American Realty Investors Q3 2024 10-Q Filed

TL;DR

**ARL Q3 2024 10-Q is IN! Check financials for the latest.**

AI Summary

American Realty Investors Inc. filed its Q3 2024 10-Q report on November 7, 2024, covering the period ending September 30, 2024. The filing details the company's financial performance and operational status for the third quarter and the year-to-date. Specific financial figures and operational metrics for this period are presented within the report.

Why It Matters

This filing provides investors with crucial financial and operational updates for American Realty Investors Inc. for the third quarter of 2024, enabling informed investment decisions.

Risk Assessment

Risk Level: medium — As a real estate operator, the company is subject to market fluctuations, interest rate changes, and property-specific risks.

Key Numbers

• Q3 2024 — Quarterly Period (Reporting period for the 10-Q filing.)
• 20240930 — Report End Date (The end date for the financial reporting period.)
• 20241107 — Filing Date (The date the report was officially submitted to the SEC.)

Key Players & Entities

• AMERICAN REALTY INVESTORS INC (company) — Filer
• 20240930 (date) — Period of Report
• 20241107 (date) — Filing Date
• NV (state) — State of Incorporation
• DALLAS (city) — Business Address City
• 75234 (zip_code) — Business Address Zip
• 4695224200 (phone_number) — Business Phone

FAQ

Filing Documents

• arl-20240930.htm (10-Q) — 994KB
• arl2024093010-qex311.htm (EX-31.1) — 10KB
• arl2024093010-qex312.htm (EX-31.2) — 10KB
• arl2024093010-qex321.htm (EX-32.1) — 6KB
• 0001102238-24-000025.txt ( ) — 5907KB
• arl-20240930.xsd (EX-101.SCH) — 47KB
• arl-20240930_cal.xml (EX-101.CAL) — 58KB
• arl-20240930_def.xml (EX-101.DEF) — 176KB
• arl-20240930_lab.xml (EX-101.LAB) — 509KB
• arl-20240930_pre.xml (EX-101.PRE) — 368KB
• arl-20240930_htm.xml (XML) — 860KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Consolidated Balance Sheets at September 30, 2024 and December 31, 2023 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023 4 Consolidated Statements of Equity for the three and nine months ended September 30, 2024 and 2023 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3.

Quantitative and Qualitative Disclosures About Market Risks

Quantitative and Qualitative Disclosures About Market Risks 25 Item 4.

Controls and Procedures

Controls and Procedures 26

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 26 Item 1A.

Risk Factors

Risk Factors 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Mine Safety Disclosures 26 Item 5. Other Information 26 Item 6. Exhibits 27

Signatures

Signatures 29 2 Table of Contents AMERICAN REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and par value amounts) (Unaudited) September 30, 2024 December 31, 2023 Assets Real estate $ 527,562 $ 501,586 Cash and cash equivalents 39,533 36,740 Restricted cash 29,588 42,327 Short-term investments 92,052 90,448 Notes receivable (including $ 71,365 and $ 75,362 at September 30, 2024 and December 31, 2023, respectively, from related parties) 138,349 144,142 Investment in unconsolidated joint ventures 10,626 10,060 Receivable from related party 97,709 96,533 Other assets (including $ 964 and $ 2,012 at September 30, 2024 and December 31, 2023, respectively, from related parties) 107,299 101,648 Total assets $ 1,042,718 $ 1,023,484 Liabilities and Equity Liabilities: Mortgages and other notes payable $ 183,814 $ 182,683 Accounts payable and other liabilities (including $ 604 and $ 1,016 at September 30, 2024 and December 31, 2023, respectively, from related parties) 43,545 11,866 Accrued interest 3,082 2,633 Deferred revenue 9,791 9,791 Total liabilities 240,232 206,973 Equity Shareholders' Equity: Preferred stock, Series A, $ 2.00 par value, 15,000,000 shares authorized, 1,800,614 shares issued and outstanding 1,801 1,801 Common stock, $ 0.01 par value, 100,000,000 shares authorized; 16,152,043 shares issued and outstanding 162 162 Additional paid-in capital 61,349 61,638 Retained earnings 538,860 553,402 Total shareholders' equity 602,172 617,003 Noncontrolling interests 200,314 199,508 Total equity 802,486 816,511 Total liabilities and equity $ 1,042,718 $ 1,023,484 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents AMERICAN REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 1. Organization As used herein, the terms "the Company", "we", "our" or "us" refer to American Realty Investors, Inc., a Nevada corporation, which was formed in 1999. Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol ("ARL") and over 90 % of our stock is owned by related party entities. Our primary business is the acquisition, development and ownership of income-producing multifamily and commercial properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate income from the sale of land. We own approximately 78.4 % of Transcontinental Realty Investors, Inc. ("TCI") and substantially all of our operations are conducted through TCI, whose common stock is traded on the NYSE under the symbol "TCI". Accordingly, we include TCI's financial results in our consolidated financial statements. At September 30, 2024, our portfolio of properties consisted of: Four office buildings comprising in aggregate of approximately 1,056,793 square feet; Fourteen multifamily properties, owned directly by us, comprising of 2,328 units; and Appr oximately 1,843 ac res of developed and undeveloped land. Our day to day operations are managed by Pillar Income Asset Management, Inc. ("Pillar"). Pillar's duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities, asset management, property development, construction management and arranging debt and equity financing with third party len

