Sales and Gains - The company sold a 50% ownership interest in Overlook at Allensville Phase II for $2.6 million, resulting in a gain of $1.4 million[79]. - The sale of 600 Las Colinas generated $74.8 million, with a gain of $27.3 million, and proceeds were used to pay off the mortgage[80]. - In 2022, the company sold 134.7 acres of land for $20.2 million, resulting in gains of $10.3 million[80]. - The company received $182.8 million from VAA as an initial distribution from the sale of the VAA Sale Portfolio, which totaled $1.8 billion[91]. - Gain on sale of land was $188 in 2023, significantly lower than $4,752 in 2022[115]. Development Projects - The company spent $5.0 million on the ongoing development of Windmill Farms, with an agreement to sell 276 lots for $13.1 million[85]. - A development agreement for a 240 unit multifamily property in Lake Wales is expected to cost approximately $55.3 million, funded partly by a $33.0 million construction loan[86]. - The company incurred a total of $16.9 million in development costs for the Lake Wales project as of December 31, 2023[86]. - A construction loan of $25.4 million was entered into for the development of Merano, expected to be completed in 2025[87]. - The company completed the restoration of Landing on Bayou Cane for a total cost of $16.7 million, primarily funded by insurance proceeds[89]. Financial Performance - Multifamily segment revenue increased to $32,608,000 in 2023 from $17,828,000 in 2022, a variance of $14,780,000[104]. - Operating expenses for the multifamily segment rose to $17,749,000 in 2023 from $9,524,000 in 2022, resulting in an operating income increase of $6,555,000[104]. - Commercial segment revenue decreased to $14,415,000 in 2023 from $16,252,000 in 2022, a decline of $1,837,000[104]. - Net income dropped significantly to $5,251,000 in 2023 from $475,317,000 in 2022, a decrease of $470,066,000[104]. - Interest income, net increased by $8,315,000, primarily due to an $8,000,000 decrease in interest expense and a $300,000 increase in interest income[104]. Funds and Cash Flow - Funds From Operations (FFO) for 2023 was $19,997,000 compared to $43,275,000 in 2022, reflecting a decrease of $23,278,000[115]. - The company anticipates sufficient cash and short-term investments to meet liquidity requirements through 2024[109]. - Cash used in operating activities decreased to $31,054,000 in 2023 from $45,386,000 in 2022, a variance of $14,332,000[111]. - Cash provided by investing activities fell to $26,813,000 in 2023 from $307,357,000 in 2022, a decrease of $280,544,000[112]. - The company plans to selectively sell land and income-producing assets to meet liquidity needs[109]. Income and Expenses - Net income attributable to the Company for 2023 was $3,968, compared to $373,349 in 2022, indicating a significant decrease[115]. - FFO-Basic and Diluted for 2023 was $19,997, down from $43,275 in 2022[115]. - FFO-adjusted for 2023 was $20,714, compared to $41,267 in 2022, reflecting a decline[115]. - Depreciation and amortization on consolidated assets increased to $13,646 in 2023 from $9,686 in 2022[115]. - Loss on early extinguishment of debt was $1,710 in 2023, down from $2,805 in 2022[115]. Asset Management - Loss (gain) on sale, remeasurement or write down of assets was $1,923 in 2023, compared to a gain of $(87,132) in 2022[115]. - Loss on foreign currency transactions was $(993) in 2023, an improvement from $(20,067) in 2022[115]. - Depreciation and amortization on unconsolidated joint ventures at pro rata share was $272 in 2023, down from $8,424 in 2022[115]. - Gain on sale of assets from unconsolidated joint venture at pro rata share was $(265,804) in 2022, with no corresponding figure for 2023[115].

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for American Realty Investors, Inc., including Balance Sheets, Statements of Operations, Equity, Cash Flows, and accompanying Notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to **$1.06 billion** by September 30, 2023, from **$1.20 billion** at year-end 2022, while total liabilities significantly decreased to **$241.6 million** Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$1,062,278** | **$1,197,479** | | Cash and cash equivalents | $47,203 | $113,445 | | Real estate | $502,031 | $493,821 | | **Total Liabilities** | **$241,563** | **$385,311** | | Mortgages and other notes payable | $182,428 | $188,004 | | Bonds payable | $0 | $129,218 | | **Total Equity** | **$820,715** | **$812,168** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Net income attributable to common shares significantly decreased to **$6.1 million** for the nine months ended September 30, 2023, from **$329.9 million** in 2022, despite total revenues increasing to **$36.5 million** Nine Months Ended September 30 (in thousands, except per share) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $36,453 | $24,235 | | Net Operating Loss | ($9,049) | ($10,716) | | Equity in income from unconsolidated joint ventures | $2,946 | $471,385 | | Net Income Attributable to Common Shares | $6,091 | $329,915 | | Earnings Per Share (basic and diluted) | $0.38 | $20.43 | [Consolidated Statements of Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity increased from **$812.2 million** to **$820.7 million** by September 30, 2023, primarily due to **$8.5 million** in net income - For the nine months ended September 30, 2023, total equity grew from **$812.2 million** to **$820.7 million**, with net income of **$8.5 million** being the sole contributor to the change[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities turned positive at **$7.8 million**, while investing activities used **$9.6 million**, and financing activities used **$137.3 million**, leading to a **$139.0 million** net cash decrease Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $7,846 | ($6,874) | | Net Cash from Investing Activities | ($9,566) | $154,850 | | Net Cash from Financing Activities | ($137,260) | ($71,524) | | **Net (Decrease) Increase in Cash** | **($138,980)** | **$76,452** | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail the company's organization, accounting policies, business segments, real estate activities, debt, related party transactions, and subsequent events - The company's primary business is acquiring, developing, and owning income-producing multifamily and commercial properties[23](index=23&type=chunk) - Over **90%** of its stock is owned by related party entities, and its day-to-day operations are managed by a related party, Pillar Income Asset Management, Inc[25](index=25&type=chunk) Property