SECURITIES AND EXCHANGE COMMISSION
| ☒ | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
20162020
OR
| ☐ | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-15663
American Realty Investors, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
| Nevada | | | | | 75-2847135 |
(State or other jurisdiction of
Incorporation or organization) | | | | | (IRS Employer Identification Number) |
| | | | | |
1603 LBJ Freeway, | Suite 300Dallas, Texas
800 | Dallas | TX | | 75234 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s Telephone Number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Classeach class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock $0.01 par value | New York Stock ExchangeARL | NYSE |
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports)
, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of
RegulationsRegulation S-T
(232.405(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”company, or an emerging growth company in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if smaller reporting company)☒ | Smaller reporting company ☒ |
| Emerging growth Company ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No ☒
The aggregate market value
of the shares of voting and non-voting common equity held by non-affiliates of the
Registrant, computed by reference toregistrant was approximately $13.1 million as of the
closinglast business day of the registrant's most recently completed second fiscal quarter based upon the price at which the common
equitystock was last sold
which was the sales price of the Common stock on
the New York Stock Exchange as of June 30, 2016 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $9,793,299 based upon a total of 2,019,327 shares held as of June 30, 2016 by persons believed to be non-affiliates of the Registrant. The basis of the calculation does not constitute a determination by the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended, such calculation, if made as of a date within sixty days of this filing, would yield a different value.that day.
As of March
31, 2017,24, 2021, there were
15,514,36016,152,043 shares of common stock outstanding.
Documents Incorporated By Reference:
Consolidated Financial Statements of Income Opportunity Realty Investors, Inc.; Commission File No. 001-14784
Consolidated Financial Statements of Transcontinental Realty Investors, Inc.; Commission File No. 001-09240
ANNUAL REPORT ON FORM 10-K
FORWARD-LOOKING STATEMENTS
Certain Statements in this Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words “estimate,” “plan,” “intend,” “expect,” “anticipate,” “believe,” and similar expressions are intended to identify forward-looking statements. The forward-looking statements are found at various places throughout this Report and in the documents incorporated herein by reference. The Company disclaims any intention or obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause our actual results to differ from estimates or projections contained in any forward-looking statements are described in Part I, Item 1A. “Risk Factors”.
ITEM 1. BUSINESS
American Realty Investors, Inc. (the “Company”) is a fully integrated externally managed real estate company. We operate high quality multifamily and properties throughout the southern United States. We also invest in mortgage notes receivable and in land that is either held for appreciation and or development. As used herein, the terms
“ARL,”“ARL”, “the
Company,” “We,” “Our,”Company”, “We”, “Our”, or “Us” refer to
American Realty Investors, Inc., a Nevada corporation, which was formed in 1999.The Company is headquartered in Dallas, Texas and its common stock is listed and trades on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”). Over 80% of ARL’s stock is owned by related parties. ARL and a subsidiaryCompany.
Corporate Structure
We own approximately
78% of the outstanding shares of common stock78.4% of Transcontinental Realty Investors, Inc.
(“TCI”("TCI")
, a Nevada corporation, which has its and substantially all of our operations are conducted through TCI, whose common stock
listed andis traded on the NYSE under the symbol
(“TCI”)“TCI”.
Accordingly, we include TCI’s financial results
in our consolidated financial statements. Substantially all of TCI's assets are
consolidated with those of ARL. In 2012, May Realty Holdings, Inc.held by our wholly-owned subsidiary, Southern Properties Capital Ltd (“
MRHI”SPC”)
subsidiaries acquired more than 80% of ARL stock and as a result, ARL is included in the MRHI consolidated group for federal income tax reporting. We have no employees.TCI, a subsidiary of ARL, owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). IOT’s financial results are consolidated with those of TCI and its subsidiaries. Shares of IOT, which was formed to allow us to raise funds by issuing non-convertible bonds that are listed and traded on the NYSE MKTTel-Aviv Stock Exchange.
On November 19, 2018, we formed the Victory Abode Apartments, LLC (“VAA”) joint venture with the Macquarie Group (“Macquarie”). In connection with the formation of VAA, we sold a 50% ownership interest in 52 multifamily properties, (collectively referred to herein as the “VAA Portfolio”). VAA assumed all liabilities of the VAA Portfolios. We account for our investment in VAA under the symbolequity method.
Controlling Shareholder
Realty Advisors, Inc. (“
IOT”RAI”)
.ARL’s Board and its affiliates own in approximately 90.8% of Directorsour common stock. As described in Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence”, our officers and directors also serve as officers and directors of TCI. TCI has business objectives similar to ours. Our officers and directors owe fiduciary duties to both TCI and us under applicable law. In determining whether a particular investment opportunity will be allocated to TCI our to us, management considers the respective investment objectives of each company and the appropriateness of a particular investment in light of each company’s existing real estate and mortgage notes receivable portfolio. To the extent that any particular investment opportunity is responsible for directing the overall affairs of ARL and for setting the strategic policies that guide the Company. As of April 30, 2011, the Board of Directors delegated the day-to-day managementappropriate to more than one of the Companyentities, the investment opportunity may be allocated to the entity which has had funds available for investment for the longest period of time, or, if appropriate, the investment may be shared among all three or two of the entities.
Management
Our business is managed by Pillar Income Asset Management, Inc. (“Pillar”)
, a Nevada corporation, under a written in accordance with an Advisory Agreement that is reviewed annually by
ARL’sour Board of Directors.
The directors of ARL are also directors of TCI and IOT. The Chairman of the Board of Directors of ARL also serves as the Chairman of the Board of Directors of TCI and IOT. The officers of ARL also serve as officers of TCI, IOT and Pillar.Pillar the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc. (“RAI”), a Nevada corporation, the sole shareholder of which is May Realty Holdings, Inc. (“MRHI”, formerly known as Realty Advisors Management, Inc.), a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external Advisor and Cash Manager. wholly-owned affiliate of RAI.
Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges
for the Company’s benefit,our debt and equity financing with third party lenders and investors.
PillarThey also
servesserve as
anthe contractual Advisor and Cash Manager to
TCI and IOT.TCI. As the contractual advisor, Pillar is compensated by
ARLus under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”.
ARL hasWe have no employees. Employees of Pillar render services to
ARLus in accordance with the terms of the Advisory Agreement.
In addition, as described in Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence”, we compete with related parties of Pillar having similar investment objectives related to the acquisition, development, disposition, leasing and financing of real estate and real estate-related investments. In resolving any potential conflicts of interest which may arise, Pillar has informed us that it intends to exercise its best judgment as to what is fair and reasonable under the circumstances in accordance with applicable law.
Portfolio Composition
At December 31, 2020, our portfolio of income-producing properties consisted of:
•Six commercial properties consisting of five office buildings and 1 retail property comprising in aggregate of approximately 1,575,685 square feet;
•Ten multifamily properties owned directly by us comprising in 1,636 units, excluding apartments being developed;
•Approximately 1,961 acres of developed and undeveloped land; and
•Fifty-one multifamily properties totaling 9,888 units owned by VAA.
Recent Activity
The following is a description of the Company’s significant real estate and financing transactions during the year ended December 31, 2020:
Acquisitions and Dispositions
•On March 5, 2020, we acquired a 49.2 acres land parcel in Kent, Ohio for $5.4 million that was funded by a $2.0 million cash payment and a $3.4 million note payable that bears interest at 10% and matures on November 13, 2024.
•On May 1, 2020, we sold Villager, a 33 unit multifamily property in Fort Walton, Florida for $2.4 million, resulting in a gain on sale of $1.0 million.
•On July 16, 2020, we sold Farnham Park, a 144 unit multifamily property in Port Arthur, Texas for $13.3 million, resulting in a gain on sale of $2.7 million.
•On September 14, 2020, we sold Bridge View Plaza, a 122,205 square foot retail property in La Crosse, Wisconsin for $5.3 million, resulting in a gain on sale of $4.6 million.
•During the year ended December 31, 2020, we sold a total of 58.8 acres of land from our holdings in Windmill Farms for a total of $12.9 million, resulting in a total gain on sale of $11.1 million. In addition, we sold a total of 26.8 acres of land from our holdings in Mercer Crossing during the year ended December 31, 2020 for a total of $15.8 million, resulting in a total gain on sale of $10.3 million.
Financing Activities
•On November 30, 2020, we issued $19.7 million in additional Series A bonds (See Note 11 in our consolidated financial statements) for $18.8 million in net proceeds.
•On December 3, 2020, we extended our $14.7 million HSW Partners loan to June 17, 2021.
•On March 2, 2021, we extended our $1.2 million loan on Athens to August 28, 2022.
•On March 4, 2021, we received a commitment from our lender to extend the maturity of our $10.4 million loan on Windmill Farms until February 28, 2023 and a the reduced interest rate of 5%.
Development Activities
During the year ended December 31, 2020, we completed the construction of Parc at Denham Springs Phase II and Sugar Mill Phase III for a total cost of $17.2 million and $14.2 million, respectively.
At December 31, 2020, our apartment projects in development included (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | No. of Units | | Costs to Date (1) | | Total Projected Costs (1) |
| Athens | | Athens, AL | | 232 | | | 270 | | | 34,800 | |
| Heritage McKinney | | McKinney, TX | | 170 | | | 231 | | | 24,650 | |
| Total | | | | 402 | | | $ | 501 | | | $ | 59,450 | |
(1) Costs include construction hard costs, construction soft costs and loan borrowing costs.
Business Plan and Investment Policy
Our business strategy is to maximize long-term value for our stockholders by the acquisition, development and ownership of income-producing multifamily properties in the secondary markets of the Southern United States. We generally hold our investments in real estate for the long term. We seek to maximize the current income and the value of our real estate by maintaining high occupancy levels while charging competitive rents and controlling costs. In the past we have opportunistically acquired commercial properties for income and appreciation. In addition, we also opportunistically acquire land for future development. From time to time and when we believe it appropriate to do so, we sell land and income-producing properties. We also invest in mortgage receivables.
Our income producing real estate is managed by external management companies. Our multifamily properties are managed by various third-party companies and our commercial properties are managed by Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”Regis"), managescollectively the "management companies". The management companies conduct all of the administrative functions associated with our commercial propertiesproperty operations (including billing, collections, and provides brokerage services.response to resident inquiries). Regis receives property management fees, construction management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regisagreement and is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. SeeRefer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. ARL engages third-party companies to lease and manage its apartment
We also invest in notes receivables that are collateralized by investments in land and/or multifamily properties.
On January 1, 2012, the Company’s subsidiary, TCI, entered into a development agreement with These investments have included notes receivables from Unified Housing Foundation, Inc. (“UHF”("UHF") a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to thisour ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, we consider UHF has been determined to be a related party.
ARL through subsidiaries invests in real estate through direct ownership, leases, and partnerships and also invests in mortgage loans on real estate. Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents; and by leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies.
At December 31, 2016, our income-producing properties (most of which were owned by subsidiaries of TCI) consisted of:
| ● | Eight commercial properties consisting of six office buildings and two retail properties comprising in aggregate of approximately 2.0 million square feet; |
| ● | A golf course comprising approximately 96.09 acres; and |
| ● | 50 residential apartment communities comprising 8,226 units, excluding apartments being developed. |
The following table sets forth the location of our real estate held for investment (income-producing properties only) by asset type as of December 31, 2016:
| | | Apartments | | | Commercial | |
| Location | | No. | | | Units | | | No. | | | SF | |
| Alabama | | | 1 | | | | 168 | | | | — | | | | — | |
| Arkansas | | | 5 | | | | 938 | | | | — | | | | — | |
| Colorado | | | 2 | | | | 260 | | | | — | | | | — | |
| Florida | | | 3 | | | | 198 | | | | 1 | | | | 6,722 | |
| Georgia | | | 1 | | | | 222 | | | | | | | | | |
| Illinois | | | — | | | | — | | | | 1 | | | | 306,609 | |
| Louisiana-Other | | | 2 | | | | 384 | | | | — | | | | — | |
| Mississippi | | | 9 | | | | 924 | | | | — | | | | — | |
| Tennessee | | | 4 | | | | 708 | | | | — | | | | — | |
| Texas-Greater Dallas-Ft Worth | | | 11 | | | | 1,962 | | | | 4 | | | | 1,473,457 | |
| Texas-Greater Houston | | | 2 | | | | 416 | | | | 1 | | | | 94,792 | |
| Texas-San Antonio | | | 2 | | | | 468 | | | | — | | | | — | |
| Texas-Other | | | 8 | | | | 1,578 | | | | — | | | | — | |
| Wisconsin | | | — | | | | — | | | | 1 | | | | 122,205 | |
| Total | | | 50 | | | | 8,226 | | | | 8 | | | | 2,003,785 | |
We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties, and debt financing primarily in the form of property-specific, first-lien mortgage loans from commercial banks and institutional lenders. We financeMost of the mortgage notes payable on our development projects principallymultifamily properties are insured with short-term, variable-rate construction loans thatDepartment of Housing and Urban Development ("HUD"). HUD back mortgage notes payable generally provides for lower interest rates and longer term than conventional debt. However, HUD insured mortgage notes payable are refinanced withsubject to extensive regulations over the proceedsorigination and transfers of long-term, fixed-rate amortizing mortgages whenmortgage notes payable and restrictions on the development has been completedamount and occupancy has been stabilized.timing of distribution of cash flows from the underlying real estate. When we sell properties, we may carry a portion of the sales price, generally in the form of a short-term interest bearing seller-financed note receivable, secured by the property being sold. We may also from time to time enter into partnerships or joint ventures with various investors to acquire land or income-producing properties, or to sell interests in certainsome of our properties.
We joinhave increased our portfolio of multifamily properties through ground up development. Since we don’t have a fully developed in-house development, we have traditionally partnered with various third-party development companiesdevelopers (“Developers”) to construct residential apartment communities. At December 31, 2016, we have three apartment projects in development.multifamily properties on our behalf. We work with the Developer on the location, design, construction budget and initial lease plan for a potential development project (“Development Project”). The third-party developer typically holdsconstruction plan includes a general partner as well as a limited partner interest in a limited partnership formed fordevelopment fee to be paid to the purpose of building a single property whileDeveloper. To ensure that the Development Project is constructed on plan, on time and on budget, we generally takeenter into a limited partnerconvertible loan arrangement with the Developer, whereby we advance the out-of-pocket capital to the developer at nominal
rate of interest with an option to convert the loan into a 100% ownership interest in the limited partnership. We may contributeentity that holds the Development Project for a price equal to development cost.
For our land
to the partnershipdevelopment projects, including Windmill Farms, we have acted as
part of our
equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all required equity contributions while the third-party developer is responsible for obtaining construction financing, hiring aown general contractor and
for the overall management, successful completionconstruction manager. We believe direct involvement in construction enables us to achieve higher construction quality, greater control over construction schedules and
delivery of the project.cost savings. We
generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our consolidated financial statements. The third-party developer is paid a developer fee typically equalactively monitor construction progress to
a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees.At December 31, 2016, our apartment projects in development included (dollars in thousands):
| | | | | | | | | | | Total | |
| | | | | | | | | | | Projected | |
| Property | | Location | | No. of Units | | | Costs to Date (1) | | | Costs (1) | |
| Lakeside Lofts | | Farmers Branch, TX | | | 494 | | | $ | 1,744 | | | $ | 78,000 | |
| Overlook at Allensville Square II | | Sevierville, TN | | | 144 | | | | 2,114 | | | | 18,400 | |
| Terra Lago | | Rowlett, TX | | | 447 | | | | 21,430 | | | | 66,360 | |
| Total | | | | | 1,085 | | | $ | 25,288 | | | $ | 162,760 | |
(1) Costs include construction hard costs, construction soft costs and loan borrowing costs.
We have made investments in a number of large tracts of undeveloped and partially developed land and intendensure quality workmanship to a) continue to improve these tracts of land for our own development purposes or b) make the improvements necessary to ready the land for sale to other developers.
At December 31, 2016, our investments in undeveloped and partially developed land consisted of the following (dollars in thousands):
| Location | | Acquired | | | Acres | | | Cost | | | Intended Use |
| | | | | | | | | | | | |
| McKinney, TX | | | 1997-2008 | | | | 10 | | | $ | 613 | | | Mixed use |
| Dallas, TX | | | 1996-2013 | | | | 165 | | | | 13,674 | | | Mixed use |
| Kaufman County, TX | | | 2008 | | | | 25 | | | | 2,547 | | | Multi-family residential |
| Farmers Branch, TX | | | 2008 | | | | 240 | | | | 32,183 | | | Mixed use |
| Kaufman County, TX (1) | | | 2006 | | | | 2,884 | | | | 43,817 | | | Mixed use |
| Various | | | 1990-2008 | | | | 342 | | | | 35,273 | | | Various |
| Total Land Holdings | | | | | | | 3,666 | | | $ | 128,107 | | | |
(1) Windmill Farms Land was acquired by a subsidiary of ARL in 2006 and 2,900 acres were subsequently sold to TCI in 2011.
Significant Real Estate Acquisitions/Dispositions and Financings
A summary of some of the significant transactions for the year ended December 31, 2016 are discussed below:
Purchases
During the year ended December 31, 2016, subsidiaries acquired four income-producing apartment properties from third parties in the states of Arkansas, Florida, Georgia and Mississippi, increasing the total number of units by 723, for a combined purchase price of $79.7 million. In addition, we acquired four land parcels for future development for a total purchase price of $12.5 million, adding 36.3 acres to the development portfolio.
Sales
For the year ended December 31, 2016, ARI sold a combined 129.7 acres of land located in Forney, Texas, McKinney, Texas, Farmers Branch, Texas and Nashville, Tennessee to independent third parties for a total sales price of $29.1 million. We recorded an aggregate $3.1 million gain from the land sales. In addition, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million and one apartment community located in Topeka, Kansas to an independent third party for a total sales price of $12.3 million. We recorded an aggregate gain of $16.4 million from theenable sale of these two properties. The Company also sold an industrial warehouse consisting of approximately 177,805 square feet. The sale resulted in a loss of approximately $0.2 million.
As of December 31, 2016, subsidiaries hold approximately 91 acres of land, at various locations that were solddeveloped lots to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions ARI has deferred the recording of the sales in accordance with ASC 360-20.
We continue to invest in the development of apartment projects. For the year ended December 31, 2016, we have expended $20.3 million related to the construction or predevelopment of various apartment complexes and capitalized $0.9 million of interest costs.
5
third-party home builders.Business Plan and Investment Policy
Our business objective is to maximize long-term value for our stockholders by investing in residential and commercial real estate through the acquisition, development and ownership of apartments, commercial properties, and land. We intend to achieve this objective through acquiring and developing properties in multiple markets and operating as an industry-leading landlord. We believe this objective will provide the benefits of enhanced investment opportunities, economies of scale and risk diversification, both in terms of geographic market and real estate product type. We believe our objective will also result in continuing access to favorably priced debt and equity capital. In pursuing our business objective, we seek to achieve a combination of internal and external growth while maintaining a strong balance sheet and employing a strategy of financial flexibility. We maximize the value of our apartments and commercial properties by maintaining high occupancy levels while charging competitive rental rates, controlling costs and focusing on tenant retention. We also pursue attractive development opportunities either directly or in partnership with other investors.
For our portfolio of commercial properties, we generate increased operating cash flow through annual contractual increases in rental rates under existing leases. We also seek to identify best practices within our industry and across our business units in order to enhance cost savings and gain operating efficiencies. We employ capital improvement and preventive maintenance programs specifically designed to reduce operating costs and increase the long-term value of our real estate investments.
We seek to acquire properties consistent with our business objectives and strategies. We execute our acquisition strategy by purchasing properties which management believes will create stockholder value over the long-term. We will also sell properties when management believes value has been maximized or when a property is no longer considered an investment to be held long-term.
We are continuously in various stages of discussions and negotiations with respect to development, acquisition, and disposition projects. The consummation of any current or future development, acquisition, or disposition, if any, and the pace at which any may be completed cannot be assured or predicted.
Substantially all of our properties are owned by subsidiary companies, many of which are single-asset entities. This ownership structure permits greater access to financing for individual properties and permits flexibility in negotiating a sale of either the asset or the equity interests in the entity owning the asset. From time-to-time, our subsidiaries have invested in joint ventures with other investors, creating the possibility of risks that do not exist with properties solely owned by an ARL subsidiary. In those instances where other investors are involved, those other investors may have business, economic, or other objectives that are inconsistent with our objectives, which may in turn require us to make investment decisions different from those if we were the sole owner.
Real estate generally cannot be sold quickly. We may not be able to promptly dispose of properties in response to economic or other conditions. To offset this challenge, selective dispositions have been a part of our strategy to maintain an efficient investment portfolio and to provide additional sources of capital. We finance acquisitions through mortgages, internally generated funds, and, to a lesser extent, property sales. Those sources provide the bulk of funds for future acquisitions. We may purchase properties by assuming existing loans secured by the acquired property. When properties are acquired in such a manner, we customarily seek to refinance the asset in order to properly leverage the asset in a manner consistent with our investment objectives.
Our businesses are not generally seasonal with regard to real estate investments. Our investment strategy seeks both current income and capital appreciation. Our plan of operation is to continue, to the extent our liquidity permits, to make equity investments in income-producing real estate such as apartments, and commercial properties. We may also invest in the debt or equity securities of real estate-related entities. We intend to pursue higher risk, higher reward investments, such as improved and unimproved land where we can obtain reasonably-priced financing for substantially all of a property’s purchase price. We intend to continue the development of apartment properties in selected markets in Texas and in other locations where we believe adequate levels of demand exist. We intend to pursue sales opportunities for properties in stabilized real estate markets where we believe our properties’ value has been maximized. We also intend to be an opportunistic seller of properties in markets where demand exceeds current supply. Although we no longer actively seek to fund or purchase mortgage loans, we may, in selected instances, originate mortgage loans or we may provide purchase money financing in conjunction with a property sale.
Our Board of Directors has broad authority under our governing documents to make all types of investments, and we may devote available resources to particular investments or types of investments without restriction on the amount or percentage of assets that may be allocated to a single investment or to any particular type of investment, and without limit on the percentage of securities of any one issuer that may be acquired. Investment objectives and policies may be changed at any time by the Board without stockholder approval.
The specific composition from time-to-time of our real estate portfolio owned by ARL directly and through our subsidiaries depends largely on the judgment of management to changing investment opportunities and the level of risk associated with specific investments or types of investments. We intend to maintain a real estate portfolio that is diversified by both location and type of property.
Competition
The real estate business is highly competitive and we compete with numerous companies engaged in real estate activities (including certain entities described in Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence”), some of which have greater financial resources than ARL.us. We believe that success against such competition is dependent upon the geographic location of a property, the performance of property-level managers in areas such as leasing and marketing, collection of rents and control of operating expenses, the amount of new construction in the area and the maintenance and appearance of the property. Additional competitive factors include ease of access to a property, the adequacy of related facilities such as parking and other amenities, and sensitivity to market conditions in determining rent levels. With respect to apartments,multifamily properties, competition is also based upon the design and mix of the units and the ability to provide a community atmosphere for the residents. We believe that beyond general economic circumstances and trends, the degree to which properties are renovated or new properties are developed in the competing submarket are also competitive factors. See alsoRefer to Part I, Item 1A.Item1A. “Risk Factors”.
To the extent that
ARL seekswe seek to sell any
of its properties, the sales prices for the properties may be affected by competition from other real estate owners and financial institutions also attempting to sell properties in areas where
ARL’sour properties are located, as well as aggressive buyers attempting to dominate or penetrate a particular market.
As described above
Government Regulations
Our properties are subject to various covenants, laws, ordinances and in Part III, Item 13. “Certain Relationshipsregulations, including regulations relating to common areas, fire and Related Transactions,safety requirements, various environmental laws, HUD, the ADA and Director Independence,” the officers and directors of ARL serve as officers and directors of TCI and IOT. TCI and IOT haverent control laws.
Segments
We operate two business
objectives similar to those of ARL. ARL’s officers and directors owe fiduciary duties to both IOT and TCI as well as to ARL under applicable law. In determining whether a particular investment opportunity will be allocated to ARL, IOT, or TCI, management considers the respective investment objectives of each Company and the appropriateness of a particular investment in light of each Company’s existing real estate and mortgage notes receivable portfolio. To the extent that any particular investment opportunity is appropriate to more than one of the entities, the investment opportunity may be allocated to the entity which has had funds available for investment for the longest period of time, or, if appropriate, the investment may be shared among all three or two of the entities.In addition, as described in Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence,” ARL competes with related parties of Pillar having similar investment objectives related tosegments: the acquisition, development, disposition, leasingownership and financingmanagement of real estatemultifamily properties, and real estate-related investments. In resolving any potential conflictsthe acquisition, development, ownership and management of interestcommercial properties; which may arise,are primarily office properties. The services for our office segment include primarily rental of office space and other tenant services, including parking and storage space rental. The services for our multifamily segment include primarily rental of apartments and other tenant services, including parking and storage space rental. See Note 15 to our consolidated financial statements in Item 8 of this Report for more information regarding our segments.
Human Capital
We have no employees. Employees of Pillar
has informed ARL that it intendsrender services to
exercise its best judgment as to what is fair and reasonable under the circumstancesus in accordance with
applicable law.We have historically engaged in and will continue to engage in certain business transactions with related parties, including but not limited to asset acquisitions and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms conditions and agreements that are not necessarily beneficial to or in the best interests of the Company.
Advisory Agreement.
Available Information
ARL maintains
We maintain an
Internetinternet site at
http://www.amrealtytrust.com. Availablewww.transconrealty-invest.com. We make available through
theour website free of charge
are Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16, and amendments to those reports, as soon as reasonably practicable after
they arewe electronically
filedfile or
furnishedfurnish such materials to the Securities and Exchange Commission. In addition, we have posted the charters for
theour Audit Committee, Compensation Committee, and Governance and Nominating Committee, as well as
theour Code of Business Conduct and Ethics, Corporate Governance Guidelines on Director Independence and other information on the website. These charters and principles are not incorporated in this
reportReport by reference. We will also provide a copy of these documents free of charge to stockholders upon written request. The Company issues Annual Reports containing audited financial statements to its common shareholders.
ITEM 1A. RISK FACTORS
An investment in our securities involves various risks. All investors should carefully consider the following risk factors,
applicable to TCI and its subsidiaries in conjunction with the other information in this report before trading our securities.
Risk Factors Related
FACTORS AFFECTING OUR ASSETS
The current COVID – 19 pandemic or the future outbreak of other highly infectious or contagious diseases and the timing and effectiveness of vaccine distribution or other effective medicines could materially and adversely affect our business, financial condition and results of operations.
The outbreak of COVID – 19, which is present in nearly all regions of the world, including the United States and the specific regions in which our residential apartment communities are located, has created considerable instability and disruption in the U. S. and world economies. Considerable uncertainty still surrounds COVID – 19, including when the pandemic will conclude, how quickly vaccines will be safely and widely distributed, the effectiveness of such vaccines, the potential short-term and long-term effects, including but not limited to
shifts in consumer housing demand based on geography, affordability, housing type (e.g., multifamily versus single family), and unit type (e.g., studio in the office versus multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models. Moreover, local, state and national measures taken to limit the spread of COVID – 19, including “social distancing” and other restrictions on travel, congregation and business operations, have already resulted in significant negative economic impacts. The prolonged impact of COVID – 19 on the U. S. and world economies remains uncertain but has resulted in increased health issues and mortality rates, increased unemployment, and a worldwide economic downturn, the duration and scope of which cannot currently be predicted. The extent to which our
Businessfinancial condition or operating results will continue to be affected by the COVID – 19 pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted.
