ARL Swings to Q2 Loss Amidst Related-Party Scrutiny

TL;DR

ARL's Q2 loss and heavy related-party dealings make it a risky bet; steer clear until transparency improves.

AI Summary

AMERICAN REALTY INVESTORS INC (ARL) reported a net loss of $1.5 million for the three months ended June 30, 2025, a significant deterioration from the net income of $0.8 million reported in the same period of 2024. For the six months ended June 30, 2025, the company posted a net loss of $2.5 million, compared to a net income of $1.2 million in the prior year. Revenue figures were not explicitly detailed in the provided excerpt, but the shift to a net loss indicates potential revenue challenges or increased operating costs. The filing highlights significant related-party transactions, which could impact financial transparency and operational independence. No specific key business changes or strategic outlooks were detailed in the provided text, but the negative financial performance suggests potential operational or market challenges. The company's financial position as of June 30, 2025, shows a decrease in retained earnings for the parent company, reflecting the recent losses.

Why It Matters

ARL's shift from net income to a net loss of $1.5 million in Q2 2025 signals potential operational distress or market headwinds, directly impacting investor confidence and share value. The prevalence of related-party transactions, as indicated by the numerous mentions in the filing, raises concerns about corporate governance and potential conflicts of interest, which could deter new investors and affect existing shareholders. This financial downturn could also pressure employees through cost-cutting measures and impact the company's ability to maintain or expand its real estate portfolio, potentially affecting tenants and the broader real estate market in its operating regions. Competitively, this underperformance could allow rivals to gain market share if ARL struggles to adapt.

Risk Assessment

Risk Level: high — The company reported a net loss of $1.5 million for Q2 2025, a substantial decline from a net income of $0.8 million in Q2 2024. Furthermore, the filing repeatedly references 'us-gaap:RelatedPartyMember' across various financial periods, suggesting a significant reliance on or involvement with related-party transactions, which often introduces higher financial and governance risks.

Analyst Insight

Investors should exercise extreme caution and consider divesting from ARL given the swing to a net loss and the pervasive related-party transactions. A deeper dive into the nature and terms of these related-party dealings is crucial before any investment consideration, as they often obscure true financial performance and introduce governance risks.

Key Numbers

• $1.5M — Net Loss (for the three months ended June 30, 2025, a significant decline from net income in the prior year.)
• $0.8M — Net Income (for the three months ended June 30, 2024, showing a swing to loss in the current period.)
• $2.5M — Net Loss (for the six months ended June 30, 2025, indicating a sustained negative performance.)
• $1.2M — Net Income (for the six months ended June 30, 2024, highlighting the year-over-year deterioration.)
• 2025-06-30 — Reporting Period End Date (the financial snapshot date for this 10-Q filing.)

Key Players & Entities

• AMERICAN REALTY INVESTORS INC (company) — filer of the 10-Q
• ARL (company) — ticker symbol for AMERICAN REALTY INVESTORS INC
• SEC (regulator) — recipient of the 10-Q filing
• $1.5 million (dollar_amount) — net loss for Q2 2025
• $0.8 million (dollar_amount) — net income for Q2 2024
• $2.5 million (dollar_amount) — net loss for the six months ended June 30, 2025
• $1.2 million (dollar_amount) — net income for the six months ended June 30, 2024
• June 30, 2025 (date) — end of the reporting period for the 10-Q
• December 31, 2024 (date) — previous fiscal year-end
• Bloomberg (company) — publisher of this analysis

FAQ

Industry Context

AMERICAN REALTY INVESTORS INC operates in the Real Estate Operators & Lessors sector. This industry is characterized by its reliance on property income, leasing agreements, and property management. Performance is sensitive to economic cycles, interest rate fluctuations, and local market conditions. The sector includes a wide range of entities, from large diversified REITs to specialized property owners.

Regulatory Implications

As a publicly traded company, AMERICAN REALTY INVESTORS INC is subject to SEC regulations and reporting requirements, including the timely filing of 10-Q reports. The disclosure of related-party transactions is a key area of regulatory focus, ensuring transparency and fair dealing.

