AMREP Corporation has popped up often in Inverness’s screens over the past several years, and is a seemingly well-publicized diamond in some deep rough. The American Realty and Petroleum Corporation is a real estate land sales and development company where value looks like it doesn’t want to appreciate owing to some corporate structure and geographical issues and thin trading volume. The business has a good many things to like despite the locked-up value, however, so we’ll delve into it over a pair of posts. For starters, the company seems to have a quasi-monopoly on land in a rapidly growing area, and the stock seductively trades quite near a very conservative liquidation value calculation, at ~1.06x. Patient investors seeking access to local-scale real estate services and development are invited to read on.

AMREP incorporated in Oklahoma in 1961; is headquartered in Plymouth Meeting, PA; and owns and develops land in New Mexico and Colorado. AMREP’s founders purchased 55,000 acres outside Albuquerque, NM, in the early 1960’s, effectively beginning the town of Rio Rancho, and began a media business marketing the properties to east coast investors. Their first pitch to customers was that New Mexico land was a good real estate play to round out an estate or retirement portfolio as the country expanded in the west in the 60’s and 70’s.

This was mostly hogwash.

The company owned so much land as to make the marketed properties next to worthless, with no resale market outside of AMREP itself, and all desert land to boot. Government regulators brought suit against AMREP in 1975 for defrauding 45,000 investor-customers of as much as $200mm.

With management facing criminal charges, in the 80’s the company pivoted completely, eliminating the interstate land sales business and focusing on low-cost development opportunities to sell to New Mexico locals and corporations. Beginning with Intel, AMREP began attracting larger corporations to Rio Rancho with the idea that its residential properties would appreciate in value if there were larger-scale demand to meet them. This demand would be provided more readily with new residents, and so AMREP began providing corporations with concierge service in liaising with the municipal governments of New Mexico, as well as other incentives to move corporate operations to the area.

The company settled its last suit, with the FTC, in 1993, and continued working with Rio Rancho and Sandoval County to attract large corporate entities. The business became roughly 50% land sales and 50% media, after a deal to sell roughly 575k shares for rights to distribute the media services of Nicholas Karabots, a Greek media company owner and current holder of ~25% of shares. AMREP grew to approximately $292mm in assets and a healthy balance sheet overall alongside $200mm of revenue in 2007, growing the top line 50% from 2005-07[1].

The stock reacted accordingly, moving from $7 per share in 2005 to as high as $136 in 1Q2007. It then fell right back to Earth, with price per acre falling 11% from 2008-09 and land sales revenue dropping from $90mm in 2007 to $9mm in 2009 as the real estate bubble popped. The company has traded in the $5-8 range for the past 10 years, seemingly forgotten about after the 2006 runup and crash. It had 380 shareholders as of July 2020 and trades at a market cap of $48mm.

Additionally, due to its status as an Oklahoma corporation, AMREP is generally prohibited from engaging in merger or acquisition activity with an interested shareholder, unless the holders of 66% of the outstanding common stock approve the transaction. Three shareholders – Mr Karabots at 26% and two investment firms at 18% and 16% – held 60% of shares as of 2020, and the broader market is only able to access about 1.4% of shares.

The New Mexico presence and limited float indicate the company at one time may have wanted to be the only game in town in the business of selling sand to Bedouins. But stay tuned for the catalysts in our next installment – they involve new business ideas, fast population growth, and Richard Branson.

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[1] Everyone’s Favorite Real Estate Bubble (“EFREB”)