Our operating results depend, in large part, on revenues derived from leasing space in our residential multifamily communities to residential tenants and the ability of tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID – 19 pandemic and measures implemented to prevent its spread have and may continue to adversely affect our returns and profitability. As a result, our ability to make distributions may be compromised, and we could experience volatility with respect to the market value of our properties and common stock. The spread of COVID – 19 has resulted in increases in unemployment and mass layoffs, and some tenants have experienced deteriorating financial conditions and are unwilling or unable to pay all or part of their rent on a timely basis, or at all, and the continued spread of COVID – 19 as well as a sustained economic downturn may result in further increases or sustainment of these situations. In some cases, we may be legally required or otherwise agree to restructure tenants’ rent obligations and may not be able to do so in terms favorable to us as those currently in place. Further, various city, county and state laws restricting rent increases in times of emergency may come into effect in connection with the COVID – 19 pandemic, and numerous state, local, federal and industry-initiated efforts have and may continue to affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations or prohibitions on evicting tenants unwilling or unable to pay rent and prohibitions on the ability to collect unpaid rent during certain time frames. Additionally, eviction moratoriums have passed at various formats at every level of government, and while we strive to comply, given some of the conflicting standards and unclear requirements, strict compliance may be difficult. Some residents’ views about their obligations to pay rent, even when financially capable of meeting the rent obligation, have shifted away from viewing rent as a primary and necessary financial obligation, and this shift may continue or worsen as a result of the eviction moratoriums and the various laws affecting our abilities to collect rent. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our property and have limited ability to renew existing leases or sign new leases at projected rents. Additionally, market fluctuations as a result of the COVID – 19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments or refinancing for existing assets on satisfactory terms, or at all. In addition, moratoriums on construction and macroeconomic factors have caused some construction delays and may cause construction contractors to be unable to perform and governmental inspections and approvals to be delayed or postponed, which may cause a delivery date of certain development projects or investments in third-party development projects to be materially extended. Market fluctuations and construction delays experienced by our vendors may also negatively impact their ability to provide services to us. Further, while we carry general liability, pollution and property insurance, along with other insurance policies, and may provide some coverage for any losses or costs incurred in connection with the COVID – 19 pandemic, given the novelty of the issue and scale of losses incurred throughout the world, there is no guarantee that we will be able to recover all or any portion of our losses and costs under these policies.
The global impact of the COVID – 19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the timing of distribution and effectiveness of vaccines and the willingness and ability of the public to get vaccinated in a timely manner, and the direct and indirect economic effects of the pandemic and related containment measures, among others. Also, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in this Report.
Adverse events concerning our existing tenants or negative market conditions affecting our existing tenants could have an adverse impact on our ability to attract new tenants, release space, collect rent or renew leases, and thus could adversely affect cash flow from operations and inhibit growth.
Cash flow from operations depends in part on the ability to lease space to tenants on economically favorable terms. We could be adversely affected by various facts and events over which
the Company haswe have limited or no control, such as:
| ● | lack of demand for space in areas where the properties are located; |
| ● | inability to retain existing tenants and attract new tenants; |
| ● | oversupply of or reduced demand for space and changes in market rental rates; |
| ● | defaults by tenants or failure to pay rent on a timely basis; |
| ● | the need to periodically renovate and repair marketable space; |
| ● | physical damage to properties; |
| ● | economic or physical decline of the areas where properties are located; and |
| ● | potential risk of functional obsolescence of properties over time. |
•lack of demand for space in areas where the properties are located;
•inability to retain existing tenants and attract new tenants;
•oversupply of or reduced demand for space and changes in market rental rates;
•defaults by tenants or failure to pay rent on a timely basis;
•the need to periodically renovate and repair marketable space;
•physical damage to properties;
•economic or physical decline of the areas where properties are located; and
•potential risk of functional obsolescence of properties over time.
At any time, any tenant may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of the tenant’s lease and material losses to
the Company.us.
If tenants do not renew their leases as they expire, we may not be able to rent the space. Furthermore, leases that are renewed, and some new leases for space that is re-let, may have terms that are less economically favorable than expiring lease terms, or may require us to incur significant costs, such as renovations, tenant improvements or lease transaction costs. Any of these events could adversely affect cash flow from operations and our ability to make distributions to shareholders and service indebtedness. A significant portion of the costs of owning property, such as real estate taxes, insurance, and debt service payments, are not necessarily reduced when circumstances cause a decrease in rental income from the properties.
We may not be able to compete successfully with other entities that operate in our industry.
We experience a great deal of competition in attracting tenants for the properties and in locating land to develop and properties to acquire.
In our effort to lease properties, we compete for tenants with a broad spectrum of other landlords in each of the markets. These competitors include, among others, publicly-held REITs, privately-held entities, individual property owners and tenants who wish to sublease their space. Some of these competitors may be able to offer prospective tenants more attractive financial terms than we are able to offer.
If the availability of land or high quality properties in our markets diminishes, operating results could be adversely affected.
We may experience increased operating costs which could adversely affect our financial results and the value of our
properties.properties.
Our properties are subject to increases in operating expenses such as insurance, cleaning, electricity, heating, ventilation and air conditioning, administrative costs and other costs associated with security, landscaping, repairs, and maintenance of the properties. While some current tenants are obligated by their leases to reimburse us for a portion of these costs, there is no assurance that these tenants will make such payments or agree to pay these costs upon renewal or new tenants will agree to pay these costs. If operating expenses increase in our markets, we may not be able to increase rents or reimbursements in all of these markets to offset the increased expenses, without at the same time decreasing occupancy rates. If this occurs, our ability to make distributions to shareholders and service indebtedness could be adversely affected.
Our ability to achieve growth in operating income depends in part on its ability to develop additional properties
. or acquire and redevelop or renovate existing properties.
We intend to continue to develop properties where warranted by market conditions. We have a number of ongoing development and land projects being readied for commencement.
Additionally, general construction and development activities include the following risks:
| ● | construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; |
| ● | construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; |
| ● | some developments may fail to achieve expectations, possibly making them less profitable; |
| ● | we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; |
| ● | we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. If we determine to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss; |
| ● | we may expend funds on and devote management’s time to projects which will not be completed; and |
| ● | occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may result in lower than projected rental rates and reduced income from operations. |
•construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property;
•construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;
•some developments may fail to achieve expectations, possibly making them less profitable;
•we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project;
•we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. If we determine to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss;
•we may expend funds on and devote management’s time to projects which will not be completed; and
•occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may result in lower than projected rental rates and reduced income from operations.
We face risks associated with property
acquisitions.acquisitions.
We acquire individual properties and various portfolios of properties and intend to continue to do so. Acquisition activities are subject to the following risks:
| ● | when we are able to locate a desired property, competition from other real estate investors may significantly increase the seller’s offering price; |
| ● | acquired properties may fail to perform as expected; |
| ● | the actual costs of repositioning or redeveloping acquired properties may be higher than original estimates; |
| ● | acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures; and |
| ● | we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into existing operations, and results of operations and financial condition could be adversely affected. |
•when we are able to locate a desired property, competition from other real estate investors may significantly increase the seller’s offering price;
•acquired properties may fail to perform as expected;
•the actual costs of repositioning or redeveloping acquired properties may be higher than original estimates;
•acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures; and
•we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into existing operations, and results of operations and financial condition could be adversely affected.
We may acquire properties subject to liabilities and without any recourse, or with limited recourse, with respect to unknown liabilities. However, if an unknown liability was later asserted against the acquired properties, we might be required to pay substantial sums to settle it, which could adversely affect cash flow.
Many of our properties are concentrated in our primary markets and
the Companywe may suffer economic harm as a result of adverse conditions in those markets.
Our properties are located principally in specific geographic areas in the southwestern, southeastern, and mid-western United States.
The Company’sOur overall performance is largely dependent on economic conditions in those regions.
Our investments in joint ventures may decrease our ability to manage risk. We conduct some of our operations through a joint venture in which we share control over certain economic and business interests with our joint venture partner. Our joint venture partner may have economic, business or legal interests or goals that are inconsistent with our goals and interests or may be unable to meet their obligations. Failure by us, or an entity in which we have a joint-venture interest, to adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on the financial condition or
results of operations of our joint ventures and adversely affect our business, financial condition, results of operations and cash flows.
We are leveraged and may not be able to meet our debt service obligations.
We had total indebtedness,
including bonds and notes payable, at December 31,
20162020 of approximately
$867.7$480.6 million. Substantially all assets have been pledged to secure debt. These borrowings increase the risk of loss because they represent a prior claim on assets and most require fixed payments regardless of profitability. Our leveraged position makes us vulnerable to declines in the general economy and may limit
the Company’sour ability to pursue other business opportunities in the future.
We may not be able to access financial markets to obtain capital on a timely basis, or on acceptable terms.
We rely on proceeds from property dispositions and third party capital sources for a portion of our capital needs, including capital for acquisitions and development. The public debt and equity markets are also among the sources upon which
the Company relies.we rely. There is no guarantee that we will be able to access these markets or any other source of capital. The ability to access the public debt and equity markets depends on a variety of factors, including:
| ● | general economic conditions affecting these markets; |
| ● | our own financial structure and performance; |
| ● | the market’s opinion of real estate companies in general; and |
| ● | the market’s opinion of real estate companies that own similar properties. |
•general economic conditions affecting these markets;
•our own financial structure and performance;
•the market’s opinion of real estate companies in general; and
•the market’s opinion of real estate companies that own similar properties.
We may suffer adverse effects as a result of terms and covenants relating to
the Company’sour indebtedness.
Required payments on our indebtedness generally are not reduced if the economic performance of the portfolio declines. If the economic performance declines, net income, cash flow from operations and cash available for distribution to stockholders may be reduced. If payments on debt cannot be made, we could sustain a loss or suffer judgments, or in the case of mortgages, suffer foreclosures by mortgagees. Further, some obligations contain cross-default and/or cross-acceleration provisions, which means that a default on one obligation may constitute a default on other obligations.
We anticipate only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we are likely to refinance a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or the terms of any refinancing will not be as favorable as the terms of the maturing debt. If principal balances due at maturity cannot be refinanced, extended, or repaid with proceeds from other sources, such as the proceeds of sales of assets or new equity capital, cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.
Our credit facilities and unsecured debt contain customary restrictions, requirements and other limitations on the ability to incur indebtedness, including total debt to asset ratios, secured debt to total asset ratios, debt service coverage ratios, and minimum ratios of unencumbered assets to unsecured debt. Our continued ability to borrow is subject to compliance with financial and other covenants. In addition, failure to comply with such covenants could cause a default under credit facilities, and we may then be required to repay such debt with capital from other sources. Under those circumstances, other sources of capital may not be available, or be available only on terms that are detrimental to
the Company.us.
Our degree of leverage could limit our ability to obtain additional financing or affect the market price of our common stock.
The degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. The degree of leverage could also make us more vulnerable to a downturn in business or the general economy.
An increase in interest rates would increase interest costs on variable rate debt and could adversely impact the ability to refinance existing debt.
We currently have, and may incur more, indebtedness that bears interest at variable rates. Accordingly, if interest rates increase, so will the interest costs, which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders. Further, rising interest rates could limit our ability to refinance existing debt when it matures.
Unbudgeted capital expenditures or cost overruns could adversely affect business operations and cash
flow.flow.
If capital expenditures for ongoing or planned development projects or renovations exceed expectations, the additional cost of these expenditures could have an adverse effect on business operations and cash flow. In addition, we might not have access to funds on a timely basis to pay for the unexpected expenditures.
Construction costs are funded in large part through construction financing, which
the Companywe may guarantee.
The Company’sOur obligation to pay interest on this financing continues until the rental project is completed, leased-up and permanent financing is obtained, or the project is sold, or the construction loan is otherwise paid. Unexpected delays in completion of one or more ongoing projects could also have a significant adverse impact on business operations and cash flow.
We may need to sell properties from time to time for cash flow purposes.
Because of the lack of liquidity of real estate investments generally, our ability to respond to changing circumstances may be limited. Real estate investments generally cannot be sold quickly. In the event that we must sell assets to generate cash flow, we cannot predict whether there will be a market for those assets in the time period desired, or whether we will be able to sell the assets at a price that will allow
the Companyus to fully recoup its investment. We may not be able to realize the full potential value of the assets and may incur costs related to the early extinguishment of the debt secured by such assets.
We intend to devote resources to the development of new projects.
We plan to continue developing new projects as opportunities arise in the future. Development and construction activities entail a number of risks, including but not limited to the following:
| ● | we may abandon a project after spending time and money determining its feasibility; |
| ● | construction costs may materially exceed original estimates; |
| ● | the revenue from a new project may not be enough to make it profitable or generate a positive cash flow; |
| ● | we may not be able to obtain financing on favorable terms for development of a property, if at all; |
| ● | we may not complete construction and lease-ups on schedule, resulting in increased development or carrying costs; and |
| ● | we may not be able to obtain, or may be delayed in obtaining, necessary governmental permits. |
•we may abandon a project after spending time and money determining its feasibility;
•construction costs may materially exceed original estimates;
•the revenue from a new project may not be enough to make it profitable or generate a positive cash flow;
•we may not be able to obtain financing on favorable terms for development of a property, if at all;
•we may not complete construction and lease-ups on schedule, resulting in increased development or carrying costs; and
•we may not be able to obtain, or may be delayed in obtaining, necessary governmental permits.
FACTORS AFFECTING THE INDUSTRY
The overall business is subject to all of the risks associated with the real estate
industry.industry.
We are subject to all risks incident to investment in real estate, many of which relate to the general lack of liquidity of real estate investments, including, but not limited to:
| ● | our real estate assets are concentrated primarily in the southwest and any deterioration in the general economic conditions of this region could have an adverse effect; |
| ● | changes in interest rates may make the ability to satisfy overall debt service requirements more burdensome; |
| ● | lack of availability of financing may render the purchase, sale or refinancing of a property more difficult or unattractive; |
| ● | changes in real estate and zoning laws; |
| ● | increases in real estate taxes and insurance costs; |
| ● | federal or local regulations or rent controls; |
| ● | hurricanes, tornadoes, floods, earthquakes and other similar natural disasters. |
•our real estate assets are concentrated primarily in the southwest and any deterioration in the general economic conditions of this region could have an adverse effect;
•changes in interest rates may make the ability to satisfy overall debt service requirements more burdensome;
•lack of availability of financing may render the purchase, sale or refinancing of a property more difficult or unattractive;
•changes in real estate and zoning laws;
•increases in real estate taxes and insurance costs;
•federal or local regulations or rent controls;
•acts of terrorism, and
•hurricanes, tornadoes, floods, earthquakes and other similar natural disasters.
Our performance and value are subject to risks associated with our real estate assets and with the real estate industry.
Our economic performance and the value of our real estate assets, and consequently the value of our securities, are subject to the risk that if our properties do not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, our cash flow will be adversely affected. The following factors, among others, may adversely affect the income generated by our properties:
| ● | downturns in the national, regional and local economic conditions (particularly increases in unemployment); |
| ● | competition from other office, apartment and commercial buildings; |
| ● | local real estate market conditions, such as oversupply or reduction in demand for office, apartments or other commercial space; |
| ● | changes in interest rates and availability of financing; |
| ● | vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; |
| ● | increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; |
| ● | civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; |
| ● | significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; |
| ● | declines in the financial condition of our tenants and our ability to collect rents from our tenants; and |
| ● | decreases in the underlying value of our real estate. |
•downturns in the national, regional and local economic conditions (particularly increases in unemployment);
•competition from other office, apartment and commercial buildings;
•local real estate market conditions, such as oversupply or reduction in demand for office, apartments or other commercial space;
•changes in interest rates and availability of financing;
•vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
•increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs;
•civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
•significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;
•declines in the financial condition of our tenants and our ability to collect rents from our tenants; and
•decreases in the underlying value of our real estate.
Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on our results of operations, and financial condition.
Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate industry as a whole or by the local economic conditions in the markets in which our properties are located, including the current dislocations in the credit markets and general global economic recession. These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences:
| ● | the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; |
| ● | significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; |
| ● | our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; |
| ● | reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and |
| ● | one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
•the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;
•significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;
•our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense;
•reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and
•one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.
Real estate investments are illiquid, and
the Companywe may not be able to sell properties if and when it is appropriate to do so.
Real estate generally cannot be sold quickly. We may not be able to dispose of properties promptly in response to economic or other conditions. In addition, provisions of the Internal Revenue Code may limit our ability to sell properties (without incurring significant tax costs) in some situations when it may be otherwise economically advantageous to do so, thereby adversely affecting returns to stockholders and adversely impacting our ability to meet our obligations.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating expenses, including debt service and Expenditures, cash flow, and the ability to make distributions, the operating income will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:
•changes in the general or local economic climate, including layoffs, plant closings, industry slowdowns, relocations of significant local employers, and other events negatively impacting local employment rates and wages and the local economy;
•local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;
•adverse economic or market conditions due to COVID – 19 pandemic leading to a temporary or permanent move by tenants and/or prospective tenants from locations in which our communities are located;
•the attractiveness and desirability of our communities to tenants, including, without limitation, the size and amenity offerings of our units, our technology offerings and our ability to identify and cost effectively implement new, relevant technologies and to keep up with constantly changing consumer demand for the latest innovations, including any increased requirements due to the significant increase in the number of people who continue to “work from home”;
•inflationary environments in which the cost to operate and maintain communities increases at a rate greater than our ability to increase rents or deflationary environments where we may be exposed to declining rents more quickly under our short-term leases;
•competition from other available housing alternatives;
•changes in rent control or stabilization laws or other laws regulating housing and other increasing regulation on people and business in locations where our communities are located;
•our ability to provide for adequate maintenance and insurance;
•declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;
•any decline in or tenants’ perceptions of the safety, convenience and attractiveness of our communities and the neighborhoods where they are located; and
•changes in interest rates and availability of financing.
As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to us. Income and real estate values may also be adversely affected by such factors as applicable laws, including, without limitation, the Americans with Disabilities Act of 1990, Fair Housing Amendment Act of 1988, permanent and temporary rent controls, rent stabilization laws, other laws regulating housing that may prevent us from raising rents to offset increased operating expenses, and tax laws.
National and regional economic environments can negatively impact our liquidity and operating results.
Our forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the southeastern and southwestern states. In the event of a recession or other negative economic effects, including as a result of the COVID – 19 pandemic, we could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs, such as advertising and turnover expenses. Any such recession or similar event may affect consumer confidence and spending and negatively impact the volume and pricing of real estate transactions, which could negatively affect our liquidity and its ability to vary its portfolio promptly in responses to changes to the economy. Further, if residents do not experience increases in their income, they may be unable or unwilling to pay rent increases, and delinquency in rent payments and rent defaults may increase as well as vacancy rates.