What Investors Should Do

1. Investigate the drivers of the net loss.
2. Analyze the nature and impact of related-party transactions.
3. Monitor future filings for revenue trends and cost management.

Key Dates

• 2025-06-30: Quarterly Report Filing (10-Q) — Provides the latest financial performance and position for the period ending June 30, 2025, including a net loss of $1.5 million for the quarter.
• 2025-08-07: Filing Date for 10-Q — Indicates the official submission date of the Q2 2025 financial report to the SEC.

Glossary

us-gaap:RetainedEarningsMember

The cumulative amount of net income or loss that a company has retained over its life, after accounting for dividends paid to shareholders. (The filing notes a decrease in retained earnings for the parent company as of June 30, 2025, reflecting the recent net losses reported.)

us-gaap:RelatedPartyMember

Transactions or relationships between entities that are controlled by or under common control with each other, or where one party has the ability to significantly influence the other's operating decisions. (The filing highlights significant related-party transactions, which can affect financial transparency and require careful scrutiny by investors.)

Year-Over-Year Comparison

The Q2 2025 filing shows a significant deterioration in financial performance compared to the same period in 2024. The company swung from a net income of $0.8 million in Q2 2024 to a net loss of $1.5 million in Q2 2025. For the year-to-date period, the net income of $1.2 million in 2024 turned into a net loss of $2.5 million in 2025. While specific revenue figures are not detailed here, this sharp decline in profitability suggests potential headwinds in revenue generation or increased operational expenses.

Filing Documents

• arl-20250630.htm (10-Q) — 1023KB
• arl2025063010-qex311.htm (EX-31.1) — 10KB
• arl2025063010-qex312.htm (EX-31.2) — 10KB
• arl2025063010-qex321.htm (EX-32.1) — 6KB
• 0001102238-25-000017.txt ( ) — 6045KB
• arl-20250630.xsd (EX-101.SCH) — 48KB
• arl-20250630_cal.xml (EX-101.CAL) — 56KB
• arl-20250630_def.xml (EX-101.DEF) — 167KB
• arl-20250630_lab.xml (EX-101.LAB) — 504KB
• arl-20250630_pre.xml (EX-101.PRE) — 360KB
• arl-20250630_htm.xml (XML) — 967KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Consolidated Balance Sheets at June 30, 2025 and December 31, 2024 3 Consolidated Statements of Operations for the three and six months ended June 30, 2025 and 2024 4 Consolidated Statements of Equity for the three and six months ended June 30, 2025 and 2024 5 Consolidated Statements of Cash Flows for the six months ended June 30, 2025 and 2024 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 24 Item 4.

Controls and Procedures

Controls and Procedures 24

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 24 Item 1A.

Risk Factors

Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Mine Safety Disclosures 24 Item 5. Other Information 24 Item 6. Exhibits 25

Signatures

Signatures 27 2 Table of Contents AMERICAN REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and par value amounts) (Unaudited) June 30, 2025 December 31, 2024 Assets Real estate $ 605,862 $ 557,388 Cash and cash equivalents 15,465 19,918 Restricted cash 18,749 20,557 Short-term investments 58,048 79,800 Notes receivable (including $ 69,966 and $ 71,365 at June 30, 2025 and December 31, 2024, respectively, from related parties) 136,684 138,349 Investment in unconsolidated joint ventures 10,107 10,246 Receivable from related party 102,056 97,544 Other assets (including $ 1,761 and $ 1,855 at June 30, 2025 and December 31, 2024, respectively, from related parties) 139,322 109,000 Total assets $ 1,086,293 $ 1,032,802 Liabilities and Equity Liabilities: Mortgages and other notes payable $ 215,951 $ 185,398 Accounts payable and other liabilities (including $ 29 and $ 601 at June 30, 2025 and December 31, 2024, respectively, from related parties) 49,129 32,105 Accrued interest 3,350 3,238 Deferred revenue 9,791 9,791 Total liabilities 278,221 230,532 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 61,317 61,161 Retained earnings 544,491 538,699 Total shareholders' equity 607,771 601,823 Noncontrolling interests 200,301 200,447 Total equity 808,072 802,270 Total liabilities and equity $ 1,086,293 $ 1,032,802 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 June 30, Six Months Ended June 30, 2025 2024 2025 2024 Revenues: Rental reve

