American Realty Investors(ARL) - 2020 Q1 - Quarterly Report

Real Estate Transactions - The company sold 18.7 acres of land for an aggregate sales price of $5.7 million, recognizing a gain of $4.1 million during the three months ended March 31, 2020[116]. - The company acquired 100% of the membership interest in EQK Portage, LLC for a total purchase price of $5.4 million, consisting of $2.0 million in cash and a $3.4 million note payable with a 10% interest rate[116]. - The company is actively involved in acquiring existing income-producing properties and developing new properties on owned or acquired land[115]. - The company’s investment strategy includes entering into partnerships with various investors to acquire income-producing properties or land[119]. - The company received aggregate sales proceeds of $5.6 million from the sale of land during the three months ended March 31, 2020, compared to $8.7 million for the same period in 2019[166]. Property Ownership and Development - As of March 31, 2020, the company owned 1,657 units in ten residential apartment communities and seven commercial properties, totaling approximately 1.7 million rentable square feet[118]. - The company owns approximately 1,982 acres of land held for development across eight states[118]. - The company advanced $0.768 million toward various notes receivable and invested approximately $7.7 million for the development of new properties during the three months ended March 31, 2020[165]. Financial Performance - For the three months ended March 31, 2020, the company reported net income applicable to common shares of $2.9 million or $0.18 per diluted earnings per share, compared to a net loss of $6.1 million or $0.38 per diluted earnings per share for the same period in 2019[147]. - Rental and other property revenues were $11.9 million for the three months ended March 31, 2020, with $7.9 million from commercial and $4.0 million from residential segments[149]. - For the quarter ended March 31, 2020, the company reported income before income taxes of $4.6 million, primarily driven by an unrealized gain in foreign currency of $7.8 million, which is not taxable[175]. Operating Expenses and Income - Property operating expenses increased by $0.3 million to $6.3 million for the three months ended March 31, 2020, primarily due to a $0.5 million increase in real estate taxes[150]. - Depreciation and amortization increased by $0.3 million to $3.4 million during the three months ended March 31, 2020, attributed to an increase in ownership of residential apartments[151]. - Interest income was $5.8 million for the three months ended March 31, 2020, a decrease of $0.4 million compared to the same period in 2019[154]. Debt and Financing - The company finances acquisitions primarily through operating cash flow, proceeds from land sales, and debt financing, mainly through property-specific first-lien mortgage loans[119]. - The company has no near-term debt maturities, which it believes mitigates adverse impacts on financing activities and credit ratings[112]. - As of March 31, 2020, the outstanding notes payable balance was $267.3 million, with $263.6 million at fixed interest rates and $3.7 million at a variable interest rate of 9.75%[177]. - A 100 basis point increase in variable interest rates is estimated to increase total annual interest costs by $0.01 million and decrease earnings per share by $0.001[177]. - The company mitigates variable rate exposure through long-term fixed rate HUD financing on residential apartment complexes, with a weighted average borrowing rate of approximately 5.1% as of March 31, 2020[178]. - The company aims to limit the impact of interest rate changes on earnings and cash flows by borrowing primarily at fixed rates or the lowest available variable rates[176]. Cash Flow and Liquidity - The decrease in cash flow from financing activities for the three months ended March 31, 2020, was primarily due to a payment on bond principal of $11.6 million[168]. - The company’s principal liquidity needs include funding normal recurring expenses, meeting debt service obligations, and funding capital expenditures[161]. Market Conditions - Revenues from property operations are expected to fluctuate with inflationary changes in real estate costs, affecting sales values and gains from property sales[171]. - The company engages in business transactions with related parties, which may not always be favorable due to the absence of arm's length negotiations[120].