ITEM 1B UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIESOn December 31, 2016, our portfolio consisted
Multifamily Properties
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Count | | Property | | Location | | Year Constructed | | Units | | Occupancy |
| | Consolidated Properties | | | | | | | | |
| 1 | | Chelsea | | Beaumont, TX | | 1999 | | 144 | | | 91.7 | % |
| 2 | | Forest Grove | | Bryan, TX | | 2020 | | 84 | | | 100.0 | % |
| 3 | | Landing Bayou | | Houma, LA | | 2005 | | 240 | | | 92.2 | % |
| 4 | | Legacy at Pleasant Grove | | Texarkana, TX | | 2006 | | 208 | | | 93.3 | % |
| 5 | | Overlook at Allenville Phase II | | Sevierville, TN | | 2012 | | 144 | | | 94.1 | % |
| 6 | | Parc at Denham Springs Phase II | | Denham Springs, LA | | 2010 | | 144 | | | 83.3 | % |
| 7 | | Sugar Mill Phase III | | Baton Rouge, LA | | 2015 | | 72 | | | 41.7 | % |
| 8 | | Toulon | | Gautier, MS | | 2011 | | 240 | | | 97.2 | % |
| 9 | | Villas at Bon Secour | | Gulf Shores, AL | | 2007 | | 200 | | | 96.4 | % |
| 10 | | Vista Ridge | | Tupelo, MS | | 2009 | | 160 | | | 98.2 | % |
| | | | | | | | 1,636 | | | |
| | Joint Venture Properties | | | | | | | | |
| 1 | | Abode Red Rock | | Las Vegas, NV | | 2018 | | 308 | | | 90.2 | % |
| 2 | | Apalachee Point Villas | | Tallahassee, FL | | 2018 | | 200 | | | 91.4 | % |
| 3 | | Blue Lake Villas | | Waxahachie, TX | | 2002 | | 186 | | | 94.9 | % |
| 4 | | Blue Lake Villas Phase II | | Waxahachie, TX | | 2004 | | 70 | | | 94.0 | % |
| 5 | | Breakwater Bay | | Beaumont, TX | | 2003 | | 176 | | | 92.3 | % |
| 6 | | Bridgewood Ranch | | Kaufman, TX | | 2007 | | 106 | | | 96.0 | % |
| 7 | | Capitol Hill | | Little Rock, TX | | 2003 | | 156 | | | 91.8 | % |
| 8 | | Centennial Village | | Oak Ridge, TN | | 2011 | | 252 | | | 97.8 | % |
| 9 | | Crossing as Opelika | | Opelika, AL | | 2011 | | 168 | | | 96.2 | % |
| 10 | | Dakota Arms | | Lubbock, TX | | 2005 | | 208 | | | 94.7 | % |
| 11 | | Desoto ranch | | DeSoto, TX | | 2003 | | 248 | | | 95.1 | % |
| 12 | | Eagle Crossing | | Dallas, TX | | 2017 | | 150 | | | 96.5 | % |
| 13 | | Falcon Lake | | Arlington, TX | | 2002 | | 248 | | | 96.0 | % |
| 14 | | Heather Creek | | Mesquite, TX | | 2003 | | 200 | | | 96.7 | % |
| 15 | | Lake Forest | | Humble, TX | | 2004 | | 240 | | | 92.5 | % |
| 16 | | Lakeside Lofts | | Farmers Branch, TX | | 2020 | | 245 | | | 89.7 | % |
| 17 | | Lodge at Pecan Creek | | Denton, TX | | 2011 | | 192 | | | 93.3 | % |
| 18 | | Lofts at Reynolds | | Asheville, NC | | 2012 | | 201 | | | 96.9 | % |
| 19 | | Mansions of Mansfield | | Mansfield, TX | | 2008 | | 208 | | | 95.0 | % |
| 20 | | McKinney Point | | McKinney, TX | | 2017 | | 198 | | | 93.6 | % |
| 21 | | Metropolitan | | Little rock, AR | | 2008 | | 260 | | | 91.4 | % |
| 22 | | Mission Oaks | | San Antonio, TX | | 2006 | | 228 | | | 94.6 | % |
| 23 | | Northside on Travis | | Sherman, TX | | 2008 | | 200 | | | 93.2 | % |
| 24 | | Oak Hollow | | Sequin, TX | | 2011 | | 160 | | | 92.5 | % |
| 25 | | Oak Hollow Phase II | | Sequin, TX | | 2018 | | 96 | | | 90.7 | % |
| 26 | | Oceanaire | | Biloxi, MS | | 2009 | | 196 | | | 95.8 | % |
| 27 | | Overlook at Allensville Square | | Sevierville, TX | | 2012 | | 144 | | | 95.5 | % |
| 28 | | Parc at Bentonville | | Bentonville, AR | | 2017 | | 216 | | | 94.5 | % |
| 29 | | Parc at Clarksville | | Clarksville, TN | | 2018 | | 168 | | | 96.3 | % |
| 30 | | Parc at Denham Springs | | Denham Spring, LA | | 2007 | | 224 | | | 90.0 | % |
| 31 | | Parc at Garland | | Garland, TX | | 2010 | | 198 | | | 94.7 | % |
| 32 | | Parc at Mansfield | | Mansfield, TX | | 2017 | | 99 | | | 93.5 | % |
| 33 | | Parc at Maumelle | | Little Rock, AR | | 2015 | | 240 | | | 96.5 | % |
| 34 | | Parc at Metro Center | | Nashville, TN | | 2005 | | 144 | | | 85.9 | % |
| 35 | | Parc at Rogers | | Rogers, AR | | 2006 | | 250 | | | 93.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Count | | Property | | Location | | Year Constructed | | Units | | Occupancy |
| 36 | | Parc at Wylie | | Wylie, TX | | 2007 | | 198 | | | 93.5 | % |
| 37 | | Preserve at Pecan Creek | | Denton, TX | | 2008 | | 192 | | | 90.2 | % |
| 38 | | Preserve at Prairie Pointe | | Lubbock, TX | | 2005 | | 184 | | | 96.5 | % |
| 39 | | Residences at Holland Lake | | Weatherford, TX | | 2004 | | 208 | | | 92.2 | % |
| 40 | | Sawgrass Creek | | New Port Richey, FL | | 2018 | | 188 | | | 95.9 | % |
| 41 | | Sonoma Court | | Rockwall, TX | | 2011 | | 124 | | | 94.9 | % |
| 42 | | Sugar Mill Phase I | | Baton Rouge, LA | | 2009 | | 160 | | | 68.8 | % |
| 43 | | Sugar Mill Phase II | | Baton Rouge, LA | | 2016 | | 80 | | | 71.0 | % |
| 44 | | Tattersall Village | | Hinesville, GA | | 2010 | | 222 | | | 90.0 | % |
| 45 | | Terra Lago | | Rowlett, TX | | 2018 | | 451 | | | 87.4 | % |
| 46 | | Tradewinds | | Midland, TX | | 2015 | | 214 | | | 85.4 | % |
| 47 | | Villas of Park West I | | Pueblo, CO | | 2005 | | 148 | | | 95.4 | % |
| 48 | | Villas of Park West II | | Pueblo, CO | | 2010 | | 112 | | | 94.6 | % |
| 49 | | Vistas of Vance Jackson | | San Antonio, TX | | 2005 | | 240 | | | 93.5 | % |
| 50 | | Waterford At Summer Park | | Rosenberg, TX | | 2013 | | 196 | | | 95.2 | % |
| 51 | | Windsong | | Fort Worth, TX | | 2003 | | 188 | | | 94.1 | % |
| | | | | | | | 9,888 | | | |
| 61 | | Total Multifamily Properties | | | | | | 11,524 | | | |
Multifamily Portfolio Composition
The following table sets forth the location of
59 income-producing properties consistingand number of
50 apartment communities totaling 8,266 units
8 commercial properties consisting of 5 office buildings and 3 retail centers; and a golf course. In addition, we own or control 3,666 acres of improved and unimproved land held for future development or sale. The average annual rental and other property revenue dollar per square foot is $11.19 for the Company’s residential apartment portfolio and $14.91 for the commercial portfolio. The table below shows information relating to those properties in which we own or have an ownership interest, all of which are suitable and adequate for the purpose for which each is utilized:| Residential Apartments | | Location | | Units | | | Occupancy | |
| Anderson Estates | | Oxford, MS | | | 48 | | | | 87.5 | % |
| Blue Lake Villas I | | Waxahachie, TX | | | 186 | | | | 89.2 | % |
| Blue Lake Villas II | | Waxahachie, TX | | | 70 | | | | 90.0 | % |
| Breakwater Bay | | Beaumont, TX | | | 176 | | | | 90.9 | % |
| Bridgewood Ranch | | Kaufman, TX | | | 106 | | | | 98.1 | % |
| Capitol Hill | | Little Rock, AR | | | 156 | | | | 93.3 | % |
| Centennial Village | | Oak Ridge TN | | | 252 | | | | 95.6 | % |
| Crossing at Opelika | | Opelika AL | | | 168 | | | | 98.8 | % |
| Curtis Moore Estates | | Greenwood, MS | | | 104 | | | | 90.4 | % |
| Dakota Arms | | Lubbock, TX | | | 208 | | | | 89.4 | % |
| David Jordan Phase II | | Greenwood, MS | | | 32 | | | | 90.6 | % |
| David Jordan Phase III | | Greenwood, MS | | | 40 | | | | 87.5 | % |
| Desoto Ranch | | DeSoto, TX | | | 248 | | | | 89.1 | % |
| Falcon Lakes | | Arlington, TX | | | 248 | | | | 96.0 | % |
| Heather Creek | | Mesquite, TX | | | 200 | | | | 93.5 | % |
| Lake Forest | | Houston, TX | | | 240 | | | | 89.2 | % |
| Legacy at Pleasant Grove | | Texarkana, TX | | | 208 | | | | 88.9 | % |
| Lodge at Pecan Creek | | Denton, TX | | | 192 | | | | 92.7 | % |
| Mansions of Mansfield | | Mansfield, TX | | | 208 | | | | 95.2 | % |
| Metropolitan | | Little Rock, AR | | | 260 | | | | 81.2 | % |
| Mission Oaks | | San Antonio, TX | | | 228 | | | | 96.5 | % |
| Monticello Estate | | Monticello, AR | | | 32 | | | | 87.5 | % |
| Northside on Travis | | Sherman, TX | | | 200 | | | | 96.0 | % |
| Oak Hollow | | Seguin TX | | | 160 | | | | 91.3 | % |
| Oceanaire | | Biloxi, MS | | | 196 | | | | 91.3 | % |
| Overlook @ Allensville | | Sevierville TN | | | 144 | | | | 97.9 | % |
| Parc at Clarksville | | Clarksville, TN | | | 168 | | | | 92.3 | % |
| Parc at Denham Springs | | Denham Springs, LA | | | 224 | | | | 71.8 | % |
| Parc at Maumelle | | Little Rock, AR | | | 240 | | | | 92.5 | % |
| Parc at Metro Center | | Nashville, TN | | | 144 | | | | 97.9 | % |
| Parc at Rogers | | Rogers, AR | | | 250 | | | | 98.0 | % |
| Residences at Holland Lake | | Weatherford TX | | | 208 | | | | 95.2 | % |
| Preserve at Pecan Creek | | Denton, TX | | | 192 | | | | 93.8 | % |
| Preserve at Prairie Point | | Lubbock, TX | | | 184 | | | | 95.1 | % |
| Riverwalk Phase I | | Greenville, MS | | | 32 | | | | 87.5 | % |
| Riverwalk Phase II | | Greenville, MS | | | 72 | | | | 86.1 | % |
| Sawgrass Creek | | New Port Richey, FL | | | 45 | | | | 95.6 | % |
| Sonoma Court | | Rockwall, TX | | | 124 | | | | 91.1 | % |
| Sugar Mill | | Baton Rouge, LA | | | 160 | | | | 95.0 | % |
| Tattersall Village | | Hinesville, GA | | | 222 | | | | 95.0 | % |
| Toulon | | Gautier, MS | | | 240 | | | | 97.9 | % |
| Tradewinds | | Midland TX | | | 214 | | | | 90.2 | % |
| Villager Apts | | Fort Walton FL | | | 33 | | | | 97.0 | % |
| Villas at Park West I | | Pueblo, CO | | | 148 | | | | 93.9 | % |
| Villas at Park West II | | Pueblo, CO | | | 112 | | | | 92.0 | % |
| Vista Ridge | | Tupelo MS | | | 160 | | | | 91.3 | % |
| Vistas of Vance Jackson | | San Antonio, TX | | | 240 | | | | 90.4 | % |
| Waterford at Summer Park | | Rosenberg TX | | | 196 | | | | 91.3 | % |
| Westwood Apts | | Mary Ester FL | | | 120 | | | | 98.3 | % |
| Windsong | | Fort Worth, TX | | | 188 | | | | 96.8 | % |
| | | Total Apartments | | | 8,226 | | | | | |
| Office Buildings | | Location | | SqFt | | | Occupancy | |
| 600 Las Colinas | | Las Colinas, TX | | | 512,033 | | | | 87.1 | % |
| 770 South Post Oak | | Houston, TX | | | 94,792 | | | | 97.2 | % |
| Browning Place (Park West I) | | Farmers Branch, TX | | | 625,378 | | | | 66.6 | % |
| Senlac (VHP) | | Farmers Branch, TX | | | 2,812 | | | | 100.0 | % |
| Stanford Center | | Dallas, TX | | | 333,234 | | | | 97.8 | % |
| | | Total Office Buildings | | | 1,568,249 | | | | | |
| | | | | | | | | | | |
| Retail Centers | | Location | | SqFt | | | Occupancy | |
| Bridgeview Plaza | | LaCrosse, WI | | | 122,205 | | | | 90.9 | % |
| Cross County Mall | | Matoon, IL | | | 306,609 | | | | 56.3 | % |
| Fruitland Park | | Fruitland Park, FL | | | 6,722 | | | | 100.0 | % |
| | | Total Retail Centers | | | 435,536 | | | | | |
| | | | | | | | | | | |
| | | Total Commercial | | | 2,003,785 | | | | | |
Golf Course | | Location | | Acres | |
Mahogany Run Golf Course | | St. Thomas, US Virgin Islands | | | 96.09 | |
Lease Expirations
The table below shows the lease expirations of the commercial properties over a nine-year period and thereafter:
Year of Lease
Expiration | | | Rentable
Square Feet
Subject to
Expiring Leases | | | Current Annualized (1)
Contractual Rent
Under
Expiring Leases | | | Current
Annualized(1)
Contractual
Rent Under
Expiring
Leases (P.S.F.) | | | Percentage
of Total
Square Feet | | | Percentage
of Gross
Rentals | |
| | | | | | | | | | | | | | | | | |
| 2017 | | | | 98,884 | | | $ | 1,794,900 | | | $ | 18.15 | | | | 4.9 | % | | | 6.4 | % |
| 2018 | | | | 233,433 | | | | 3,792,229 | | | | 16.25 | | | | 11.6 | % | | | 13.6 | % |
| 2019 | | | | 309,343 | | | | 5,459,692 | | | | 17.65 | | | | 15.4 | % | | | 19.6 | % |
| 2020 | | | | 119,547 | | | | 2,346,184 | | | | 19.63 | | | | 6.0 | % | | | 8.4 | % |
| 2021 | | | | 120,934 | | | | 2,447,251 | | | | 20.24 | | | | 6.0 | % | | | 8.8 | % |
| 2022 | | | | 206,039 | | | | 4,670,002 | | | | 22.67 | | | | 10.3 | % | | | 16.7 | % |
| 2023 | | | | 231,362 | | | | 2,344,412 | | | | 10.13 | | | | 11.5 | % | | | 8.4 | % |
| 2024 | | | | 68,738 | | | | 1,211,100 | | | | 17.62 | | | | 3.4 | % | | | 4.3 | % |
| 2025 | | | | 127,499 | | | | 2,727,050 | | | | 21.39 | | | | 6.4 | % | | | 9.8 | % |
| Thereafter | | | | 67,291 | | | | 1,110,013 | | | | 16.50 | | | | 3.4 | % | | | 4.0 | % |
| Total | | | | 1,583,070 | | | $ | 27,902,834 | | | | | | | | 79.2 | % | | | 100 | % |
| (1) | Represents the monthly contractual base rent and recoveries from tenants under existing leases as of December 31, 2016, multiplied by twelve. This amount reflects total rent before any rent abatements and includes expense reimbursements which may be estimates as of such date. |
The table below shows information related to the land parcels we own as of December 31, 2016:
Land | | Location | | Acres | |
2427 Valley View Ln | | Farmers Branch, TX | | | 0.31 | |
Audubon | | Adams County, MS | | | 48.20 | |
Bonneau Land | | Farmers Branch, TX | | | 8.39 | |
Cooks Lane | | Fort Worth, TX | | | 23.24 | |
Dedeaux | | Gulfport, MS | | | 10.00 | |
Denham Springs | | Denham Springs, LA | | | 4.38 | |
Dominion Mercer | | Farmers Branch, TX | | | 5.29 | |
Gautier | | Gautier, MS | | | 3.46 | |
GNB | | Farmers Branch, TX | | | 45.00 | |
Hollywood Casino Tract II | | Farmers Branch, TX | | | 13.85 | |
Lacy Longhorn | | Farmers Branch, TX | | | 5.08 | |
Lake Shore Villas | | Humble, TX | | | 19.51 | |
Lubbock | | Lubbock, TX | | | 2.86 | |
Luna Ventures | | Farmers Branch, TX | | | 26.71 | |
McKinney 36 | | Collin County, TX | | | 9.77 | |
Meloy/Portage | | Kent, OH | | | 52.95 | |
Minivest | | Dallas, TX | | | 0.23 | |
Nashville | | Nashville, TN | | | 6.25 | |
Nicholson Croslin | | Dallas, TX | | | 0.80 | |
Nicholson Mendoza | | Dallas, TX | | | 0.35 | |
Ocean Estates | | Gulfport, MS | | | 12.00 | |
Senlac | | Farmers Branch, TX | | | 8.49 | |
Texas Plaza | | Irving, TX | | | 10.33 | |
Travis Ranch | | Kaufman County, TX | | | 16.80 | |
Travis Ranch Retail | | Kaufman County, TX | | | 8.13 | |
Union Pacific Railroad | | Dallas, TX | | | 0.04 | |
Valley View 34 (Mercer Crossing) | | Farmers Branch, TX | | | 2.19 | |
Willowick | | Pensacola, FL | | | 39.78 | |
Windmills Farm | | Kaufman County, TX | | | 2,884.07 | |
| | Total Land/Development | | | 3,268.46 | |
| | | | | | |
Land Subject to Sales Contract | | Location | | | Acres | |
Dominion Tract | | Dallas, TX | | | 10.59 | |
Hollywood Casino Tract I | | Farmers Branch, TX | | | 15.52 | |
LaDue | | Farmers Branch, TX | | | 8.01 | |
Three Hickory | | Farmers Branch, TX | | | 6.60 | |
Travelers | | Farmers Branch, TX | | | 193.17 | |
Valwood land | | Farmers Branch, TX | | | 16.87 | |
Walker/Cummings | | Dallas County, TX | | | 82.59 | |
Whorton | | Bentonville, AR | | | 64.44 | |
| | Total Land Subject to Sales Contract | | | 397.79 | |
| | | | | | |
| | Total Land | | | 3,666.25 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Company owned | | VAA owned | | Total |
| Location | | No. | | Units | | No. | | Units | | No. | | Units |
| Alabama | | 1 | | | 200 | | | 1 | | | 168 | | | 2 | | | 368 | |
| Arkansas | | — | | | — | | | 4 | | | 966 | | | 4 | | | 966 | |
| Colorado | | — | | | — | | | 2 | | | 260 | | | 2 | | | 260 | |
| Florida | | — | | | — | | | 2 | | | 388 | | | 2 | | | 388 | |
| Georgia | | — | | | — | | | 1 | | | 222 | | | 1 | | | 222 | |
| Louisiana | | 3 | | | 456 | | | 3 | | | 464 | | | 6 | | | 920 | |
| Mississippi | | 2 | | | 400 | | | 1 | | | 196 | | | 3 | | | 596 | |
| North Carolina | | — | | | — | | | 1 | | | 201 | | | 1 | | | 201 | |
| Nevada | | — | | | — | | | 1 | | | 308 | | | 1 | | | 308 | |
| Tennessee | | 1 | | | 144 | | | 3 | | | 564 | | | 4 | | | 708 | |
| Texas | | 3 | | | 436 | | | 32 | | | 6,151 | | | 35 | | | 6,587 | |
| | 10 | | | 1,636 | | | 51 | | | 9,888 | | | 61 | | | 11,524 | |
ITEM 3. LEGAL PROCEEDINGS
ART and ART Midwest, Inc.
While the Company and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 in litigation with Mr. David Clapper and entities related to Mr. Clapper (collectively, the “Clapper Parties”).
Commercial Properties
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Count | | Property | | Location | | Year Constructed | | Square Feet | | Occupancy |
| | Office Buildings | | | | | | | | |
| 1 | | 600 Las Colinas | | Irving, TX | | 1984 | | 512,173 | | | 79.4 | % |
| 2 | | 770 South Post Oak | | Houston, TX | | 1980 | | 95,438 | | | 83.9 | % |
| 3 | | Browning Place | | Farmers Branch, TX | | 1982 | | 625,297 | | | 87.0 | % |
| 4 | | Senlac | | Farmers Branch, TX | | 2025 | | 2,821 | | | 100.0 | % |
| 5 | | Stanford Center | | Dallas, TX | | 1982 | | 333,234 | | | 90.9 | % |
| | | | | | | | 1,568,963 | | | |
| | Retail Centers | | | | | | | | |
| 1 | | Fruitland Park | | Fruitland Park, FL | | 2025 | | 6,722 | | | 100.0 | % |
| 6 | | | | | | | | 1,575,685 | | | |
Commercial Lease Expirations
The
matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. (“ART”) and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgment in favor of the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurred and remanded the case back to the trial court to recalculate the damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. (“EQK”), and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. Management is vigorously defending this Litigation.
In 2005, ART filed suit against a major national law firm over the initial transaction. That action was initially abated while the principal case with the Clapper Parties was pending, but the abatement was recently lifted. The trial court subsequently dismissed the case on procedural grounds, but ART has filed a notice of appeal. In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued such note at zero.
Port Olpenitz
ARL, through a foreign subsidiary, was involved in developing a maritime harbor town on the 420 acre site of the former naval base of Olpenitz in Kappeln, Germany. Disputes with the local partner related to his mismanagement of the project resulted in his being replaced as the managing partner which was followed by a filing for bankruptcy protection in Germany to completely remove him from the project. An insolvency manager was placed in control of the project in order to protect the creditors andfollowing table summarizes our commercial lease expirations as of December 31, 2013, had sold2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year of Lease
Expiration | | Rentable Square Feet
Subject to Expiring Leases | | Current
Annualized
Contractual Rent Under
Expiring Leases (1,000s) | | Current
Annualized
Contractual
Rent Under Expiring
Leases (P.S.F.) | | Percentage of Total
Square Feet | | Percentage of Gross
Rentals |
| 2021 | | 134,027 | | | $ | 2,923 | | | $ | 21.81 | | | 8.5 | % | | 10.9 | % |
| 2022 | | 295,412 | | | 6,737 | | | 22.81 | | | 18.7 | % | | 25.0 | % |
| 2023 | | 296,233 | | | 4,815 | | | 16.26 | | | 18.8 | % | | 17.9 | % |
| 2024 | | 129,926 | | | 3,039 | | | 23.39 | | | 8.2 | % | | 11.3 | % |
| 2025 | | 149,448 | | | 3,569 | | | 23.88 | | | 9.5 | % | | 13.3 | % |
| Thereafter | | 287,491 | | | 5,821 | | | 20.25 | | | 18.2 | % | | 21.6 | % |
| | 1,292,537 | | | $ | 26,904 | | | | | 81.9 | % | | 100.0 | % |
(1)Represents the vast majority of assets (almost all land) of the project. The Company no longer has any financial responsibility for the obligations of the creditors related to the projectmonthly contractual base rent and has claims filed for loans relating to our investment in the project. Due to the questionable collectability of these loansrecoveries from the proceeds of the project, the Company has written off the unreserved balance of $5.3 million in the project. Astenants under existing leases as of December 13, 2013, ARL had filed two lawsuits31, 2020, multiplied by twelve. This amount reflects total rent before any rent abatement and includes expense reimbursements, which may be estimates as of such date.
Land Investments
| | | | | | | | | | | | | | |
| Project | | Location | | Acres |
| Held for Development | | | | |
| EQK Portage | | Kent, OH | | 49 | |
| McKinney 36 | | Collin County, TX | | 18 | |
| Ocean Estates | | Gulfport, MS | | 12 | |
| Willowick | | Pensacola, FL | | 40 | |
| Mercer Crossing Commercial | | Farmers Branch, TX | | 19 | |
| Windmills Farm | | Kaufman County, TX | | 1,555 | |
| Other | | Various | | 40 | |
| | | | 1,733 | |
| Held subject to sales contract | | | | |
| Mercer Crossing | | Farmers Branch, TX | | 15 | |
| Windmill Farms | | Kaufman County, TX | | 213 | |
| | | | 228 | |
| | | | 1,961 | |
ITEM 3. LEGAL PROCEEDINGS
We are the defendant in
Germanyongoing litigation with David Clapper and related parties (collectively, "Clapper”) regarding a multifamily property transaction that was to
recover funds investedoccur in
1998. In February 2011, after a jury trial, the
project. The lawsuits are against: 1) the former German partner and his company, and 2)Court awarded an approximately $60 million judgment against
the law firm in Hamburg originally hired to protect ARL’s investment in the project. At this time it is unknown how much can be recovered or how successful the litigation will be.Dynex Capital, Inc.
On July 20, 2015, the 68th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc.,an affiliate, American Realty Trust Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc.(ART). Clapper subsequently filed a suit in 2013 to enforce the ART judgement against ARI. The case which was litigatedhas been ongoing since 2013 and is set for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 aftertrial May 2021.
We were the
original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resultedplaintiff in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgmentlawsuit against Dynex Commercial, Inc. (“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded us with a judgment of $49.0 million. We are pursuing all legal means to collect this award. However, due to the uncertainty of the collectability of the award, the receivable has been fully reserved.
In February 2019, Paul Berger (“Berger”) filed a lawsuit against the Company, its directors, its officers and others that alleges that we completed improper sales and/or transfers of property with Income Opportunity Realty Investors, Inc. (“IOR”). Berger requests that we pay off various related party loans to IOR and that IOR then distribute the funds to IOR's stockholders. We intend to vigorously defend against the allegations. TCI own approximately 81.1% of IOR, whose common stock is traded on
July 20, 2015.The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic $0.256 millionthe NYSE American under the symbol “IOR”. Accordingly, we include IOR’s financial results in damages, plus pre-judgment interestour consolidated financial statements. IOR’s primary business is investing in mortgage loans.
In connection with the formation of
$0.192 millionVAA, ten of the properties that we contributed to the joint venture are subject to an earn-out provision that provides for a
totalremeasurement of the value of those properties after a two-year period following the completion of construction. As of December 31, 2020, we have recorded a liability of $10.0 million, which we believe is the amount
of $0.448 million. The Judgment awarded ART $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages are paid. Lastly, the Judgement awarded Basic, ART, and TCI $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc.The Company is workingthat will be required to settle our obligation. We have been unable to reach agreement with counsel to identify assets and collectour joint venture partner on the Final Judgment against Dynex Commercial, Inc., as well as explore possible additional claims, if any, against Dynex Capital, Inc.
Litigation. The ownership of property and provision of services toremeasured value. As a result, the public as tenants entails an inherent risk of liability. Althoughparties have filed for arbitration in accordance with the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.
joint venture agreement.
ITEM 4.
MINE SAFETY DISCLOSURESNot applicable.
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ARL’s common stock is listed and traded on the NYSE under the symbol “ARL”. The following table sets forth the high and low sales prices as reported in the consolidated reporting system of the NYSE
American for the quarters ended:
| | | 2016 | | | 2015 | |
| | | High | | | Low | | | High | | | Low | |
| First Quarter | | $ | 5.83 | | | $ | 3.89 | | | $ | 5.90 | | | $ | 4.26 | |
| Second Quarter | | $ | 7.05 | | | $ | 4.44 | | | $ | 5.95 | | | $ | 4.66 | |
| Third Quarter | | $ | 7.81 | | | $ | 5.19 | | | $ | 7.49 | | | $ | 4.09 | |
| Fourth Quarter | | $ | 7.93 | | | $ | 4.92 | | | $ | 7.19 | | | $ | 4.75 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 | | 2019 |
| High | | Low | | High | | Low |
| First Quarter | $ | 13.51 | | | $ | 11.22 | | | $ | 21.57 | | | $ | 11.70 | |
| Second Quarter | $ | 14.36 | | | $ | 11.19 | | | $ | 20.63 | | | $ | 12.26 | |
| Third Quarter | $ | 17.89 | | | $ | 10.53 | | | $ | 19.00 | | | $ | 14.50 | |
| Fourth Quarter | $ | 17.39 | | | $ | 12.25 | | | $ | 17.48 | | | $ | 12.04 | |
On March
10, 2017,22, 2021, the closing market price of
ARL’sour common stock on the NYSE
$6.67$9.26 per share, and was held by approximately
3,0361,510 stockholders of record.
ARL’s
Our Board of Directors
has established a policy that dividend declarations on common stock would be determined on an annual basis following the end of each year. In accordance with that policy, the
Boardboard determined not to pay any dividends on common stock in
2016, 2015December 31, 2020, 2019 or
2014.2018. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including
the Company’sour financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.
Under ARL’s Amended Articles of Incorporation,
We are authorized to issue up 15,000,000 shares of Series A 10.0% Cumulative Convertible Preferred Stock are authorized("Series A Preferred Stock") with a par value of $2.00 per share and a liquidation preference of $10.00 per share plus accrued and unpaid dividends. Dividends are payable at the annual rate of $1.00 per share, or $.25 per share quarterly, to stockholders of record on the last day of each March, June, September, and December, when and as declared by the Board of Directors.quarterly. The Series A Preferred Stock may be converted into common stock at 90.0% of the average daily closing price of ARL’sour common stock for the prior 20 trading days. At December 31, 2016, 2,000,614 shares of
The following reflects changes in our common stock and Series A Preferred Stockstock during the year ended December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | |
| | Issued | | Treasury | | Outstanding | | | | | | |
| Balance at January 1, 2020 | | 16,412,861 | | | (415,785) | | | 15,997,076 | | | | | | | |
| Shares sold by consolidated subsidiary(1) | | — | | | 140,000 | | | 140,000 | | | | | | | |
| Cancellation of treasury shares(2) | | (203,633) | | | 203,633 | | | — | | | | | | | |
| Adjustment(3) | | — | | | 14,967 | | | 14,967 | | | | | | | |
| Balance at December 31, 2020 | | 16,209,228 | | | (57,185) | | | 16,152,043 | | | | | | | |
(1) On December 22, 2020, shares that were outstanding. Of the outstanding shares, 900,000 arepreviously held by ARL. Dividends are not paid on theour consolidated subsidiary, TCI, and therefore included in treasury shares, owned by ARL.Under ARL’s Amended Articles of Incorporation, 91,000 shares of Series D 9.50% Cumulative Preferred Stock are authorized withwere
sold to RAI, and therefore, removed from treasury shares. (2) On December 28, 2020, we retired a par value of $2.00 per share, and a liquidation preference of $20.00 per share. Dividends are payable at the annual rate of $1.90 per year or $0.475 per quarter to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors. The Series D Preferred Stock is reserved for the conversionportion of the Class A limited partner unitsshare we held in treasury.
(3) During the year ended December 31, 2020, we adjusted and updated our treasury shares as a result of Ocean Beach Partners, L.P. The Class A units may be exchanged for Series D Preferred Stock at the rate of 20 Class A units for each share of Series D Preferred Stock. There are no outstanding shares of Series D Preferred Stock.Under ARL’s Amended Articles of Incorporation, 500,000 shares of Series E 6.0% Cumulative Preferred Stock are authorized with a par value $2.00 per share and a liquidation preference of $10.00 per share. Dividends are payable at the annual rate of $0.60 per share or $0.15 per quarter to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors. There are no Series E Preferred Stock outstanding. As an instrument amendatory to ARL’s Amended Articles of Incorporation, 100,000 shares of Series J 8% Cumulative Convertible Preferred Stockphysical count.
We have
been designated pursuant to a Certificate of Designation filed March 16, 2006, with a par value of $2.00 per share, and a liquidation preference of $1,000 per share. Dividends are payable at the annual rate of $80 per share, or $20 per quarter, to stockholders of record on the last day of each of March, June, September and December, when and as declared by the Board of Directors. Although the Series J 8% Cumulative Convertible Preferred Stock has been designated, no shares have been issued.The Company had 135,000 shares of Series K convertible preferred stock, which were held by TCI and used as collateral on a note. The note has been paid in full and the Series K preferred stock was cancelled May 7, 2014.
On September 1, 2000, the Board of Directors approved a share repurchase program authorizingthat allows for the repurchase of up to a total of 1,000,0001,250,000 shares of ARLour common stock. This repurchase program has no termination date. In August 2010, the Board of Directors approved an increase in the share repurchase program for up to an additional 250,000 shares of common stock which results in a total authorization under the repurchase program for up to 1,250,000 shares. There were no shares repurchased duringfor the year ended December 31, 2016.
18
2020 and the program has 19,465 share remaining that can be repurchased as of December 31, 2020ITEM 6.
