Financial Performance - Rental and other property revenues for 2019 were $47.97 million, a decrease from $120.96 million in 2018[119] - Total operating expenses in 2019 were $59.38 million, compared to $107.07 million in 2018[119] - The net loss income from continuing operations for 2019 was $(21.74) million, significantly down from $182.69 million in 2018[119] - For the year ended December 31, 2019, the company reported a net loss applicable to common shares of $15.9 million, or ($1.00) diluted earnings per share, compared to a net income of $172.8 million, or $10.35 diluted earnings per share for 2018[170] - Rental and other property revenues decreased to $47.9 million for the year ended December 31, 2019, down from $121.0 million in 2018, primarily due to the deconsolidation of 49 residential apartment properties[171] - Property operating expenses decreased by $33.9 million to $25.7 million for the year ended December 31, 2019, compared to $59.6 million in 2018, mainly due to the deconsolidation of residential apartment properties[172] - Depreciation and amortization expenses decreased by $9.3 million to $13.4 million for the year ended December 31, 2019, compared to $22.7 million in 2018, attributed to the deconsolidation of residential apartments[173] - Interest income increased to $25.9 million for the year ending December 31, 2019, compared to $21.6 million in 2018, driven by higher receivables from advisors[177] - Other income decreased to $11.0 million for the year ending December 31, 2019, down from $28.9 million in 2018, primarily due to lower gains from property sales[178] - Mortgage and loan interest expense decreased by $26.2 million to $39.9 million for the year ending December 31, 2019, compared to $66.1 million in 2018, due to the deconsolidation of residential properties[180] - Loss from unconsolidated investments was $2.3 million for the year ending December 31, 2019, compared to net earnings of $1.5 million in 2018, primarily due to losses from the VAA joint venture[183] - Gain on land sales decreased by $2.1 million to $15.3 million for the year ending December 31, 2019, compared to $17.4 million in 2018, with land sales totaling $30.0 million[185] Assets and Liabilities - The total assets of the company as of December 31, 2019, were $830.64 million, slightly up from $826.15 million in 2018[119] - As of December 31, 2019, the company owned 1,657 units in ten residential apartment communities and seven commercial properties, totaling approximately 1.7 million rentable square feet[128] - The company has a total of approximately 1,951 acres of land held for development across eight states[128] - As of December 31, 2019, the company consolidated ten multifamily residential properties with total assets of approximately $478 million, compared to $464 million for nine properties at December 31, 2018[136] - As of December 31, 2019, outstanding notes payable amounted to approximately $261.4 million, with a weighted average interest rate of 5.04%[218] - The company has total contractual obligations of $619,545 thousand as of December 31, 2019, including notes and bonds payable[213] Cash Flow and Financing - Net cash used in operating activities for the year ended December 31, 2019 was $(40,641) thousand, an increase of $131,691 thousand compared to $(172,332) thousand in 2018[205] - During the year ended December 31, 2019, the company advanced $21.4 million toward various notes receivable and invested approximately $33.7 million for construction and development[206] - Aggregate sales proceeds from the sale of land and income-producing properties in 2019 totaled $27.3 million, compared to $11.9 million in 2018[207] - For the year ended December 31, 2019, cash flow from financing activities increased due to proceeds from borrowings of $25.7 million and $78.1 million from the sale of nonconvertible Series C Bonds[208] Interest Rates and Risk - If market interest rates for variable-rate debt increase by 100 basis points in 2020, interest expense would increase and net income would decrease by approximately $0.002 million[221] - The company has not anticipated future capital market exposures that could affect interest rate risk[223] - The fair value of variable rate notes payable was $3,908,000 with an average interest rate of 9.75%[223] - The fair value of fixed interest rate notes payable was $257,528,000, with total interest payments amounting to $81,118,000[223] - The average interest rate for fixed interest rate notes payable was 8.51%[223] - The maturities of fixed interest rate instruments included $30,396,000 due within one year and $119,537,000 due in five to ten years[223] - Total interest for fixed rate notes payable included $10,712,000 for the first year and $47,954,000 over the life of the instruments[223] - The interest rates on variable rate notes payable were equal to the variable rates in effect on December 31, 2019[223] Property Transactions and Investments - The company sold 105.1 acres of land for an aggregate sales price of $30.0 million during the year ended December 31, 2019[125] - The company purchased an option to buy 37.8 acres of land for $2.0 million from a third-party land developer[126] - The company advanced $21.4 million to several developers with the option to purchase residential properties under construction[127] - The company accounts for investments in unconsolidated real estate ventures under the equity method, adjusting for equity in earnings and cash contributions[148] - The company recognizes rental revenue from multi-family real estate property leases when due from residents, with an allowance for doubtful accounts for past due rents[151] - The company evaluates long-lived assets for impairment when events indicate a change in circumstances, with fair value determined by appraisals or comparable sales[144] - The company did not record any impairment charges for the years ended December 31, 2019, and 2018, indicating stable asset valuations[144] - Properties classified as held for sale are reported at the lower of carrying amount or estimated fair value, with no real estate assets classified as held for sale at December 31, 2019, or 2018[145] Management and Related Party Transactions - The company has engaged in related party transactions, which may not always be favorable and cannot be presumed to be on an arm's length basis[130] - The company received $19.8 million in payments from related party note receivables during the year ended December 31, 2019[207] - Management anticipates that cash generated in 2020 will be sufficient to meet all cash requirements[202]

PART I. FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited statements show a slight asset increase, a significant shift from net income to net loss, and negative operating cash flow Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Items | September 30, 2019 (unaudited) | December 31, 2018 (audited) | | :--- | :--- | :--- | | Total real estate, net | $379,990 | $381,043 | | Total assets | $832,362 | $826,149 | | Total liabilities | $533,901 | $505,022 | | Total shareholders' equity | $298,461 | $321,127 | Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Rental and other property revenues | $11,943 | $33,409 | $35,712 | $96,099 | | Net (loss) income | ($9,450) | $22,616 | ($19,799) | $28,526 | | Net (loss) income applicable to common shares | ($7,571) | $20,126 | ($16,496) | $24,870 | | (Loss) earnings per share - diluted | ($0.47) | $1.21 | ($1.03) | $1.50 | Consolidated Statement of Cash Flows Summary (Nine Months Ended, in thousands) | Cash Flow Activity | September 30, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($8,801) | ($11,215) | | Net cash (used in) investing activities | ($16,782) | ($71,916) | | Net cash provided by financing activities | $18,908 | $91,031 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's organization, accounting policies, the VAA joint venture's impact, real estate transactions, debt composition, and segment performance - The company is externally managed by Pillar Income Asset Management, Inc ("Pillar"), which handles day-to-day operations, including locating and recommending real estate investments and arranging financing[19](index=19&type=chunk) - In November 2018, the company's subsidiary TCI formed a joint venture, Victory Abode Apartments, LLC ("VAA"), with Macquarie Group, contributing a portfolio of 49 apartment complexes and now accounts for its **50% interest** using the equity method[23](index=23&type=chunk)[46](index=46&type=chunk) - During Q3 2019, the company sold 16.15 acres of land for a total of **$7.0 million**, recognizing a gain of approximately **$5.1 million**[53](index=53&type=chunk)[54](index=54&type=chunk) - As of September 30, 2019, the company had **$120.3 million** in notes and interest receivable from related parties, net of allowances[63](index=63&type=chunk) - In July 2019, the company's subsidiary SPC issued Series C bonds for **NIS 275 million (approx. $78.1 million)**, using proceeds to pay off **$41.5 million** in mortgage debt and incurring a **$5.2 million loss** on debt extinguishment[56](index=56&type=chunk)[71](index=71&type=chunk)[76](index=76&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes decreased revenue and a net loss to the VAA joint venture deconsolidation and a foreign currency loss, outlining