The past two pandemic years have accelerated macrotrends in how people want to live and work. Increasingly large numbers of people want to leave big crowded cities and live in places where they can have more land and enjoy natural beauty. With companies being forced to operate with remote workforces since early 2020, workers have learned that they can be productive from anywhere they have an internet connection, and that time spent commuting is a major detractor from the quality of life. Rising crime rates and harsh pandemic restrictions have soured many people on city living, particularly in large coastal cities making smaller communities more attractive. AMREP Corporation (NYSE: AXR) is a play on the land side of the housing market as the company’s primary business is selling tracts of undeveloped land to homebuilders.
AMREP is an $88 million company that has been in business since 1961. The company owns 18,000 acres in Rio Rancho, New Mexico as well as oil, gas, and mineral interests for 55,000 acres in the same area of New Mexico. In addition, AMREP owns land in Colorado, including approximately 160 acres that are planned for the construction of 410 homes. Rio Rancho is essentially an exurb of the Albuquerque metropolitan area and is a rapidly growing area. Areas throughout the western U.S. such as Albuquerque, Lake Tahoe, and cities throughout Colorado and Idaho have seen large influxes of people leaving California areas like Los Angeles and San Francisco. Seeking lower tax burdens, lower costs of living, good schools, and more abundant land more and more people are cashing out their homes in coastal cities and flocking to areas where they can buy large homes and tracts of land with the proceeds.
AMREP looks compelling based on valuation as well. The company has a price-to-earnings ratio (P/E) of 8.5 and an EV/EBITDA of 4.1. While pure-play land companies tend to have valuations lower than the overall market, AMREP looks to have solid margins of safety as well, with about $27 million of cash on the balance sheet vs. $5.7 million of debt. This works out to be about $3.73 of cash per share, and the company is currently trading around $11.19 per share. On the profitability front, the company also looks solid with a gross margin of 35.4% and a net margin of 20.6%. These numbers compare quite favorably to the industry averages of 25.5% gross margin and 10.2% net margin.
Before the proliferation of high-speed internet, exurban communities like Rio Rancho were less attractive due to fewer career opportunities and long commute times to metropolitan hubs. As we have now seen, however, companies worldwide are now faced with workforces that demand the ability to perform their roles remotely, and two years of data demonstrating that it is possible. Companies such as AMREP represent opportunities to capitalize on this long-term macrotrend at a reasonable price. The prospects of abundant land that is now in demand and still reasonably valued make AMREP a candidate for investors to add to their watchlists.
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