American Realty Investors, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures compared with December 31, 2023. Dollars are in thousands unless noted. The company invests in multifamily and commercial real estate and land, with most operations conducted through its approximately 78.4%-owned subsidiary, TCI. More than 90% of ARL’s stock is owned by related-party entities.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $11,899 | $11,688 |
| Net operating loss | $(1,517) | $(3,086) |
| Net income | $2,302 | $4,219 |
| Net income attributable to common shares | $1,751 | $2,978 |
| Basic and diluted EPS | $0.11 | $0.18 |
| Net cash from operating activities | $3,867 | $1,539 |
| FFO | $4,976 | $6,129 |
Revenue increased about 2%, but net income attributable to common shares fell about 41%. Multifamily segment profit rose to $3,834 from $3,665, while commercial segment profit declined to $811 from $1,238. Management attributed lower commercial results partly to reduced occupancy at Browning Place. General, administrative and advisory costs fell to $3,610 from $5,566, but interest income, net, and joint-venture income also decreased. Q1 2023 included a $971 foreign-currency gain.
Financial position and liquidity
- At March 31, 2024, total assets were $1,022,179; total liabilities were $203,953; and total equity was $818,226.
- Cash and cash equivalents were $54,700, restricted cash was $38,352, and short-term investments were $76,153. Combined cash, restricted cash and short-term investments totaled $169,205.
- Mortgages and other notes payable were $181,827, down from $182,683 at year-end. Cash interest paid in Q1 was $1,597, versus $8,720 in Q1 2023; Q1 2023 included substantial bond repayments.
- Operating cash flow was $3,867. Investing activities provided $11,574, including net redemptions of short-term investments; financing activities used $1,456.
- Notes receivable totaled $141,136, including $73,317 from related parties. A related-party receivable was $96,997.
Management expects cash, collections from notes and related-party receivables, and investment resources to meet cash requirements, but cautioned that operating cash in the next 12 months might not be sufficient for all obligations. The company may sell assets, refinance or extend debt, and seek additional borrowing.
Outlook, risks and notable items
- Three multifamily projects—Lake Wales, Merano and Bandera Ridge—are expected to be completed in 2025, with estimated total costs of approximately $55.3 million, $51.9 million and $49.6 million, respectively. Related construction loans totaling approximately $81.9 million had no advances drawn at quarter-end.
- Development of two Windmill Farms parcels is planned to begin in Q3 2024 and is expected to produce about 470 single-family lots; the estimated project value is $24.3 million.
- The company was out of compliance with the minimum debt-service coverage ratio on the 770 South Post Oak loan. The lender controls surplus property cash in a designated account until compliance is achieved for two consecutive quarters.
- Near-term debt maturities include Forest Grove in May 2024, EQK Portage in November 2024 and RCM HC Enterprises in December 2024. The filing does not state that these maturities have been refinanced.
- Two notes receivable are past their stated maturities: Parc at Opelika Phase II (January 2023) and Parc at Windmill Farms (November 2022). Management is working with the borrower to extend maturity and/or exercise its conversion option.
- The Fifth Circuit reversed and remanded the Clapper litigation on March 8, 2024, after a prior take-nothing judgment. Further proceedings may follow.
- Related-party relationships are significant: the controlling shareholder owns Pillar, which manages the company and receives advisory and development fees. Management notes related-party terms may not be arm’s length. The Pillar receivable’s rate changed from prime plus 1% to SOFR in January 2024; interest income on UHF notes and the Pillar receivable declined year over year.
- Management reported no material change in the risk factors from the 2023 Form 10-K and stated disclosure controls were effective. The filing identifies real-estate demand, financing availability and rates, development execution, property sales, and liquidity as risks.
Investor facts to verify
- Whether the 770 South Post Oak DSCR breach is cured and what restrictions remain on property cash.
- Repayment, extension or refinancing plans for 2024 debt maturities and the past-due notes receivable.
- Liquidity available after restricted cash, investment maturities, debt service and planned development spending.
- Occupancy and leasing trends at Browning Place and the status, costs, funding and schedules of the development projects.
- Potential exposure and expected timing or financial impact from the remanded Clapper litigation.
- The amount and terms of related-party receivables, fees and transactions, including any future changes in interest income.