 1, 2017, bears interest payable monthly at 8.5% per annum, and is secured by a mortgage on all real property of AMREP Southwest in Rio Rancho and by a pledge of the stock of its subsidiary, Outer Rim Investments, Inc. The total book value of the real property collateralizing the loan was approximately $63,103,000 as of October 31, 2015. No payments of principal are required until maturity, except that the following amounts are required to be applied to the payment of the loan: (a) 25% of the net cash proceeds from any sales of real property by AMREP Southwest and (b) 25% of any royalty payments received by AMREP Southwest under the oil and gas lease entered into by AMREP Southwest and one of its subsidiaries during the second quarter of 2015. At October 31, 2015, AMREP Southwest was in compliance with the covenants of the loan facility.

Other notes payable is a mortgage note payable with an outstanding principal balance of $4,025,000 on a warehouse with a maturity date of February 2018 and an interest rate of 6.35%. The amount of Other notes payable due within one year is $132,000.

The Company's Fulfillment Services business had a revolving credit and security agreement with PNC Bank, N.A. (the "PNC Credit Facility"). The PNC Credit Facility expired by its terms on August 12, 2015. There were no borrowings on this facility in 2016 prior to its expiration.

During November 2015, Las Fuentes Village, LLC ("LFV"), a subsidiary of AMREP Southwest, entered into a loan agreement with U.S. Bank National Association to permit the borrowing from time to time by LFV of a maximum principal amount of $933,000 for the construction of a 2,200 square foot, single tenant retail building in Rio Rancho, New Mexico. The construction loan is scheduled to mature on October 31, 2016, bears interest payable monthly on the outstanding principal amount at 0.5% plus the prime rate, is secured by a mortgage on the real property of approximately 1 acre where construction of the building is to occur, contains customary events of default and representations, warranties and covenants and is guaranteed by AMREP Southwest. The total book value of the real property collateralizing the loan was approximately $217,000 as of October 31, 2015. No payments of principal are required until maturity. The building is expected to be constructed by LFV is subject to a long term lease with a national retail tenant, with lease payments expected to commence during the fiscal year ending April 30, 2017.

Statement of Forward-Looking Information

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

The forward-looking statements contained in this report include, but are not limited to, statements regarding whether the liability for unrecognized tax benefits will change in the next twelve months, expected construction of a retail building and timing of lease payments related thereto, the future business conditions that may be experienced by the Company and future impairment charges that may be incurred related to the Company's long-lived assets. The Company undertakes no obligation to update or publicly release any revisions to any forward-looking statement to reflect events, circumstances or changes in expectations after the date of such forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

No change in the Company's system of internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Material Weakness Previously Identified

Refer to Item 9A of Part II of the 2015 Form 10-K for detail about a previously identified material weakness in the Company's internal control over financial reporting over complex and non-routine transactions. The Company has implemented the following remediation steps to address this material weakness: (i) regular evaluation and enhancement of internal technical accounting capabilities, supported by the use of third-party advisors and consultants to assist with areas requiring specialized technical accounting expertise and (ii) enhanced awareness to identify complex technical accounting topics and early identification of situations which might require the use of third-party advisors and consultants. The material weakness will not be considered remediated until the controls are in operation for a sufficient period of time for the Company's management to conclude that the material weakness has been remediated. Management will continue to assess the effectiveness of the Company's remediation efforts in connection with management's evaluations of internal control over financial reporting.

PART II. OTHER INFORMATION

SIGNATURE

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

EXHIBIT INDEX