AMERICAN REALTY INVESTORS, INC. FORM 10-Q
American Realty Investors, Inc. (ARL) reported its quarterly financial results for the period ended March 31, 2025. The company’s consolidated balance sheet showed total assets of $X, total liabilities of $Y, and total stockholders’ equity of $Z. The consolidated statements of operations revealed net income of $X, with revenue of $Y and expenses of $Z. The company’s cash flows from operations, investing, and financing activities were $X, $Y, and $Z, respectively. Management’s Discussion and Analysis of Financial Condition and Results of Operations highlighted the company’s financial performance, including its revenue growth, expense management, and cash flow generation. The report also included notes to the consolidated financial statements, which provided additional information about the company’s accounting policies, significant transactions, and other matters.
Management’s Overview
We are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development throughout the Southern United States. Our portfolio includes residential apartment communities (“multifamily properties”), office buildings, and retail properties (“commercial properties”). Our investment strategy involves acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project.
Our operations are managed by Pillar Income Asset Management, Inc. (“Pillar”) under an Advisory Agreement. Pillar’s duties include locating, evaluating, and recommending real estate and real estate-related investment opportunities, asset management, and arranging debt and equity financing. We have no employees, and all of our services are performed by Pillar employees. Pillar is considered a related party due to its common ownership with May Realty Holdings, Inc. (“MRHI”), our controlling shareholder.
Acquisitions and Dispositions
- On December 13, 2024, we sold 30 single family lots from our holdings in Windmill Farms for $1.4 million, resulting in a gain on sale of $1.1 million.
- On March 25, 2025, we received $3.5 million in proceeds from the condemnation settlement that provided for the conveyance of 11.2 acres from our holdings in Windmill Farms, resulting in a gain on sale of $3.1 million.
Financing Activities
- On January 1, 2024, we amended our cash management agreement with Pillar, changing the interest rate on the related party receivable from prime plus one to SOFR.
- We extended the maturity of our loans on Windmill Farms and New Concept Energy in 2024.
- On July 10, 2024, we replaced the existing loan on Forest Grove with a $6.6 million loan at SOFR plus 2.15% maturing on August 1, 2031.
- On October 21, 2024, we entered into a $27.5 million construction loan to finance the development of Mountain Creek at an interest rate of SOFR plus 3.45% maturing on October 20, 2026.
Development Activities
We are developing Windmill Farms, a collection of freshwater districts in Kaufman County, Texas, into single family lots, multifamily properties, and retail properties. We also have four multifamily development projects underway, as summarized in the table below:
| Project | Units | Location | Total Project Cost | Costs Incurred | Expected Completion Date |
|---|---|---|---|---|---|
| Alera | 240 | Lake Wales, FL | $55,330 | $43,901 | December 2025 |
| Bandera Ridge | 216 | Temple, TX | $49,603 | $35,692 | November 2025 |
| Merano | 216 | McKinney, TX | $51,910 | $34,323 | November 2025 |
| Mountain Creek | 234 | Dallas, TX | $49,971 | $5,122 | October 2026 |
| Total | 906 | $206,814 | $119,038 |
During the three months ended March 31, 2025, we incurred $26.3 million in development costs, funded in part by $17.1 million in construction loan borrowings.
Other Developments
- On October 31, 2024, we paid $23.4 million to settle litigation with David M. Clapper and related entities regarding a 1998 multifamily property transaction.
- On December 16, 2024, TCI announced an offer to purchase up to 100,000 shares of IOR at $18 per share, which was completed on January 29, 2025, resulting in TCI’s acquisition of 21,678 shares for $0.5 million. During the three months ended March 31, 2025, TCI purchased an additional 12,680 IOR shares for $0.2 million.
Critical Accounting Policies
We apply the guidance in ASC Topic 820 to the valuation of our real estate assets, which defines fair value and establishes a hierarchy for the inputs used in the valuation. We also apply ASC Topic 805 to evaluate our business relationships and identify related parties.
Results of Operations
Comparing the three months ended March 31, 2025 to the same period in 2024:
- Segment profit increased by $766,000, with the multifamily segment increasing by $433,000 due to higher rents and the commercial segment increasing by $333,000 due to lower insurance and property tax costs.
- Interest income, net decreased by $1.6 million due to lower average balances and interest rates on short-term investments.
- Gain on real estate transactions increased by $3.9 million, primarily due to the $3.1 million condemnation settlement.
Liquidity and Capital Resources
Our principal sources of cash are property operations, asset sales, note receivable collections, refinancing, and additional borrowings. Our principal liquidity needs are to fund normal operations, debt service, capital expenditures, development costs, and potential acquisitions.
As of March 31, 2025, we believe our cash and cash equivalents, along with cash generated from notes receivable and investments, will be sufficient to meet our cash requirements. We may selectively sell assets, refinance debt, and seek additional borrowings to meet our liquidity needs.
The table below summarizes our cash flows for the three months ended March 31, 2025 and 2024:
| 2025 | 2024 | Variance | |
|---|---|---|---|
| Net cash (used in) provided by operating activities | $(7,408) | $3,867 | $(11,275) |
| Net cash (used in) provided by investing activities | $(16,630) | $11,574 | $(28,204) |
| Net cash provided by (used in) financing activities | $15,600 | $(1,456) | $17,056 |
The increase in cash used in operating activities was primarily due to decreases in accounts payable and other assets. The increase in cash used in investing activities was primarily due to higher development and renovation costs and net redemption of short-term investments. The increase in cash provided by financing activities was due to borrowings on our construction loans.
Funds From Operations (FFO)
We use FFO, a non-GAAP measure, in addition to net income to report our operating and financial results. The table below reconciles net income to FFO for the three months ended March 31, 2025 and 2024:
| 2025 | 2024 | |
|---|---|---|
| Net income attributable to the Company | $2,965 | $1,751 |
| Depreciation and amortization | $2,883 | $3,172 |
| Gain on real estate transactions | $(3,891) | $- |
| Gain on sale of land | $3,145 | $- |
| Depreciation and amortization on unconsolidated joint ventures at our pro rata share | $60 | $53 |
| FFO-Basic and Diluted | $5,162 | $4,976 |
In summary, our financial performance for the three months ended March 31, 2025 was marked by increased segment profits, gains on real estate transactions, and continued development activity, partially offset by lower interest income. We believe our current liquidity position and financing arrangements will allow us to meet our cash requirements going forward.
