American Realty Investors(ARL) - 2022 Q1 - Quarterly Report

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