American Realty Investors, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; the filing also reports quarterly results. Amounts below are in U.S. dollars and generally in millions unless noted. ARL consolidates its approximately 78.4%-owned Transcontinental Realty Investors, Inc. (TCI); its 52-property Victory Abode Apartments (VAA) venture is accounted for under the equity method.
Business context and portfolio
ARL is an externally managed real estate company focused on multifamily and commercial properties, land development, and mortgage notes receivable in the southern United States. At year-end, it directly owned nine multifamily properties with 1,492 units, four office buildings and one retail property totaling approximately 1.06 million square feet, and land holdings. VAA held 52 multifamily properties with 10,281 units. ARL has no employees; Pillar Income Asset Management, an affiliate of its controlling shareholder, manages the business.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $42.0 | $59.0 |
| Net income | $6.4 | $11.3 |
| Net income attributable to ARL | $3.3 | $9.0 |
| Basic and diluted EPS | $0.21 | $0.56 |
| Segment operating income | $16.9 | $27.5 |
| Adjusted FFO, as defined by the company | $26.4 | $36.7 |
| Net cash from operating activities | $(11.5) | $3.5 |
| Net cash from investing activities | $100.8 | $4.2 |
| Net cash from financing activities | $(103.6) | $(4.0) |
Revenue declined about 29%; rental revenue was $37.8 million versus $51.9 million. Commercial segment profit fell to $10.6 million from $21.3 million, while multifamily segment profit rose modestly to $6.3 million from $6.2 million. Net operating loss was $20.6 million, compared with $0.1 million in 2020. The year-end results include $24.6 million of net gains on asset sales and write-downs, including a $29.6 million VAA earn-out charge. Interest expense declined to $29.1 million from $35.0 million; foreign-currency transaction losses were $6.2 million, versus $13.4 million.
Year-end total assets were $770.6 million, down from $865.8 million; real estate was $296.4 million, down from $377.4 million. Cash and cash equivalents were $50.7 million, restricted cash $22.0 million, and short-term investments $16.0 million. Notes receivable totaled $136.6 million, including $75.9 million from related parties; receivables from related parties were $100.6 million. Mortgages and other notes payable were $183.4 million and bonds payable were $189.5 million, for reported aggregate debt of approximately $372.8 million. Total equity was $336.9 million.
Material changes, outlook, and unusual items
- ARL sold the 600 Las Colinas office building for $74.8 million, recognizing a $27.3 million gain, and used proceeds partly to repay its $35.9 million mortgage. It also sold land for $29.2 million in total, generating $16.7 million of gains.
- Operating cash flow was negative despite positive reported earnings; investing cash inflow was primarily supported by property-sale proceeds. Management said cash, cash equivalents, short-term investments, and anticipated note and interest collections would cover 2022 cash needs, while also expecting to sell assets, refinance or extend debt, and seek additional secured borrowings. The auditor’s report emphasizes this liquidity plan.
- Scheduled principal payments at year-end included $50.8 million of mortgages and notes and $46.3 million of bonds due in 2022; bond maturities were concentrated in 2023, when $121.6 million was scheduled. Management noted that refinancing or extensions may be needed. It reported compliance with bond covenants at year-end; those covenants restrict cash distributions from SPC.
- After an adverse arbitration ruling, ARL was required to pay Macquarie approximately $39.6 million under the VAA earn-out obligation and recorded a $29.6 million charge. The obligation is to be paid from ARL’s future VAA distributions; a $5.4 million distribution was applied to it in 2021.
- ARL and Macquarie agreed to pursue a sale of VAA’s portfolio. The arrangement provides for seven properties to be distributed to ARL and one ARL property to be contributed to the sale portfolio; the agreement expires August 1, 2022 if the portfolio has not been sold. Appraisals put VAA’s portfolio at approximately $1.4 billion at year-end, but the company cautioned that the value might not be realized.
- In January 2022, ARL sold Toulon for $26.8 million, using proceeds to repay its mortgage and for general corporate purposes. The Villas at Bon Secour loan was refinanced with a $20.0 million loan at 3.08% maturing in 2031; other loans were extended. The Stanford Center loan was extended in March 2022.
- No common dividends were declared in 2019–2021. No formal earnings guidance was provided. COVID-19, tenant collections and occupancy, operating and construction costs, property values, interest rates, refinancing access, and real-estate market concentration remain identified risks.
- Related-party exposure is significant: the May Trust and affiliates own approximately 90.8% of ARL, and Pillar is affiliated with the controlling shareholder. 2021 advisory fees to Pillar were $14.0 million, with $3.6 million of cost reimbursements; the filing also reports substantial related-party notes and receivables. The company warns that related-party transactions may not be on arm’s-length terms.
- Clapper litigation resulted in a jury verdict and judgment that defendants owed nothing; an appeal was pending. Berger litigation alleging improper property transactions was scheduled for trial in November 2022. The filing also discloses guarantees on mortgages for certain directly owned and VAA properties. The auditor identified real-estate impairment, notes-receivable collectability, and commercial straight-line rent recognition as critical audit matters; its financial-statement opinion was unqualified.
Important facts for investors to verify
- How ARL will meet the 2022–2023 debt maturities, and whether refinancing, asset sales, and covenant requirements affect available liquidity.
- Collection and valuation assumptions for notes receivable and related-party receivables, particularly UHF exposures and development loans.
- Progress and realized pricing from the proposed VAA portfolio sale, the earn-out balance and settlement, and any restrictions on distributions from SPC.
- Occupancy, leasing and rental trends—especially commercial lease expirations and lower-occupancy properties—and whether proceeds from dispositions can offset operating cash outflows.
- Developments in the Berger case and Clapper appeal, and the extent of any contingent obligations or guarantees.
- The supplied filing text gives a December 31, 2021 reporting period but shows March 28, 2021 dates for the auditor’s report and signatures. Verify the dates against the official SEC filing.