American Realty Investors(ARL) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements American Realty Investors, Inc. reported Q1 2025 net income of $4.0 million (up from $2.3 million), driven by a $3.9 million real estate gain, with total assets at $1.045 billion and negative operating cash flow of $7.4 million due to development Consolidated Balance Sheets Total assets increased to $1.045 billion as of March 31, 2025, from $1.033 billion at year-end 2024, driven by real estate assets, with total liabilities rising to $239.4 million and total equity slightly increasing to $805.6 million Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,044,999 | $1,032,802 | | Real estate | $582,232 | $557,388 | | Cash and cash equivalents | $13,800 | $19,918 | | Total Liabilities | $239,445 | $230,532 | | Mortgages and other notes payable | $201,695 | $185,398 | | Total Equity | $805,554 | $802,270 | Consolidated Statements of Operations The company reported Q1 2025 net income attributable to common shares of $3.0 million ($0.18 per share), up from $1.8 million ($0.11 per share) in Q1 2024, mainly due to a $3.9 million gain on real estate transactions offsetting decreased net operating income and higher advisory fees Q1 2025 vs Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total Revenue | $12,008 | $11,899 | | Total Operating Expenses | $12,821 | $13,416 | | Net Operating Loss | ($813) | ($1,517) | | Gain on real estate transactions | $3,891 | $0 | | Net Income | $3,963 | $2,302 | | Net Income Attributable to Common Shares | $2,965 | $1,751 | | Earnings Per Share (EPS) | $0.18 | $0.11 | Consolidated Statements of Cash Flows Q1 2025 operating cash flow was a net use of $7.4 million, a downturn from $3.9 million provided in Q1 2024, with investing activities using $16.6 million for development and financing providing $15.6 million from new mortgages, resulting in an $8.4 million decrease in cash Q1 2025 vs Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($7,408) | $3,867 | | Net Cash (Used in) Provided by Investing Activities | ($16,630) | $11,574 | | Net Cash Provided by (Used in) Financing Activities | $15,600 | ($1,456) | | Net (Decrease) Increase in Cash | ($8,438) | $13,985 | Notes to Consolidated Financial Statements The notes detail the company's structure, accounting policies, and financial components, highlighting its multifamily and commercial segments, significant ongoing real estate development, debt obligations including a loan covenant breach, and extensive related-party transactions - The company's primary business is acquiring, developing, and owning income-producing multifamily and commercial properties Substantially all operations are conducted through its 78.4% owned subsidiary, Transcontinental Realty Investors, Inc. (TCI)[19][20] Segment Profit (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Multifamily Segment Profit | $4,724 | $4,291 | | Commercial Segment Profit | $1,307 | $974 | | Total Profit from Segments | $6,031 | $5,265 | - The company is actively developing four multifamily properties with a total projected cost of $206.8 million, of which $119.0 million has been incurred as of March 31, 2025[41] - The company was not in compliance with the minimum debt service coverage ratio (DSCR) for the loan on the 770 South Post Oak property, requiring surplus cash flow from the property to be held in a lockbox account[59] - Significant related-party transactions exist with Pillar (manager), Regis (property manager), and MRHI (controlling shareholder) In Q1 2025, fees paid to Pillar included $2.5 million for advisory services and $0.7 million for development[64][66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the $1.7 million net income increase to a $3.1 million condemnation gain, offsetting a $1.6 million net interest income decrease, with significant focus on four multifamily developments, reflected in increased investing cash use and $17.1 million in new construction loans, resulting in $5.2 million FFO - Recent activities include the sale of land at Windmill Farms, which generated a $3.1 million gain from a condemnation settlement in March 2025[88] - The company is developing four multifamily properties (Alera, Bandera Ridge, Merano, Mountain Creek) with a total project cost of approximately $207 million In Q1 2025, $26.3 million in development costs were incurred, funded by $17.1 million in construction loans[89][90] - The $1.7 million increase in net income was primarily driven by a $3.9 million gain on real estate transactions, while net interest income decreased by $1.6 million due to lower average balances on short-term investments[103][109] - The significant increase in cash used in investing activities ($28.2 million YoY) was due to a $20.7 million increase in real estate development and renovation costs[107] FFO Reconciliation Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income attributable to the Company | $2,965 | $1,751 | | Depreciation and amortization | $2,883 | $3,172 | | Gain on real estate transactions | ($3,891) | $0 | | FFO-Basic and Diluted | $5,162 | $4,976 | Item 3. Quantitative and Qualitative Disclosures About Market Risks This section is optional and was not included in the report - The company has opted not to include quantitative and qualitative disclosures about market risks in this report[115] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to 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, 2025[117] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[118] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no new legal proceedings in this section - The company reports 'None' for this item, indicating no new legal proceedings to disclose under this specific section[119] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's 2024 Form 10-K - No material changes to risk factors have occurred since the filing of the 2024 10-K[119] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares under its existing share repurchase program during Q1 2025, with 263,250 shares remaining available for purchase - No shares were repurchased during Q1 2025 under the company's buyback program[120] - As of March 31, 2025, 263,250 shares may still be purchased under the existing repurchase program[120] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reports 'None' for this item[121] Item 4. Mine Safety Disclosures This item is not applicable to the company - The company reports 'None' for this item as it is not applicable[121] Item 5. Other Information The company reported no other information - The company reports 'None' for this item[121] Item 6. Exhibits This section lists the exhibits filed with or incorporated by reference into the Form 10-Q, including certifications by the CEO and CAO - The report includes a list of exhibits filed, such as corporate governance documents and officer certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[122]