Portfolio as of September 30, 2023 | Property Type | Details | | :--- | :--- | | Office Buildings | 4 buildings, ~1.06 million sq. ft. | | Multifamily Properties | 14 properties, 2,328 units | | Land | ~1,858 acres | - The company operates in two reportable segments: Multifamily and Commercial[38](index=38&type=chunk) - For the nine months ended Sep 30, 2023, the Multifamily segment generated a profit of **$9.9 million**, while the Commercial segment generated a profit of **$3.7 million**[41](index=41&type=chunk) - In May 2023, the company paid off the remaining balances of its Series A and Series B Bonds and withdrew from the Tel Aviv Stock Exchange (TASE)[84](index=84&type=chunk) - Subsequent to the quarter end, on November 6, 2023, the company entered into a development agreement with Pillar to build a 216-unit multifamily property in McKinney, Texas for an estimated total cost of **$51.3 million**[96](index=96&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion covers recent activities, critical accounting policies, operational results, liquidity, capital resources, and Funds From Operations (FFO) reconciliation [Management's Overview](index=23&type=section&id=Management%27s%20Overview) Management highlights the payoff of outstanding bonds, a new **$33.0 million** construction loan for Lake Wales development, and a final **$18.0 million** distribution from a joint venture sale - Key financing activities included paying off all Series A, B, and C bonds in 2023 and entering into a new **$33.0 million** construction loan for the Lake Wales development[105](index=105&type=chunk) - A new development project was initiated on March 15, 2023, to build a 240-unit multifamily property in Lake Wales, Florida, expected to be completed in 2025 for a total cost of approximately **$55.3 million**[106](index=106&type=chunk) - The company received the final distribution of **$18.0 million** in March 2023 from the 2022 sale of 45 properties by the VAA joint venture[108](index=108&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Net income decreased by **$410.4 million** for the nine-month period due to the absence of a 2022 gain, while multifamily profit increased and commercial profit decreased - The **$410.4 million** decrease in net income for the nine months ended Sep 30, 2023, compared to 2022, was primarily due to a significant one-time gain from the VAA joint venture property sale in 2022[119](index=119&type=chunk) - For the nine-month period, the multifamily segment profit increased by **$6.3 million**, driven by newly acquired properties[119](index=119&type=chunk) - The commercial segment profit decreased by **$2.4 million** due to a decline in occupancy at the Stanford Center property and higher insurance costs[119](index=119&type=chunk) - Net interest income increased by **$11.0 million** for the nine-month period, resulting from higher interest income on investments and lower interest expense following the repayment of bonds[119](index=119&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity relies on property operations, asset sales, and debt financing, with cash from operations increasing to **$7.8 million** and financing activities using **$137.3 million** - The company plans to fund its liquidity needs through property operations, selective asset sales, refinancing, and additional borrowings[120](index=120&type=chunk) - Management believes current resources are sufficient to meet all cash requirements[121](index=121&type=chunk) Change in Cash Flows - Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | Variance | | :--- | :--- | :--- | :--- | | Operating Activities | $7,846 | ($6,874) | $14,720 | | Investing Activities | ($9,566) | $154,850 | ($164,416) | | Financing Activities | ($137,260) | ($71,524) | ($65,736) | - The increase in cash used in financing activities was primarily due to an **$87.4 million** increase in bond payments as the company paid off its bonds in 2023[124](index=124&type=chunk) [Funds From Operations (FFO)](index=28&type=section&id=Funds%20From%20Operations%20(FFO)) Basic and diluted FFO decreased to **$16.0 million** for the nine months ended September 30, 2023, from **$26.1 million** in the prior year, with adjusted FFO also declining FFO Reconciliation Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net income attributable to the Company | $6,091 | $329,915 | | **FFO-Basic and Diluted** | **$15,973** | **$26,051** | | **FFO-adjusted** | **$16,690** | **$24,673** | [Quantitative and Qualitative Disclosures About Market Risks](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company, as a smaller reporting entity, has opted not to include quantitative and qualitative disclosures about market risks - The company has opted not to include quantitative and qualitative disclosures about market risks[132](index=132&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2023[133](index=133&type=chunk) - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[134](index=134&type=chunk) [PART II. OTHER INFORMATION](index=30&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) No new material legal proceedings were reported for the period - No legal proceedings were reported under this item[135](index=135&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the company's 2022 Form 10-K - The company states there are no material changes to the risk factors disclosed in its 2022 10-K[136](index=136&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased under the program during the nine months ended September 30, 2023, with **263,250** shares remaining available for repurchase - No shares were repurchased during the nine months ended September 30, 2023[137](index=137&type=chunk) - The company has authorization to repurchase an additional **263,250** shares under its existing program[137](index=137&type=chunk) [Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported [Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported [Other Information](index=30&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to________ Commission File Number 001-15663 AMERICAN REALTY INVESTORS, INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 75-28 ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, along with detailed notes and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the quarter ended March 31, 2023, show a decrease in total assets to $1.11 billion, primarily due to a significant reduction in liabilities from $385.3 million to $297.0 million following bond repayments, while total revenue increased to $11.7 million from $7.8 million