SELECTED FINANCIAL DATAAMERICAN REALTY INVESTORS, INC.
| | | For the Years Ended December 31, |
| | | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| | | (dollars in thousands, except share and per share amounts) |
| EARNINGS DATA | | | | | | | | | | | | | | | | | | | | |
| Rental and other property revenues | | $ | 119,663 | | | $ | 104,188 | | | $ | 79,412 | | | $ | 80,750 | | | $ | 81,849 | |
| Total operating expenses | | | 105,029 | | | | 97,880 | | | | 82,611 | | | | 96,426 | | | | 73,602 | |
| Operating income (loss) | | | 14,634 | | | | 6,308 | | | | (3,199 | ) | | | (15,676 | ) | | | 8,247 | |
| Other expenses | | | (36,325 | ) | | | (31,622 | ) | | | (15,511 | ) | | | (35,264 | ) | | | (20,021 | ) |
| Loss before gain on land sales, non-controlling interest, and taxes | | | (21,691 | ) | | | (25,314 | ) | | | (18,710 | ) | | | (50,940 | ) | | | (11,774 | ) |
| Gain on sale of income-producing properties | | | 16,207 | | | | — | | | | — | | | | — | | | | — | |
| Gain (loss) on land sales | | | 3,121 | | | | 21,648 | | | | 561 | | | | (455 | ) | | | 5,475 | |
| Income tax benefit (expense) | | | (46 | ) | | | (517 | ) | | | 20,413 | | | | 40,513 | | | | (144 | ) |
| Net income (loss) from continuing operations | | | (2,409 | ) | | | (4,183 | ) | | | 2,264 | | | | (10,882 | ) | | | (6,443 | ) |
| Net income (loss) from discontinuing operations | | | (1 | ) | | | 896 | | | | 37,909 | | | | 62,606 | | | | (268 | ) |
| Net income (loss) | | | (2,410 | ) | | | (3,287 | ) | | | 40,173 | | | | 51,724 | | | | (6,711 | ) |
| Net income (loss) attributable to non-controlling interest | | | (322 | ) | | | 1,327 | | | | (9,288 | ) | | | (10,448 | ) | | | 1,126 | |
| Net income (loss) attributable to American Realty Investors, Inc. | | | (2,732 | ) | | | (1,960 | ) | | | 30,885 | | | | 41,276 | | | | (5,585 | ) |
| Preferred dividend requirement | | | (1,101 | ) | | | (1,216 | ) | | | (2,043 | ) | | | (2,452 | ) | | | (2,452 | ) |
| Net income (loss) applicable to common shares | | $ | (3,833 | ) | | $ | (3,176 | ) | | $ | 28,842 | | | $ | 38,824 | | | $ | (8,037 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | | | | | |
| Earnings per share - basic | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | (0.25 | ) | | $ | (0.27 | ) | | $ | (0.71 | ) | | $ | (2.07 | ) | | $ | (0.67 | ) |
| Income (loss) from discontinued operations | | | — | | | | 0.06 | | | | 2.99 | | | | 5.43 | | | | (0.02 | ) |
| Net income (loss) applicable to common shares | | $ | (0.25 | ) | | $ | (0.21 | ) | | $ | 2.28 | | | $ | 3.36 | | | $ | (0.69 | ) |
| Weighted average common shares used in computing earnings per share | | | 15,514,360 | | | | 15,111,107 | | | | 12,683,956 | | | | 11,525,389 | | | | 11,525,389 | |
| | | | | | | | | | | | | | | | | | | | | |
| Earnings per share - diluted | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from continuing operations | | $ | (0.25 | ) | | $ | (0.27 | ) | | $ | (0.71 | ) | | $ | (2.07 | ) | | $ | (0.67 | ) |
| Income (loss) from discontinued operations | | | — | | | | 0.06 | | | | 2.99 | | | | 5.43 | | | | (0.02 | ) |
| Net income (loss) applicable to common shares | | $ | (0.25 | ) | | $ | (0.21 | ) | | $ | 2.28 | | | $ | 3.36 | | | $ | (0.69 | ) |
| Weighted average common shares used in computing diluted earnings per share | | | 15,514,360 | | | | 15,111,107 | | | | 12,683,956 | | | | 11,525,389 | | | | 11,525,389 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| BALANCE SHEET DATA | | | | | | | | | | | | | | | | | | | | |
| Real estate, net | | $ | 901,006 | | | $ | 853,507 | | | $ | 699,763 | | | $ | 700,294 | | | $ | 930,433 | |
| Notes and interest receivable, net | | | 126,564 | | | | 120,243 | | | | 134,366 | | | | 136,815 | | | | 103,469 | |
| Total assets | | | 1,174,909 | | | | 1,117,368 | | | | 965,498 | | | | 943,322 | | | | 1,135,345 | |
| Notes and interest payables | | | 851,095 | | | | 804,760 | | | | 659,059 | | | | 659,042 | | | | 869,857 | |
| Shareholders’ equity | | | 176,131 | | | | 176,889 | | | | 179,588 | | | | 134,861 | | | | 85,104 | |
| Book value per share | | | 11.35 | | | | 11.71 | | | | 14.16 | | | | 11.70 | | | | 7.38 | |
Optional and not included.. | ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
theour consolidated financial statements and
related notes
thereto appearing elsewhere in
Part II, Item 8 of this
report.This Annual Report on Form 10-K contains forward-looking statements withinReport. Our results of operations for the meaning of the federal securities laws, principally, but not only, under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may beyear ended December 31, 2020 were affected by knowna acquisitions and unknown risks, trends, uncertainties, and factors, that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whetherdisposition, refinancing activity, development activity as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
| ● | general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); |
| ● | risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; |
| ● | failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; |
| ● | risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); |
| ● | risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; |
| ● | costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; |
| ● | potential liability for uninsured losses and environmental contamination; |
| ● | risks associated with our dependence on key personnel whose continued service is not guaranteed; and |
| ● | the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” |
The risks included here are not exhaustive. Other sections of this report, including Part I, Item 1A. “Risk Factors,” include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.
discussed below.
We are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development.development throughout the Southern United States. Our portfolio of income-producing properties includes residential apartment communities, office buildings and a golf course.other commercial properties. Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project. We acquire land primarily
Our operations are managed by Pillar Income Asset Management, Inc. (“Pillar”) in
urban in-fill locations or high-growth suburban markets. We areaccordance with an
active buyer and seller of real estate and during 2016 we acquired $92.2 million and sold $51.4 million of land and income-producing properties. As of December 31, 2016, we owned 8,266 units in 50 residential apartment communities, eight commercial properties comprising approximately 2.0 million rentable square feet and a golf course. In addition, we own 3,666 acres of land held for development. The Company currently owns income-producing properties and land in ten states as well as in the U.S. Virgin Islands.We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders. We finance our development projects principally with short-term, variable interest rate construction loans that are converted to long-term, fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized. We will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of our wholly owned properties. When we sell assets, we may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. We generate operating revenues primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants.
We have historically engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.
Since April 30, 2011, Pillar is the Company’s external Advisor and Cash Manager under a contractual arrangement that is reviewed annually by our Board of Directors.Advisory Agreement. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges for ARL’s benefit,our debt and equity financing with third party lenders and investors. Pillar also serves as an Advisor and Cash Manager to TCI and IOT. As the contractual Advisor, Pillar is compensated by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”. ARL hasWe have no employees. Employees of Pillar render services to ARLus in accordance with the terms of the Advisory Agreement.
Effective since January 1, 2011, Regis manages Pillar is considered to be a related party due to its common ownership with American Realty Investors, Inc. (“ARL”), who is our commercial propertiescontrolling shareholder.
The following is a summary of our recent acquisition, disposition, financing and provides brokerage services. Regis is entitled to receive a fee for its property managementdevelopment activities:
Acquisitions and
brokerage services. See Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. The Company contracts with third-party companies to lease and manage our apartment communities.Critical Accounting Policies
We present our financial statements in accordance with generally accepted accounting principles inDispositions
•On November 19, 2018, we formed the United States (“GAAP”Victory Abode Apartments, LLC ("VAA"). The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance joint venture with the provisions and guidanceMacquarie Group (“Macquarie”). In connection with the formation of ASC Topic 810 “Consolidation”, wherebyVAA, we have determined that we aresold a primary beneficiary of the VIE and meet50% ownership interest in certain criteria ofmultifamily apartment projects to Macquarie for a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment$236.8 million cash payment, resulting in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.
For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities are included in consolidated net income. Our investment in Gruppa Florentina, LLC is accounted for under the equity method.
The Company, in accordance with the VIE guidance in ASC 810 “Consolidations,” consolidated 50 and 48 multifamily residential properties located throughout the United States at December 31, 2016 and 2015, respectively, ranging from 32 units to 260 units. Assets totaling approximately $442 million and approximately $457 million at December 31, 2016 and 2015, respectively, are consolidated and included in “Real estate, at cost” on the balance sheet and are all collateral for their respective mortgage notes payable, none of which are recourse to the partnership in which they are in or to the Company.
Real Estate
Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, “above-market” and “below-market” leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with ASC Topic 805 “Business Combinations”, and allocate the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings at replacement cost.
We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on our acquisitions to date, our allocation to customer relationship intangible assets has been immaterial.
We record acquired “above-market” and “below-market” leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases.
Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.
Depreciation and Impairment
Real estate is stated at depreciated cost. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to the development of properties are capitalized. Capitalized development costs include interest, property taxes, insurance, and other direct project costs incurred during the period of development.
A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. Fair value is determined by a recent appraisal, comparable based upon prices for similar assets, executed sales contract, a present value and/or a valuation technique based upon a multiple of earnings or revenue. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. If we determine that impairment has occurred, the affected assets must be reduced to their face value.
Real Estate Assets Held for Sale
We classify properties as held for sale when certain criteria are met in accordance with GAAP. At that time, we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. We did not have any real estate assets classified as held for sale at December 31, 2016 or 2015.
Effective as of January 1, 2015, we adopted the revised guidance in Accounting Standards Update No. 2014-08 regarding discontinued operations. For sales of real estate or assets classified as held for sale after January 1, 2015, we will evaluate whether a disposal transaction meets the criteria of a strategic shift and will have a major effect on our operations and financial results to determine if the results of operations and gainsgain on sale of real estate will be presented as partassets of $154.1 million. We then immediately transferred our continuing operations or as discontinued operations in our consolidated statements of operations. If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not, it will be presented in continuing operations.
Any properties that are treated as “subject to sales contract” on the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we have not recognized the legal sale according to the guidance in ASC 360-20 due to various factors, disclosed in Item 1 “Significant Real Estate Acquisitions/Dispositions and Financing.” Any sale transaction where the guidance reflects that a sale had not occurred, the asset involved in the transaction, including the debt, if appropriate, and property operations, remained on the books of the Company. We continue to charge depreciation to expense as a period costs for the property until such time as the property has been classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets.”
Investment in Unconsolidated Real Estate Ventures
Except forrespective ownership interests in variablethe multifamily apartments ("VAA Portfolio") to VAA in exchange for a 50% voting interest entities, we account for our investments/ 49% profit participation interest ("Class A interest") in unconsolidated real estate ventures under the equity method of accounting because we exercise significant influence over, but do not control, these entities. These investments are recorded initially at cost, as investments in unconsolidated real estate ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated real estate ventures over the life of the related asset. Under the equity method of accounting, our net equity is reflected within the Consolidated Balance Sheets, and our share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. For ownership interests in variable interest entities, we consolidate those in which we are the primary beneficiary.
Recognition of Rental Income
Rental income for commercial property leases is recognized onVAA a straight-line basis over the respective lease terms. In accordance with ASC Topic 805 “Business Combinations”, we recognize rental revenue of acquired in-place “above-market” and “below-market” leases at their fair values over the terms of the respective leases. On our Consolidated Balance Sheets, we include as a receivable the excess of rental income recognized over rental payments actually received pursuant to the terms of the individual commercial lease agreements.
Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have the credit risk with respect to paying the supplier.
Rental income for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.
Revenue Recognition on the Sale of Real Estate
Sales and the associated gains or losses of real estate are recognized in accordance with the provisions of ASC Topic 360-20, “Property, Plant and Equipment – Real Estate Sale”. The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition and account for the continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.
Non-performing Notes Receivable
We consider a
nd note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest paymentspayable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the agreement.Interest RecognitionContribution, VAA owned and controlled 52 multifamily apartments. VAA assumed all liabilities of those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”).
•On May 31, 2019, we sold Westwood, a 120 unit multifamily property in Mary Ester, Florida for $3.1 million, resulting in a loss on Notes Receivablethe sale of $0.1 million.
•During the year ended December 31, 2019, we sold 105.1 acres of land for an aggregate sales price of $30.0 million and purchased 41.9 acres for an aggregate purchase price of approximately $4.6 million.
•On March 5, 2020, we acquired a 49.2 acres land parcel in Kent, Ohio for $5.4 million that was funded by a $2.0 million cash payment and a $3.4 million note payable that bears interest at 10% and matures on November 13, 2024.
•On May 1, 2020, we sold Villager, a 33 unit multifamily property in Fort Walton, Florida for $2.4 million, resulting in a gain on sale of $1.0 million.
•On July 16, 2020, we sold Farnham Park, a 144 unit multifamily property in Port Arthur, Texas for $13.3 million, resulting in a gain on sale of $2.7 million.
•On September 14, 2020, we sold Bridge View Plaza, a retail property in La Crosse, Wisconsin for $5.3 million, resulting in a gain on sale of $4.6 million.
•During the year ended December 31, 2020, we sold a total of 58.8 acres of land from our holdings in Windmill Farms for $12.9 million, in aggregate, resulting in gains on sale of $11.1 million. In addition, we sold 26.8 acres of land from our holdings in Mercer Crossing during the year ended December 31, 2020 for $15.8 million, resulting in a gain on sale of $10.3 million.
Financing Activities
•On February 15, 2018, we issued $39.2 million in Series B bonds (See Note 11 in our consolidated financial statements) that bear interest at 6.80% and mature on July 31, 2025. The proceeds were used to fund development activity, pay down debt and other general corporate purposes..
•On July 19, 2018, we issued an additional $19.8 million of Series B bonds (See Note 11 in our consolidated financial statements) in a private placement. We record interest income as earnedused the proceeds from the issuance to fund our development activities.
•On July 28, 2019, we paid off the $41.5 million mortgage note payable on Browning Place, which resulted in accordancea loss on early extinguishment of debt of $5.2 million. Concurrent with the termsrepayment of the relatedmortgage note payable, we issued $78.1 million of Series C bonds (See Note 11 in our consolidated financial statements), which are collateralized by Browning Place, bear interest at 4.65% and mature on January 31, 2023.
•On November 30, 2020, issued $19.7 million in additional Series A bonds (See Note 11 in our consolidated financial statements) for $18.8 million in net proceeds. We used the proceeds to fund in part our bond payments that were due on January 30, 2021.
•On December 3, 2020, we extended our $14.7 million loan agreements. 23
from HSW Partners to June 17, 2021.•On March 2, 2021, we extended our $1.2 million loan on Athens to August 28, 2022. Allowance•On March 4, 2021, we received a commitment from our lender to extend the maturity of our $10.4 million loan on Windmill Farms until February 28, 2023 at a reduced interest rate of 5%.
Development Activities
During the year ended December 31, 2020, we completed the construction of Parc at Denham Springs Phase II and Sugar Mill Phase III for Estimated LossesWe assessa total cost of $17.2 million and $14.2 million, respectively.
Our current developments projects at December 31, 2020, are as follow: (dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property | | Location | | No. of Units | | Costs to Date (1) | | Total Projected Costs (1) |
| Athens | | Athens, AL | | 232 | | | 270 | | | 34,800 | |
| Heritage McKinney | | McKinney, TX | | 170 | | | 231 | | | 24,650 | |
| Total | | | | 402 | | | $ | 501 | | | $ | 59,450 | |
(1) Costs include construction hard costs, construction soft costs and loan borrowing costs.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the collectabilityreported amounts of notes receivable on a periodic basis,assets and liabilities and disclosure of whichcontingent assets and liabilities at the assessment consists primarily of an evaluation of cash flow projectionsdate of the borrowerfinancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, capitalization of costs and fair value measurements. Our significant accounting policies are described in more detail in Note 2—Summary of Significant Accounting Policies in our notes to
determine whether estimated cash flowsthe consolidated financial statements. However, the following policies are
sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairmentdeemed to be
recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. See Note 3 “Notes and Interest Receivable” for details on our notes receivable.critical.
Fair Value of Financial Instruments
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in
developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:
Level 1 | — | Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets. |
| | |
Level 2 | — | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| | |
Level 3 | — | Unobservable inputs that are significant to the fair value measurement. |
Level 1—Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2—Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3—Unobservable inputs that are significant to the fair value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing
itsour own separate interests, or affiliates of the entity.
Results of Operations
The discussion of our results of operations is based on management’s review of operations, which is based on our segments. Our segments consist of apartments, commercial buildings, hotels, land and other. For discussion purposes, we break these segments down into the following sub-categories; same property portfolio, acquired properties, and developed properties in the lease-up phase. The same property portfolio consists of properties that were held by us for the entire period for both years being compared. The acquired property portfolio consists of properties that we acquired but have not held for the entire period for both periods being compared. Developed properties in the lease-up phase consist of completed projects that are being leased-up. As we complete each phase of the project, we lease-up that phase and include those revenues in our continued operations. Once a developed property becomes leased-up (80% or more) and is held the entire period for both years under comparison, it is considered to be included in the same property portfolio. Income-producing properties that we have sold during the year are reclassified to discontinuing operations for all periods presented. The other segment consists of revenue and operating expenses related to the notes receivable and corporate entities.
The following discussion is based on our Consolidated Statements of Operations for the year ended December 31, 2016, 2015 and 2014 as included in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data.” The prior year’s property portfolios have been adjusted for subsequent sales. Continued operations relates to income-producing properties that were held during those years as adjusted for sales in the subsequent years.
At December 31, 2016, 2015 and 2014, we owned or had interests in a portfolio of 59, 58 and 47 income-producing properties, respectively. The total property portfolio represents all income-producing properties held as of December 31 for the year presented. Sales subsequent to year end represent properties that were held as of year end for the years presented, but sold in subsequent years. Continued operations represents all properties that have not been reclassed to discontinued operations as of December 31, 2016 for the year presented. The table below shows the number of income-producing properties held by year.
| | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | |
| Continued operations | | | 59 | | | | 58 | | | | 46 | |
| Sales subsequent to year end | | | — | | | | — | | | | 1 | |
| Total property portfolio | | | 59 | | | | 58 | | | | 47 | |
Comparison of the year ended December 31, 2016 to the year ended December 31, 2015:
For the year ended December 31, 2016, we reported net loss applicable to common shares of $3.8 million or ($0.25) per diluted earnings per share compared to a net loss applicable to common shares of $3.2 million or ($0.21) per diluted earnings per share for the year ended December 31, 2015. The current year net loss applicable to common shares of $3.8 million includes gain on income-producing properties of $16.2 million and gain on land sales of $3.1 million compared to the prior year net loss applicable to common shares of $3.2 million which includes gain on land sales of $21.6 million, a provision on the impairment of real estate assets of $5.3 million and net income from discontinued operations of $0.9 million.
Revenues
Rental and other property revenues were $119.7 million for the year ended December 31, 2016. This represents an increase of $15.5 million compared to the prior year revenues of $104.2 million. The change by segment is an increase in the apartment portfolio of $13.1 million and an increase in the commercial portfolio of $2.5 million, partially offset by a decrease of $0.1 million in the other portfolio. We purchased 12 apartment communities during the year ended December 31, 2015, which produced rental revenue of $21.7 million and $10.2 million during the years ended December 31, 2016 and 2015, respectively, for a net increase of $11.5 million. In addition, we purchased two apartment properties during 2016 that produced revenues of $2.0 million and we had a decrease in rental revenue of approximately $0.9 million for two apartment communities sold during 2016. The $2.5 million increase in revenues for the commercial portfolio was primarily due to the acquisition of a commercial building in Houston, Texas late in the second quarter of 2015.
Expenses
Property operating expenses were $63.0 million for the year ended December 31, 2016. This represents an increase of $9.0 million compared to the prior year operating expenses of $54.0 million. The change by segment is an increase in the apartment portfolio of $5.8 million, an increase in the commercial portfolio of $2.6 million and an increase in the land portfolio of $0.7 million, partially offset by a decrease in the other portfolio of $0.2 million. The Company added a net 2,145 apartment units during 2015 and 723 units during 2016. Property operating expenses for our commercial portfolio increased $2.6 million due to the acquisition of an office building in Houston, Texas late in the second quarter of 2015.
Depreciation and amortization expenses were $23.8 million for the year ended December 31, 2016. This represents an increase of $2.4 million compared to prior year depreciation of $21.4 million. The increase is primarily due to the growth in our apartment portfolio which had an increase of $2.3 million year-over-year.
General and administrative expenses were $7.1 million dollars for the year ended December 31, 2016. This represents an increase of $0.2 million compared to the prior year general and administrative expenses of $6.9 million.
There was no provision for impairment of real estate assets for the year ended December 31, 2016 compared to the prior year provision of $5.3 million, related to the golf course and related assets located in the U.S. Virgin Islands.
Net income fee was $0.3 million for the year ended December 31, 2016. This represents an decrease of $0.2 million compared to the prior year net income fee of $0.5 million. The net income fee paid to Pillar is calculated at 7.5% of net income.
Advisory fees were $10.9 million for the year ended December 31, 2016. This represents an increase of $1.1 million compared to the prior year advisory fees of $9.8 million. Advisory fees are computed based on a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value.
Other income (expense)
Interest income was $20.5 million for the year ending December 31, 2016. This represents an increase of $3.8 million compared to the prior year interest income of $16.7 million dollars. This increase was primarily due to the year-over-year increase in the receivable from our Advisor.
Other income was $2.1 million for the year ending December 31, 2016. This represents a decrease of $2.0 million compared to prior year other income of $4.1 million. The increase is primarily due to a property with a negotiated settlement of a debt with the lender during 2015.
Mortgage and loan interest expense was $59.4 million for the year ended December 31, 2016. This represents an increase of $6.9 million compared to the prior year expense of $52.5 million. The change by segment is an increase in the other portfolio of $7.4 million, an increase in the apartment portfolio of $1.7 million and an increase in the commercial portfolio of $0.3 million, partially offset by a decrease in the land portfolio of $2.5 million. Within the other portfolio, the increase is due to incurring new mezzanine debt obligations during 2015. The increase in the apartment portfolio was primarily due to the acquisition of new properties, partially offset by the refinancing of five loans during 2016 at lower rates.
Gain on sale of income-producing properties was $16.2 million for the year ended December 31, 2016. During 2016, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million and one apartment community located in Topeka, Kansas to an independent third party for a total sales price of $12.3 million. We recorded an aggregate gain of $16.2 million from the sale of these two properties. The Company also sold an industrial warehouse consisting of approximately 177,805 square feet. The sale resulted in a loss of approximately $0.2 million.
Gain on land sales was $3.1 million and $21.6 million for the years ended December 31, 2016 and 2015, respectively. During 2016, we sold a combined 129.7 acres of land located in Forney, Texas, McKinney, Texas, Farmers Branch, Texas and Nashville, Tennessee to independent third parties for a total sales price of $29.1 million. We recorded an aggregate $3.1 million gain from the land sales. During 2015, we sold approximately 595 acres of land for a sales price of $107.3 million and recorded a gain of $18.9 million. In addition, we recognized $2.7 million in deferred gain from prior years land sales during the year ended December 31, 2015.
Comparison of the year ended December 31, 2015 to the year ended December 31, 2014:
For the year ended December 31, 2015, we reported a net loss applicable to common shares of $3.2 million or ($0.21) per diluted earnings per share compared to a net income applicable to common shares of $28.8 million or $2.28 per diluted earnings per share for the same period ended 2014. The net loss applicable to common shares of $3.2 million during the year ended December 31, 2015 included gain on land sales of $21.6 million, a provision on the impairment of real estate assets of $5.3 million and net income from discontinued operations of $0.9 million compared to net income applicable to common shares of $28.8 million for the year ended December 31, 2014, which included a gain on land sales of $0.6 million and net income from discontinued operations of $37.9 million.
Revenues
Rental and other property revenues were $104.2 million for the year ended December 31, 2015. This represents an increase of $24.8 million, as compared to the prior year revenues of $79.4 million. The change by segment is an increase in the apartment portfolio of $14.7 million and an increase in the commercial portfolio of $10.1 million. The increase in the apartment and commercial portfolios is mainly due to the acquisition of new properties. Our apartment portfolio continues to excel in the current economic conditions with occupancies averaging over 94% and increasing rental rates. We have been able to surpass expectations due to the high-quality product offered, strength of our management team and our commitment to our tenants. The increase in the commercial segment is also due to a high rise in the occupancy rate of the commercial complexes, in 2015 the average occupancy rate was over 86%. Our commercial portfolio is performing significantly better than in previous periods and we anticipate that it will continue to improve as the Company has been successful in attracting high-quality tenants and expects to continue to see the benefits of those new leases in the future. We continue to work aggressively to attract new tenants and strive for continuous improvement of our properties in order to maintain our existing tenants.
Expenses
Property operating expenses were $54.0 million for the year ended December 31, 2015. This represents an increase of $11.9 million, as compared to the prior year operating expenses of $42.1 million. The change by segment is an increase in the apartment portfolio of $7.4 million, an increase in the commercial portfolio of $4.7 million. Within the apartment portfolio there was an increase of $5.9 million in the acquired properties portfolio, and an increase of $1.5 million in the same property portfolio. Within the commercial portfolio there was an increase of $3.6 million in the acquired properties portfolio and an increase of $1.1 million in the same store properties. The increase in the apartment portfolio was due to the acquisition of new properties throughout the year. The increase in the commercial portfolio was due to an acquisition of a property within the year and an increase in real estate taxes.
Depreciation and amortization expenses were $21.4 million for the year ended December 31, 2015. This represents an increase of $3.8 million compared to prior year depreciation of $17.6 million. Within the apartment and commercial portfolios, the majority of this change is due to the acquisition of new properties and an increase in tenant improvements and repairs projects.
General and administrative expenses were $6.9 million dollars for the year ended December 31, 2015. This represents a decrease of $3.4 million compared to the prior year general and administrative expenses of $10.3 million. The majority of this change is due to decreases in legal expenses and franchise taxes in the current year.
The provision for impairment of real estate assets was $5.3 million for the year ended December 31, 2015. There was no provision for impairment expense in the prior year. During 2015, the Company recorded an impairment of $5.3 million for the golf course and related assets located in the U.S. Virgin Islands. This impairment was due to the decision to sell the development parcels in the U.S. Virgin Islands which resulted in a decrease in the estimated fair value of the remaining assets.
Net income fee was $0.5 million for the year ended December 31, 2015. This represents a decrease of $3.2 million compared to the prior year net income fee of $3.7 million. The net income fee paid to Pillar is calculated at 7.5% of net income.
Advisory fees were $9.8 million for the year ended December 31, 2015. This represents an increase of $0.9 million compared to the prior year advisory fees of $8.9 million. Advisory fees are computed based on a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value.
Other income (expense)
Interest income was $16.7 million for the year ending December 31, 2015. This represents a decrease of $3.4 million compared to the prior year interest income of $20.1 million dollars. The majority of this decrease is due to the recognition of uncollectable interest in the prior year on notes receivable.
Other income was $4.1 million for the year ending December 31, 2015. This represents an increase of $2.7 million compared to the prior year other income of $1.4 million. The increase is primarily due to a property with a negotiated settlement of a debt with the lender.
Mortgage and loan interest expense was $52.5 million for the year ended December 31, 2015. This represents an increase of $9.5 million compared to the prior year expense of $40.8 million. The change by segment is an increase in the apartment portfolio of $4.3 million, an increase in the commercial portfolio of $0.8 million, and an increase in the other portfolio of $6.6 million. Within the apartment and commercial portfolios, the majority of the increase is due to the acquisition of new properties, offset by loan refinancings at lower rates. Within the other portfolio, the majority of the increase is due to incurring two new mezzanine debt obligations during 2015.
Litigation settlement expenses were $0.4 million for the year ended December 31, 2015. This represents an increase of $3.9 million compared to the prior year credit of $3.6 million. This variance is due to the settlement of a debt resulting in a gain of $3.5 million in the prior year.