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 June 30, 2025, our portfolio of properties consisted of: Four office buildings comprising in aggregate of approximately 1,060,236 square feet; Fourteen multifamily properties, owned directly by us, comprising of 2,328 units; Four multifamily properties in development comprising in 906 units; and Approx imately 1,792 acres of devel oped 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 managem

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 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. Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB" issued ASU 2023-09 Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 requires entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of ASU 2023-09 on our consolidated financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures. ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of these standards on our consolidated financial statements. 3. Earnings Per

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: Six Months Ended June 30, 2025 2024 Cash paid for interest $ 3,122 $ 3,170 Cash paid for taxes 166 2,398 Cash - beginning of period Cash and cash equivalents $ 19,918 $ 36,740 Restricted cash 20,557 42,327 $ 40,475 $ 79,067 Cash - end of period Cash and cash equivalents $ 15,465 $ 46,077 Restricted cash 18,749 30,983 $ 34,214 $ 77,060 The following is a schedule of noncash investing and financing activities: Six Months Ended June 30, 2025 2024 Accrued development costs $ 13,738 $ 1,664 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) 5. Operating Segments Segment information is prepared on the same basis that our chief operating decision maker ("CODM") reviews information to assess performance and make resource allocation decisions. Our CODM is our President and Chief Executive Officer. We operate in two reportable segments: (i) the acquisition, development, ownership and management of multifamily properties ("Residential Segment") and (ii) the acquisition, ownership and management of commercial real estate properties ("Commercial Segment"). The services for our segments include rental of property and other tenant services, including parking and storage space rental. The key operating metric that the CODM utilizes to evaluate the segments is net operating income ("NOI"), which we defined as property revenue less direct property operating expenses. NOI excludes depreciation, interest income and expenses, general and administrative expenses, advisory fees and income taxes. The following table presents our reportable segments for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Multifamily Segment Revenues $ 8,493 $ 8,675 $ 17,257 $ 17,185 Segment expenses Property tax and insurance ( 2,522 ) ( 2,665 ) ( 5,057 ) ( 5,406 ) Repairs and maintenance ( 986 ) ( 994 ) ( 1,626 ) ( 1,635 ) Other property expenses ( 1,023 ) ( 839 ) ( 1,888 ) ( 1,675 ) Profit from segment 3,962 4,177 8,686 8,469 Commercial Segment Revenues 3,667 3,098 6,911 6,487 Segment expenses Property tax and insurance ( 608 ) ( 843 ) ( 1,232 ) ( 1,942 ) Repairs and maintenance ( 368 ) ( 290 ) ( 642 ) ( 600 ) Other property expenses ( 1,028 ) ( 993 ) ( 2,067 ) ( 2,000 ) Profit from segment 1,663 972 2,970 1,945 Total profit from segments $ 5,625 $ 5,149 $ 11,656 $ 10,414 The table below reflects the reconciliation of NOI to net inco

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 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 commercial property leases generally include minimum rents and recoveries for property taxes and common area maintenance. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. The following table summarizes the components of our rental revenue for the three and six months ended June 30, 2025 and 2024: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Fixed component $ 11,232 $ 10,827 $ 22,394 $ 21,826 Variable component 278 361 543 641 $ 11,510 $ 11,188 $ 22,937 $ 22,467 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: 2025 $ 12,936 2026 12,944 2027 12,563 2028 11,622 2029 9,624 Thereafter 20,963 $ 80,652 7. Real Estate Activity Below is a summary of our real estate as of June 30, 2025 and December 31, 2024: June 30, 2025 December 31, 2024 Land $ 104,076 $ 104,076 Building and improvements 375,689 375,430 Tenant improvements 18,677 16,629 Construction in progress 191,814 140,046 Total cost 690,256 636,181 Less accumulated depreciation ( 84,394 ) ( 78,793 ) Total real estate $ 605,862 $ 557,388 We incurred depreciation expense of $ 2,880 and $ 2,986 for the three months ended June 30, 2025 and 2024, respectively, $ 5,601 and $ 6,004 for the six months ended June 30, 2025 and 2024, respectively. Construction Activities Construction in progress consists of the development of Windmill Farms and the costs associated with our ground-up development projects. 11 Table of Content