year-over-year, net income attributable to the company fell sharply to $3.0 million from $11.3 million, largely because of a significant gain on asset sales in the prior-year period that did not recur, and cash flow from operations turned positive, but significant cash was used for investing and financing activities, including bond repayments [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$1,113,420** | **$1,197,479** | **($84,059)** | | Cash and cash equivalents | $55,340 | $113,445 | ($58,105) | | Real estate, net | $502,941 | $493,821 | $9,120 | | **Total Liabilities** | **$297,033** | **$385,311** | **($88,278)** | | Mortgages and other notes payable | $187,179 | $188,004 | ($825) | | Bonds payable | $41,672 | $129,218 | ($87,546) | | **Total Equity** | **$816,387** | **$812,168** | **$4,219** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Three Months Ended March 31, (in thousands, except per share) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $11,688 | $7,787 | +$3,901 | | Net Operating Loss | ($3,086) | ($4,495) | +$1,409 | | Gain on sale or write-down of assets, net | $0 | $11,148 | ($11,148) | | **Net Income** | **$4,219** | **$14,567** | **($10,348)** | | Net Income Attributable to the Company | $2,978 | $11,314 | ($8,336) | | **EPS - basic and diluted** | **$0.18** | **$0.70** | **($0.52)** | - The significant decrease in net income year-over-year is primarily attributable to a **$11.1 million gain on the sale of assets** in Q1 2022, which was not repeated in Q1 2023[21](index=21&type=chunk) [Consolidated Statements of Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Equity) - For the three months ended March 31, 2023, total equity increased from **$812.2 million to $816.4 million**, driven by a net income of **$4.2 million** for the period[24](index=24&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Three Months Ended March 31, (in thousands) | Cash Flow Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,539 | ($4,186) | +$5,725 | | Net cash (used in) provided by investing activities | ($24,212) | $5,646 | ($29,858) | | Net cash used in financing activities | ($89,127) | ($38,769) | ($50,358) | | **Net decrease in cash** | **($111,800)** | **($37,309)** | **($74,491)** | - The significant increase in cash used for financing activities was primarily due to payments on bonds payable, which rose to **$88.3 million** in Q1 2023 from **$22.9 million** in Q1 2022[28](index=28&type=chunk)[41](index=41&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's business structure, segment performance, and significant transactions, including its portfolio composition of multifamily and commercial properties, a significant increase in multifamily segment profit, the initiation of a new $55.3 million development project, distributions from the VAA joint venture, and substantial bond repayments leading to a withdrawal from the Tel-Aviv Stock Exchange subsequent to the quarter's end - The company's primary business is the acquisition, development, and ownership of income-producing multifamily and commercial properties, with its portfolio as of March 31, 2023, including **four office buildings**, **fourteen multifamily properties (2,328 units)**, and approximately **1,858 acres of land**[31](index=31&type=chunk)[32](index=32&type=chunk) Segment Profit (in thousands) | Segment | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Multifamily | $3,665 | $1,508 | +$2,157 | | Commercial | $1,238 | $1,945 | ($707) | | **Total Profit from Segments** | **$4,903** | **$3,453** | **+$1,450** | - On March 15, 2023, the company began development of a **240-unit multifamily property** in Lake Wales, Florida, with an expected total cost of **$55.3 million**, partially funded by a new **$33.0 million construction loan**[55](index=55&type=chunk)[83](index=83&type=chunk) - The company received a final distribution of **$17.976 million** from its VAA joint venture on March 23, 2023, representing the remaining proceeds from the 2022 sale of the VAA Sale Portfolio[66](index=66&type=chunk) - In January 2023, the company repaid its Series C bonds totaling **$88.3 million**, and subsequent to the quarter end, on May 4, 2023, it paid off the remaining Series A and Series B Bonds and withdrew from the Tel-Aviv Stock Exchange (TASE)[89](index=89&type=chunk)[101](index=101&type=chunk) - The company engages in significant transactions with related parties Pillar and Regis for advisory, management, and other services, with advisory fees to Pillar totaling **$2.4 million** and G&A expenses payable to Pillar totaling **$1.5 million** for Q1 2023[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20%28MD%26A%29) Management attributes the $10.3 million year-over-year decrease in net income primarily to the non-recurrence of an $11.1 million gain on asset sales and a $2.8 million decrease in income from joint ventures from the prior year, partially offset by improved performance in the multifamily segment and higher net interest income, while highlighting recent strategic activities including significant debt reduction through bond repayments, acquisition of seven multifamily properties, and the start of a new development project, despite the drop in net income, Funds From Operations (FFO) showed substantial growth, increasing from $1.9 million to $6.1 million [Management's Overview](index=23&type=section&id=Management%27s%20Overview) - Recent financing activities include the full repayment of Series C bonds in January 2023 and the subsequent payoff of Series A and B bonds in May 2023, along with securing a new **$33.0 million construction loan** for a development project[112](index=112&type=chunk) - On November 1, 2022, the company acquired **seven multifamily properties** (the "VAA Holdback Portfolio") from its VAA joint venture[110](index=110&type=chunk)[114](index=114&type=chunk) - A new development project for a **240-unit multifamily property** in Lake Wales, Florida, began on March 15, 2023, with an expected completion in 2025 at a total cost of approximately **$55.3 million**[113](index=113&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) - The **$10.3 million decrease in net income** from Q1 2022 to Q1 2023 was primarily driven by the absence of a **$9.4 million gain** on the sale of the Toulon property and a **$2.0 million gain** on land sales that occurred in 2022[124](index=124&type=chunk) - Profit from the multifamily segment increased by **$2.2 million**, mainly due to contributions from newly acquired properties, while profit from the commercial segment decreased by **$0.7 