a liquidity strategy involving asset sales and refinancing [Results of Operations](index=34&type=section&id=Results%20of%20Operations) The third quarter comparison shows significantly lower revenue and a net loss of $7.6 million, driven by the VAA deconsolidation, a foreign currency loss, and a loss on debt extinguishment Q3 2019 vs Q3 2018 Performance (in millions) | Metric | Q3 2019 | Q3 2018 | Change | | :--- | :--- | :--- | :--- | | Rental and other property revenues | $11.9 | $33.5 | ($21.6) | | Property operating expenses | $5.9 | $15.9 | ($10.0) | | Net (loss) income applicable to common shares | ($7.6) | $20.1 | ($27.7) | - The primary reason for the sharp decline in revenues and property operating expenses was the deconsolidation of 49 residential apartment properties sold into the VAA Joint Venture during the fourth quarter of 2018[152](index=152&type=chunk)[153](index=153&type=chunk) - A foreign currency transaction loss of **$5.2 million** was recorded in Q3 2019, an increase of **$3.9 million** from Q3 2018, due to the unfavorable exchange rate on its Israeli Shekel-denominated bonds[160](index=160&type=chunk) - The company recognized a **$5.2 million loss** on debt extinguishment in Q3 2019 related to the prepayment of a **$41.5 million** mortgage on a commercial building[161](index=161&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company anticipates operating cash flow will be insufficient to meet all obligations and plans to sell assets and refinance debt to ensure liquidity - Management explicitly states that available cash from property operations may not be sufficient to meet all cash requirements and that the company intends to sell assets and refinance debt to meet its liquidity needs[180](index=180&type=chunk) Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | September 30, 2019 | September 30, 2018 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($8,801) | ($11,215) | | Net cash (used in) investing activities | ($16,782) | ($71,916) | | Net cash provided by financing activities | $18,908 | $91,031 | - Financing activities in the first nine months of 2019 included receiving **$78.1 million** from a new bond issuance and making payments of **$21.7 million** on bond principal and **$41.5 million** on mortgage debt[185](index=185&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company's primary market risk is interest rate changes, which is mitigated as the vast majority of its debt is at fixed rates - The company's exposure to interest rate risk is limited, as only **$4.4 million** of its **$257 million** in notes payable carried variable interest rates as of September 30, 2019[192](index=192&type=chunk) - A 100 basis point increase in variable interest rates would increase total annual interest cost by an estimated **$0.05 million**[192](index=192&type=chunk) [Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of the end of the reporting period[195](index=195&type=chunk) - **No material changes** to the company's internal control over financial reporting were identified during the most recent fiscal quarter[196](index=196&type=chunk) PART II. OTHER INFORMATION [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase program, noting no shares were repurchased in Q1 2019 and 263,250 shares remain available for repurchase - The company has a share repurchase program with authorization for up to **1,250,000 shares**, which has no termination date[197](index=197&type=chunk) - **No shares were repurchased** during the first quarter of 2019, and as of September 30, 2019, **263,250 shares** may still be purchased under the program[197](index=197&type=chunk) [Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, key agreements, and required officer certifications - The report includes a list of filed exhibits, such as corporate governance documents and the advisory agreement with Pillar Income Asset Management, Inc[199](index=199&type=chunk)[208](index=208&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to SEC rules and the Sarbanes-Oxley Act of 2002 are filed as exhibits[209](index=209&type=chunk)[210](index=210&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents ARL's unaudited consolidated financial statements and notes for periods ended June 30, 2019, and December 31, 2018 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric | June 30, 2019 (thousands) | December 31, 2018 (thousands) | Change (thousands) | | :---------------------- | :------------------------ | :---------------------------- | :----------------- | | Total Assets | $817,553 | $826,149 | $(8,596) | | Total Liabilities | $506,887 | $505,022 | $1,865 | | Total Shareholders' Equity | $310,666 | $321,127 | $(10,461) | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) | Metric (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :----------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental and other property revenues | $11,840 | $31,607 | $23,769 | $62,690 | | Net operating (loss) income | $(4,377) | $3,617 | $(6,112) | $8,535 | | Net (loss) income attributable to American Realty Investors, Inc. | $(2,778) | $5,854 | $(8,925) | $5,194 | | Net (loss) income applicable to common shares | $(2,778) | $5,629 | $(8,925) | $4,744 | | (Loss) earnings per share - basic | $(0.17) | $0.35 | $(0.56) | $0.30 | [Consolidated Statement of Shareholders' Equity](index=5&type=section&id=Consolidated%20Statement%20of%20Shareholders'%20Equity) | Metric (thousands) | December 31, 2018 | June 30, 2019 | | :----------------------------------------------- | :---------------- | :------------ | | Total Equity | $321,127 | $310,666 | | Net loss (6 months ended June 30, 2019) | N/A | $(10,349) | | Retained Earnings | $179,666 | $170,741 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric (thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(10,349) | $5,910 | | Total comprehensive (loss) income | $(10,349) | $5,910 | | Comprehensive (loss) income attributable to American Realty Investors, Inc. | $(8,925) | $5,194 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric (thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(15,490) | $2,946 | | Net cash (used in) investing activities | $(7,910) | $(51,838) | | Net cash (used in) provided by financing activities | $(968) | $53,122 | | Net increase in cash and cash equivalents | $(24,368) | $4,230 | | Cash and cash equivalents, end of period | $82,247 | $92,768 | [Notes to Consolidated Financial Statements](index=8&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201.%20ORGANIZATION%20AND%20BASIS%20OF%20PRESENTATION) ARL, a Nevada corporation, invests in real estate, is externally managed, has related party ownership, and presents unaudited 10-Q financials - ARL is a Nevada corporation, formed in **1999**, with common stock traded on the NYSE under "ARL". Over **80%** of ARL's stock is owned by related party entities[15](index=15&type=chunk) - ARL owns approximately **78%** of Transcontinental Realty Investors, Inc. (TCI), which in turn owns approximately **81.25%** of Income Opportunity Realty Investors, Inc. (IOR)[16](index=16&type=chunk) - Pillar Income Asset Management, Inc. ("Pillar") serves as the external Advisor and Cash Manager, responsible for day-to-day operations, investment opportunities, and financing arrangements[18](index=18&type=chunk) - The company's income-producing properties at June 30, 2019, included **seven commercial properties (1.7 million sq ft)**, **nine residential apartment communities (1,512 units)**, approximately **2,293 acres** of land, and **fifty-one residential apartment communities (9,643 units)** owned by its **50%** investee VAA[24](index=24&type=chunk) [NOTE 2. INVESTMENT IN VAA](index=12&type=section&id=NOTE%202.%20INVESTMENT%20IN%20VAA) ARL's TCI subsidiary formed a **50/50** VAA joint venture with Macquarie for multifamily housing, accounted for by equity method - TCI formed a **50/50** joint venture, Victory Abode Apartments, LLC (VAA), with Macquarie Group in November **2018**, contributing **49 income-producing apartment complexes** and **3 development projects**[22](index=22&type=chunk)[43](index=43&type=chunk) - The company accounts for its investment in VAA under the equity method, reflecting its share of VAA's net income or loss in its consolidated statements[44](index=44&type=chunk) | VAA Financials (thousands) | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :------------------------- | :------------------------------- | :----------------------------- | | Total revenue | $28,927 | $56,328 | | Net loss | $(16,035) | $(33,781) | | Loss from VAA (ARL's share) | $(236) | $(1,291) | [NOTE 3. REAL ESTATE ACTIVITY](index=13&type=section&id=NOTE%203.