Gain on land sales was $21.6 million for the year ended December 31, 2015. During 2015, we sold approximately 595 acres of land in eleven transactions for a sales price of $107.3 million and recorded a gain of $18.9 million. In addition, we recognized $2.7 million in deferred gain from prior years land sales. During the year ended December 31, 2014, we recorded a gain on land sales of $0.6 million.
Discontinued Operations
Prior to January 1, 2015, we applied the provisions of ASC 360, “Property, Plant and Equipment,” which requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.
Effective January 1, 2015, the Company adopted the provisions of ASU 2014-08, which changed the criteria of ASC 360 related to determining which disposals qualify to be accounted for as discontinued operations and modified related reporting and disclosure requirements. Disposals representing a strategic shift in operations that have a major effect on a company’s operations and financial results will be presented as discontinued operations.
There were no sales of income-producing properties during 2016 or 2015 that met the criteria for discontinued operations. Amounts included in discontinued operations represent the residual amounts from sales classified as discontinued operations prior to January 1, 2015. The following table summarizes revenue and expense information for the properties sold that qualified as discontinued operations (dollars in thousands):
| | For the Year Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Revenues: | | | | | | | | | |
| Rental and other property revenues | $ | — | | | $ | 355 | | | $ | 5,612 | |
| | | — | | | | 355 | | | | 5,612 | |
| Expenses: | | | | | | | | | | | |
| Property operating expenses | | 2 | | | | (345 | ) | | | 2,350 | |
| Depreciation | | — | | | | — | | | | 751 | |
| General and administrative | | — | | | | 99 | | | | 451 | |
| Total operating expenses | | 2 | | | | (246 | ) | | | 3,552 | |
| | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | |
| Other income (expense) | | — | | | | 45 | | | | (507 | ) |
| Mortgage and loan interest | | — | | | | (2 | ) | | | (3,204 | ) |
| Loan charges and prepayment penalties | | — | | | | — | | | | (1,656 | ) |
| Litigation settlement | | — | | | | — | | | | (250 | ) |
| Total other expenses | | — | | | | 43 | | | | (5,617 | ) |
| | | | | | | | | | | | |
| Income (loss) from discontinued operations before gain on sale of real estate and taxes | | (2 | ) | | | 644 | | | | (3,557 | ) |
| Gain on sale of real estate from discontinued operations | | — | | | | 735 | | | | 61,879 | |
| Income tax expense | | 1 | | | | (483 | ) | | | (20,413 | ) |
| Income from discontinued operations | $ | (1 | ) | | $ | 896 | | | $ | 37,909 | |
Liquidity and Capital Resources
General
Our principal liquidity needs are:
| ● | fund normal recurring expenses; |
| ● | meet debt service and principal repayment obligations including balloon payments on maturing debt; |
| ● | fund capital expenditures, including tenant improvements and leasing costs; |
| ● | fund development costs not covered under construction loans; and |
| ● | fund possible property acquisitions. |
Our principal sources of cash have been and will continue to be:
| ● | proceeds from land and income-producing property sales; |
| ● | collection of mortgage notes receivable; |
| ● | collections of receivables from related companies; |
| ● | refinancing of existing debt; and |
| ● | additional borrowings, including mortgage notes payable, and lines of credit. |
It is important to realize that the current status of the banking industry has had a significant effect on our industry. The banks’ willingness and/or ability to originate loans affects our ability to buy and sell property, and refinance existing debt. We are unable to foresee the extent and length of this down-turn. A continued and extended decline could materially impact our cash flows. We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans, which are converted to traditional mortgages upon completion of the project.
We may also issue additional equity securities, including common stock and preferred stock. Management anticipates that our cash at December 31, 2016, along with cash that will be generated in 2017 from property operations, may not be sufficient to meet all of our cash requirements. Management intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet its liquidity requirements. Historically, management has been successful at refinancing and extending a portion of the Company’s current maturity obligations and selling assets as necessary to meet current obligations.
Management reviews the carrying values of ARL’s properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. The property review generally includes: (1) selective property inspections, (2) a review of the property’s current rents compared to market rents, (3) a review of the property’s expenses, (4) a review of maintenance requirements, (5) a review of the property’s cash flow, (6) discussions with the manager of the property, and (7) a review of properties in the surrounding area. For notes receivable, impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings to the extent that the investment in the note exceeds management’s estimate of the fair value of the collateral securing such note. The mortgage note receivable review includes an evaluation of the collateral property securing each note.
Cash Flow Summary
The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands):
| | | 2016 | | | 2015 | | | Variance | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | $ | 17,446 | | | $ | (34,509 | ) | | $ | 34,509 | |
| Net cash used in investing activities | | | (61,100 | ) | | | (130,348 | ) | | | 130,348 | |
| Net cash provided by financing activities | | | 45,944 | | | | 167,790 | | | | (167,790 | ) |
The primary use of cash for operations is daily operating costs, general and administrative expenses, advisory fees and land holding costs. Our primary source of cash from operating activities is from rental income on properties.
Our primary cash outlays for investing activities are for construction and development, acquisition of land and income-producing properties, and capital improvements to existing properties. Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties. During the year ended December 31, 2016, we acquired 4 apartment properties and 4 developmental land properties.
Our primary sources of cash from financing activities are from proceeds on notes payables. Our primary cash outlays are for recurring debt payments and payments on maturing notes payable.
Equity Investments.
ARL has from time to time purchased shares of IOT and TCI. The Company may purchase additional equity securities of IOT and TCI through open market and negotiated transactions to the extent ARL’s liquidity permits.
Equity securities of TCI held by ARL (and of IOT held by TCI) may be deemed “restricted securities” under Rule 144 of the Securities Act of 1933 (“Securities Act”). Accordingly, ARL may be unable to sell such equity securities other than in a registered public offering or pursuant to an exemption under the Securities Act for a one-year period after they are acquired. Such restrictions may reduce ARL’s ability to realize the full fair value of such investments if ARL attempted to dispose of such securities in a short period of time.
Contractual Obligations
We have contractual obligations and commitments primarily with regards to the payment of mortgages. The following table aggregates our expected contractual obligations and commitments and includes items not accrued, per GAAP, through the term of the obligation such as interest expense and operating leases. Our aggregate obligations subsequent to December 31, 2016 are shown in the table below (dollars in thousands):
| | | Total | | | 2017 | | | 2018 | | | 2019-2021 | | | Thereafter | |
| Long-term debt obligation (1) | | $ | 1,333,106 | | | $ | 180,432 | | | $ | 91,162 | | | $ | 215,058 | | | $ | 846,454 | |
| Operating lease obligation | | | 32,695 | | | | 536 | | | | 545 | | | | 1,695 | | | | 29,919 | |
| Total | | $ | 1,365,801 | | | $ | 180,968 | | | $ | 91,707 | | | $ | 216,753 | | | $ | 876,373 | |
| (1) | ARL’s long-term debt may contain financial covenants that, if certain thresholds are not met, could allow the lender to accelerate principal payments or cause the note to become due immediately. |
Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations,
ARLwe may be potentially liable for removal or remediation costs, as well as certain other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.
Management is
We are not aware of any environmental liability relating to the above matters that would have a material adverse effect on
ARL’sour business, assets or results of operations.
The effects of inflation on
ARL’sour operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect
the sales values of properties and the ultimate
gainsgain to be realized from property sales. To the extent that inflation affects interest rates,
our earnings from short-term investments,
and the cost of new financings
as well asand the cost of variable interest rate debt will be affected.
Results of Operations
Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting our properties described above, including those related to the Lease-Up Properties and the Disposition Properties (each as defined below).
For purposes of the discussion below, we define "Same Properties" as those properties that are substantially leased-up and in operation for the entirety of both periods of the comparison. Non-Same Properties for comparison purposes include those properties that have been recently constructed or leased-up (“Lease-up Properties”) and properties that have been disposed of ("Disposition Properties"). A developed property is considered leased-up, when it achieves occupancy of 80% or more.We move a property in and out of Same Properties based on whether the property is substantially leased-up and in operation for the entirety of both periods of the comparison. Accordingly, the Same Properties consist of all properties, excluding the Lease-up Properties and the Disposition Properties for the periods of comparison.
For the comparison of the year ended December 31, 2020 to the year ended December 31, 2019, the Lease-up Properties are Forest Grove, Parc at Denham Springs Phase II and Sugar Mill Phase III; and the Disposition Properties are Bridge View Plaza, Farnham Park and Villager.
The following table shows the total number of income-producing properties, and other key financial measures as of December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | |
| | 2020 | | 2019 | | Variance |
| Multifamily Segment | | | | | | |
| Revenue | | $ | 14,686 | | | $ | 13,517 | | | $ | 1,169 | |
| Operating expenses | | (8,482) | | | (9,304) | | | 822 | |
| | 6,204 | | | 4,213 | | | 1,991 | |
| Commercial Segment | | | | | | |
| Revenue | | 37,223 | | | 32,714 | | | 4,509 | |
| Operating expenses | | (15,878) | | | (16,390) | | | 512 | |
| | 21,345 | | | 16,324 | | | 5,021 | |
| Segment operating income | | 27,549 | | | 20,537 | | | 7,012 | |
| Other non-segment items of income (expense) | | | | | | |
| Depreciation and amortization | | (14,755) | | | (13,379) | | | (1,376) | |
| General, administrative and advisory | | (20,023) | | | (20,305) | | | 282 | |
| Interest, net | | (11,906) | | | (13,905) | | | 1,999 | |
| Loss on extinguishment of debt | | — | | | (5,219) | | | 5,219 | |
| (Loss) gain on foreign currency transactions | | (13,378) | | | (15,108) | | | 1,730 | |
| Gain sale or write down of assets | | 36,895 | | | 15,192 | | | 21,703 | |
| Income (loss) from joint ventures | | (379) | | | (2,313) | | | 1,934 | |
| Other income | | 7,264 | | | 12,757 | | | (5,493) | |
| Net income (loss) | | $ | 11,267 | | | $ | (21,743) | | | $ | 33,010 | |
Comparison of the year ended December 31, 2020 to the year ended December 31, 2019:
Our $33.0 million increase in net income during the year ended December 31, 2020 is primarily attributed to the following:
•The $1.5 million increase in operating profits in our multifamily segment is primarily due a $2.1 million increase at our Lease-Up Properties offset in part by a decrease at our Disposition Properties. The increase in profit at our Lease-Up Properties is due to an increase in occupancy at Overlook at Allenville Phase II, Parc at Denham Springs Phase II and Forest Grove in 2020.
•The $5.0 million increase in operating profits in our commercial segment is primarily due to a $6.0 million lease termination payment at Browning Place offset in part by a decrease in rental revenue at our Same Properties due to a decline in occupancy. The lease termination payment relates to a former tenant that has been replaced by a new tenant at increased rents.
•The $5.2 million loss on extinguishment of debt in 2019 is due to the early extinguishment of our mortgage note payable on Browning Place (See "Financing Activities" in Management's Overview).
•The $21.7 million increase in gain on sale of assets is due to an increase of $10.3 million sales of land; the sale of Bridge View Plaza, Farnham Park and Villager in 2020 (See "Acquisitions and Dispositions" in Management's Overview); and the recognition of $3.0 million in gain in 2020 from sales that had been previously deferred.
•The $1.9 million increase of income (loss) from joint ventures is due to the increased in occupancy of the various lease-up properties at VAA.
Comparison of the year ended December 31, 2019 to the year ended December 31, 2018:
See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 30, 2020 for a discussion of our results of operations for the year ended December 31, 2019.
Liquidity and Capital Resources
Our principal sources of cash have been, and will continue to be, property operations; proceeds from land and income-producing property sales; collection of mortgage notes receivable; collections of receivables from related companies; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage notes and bonds payable, and lines of credit.
Our principal liquidity needs are to fund normal recurring expenses; meet debt service and principal repayment obligations including balloon payments on maturing debt; fund capital expenditures, including tenant improvements and leasing costs; fund development costs not covered under construction loans; and fund possible property acquisitions.
We anticipates that our cash and cash equivalents as of December 31, 2020, along with cash that will be generated in 2021 from notes and interest receivables, will be sufficient to meet all of our cash requirements. We intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements. Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of our current maturity obligations.
Cash Flow Summary
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2020 | | 2019 | | Incr /(Decr) |
| Net cash provided by (used in) operating activities | $ | 3,498 | | | $ | (40,641) | | | $ | 44,139 | |
| Net cash provided by (used in) investing activities | $ | 4,196 | | | $ | (3,705) | | | $ | 7,901 | |
| Net cash (used in) provided by financing activities | $ | (3,985) | | | $ | 21,042 | | | $ | (25,027) | |
The increase in cash from operating activities is primarily due to the $45.9 million decrease in receivable from related parties in 2019.
The increase in cash provided by investing activities is primarily due to a $16.2 million decrease in development and renovation of real estate and a $12.4 million increase in proceeds from sale of assets offset in part by a $11.6 million decrease in originations and advances on notes receivable and a $9.4 million decrease in collection of notes receivable.
The increase in cash used in financing activities is primarily due to a $73.1 million decrease in proceeds from mortgages, notes and bonds payable offset in part by a $42.0 million decrease in payments of mortgages, notes and bonds payable. The decrease in proceeds and payment on mortgage, notes and bonds payable is due to the refinancing of Browning Place in 2019 (See "Financing Activities" in Management's Overview).
Funds From Operations ("FFO")
We use FFO in addition to net income to report our operating and financial results and considers FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("Nareit") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization, impairment write-downs of real estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We also presents FFO excluding the impact of the effects of foreign currency translation.
FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as we believe real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. We believe that such a presentation also provides investors with a meaningful measure of our operating results in comparison to the operating results of other real estate companies. In addition, we believe that FFO excluding gain (loss) from foreign currency transactions
provide useful supplemental information regarding our performance as they show a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our results.
We believe that FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP, and is not indicative of cash available to fund all cash flow needs. We also caution that FFO, as presented, may not be comparable to similarly titled measures reported by other real estate companies.
We compensate for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of net income to FFO and FFO-diluted. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
The following reconciles our net income attributable to FFO and FFO-basic and diluted, excluding (loss) gain from foreign currency transactions for the years ended December 31, 2020, 2019 and 2018 (dollars and shares in thousands):
| | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2020 | | 2019 | | 2018 |
| Net income (loss) attributable to the Company | $ | 9,030 | | | $ | (15,958) | | | $ | 173,699 | |
| Depreciation and amortization on consolidated assets | 14,755 | | | 13,379 | | | 22,670 | |
| Gain (loss) on sale or write down of assets | (36,895) | | | (15,192) | | | (171,530) | |
| Gain on sale of land | 25,171 | | | 15,272 | | | 17,404 | |
| Depreciation and amortization on unconsolidated joint ventures at pro rata share | 3,291 | | | 238 | | | (1,863) | |
| FFO-Basic and Diluted | 15,352 | | | (2,261) | | | 40,380 | |
| Loss on extinguishment of debt | — | | | 5,219 | | | — | |
| Loss (gain) on foreign currency transaction | 13,378 | | | 15,108 | | | (12,399) | |
| FFO-adjusted | $ | 28,730 | | | $ | 18,066 | | | $ | 27,981 | |
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.ARL’s primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest rates
Optional and
maturing debt that has to be refinanced. ARL’s future operations, cash flow and fair values of financial instruments are also partially dependent on the then existing market interest rates and market equity prices.As of December 31, 2016, our $867.7 million debt portfolio consisted of approximately $827.9 million of fixed-rate debt and approximately $39.8 million of variable-rate debt with interest rates ranging from 4.75% to 12.0%. Our overall weighted average interest rate at December 31, 2016 and 2015 was 4.91% and 4.66%, respectively.
25
ARL’s interest rate sensitivity position is managed by the capital markets department. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. ARL’s earnings are affected as changes in short-term interest rates affect its cost of variable-rate debt and maturing fixed-rate debt.
If market interest rates for variable-rate debt average 100 basis points more in 2016 than they did during 2015, ARL’s interest expense would increase and net income would decrease by $0.4 million. This amount is determined by considering the impact of hypothetical interest rates on ARL’s borrowing cost. The analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in ARL’s financial structure.
The following table contains only those exposures that existed at December 31, 2016. Anticipation of exposures of risk on positions that could possibly arise was not considered. ARL’s ultimate interest rate risk and its effect on operations will depend on future capital market exposures, which cannot be anticipated with a probable assurance level (dollars are in thousands):
| | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total |
| Note Receivable | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed interest rate - fair value | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 134,230 | |
| Instrument’s maturities | | $ | 37,966 | | | $ | 14,301 | | | $ | 5,896 | | | $ | 5,907 | | | $ | 174 | | | $ | 69,985 | | | $ | 134,230 | |
| Instrument’s amortization | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Interest | | | 12,494 | | | | 11,153 | | | | 9,497 | | | | 8,446 | | | | 8,415 | | | | 100,779 | | | | 150,784 | |
| Average Rate | | | 9.31 | % | | | 11.59 | % | | | 11.59 | % | | | 11.10 | % | | | 11.99 | % | | | 12.00 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | Thereafter | | | Total | |
| Notes Payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Variable interest rate - fair value | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 39,779 | |
| Instrument’s maturities | | $ | 1,995 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,995 | |
| Instrument’s amortization | | | 36,202 | | | | 211 | | | | 224 | | | | 238 | | | | 157 | | | | 752 | | | | 37,784 | |
| Interest | | | 382 | | | | 95 | | | | 81 | | | | 67 | | | | 54 | | | | 110 | | | | 789 | |
| Average Rate | | | 5.65 | % | | | 5.83 | % | | | 5.77 | % | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fixed interest rate - fair value | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 827,932 | |
| Instrument’s maturities | | $ | 11,640 | | | $ | 2,477 | | | $ | 18,649 | | | $ | 15,990 | | | $ | — | | | $ | 33,729 | | | $ | 82,484 | |
| Instrument’s amortization | | | 90,278 | | | | 53,568 | | | | 51,262 | | | | 35,388 | | | | 15,673 | | | | 499,278 | | | | 745,448 | |
| Interest | | | 39,935 | | | | 34,811 | | | | 29,938 | | | | 24,622 | | | | 22,715 | | | | 312,585 | | | | 464,606 | |
| Average Rate | | | 9.37 | % | | | 0.23 | % | | | 11.03 | % | | | 10.08 | % | | | 0.00 | % | | | 0.38 | % | | | | |
| ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
All other schedules are omitted because they are not required, are not applicable, or the information required is included in the Consolidated Financial Statements or the notes thereto.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of and
Stockholders of American Realty Investors, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of American Realty Investors, Inc. and Subsidiaries as of December 31, 20162020 and 2015,2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2016.2020, and the related notes and schedules (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of American Realty Investors, Inc.’s management is responsible as of December 31, 2020 and 2019 and the results of its operations and its cash flows for theseeach of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis of Opinion
These consolidated financial
statements.statements are the responsibility of Company’s management. Our responsibility is to express an opinion on
thesethe Company’s consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerationAs part of our audits, we are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
supportingregarding the amounts and disclosures in the
consolidated financial
statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial
statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment of investment in real estate
Description of the Matter
The Company’s net investment in real estate totaled $377.3 million as of December 31, 2020. As discussed in Note 2 to the consolidated financial statements, the Company periodically assesses whether there has been any impairment in the carrying value of its properties and whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. Impairment is recognized on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows for a real estate asset are less than its carrying amount, at which time the real estate asset is written down to its estimated fair value.
Auditing the Company's impairment assessment for real estate assets was complex because of the subjective auditor judgment necessary in evaluating management’s identification of indicators of potential impairment. Our evaluation of management’s identification of indicators of impairment included our related assessment of such indicators, either individually or in combination, in determining whether a triggering event has occurred that requires the Company to evaluate the recoverability of the real estate asset.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company’s controls over the Company’s real estate asset impairment assessment process. Our testing of the Company’s impairment assessment included, among other procedures, evaluating significant judgments applied in determining whether indicators of impairment existed for the Company’s real estate assets. Our procedures included obtaining evidence to corroborate such judgments and searching for evidence contrary to such judgments, including searching for significant tenant write-offs or upcoming lease expirations with little prospects for replacement tenants. We also searched for any significant declines in operating results of a real estate asset due that could be a triggering event or an indicator of potential impairment.
Collectability of Notes Receivable
Description of the Matter
At December 31, 2020, the Company had notes receivable in the amount of $130.6 million. The Company performs an assessment as to whether or not substantially all of the amounts due under these notes receivable is deemed probable of collection. Subsequently, for notes where the Company concludes that it is not probable that it will collect substantially all payments due under the note, the Company creates an allowance for any amounts not probable of collection.
Auditing the Company's collectability assessment is complex due to the judgment involved in the Company’s determination of the collectability of these notes. The determination involves consideration of the terms of the note, whether or not the note is currently performing, and any security for the note.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company's controls over notes receivable and their collectability assessment. Our testing included among other things, confirming selected notes receivable, determining if the notes were performing according to their terms and testing the Company’s evaluation of the underlying security interest if necessary.
Revenue Recognition (straight-line) for commercial tenants
Description of the Matter
During 2020, the Company recognized office rental revenues and tenant recoveries of $37.2 million and recorded tenant receivables of $.1 million and deferred rent receivables of $3.2 million at December 31, 2020. As described in Note 16, American Realty Investors, Inc.’s2 to the consolidated financial statements, the Company recognizes revenue from commercial properties on a straight-line basis over the terms of the related leases.
Auditing the Company's straight-line calculations is complex due to the free rent periods, lease amendments and escalation clauses contained in many of the leases.
How We Addressed the Matter in Our Audit
We obtained an understanding of the Company's controls over office rental revenues and tenant recoveries, including controls over management’s calculation of the straight-line calculation and deferred rent receivable. To test the straight-line rent revenue and deferred rent receivable, we performed audit procedures that included, among others, evaluating the data and assumptions used in determining the calculation and agreeing amounts in the calculation to copies of lease agreements. In addition, we tested the complet
Emphasis of Liquidity
As described in the Note 17, management intends to sell
landincome-producing assets, refinance real estate and
income-producing properties and refinance or extend debtobtain additional borrowings primarily secured by real estate to meet the Company’s liquidity
needs.requirements.