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The consolidated balance sheet at December 31, 2023 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity ("VIE") or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights. We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations. 3. Earnings Per Share Earnings Per Share ("EPS") is computed by dividing net income available to common shares by the weighted-average number of common shares outstanding during the period. Shares issued during the period are weighted for the portion of the period that they were outstanding. The following table details our basic and diluted earnings per common share calculation: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 4. Supplemental Cash Flow Information The following presents the schedule of interest paid and other supplemental cash flow information: Nine Months Ended September 30, 2024 2023 Cash paid for interest $ 4,808 $ 9,432 Cash paid for taxes 3,398 5,428 Cash - beginning of period Cash and cash equivalents $ 36,740 $ 113,445 Restricted cash 42,327 108,883 $ 79,067 $ 222,328 Cash - end of period Cash and cash equivalents $ 39,533 $ 47,203 Restricted cash 29,588 36,145 $ 69,121 $ 83,348 Payments on mortgages, other notes and bonds payable Payments on mortgages and other notes payable $ 9,614 $ 5,633 Payments on bonds payable — 131,176 $ 9,614 $ 136,809 The following is a schedule of noncash investing and financing activities: Nine Months Ended September 30, 2024 2023 Property acquired in exchange for reduction in related party receivable $ — $ 6,064 5. Operating Segments Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in two reportable segments: (i) the acquisition, development, ownership and management of multifamily properties and (ii) the acquisition, ownership and management of commercial properties. The services for our multifamily segment include rental of apartments and other tenant services, including parking and storage space rental. Asset information by segment is not reported because we do not use this measure to assess performance or make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses, advisory fees, interest income and interest expense are not included in segment profit as our internal reporting addresses these items on a corporate level. 9 Table of Contents AMERICAN REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The following table presents our reportable segments for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Multifamily Segment Revenues $ 7,967 $ 7,899 $ 23,947 $ 22,930 Operating expenses ( 4,642 ) ( 4,811 ) ( 13,358 ) ( 12,997 ) Profit from segment 3,325 3,088 10,589 9,933 Commercial Segment Revenues 3,107 3,939 9,594 11,306 Operating expenses ( 2,347 ) ( 2,632 ) ( 6,889 ) ( 7,583 ) Profit from segment 760 1,307 2,705 3,723 Total profit from segments $ 4,085 $ 4,395 $ 13,294 $ 13,656 The table below reflects the reconciliation of total profit from segments to net income for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total profit from segments $ 4,085 $ 4,395 $ 13,294 $ 13,656 Other non-segment items of income (expense) Depreciation and amortization ( 3,120 ) ( 3,313 ) ( 9,429 ) ( 9,615 ) General and administrative ( 1,590 ) ( 1,579 ) ( 4,550 ) ( 8,424 ) Advisory fee to related party ( 1,971 ) ( 2,295 ) ( 5,910 ) ( 6,883 ) Other income 533 688 1,738 2,217 Interest income 5,506 9,008 16,033 25,201 Interest expense ( 2,123 ) ( 1,954 ) ( 5,958 ) ( 7,574 ) Gain on foreign currency transaction — — — 993 Loss on early extinguishment of debt — — — ( 1,710 ) Income from unconsolidated joint ventures 423 234 1,407 2,946 (Loss) gain on real estate transactions ( 23,400 ) ( 32 ) ( 23,400 ) 156 Income tax provision 4,641 ( 1,127 ) 3,552 ( 2,416 ) Net (loss) income $ ( 17,016 ) $ 4,025 $ ( 13,223 ) $ 8,547 6. Lease Revenue We lease our multifamily properties and commercial properties under agreements that are classified as operating leases. Our multifamily property leases generally include minimum rents and charges for ancillary services. Our

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The following table summarizes the components of our rental revenue for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Fixed component $ 10,841 $ 11,338 $ 32,667 $ 32,968 Variable component 233 500 874 1,268 $ 11,074 $ 11,838 $ 33,541 $ 34,236 The following table summarizes the future rental payments that are payable to us from non-cancelable leases. The table excludes multifamily leases, which typically have a term of one-year or less: 2024 $ 11,754 2025 11,241 2026 10,810 2027 10,430 2028 8,542 Thereafter 13,299 $ 66,076 7. Real Estate Activity Below is a summary of our real estate as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Land $ 104,156 $ 104,156 Building and improvements 374,892 372,399 Tenant improvements 16,503 16,286 Construction in progress 108,112 76,110 Total cost 603,663 568,951 Less accumulated depreciation ( 76,101 ) ( 67,365 ) Total real estate $ 527,562 $ 501,586 We incurred depreciation expense of $ 2,966 and $ 3,313 for the three months ended September 30, 2024 and 2023, respectively, and $ 8,970 and $ 9,615 for the nine months ended September 30, 2024 and 2023, respectively. Construction Activities Construction in progress includes the cost of development of Windmill Farms and the costs associated with our multifamily development projects. On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida (" Alera ") that is expected to be completed in 2025 for a total cost of approximately $ 55,330 . The cost of construction will be funded in part by a $ 33,000 construction loan (See Note 11 – Mortgages and Other Notes Payable). The development agreement provides for a $ 1,637 fee that will be paid to P