%20REAL%20ESTATE%20ACTIVITY) Net real estate assets increased to **$383.4 million** by June 30, 2019, driven by land sale gains and a multifamily property loss | Real Estate Investment (thousands) | June 30, 2019 | December 31, 2018 | | :--------------------------------- | :------------ | :---------------- | | Apartments | $119,982 | $126,274 | | Commercial properties | $228,206 | $224,162 | | Land held for development | $77,245 | $83,641 | | Real estate held for sale | $14,737 | — | | Total real estate, net of depreciation | $383,422 | $381,043 | - During the three months ended June 30, 2019, the company sold **12.16 acres** of land in Farmers Branch, Texas for **$3.5 million** (gain of **$0.7 million**), **6.25 acres** in Nashville, Tennessee for **$2.3 million** (gain of **$0.9 million**), and **23.24 acres** in Fort Worth, Texas for **$1.8 million** (gain of **$0.5 million**)[47](index=47&type=chunk)[48](index=48&type=chunk) - A multifamily residential property in Mary Ester, Florida, was sold for **$3.1 million**, resulting in a loss of approximately **$0.08 million**[49](index=49&type=chunk) - TCI invested **$17.0 million** in apartment construction/predevelopment and capitalized **$0.4 million** in interest costs during the six months ended June 30, 2019[51](index=51&type=chunk) [NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION](index=14&type=section&id=NOTE%204.%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) Cash paid for interest significantly decreased to **$16.9 million** in H1 2019, while total cash and cash equivalents also decreased | Metric (thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest | $16,879 | $31,029 | | Cash and cash equivalents, and restricted cash | $82,247 | $92,768 | - Restricted cash includes funds for contractual obligations like reserve replacement deposits, tax and insurance escrow, and payments to the Bond's Trustee[53](index=53&type=chunk) [NOTE 5. NOTES AND INTEREST RECEIVABLE](index=14&type=section&id=NOTE%205.%20NOTES%20AND%20INTEREST%20RECEIVABLE) Net notes and interest receivable increased to **$159.6 million** by June 30, 2019, with **$12.3 million** interest income from related party notes | Metric (thousands) | June 30, 2019 | December 31, 2018 | | :---------------------------------- | :------------ | :---------------- | | Total notes and interest receivable | $173,851 | $140,327 | | Allowance for estimated losses | $(14,269) | $(14,269) | | Total, net | $159,582 | $126,058 | - At June 30, 2019, mortgage loans and accrued interest receivable from related parties totaled **$106.1 million**, generating **$12.3 million** in interest income[57](index=57&type=chunk) - During the quarter ended June 30, 2019, the company purchased **$31.9 million** in notes receivables from related parties[57](index=57&type=chunk) [NOTE 6. INVESTMENT IN UNCONSOLIDATED INVESTEES](index=16&type=section&id=NOTE%206.%20INVESTMENT%20IN%20UNCONSOLIDATED%20INVESTEES) ARL holds a **20% interest** in Gruppa Florentina, LLC, which generated **$1.2 million** net income in H1 2019, with ARL's share at **$0.25 million** - The company owns a **20% interest** in Gruppa Florentina, LLC, which is the sole shareholder of Milano Restaurants International Corporation, operating "Me-N-Ed's Pizza Parlors" and other restaurants[61](index=61&type=chunk) | Metric (thousands) | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Revenue (from investees) | $27,869 | $27,195 | | Net income (from investees) | $1,242 | $497 | | Company's 20% proportionate share of earnings | $248 | $99 | [NOTE 7. NOTES AND INTEREST PAYABLE](index=17&type=section&id=NOTE%207.%20NOTES%20AND%20INTEREST%20PAYABLE) Net notes and interest payable increased to **$293.1 million** by June 30, 2019, with **$12.9 million** drawn in construction loans | Metric (thousands) | June 30, 2019 | December 31, 2018 | | :----------------------------------------------- | :------------ | :---------------- | | Total notes payable | $301,231 | $295,535 | | Less: unamortized deferred borrowing costs | $(9,059) | $(9,428) | | Total outstanding notes payable, net | $292,172 | $286,107 | | Accrued Interest | $907 | $861 | | Total notes payable, net and accrued interest | $293,079 | $286,968 | - The company drew **$12.9 million** in construction loans during the six months ended June 30, 2019, for apartment and land developments[63](index=63&type=chunk) [NOTE 8. BONDS AND BONDS INTEREST PAYABLE](index=17&type=section&id=NOTE%208.%20BONDS%20AND%20BONDS%20INTEREST%20PAYABLE) Net outstanding bonds decreased to **$152.4 million** by June 30, 2019, with **$10.4 million** principal paid and an **$8.1 million** foreign currency loss | Metric (thousands) | June 30, 2019 | December 31, 2018 | | :----------------------------------------------- | :------------ | :---------------- | | Total outstanding bonds | $159,386 | $162,716 | | Less: deferred bond issuance costs | $(7,029) | $(8,179) | | Total outstanding bonds, net | $152,357 | $154,537 | | Accrued Interest | $4,971 | $4,037 | | Total outstanding bonds, net and accrued interest | $157,328 | $158,574 | - On January 31, 2019, the company paid **$10.4 million** on bond principal and **$5.8 million** on interest[66](index=66&type=chunk) - A foreign currency exchange loss of **$8.1 million** was recognized for the six months ended June 30, 2019, primarily due to a decrease in the exchange rate of NIS-denominated corporate bonds[66](index=66&type=chunk) [NOTE 9. DEFERRED INCOME](index=18&type=section&id=NOTE%209.%20DEFERRED%20INCOME) The company had **$30.2 million** in deferred gain from related party property sales as of June 30, 2019, due to continuing involvement - The company had **$30.2 million** in deferred gain as of June 30, 2019, from property sales to related parties where full gain recognition was deferred due to continuing involvement[67](index=67&type=chunk) [NOTE 10. RELATED PARTY TRANSACTIONS](index=18&type=section&id=NOTE%2010.%20RELATED%20PARTY%20TRANSACTIONS) The company engages in various related party transactions, with receivables decreasing to **$61.7 million** by June 30, 2019 - Related party transactions include rental income, interest income/expense, G&A costs, commissions, and management fees[68](index=68&type=chunk) | Metric (thousands) | December 31, 2018 | June 30, 2019 | | :---------------------------------- | :---------------- | :------------ | | Related party receivable, beginning | $70,377 | N/A | | Cash transfers | N/A | $17,994 | | Advisory fees | N/A | $(3,091) | | Notes receivable purchased | N/A | $(31,857) | | Related party receivable, ending | N/A | $61,676 | [NOTE 11. OPERATING SEGMENTS](index=18&type=section&id=NOTE%2011.%20OPERATING%20SEGMENTS) Operating segments include commercial, apartments, land, and other, with H1 2019 segment operating income at **$1.8 million** and total real estate assets at **$383.4 million** - The company's operating segments are commercial properties, apartments, land, and other, with performance evaluated based on net operating income and cash flow[70](index=70&type=chunk) | Segment Operating Income (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Commercial Properties | $(1,069) | $(1,050) | $(1,120) | $(1,385) | | Apartments | $10 | $3,465 | $(16) | $6,802 | | Land | $2,388 | $(70) | $4,318 | $1,072 | | Other | $(717) | $(3,817) | $(1,346) | $(6,973) | | Total Segment Operating Income (Loss) | $612 | $(1,472) | $1,836 | $(484) | | Real Estate Assets by Segment (thousands) | June 30, 2019 | June 30, 2018 | | :---------------------------------------- | :------------ | :------------ | | Commercial Properties | $152,863 | $135,288 | | Apartments | $151,688 | $762,410 | | Land | $78,871 | $111,899 | | Other | — | $647 | | Total Segment Assets | $383,422 | $1,010,244 | [NOTE 12. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY](index=21&type=section&id=NOTE%2012.%20COMMITMENTS%20AND%20CONTINGENCIES%20AND%20LIQUIDITY) Management plans asset sales, refinancing, and borrowings to meet liquidity needs, while facing litigations including a new breach of fiduciary duty lawsuit - Management intends to sell land and income-producing real estate, refinance, and obtain additional borrowings to meet liquidity requirements, as property operations may not generate sufficient cash[80](index=80&type=chunk)[166](index=166&type=chunk) - The company is the primary guarantor on a **$39.1 million** mezzanine loan between UHF and a lender[83](index=83&type=chunk) - A new lawsuit was filed on February 4, 2019, against TCI, ARL, Pillar, and certain officers/directors, alleging breach of fiduciary duty and seeking unspecified damages related to property sales/exchanges between the companies and IOR[91](index=91&type=chunk) - The company is vigorously defending against a lawsuit by the Clapper Parties seeking damages from ARL related to a stock exchange with a formerly owned entity, ART[85](index=85&type=chunk) [NOTE 13. EARNINGS PER SHARE](index=22&type=section&id=NOTE%2013.%20EARNINGS%20PER%20SHARE) Basic EPS is calculated from net income and common shares, with Series A preferred stock considered for diluted EPS, though **1.8 million** shares are non-dividend paying - Basic EPS is calculated by dividing net income available to common shareholders by the weighted-average common shares outstanding[92](index=92&type=chunk) - As of June 30, 2019, there are **1,800,614 shares** issued and **614 shares** outstanding of Series A **10.0%** cumulative convertible preferred stock, convertible into common stock at **90%** of the average daily closing price[93](index=93&type=chunk) - **1,800,000 shares** of Series A preferred stock are held by ARL and its subsidiaries, and no dividends are paid on these shares[93](index=93&type=chunk) [NOTE 14. SUBSEQUENT EVENTS](index=23&type=section&id=NOTE%2014.