million** due to lower occupancy at Stanford Center[124](index=124&type=chunk) - Net interest income improved by **$4.5 million**, resulting from a **$4.0 million increase** in interest income (due to higher rates and larger short-term investments) and a **$1.0 million decrease** in interest expense (due to debt repayments)[124](index=124&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash from operating activities increased by **$5.7 million** year-over-year, primarily due to higher interest income and rents from acquired properties[127](index=127&type=chunk) - Cash used in investing activities increased by **$29.9 million**, mainly because of **$28.5 million** in proceeds from real estate sales in 2022 and a net increase in short-term investment purchases in 2023[128](index=128&type=chunk) - Cash used in financing activities increased by **$50.4 million**, driven by the **$67.4 million payoff** of Series C Bonds in 2023[128](index=128&type=chunk) [Funds From Operations (FFO)](index=27&type=section&id=Funds%20From%20Operations%20%28FFO%29) FFO Reconciliation (in thousands) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Net income attributable to the Company | $2,978 | $11,314 | ($8,336) | | Adjustments (Depreciation, Gain on Sale, etc.) | $3,151 | ($11,389) | +$14,540 | | **FFO-Basic and Diluted** | **$6,129** | **$1,925** | **+$4,204** | | **FFO-adjusted** | **$5,158** | **($208)** | **+$5,366** | - Despite a sharp decline in net income, FFO increased significantly, which management believes provides a more meaningful measure of operating results by excluding items like real estate depreciation and gains/losses from property sales[130](index=130&type=chunk)[131](index=131&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section is optional for the registrant and was not included in the report - The company has elected not to include quantitative and qualitative disclosures about market risks in this report[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Principal Executive Officer and Principal Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of the end of the period, with no material changes to the company's internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[136](index=136&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[137](index=137&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no legal proceedings in this section, however, Note 18 in the financial statements discloses ongoing litigation with David Clapper, which is currently under appeal in the US Fifth Circuit Court of Appeals - The company reports "None" under this item[138](index=138&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes from the risk factors disclosed in the 2022 10-K were reported[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any of its shares during the three months ended March 31, 2023, and under its existing share repurchase program, 263,250 shares remain available for purchase - No shares were repurchased during the three months ended March 31, 2023, and as of the end of the quarter, **263,250 shares** may still be purchased under the existing repurchase program[140](index=140&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with or incorporated by reference into the Form 10-Q, including corporate governance documents, material agreements, and officer certifications - A list of exhibits filed with the report is provided, including certifications by the Principal Executive and Financial Officer and XBRL data files[143](index=143&type=chunk)[144](index=144&type=chunk)

[Part I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business) ARL, an externally managed real estate company operating through TCI, focuses on multifamily, commercial, and land investments, with 2022 marked by major property sales and acquisitions - The company is an externally managed real estate firm operating through its **majority-owned subsidiary**, Transcontinental Realty Investors, Inc. (TCI), managed by Pillar Income Asset Management, Inc., with ARL itself having **no employees**[6](index=6&type=chunk)[7](index=7&type=chunk)[11](index=11&type=chunk) Portfolio Composition as of December 31, 2022 | Property Type | Details | | :--- | :--- | | **Commercial Properties** | 4 office buildings, ~1,056,793 sq ft | | **Multifamily Properties** | 14 properties, 2,328 units | | **Land** | ~1,858 acres (developed and undeveloped) | - A major 2022 event was the VAA joint venture's sale of 45 properties for **$1.8 billion**, resulting in ARL receiving an initial cash distribution of **$182.8 million**, a subsequent distribution of **$204.0 million**, and **full operational control** of the seven remaining VAA properties[17](index=17&type=chunk)[18](index=18&type=chunk) - The company's business strategy is to **maximize long-term value** by **acquiring, developing, and owning income-producing multifamily properties** in the secondary markets of the Southern United States, while also opportunistically investing in commercial properties and land[19](index=19&type=chunk) [Risk Factors](index=7&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks to the company's business, categorized by factors affecting its assets and the broader real estate industry [Factors Affecting Our Assets](index=7&type=section&id=FACTORS%20AFFECTING%20OUR%20ASSETS) Risks directly impacting the company's assets include potential future disease outbreaks, tenant financial instability, intense competition, development activity risks, high leverage of approximately **$317.2 million**, and geographic concentration - The company's operating results are highly dependent on tenants' ability to pay rent, which can be adversely affected by economic challenges, such as those created by the COVID-19 pandemic, and potential shifts in residents' views on their rent obligations[35](index=35&type=chunk) - As of December 31, 2022, the company had total indebtedness of approximately **$317.2 million**, with substantially all real estate assets pledged as collateral, increasing risk of loss and vulnerability to economic declines[48](index=48&type=chunk) - The company's properties are concentrated in the southwestern, southeastern, and mid-western United States, making its performance heavily dependent on the economic conditions in these regions[47](index=47&type=chunk) [Factors Affecting the Industry](index=11&type=section&id=FACTORS%20AFFECTING%20THE%20INDUSTRY) The company is subject to industry-wide risks including real estate illiquidity, economic downturns, interest rate changes, competition, increased operating costs, and regulatory changes like rent control laws - Real estate investments are generally **illiquid**, meaning properties cannot be sold quickly, which may limit the company's ability to respond to changing economic conditions or realize full asset value[55](index=55&type=chunk)[63](index=63&type=chunk) - Adverse economic conditions, such as a recession or pandemic effects, could lead to reduced rental rates, lower occupancy, decreased property valuations, and difficulty in obtaining financing[62](index=62&type=chunk)[68](index=68&type=chunk) - The company faces risks from competition, changes in rent control or stabilization laws, and shifts in tenant demand, particularly with the increase in 'work from home' arrangements[64](index=64&type=chunk)[66](index=66&type=chunk) [Unresolved Staff Comments](index=13&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[69](index=69&type=chunk) [Properties](index=14&type=section&id=Item%202.