Supplemental Information
The supplemental information contained in Schedules III and IV has been subjected to audit procedures performed in conjunction with the audit of the Company’s financial statements. The supplemental information is the responsibility of the Company’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Security and Exchange Commission’s rules. In our opinion, the
consolidated financial statements referred to above presentsupplemental information is fairly
stated, in all material respects,
the financial position of American Realty Investors, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. Schedules III and IV are presented for the purpose of complying with the Securities and Exchange Commission’s rules and are not a required part of the basic consolidated financial statements. American Realty Investors, Inc.’s management is responsible for these schedules. These schedules have been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, fairly state, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
Farmer, Fuqua
FARMER, FUQUA &
Huff,HUFF, PC
We have served as the Company’s auditor since 2004.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
| | | December 31,
2016 | | | December 31,
2015 | |
| | | (dollars in thousands, except share
and par value amounts) | |
| Assets | | | | | | |
| Real estate, at cost | | $ | 1,017,684 | | | $ | 954,390 | |
| Real estate subject to sales contracts at cost, net of depreciation | | | 48,919 | | | | 49,155 | |
| Less accumulated depreciation | | | (165,597 | ) | | | (150,038 | ) |
| Total real estate | | | 901,006 | | | | 853,507 | |
| Notes and interest receivable | | | | | | | | |
| Performing (including $125,799 in 2016 and $125,915 in 2015 from related parties) | | | 143,601 | | | | 137,280 | |
| Less allowance for estimated losses (including $15,537 in 2016 and $15,537 in 2015 from related parties) | | | (17,037 | ) | | | (17,037 | ) |
| Total notes and interest receivable | | | 126,564 | | | | 120,243 | |
| Cash and cash equivalents | | | 17,522 | | | | 15,232 | |
| Restricted cash | | | 38,399 | | | | 45,711 | |
| Investments in unconsolidated subsidiaries and investees | | | 6,087 | | | | 8,365 | |
| Receivable from related party | | | 24,672 | | | | 28,147 | |
| Other assets | | | 60,659 | | | | 46,163 | |
| Total assets | | $ | 1,174,909 | | | $ | 1,117,368 | |
| | | | | | | | | |
| Liabilities and Shareholders’ Equity | | | | | | | | |
| Liabilities: | | | | | | | | |
| Notes and interest payable | | $ | 845,107 | | | $ | 797,962 | |
| Notes related to assets held for sale | | | 376 | | | | 376 | |
| Notes related to assets subject to sales contracts | | | 5,612 | | | | 6,422 | |
| Deferred revenue (including $70,935 in 2016 and $70,892 in 2015 from sales to related parties) | | | 91,380 | | | | 91,336 | |
| Accounts payable and other liabilities (including $10,854 in 2016 and $7,236 in 2015 to related parties) | | | 56,303 | | | | 44,383 | |
| | | | 998,778 | | | | 940,479 | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
| | | | | | | | | |
| Preferred stock, Series A: $2.00 par value, authorized 15,000,000 shares, issued and outstanding 2,000,614 shares in 2016 and 2015 (liquidation preference $10 per share), including 900,000 shares in 2016 and 2015 held by ARL | | | 2,205 | | | | 2,205 | |
| Common stock, $0.01 par value, authorized 100,000,000 shares; issued 15,930,145 shares and outstanding 15,514,360 shares in 2016 and 2015, including 140,000 shares held by TCI (consolidated) in 2016 and 2015 | | | 159 | | | | 156 | |
| Treasury stock at cost; 415,785 shares in 2016 and 2015, and 140,000 shares held by TCI (consolidated) as of 2016 and 2015 | | | (6,395 | ) | | | (6,395 | ) |
| Paid-in capital | | | 111,510 | | | | 109,861 | |
| Retained earnings | | | 14,398 | | | | 17,130 | |
| Total American Realty Investors, Inc. shareholders’ equity | | | 121,877 | | | | 122,957 | |
| Non-controlling interest | | | 54,254 | | | | 53,932 | |
| Total equity | | | 176,131 | | | | 176,889 | |
| Total liabilities and equity | | $ | 1,174,909 | | | $ | 1,117,368 | |
(dollars in thousands, except par value amounts)
| | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Assets | | | |
| Real estate | $ | 377,383 | | | $ | 387,790 | |
| Notes receivable (including $69,518 and $83,757 at December 31, 2020 and 2019, respectively, from related parties) | 130,626 | | | 143,087 | |
| Cash and cash equivalents | 36,814 | | | 51,228 | |
| Restricted cash | 50,206 | | | 32,083 | |
| Investment in unconsolidated joint ventures | 60,425 | | | 67,655 | |
| Receivable from related parties | 129,335 | | | 85,996 | |
| Other assets | 80,975 | | | 62,802 | |
| Total assets | $ | 865,764 | | | $ | 830,641 | |
| | | |
| Liabilities and Equity | | | |
| Liabilities: | | | |
| Mortgages and other notes payable | $ | 242,711 | | | $ | 249,854 | |
| Bonds payable | 237,888 | | | 223,265 | |
| Accounts payable and other liabilities (including $12,488 and $11,817 at December 31, 2020 and 2019, respectively, to related parties) | 27,299 | | | 29,014 | |
| Interest payable | 7,639 | | | 7,230 | |
| Deferred revenue | 19,821 | | | 24,762 | |
| Total liabilities | 535,358 | | | 534,125 | |
| | | |
| Equity: | | | |
| Shareholders' equity | | | |
| Preferred stock, Series A, $2.00 par value, 15,000,000 shares authorized, 1,800,614 shares issued and outstanding | 1,801 | | | 3,601 | |
| Common stock, $0.01 par value, 100,000,000 shares authorized; 16,209,228 shares issued and 16,152,043 outstanding | 162 | | | 164 | |
| Treasury stock at cost, (57,185) shares | (2) | | | (6,395) | |
| Additional paid-in capital | 62,092 | | | 78,421 | |
| Retained earnings | 172,738 | | | 163,708 | |
| Total shareholders’ equity | 236,791 | | | 239,499 | |
| Noncontrolling interest | 93,615 | | | 57,017 | |
| Total equity | 330,406 | | | 296,516 | |
| Total liabilities and equity | $ | 865,764 | | | $ | 830,641 | |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | For the Years Ended December 31, | |
| | | 2016 | | | 2015 | | 2014 | |
| | | | |
| | | (dollars in thousands, except per share amounts) | |
| Revenues: | | | | | | | | | |
| Rental and other property revenues (including $708, $726 and $701 for the year ended 2016, 2015 and 2014, respectively, from related parties) | | $ | 119,663 | | | $ | 104,188 | | | $ | 79,412 | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Property operating expenses (including $900, $770 and $645 for the year ended 2016, 2015 and 2014, respectively, from related parties) | | | 62,950 | | | | 54,002 | | | | 42,124 | |
| Depreciation | | | 23,785 | | | | 21,418 | | | | 17,593 | |
| General and administrative (including $4,053, $3,855 and $3,628 for the year ended 2016, 2015 and 2014, respectively, from related parties) | | | 7,119 | | | | 6,893 | | | | 10,282 | |
| Provision on impairment of real estate assets | | | — | | | | 5,300 | | | | — | |
| Net income fee to related party | | | 257 | | | | 492 | | | | 3,669 | |
| Advisory fee to related party | | | 10,918 | | | | 9,775 | | | | 8,943 | |
| Total operating expenses | | | 105,029 | | | | 97,880 | | | | 82,611 | |
| Operating income (loss) | | | 14,634 | | | | 6,308 | | | | (3,199 | ) |
| | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | |
| Interest income (including $18,864, $15,859 and $19,029 for the year ended 2016, 2015 and 2014, respectively, from related parties) | | | 20,453 | | | | 16,674 | | | | 20,054 | |
| Other income | | | 2,091 | | | | 4,106 | | | | 1,415 | |
| Mortgage and loan interest (including $5,300, $3,774 and $3,660 for the year ended 2016, 2015 and 2014, respectively, from related parties) | | | (59,362 | ) | | | (52,477 | ) | | | (40,826 | ) |
| Loss on the sale of investments | | | — | | | | (1 | ) | | | (92 | ) |
| Earnings from unconsolidated subsidiaries and investees | | | 493 | | | | 428 | | | | 347 | |
| Litigation settlement | | | — | | | | (352 | ) | | | 3,591 | |
| Total other expenses | | | (36,325 | ) | | | (31,622 | ) | | | (15,511 | ) |
| Loss before gain on sales, non-controlling interest and taxes | | | (21,691 | ) | | | (25,314 | ) | | | (18,710 | ) |
| Gain on sale of income-producing properties | | | 16,207 | | | | — | | | | — | |
| Gain on land sales | | | 3,121 | | | | 21,648 | | | | 561 | |
| Loss from continuing operations before tax | | | (2,363 | ) | | | (3,666 | ) | | | (18,149 | ) |
| Income tax benefit (expense) | | | (46 | ) | | | (517 | ) | | | 20,413 | |
| Net income (loss) from continuing operations | | | (2,409 | ) | | | (4,183 | ) | | | 2,264 | |
| Discontinued operations: | | | | | | | | | | | | |
| Income (loss) from discontinued operations | | | (2 | ) | | | 644 | | | | (3,557 | ) |
| Gain on sale of real estate from discontinued operations | | | — | | | | 735 | | | | 61,879 | |
| Income tax expense from discontinued operations | | | 1 | | | | (483 | ) | | | (20,413 | ) |
| Net income (loss) from discontinued operations | | | (1 | ) | | | 896 | | | | 37,909 | |
| Net income (loss) | | | (2,410 | ) | | | (3,287 | ) | | | 40,173 | |
| Net (income) loss attributable to non-controlling interests | | | (322 | ) | | | 1,327 | | | | (9,288 | ) |
| Net income (loss) attributable to American Realty Investors, Inc. | | | (2,732 | ) | | | (1,960 | ) | | | 30,885 | |
| Preferred dividend requirement | | | (1,101 | ) | | | (1,216 | ) | | | (2,043 | ) |
| Net income (loss) applicable to common shares | | $ | (3,833 | ) | | $ | (3,176 | ) | | $ | 28,842 | |
| | | | | | | | | | | | | |
| Earnings per share - basic | | | | | | | | | | | | |
| Loss from continuing operations | | $ | (0.25 | ) | | $ | (0.27 | ) | | $ | (0.71 | ) |
| Income from discontinued operations | | | — | | | | 0.06 | | | | 2.99 | |
| Net income (loss) applicable to common shares | | $ | (0.25 | ) | | $ | (0.21 | ) | | $ | 2.28 | |
| | | | | | | | | | | | | |
| Earnings per share - diluted | | | | | | | | | | | | |
| Loss from continuing operations | | $ | (0.25 | ) | | $ | (0.27 | ) | | $ | (0.71 | ) |
| Income from discontinued operations | | | — | | | | 0.06 | | | | 2.99 | |
| Net income (loss) applicable to common shares | | $ | (0.25 | ) | | $ | (0.21 | ) | | $ | 2.28 | |
| | | | | | | | | | | | | |
| Weighted average common shares used in computing earnings per share | | | 15,514,360 | | | | 15,111,107 | | | | 12,683,956 | |
| Weighted average common shares used in computing diluted earnings per share | | | 15,514,360 | | | | 15,111,107 | | | | 12,683,956 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Amounts attributable to American Realty Investors, Inc. | | | | | | | | | | | | |
| Loss from continuing operations | | $ | (2,731 | ) | | $ | (2,856 | ) | | $ | (7,024 | ) |
| Income (loss) from discontinued operations | | | (1 | ) | | | 896 | | | | 37,909 | |
| Net income (loss) | | $ | (2,732 | ) | | $ | (1,960 | ) | | $ | 30,885 | |
(Dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Revenues: | | | | | |
| Rental revenues (including $1,083, $841 and $144 for 2020, 2019 and 2018, respectively, from related parties) | $ | 51,909 | | | $ | 46,231 | | | $ | 113,944 | |
| Other income | 7,117 | | | 12,757 | | | 36,005 | |
| Total revenue | 59,026 | | | 58,988 | | | 149,949 | |
| Expenses: | | | | | |
| Property operating expenses (including $990, $991 and $254 for 2020, 2019 and 2018, respectively, from related parties) | 24,360 | | | 25,694 | | | 59,587 | |
| Depreciation and amortization | 14,755 | | | 13,379 | | | 22,670 | |
| General and administrative (including $3,869, $4,429 and $1,267 for 2020, 2019 and 2018, respectively, from related parties) | 10,614 | | | 11,089 | | | 12,708 | |
| Advisory fee to related party | 9,409 | | | 9,216 | | | 12,106 | |
| Total operating expenses | 59,138 | | | 59,378 | | | 107,071 | |
| Net operating (loss) income | (112) | | | (390) | | | 42,878 | |
| Interest income (including $19,515, $23,670 and $5,406 for 2020, 2019 and 2018, respectively, from related parties) | 23,098 | | | 25,955 | | | 21,645 | |
| Interest expense (including $6,632, $9,282 and $2,240 for 2020, 2019 and 2018, respectively, from related parties) | (35,004) | | | (39,860) | | | (66,063) | |
| (Loss) gain on foreign currency transactions | (13,378) | | | (15,108) | | | 12,399 | |
| Loss on extinguishment of debt | 0 | | | (5,219) | | | 0 | |
| Equity in (loss) income from unconsolidated joint ventures | (379) | | | (2,313) | | | 1,513 | |
| Gain on sale or write-down of assets | 36,895 | | | 15,192 | | | 171,530 | |
| Income tax provision | 147 | | | 0 | | | (1,210) | |
| Net income (loss) | 11,267 | | | (21,743) | | | 182,692 | |
| Net (income ) loss attributable to noncontrolling interest | (2,237) | | | 5,785 | | | (8,993) | |
| Net (loss) income attributable to the Company | 9,030 | | | (15,958) | | | 173,699 | |
| Preferred dividend | 0 | | | (1) | | | (901) | |
| Net income (loss) applicable to common shares | $ | 9,030 | | | $ | (15,959) | | | $ | 172,798 | |
| Earnings per share - basic | | | | | |
| Basic | $ | 0.56 | | | $ | (1.00) | | | $ | 10.81 | |
| Diluted | $ | 0.56 | | | $ | (1.00) | | | $ | 10.35 | |
| Weighted average common shares used in computing earnings per share | | | | | |
| Basic | 16,045,796 | | | 15,997,076 | | | 15,982,528 | |
| Diluted | 16,045,796 | | | 15,997,076 | | | 16,697,966 | |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED
STATEMENTSSTATEMENT OF
SHAREHOLDERS’ EQUITY
For the Three Years Ended December 31,
20162020
(dollars in
thousands)| | | | | | | | | | | | | | | Common Stock | | | | | | | | | | | | | | | | Non-controlling | |
| | | Total
Capital | | | Comprehensive Loss | | | Preferred Stock | | | Shares | | | Amount | | | Treasury Stock | | | Paid-in Capital | | | Retained Earnings | | | Controlling Interest | |
| Balance, December 31, 2013 | | $ | 134,861 | | | $ | (93,213 | ) | | $ | 4,908 | | | | 11,941,174 | | | $ | 115 | | | $ | (6,395 | ) | | $ | 102,974 | | | $ | (11,795 | ) | | $ | 45,054 | |
| Net income | | | 40,173 | | | | 40,173 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 30,885 | | | | 9,288 | |
| Distribution to non-controlling interests | | | (333 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (302 | ) | | | — | | | | (31 | ) |
| Sale of controlling interest | | | (289 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (289 | ) | | | — | | | | — | |
| Conversion of preferred stock into common stock | | | 7,219 | | | | — | | | | (1,782 | ) | | | 2,502,230 | | | | 26 | | | | — | | | | 8,038 | | | | — | | | | 937 | |
| Series A preferred stock cash dividend ($1.00 per share) | | | (2,043 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,043 | ) | | | — | | | | — | |
| Balance, December 31, 2014 | | $ | 179,588 | | | $ | (53,040 | ) | | $ | 3,126 | | | | 14,443,404 | | | $ | 141 | | | $ | (6,395 | ) | | $ | 108,378 | | | $ | 19,090 | | | $ | 55,248 | |
| Net loss | | | (3,287 | ) | | | (3,287 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,960 | ) | | | (1,327 | ) |
| Contribution from non-controlling interests | | | 11 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 11 | |
| Assumption of non-controlling interests | | | (470 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (470 | ) | | | — | | | | — | |
| Conversion of preferred stock into common stock | | | 2,263 | | | | — | | | | (921 | ) | | | 1,486,741 | | | | 15 | | | | — | | | | 3,169 | | | | — | | | | — | |
| Series A preferred stock cash dividend ($1.00 per share) | | | (1,216 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,216 | ) | | | — | | | | — | |
| Balance, December 31, 2015 | | $ | 176,889 | | | $ | (56,327 | ) | | $ | 2,205 | | | | 15,930,145 | | | $ | 156 | | | $ | (6,395 | ) | | $ | 109,861 | | | $ | 17,130 | | | $ | 53,932 | |
| Net loss | | | (2,410 | ) | | | (2,410 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (2,732 | ) | | | 322 | |
| Assumption of non-controlling interests | | | (268 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (268 | ) | | | — | | | | — | |
| Sale of non-controlling interests | | | 3,021 | | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | 3,018 | | | | — | | | | — | |
| Series A preferred stock cash dividend ($1.00 per share) | | | (1,101 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,101 | ) | | | — | | | | — | |
| Balance, December 31, 2016 | | $ | 176,131 | | | $ | (58,737 | ) | | $ | 2,205 | | | | 15,930,145 | | | $ | 159 | | | $ | (6,395 | ) | | $ | 111,510 | | | $ | 14,398 | | | $ | 54,254 | |
thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Preferred
Stock | | Common Stock | | Treasury
Stock | | Paid-in
Capital | | Retained
Earnings | | Total Stockholders' Equity | | Noncontrolling
Interest | | Total Equity |
| Balance, January 1, 2018 | | $ | 4,001 | | | $ | 159 | | | $ | (6,395) | | | $ | 107,342 | | | $ | 5,967 | | | $ | 111,074 | | | $ | 53,809 | | | $ | 164,883 | |
| Net income | | | | — | | | — | | | — | | | 173,699 | | | 173,699 | | | 8,993 | | | 182,692 | |
| Conversion of Series A preferred stock into common stock | | (400) | | | 5 | | | — | | | 395 | | | — | | | — | | | — | | | 0 | |
| Series D preferred dividend | | — | | | — | | | — | | | (8,347) | | | — | | | (8,347) | | | — | | | (8,347) | |
| Redemption of Series D preferred stock | | — | | | — | | | — | | | (10,000) | | | — | | | (10,000) | | | — | | | (10,000) | |
| Acquisition of Series A preferred stock by consolidated subsidiary | | — | | | — | | | — | | | (7,200) | | | — | | | (7,200) | | | — | | | (7,200) | |
| Series A preferred stock cash dividend ($1.00 per share) | | — | | | — | | | — | | | (901) | | | — | | | (901) | | | — | | | (901) | |
| Balance, December 31, 2018 | | 3,601 | | | 164 | | | (6,395) | | | 81,289 | | | 179,666 | | | 258,325 | | | 62,802 | | | 321,127 | |
| Net loss | | — | | | — | | | — | | | — | | | (15,958) | | | (15,958) | | | (5,785) | | | (21,743) | |
| Series A preferred stock cash dividend ($1.00 per share) | | — | | | — | | | — | | | (1) | | | — | | | (1) | | | — | | | (1) | |
| Distribution to equity partner | | — | | | — | | | — | | | (2,867) | | | — | | | (2,867) | | | — | | | (2,867) | |
| Balance, December 31, 2019 | | 3,601 | | | 164 | | | (6,395) | | | 78,421 | | | 163,708 | | | 239,499 | | | 57,017 | | | 296,516 | |
| Net income | | — | | | — | | | — | | | — | | | 9,030 | | | 9,030 | | | 2,237 | | | 11,267 | |
| Issuance of common shares | | — | | | — | | | — | | | 3,747 | | | — | | | 3,747 | | | — | | | 3,747 | |
| Issuance of Series A preferred shares | | — | | | — | | | — | | | 18,876 | | | — | | | 18,876 | | | — | | | 18,876 | |
| Cancellation of treasury shares | | (1,800) | | | (2) | | | 6,393 | | | (4,591) | | | — | | | — | | | — | | | 0 | |
| Adjustment of noncontrolling interest | | — | | | — | | | — | | | (34,361) | | | — | | | (34,361) | | | 34,361 | | | 0 | |
| Balance, December 31, 2020 | | $ | 1,801 | | | $ | 162 | | | $ | (2) | | | $ | 62,092 | | | $ | 172,738 | | | $ | 236,791 | | | $ | 93,615 | | | $ | 330,406 | |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)For the Three Years Ended December 31,
| | | 2016 | | | 2015 | | | 2014 | |
| | | | (dollars in thousands) | |
| Net income (loss) | | $ | (2,410 | ) | | $ | (3,287 | ) | | $ | 40,173 | |
| Comprehensive (income) loss attributable to non-controlling interest | | | (322 | ) | | | 1,327 | | | | (9,288 | ) |
| Comprehensive income (loss) attributable to American Realty Investors, Inc. | | $ | (2,732 | ) | | $ | (1,960 | ) | | $ | 30,885 | |
CASH FLOWS
(Dollars in thousands)
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Cash Flow From Operating Activities: | | | | | |
| Net income (loss) | $ | 11,267 | | | $ | (21,743) | | | $ | 182,692 | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| Gain on sale or write down of assets | (36,895) | | | (15,192) | | | (171,530) | |
| Loss (gain) on foreign currency transactions | 13,378 | | | 15,108 | | | (12,399) | |
| Loss on debt extinguishment | 0 | | | 5,219 | | | 0 | |
| Depreciation and amortization | 18,579 | | | 15,588 | | | 30,658 | |
| Provision for doubtful accounts | 984 | | | 0 | | | 0 | |
| Equity in earnings from unconsolidated joint ventures | 379 | | | 2,313 | | | (1,513) | |
| Distribution of income from unconsolidated joint ventures | 1,782 | | | 0 | | | 0 | |
| Changes in assets and liabilities, net of dispositions: | | | | | |
| Other assets | (3,450) | | | 10,814 | | | (104,163) | |
| Related party receivables | (327) | | | (46,191) | | | (11,894) | |
| Accrued interest payable | (531) | | | 2,338 | | | (2,316) | |
| Accounts payable and other liabilities | (1,668) | | | (8,895) | | | (81,867) | |
| Net cash provided by (used in) operating activities | 3,498 | | | (40,641) | | | (172,332) | |
| Cash Flow From Investing Activities: | | | | | |
| Collection of notes receivable | 8,251 | | | 19,755 | | | 6,541 | |
| Originations and advances on notes receivable | (33,015) | | | (21,434) | | | (16,801) | |
| Acquisition of real estate | 0 | | | (3,422) | | | (10,558) | |
| Development and renovation of real estate | (17,505) | | | (33,730) | | | (85,055) | |
| Deferred leasing costs | (2,603) | | | 0 | | | 0 |
| Proceeds from sale of assets | 40,982 | | | 28,622 | | | 253,498 | |
| Distribution from unconsolidated joint ventures | 8,086 | | | 6,504 | | | 0 | |
| Net cash provided by (used in) by investing activities | 4,196 | | | (3,705) | | | 147,625 | |
| Cash Flow From Financing Activities: | | | | | |
| Proceeds from mortgages, other notes and bonds payable | 30,727 | | | 103,800 | | | 182,558 | |
| Payments on mortgages, other notes and bonds payable | (33,415) | | | (74,718) | | | (124,616) | |
| Debt extinguishment costs | 0 | | | (3,799) | | | 0 | |
| Deferred financing costs | (1,297) | | | (4,241) | | | (5,257) | |
| Repurchase of preferred stock | 0 | | | 0 | | | (9,001) | |
| Preferred stock dividends | 0 | | | 0 | | | (900) | |
| Net cash (used in) provided by financing activities | (3,985) | | | 21,042 | | | 42,784 | |
| Net increase (decrease) in cash and cash equivalents | 3,709 | | | (23,304) | | | 18,077 | |
| Cash and cash equivalents, beginning of period | 83,311 | | | 106,615 | | | 88,538 | |
| Cash and cash equivalents, end of period | $ | 87,020 | | | $ | 83,311 | | | $ | 106,615 | |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| | | (dollars in thousands) | |
| Cash Flow From Operating Activities: | | | | | | | | | | | | |
| Net income (loss) | | $ | (2,410 | ) | | $ | (3,287 | ) | | $ | 40,173 | |
| Adjustments to reconcile net income (loss) applicable to common shares to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
| Gain on sale of land | | | (3,121 | ) | | | (21,648 | ) | | | (561 | ) |
| Gain on sale of income-producing properties | | | (16,207 | ) | | | (735 | ) | | | (61,879 | ) |
| Depreciation and amortization | | | 23,785 | | | | 21,418 | | | | 18,345 | |
| Provision on impairment of real estate assets | | | — | | | | 5,300 | | | | — | |
| Amortization of deferred borrowing costs | | | 4,357 | | | | 2,842 | | | | 4,017 | |
| Losses from unconsolidated subsidiaries and investees | | | 493 | | | | 1,327 | | | | 54 | |
| (Increase) decrease in assets: | | | | | | | | | | | | |
| Accrued interest receivable | | | (1,151 | ) | | | (1,242 | ) | | | 10,095 | |
| Other assets | | | (2,343 | ) | | | 2,683 | | | | 2,034 | |
| Prepaid expense | | | (9,222 | ) | | | (13,851 | ) | | | (2,071 | ) |
| Escrow | | | 7,584 | | | | (1,261 | ) | | | (17,232 | ) |
| Earnest money | | | (571 | ) | | | (1,193 | ) | | | 180 | |
| Rent receivables | | | 2,844 | | | | (2,168 | ) | | | (1,384 | ) |
| Increase (decrease) in liabilities: | | | | | | | | | | | | |
| Accrued interest payable | | | 3,475 | | | | (255 | ) | | | 157 | |
| Related party payables | | | (706 | ) | | | (11,027 | ) | | | (7,329 | ) |
| Other liabilities | | | 10,639 | | | | (11,412 | ) | | | (22,567 | ) |
| Net cash provided by (used in) operating activities | | | 17,446 | | | | (34,509 | ) | | | (37,968 | ) |
| | | | | | | | | | | | | |
| Cash Flow From Investing Activities: | | | | | | | | | | | | |
| Proceeds from notes receivables | | | 6,532 | | | | 14,744 | | | | 27,767 | |
| Origination of notes receivables | | | (11,703 | ) | | | (18,055 | ) | | | (34,092 | ) |
| Acquisition of land held for development | | | (12,508 | ) | | | — | | | | (5,936 | ) |
| Acquisition of income producing properties | | | (79,736 | ) | | | (207,313 | ) | | | (78,557 | ) |
| Proceeds from sale of income producing properties | | | 21,850 | | | | — | | | | 132,917 | |
| Proceeds from sale of land | | | 29,128 | | | | 108,356 | | | | 8,391 | |
| Investment in unconsolidated real estate entities | | | 2,278 | | | | 4,086 | | | | (544 | ) |
| Improvement of land held for development | | | (3,023 | ) | | | (6,158 | ) | | | (3,137 | ) |
| Improvement of income producing properties | | | (5,998 | ) | | | (8,955 | ) | | | (5,019 | ) |
| Acquisition of non-controlling interest | | | — | | | | — | | | | — | |
| Sale of non-controlling interest | | | — | | | | (336 | ) | | | (289 | ) |
| Sale of controlling interest | | | 3,021 | | | | — | | | | — | |
| Construction and development of new properties | | | (10,941 | ) | | | (16,717 | ) | | | (3,016 | ) |
| Net cash provided by (used in) investing activities | | | (61,100 | ) | | | (130,348 | ) | | | 38,485 | |
| | | | | | | | | | | | | |
| Cash Flow From Financing Activities: | | | | | | | | | | | | |
| Proceeds from notes payable | | | 242,215 | | | | 412,326 | | | | 183,766 | |
| Recurring amortization of principal on notes payable | | | (22,851 | ) | | | (26,668 | ) | | | (22,243 | ) |
| Payments on maturing notes payable | | | (173,160 | ) | | | (195,549 | ) | | | (163,494 | ) |
| Debt assumption by buyer | | | — | | | | (16,688 | ) | | | — | |
| Deferred financing costs | | | 841 | | | | (6,734 | ) | | | (6,959 | ) |
| Stock-secured borrowings | | | — | | | | — | | | | (568 | ) |
| Distributions to non-controlling interests | | | — | | | | 11 | | | | (333 | ) |
| Preferred stock dividends - Series A | | | (1,101 | ) | | | (1,216 | ) | | | (2,043 | ) |
| Conversion of preferred stock into common stock | | | — | | | | 2,308 | | | | 7,219 | |
| Net cash provided by (used in) financing activities | | | 45,944 | | | | 167,790 | | | | (4,655 | ) |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 2,290 | | | | 2,933 | | | | (4,138 | ) |
| Cash and cash equivalents, beginning of period | | | 15,232 | | | | 12,299 | | | | 16,437 | |
| Cash and cash equivalents, end of period | | $ | 17,522 | | | $ | 15,232 | | | $ | 12,299 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | | | | | | |
| Cash paid for interest | | $ | 50,945 | | | $ | 44,672 | | | $ | 37,158 | |
The accompanying notes are an integral part of these consolidated financial statements.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of American Realty Investors, Inc. (“ARL”) and consolidated entities have been prepared in conformity with accounting principles generally accepted in the United States of America, the most significant of which are described in Note 1. “Organization and Summary of Significant Accounting Policies.” The Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements. The data presented in the Notes to Consolidated Financial Statements are as of December 31 of each year and for the year then ended, unless otherwise indicated. Dollar amounts in tables are
(Dollars in thousands, except per share
amounts.Certain balances for 2015 and 2014 have been reclassifiedamounts)
1. Organization
As used herein, the terms “the Company”, “We”, “Our”, or “Us” refer to
conform to the 2016 presentation.NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business.
The Company,American Realty Investors, Inc., a Nevada corporation thatwhich was formed in 1999,1999. Our common stock is headquartered in Dallas, Texaslisted and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”)“ARL”. Over 80% of ARL’sour stock is owned by related party entities. ARL and a subsidiary own approximately 78% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc. (“TCI”), a Nevada corporation, whose common stock is traded on the NYSE under the symbol (“TCI”).
TCI, a subsidiary of ARL, owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Effective July 17, 2009, IOT’s financial results were consolidated with those of ARL and TCI and their subsidiaries. IOT’s common stock is traded on the New York Stock Exchange (“NYSE MKT”) under the symbol (“IOT”).
ARL’s Board of Directors is responsible for directing the overall affairs of ARL and for setting the strategic policies that guide the Company. As of April 30, 2011, the Board of Directors delegated the day-to-day management of the Company to Pillar Income Asset Management, Inc. (“Pillar”), a Nevada corporation, under a written Advisory Agreement that is reviewed annually by ARL’s Board of Directors. The directors of ARL are also directors of TCI and IOT. The Chairman of the Board of Directors of ARL also serves as the Chairman of the Board of Directors of TCI and IOT. The officers of ARL also serve as officers of TCI, IOT and Pillar.
Since April 30, 2011, Pillar, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc. (“RAI”), a Nevada corporation, the sole shareholder of which is May Realty Holdings, Inc. (“MRHI”, formerly known as Realty Advisors Management, Inc. “RAMI”, effective August 7, 2014), a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external Advisor and Cash Manager. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as an Advisor and Cash Manager to TCI and IOT. As the contractual advisor, Pillar is compensated by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”. ARL has no employees. Employees of Pillar render services to ARL in accordance with the terms of the Advisory Agreement.
Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), the sole member of which is Realty Advisors, LLC, manages our commercial and provides brokerage services. Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. See Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. ARL engages third-party companies to lease and manage its apartment properties.
On January 1, 2012, the Company’s subsidiary, TCI, entered into a development agreement with Unified Housing Foundation, Inc. (“UHF”) a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.
Our primary business is the acquisition, development and ownership of income-producing residentialmultifamily apartment communities and commercial real estate properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.