%20SUBSEQUENT%20EVENTS) On July 28, 2019, the company issued **$78 million** Series C bonds on TASE at **4.65%** interest, using **$42 million** to pay off a mortgage - On July 28, 2019, the company issued Series C bonds for NIS **275 million** (approx. **$78 million**) on the TASE, with a **4.65%** annual interest rate, collateralized by a commercial building[95](index=95&type=chunk) - Approximately **$42 million** of the Series C bond proceeds were used on August 9, 2019, to pay off a commercial building mortgage[95](index=95&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, key drivers, accounting policies, and future outlook, including liquidity and market risks [Forward-Looking Statements and Risk Factors](index=24&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) - Forward-looking statements are based on management's beliefs and assumptions, but actual results may vary materially due to known and unknown risks, trends, uncertainties, and factors beyond control[98](index=98&type=chunk) - Key risks include general real estate industry risks (e.g., inability to renew leases, tenant financial condition, competition), financing availability and terms, demand for properties, ability to obtain financing for development/acquisition, timing/amount of property sales, and managing growth[99](index=99&type=chunk) - There have been no changes from the risk factors previously described in the Company's Form 10-K for the fiscal year ended December 31, 2018[101](index=101&type=chunk) [Overview](index=25&type=section&id=Overview) - ARL is an externally advised and managed real estate investment company owning a diverse portfolio of income-producing properties (residential, office, commercial) and land for development[103](index=103&type=chunk) - During the six months ended June 30, 2019, the company sold **63.94 acres** of land for **$16.3 million** (purchased **9.41 acres** for **$2.8 million**) and sold a multifamily residential property for **$3.1 million** (loss of **$0.08 million**)[104](index=104&type=chunk) - As of June 30, 2019, the company owned **1,512 units** in **nine residential apartment communities**, **seven commercial properties (1.7 million sq ft)**, and approximately **2,293 acres** of land for development across **eight states**[107](index=107&type=chunk) - Acquisitions are primarily financed through operating cash flow, proceeds from property sales, and debt financing (property-specific first-lien mortgage loans)[108](index=108&type=chunk) - The company historically engages in related party transactions, which may not always be on an arm's length basis or beneficial to the business[110](index=110&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) - Consolidated financial statements include the company, its subsidiaries, and entities where it has a controlling interest or is the primary beneficiary of a Variable Interest Entity (VIE)[114](index=114&type=chunk) - Investments with less than a controlling financial interest or where the company is not the primary beneficiary (e.g., VAA, Gruppa Florentina, LLC) are accounted for using the equity method[116](index=116&type=chunk) - Real estate acquisitions involve assessing the fair value of tangible and intangible assets, allocating purchase price, and capitalizing costs related to planning, development, leasing, and construction[118](index=118&type=chunk)[120](index=120&type=chunk) - Impairment losses on long-lived assets are recognized if the carrying amount is not recoverable and exceeds fair value, based on estimated future cash flows[122](index=122&type=chunk) - Rental income for commercial leases is recognized on a straight-line basis, while residential leases are recognized monthly as earned. Revenue from real estate sales is recognized based on ASC Topic **360-20** criteria, deferring gains if continuing involvement exists[125](index=125&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) [Real Estate](index=27&type=section&id=Real%20Estate) - Upon acquisition, fair value is assessed for acquired tangible and intangible assets (land, buildings, tenant improvements, leases) and purchase price is allocated[118](index=118&type=chunk) - Costs related to planning, developing, leasing, and constructing a property are capitalized and classified as Real Estate, including pre-construction, development, construction, interest, and real estate taxes[120](index=120&type=chunk) - Capitalization ceases when a building is substantially complete and ready for its intended use, or no later than **one year** from the cessation of major construction activity[120](index=120&type=chunk) [Depreciation and Impairment](index=27&type=section&id=Depreciation%20and%20Impairment) - Real estate is stated at depreciated cost, with depreciation computed on a straight-line basis over useful lives (buildings/improvements: **10-40 years**; furniture/fixtures/equipment: **5-10 years**)[31](index=31&type=chunk)[121](index=121&type=chunk) - Impairment losses are recognized if the carrying amount of an asset is not recoverable and exceeds its fair value, based on estimated future cash flows[31](index=31&type=chunk)[122](index=122&type=chunk) [Investments in Unconsolidated Real Estate Ventures](index=27&type=section&id=Investments%20in%20Unconsolidated%20Real%20Estate%20Ventures) - Investments in unconsolidated real estate ventures are accounted for under the equity method when the company exercises significant influence but not control[123](index=123&type=chunk) - These investments are initially recorded at cost and subsequently adjusted for equity in earnings, cash contributions, and distributions[123](index=123&type=chunk) [Recognition of Rental Income](index=28&type=section&id=Recognition%20of%20Rental%20Income) - Rental income for commercial property leases is recognized on a straight-line basis over the lease terms[125](index=125&type=chunk) - Reimbursements of operating costs from commercial tenants (common area maintenance, real estate taxes) are recognized as revenue in the period incurred[126](index=126&type=chunk) - Rental income for residential property leases is recorded when due and recognized monthly as earned, which is not materially different from a straight-line basis for typical **one-year** leases[127](index=127&type=chunk) [Revenue Recognition on the Sale of Real Estate](index=28&type=section&id=Revenue%20Recognition%20on%20the%20Sale%20of%20Real%20Estate) - Sales and associated gains/losses of real estate are recognized in accordance with ASC Topic **360-20**, "Property, Plant and Equipment – Real Estate Sale"[128](index=128&type=chunk) - If sales criteria for the full accrual method are not met (e.g., due to continuing involvement), gain recognition is deferred, and alternative methods (finance, leasing, deposit, installment, cost recovery) are applied until criteria are met[128](index=128&type=chunk) [Non-Performing Notes Receivable](index=28&type=section&id=Non-Performing%20Notes%20Receivable) - A note receivable is considered non-performing when its maturity date has passed without principal repayment and the borrower is not making interest payments according to the agreement[129](index=129&type=chunk) [Interest Recognition on Notes Receivable](index=28&type=section&id=Interest%20Recognition%20on%20Notes%20Receivable) - Interest income on notes receivable is recorded as earned in accordance with the terms of the related loan agreements[130](index=130&type=chunk) [Allowance for Estimated Losses](index=28&type=section&id=Allowance%20for%20Estimated%20Losses) - The collectability of notes receivable is periodically assessed by evaluating borrower cash flow projections to determine repayment sufficiency[131](index=131&type=chunk) - Impairments are recognized when it is probable that principal and interest will not be received, with the amount based on the fair value of the partnership's real estate collateral[131](index=131&type=chunk) [Fair Value of Financial Instruments](index=28&type=section&id=Fair%20Value%20of%20Financial%20Instruments) - Fair value measurements follow ASC Topic **820**, defining fair value as the price to sell an asset or transfer a liability in an orderly transaction[132](index=132&type=chunk) - A three-level hierarchy prioritizes valuation inputs: Level **1** (quoted prices in active markets), Level **2** (observable inputs for similar assets/liabilities), and Level **3** (unobservable inputs significant to measurement)[134](index=134&type=chunk)[135](index=135&type=chunk) [Related Parties](index=29&type=section&id=Related%20Parties) - Related parties are defined by ASC Topic **805**, including entities with shared ownership, management, or significant influence, where one party might be prevented from fully pursuing its separate interests[136](index=136&type=chunk) [Results of Operations - Three Months Ended June 30, 2019 vs 2018](index=29&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030,%202019%20vs%202018) | Metric (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change (thousands) | | :----------------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Net (loss) income applicable to common shares | $(2,778) | $5,629 | $(8,407) | | (Loss) earnings per share - diluted | $(0.17) | $0.34 | $(0.51) | [Revenues](index=29&type=section&id=Revenues) | Metric (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Rental and other property revenues | $11,840 | $31,607 | $(19,767) | - The decrease in rental revenue is primarily due to the deconsolidation of **49 residential apartment properties** sold into the