%20Properties) As of December 31, 2022, the company's portfolio includes 14 residential properties with **2,328 units**, four commercial properties totaling approximately **1.06 million square feet**, and significant land investments of approximately **1,858 acres** Residential Property Portfolio Summary (Dec 31, 2022) | Location | No. of Properties | Units | | :--- | :--- | :--- | | Alabama | 1 | 200 | | Colorado | 2 | 260 | | Louisiana | 3 | 608 | | Mississippi | 1 | 160 | | Texas | 7 | 1,100 | | **Total** | **14** | **2,328** | Commercial Property Portfolio Summary (Dec 31, 2022) | Property | Location | Square Feet | Occupancy | | :--- | :--- | :--- | :--- | | 770 South Post Oak | Houston, TX | 95,450 | 55.2% | | Browning Place | Dallas, TX | 625,297 | 71.7% | | Senlac | Dallas, TX | 2,812 | 100.0% | | Stanford Center | Dallas, TX | 333,234 | 61.6% | | **Total** | | **1,056,793** | | - A significant portion of commercial leases are set to expire in the near term, with **36% of total leased square footage expiring in 2023**[75](index=75&type=chunk) - The company holds **1,710 acres of land for development** and an additional **148 acres held subject to sales contracts**, with the largest project being Windmill Farms in Kaufman County, TX[77](index=77&type=chunk) [Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) The company reports on three key legal matters: a favorable jury verdict in the 'Nixdorf' case, an ongoing appeal in the 'Clapper' case, and the dismissal of the 'Berger' suit - In the 'Nixdorf' property sale litigation, a jury returned a **\"Plaintiff take nothing\" verdict** in the company's favor on March 18, 2023[78](index=78&type=chunk) - In the 'Clapper' litigation, a jury found the defendants owed nothing, and the court issued a take-nothing judgment, with the case currently under appeal to the US Fifth Circuit Court of Appeals[78](index=78&type=chunk) - The 'Berger' suit, which alleged improper property sales, was voluntarily dismissed by the plaintiff and formally **dismissed with prejudice** by the court on January 4, 2023[78](index=78&type=chunk) [Mine Safety Disclosures](index=16&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[79](index=79&type=chunk) [Part II](index=17&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock (NYSE: ARL) showed significant volatility in 2022, with no dividends paid for 2020-2022, and no shares repurchased in 2022 under its program Quarterly Common Stock Price Range (NYSE: ARL) | Quarter | 2022 High | 2022 Low | 2021 High | 2021 Low | | :--- | :--- | :--- | :--- | :--- | | First | $15.70 | $11.90 | $11.50 | $8.50 | | Second | $23.02 | $13.75 | $13.31 | $7.71 | | Third | $16.74 | $13.35 | $20.38 | $9.20 | | Fourth | $27.76 | $15.26 | $13.67 | $11.04 | - The Board of Directors determined **not to pay any dividends** on common stock in 2022, 2021, or 2020[82](index=82&type=chunk) - Under its stock repurchase program, the company **did not repurchase any shares in 2022**, with **19,465 shares** remaining authorized for repurchase as of December 31, 2022[82](index=82&type=chunk) [Selected Financial Data](index=17&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is optional and has not been included in the report - Optional and not included[83](index=83&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details the company's financial performance and condition, highlighting the significant impact of the VAA Sale Portfolio on 2022 net income and discussing liquidity, critical accounting policies, and FFO reconciliation [Management's Overview](index=17&type=section&id=Management%27s%20Overview) The company, an externally managed real estate firm, saw its 2022 activities dominated by the **$1.8 billion** VAA Sale Portfolio transaction, generating a **$738.4 million** gain for the JV and significant cash distributions to ARL - On September 16, 2022, the VAA joint venture completed the sale of the VAA Sale Portfolio for **$1.8 billion**, generating a gain of **$738.4 million** for the JV[92](index=92&type=chunk) - Following the VAA sale, the company received cash distributions totaling **$386.8 million** and acquired **full operational control** of the seven-property VAA Holdback Portfolio[92](index=92&type=chunk)[93](index=93&type=chunk) - Financing activities in 2022 included paying off mortgage loans on Toulon (**$14.7 million**), Sugar Mill Phase III (**$9.6 million**), and Stanford Center (**$38.5 million**), and assuming **$70.3 million** in mortgages on the acquired VAA Holdback Portfolio[90](index=90&type=chunk) [Critical Accounting Policies](index=20&type=section&id=Critical%20Accounting%20Policies) Management identifies critical accounting policies requiring significant estimates and judgments, including fair value measurements using a three-level hierarchy, related party transactions, and environmental liabilities - The company applies ASC Topic 820 for fair value measurements, using a three-level hierarchy to prioritize inputs, where Level 1 uses quoted prices in active markets and Level 3 uses unobservable data requiring the most judgment[97](index=97&type=chunk) - The company is not aware of any environmental liabilities that would have a material adverse effect on its business, assets, or results of operations[99](index=99&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Net income for 2022 dramatically increased by **$468.9 million** year-over-year, primarily driven by a **$454.6 million** increase in joint venture income from the VAA Sale Portfolio and a **$62.5 million** gain on remeasurement of assets Comparison of Results of Operations (Years Ended Dec 31, in thousands) | (In thousands) | 2022 | 2021 | Variance | | :--- | :--- | :--- | :--- | | **Total Revenue** | $37,544 | $42,039 | ($4,495) | | **Segment Operating Income** | $15,741 | $16,948 | ($1,207) | | **Income from Joint Ventures** | $469,268 | $14,634 | $454,634 | | **Gain on sale/remeasurement** | $87,132 | $24,647 | $62,485 | | **Net Income** | **$475,317** | **$6,445** | **$468,872** | - The **$468.9 million increase in net income** was primarily due to the company's share of the gain on the sale of the VAA Sale Portfolio and a **$73.2 million gain** on the remeasurement of the VAA Holdback Portfolio[105](index=105&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash sources include operations, asset sales, and financing, with 2022 seeing increased net cash used in operating activities due to tax payments and substantially higher net cash from investing activities due to VAA distributions - Principal sources of cash include property operations, proceeds from property sales, collection of notes receivable, and debt/equity financing[107](index=107&type=chunk) Cash Flow Summary (Years Ended Dec 31, in thousands) | Activity | 2022 | 2021 | Variance | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(45,386) | $(11,523) | $(33,863) | | Net cash provided by investing activities | $307,357 | $100,822 | $206,535 | | Net cash used in financing activities | $(112,377) | $(103,585) | $(8,792) | - The increase in cash from investing activities was primarily due to a **$376.9 million increase** in distributions from the VAA joint venture following the sale of the VAA Sale Portfolio[111](index=111&type=chunk) [Funds From Operations (FFO)](index=24&type=section&id=Funds%20From%20Operations%20(FFO)) The company uses FFO, a non-GAAP measure defined by Nareit, as a supplemental financial metric, with FFO-adjusted increasing to **$41.3 million** in 2022 from **$26.4 million** in 2021 - FFO is used as a supplemental measure to GAAP net income to provide a meaningful comparison of operating results, as it excludes items like real estate depreciation and gains from property sales[113](index=113&type=chunk)[114](index=114&type=chunk) Reconciliation of Net Income to FFO-adjusted (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Net income attributable to the Company** | $373,349 | $3,347 | $9,030 | | Adjustments for depreciation, gains on sale, etc. | ... | ... | ... | | **FFO-Basic and Diluted** | $43,275 | $18,819 | $23,350 | | Adjustments for debt extinguishment, currency | ... | ... | ... | | **FFO-adjusted** | **$41,267** | **$26,445** | **$36,730** | [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is optional and has not been included in the report - Optional and not included[118](index=118&type=chunk) [Consolidated Financial Statements and Supplementary Data](index=25&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2020-2022, including the independent auditor's report highlighting critical audit matters, and detailed notes on key events, accounting policies, debt, and related party transactions [Report of Independent Registered Public Accounting Firm](index=26&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued an unqualified opinion on the consolidated financial statements, identifying real estate impairment, notes receivable collectability, and straight-line revenue recognition as critical audit matters - The auditor expressed an **unqualified opinion** on the consolidated financial statements for the three-year period ended December 31, 2022[125](index=125&type=chunk) - Critical Audit Matters identified were: **Impairment of investment in real estate**, **Collectability of Notes Receivable**, and **Revenue Recognition (straight-line)** for commercial tenants[129](index=129&type=chunk) [Consolidated Financial Statements](index=29&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets increased to **$1.2 billion** in 2022, total liabilities decreased, and total equity grew substantially to **$812.2 million**, with net income surging to **$475.3 million** and EPS to **$23.11** due to the VAA transaction Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | $1,197,479 | $770,569 | | **Total Liabilities** | $385,311 | $433,718 | | **Total Equity** | $812,168 | $336,851 | Consolidated Statement of Operations Highlights (in thousands, except per share) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | **Total Revenue** | $37,544 | $42,039 | | **Net Income** | $475,317 | $6,445 | | **EPS (Basic and Diluted)** | $23.11 | $0.21 | [Notes to Consolidated Financial Statements](index=33&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the VAA joint venture transaction, including the **$1.81 billion** sale of 45 properties and the **$73.2 million** remeasurement gain on the acquired VAA Holdback Portfolio, alongside disclosures on **$188.0 million** in mortgages, **$129.2 million** in bonds payable, and significant related party transactions - Note 10: On September 16, 2022, the VAA joint venture sold 45 properties for **$1.81 billion**, resulting in a gain of **$738.4 million** to the JV, with the company receiving substantial cash distributions and the remaining seven properties[206](index=206&type=chunk) - Note 11: On November 1, 2022, the company acquired the VAA Holdback Portfolio, resulting in a **gain on remeasurement of assets of $73.2 million**[196](index=196&type=chunk)[215](index=215&type=chunk) Debt Summary (as of Dec 31, 2022, in thousands) | Debt Type | Carrying Value | | :--- | :--- | | Mortgages and other notes payable | $188,004 | | Bonds payable | $129,218 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=56&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[267](index=267&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, with no material changes identified during the fourth quarter - Management concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[268](index=268&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2022[270](index=270&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, these controls[271](index=271&type=chunk) [Other Information](index=56&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[272](index=272&type=chunk) [Part III](index=57&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=57&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's governance structure, including its six-member Board with five independent directors, and describes the extensive Advisory Agreement with Pillar, which employs all executive officers and receives various fees - The Board of Directors has **six members**, with **five deemed independent**: Henry A. Butler, William J. Hogan, Robert A. Jakuszewski, Ted R. Munselle, and Raymond D. Roberts, Sr[277](index=277&type=chunk)[279](index=279&type=chunk)[281](index=281&type=chunk)[291](index=291&type=chunk) - All executive officers, including the CEO and CFO, are employed by Pillar Income Asset Management, Inc. (Pillar), the company's external advisor, and the company has **no direct employees**[292](index=292&type=chunk)[299](index=299&type=chunk) - Pillar's compensation includes a monthly gross asset fee (**0.75% annually**), a **7.5% net income fee**, a **10% incentive sales fee**, up to **1% acquisition commission**, and a **6% construction fee** on hard costs[301](index=301&type=chunk)[302](index=302&type=chunk)[304](index=304&type=chunk) [Executive Compensation](index=64&type=section&id=Item%2011.