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AMREP Corporation (AXR) has had it rough for the last several years. After the company saw its stock price spike in late 2006 and early 2007 to well over $100 per share, it has been nothing but a downward spiral since. In fact, the stock currently trades below its March 2009 lows, when everyone thought the world was coming to an end. The company's primary operations are in real estate, subscription fulfillment and newsstand distribution services. All were hit very hard by the economic downturn, and the subscription services segment has the added complication of obsolescence as more consumers turn to the internet to read their favorite publications. Below is a summary of the company's operating subsidiaries.

Real Estate

The company's real estate segment is operated through its subsidiary, AMREP Southwest Inc. AMREP Southwest operates primarily in Sandoval County, New Mexico and more specifically the City of Rio Rancho, New Mexico. Located just north of Albuquerque, Rio Rancho is the third largest and one of the fastest growing cities in New Mexico.

The company owns approximately 17,325 acres of land in the Rio Rancho area that is in various stages of development. Nearly 4,460 acres of this land are in contiguous blocks that are suitable for development. Another approximately 2000 acres are in areas where the company owns more than 50% of the lots. The remaining acreage is in areas where the company owns less than 50% of the lots in the area, which may inhibit the company's ability to develop these areas without the requirement to purchase surrounding acreage to make a large enough tract for development. In order to monetize the remaining acreage, the company may be required to sell the property individually.

The company's primary source of revenue is selling its developed and undeveloped properties to homebuilders and commercial property developers. With the housing bust and subsequent economic downturn in the United States, sales of real estate have slid in recent years. In fiscal 2008 ended April 30, the company sold 406 acres for over $27 million. In 2009 that number dropped to 148 acres for $9 million and in 2010 only 56 acres were sold for revenue of approximately $5.2 million. So far, for the first nine months of fiscal 2011 ended January 31, 2011 the company has only sold 16.3 acres for $1.57 million.

In addition to the company's Rio Rancho acreage, it also owns two tracts of land in Colorado. One property is approximately 160 acres and is planned for approximately 400 homes and the other is a 10 acre property that is zoned for commercial. The company also owns real estate which is used in the operation of its media services.

Media Services

The media services segment operates through the company's Kable Media Services, Inc subsidiary. The operations of this subsidiary consist of subscription fulfillment, newsstand distribution, product services and temporary staffing.

The subscription fulfillment operation handles all or part of the fulfillment responsibilities for over 500 magazine titles under the Palm Coast Data name. These responsibilities include processing orders, renewals and payments, as well as creating mailing labels and handling customer inquiries. The company also generates statistical reports and maintains customers lists and databases. Palm Coast is the second largest subscription fulfillment operation in the nation and accounts for approximately 78% of media services revenue.

The newsstand distribution operation distributes magazines for approximately 200 publishers. The company handles the distribution of publications from the publisher to independent wholesalers. The company distributes approximately 49 million copies of various publications every month. In fiscal 2010, approximately 72% of gross billings were to three wholesalers. Newsstand distribution accounted for approximately 12% of media services revenue.

The company also offers product fulfillment for promotions the company's publishers may offer as incentives. In addition, the company purchased a specialty packaging company and a temporary staffing operation in 2008. The additional operations accounted for approximately 11% of total Kable revenues and showed strong results in the latest quarter due to increases in specialty packaging and temporary staffing revenues.

Conclusion

AMREP as a whole has struggled in the face of a severe economic downturn as its areas of operation were negatively impacted. Real estate sales have nearly come to a standstill, while media services has suffered from lower subscriptions and newsstand sales. In addition to poor economic conditions, media services are suffering from a dying industry as more publishers choose to publish online and face increased competition from new online publications.

The company has made moves to improve the cost structure at its Kable Media subsidiary by consolidating its subscription fulfillment operations from three locations into a single existing location in Florida. While this consolidation led to improved results, I anticipate revenues will continue to decline barring an acquisition or the addition of major new customers. The company did take small steps to diversify by acquiring a specialty packaging operation and a temporary staffing operation. While this is a move in the right direction, both of these operations are too small to currently have a significant impact if things go south in the fulfillment and distribution operations.

Sluggish real estate sales have resulted in only $1.57 million in total sales for the first nine months of fiscal 2011. A recovery in real estate does not appear to be imminent, but I believe we are bouncing on the bottom.

The housing market continues to slump and impact the sales of land in Rio Rancho. However, the company has owned this land for many years and even at today's depressed real estate prices, the true value of this land is not represented on the balance sheet. The real estate subsidiary also has a bank loan that matured on December 16, 2010 with an outstanding principal balance of $22.464 million. The company is currently engaged in discussions with the bank to renew this facility. If unable to do so with either the existing bank or a new institution, it could have a material financial impact on the company.

If you believe housing has bottomed, this may be a great entry point in a company that has a substantial portion of its assets tied to the residential real estate market. However, the Kable Media Services subsidiary adds risk beyond the real estate, and is very dependent on management's ability to maintain or expand the existing client base and keep costs in check as the industry as a whole will continue to decline. It is also important to keep in mind that most of the company's real estate assets are tied to a single geographic area in Rio Rancho, New Mexico.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: AMREP Corporation: Down, But Not Out