VAA Joint Venture in Q**4 2018**; these revenues are now part of income from unconsolidated investments[9](index=9&type=chunk)[139](index=139&type=chunk) [Expenses](index=29&type=section&id=Expenses) | Metric (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Property operating expenses | $7,323 | $15,550 | $(8,227) | | Depreciation and amortization | $3,439 | $6,504 | $(3,065) | | General and administrative | $4,127 | $2,954 | $1,173 | - Property operating expense decrease was driven by lower salary, real estate taxes, management fees, and other operating expenses due to VAA JV deconsolidation[9](index=9&type=chunk)[140](index=140&type=chunk) - General and administrative expense increase was due to higher fees paid to advisors (**$0.9 million**), franchise taxes (**$0.1 million**), and professional fees (**$0.2 million**)[9](index=9&type=chunk)[143](index=143&type=chunk) [Other Income (Expense)](index=30&type=section&id=Other%20Income%20(Expense)) | Metric (thousands) | 3 Months Ended June 30, 2019 | 3 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Interest income | $6,505 | $4,882 | $1,623 | | Other income | $3,364 | $7,537 | $(4,173) | | Mortgage and loan interest | $(9,408) | $(15,907) | $6,499 | | Foreign currency transaction (loss) gain | $(2,325) | $5,889 | $(8,214) | - Interest income increase was primarily from receivables owed by advisors (**$1.5 million**)[9](index=9&type=chunk)[144](index=144&type=chunk) - Other income decrease was due to **$3.1 million** from tax increment incentives in **2019** vs. **$6.6 million** insurance proceeds in **2018**[9](index=9&type=chunk)[145](index=145&type=chunk) - Foreign currency loss was due to a decrease in the NIS to USD exchange rate (**3.63 to 3.58**)[9](index=9&type=chunk)[147](index=147&type=chunk) [Loss/Gain on Property Sales](index=30&type=section&id=Loss/Gain%20on%20Property%20Sales) - A loss of **$0.08 million** was recorded from the sale of a multifamily residential property in Mary Ester, Florida, for **$3.1 million**[149](index=149&type=chunk) - Gain on land sales was **$2.5 million** from selling **41.6 acres** of land for **$7.6 million**, compared to no land sales in the prior period[150](index=150&type=chunk) [Results of Operations - Six Months Ended June 30, 2019 vs 2018](index=31&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030,%202019%20vs%202018) | Metric (thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change (thousands) | | :----------------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Net (loss) income applicable to common shares | $(8,925) | $4,744 | $(13,669) | | (Loss) earnings per share - diluted | $(0.56) | $0.28 | $(0.84) | [Revenues](index=31&type=section&id=Revenues) | Metric (thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Rental and other property revenues | $23,769 | $62,690 | $(38,921) | - The decrease in rental revenue is primarily due to the deconsolidation of **49 residential apartment properties** sold into the VAA Joint Venture in Q**4 2018**; these revenues are now part of income from unconsolidated investments[9](index=9&type=chunk)[153](index=153&type=chunk) [Expenses](index=31&type=section&id=Expenses) | Metric (thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Property operating expenses | $13,320 | $29,974 | $(16,654) | | Depreciation and amortization | $6,548 | $12,895 | $(6,347) | | General and administrative | $6,732 | $5,295 | $1,437 | - Property operating expense decrease was driven by lower salary, real estate taxes, management fees, and other operating expenses due to VAA JV deconsolidation[9](index=9&type=chunk)[154](index=154&type=chunk) - General and administrative expense increase was due to higher fees paid to advisors (**$1.3 million**) and franchise taxes (**$0.1 million**)[9](index=9&type=chunk)[156](index=156&type=chunk) [Other Income (Expense)](index=31&type=section&id=Other%20Income%20(Expense)) | Metric (thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Change (thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :----------------- | | Interest income | $12,658 | $9,991 | $2,667 | | Other income | $7,031 | $9,438 | $(2,407) | | Mortgage and loan interest | $(19,376) | $(31,631) | $12,255 | | Foreign currency transaction (loss) gain | $(8,143) | $7,645 | $(15,788) | - Interest income increase was primarily from receivables owed by advisors (**$2.7 million**)[9](index=9&type=chunk)[157](index=157&type=chunk) - Other income included a **$3.6 million** gain from deferred income and **$3.1 million** from tax increment incentives in **2019**, compared to **$6.6 million** insurance proceeds and **$2.2 million** miscellaneous income in **2018**[9](index=9&type=chunk)[158](index=158&type=chunk) - Foreign currency loss was due to a decrease in the NIS to USD exchange rate (**3.64 to 3.58**)[9](index=9&type=chunk)[160](index=160&type=chunk) [Loss/Gain on Property Sales](index=32&type=section&id=Loss/Gain%20on%20Property%20Sales) - A loss of **$0.08 million** was recorded from the sale of a multifamily residential property for **$3.1 million**[163](index=163&type=chunk) - Gain on land sales increased by **$3.4 million** to **$4.7 million**, from selling **63.9 acres** for **$16.3 million**, compared to **$1.3 million** gain from selling **112.2 acres** for **$7.2 million** in the prior year[164](index=164&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity needs include funding normal recurring expenses, debt service, capital expenditures, development costs, and property acquisitions[164](index=164&type=chunk) - Primary cash sources are property operations, proceeds from land/property sales, collection of notes/related party receivables, refinancing, and additional borrowings[165](index=165&type=chunk) - Management expects property operations may not be sufficient and plans to sell assets, refinance/extend debt, and seek additional borrowings to meet liquidity requirements[166](index=166&type=chunk) [Cash Flow Summary](index=33&type=section&id=Cash%20Flow%20Summary) | Metric (thousands) | 6 Months Ended June 30, 2019 | 6 Months Ended June 30, 2018 | Variance (thousands) | | :----------------------------------------------- | :--------------------------- | :--------------------------- | :------------------- | | Net cash (used in) provided by operating activities | $(15,490) | $2,946 | $(18,436) | | Net cash (used in) investing activities | $(7,910) | $(51,838) | $43,928 | | Net cash (used in) provided by financing activities | $(968) | $53,122 | $(54,090) | - Investing activities included **$0.95 million** advanced to notes receivables, **$2.8 million** for land acquisition, and **$21.5 million** for new property development/improvements in H**1 2019**[169](index=169&type=chunk) - Financing activities in H**1 2019** included **$10.4 million** bond principal payment and **$3.4 million** note payments, offset by **$12.9 million** in note proceeds. In H**1 2018**, it included **$39.4 million** from Series B Bonds and **$44.7 million** from notes, offset by **$28.5 million** in note payments[171](index=171&type=chunk) [Environmental Matters](index=33&type=section&id=Environmental%20Matters) - The company may be liable for environmental remediation costs related to hazardous substances, but management is not aware of any material adverse environmental liability[172](index=172&type=chunk)[173](index=173&type=chunk) [Inflation](index=33&type=section&id=Inflation) - The effects of inflation on operations are not quantifiable, but revenues from property operations and sales values tend to fluctuate proportionately[173](index=173&type=chunk) - Inflation also affects interest rates, earnings from short-term investments, and the cost of new financings and variable interest rate debt[173](index=173&type=chunk) [Tax Matters](index=34&type=section&id=Tax%20Matters) - ARL is a member of the May Realty Holdings, Inc. (MRHI) consolidated group for federal income tax reporting, with a tax sharing agreement with IOR and TCI[174](index=174&type=chunk) - Financial statement income differs from taxable income due to accounting for investees, asset sales, depreciation, amortization, and allowance for estimated losses[175](index=175&type=chunk) - ARL had a loss for federal income tax purposes for the six months ended June 30, 2019[175](index=175&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company faces interest rate risk from long-term debt, mitigated by fixed-rate borrowing; a **100 bps** increase would raise annual interest cost by **$0.2 million** - The company is exposed to interest rate changes primarily from long-term debt used for property acquisitions and loans[176](index=176&type=chunk) - Management's objectives are to limit interest rate impact on earnings/cash flows and lower borrowing costs, primarily by borrowing at fixed rates or variable rates with conversion options[176](index=176&type=chunk) | Metric | Value (June 30, 2019) | Impact of 100 bps increase | | :----------------------------------- | :-------------------- | :------------------------- | | Total notes payable | $301 million | N/A | | Debt subject to variable interest rates | $41.6 million | N/A | | Estimated annual interest cost increase | N/A | $0.2 million | | Estimated loss per share increase | N/A | $0.01 | - Variable rate exposure is mitigated by the ability to secure long-term fixed rate