American Realty Investors(ARL) - 2023 Q3 - Quarterly Report

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