%20Executive%20Compensation) The company has no employees and does not directly compensate its executive officers, who are paid by the advisor Pillar; only independent directors receive remuneration, totaling **$90,238** in 2022 - The company has **no employees or payroll** and pays **no compensation to its executive officers**, who are compensated by the external advisor, Pillar[317](index=317&type=chunk) - Non-affiliated Directors are entitled to an annual retainer of **$12,000**, with the Chairman of the Audit Committee receiving an additional annual fee of **$500**[318](index=318&type=chunk) - Total director fees paid to non-employee directors for the year ended December 31, 2022, was **$90,238**[319](index=319&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=65&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 23, 2023, The May Trust, through its affiliates, beneficially owned approximately **90.8%** of the company's common stock, while ownership by directors and executive officers remains minimal - The May Trust, along with its affiliates May Realty Holdings, Inc. and Realty Advisors, Inc., is the largest beneficial owner, holding **14,669,820 shares**, which represents **90.8% of the outstanding common stock**[322](index=322&type=chunk) - Security ownership by management is very low, with only one of nine listed directors and executive officers, Bradford A. Phillips, holding shares (**4,315 shares**, or **0.02%**), owned indirectly[324](index=324&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=66&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company details extensive related party relationships, primarily with its advisor Pillar and property manager Regis, requiring independent director approval for all such transactions, and reported a **$108.2 million** receivable from related parties at year-end 2022 - The company's policy requires that any transaction with a related party must be determined to be fair and be authorized or ratified by a **majority of independent directors**[327](index=327&type=chunk) - In 2022, the company paid its advisor, Pillar, **$8.8 million** in advisory fees and **$3.6 million** in cost reimbursements, and paid Regis **$0.4 million** in property management and other fees[335](index=335&type=chunk)[336](index=336&type=chunk) - As of December 31, 2022, the company had a receivable from related parties of **$108.2 million**, which accrues interest at the prime rate plus **1.0%**[337](index=337&type=chunk) [Principal Accounting Fees and Services](index=67&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section details fees billed by the independent auditor, Farmer, Fuqua and Huff, L.P., with audit fees totaling **$104,042** in 2022, and confirms the Audit Committee's policy for pre-approval of all audit and permissible non-audit services Auditor Fees Billed | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $104,042 | $183,333 | | Audit-Related Fees | $0 | $0 | | All Other Fees | $0 | $0 | - The Audit Committee has established policies and procedures for the **pre-approval of all audit and permitted non-audit services** performed by the independent auditor[343](index=343&type=chunk) [Part IV](index=69&type=section&id=PART%20IV) [Exhibits, Financial Statement Schedules](index=69&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K report, including consolidated financial statements, specific schedules for real estate and mortgage loans, and various exhibits such as the Advisory Agreement and officer certifications - The filing includes financial statements and two key schedules: **Schedule III—Real Estate and Accumulated Depreciation**, and **Schedule IV—Mortgage Loan Receivables on Real Estate**[346](index=346&type=chunk) - Key exhibits filed with the report include the **Advisory Agreement with Pillar Income Asset Management (Exhibit 10.1)** and **certifications by the Principal Executive Officer and Principal Financial Officer** as required by the Sarbanes-Oxley Act[348](index=348&type=chunk) [Form 10-K Summary](index=71&type=section&id=Item%2016.%20Form%2010-K%20Summary) This section is optional and has not been included in the report - Optional and not included herein[349](index=349&type=chunk)

PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the quarterly period ended March 31, 2022 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The company's balance sheet shows a decrease in total assets and liabilities, with an increase in total equity - Total assets decreased to **$729.4 million** from $770.6 million, driven by lower real estate and cash balances[15](index=15&type=chunk) - Total liabilities decreased to **$378.0 million** from $433.7 million, mainly due to reduced mortgage and bond payables[16](index=16&type=chunk) - Total equity increased to **$351.4 million** from $336.9 million, supported by higher retained earnings[17](index=17&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Real estate | $284,480 | $296,363 | | Cash and cash equivalents | $13,794 | $50,748 | | **Total Assets** | **$729,438** | **$770,569** | | **Liabilities** | | | | Mortgages and other notes payable | $169,205 | $183,392 | | Bonds payable | $163,571 | $189,452 | | **Total Liabilities** | **$378,020** | **$433,718** | | **Equity** | | | | Total shareholders' equity | $251,452 | $240,138 | | **Total Equity** | **$351,418** | **$336,851** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Q1 2022 net income declined year-over-year due to lower total revenues and smaller gains on asset sales - Net income attributable to the Company decreased to **$11.3 million** in Q1 2022 from $18.1 million in Q1 2021[20](index=20&type=chunk) - The decline was driven by lower total revenues, which fell to **$7.8 million**, and a smaller gain on asset sales[20](index=20&type=chunk) Q1 