HUD financing on residential apartment complexes, with a weighted average borrowing rate of approximately **7.2%** at June 30, 2019[177](index=177&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2019, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2019, disclosure controls and procedures were effective in providing reasonable assurance for timely and accurate financial reporting[178](index=178&type=chunk) - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[179](index=179&type=chunk) PART II. OTHER INFORMATION [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A share repurchase program authorizes up to **1,250,000** common shares; no shares were purchased in Q1 2019, leaving **263,250** available - A share repurchase program, authorized in **2000** and increased in **2010**, allows for the repurchase of up to **1,250,000 shares** of common stock[181](index=181&type=chunk) - No shares were purchased under this program during the first quarter of **2019**[181](index=181&type=chunk) - As of June 30, 2019, **986,750 shares** have been purchased, with **263,250 shares** remaining available under the program[181](index=181&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) Lists Form 10-Q exhibits, including corporate governance documents, advisory agreements, and Sarbanes-Oxley Act certifications - The exhibits include corporate governance documents such as the Certificate of Restatement of Articles of Incorporation, Articles of Amendment, and Bylaws[183](index=183&type=chunk) - Key agreements like the Advisory Agreement between American Realty Investors, Inc. and Pillar Income Asset Management, Inc. are also listed[183](index=183&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer (**31.1***, **31.2***) and pursuant to **18 U.S.C. 1350** (**32.1***) are filed herewith[185](index=185&type=chunk)

Financial Performance - Rental and other property revenues for the three months ended March 31, 2019 were $11,929,000, down 61.6% from $31,083,000 for the same period in 2018[8] - Total operating expenses decreased from $26,165,000 in Q1 2018 to $13,664,000 in Q1 2019, a reduction of approximately 47.8%[8] - Net loss attributable to American Realty Investors, Inc. was $6,147,000 for the three months ended March 31, 2019, compared to a net loss of $660,000 for the same period in 2018[8] - Earnings per share - basic for the three months ended March 31, 2019 was $(0.38), compared to $(0.06) for the same period in 2018[8] - The company reported a net operating loss of $1,735,000 for the three months ended March 31, 2019, compared to a net operating income of $4,918,000 for the same period in 2018[8] - For the three months ended March 31, 2019, the net loss was $6,482,000 compared to a net loss of $385,000 for the same period in 2018, indicating a significant increase in losses[11] - Total comprehensive loss for the same period was $6,482,000, up from a comprehensive loss of $385,000 in 2018, reflecting a worsening financial position[11] Assets and Liabilities - Total assets decreased from $826,149,000 in December 31, 2018 to $814,813,000 as of March 31, 2019, a decline of approximately 1.6%[5] - Total liabilities decreased from $505,022,000 in December 31, 2018 to $500,235,000 as of March 31, 2019, a decline of approximately 1.4%[5] - Shareholders' equity decreased from $321,127,000 as of December 31, 2018 to $314,578,000 as of March 31, 2019, a decrease of approximately 2.4%[6] - Cash and cash equivalents decreased from $36,428,000 in 2018 to $28,163,000 in 2019, a decline of approximately 22.7%[5] - Cash and cash equivalents at the end of the period were $81,127,000, down from $96,282,000 at the end of the previous year[14] - Total notes and interest payable as of March 31, 2019, amounted to $302.6 million, with accrued interest of $1.2 million[67] Cash Flow and Investments - The company reported a net cash used in operating activities of $16,449,000 for the three months ended March 31, 2019, compared to net cash provided of $3,505,000 in the prior year[14] - Cash flow from investing activities resulted in a net cash outflow of $7,838,000 for the three months ended March 31, 2019, compared to $20,117,000 for the same period in 2018[14] - Cash flow from financing activities showed a net cash outflow of $3,608,000 for the three months ended March 31, 2019, compared to a net cash inflow of $30,330,000 for the same period in 2018[14] - The company invested $7.6 million in the construction or predevelopment of various apartment complexes during the same period[52] - The company drew down $7.5 million in construction loans during the three months ended March 31, 2019, to support various apartment projects[70] Real Estate and Development - The company has approximately 1.7 million square feet of commercial properties and 1,489 residential units, excluding those under development, as of March 31, 2019[24] - The joint venture, Victory Abode Apartments, LLC, was formed with a cash consideration of $236.8 million, contributing a portfolio of 49 income-producing apartment complexes and 3 development projects[22] - The company is in the predevelopment process for several residential apartment communities, indicating ongoing market expansion efforts[25] - Real estate assets classified as "held for sale" include Vista Ridge Apartments, indicating ongoing strategic asset management[52] - The company sold 76 land parcels for a total sales price of $8.7 million, recognizing a gain of approximately $2.2 million[50] Interest and Financing - The company paid interest expenses of $10.9 million for the three months ended March 31, 2019, compared to $13.4 million in the prior year[54] - The company capitalized interest costs of $0.2 million related to the development projects during the three months ended March 31, 2019[52] - The company has various land mortgages in the process of modification or extension, indicating ongoing negotiations with lenders[69] Legal Matters - The company is actively pursuing additional claims against Dynex Capital, Inc. related to the Final Judgment[98] - The company intends to vigorously defend against the allegations in the recent lawsuit filed by a stockholder of Income Opportunity Realty Investors, Inc.[99] - Dynex Commercial, Inc. was ordered to pay a total of $24.8 million to American Realty Trust, including $14.2 million in damages and $10.6 million in pre-judgment interest[97] - The company intends to vigorously defend against allegations in the Berger Litigation, which claims breach of fiduciary duty related to transactions with Income Opportunity Realty Investors, Inc.[99] Summary of Financial Position - As of March 31, 2019, total real estate assets amounted to $467.2 million, with net real estate after depreciation at $386.5 million[50] - The company reported real estate assets totaling $386.5 million as of March 31, 2019, down from $979.1 million a year earlier[86] - The company expects to generate excess cash flow from property operations in 2019, but this will not be sufficient to meet all obligations as they become due[87] - The company intends to sell land and income-producing real estate to meet liquidity requirements in 2019[87]

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) ARL is a real estate investment company focused on acquiring, developing, and owning income-producing properties - ARL is a Nevada corporation, formed in 1999, headquartered in Dallas, Texas, and its common stock trades on the NYSE under the symbol 'ARL'[5](index=5&type=chunk) - ARL and a subsidiary own approximately **77.68%** of Transcontinental Realty Investors, Inc. (TCI), whose financial results are consolidated with ARL[6](index=6&type=chunk)[7](index=7&type=chunk) - Pillar Income Asset Management, Inc. (Pillar) serves as ARL's external Advisor and Cash Manager, responsible for identifying investment opportunities and arranging financing[8](index=8&type=chunk)[9](index=9&type=chunk) - ARL's primary business involves the acquisition, development, and ownership of income-producing residential and commercial real estate, as well as opportunistic land acquisition[16](index=16&type=chunk) - On November 19, 2018, TCI formed a joint venture, Victory Abode Apartments, LLC (VAA), with Macquarie Group, contributing 49 apartment complexes and 3 development projects, receiving **$236.8 million** cash and recognizing a gain of approximately **$154.1 million**[14](index=14&type=chunk)[26](index=26&type=chunk) Income-Producing Properties at December 31, 2018 | Property Type | Details | | :------------ | :------ | | Commercial | 7 properties (5 office, 2 retail), ~1.7 million sq ft | | Residential | 9 apartment communities, 1,489 units (company-owned) | | Joint Venture | 49 residential apartment communities, 9,192 units (50% owned VAA) | Apartment Projects in Development (December 31, 2018) | Property | Location | No. of Units | Costs to Date ($ thousands) | Total Projected Costs ($ thousands) | | :------- | :------- | :----------- | :-------------------------- | :---------------------------------- | | Sugar Mill III | Addis, LA | 72 | 787 | 11,862 | | Parc at Denham Springs Phase II | Denham Springs, LA | 144 | 6,532 | 18,768 | | Overlook at Allensville Phase II | Sevierville, TN | 144 | 12,646 | 20,244 | | **Total** | | **360** | **19,965** | **50,874** | Undeveloped and Partially Developed Land