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney, Texas ("Merano") that is expected to be completed in 2025 for a total cost of approximately $ 51,910 . The cost of construction will be funded in part by a $ 25,407 construction loan (See Note 11 – Mortgages and Other Notes Payable). The development agreement provides for a $ 1,551 fee that will be paid to Pillar over the construction period. As of September 30, 2024, we have incurred a total of $ 15,588 in development costs, including $ 809 in development fees. On December 15, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in Temple, Texas ("Bandera Ridge") that is expected to be completed in 2025 for a total cost of approximately $ 49,603 . The cost of construction will be funded in part by a $ 23,500 construction loan (See Note 11 – Mortgages and Other Notes Payable). The development agreement provides for a $ 1,607 fee that will be paid to Pillar over the construction period. As of September 30, 2024, we have incurred a total of $ 11,087 in development costs, including $ 336 in development fees. Loss on Real Estate Transactions We had been engaged in litigation with David Clapper and entities related to Mr. Clapper (collectively, the "Clapper") since 1999. The matter originally involved a transaction in 1998 in which we were to acquire eight multifamily properties from the Clapper. Through the years, several rulings, both for and against us, were issued. In a 2011 ruling, Clapper was awarded a judgment for approximately $ 148,000 . This award was later reduced and later appealed by Clapper. In 2021, the verdict was reversed by the U. S. Court of Appeals for the Fifth Circuit and remanded to the trial court for further proceedings, which resulted in a contrary decision of no lia

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 9. Notes Receivable The following table summarizes our notes receivable as of September 30, 2024 and December 31, 2023: Carrying value Property/Borrower September 30, 2024 December 31, 2023 Interest Rate Maturity Date ABC Land and Development, Inc. $ 4,408 $ 4,408 9.50 % 6/30/26 ABC Paradise, LLC 1,210 1,210 9.50 % 6/30/26 Autumn Breeze(1) 1,451 2,157 5.00 % 7/1/25 Bellwether Ridge(1) 3,798 3,798 5.00 % 11/1/26 Cascades at Spring Street(2)(3) — 180 5.33 % 6/30/27 Dominion at Mercer Crossing(4) 6,167 6,354 9.00 % 6/7/28 Echo Station(2)(3) 10,120 10,305 5.33 % 12/31/32 Forest Pines(1) 6,472 6,472 5.00 % 5/1/27 Inwood on the Park(2)(3) 20,208 20,325 5.33 % 6/30/28 Kensington Park(2)(3) 6,994 10,262 5.33 % 3/31/27 Lake Shore Villas(2)(3) 5,855 6,000 5.33 % 12/31/32 Prospectus Endeavors 496 496 6.00 % 10/23/29 McKinney Ranch 3,926 3,926 6.00 % 9/15/29 Ocean Estates II(2)(3) 3,615 3,615 5.33 % 5/31/28 One Realco Land Holding, Inc. 1,728 1,728 9.50 % 6/30/26 Parc at Ingleside(1) 3,759 3,759 5.00 % 11/1/26 Parc at Opelika Phase II(1)(5) 3,190 3,190 10.00 % 1/13/23 Parc at Windmill Farms(1)(5) 7,886 7,886 5.00 % 11/1/22 Phillips Foundation for Better Living, Inc.(2) 107 182 5.33 % 3/31/28 Plaza at Chase Oaks(2)(3) 11,772 11,772 5.33 % 3/31/28 Plum Tree(1) 1,478 1,767 5.00 % 4/26/26 Polk County Land 3,000 3,000 9.50 % 6/30/26 Riverview on the Park Land, LLC 1,045 1,045 9.50 % 6/30/26 Spartan Land 5,907 5,907 6.00 % 1/16/25 Spyglass of Ennis(1) 4,705 5,179 5.00 % 11/1/24 Steeple Crest(1) 6,358 6,498 5.00 % 8/1/26 Timbers at The Park(2)(3) 11,146 11,173 5.33 % 12/31/32 Tuscany Villas(2)(3) 1,548 1,548 5.33 % 4/30/27 $ 138,349 $ 144,142 (1) The note is convertible, at our option, into a 100 % ownership interest in the underlying property, and is collateralized by the underlying property. (2) The borrower is determined to be a related par

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