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) Windmill Farms is a collection of freshwater districts ("Districts") in Kaufman County Texas that is being developed into single family lots, multifamily properties and retail properties. In connection with the project, we develop the infrastructure in Windmill Farms in order for the land to appreciate and to sell land units ("lots") to home builders for construction of single family homes. We receive reimbursement of the infrastructure costs ("District Receivables") through the issuance of municipal bonds by the Districts. As of June 30, 2025, we have $ 55,450 in District Receivables included in other assets (See Note 11 – Other Assets ) and $ 47,081 of land lot development costs included in construction in progress. We have entered into several development agreements with Pillar (See Note 13 – Related Party Transactions ) to develop multifamily properties. Each of these development projects is being funded in part by a construction loan (See Note 12 – Mortgages and Other Notes Payable) . The following is a summary of construction costs (dollars in thousands) incurred as of June 30, 2025 : Project Units Location Total Project Cost Costs Incurred Expected Completion Date Alera 240 Lake Wales, FL $ 55,330 $ 51,047 December 2025 Bandera Ridge 216 Temple, TX 49,603 44,045 November 2025 Merano 216 McKinney, TX 51,910 44,470 November 2025 Mountain Creek 234 Dallas, TX 49,971 5,171 October 2026 906 $ 206,814 $ 144,733 Sale of assets Gain on sale or write-down of assets, net for the three and six months ended June 30, 2025 and 2024 consists of the following: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Land (1) $ 947 $ — $ 4,092 $ — Other — — 746 — Total $ 947 $ — $ 4,838 $ — (1) Includes the gain on dispositions of land from our investment in Windmill Farms and other land holdings. 8. Short-term Investments The fo

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 June 30, 2025 and December 31, 2024: Carrying value Property/Borrower June 30, 2025 December 31, 2024 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) 1,300 1,451 5.00 % 7/1/28 Bellwether Ridge(1) 3,798 3,798 5.00 % 11/1/26 Dominion at Mercer Crossing(2) 6,167 6,167 8.50 % 6/7/28 Echo Station(3)(4) 10,120 10,120 4.41 % 12/31/32 Forest Pines(1) 6,472 6,472 5.00 % 5/1/27 Inwood on the Park(3)(4) 20,208 20,208 4.41 % 6/30/28 Kensington Park(3)(4) 6,169 6,994 4.41 % 3/31/27 Lake Shore Villas(3)(4) 5,518 5,855 4.41 % 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(3)(4) 3,615 3,615 4.41 % 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.(3) 20 107 4.41 % 3/31/28 Plaza at Chase Oaks(3)(4) 11,622 11,772 4.41 % 3/31/28 Plum Tree(1) 1,390 1,478 5.00 % 8/17/28 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 % 1/16/27 Spyglass of Ennis(1) 4,705 4,705 5.00 % 11/1/28 Steeple Crest(1) 6,331 6,358 5.00 % 8/1/26 Timbers at The Park(3)(4) 11,146 11,146 4.41 % 12/31/32 Tuscany Villas(3)(4) 1,548 1,548 4.41 % 4/30/27 $ 136,684 $ 138,349 (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 note bears interest at prime plus 1.0 %. (3) The borrower is determined to be a related party due to our si

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 10. Investment in Unconsolidated Joint Ventures Victory Abode Apartments, LLC On November 16, 2018 , we formed the Victory Abode Apartments, LLC ("VAA"), a joint venture with the Macquarie Group ("Macquarie"). VAA was formed as a result of our sale of a 50 % ownership interest in a portfolio of multifamily properties to Macquarie in exchange for a 50 % voting interest in VAA a nd a note payable. On September 16, 2022, VAA sold 45 of its properties for $ 1,810,700 , resulting in a gain on sale of $ 738,444 to the joint venture. In connection with the sale, we received an initial distribution of $ 182,848 from

View Full Filing

View this 10-Q filing on SEC EDGAR