Holdings (December 31, 2018) | Location | Acquired | Acres | Cost ($ thousands) | Intended Use | | :------- | :------- | :---- | :----------------- | :----------- | | Dallas, TX | 1996-2013 | 20.59 | 1,008 | Mixed use | | Farmers Branch, TX | 2008 | 153.44 | 25,892 | Mixed use | | Kaufman County, TX | 2008 | 16.79 | 1,597 | Multi-family residential | | Kaufman County, TX | 2006 | 1,963.68 | 50,913 | Mixed use | | Various | 1990-2008 | 191.87 | 9,027 | Various | | **Total** | | **2,346.37** | **88,437** | | [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from tenant health, competition, operating costs, development, and high financial leverage - Cash flow depends on leasing space on favorable terms, with risks including lack of demand, tenant defaults, and oversupply[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) - Competition is high in attracting tenants and acquiring land/properties, with other landlords potentially offering more attractive financial terms[53](index=53&type=chunk)[54](index=54&type=chunk) - Increased operating costs (insurance, utilities, maintenance) may not be offset by rent increases, adversely affecting cash flow and debt service ability[57](index=57&type=chunk) - Development risks include construction delays, cost overruns, failure to obtain permits, and projects not meeting profitability expectations[58](index=58&type=chunk) - Acquisition risks involve high competition, properties failing to perform as expected, and challenges in new markets[59](index=59&type=chunk)[60](index=60&type=chunk) - The company is highly leveraged with approximately **$445 million** in total indebtedness at December 31, 2018, increasing vulnerability to economic downturns[64](index=64&type=chunk) - Inability to access financial markets for capital or refinance maturing debt on favorable terms could adversely affect liquidity and operations[65](index=65&type=chunk)[68](index=68&type=chunk) - An increase in interest rates would raise interest costs on variable-rate debt and could hinder refinancing efforts[71](index=71&type=chunk)[72](index=72&type=chunk) - Real estate investments are illiquid, limiting the company's ability to quickly dispose of properties in response to changing economic conditions[75](index=75&type=chunk)[84](index=84&type=chunk) [Item 1B. Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[86](index=86&type=chunk) [Item 2. Properties](index=16&type=section&id=Item%202.%20Properties) The company's portfolio includes directly owned properties, land for development, and a 50% interest in a large joint venture - As of December 31, 2018, the portfolio consisted of 16 income-producing properties: 9 apartment communities (1,489 units) and 7 commercial properties (5 office buildings, 2 retail centers)[87](index=87&type=chunk) - The company also owns or controls **2,346 acres** of improved and unimproved land for future development or sale[87](index=87&type=chunk) - Through the VAA joint venture, ARL has a **50% ownership interest** in 49 income-producing properties totaling 9,192 units[87](index=87&type=chunk) Average Annual Rental and Other Property Revenue per Square Foot (December 31, 2018) | Property Type | Revenue per Square Foot | | :------------ | :---------------------- | | Residential Apartment Portfolio | $6.53 | | Commercial Portfolio | $19.80 | | VAA Joint Venture (Residential) | $12.83 | Commercial Lease Expirations (December 31, 2018) | Year of Lease Expiration | Rentable Square Feet Subject to Expiring Leases | Percentage of Total Square Feet | | :----------------------- | :---------------------------------------------- | :------------------------------ | | 2019 | 250,228 | 14.7% | | 2020 | 132,376 | 7.8% | | 2021 | 135,017 | 8.0% | | 2022 | 237,489 | 14.0% | | 2023 | 339,701 | 20.0% | | 2024 | 237,549 | 14.0% | | 2025 | 113,829 | 6.7% | | 2026 | 23,432 | 1.4% | | Thereafter | 56,926 | 3.4% | | **Total** | **1,526,547** | **90%** | [Item 3. Legal Proceedings](index=19&type=section&id=Item%203.%20Legal%20Proceedings) ARL is involved in several legal proceedings, including long-standing litigation and a new breach of fiduciary duty lawsuit - A formerly owned entity has been in litigation since 1999, resulting in a recalculated judgment of approximately **$59 million** against it[94](index=94&type=chunk)[95](index=95&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk) - ART filed a suit against a national law firm in 2005, which was dismissed on procedural grounds, and ART has filed an appeal[96](index=96&type=chunk)[377](index=377&type=chunk) - A Final Judgment was entered against Dynex Commercial, Inc., awarding Basic **$0.448 million**, ART **$24.8 million**, and TCI **$19.5 million**[99](index=99&type=chunk)[380](index=380&type=chunk) - In February 2019, the Berger Litigation was filed against TCI, ARL, Pillar, and certain officers/directors, alleging breach of fiduciary duty[102](index=102&type=chunk)[383](index=383&type=chunk) [Item 4. Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company states that this item is not applicable - This item is not applicable[104](index=104&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ARL's common stock trades on the NYSE American, no dividends were paid in 2018, and a share repurchase program is in place - ARL's common stock is listed and traded on the NYSE American under the symbol 'ARL'[106](index=106&type=chunk) - As of March 29, 2019, there were **15,997,076 shares** of common stock outstanding, held by approximately 2,900 stockholders[3](index=3&type=chunk)[106](index=106&type=chunk) - **No dividends** were paid on common stock in 2018, 2017, or 2016, in accordance with the Board's annual dividend policy[107](index=107&type=chunk) - At December 31, 2018, **614 shares** of Series A Preferred Stock were outstanding after significant share purchases and conversions[109](index=109&type=chunk)[110](index=110&type=chunk) - A share repurchase program authorizes the repurchase of up to **1,250,000 shares** of common stock, but no shares were repurchased in 2018 or 2017[114](index=114&type=chunk) ARL Common Stock High and Low Sales Prices (2018 vs. 2017) | Quarter | 2018 High ($) | 2018 Low ($) | 2017 High ($) | 2017 Low ($) | | :------ | :------------ | :----------- | :------------ | :----------- | | First | 21.57 | 11.70 | 9.85 | 5.17 | | Second | 20.63 | 12.26 | 9.99 | 7.00 | | Third | 19.00 | 14.50 | 8.95 | 8.00 | | Fourth | 17.48 | 12.04 | 14.50 | 8.67 | [Item 6. Selected Financial Data](index=24&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key consolidated financial data, highlighting a significant increase in 2018 net income Selected Consolidated Financial Data (2014-2018, in thousands) | Metric | 2018 | 2017 | 2016 | 2015 | 2014 | | :-------------------------------------------------- | :----- | :----- | :----- | :----- | :----- | | **EARNINGS DATA** | | | | | | | Rental and other property revenues | $120,956 | $126,221 | $119,663 | $104,188 | $79,412 | | Total operating expenses | 107,071 | 108,793 | 105,029 | 97,880 | 82,611 | | Operating income (loss) | 13,885 | 17,428 | 14,634 | 6,308 | (3,199) | | Gain on disposition of 50% interest in VAA | 154,126 | — | — | — | — | | Gain on income producing properties | — | 16,698 | 16,207 | — | — | | Gain on land sales | 17,404 | 4,884 | 3,121 | 21,648 | 561 | | Net income (loss) attributable to American Realty Investors, Inc. | 173,699 | (8,431) | (2,732) | (1,960) | 30,885 | | Net income (loss) applicable to common shares | $172,798 | $(9,536) | $(3,833) | $(3,176) | $28,842 | | **PER SHARE DATA** | | | | | | | Earnings per share - basic (Net income (loss) applicable to common shares) | $10.81 | $(0.61) | $(0.25) | $(0.21) | $2.28 | | Weighted average common shares used in computing earnings per share | 15,982,528 | 15,514,360 | 15,514,360 | 15,111,107 | 12,683,956 | | **BALANCE SHEET DATA** | | | | | | | Real estate, net | $381,043 | $988,117 | $901,006 | $853,507 | $699,763 | | Total assets | 826,149 | 1,296,720 | 1,174,909 | 1,117,368 | 965,498 | | Notes and interest payable | 286,968 | 901,083 | 851,095 | 804,760 | 659,059 | | Bonds and interest payable | 158,574 | 113,049 | — | — | — | | Shareholders' equity | 321,127 | 165,883 | 176,131 | 176,889 | 179,588 | | Book value per share | 20.09 | 10.69 | 11.35 | 11.71 | 14.16 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, investment strategy, accounting policies, and the impact of the VAA joint venture - ARL is an externally advised and managed real estate investment company with a diverse portfolio of properties and land[123](index=123&type=chunk) - The company's investment strategy includes acquiring existing properties, developing new ones, and opportunistically acquiring land[123](index=123&type=chunk) - Acquisitions are primarily financed through operating cash flow, property sales, and debt financing[124](index=124&type=chunk) - Related party transactions are a historical part of the business but are not presumed to be arm's length[125](index=125&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) ARL's primary market risk is exposure to interest rate changes on its variable-rate and maturing debt - ARL's primary market risk exposure is to changes in interest rates on variable-rate debt and maturing debt that needs refinancing[201](index=201&type=chunk) - The overall weighted average interest