We own approximately 78.4% of Transcontinental Realty Investors, Inc. ("TCI") and substantially all of our operations are conducted through TCI, whose common stock is traded on the NYSE under the symbol “TCI”. Accordingly, we include TCI’s financial results in our consolidated financial statements. Substantially all of TCI's assets are held by its wholly-owned subsidiary, Southern Properties Capital Ltd (“SPC”), which was formed for the purpose of raising funds by issuing non-convertible bonds that are listed and traded on the Tel-Aviv Stock Exchange ("TASE").
At December 31, 2016, we owned 50 residential apartment communities comprising2020, our portfolio of 8,266 units, eightincome-producing properties consisted of:
● NaN commercial properties consisting of 5 office buildings and 1 retail property comprising anin aggregate of approximately 2.0 million rentable1,600,000 square feet,feet;
● NaN multifamily apartment communities owned directly by us comprising in 1,639 units, excluding apartments being developed;
● Approximately 1,980 acres of developed and anundeveloped land; and
● NaN multifamily apartment communities totaling 10,137 units owned by our 50% owned investment in 3,666 acresVAA.
Our day to day operations are managed by Pillar Income Asset Management, Inc. (“Pillar”). Their duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing with third party lenders and investors. All of
undevelopedthe Companies employees are Pillar employees. Our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and
partially developed land,brokerage services. Our multifamily properties are managed by outside management companies. Pillar and
a golf course comprising approximately 96.1 acres.Regis are considered to be related parties (See Note 12 – Related Party Transactions).
2. Summary of Significant Accounting Policies
Basis of presentation. The Company presents its
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States (“GAAP”). The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and allAmerica.
We consolidate entities in which we
are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a
controlling interest. Arrangements that are not controlled throughmajority of the voting
or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance withinterest of the
provisions and guidance of ASC Topic 810 “Consolidation”, whereby weentity. We have determined that we are a primary beneficiary of the VIE
and meet certain criteriawhen we have (i) the power to direct the activities of a
sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership whenVIE that most significantly impacts its economic performance, and (ii) the
Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligationobligations to absorb
expected losses or
residual returns of the
entity, or have voting rightsright to receive benefits that
are not proportionalcould potentially be significant to
their economic interests. The primary beneficiary generally is the
entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.VIE. In determining whether we are the primary beneficiary, of a VIE, we consider qualitative and quantitative factors, including but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ownership interest, management representation, ability to control or significantly influence key decisionsdecision and other contractual rights. We account for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.
For entities in which we have less than a controlling financial interest or entities where it iswe are not deemed to be the primary beneficiary the entities are accounted for usingunder the equity
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
method of accounting. Accordingly, we include our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in Gruppa Florentina, LLC is accounted for underour results of operations.
Certain prior year amounts have been reclassified to conform to the
equity method. Our investment in LK-Four Hickory, LLC was accounted for under the equity method until January 17, 2012, when the investment was sold.The Company in accordance with the VIE guidance in ASC 810 “Consolidations” consolidated 50 and 48 multifamily residential properties located throughout the United States at December 31, 2016 and 2015, respectively, with total units of 8,226 and 7,983, respectively. Assets totaling approximately $442 million and approximately $457 million at December 31, 2016 and 2015, respectively, were consolidated and included in “Real estate, at cost”current year presentation on the consolidated balance sheetsheets, consolidated statements of operations and are all collateral for their respective mortgage notes payable, nonethe consolidated statements of which are recourse to the partnership in which they are in or to the Company.
cash flows.
Real estate, depreciation, and impairment.
Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated remaining useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements—10-4010 to 40 years; furniture, fixtures and equipment—5-105 to 10 years).
We
continually evaluateassess whether an indicator of impairment in the
recoverability of the carrying value of
itsour real estate
assets usingexists by considering expected future operating income, trends and prospects, as well as the
methodology prescribed in ASC Topic 360, “Property, Plant and Equipment,” Factors considered by management in evaluating impairmenteffects of
its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating lossesdemand, competition and other
significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investmenteconomic factors. Such factors include projected rental revenue, operating costs and capital expenditures as well as estimated holding periods and capitalization rates. If an impairment indicator exists, the determination of recoverability is
not considered impaired ifmade based upon the
estimated undiscounted
estimated future
net cash flows,
excluding interest expense. The amount of
an asset (bothimpairment loss, if any, is determined by comparing the
annual estimatedfair value, as determined by a discounted cash
flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduceflows analysis, with the carrying value of the
asset to its estimated fair value.Any properties that are treated as “subject to sales contract” onrelated assets. We generally hold and operate our income producing real estate long-term, which decreases the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we havelikelihood of their carrying values not recognized the legal sale according to the guidance in ASC 360-20 due to various factors, disclosed in each sale transaction under Item 1 Significantbeing recoverable. Real Estate Acquisitions/Dispositions and Financing. Any sale transaction where the guidance reflects that a sale had not occurred, the asset involved in the transaction, including the debt and property operations, remained on the books of the Company. We continue to charge depreciation to expense as a period costs for the property until such time as the property has beenestate classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairmentare measured at the lower of the carrying amount or Disposal of Long-Lived Assets”.
fair value less cost to sell.
Real estate held for sale.
We classify properties as held for sale when certain criteria are met in accordance with GAAP. At that time, we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. We did not have any real estate assets classified as held for sale at December 31,
20162020 or
2015.Effective as of January 1, 2015, we adopted the revised guidance in Accounting Standards Update No. 2014-08 regarding discontinued operations. For sales of real estate or assets classified as held for sale after January 1, 2015, we will evaluate whether a disposal transaction meets the criteria of a strategic shift and will have a major effect on our operations and financial results to determine if the results of operations and gains on sale of real estate will be presented as part of our continuing operations or as discontinued operations in our consolidated statements of operations. If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not, it will be presented in continuing operations.
Any properties that are treated as “subject to sales contract” on the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we have not recognized the legal sale according to the guidance in ASC 360-20 due to various factors, disclosed in Item 1 “Significant Real Estate Acquisitions/Dispositions and Financing.” Any sale transaction where the guidance reflects that a sale had not occurred, the asset involved in the transaction, including the debt, if appropriate, and property operations, remained on the books of the Company. We continue to charge depreciation to expense as a period costs for the property until such time as the property has been classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets.”
2019.
Cost capitalization.
The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs.
CostsWe also capitalize development costs including costs directly related to planning, developing, initial leasing and constructing a property
are capitalized and classified as
Real Estate in the Consolidated Balance Sheets. Capitalized development costs includewell as interest, property taxes, insurance, and other direct project costs incurred during the period of development.
A variety of Capitalized costs are incurred inalso include direct and certain indirect costs clearly associated with the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. Theproject. Indirect costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salariesinsurance and relatedcertain shared administrative costs. In assessing the amounts of direct and indirect costs and otherto be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs incurred during thenot clearly associated with specific projects are expensed as period of development. costs.
We consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
Deferred leasing costs
We capitalize leasing costs
on our commercial properties, which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Fair value measurement. We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. These provisions define fair
Fair value asrepresents the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developingdate. In determining fair value estimateswe apply the following hierarchy:
Level 1 —Unadjusted quoted prices for identical and require disclosureunrestricted assets or liabilities in active markets.
Level 2 —Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of fair value measurements by level withinthe financial instrument.
Level 3 —Unobservable inputs that are significant to the fair value
hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:
Level 1 | | Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets. |
| | |
Level 2 | | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| | |
Level 3 | | Unobservable inputs that are significant to the fair value measurement. |
measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Related parties. We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships.
Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.
Recognition of revenue.Our revenues,revenue
Rental revenue includes fixed minimum rents, reimbursement of operating costs and other leasing income. Rental revenue for residential property, which
are composed largely ofis generally leased for twelve months or less, is recorded when due from residents, whereas rental
income, include rents reportedrevenue for commercial properties, which is generally leased for more than twelve months, is recognized on a straight-line basis over the
lease term. In accordance with ASC 805 “Business Combinations”, we recognize rental revenue of acquired in-place “above-” and “below-market” leases at their fair values over the terms of the
respectiverelated leases.
Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party
suppliers,suppliers; we have discretion in selecting the supplier and have the credit risk with respect to paying the supplier.
Rental income for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. For hotel properties, revenues for room sales and guest services are recognized as rooms are occupied and services are rendered.
An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.
Sales
Cash and
the associated gains or losses of real estate assets are recognized in accordance with the provisions of ASC Topic 360-20, “Property, PlantCash Equivalents and
Equipment – Real Estate Sale”. The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain recognition and accounts for the continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.Foreign currency translation. Foreign currency denominated assets and liabilities of subsidiaries with local functional currencies are translated to United States dollars at year-end exchange rates. The effects of translation are recorded in the cumulative translation component of shareholders’ equity. Subsidiaries with a United States dollar functional currency re-measure monetary assets and liabilities at year-end exchange rates and non-monetary assets and liabilities at historical exchange rates. The effects of re-measurement are included in income. Exchange gains and losses arising from transactions denominated in foreign currencies are translated at average exchange rates.
Non-performing notes receivable.ARL considers a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement.
Interest recognition on notes receivable.Restricted Cash
We
record interest income as earned in accordance with the terms of the related loan agreements.Allowance for estimated losses. We assess the collectability of notes receivable on a periodic basis, of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. See Note 3 “Notes and Interest Receivable” for details on our notes receivable.
Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,consider all highly liquid investments purchased with an original maturity of three months or less are consideredwhen purchased to be cash equivalents.equivalents, for which cost approximates fair value. Restricted cash consistsincludes cash balances held in escrow by financial institutions under the terms of cash reserved primarily for specific uses such as insurance, property taxescertain secured notes payable and replacement reserves.
certain unsecured bonds payable.
Concentration of credit risk. The Company maintains its
We maintain our cash balances at commercial banks and through investment companies, the deposits
of whichthat are insured by the Federal Deposit Insurance Corporation (FDIC). At December
31, 20162020 and
2015,2019, the Company maintained balances in excess of the insured amount.
Earnings
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Income taxes
We are a “C” corporation” for U.S. federal income tax purposes. However, we are included in the May Realty Holdings, Inc. (the "MRHI"). Incomeconsolidated group for tax purposes. We have a tax sharing agreement that specifies the manner in which the group will share the consolidated tax liability and also how certain tax attributes are to be treated among members of the group.
Comprehensive income (loss) per share is presented in accordance with ASC 620 “Earnings per Share”. Income
Net income (loss)
per share is computed based uponand comprehensive income (loss) are the
weighted average number of shares of common stock outstanding during each year.same for the year ended December 31, 2020, 2019 and 2018.
Use of estimates.estimates
In the preparation of
Consolidated Financial Statementsconsolidated financial statements in conformity with GAAP, it is necessary for management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
Consolidated Financial Statementsconsolidated financial statements and the reported amounts of revenues and expense for the year ended. Actual results could differ from those estimates.
Income taxes.The Company is a “C” corporation for U.S. federal income tax purposes. For tax periods ending before August 31, 2012, the Company filed an annual consolidated income tax return with TCI and IOT and their subsidiaries. ARL was the common parent for the consolidated group. After that date, the Company and the rest of the ARL group joined the MRHI consolidated group for tax purposes. The income tax expense (benefit) for the 2012 tax period in the accompanying financial statement was calculated under a tax sharing and compensating agreement between ARL, TCI and IOT. That agreement continued until August 31, 2012, at which time a new tax sharing and compensating agreement was entered into by ARL, TCI, IOT and MRHI for the remainder of 2012 and subsequent years. The agreement specifies the manner in which the group will share the consolidated tax liability and also how certain tax attributes are to be treated among members of the group.
Recent accounting
pronouncements.pronouncements.
In May 2014,October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”("ASU") No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” was issued.2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This new guidance established a new single comprehensive revenue recognition modelstandard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and provides for enhanced disclosures. Under the new policy, the nature, timing and amount of revenue recognized for certain transactions could differ from those recognized under existing accounting guidance. This new standard does not affect revenue recognized under lease contracts. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017.service providers are variable interests. The Company is currently evaluating the impact the adoption of this guidance hasthe standard on itsJanuary 1, 2020, did not have a material impact on our financial position and results of operations, if any.operations.
In February 2016, Accounting Standards Update No. 2016-02March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides guidance, optional expedients and exceptions that reference London Interbank Offered Rate (“ASU 2016-02”LIBOR”), “Leases” or another reference rate expected to be discontinued due to reference rate reform. The standard was issued. This neweffective upon issuance and can be applied through December 31, 2022. We have mortgage notes payable with interest rates that reference LIBOR, and therefore, we will adopt this standard when LIBOR is discontinued.
On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance establishesin ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a new modelresult of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for accounting for leasesconcessions exist in the lease and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluatingcan elect to apply or not apply the impactlease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our adoption of the guidance of the Q&A did not have a significant impact on our consolidated financial statements during the year ended December 2020.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
3. Earnings Per Share
Earnings per share (“EPS”) has been computed by dividing net income available to common shares, adjusted for preferred dividends, by the weighted-average number of common shares outstanding during the period.
The following table provides our basic and diluted EPS calculation: | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2020 | | 2019 | | 2018 |
| Net income (loss) | $ | 11,267 | | | $ | (21,743) | | | $ | 182,692 | |
| Net (income ) loss attributable to noncontrolling interest | (2,237) | | | 5,785 | | | (8,993) | |
| Net (loss) income attributable to the Company | 9,030 | | | (15,958) | | | 173,699 | |
| Preferred dividend | 0 | | | (1) | | | (901) | |
| Net income (loss) applicable to common shares | $ | 9,030 | | | $ | (15,959) | | | $ | 172,798 | |
| Denominator for basic EPS - weighted average common shares outstanding | | | | | |
| Weighted-average common shares outstanding-basic | 16,046 | | | 15,997 | | | 15,983 | |
| Effect of conversion of preferred shares | 0 | | | 0 | | | 715 | |
| Weighted-average common shares outstanding-diluted | 16,046 | | | 15,997 | | | 16,698 | |
| EPS - attributable to common shares- basic | $ | 0.56 | | | $ | (1.00) | | | $ | 10.81 | |
| EPS - attributable to common shares- diluted | $ | 0.56 | | | $ | (1.00) | | | $ | 10.35 | |
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
4. Supplemental Cash Flows Information
The following presents the schedule of interest paid and other supplemental cash flow information:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Cash paid for interest | $ | 31,453 | | | $ | 38,904 | | | $ | 57,981 | |
| Cash - Beginning of period | | | | | |
| Cash and cash equivalents | $ | 51,228 | | | $ | 36,428 | | | $ | 42,920 | |
| Restricted cash | 32,083 | | | 70,187 | | | 45,618 | |
| $ | 83,311 | | | $ | 106,615 | | | $ | 88,538 | |
| Cash - End of Period | | | | | |
| Cash and cash equivalents | $ | 36,814 | | | $ | 51,228 | | | $ | 36,428 | |
| Restricted cash | 50,206 | | | 32,083 | | | 70,187 | |
| $ | 87,020 | | | $ | 83,311 | | | $ | 106,615 | |
| Proceeds from mortgages, notes and bonds payable | | | | | |
| Mortgages and notes payable | $ | 10,942 | | | $ | 25,675 | | | $ | 123,345 | |
| Bonds payable | 19,785 | | | 78,125 | | | 59,213 | |
| $ | 30,727 | | | $ | 103,800 | | | $ | 182,558 | |
| Payment of mortgages, notes and bonds payable | | | | | |
| Mortgages and notes payable | $ | 13,823 | | | $ | 52,976 | | | $ | 124,616 | |
| Bonds payable | 19,592 | | | 21,742 | | | 0 | |
| $ | 33,415 | | | $ | 74,718 | | | $ | 124,616 | |
The following is a schedule of noncash investing and financing activities:
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Property acquired in exchange for note payable | $ | 3,350 | | | $ | 1,155 | | | $ | 1,895 | |
| Note receivable issued in exchange for property | 1,761 | | | 0 | | | 0 | |
| Property acquired in exchange for note receivable | 0 | | | 1,800 | | | 1,735 | |
| Debt assumed in sale of properties | 8,238 | | | 0 | | | 31,175 | |
5. Operating Segments
Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in 2 reportable segments: (i) the acquisition, development, ownership and management of multifamily properties and (ii) the acquisition, ownership and management of commercial real estate properties. The services for our multifamily segment include rental of apartments and other tenant services, including parking and storage space rental. Asset information by segment is not reported because we do not use this guidance, if any,measure to assess performance or make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses, advisory fees, interest income and interest expense are not included in segment profit as our internal reporting addresses these items on its financial positiona corporate level.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The following table presents our profit by reportable segment:
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Multifamily Segment | | | | | |
| Revenue | $ | 14,686 | | | $ | 13,517 | | | $ | 80,821 | |
| Operating expenses | (8,482) | | | (9,304) | | | (42,778) | |
| Profit from segment | 6,204 | | | 4,213 | | | 38,043 | |
| Commercial Segment | | | | | |
| Revenue | 37,223 | | | 32,714 | | | 33,123 | |
| Operating expenses | (15,878) | | | (16,390) | | | (16,809) | |
| Profit from segment | 21,345 | | | 16,324 | | | 16,314 | |
| Total profit from segments | $ | 27,549 | | | $ | 20,537 | | | $ | 54,357 | |
The following table reconciles our profit by reportable segment to net income (loss):
| | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Segment operating income | $ | 27,549 | | | $ | 20,537 | | | $ | 54,357 | |
| Other non-segment items of income (expense) | | | | | |
| Depreciation and amortization | (14,755) | | | (13,379) | | | (22,670) | |
| General and administrative | (10,614) | | | (11,089) | | | (12,708) | |
| Advisory Fee | (9,409) | | | (9,216) | | | (12,106) | |
| Other income | 7,117 | | | 12,757 | | | 36,005 | |
| Interest Income | 23,098 | | | 25,955 | | | 21,645 | |
| Interest Expense | (35,004) | | | (39,860) | | | (66,063) | |
| (Loss) gain on foreign currency transactions | (13,378) | | | (15,108) | | | 12,399 | |
| Los on extinguishment of debt | 0 | | | (5,219) | | | 0 | |
| Equity in (loss) income from unconsolidated joint ventures | (379) | | | (2,313) | | | 1,513 | |
| Gain on sale or write-down of assets | 36,895 | | | 15,192 | | | 171,530 | |
| Income tax provision | 147 | | | 0 | | | (1,210) | |
| Net income (loss) | $ | 11,267 | | | $ | (21,743) | | | $ | 182,692 | |
The table below reconciles the segment information to the corresponding amounts in the consolidated balance sheets:
| | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
| Segment assets | $ | 342,965 | | | $ | 348,404 | |
| Real estate | 65,149 | | | 70,006 | |
| Investments in unconsolidated joint ventures | 60,425 | | | 67,655 | |
| Notes receivable | 130,626 | | | 143,087 | |
| Receivable from related parties | 129,335 | | | 85,996 | |
| Other assets and receivables | 137,264 | | | 115,493 | |
| Total assets | $ | 865,764 | | | $ | 830,641 | |
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
6. Lease Revenue
We lease our multifamily properties and
resultscommercial properties under agreements that are classified as operating leases. Our multifamily leases generally include minimum rents and charges for ancillary services. Our commercial property leases generally included minimum rents and recoveries for property taxes and common area maintenance. Minimum rental revenues are recognized on a straight-line basis over the terms of
operations.NOTE 2. REAL ESTATE
A summarythe related leases.
The following table summarizes the components of rental revenue for the years ended December 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2020 | | 2019 | | 2018 |
| Fixed component | $ | 49,974 | | | $ | 43,749 | | | $ | 112,203 | |
| Variable component | 1,935 | | | 2,482 | | | 1,741 | |
| Total rental revenue | $ | 51,909 | | | $ | 46,231 | | | $ | 113,944 | |
The following table summarizes the future rental payments to us from under non-cancelable leases. The table exclude multifamily leases, which typically have a term of one-year or less:
| | | | | | | | |
| Year | | Amount |
| 2021 | | $ | 23,419 | |
| 2022 | | 21,363 | |
| 2023 | | 16,003 | |
| 2024 | | 10,889 | |
| 2025 | | 6,938 | |
| Thereafter | | 25,566 | |
| Total | | $ | 104,178 | |
7. Real Estate Activity
At December 31, 2020 and 2019, our real estate owned asinvestment is comprised of the endfollowing:
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
| Land | $ | 50,759 | | | $ | 49,887 | |
| Building and improvements | 297,644 | | | 286,280 | |
| Tenant improvements | 30,935 | | | 49,431 | |
| Construction in progress | 77,891 | | | 84,399 | |
| Total cost | 457,229 | | | 469,997 | |
| Less accumulated deprecation | (82,418) | | | (90,173) | |
| Total real estate, net | 374,811 | | | 379,824 | |
| Property held for sale | 2,572 | | | 7,966 | |
| Total real estate | $ | 377,383 | | | $ | 387,790 | |
Our property held for sale consists of land parcels at Mercer Crossing that are currently under contract for sale.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
We continues to invest in the year is listed below (dollars in thousands):| | | 2016 | | | 2015 | |
| | | | | | | |
| Apartments | | $ | 694,351 | | | $ | 622,761 | |
| Apartments under construction | | | 25,288 | | | | 18,230 | |
| Commercial properties | | | 218,857 | | | | 215,609 | |
| Land held for development | | | 79,188 | | | | 97,790 | |
| Real estate held for sale | | | — | | | | — | |
| Real estate subject to sales contract | | | 48,919 | | | | 49,155 | |
| Total real estate, at cost, less impairment | | | 1,066,603 | | | | 1,003,545 | |
| Less accumulated deprecation | | | (165,597 | ) | | | (150,038 | ) |
| Total real estate, net of depreciation | | $ | 901,006 | | | $ | 853,507 | |
Expenditures for repairs and maintenance are charged to operations as incurred. Significant betterments are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.
Depreciation is computed on a straight line basis over the estimated useful livesdevelopment of the assets as follows:
Land improvements | 25 to 40 years |
| |
Buildings and improvements | 10 to 40 years |
| |
Tenant improvements | Shorter of useful life or terms of related lease |
| |
Furniture, fixtures and equipment | 3 to 7 years |
Provision for Impairment Losses
multifamily properties. During the year ended December 31, 2015, the Company recorded an impairment of $5.3 million for the golf course and related assets located in the U.S. Virgin Islands. This impairment relates to the decision to sell the development parcels in the U.S. Virgin Islands and the resultant decrease in the estimated fair value of the remaining assets. There was no provision for impairment for the years ended December 31, 2016 and 2014.
Fair Value Measurement
The Company applies the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. The Company is required to assess the fair value of its consolidated real estate assets with indicators of impairment. The value of impaired real estate assets is determined using widely accepted valuation techniques, including discounted cash flow analyses on the expected cash flow of each asset, as well as the income capitalization approach, which considers prevailing market capitalization rates, analyses of recent comparable sales transactions, information from actual sales negotiations and bona fide purchase offers received from third parties. The methods used to measure fair value may produce an amount that may not be indicative of net realizable value or reflective of future values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The fair value measurements used in these evaluations are considered to be Level 2 and 3 valuations within the fair value hierarchy in the accounting rules, as there are significant observable (Level 2) and unobservable inputs (Level 3). Examples of Level 2 inputs the Company utilizes in its fair value calculations are appraisals and bona fide purchase offers from third parties. Examples of Level 3 inputs the Company utilizes in its fair value calculations are discount rates, market capitalization rates, expected lease rental rates, timing of new leases, an estimate of future sales prices and comparable sales prices of similar assets, if available.
| | | | | | | Fair Value Measurements Using (dollars in thousands): | |
| December 31, 2015 | | | Fair Value | | | Level 1 | | | Level 2 | | | Level 3 | |
| | Commercial | | | $ | 3,000 | | | $ | — | | | $ | — | | | $ | 3,000 | |
During 2015, our golf course, with a carrying value of approximately $8.3 million, was written down to its fair value of $3.0 million resulting in an impairment charge of $5.3 million. The method used to determine fair value was an analysis of the discounted cash flow of the asset.
There was no provision for impairment during the years ended December 31, 2016 and 2014.
The highlights of our significant real estate transactions for the year ended December 31, 2016, are discussed below.
Purchases
During the year ended December 31, 2016, the Company acquired four income-producing apartment properties from third parties in the states of Arkansas, Florida, Georgia and Mississippi, increasing the total number of units by 422, for a combined purchase price of $79.7 million. In addition,2020, we acquired three land parcels for future development for a total purchase price of $12.5 million, adding 36.3 acres to the development portfolio.
Sales
For the year ended December 31, 2016, TCI sold a combined 129.7 acres of land located in Forney, Texas, McKinney, Texas, Farmers Branch, Texas and Nashville, Tennessee to independent third parties for a total sales price of $29.1 million. We recorded an aggregate $3.1 million gain from the land sales. In addition, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million and one apartment community located in Topeka, Kansas to an independent third party for a total sales price of $12.3 million. We recorded an aggregate gain of $16.2 million from the sale of these two properties. The Company also sold an industrial warehouse consisting of approximately 177,805 square feet. The sale resulted in a loss of approximately $0.2 million.
As of December 31, 2016, subsidiaries hold approximately 91 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions, we deferred the recording of the sales in accordance with ASC 360-20.
We continue to invest in the development of apartment projects. During the year ended December 31, 2016, we have expended $20.3 millioninvested
$17,505 related to the construction and development projects.Gain on sale or predevelopmentwrite-down of various apartment complexesassets, net consists of the following: | | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2020 | | 2019 | | 2018 |
| Land(1) | $ | 25,171 | | | $ | 14,889 | | | $ | 17,404 | |
| Multifamily(2) | 3,702 | | | (80) | | | 154,126 | |
| Commercial(3) | 4,610 | | | 0 | | | 0 | |
| Other(4) | 3,412 | | | 383 | | | 0 | |
| $ | 36,895 | | | $ | 15,192 | | | $ | 171,530 | |
(1) Includes the sale of lots related to our investment in Windmill Farms, Mercer Crossing and capitalized $0.9 millionother land holdings.
(2) On May 1, 2020, we sold Villager, a 33 unit multifamily property in Fort Walton, Florida for $2,426, resulting in a gain on sale of $960. The sales price was funded by the issuance of a $1,761 note receivable and the assumption of the $665 mortgage note payable on the property (See Note 10 – Mortgages and Other Notes Payable). On July 16, 2020, we sold Farnham Park, a 144 unit multifamily property in Port Arthur, Texas for $13,300, resulting in a gain on the sale of of $2,742. The sales price was funded by cash payment of $4,215 and the assumption of the $9,085 mortgage note payable on the property (See Note 10 – Mortgages and Other Notes Payable).
(3) On September 14, 2020, we sold Bridge View Plaza, a 122,205 square foot retail center in La Crosse, Wisconsin for $5,250, resulting in a gain on sale of $4,610. The proceeds from the sale were used to pay off the $3,375 mortgage note payable on the property (See Note 10 – Mortgages and Other Notes Payable) and for general corporate purposes.