2022 vs Q1 2021 Performance (in thousands, except per share) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Revenue | $7,787 | $11,828 | | Net Operating Loss | ($4,495) | ($3,002) | | Gain on sale or write-down of assets, net | $11,148 | $17,398 | | Net Income | $14,567 | $23,215 | | Net Income Attributable to the Company | $11,314 | $18,068 | | Basic and Diluted EPS | $0.70 | $1.12 | [Consolidated Statements of Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity grew during Q1 2022, primarily driven by the period's net income - Total equity increased to **$351.4 million** in Q1 2022, primarily due to net income of $14.6 million[23](index=23&type=chunk) - Retained earnings grew by **$11.3 million** during the quarter, reaching $187.4 million[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company experienced negative cash flow from operations and financing, leading to a net decrease in cash - Net cash used in operating activities was **$4.2 million** in Q1 2022, an increase from $1.4 million in Q1 2021[27](index=27&type=chunk) - Net cash from investing activities decreased to **$5.6 million** from $14.6 million year-over-year, mainly due to lower collections on notes receivable[27](index=27&type=chunk) - Net cash used in financing activities increased to **$38.8 million**, driven by higher payments on mortgages, notes, and bonds[27](index=27&type=chunk) - The company saw a net decrease in cash of **$37.3 million**, ending the quarter with a $35.4 million balance[27](index=27&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail business segments, significant property sales, joint venture activities, and related-party transactions - The company's primary business is income-producing properties, with significant ownership by related parties and a **78.4%** stake in TCI[30](index=30&type=chunk)[31](index=31&type=chunk) - The Multifamily and Commercial segments generated profits of **$1.5 million** and **$1.9 million** respectively in Q1 2022[46](index=46&type=chunk)[49](index=49&type=chunk) - A multifamily property was sold for **$26.75 million**, generating a **$9.4 million** gain on sale[59](index=59&type=chunk)[104](index=104&type=chunk) - The VAA joint venture portfolio, valued at approximately **$1.4 billion**, is being marketed for sale[69](index=69&type=chunk)[70](index=70&type=chunk)[109](index=109&type=chunk) - The company was non-compliant with the DSCR for one property loan, risking a 'Cash Trap' event[78](index=78&type=chunk) - Significant related-party transactions include **$3.2 million** in Q1 2022 advisory fees paid to Pillar[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - The company faces ongoing litigation concerning property transfers, with a trial scheduled for November 2022[94](index=94&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, liquidity, capital resources, and the impact of recent transactions and COVID-19 - Management notes a temporary decline in commercial property occupancy due to COVID-19, with future impact remaining uncertain[100](index=100&type=chunk)[133](index=133&type=chunk) - Significant Q1 transactions include a property sale for **$26.8 million** generating a **$9.4 million** gain[104](index=104&type=chunk)[105](index=105&type=chunk) - The company plans to sell its VAA joint venture portfolio, appraised at approximately **$1.4 billion**, though realization of this value is not assured[109](index=109&type=chunk)[110](index=110&type=chunk) - The **$8.6 million** year-over-year decrease in net income is attributed to lower asset sale gains and foreign currency changes[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Management is confident in meeting liquidity needs through operations, asset sales, and refinancing[121](index=121&type=chunk) FFO Reconciliation (in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net income attributable to the Company | $11,314 | $18,068 | | Depreciation and amortization | $2,349 | $3,327 | | Gain on sale or write down of assets | ($11,148) | ($17,398) | | FFO-Basic and Diluted | $1,925 | $8,084 | | FFO-adjusted (after currency & debt extinguishment) | ($208) | $467 | [Quantitative and Qualitative Disclosures About Market Risks](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) This section is included as a placeholder, but no specific market risk disclosures are provided - The report includes the heading for this item but does not contain any substantive disclosures[128](index=128&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2022 - Management concluded that disclosure controls and procedures were **effective** as of the quarter-end[128](index=128&type=chunk) - No material changes to internal controls over financial reporting occurred during the quarter[129](index=129&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ongoing litigation, including an appeal and a lawsuit concerning property transfers - The company is defending an appeal in a case where a jury previously found in its favor[93](index=93&type=chunk) - A lawsuit alleging improper property sales is scheduled for trial in November 2022[94](index=94&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors are reported, except for ongoing uncertainty from the COVID-19 pandemic - The company highlights ongoing risks from the COVID-19 pandemic, particularly its unpredictable impact on commercial real estate[133](index=133&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased during the quarter, with 263,250 shares remaining available under the program - No shares were repurchased during the three months ended March 31, 2022[134](index=134&type=chunk) - The company has authorization to repurchase an additional **263,250 shares** under its existing program[134](index=134&type=chunk) [Defaults Upon Senior Securities](index=26&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - No defaults were reported[135](index=135&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[135](index=135&type=chunk) [Other Information](index=26&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - No other information was reported[135](index=135&type=chunk) [Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including required SOX certifications and interactive data files - The filing includes officer certifications as required by Sarbanes-Oxley Act Rules 13a-14 and 15d-14[138](index=138&type=chunk) - A certification pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act) is also included[138](index=138&type=chunk) - Interactive Data Files (XBRL) are furnished as part of the filing[139](index=139&type=chunk)