rate at December 31, 2018, was **7.29%**, compared to 4.91% in 2017[202](index=202&type=chunk) - A hypothetical **100 basis point increase** in market interest rates would decrease net income by approximately **$0.4 million**[204](index=204&type=chunk) Debt Structure (December 31, 2018, in millions) | Debt Type | Amount | | :---------- | :----- | | Fixed-rate debt | $253.6 | | Variable-rate debt | $41.9 | | **Total outstanding notes payable** | **$295.5** | [Item 8. Consolidated Financial Statements and Supplementary Data](index=37&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements and supplementary data for the years 2016 through 2018 - The consolidated financial statements present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[209](index=209&type=chunk) - The report emphasizes liquidity, noting management's intent to sell properties and refinance or extend debt to meet liquidity needs[213](index=213&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=85&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants - There were no changes in or disagreements with accountants on accounting and financial disclosure[401](index=401&type=chunk) [Item 9A. Controls and Procedures](index=85&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Disclosure controls and procedures were evaluated and deemed **effective** as of December 31, 2018[402](index=402&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2018, based on the COSO (2013) framework[404](index=404&type=chunk) - No changes in internal controls over financial reporting occurred during the fourth quarter of 2018 that materially affected internal controls[406](index=406&type=chunk) [Item 9B. Other Information](index=85&type=section&id=Item%209B.%20Other%20Information) The company reported no other information for this item - This item is not applicable[407](index=407&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=86&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's board, executive officers, and the external advisory agreement with Pillar - ARL's Board of Directors manages the company's affairs and sets strategic policies, with a goal for a majority of independent directors[409](index=409&type=chunk)[410](index=410&type=chunk) - The Board has standing Audit, Compensation, and Governance and Nominating Committees, all with independent members[419](index=419&type=chunk)[420](index=420&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk) - Executive officers are employed by Pillar and receive **no direct remuneration** from ARL[431](index=431&type=chunk)[432](index=432&type=chunk)[433](index=433&type=chunk)[461](index=461&type=chunk) - Pillar serves as ARL's external Advisor and Cash Manager, responsible for day-to-day operations and investment opportunities[438](index=438&type=chunk) - Pillar's compensation includes a monthly gross asset fee, an annual net income fee, an annual incentive sales fee, and other commissions[443](index=443&type=chunk)[445](index=445&type=chunk) - Regis Realty Prime, LLC manages commercial properties for a fee of **3.0% or less** of monthly gross rents and leasing commissions of **6.0% or less**[457](index=457&type=chunk)[458](index=458&type=chunk) [Item 11. Executive Compensation](index=94&type=section&id=Item%2011.%20Executive%20Compensation) ARL does not directly compensate its executive officers; only non-affiliated directors receive remuneration from the company - ARL has no employees, payroll, or benefit plans and pays **no compensation** to its executive officers, who are compensated by Pillar[461](index=461&type=chunk) - Non-affiliated directors receive an annual retainer of **$20,000**, with the Audit Committee Chairman receiving an additional **$500** annual fee[463](index=463&type=chunk) Non-Employee Director Fees Paid in 2018 | Director Name | Fees Paid ($) | | :------------ | :------------ | | Robert A. Jakuszewski | 20,000 | | Ted R. Munselle | 20,500 | | Raymond D. Roberts, Sr. | 20,000 | | **Total** | **60,500** | [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=95&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section outlines the beneficial ownership of ARL's common stock, showing significant control by related parties - Percentages are based on **15,997,076 shares** outstanding as of March 31, 2019[467](index=467&type=chunk)[470](index=470&type=chunk) Security Ownership of Certain Beneficial Owners (March 31, 2019) | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Approximate Percent of Class | | :----------------------------------- | :---------------------------------------- | :--------------------------- | | May Realty Holdings, Inc. | 13,929,271 | 87.07% | | RA Stock Holdings, Inc. | 1,459,828 | 9.13% | | Realty Advisors, Inc. | 13,929,271 | 87.07% | | Realty Advisors LLC | 3,929,828 | 24.57% | Security Ownership of Management (March 31, 2019) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Approximate Percent of Class | | :----------------------- | :---------------------------------------- | :--------------------------- | | Gene S. Bertcher | 13,521,251 | 87.07% | | Henry A. Butler | 140,000 | 0.94% | | Louis J. Corna | 13,521,251 | 87.07% | | Robert A. Jakuszewski | 140,000 | 0.94% | | Daniel J. Moos | 13,526,251 | 87.07% | | Ted R. Munselle | 140,000 | 0.94% | | Raymond D. Roberts, Sr. | 140,000 | 0.94% | | All Directors and Executive Officers as a group (7 persons) | 13,526,251 | 87.09% | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=97&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) ARL has extensive business relationships with related parties, including its advisor, property manager, and affiliated companies - ARL's Articles of Incorporation require disclosure and approval by independent directors for transactions with related parties to ensure fairness[472](index=472&type=chunk)[473](index=473&type=chunk) - Pillar serves as ARL's Advisor and Cash Manager, and also advises related entities TCI and IOR[477](index=477&type=chunk) - All ARL directors and executive officers also serve in the same capacities for TCI and IOR, creating overlapping fiduciary duties[479](index=479&type=chunk) - Regis Realty Prime, LLC manages commercial properties and provides brokerage services to ARL for fees and commissions[480](index=480&type=chunk) - ARL owned approximately **77.68%** of TCI's common stock and, through TCI, approximately **81.25%** of IOR's common stock as of December 31, 2018[482](index=482&type=chunk) - TCI has a development agreement with Unified Housing Foundation, Inc. (UHF), a related party, and is a primary guarantor on a **$39.1 million** mezzanine loan[483](index=483&type=chunk)[484](index=484&type=chunk) Related Party Transactions and Fees (2018, in millions) | Transaction Type | Amount ($) | | :--------------- | :--------- | | Advisory fees paid to Pillar | 11.5 | | Net income fees paid to Pillar | 0.6 | | Mortgage brokerage and equity refinancing fees paid to Pillar | 2.9 | | Cost reimbursements paid to Pillar | 4.4 | | Interest received from Pillar | 3.4 | | Property management, construction management, and leasing commissions paid to Regis | 0.5 | | Rental revenue received from Pillar and related parties | 1.2 | | Notes and interest receivables (net of allowances) from related parties | 97.5 (notes), 8.2 (interest) | | Pillar owes ARL | 70.6 | | Land subject to sales contract with related parties | 86 acres | | TCI received cash from VAA joint venture for transferred properties | 7.4 (as of Feb 6, 2019) | [Item 14. Principal Accounting Fees and Services](index=99&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section details the audit and tax fees paid to the company's principal accounting firms for 2018 and 2017 - Audit fees cover professional services for audits and reviews of consolidated financial statements and statutory/regulatory filings[494](index=494&type=chunk) - Tax fees cover professional services for federal and state tax compliance, planning, consultation, and return preparation/review[496](index=496&type=chunk) - All services rendered by the principal auditors were pre-approved by the Board of Directors or the Audit Committee[497](index=497&type=chunk) Aggregate Fees for Professional Services (2018 vs. 2017, in thousands) | Type of Fee | Farmer, Fuqua & Huff (2018) | Swalm & Associates (2018) | Farmer, Fuqua & Huff (2017) | Swalm & Associates (2017) | | :---------- | :-------------------------- | :------------------------ | :-------------------------- | :------------------------ | | Audit Fees | $821,200 | $72,210 | $881,183 | $72,136 | | Tax Fees | 54,600 | — | 39,760 | — | | **Total** | **$875,800** | **$72,210** | **$920,943** | **$72,136** | PART IV [Item 15. Exhibits, Financial Statement Schedules](index=101&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the report, including financial statements, schedules, and various exhibits - The report includes consolidated financial statements, financial statement schedules, and incorporated financial statements of related entities[501](index=501&type=chunk)[502](index=502&type=chunk) - Exhibits include corporate governance documents, preferred stock designations, the Advisory Agreement with Pillar, and required certifications[503](index=503&type=chunk)[508](index=508&type=chunk)[512](index=512&type=chunk)[513](index=513&type=chunk)[514](index=514&type=chunk)