(4) Includes the write-off of development costs.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
8. Notes Receivable
The following table summarizes our notes receivables at December 31, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Interest
Rate | | Maturity
Date |
| Borrower / Project | | 2020 | | 2019 | | |
| ABC Land and Development, Inc. | | $ | 4,408 | | | $ | 4,408 | | | 9.50 | % | | 6/30/2021 |
| ABC Paradise, LLC | | 1,210 | | | 1,210 | | | 9.50 | % | | 6/30/2021 |
| Autumn Breeze(1) | | 1,867 | | | 1,302 | | | 5.00 | % | | 7/1/2022 |
| Bellwether Ridge(1) | | 3,858 | | | 3,765 | | | 5.00 | % | | 11/1/2021 |
| Centura Towers | | 0 | | | 19,845 | | | 2.28 | % | | 12/28/2022 |
| Forest Pines(1) | | 2,869 | | | 2,868 | | | 5.00 | % | | 11/1/2022 |
| JEM Holdings, Inc. | | 0 | | | 300 | | | 6.00 | % | | 7/1/2016 |
| Lake Wales | | 3,000 | | | 3,000 | | | 9.50 | % | | 6/30/2021 |
| Legacy Pleasant Grove | | 496 | | | 496 | | | 12.00 | % | | 10/23/2022 |
| McKinney Ranch | | 4,554 | | | 4,554 | | | 6.00 | % | | 9/15/2022 |
| One Realco Land Holding, Inc. | | 1,728 | | | 1,728 | | | 9.50 | % | | 6/30/2021 |
| Oulad-Chikh Family Trust | | 0 | | | 174 | | | 8.00 | % | | 3/1/2021 |
| Parc at Ingleside(1) | | 2,523 | | | 1,531 | | | 5.00 | % | | 12/1/2021 |
| Parc at Windmill Farms(1) | | 7,803 | | | 7,602 | | | 5.00 | % | | 11/1/2022 |
| Phillips Foundation for Better Living, Inc.(2) | | 0 | | | 314 | | | 12.00 | % | | 3/31/2022 |
| Phillips Foundation for Better Living, Inc.(2) | | 61 | | | 0 | | | 12.00 | % | | 3/31/2023 |
| Plum Tree(1) | | 857 | | | 413 | | | 5.00 | % | | 4/26/2026 |
| Riverview on the Park Land, LLC | | 1,045 | | | 1,045 | | | 9.50 | % | | 6/30/2021 |
| RNC Portfolio, Inc. | | 8,853 | | | 8,802 | | | 5.00 | % | | 9/1/2024 |
| Spartan Land | | 5,907 | | | 5,907 | | | 12.00 | % | | 1/16/2023 |
| Spyglass of Ennis(1) | | 5,360 | | | 5,288 | | | 5.00 | % | | 11/1/2022 |
| Steeple Crest(1) | | 6,498 | | | 6,665 | | | 5.00 | % | | 8/1/2021 |
| Unified Housing Foundation, Inc. (2)(3) | | 2,880 | | | 3,793 | | | 12.00 | % | | 7/31/2021 |
| Unified Housing Foundation, Inc. (2)(3) | | 212 | | | 212 | | | 12.00 | % | | 8/30/2021 |
| Unified Housing Foundation, Inc. (2)(3) | | 6,831 | | | 6,831 | | | 12.00 | % | | 10/31/2021 |
| Unified Housing Foundation, Inc. (2)(3) | | 10,896 | | | 10,926 | | | 12.00 | % | | 12/31/2021 |
| Unified Housing Foundation, Inc. (2)(3) | | 10,096 | | | 10,096 | | | 12.00 | % | | 3/31/2022 |
| Unified Housing Foundation, Inc. (2)(3) | | 6,990 | | | 0 | | | 12.00 | % | | 3/31/2023 |
| Unified Housing Foundation, Inc. (2)(3) | | 3,615 | | | 0 | | | 12.00 | % | | 5/31/2023 |
| Unified Housing Foundation, Inc. (2)(3) | | 26,209 | | | 30,012 | | | 12.00 | % | | 12/31/2032 |
| | $ | 130,626 | | | $ | 143,087 | | | | | |
(1) The note is convertible, at our option, into a 100% ownership interest
costs.NOTE 3. NOTES AND INTEREST RECEIVABLE
A portion of our assetsin the underlying development property, and are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and personal guarantees of the borrower and, unless noted otherwise, are so secured. Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity (dollars in thousands).
| Borrower | | | Maturity
Date | | | Interest
Rate | | | | Amount | | | Security |
Performing loans: | | | | | | | | | | | | | | | |
| H198, LLC (Las Vegas Land) | | | 01 /20 | | | 12.00 | % | | | $ | 5,907 | | | Secured |
| Leman Development, Ltd (2) | | | N/A | | | 0.00 | % | | | | 1,500 | | | Unsecured |
| One Realco Corporation (1,2) | | | 01 /17 | | | 3.00 | % | | | | 7,000 | | | Unsecured |
| Oulan-Chikh Family Trust | | | 03 /21 | | | 8.00 | % | | | | 174 | | | Secured |
| Realty Advisors Management, Inc. (1) | | | 12 /19 | | | 2.28 | % | | | | 20,387 | | | Unsecured |
| Unified Housing Foundation, Inc. (Cliffs of El Dorado) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,097 | | | Secured |
| Unified Housing Foundation, Inc. (Echo Station) (1) | | | 12 /32 | | | 12.00 | % | | | | 1,481 | | | Secured |
| Unified Housing Foundation, Inc. (Inwood on the Park) (1) | | | 12 /32 | | | 12.00 | % | | | | 5,059 | | | Secured |
| Unified Housing Foundation, Inc. (Kensington Park) (1) | | | 12 /32 | | | 12.00 | % | | | | 3,933 | | | Secured |
| Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,000 | | | Secured |
| Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | | | 12 /32 | | | 12.00 | % | | | | 9,100 | | | Secured |
| Unified Housing Foundation, Inc. (Limestone Canyon) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,653 | | | Secured |
| Unified Housing Foundation, Inc. (Limestone Canyon) (1) | | | 12 /32 | | | 12.00 | % | | | | 4,640 | | | Secured |
| Unified Housing Foundation, Inc. (Limestone Ranch) (1) | | | 12 /32 | | | 12.00 | % | | | | 1,953 | | | Secured |
| Unified Housing Foundation, Inc. (Limestone Ranch) (1) | | | 12 /32 | | | 12.00 | % | | | | 6,000 | | | Secured |
| Unified Housing Foundation, Inc. (Parkside Crossing) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,272 | | | Secured |
| Unified Housing Foundation, Inc. (Reserve at White Rock Phase I) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,485 | | | Secured |
| Unified Housing Foundation, Inc. (Reserve at White Rock Phase II) (1) | | | 12 /32 | | | 12.00 | % | | | | 2,555 | | | Secured |
| Unified Housing Foundation, Inc. (Sendero Ridge) (1) | | | 12 /32 | | | 12.00 | % | | | | 4,491 | | | Secured |
| Unified Housing Foundation, Inc. (Sendero Ridge) (1) | | | 12 /32 | | | 12.00 | % | | | | 4,812 | | | Secured |
| Unified Housing Foundation, Inc. (Timbers of Terrell) (1) | | | 12 /32 | | | 12.00 | % | | | | 1,323 | | | Secured |
| Unified Housing Foundation, Inc. (Tivoli) (1) | | | 12 /32 | | | 12.00 | % | | | | 7,966 | | | Secured |
| Unified Housing Foundation, Inc. (Trails at White Rock) (1) | | | 12 /32 | | | 12.00 | % | | | | 3,815 | | | Secured |
| Unified Housing Foundation, Inc. (1) | | | 12 /17 | | | 12.00 | % | | | | 1,207 | | | Unsecured |
| Unified Housing Foundation, Inc. (1) | | | 12 /18 | | | 12.00 | % | | | | 3,994 | | | Unsecured |
| Unified Housing Foundation, Inc. (1) | | | 12 /18 | | | 12.00 | % | | | | 6,407 | | | Unsecured |
| Unified Housing Foundation, Inc. (1) | | | 12 /18 | | | 12.00 | % | | | | 2,657 | | | Unsecured |
| Unified Housing Foundation, Inc. (1) | | | 06 /19 | | | 12.00 | % | | | | 5,400 | | | Unsecured |
| Other related party notes | | | Various | | | Various | | | | | 1,349 | | | Various secured interests |
| Other related party notes | | | Various | | | Various | | | | | 1,404 | | | Various unsecured interests |
| Other non-related party notes | | | Various | | | Various | | | | | 3,466 | | | Various secured interests |
| Other non-related party notes | | | Various | | | Various | | | | | 4,742 | | | Various unsecured interests |
| Accrued interest | | | | | | | | | | | | 9,372 | |
| Total Performing | | | | | | | | | | | $ | 143,601 | |
| | | | | | | | | | | | | | |
| Allowance for estimated losses | | | | | | | | | | | | (17,037 | ) |
| Total | | | | | | | | | | | $ | 126,564 | |
(2) | An allowance was taken for estimated losses at full value of note. |
45
underlying development property.As of December 31, 2016, the obligors on $118.4 million or 88.2% of the mortgage notes receivable portfolio were due from related parties.(2) The Company recognized $12.4 million of interest income from these related party notes receivables.
As of December 31, 2016 none of the mortgage notes receivable portfolio were non-performing.
The Company has various notes receivable from Unified Housing foundation, Inc. (“UHF”). UHFborrower is determined to be a related party due to our significant investment in the performance of the collateral secured underby the notes receivable. Payments
(3) Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“UHF”) are duefunded from surplus cash flow from operations, sale or refinancing of the underlying properties. These notesproperties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying these notes will be usedthe notes.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
9. Investment in Unconsolidated Joint Ventures
On November 19, 2018, we formed the VAA joint venture with the Macquarie Group (“Macquarie”). In connection with the formation of VAA, we sold a 50% ownership interest in certain multifamily properties to repay outstandingMacquarie for a $236,800 cash payment, resulting in a gain on sale of assets of $154,100. We then immediately transferred our respective ownership interests in the multifamily projects ("VAA Portfolio") to VAA in exchange for a 50% voting interest / 49% profit participation interest ("Class A interest") in VAA and note payable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the Contribution, VAA owned and controlled 52 multifamily properties. VAA assumed all liabilities of those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”).
Concurrent with the Contribution, VAA issued Class B interests with a 2% profits participation interest and principal forno voting rights to Daniel J. Moos, our former President and Chief Executive Officer (“Class B Member”). The Class B Member serves as the remaining notes. Furthermore, any surplusManager of VAA.
Interest on the Mezzanine loan is limited to cash
availablegenerated from
any of the properties
UHF owns, besidesand matures concurrently with the
properties underlying these notes, can be used to repay outstandingtermination of VAA. Accordingly, we account for our interest in the Mezzanine Loan as additional equity interest and
principal for these notes. The allowance on the notes was a purchase allowance that was netted against the notes when acquired.NOTE 4. ALLOWANCE FOR ESTIMATED LOSSES
The allowance account for receivables was reviewed and remained unchanged in 2016. The decrease in 2015 was due to a note that was paid off, and a note that was written off, both of which were fully reserved. The table below shows our allowance for estimated losses (dollars in thousands):
| | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | |
| Balance January 1, | | $ | 17,037 | | | $ | 18,279 | | | $ | 19,600 | |
| Increase (decrease) in provision | | | — | | | | (1,242 | ) | | | (1,321 | ) |
| Balance December 31, | | $ | 17,037 | | | $ | 17,037 | | | $ | 18,279 | |
46
includes any interest payments accrued as income from unconsolidated joint ventures.NOTE 5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES AND INVESTEES
Investments in unconsolidated subsidiaries, jointly owned companies and other investees in which we haveWe also own a 20% to 50%ownership interest or otherwise exercise significant influence are carried at cost, adjusted forin a 20% interest in Gruppa Florentina, LLC ("Milano"), which operates several pizza parlors in Central and Northern California. Milano also has 23 franchised locations, including two operating, under the Company’s proportionate share of their undistributed earnings or losses, via the equity method of accounting.
Investments accounted for via the equity method consists of the following:
| | | Percentage ownership as of December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Gruppa Florentina, LLC (1) | | | 20.00 | % | | | 20.00 | % | | | 20.00 | % |
The market values, other than unconsolidated subsidiaries, as of the year ended December 31, 2016, 2015 and 2014 were not determinable as there were no readily traded markets for these entities. trade name Angelo & Vito’s Pizzerias.
The following is a summary of our investment in unconsolidated joint ventures:
| | | | | | | | | | | | | | |
| | As of December 31, |
| | 2020 | | 2019 |
| Assets (1) | | | | |
| Real estate | | 1,230,197 | | | 1,255,998 | |
| Other assets | | 113,537 | | | 107,006 | |
| Total assets | | $ | 1,343,734 | | | $ | 1,363,004 | |
| Liabilities and Partners Capital (1) | | | | |
| Mortgage notes payable | | 843,522 | | | 843,053 | |
| Mezzanine notes payable | | 239,878 | | | 240,422 | |
| Other liabilities | | 45,619 | | | 37,118 | |
| Our share of partners' capital | | 93,334 | | | 108,035 | |
| Outside partner's capital | | 121,381 | | | 134,376 | |
| Total liabilities and partners' capital | | $ | 1,343,734 | | | $ | 1,363,004 | |
| Investment in unconsolidated joint ventures | | | | |
| Our share of partners' capital | | $ | 93,334 | | | $ | 108,035 | |
| Our share of Mezzanine note payablestr | | 119,939 | | | 120,211 | |
| Basis adjustment (2) | | (152,848) | | | (160,591) | |
| Total investment in unconsolidated joint ventures | | $ | 60,425 | | | $ | 67,655 | |
(1) These amounts include the financial positionassets of $1,280,827 and results$1,305,179 of operationsVAA at December 31, 2020 and 2019, respectively, and liabilities of $1,107,861 and $1,104,070 of VAA at December 31, 2020 and 2019, respectively.
(2) We amortize the difference between the cost of our investments in unconsolidated joint ventures and the book value of our underlying equity into income on a straight-line basis consistent with the lives of the underlying assets.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The following is a summary of our income (loss) from
our investees (dollarsinvestments in
thousands):| | | For the Years Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Other Investees | | | | | | | | | | | | |
| Real estate, net of accumulated depreciation | | $ | 13,641 | | | $ | 13,899 | | | $ | 11,647 | |
| Notes receivable | | | 9,561 | | | | 8,457 | | | | 7,326 | |
| Other assets | | | 31,135 | | | | 30,834 | | | | 30,291 | |
| Notes payable | | | (9,734 | ) | | | (10,883 | ) | | | (10,429 | ) |
| Other liabilities | | | (8,384 | ) | | | (7,967 | ) | | | (7,192 | ) |
| Shareholders’ equity/partners capital | | | (36,219 | ) | | | (34,340 | ) | | | (31,643 | ) |
| | | | | | | | | | | | | |
| Revenue | | $ | 54,264 | | | $ | 51,650 | | | $ | 48,893 | |
| Depreciation | | | (1,150 | ) | | | (1,150 | ) | | | (1,151 | ) |
| Operating expenses | | | (49,856 | ) | | | (47,143 | ) | | | (45,590 | ) |
| Interest expense | | | (793 | ) | | | (805 | ) | | | (901 | ) |
| Income (loss) from continuing operations | | | 2,465 | | | | 2,552 | | | | 1,251 | |
| Income (loss) from discontinued operations | | | — | | | | — | | | | — | |
| Net income (loss) | | $ | 2,465 | | | $ | 2,552 | | | $ | 1,251 | |
| | | | | | | | | | | | | |
| Company’s proportionate share of earnings (1) | | $ | 493 | | | $ | 510 | | | $ | 250 | |
| (1) | Earnings represent continued and discontinued operations |
47
unconsolidated joint ventures: | | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Revenue (1) | | | | | | |
| Rental revenue | | $ | 117,336 | | | $ | 109,746 | | | $ | 11,568 | |
| Other revenue | | 57,515 | | | 59,069 | | | 53,603 | |
| Total revenue | | 174,851 | | | 168,815 | | | 65,171 | |
| Expenses (1) | | | | | | |
| Operating expenses | | 110,108 | | | 109,588 | | | 57,922 | |
| Depreciation and amortization | | 31,921 | | | 45,453 | | | 8,506 | |
| Interest | | 57,455 | | | 61,867 | | | 6,432 | |
| Total expenses | | 199,484 | | | 216,908 | | | 72,860 | |
| Net loss | | $ | (24,633) | | | $ | (48,093) | | | $ | (7,689) | |
| Our share of net (loss) income in unconsolidated joint ventures | | $ | (379) | | | $ | (2,313) | | | $ | 1,513 | |
NOTE 6.
(1) These amounts include revenue of $123,115, $115,377 and $12,877 of VAA during the years ended December 31, 2020, 2019 and 2018, respectively, and expenses of $149,817, $165,773 and $22,609 of VAA during the years ended December 31, 2020, 2019 and 2018, respectively.
AMERICAN REALTY INVESTORS, INC.
NOTES
AND INTEREST PAYABLETO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
10. Mortgages and Other Notes Payable
Below is a summary of our notes and interest payable as of December 31, 2016 (dollars2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Interest
Rate | | Maturity
Date | |
| Property/ Entity | | 2020 | | 2019 | | | |
| 600 Las Colinas | | 35,589 | | | 36,302 | | | 5.30 | % | | 11/1/2023 | |
| 770 South Post Oak | | 11,871 | | | 12,077 | | | 4.40 | % | | 6/1/2025 | |
| Bridge View Plaza(1) | | 0 | | | 3,824 | | | 7.75 | % | | 11/1/2020 | |
| Chelsea | | 8,194 | | | 8,749 | | | 3.40 | % | | 12/1/2050 | |
| EQK Portage - Land(2) | | 3,350 | | | 0 | | | 10.00 | % | | 11/13/2024 | |
| HSW Partners(3) | | 17,790 | | | 17,359 | | | 9.50 | % | | 6/17/2021 | |
| Farnham Park(4) | | 0 | | | 9,144 | | | 3.39 | % | | 12/1/2050 | |
| Forest Grove(5) | | 7,333 | | | 1,390 | | | 3.75 | % | | 5/5/2024 | |
| Landing Bayou | | 14,643 | | | 15,467 | | | 3.50 | % | | 9/1/2053 | |
| Athens(6) | | 1,155 | | | 1,155 | | | 5.90 | % | | 8/28/2022 | |
| Legacy at Pleasant Grove | | 13,653 | | | 13,944 | | | 3.60 | % | | 4/1/2048 | |
| McKinney 36 Land | | 820 | | | 944 | | | 8.00 | % | | 6/30/2022 | |
| New Concept Energy | | 3,542 | | | 4,000 | | | 6.00 | % | | 9/30/2021 | |
| Overlook at Allenville Phase II | | 15,621 | | | 15,798 | | | 3.80 | % | | 5/1/2059 | |
| Parc at Denham Springs Phase II | | 16,128 | | | 14,785 | | | 4.10 | % | | 2/1/2060 | |
| Stanford Center(7) | | 39,093 | | | 39,255 | | | 6.00 | % | | 2/26/2022 | |
| Sugar Mill Phase III | | 9,298 | | | 5,908 | | | 4.50 | % | | 2/1/2060 | |
| Toulon | | 13,975 | | | 14,219 | | | 3.20 | % | | 12/1/2051 | |
| Villager(8) | | 0 | | | 556 | | | 2.50 | % | | 3/1/2043 | |
| Villas at Bon Secour | | 10,280 | | | 11,026 | | | 4.00 | % | | 1/1/2022 | |
| Vista Ridge | | 9,979 | | | 10,122 | | | 4.00 | % | | 8/1/2053 | |
| Windmill Farms(9) | | 10,397 | | | 13,830 | | | 6.00 | % | | 2/28/2023 | |
| | 242,711 | | | 249,854 | | | | | | |
(1) On September 14, 2020, we paid off the loan in
thousands):| | | Notes
Payable | | | Accrued
Interest | | | Total Debt | |
| Apartments | | $ | 553,509 | | | $ | 1,500 | | | $ | 555,009 | |
| Apartment under construction | | | 16,576 | | | | — | | | | 16,576 | |
| Commercial | | | 108,725 | | | | 528 | | | | 109,253 | |
| Land held for development | | | 39,765 | | | | 116 | | | | 39,881 | |
| Real estate subject to sales contract | | | 5,142 | | | | 470 | | | | 5,612 | |
| Mezzanine financing | | | 119,923 | | | | — | | | | 119,923 | |
| Other | | | 24,071 | | | | — | | | | 24,071 | |
| Total | | | 867,711 | | | | 2,614 | | | | 870,325 | |
| | | | | | | | | | | | | |
| Unamortized deferred borrowing costs | | | (19,230 | ) | | | — | | | | (19,230 | ) |
| Total | | $ | 848,481 | | | $ | 2,614 | | | $ | 851,095 | |
connection with the sale of the underlining property (See Note 7 – Real Estate Activity).
(2) On March 5, 2020, we acquired 49.2 acres of land in Kent, Ohio in exchange for the note payable.
(3) On, December 3, 2020, we extended the maturity on the loan to June 17, 2021.
(4) On July 16, 2020, the loan was assumed by a third party in connection with the sale of the underlying property (See Note 7 – Real Estate Activity).
(5) The following table summarizes our contractual obligations for principal payments asloan bears interest at prime rate plus 0.5%.
(6) On March 2, 2021, the loan was extended to August 28, 2022.
(7) On May 1, 2020, the loan was extended to February 26, 2022.
(8) On May 1, 2020, the loan was assumed by a third party in connection to sale of
December 31, 2016 (dollars in thousands):| Year | | | Amount | |
| 2017 | | | $ | 140,115 | |
| 2018 | | | | 56,255 | |
| 2019 | | | | 70,135 | |
| 2020 | | | | 51,616 | |
| 2021 | | | | 15,830 | |
| Thereafter | | | | 533,760 | |
| Total | | | $ | 867,711 | |
the underlying property (See Note 7 – Real Estate Activity).
(9) On March 4, 2021, the loan was extended to February 28, 2023 at an interest of 5%.
Interest payable at December 31, 2016,2020 and 2019, was $2.6 million. Interest accrues at rates ranging from 2.5% to 12.0%$773 and $844, respectively. We capitalized interest of $858 and $585 during the years ended December 31, 2020 and 2019, respectively.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per
annum, and mature between 2017 and 2055. The mortgages were collateralized by deeds of trust on real estate having a net carrying value of $901 million.During the year, the Company refinanced or modified five loans with a total principal balance of $78.9 million. The refinancing resulted in lower interest rates and the extension of the term of the loan. The modifications resulted in lower interest rates. The transactions provide for lower monthly payments over the term of the loans.
share amounts)
There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan. We are
in constant contactworking with
theseour existing lenders
working together in orderand new lenders to modify,
extend the
loans before they become due or refinancing the loans with terms
of these loans and we anticipate a timely resolution that
isare similar to the existing
agreement or subsequent modification.agreement.
As of December 31, 2020, we were in compliance with all our loan covenants.
Future principal payments due on our notes payable at December 31, 2020 are as follows:
| | | | | | | | |
| Year | | Amount |
| 2021 | | $ | 14,079 | |
| 2022 | | 14,403 | |
| 2023 | | 37,690 | |
| 2024 | | 2,575 | |
| 2025 | | 12,927 | |
| Thereafter | | 166,222 | |
| | 247,896 | |
| Deferred finance cost | | (5,185) | |
| | $ | 242,711 | |
11. Bonds Payable
We have issued three series of nonconvertible bonds ("Bonds') through SPC, which are traded on the TASE. The Bonds are denominated in New Israeli Shekels ("NIS") and provide for semiannual principal and interest payments through maturity.
On February 2, 2020, the S&P Global Ratings of our Series A and Series C bonds increased to 'ilA-' from 'ilBBB+'. In conjunctionaddition, the rating on our Series C bonds increased to 'ilA' from 'ilA-' rating due to the expectation of continued improvement in coverage ratios and the expansion of our portfolio.
In connection with the
developmentBonds, we incurred a (loss) gain on foreign currency transactions of
various apartment projects$(13,378), $(15,108), and
other developments, we drew down $13 million in construction loans during$12,399, for the
yearyears ended December 31,
2016.NOTE 7. RELATED PARTY TRANSACTIONS AND FEES
We apply ASC Topic 805, “Business Combinations,”2020, 2019 and 2018, respectively. From September 23, 2019 to evaluate business relationships. Related parties are persons or entities who have one or more ofDecember 31, 2019, we had hedging agreement that effectively prevented the following characteristics, which include entities for which investments in their equity securities would be required, trustexchange rate for the benefitNIS to the U.S. Dollar from falling below three.
The outstanding balance of persons including principal ownersour Bonds at December 31, 2020 and 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | | | |
| Bond Issuance | | 2020 | | 2019 | | Interest Rate | | Maturity |
| Series A Bonds(1)(2) | | 95,133 | | | 92,653 | | | 7.30 | % | | 7/31/23 |
| Series B Bonds(3) | | 65,318 | | | 60,764 | | | 6.80 | % | | 7/31/25 |
| Series C Bonds(2) | | 85,537 | | | 79,572 | | | 4.65 | % | | 1/31/23 |
| | 245,988 | | | 232,989 | | | | | |
| Less unamortized deferred issuance costs | | (8,100) | | | (9,724) | | | | | |
| | 237,888 | | | 223,265 | | | | | |
(1) On November 30, 2020, we issued $19,693 in additional bonds for $18,822 in net proceeds.
(2) The bonds are collateralized by the assets of the entities and membersSPC.
(3) The bonds are collateralized by a trust deed in Browning Place, a 625,297 square foot office building in Farmers Branch, Texas.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The aggregate maturities of their immediate families, management personnelour Bonds are as follows:
| | | | | | | | |
| Year | | Amount |
| 2021 | | $ | 44,775 | |
| 2022 | | 44,775 | |
| 2023 | | 130,310 | |
| 2024 | | 13,064 | |
| 2025 | | 13,064 | |
| | |
| | $ | 245,988 | |
As of
the entity and members of their immediate families and other partiesDecember 31, 2020, we were in compliance with
which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.The Company has historically engaged in and may continue toour bond covenants.
12. Related Party Transactions
We engage in certain business transactions with related parties, including but not limited to asset acquisition and
dispositions.dispositions of real estate. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.
Since April 30, 2011, Pillar and Regis are wholly owned by an affiliates of the sole shareholderMRHI, which owns approximately 91% of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is RAI, a Nevada corporation, the sole shareholder of which is MRHI, a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external Advisor and Cash Manager. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as an Advisor and Cash Manager to TCI and IOT. As the contractual advisor,Company. Pillar is compensated by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor.” ARL has no employees. Employees of Pillar renderfor advisory services to ARL in accordance with the terms of the Advisory Agreement.
Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), the sole member of which is Realty Advisors, LLC, manages our commercial properties and provides brokerage services.an agreement. Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement. In addition, Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. See Part III, Item 10. “Directors, Executive Officers
Rental income includes $1,083, $841 and
Corporate Governance – Property Management and Real Estate Brokerage.” ARL engages third-party companies to lease and manage its apartment properties. Below is a description of$144 for the related party transactions and fees between Pillar and Regis:
Fees, expenses, and revenue paid to and/or received from our advisor:
| | | 2016 | | | 2015 | | | 2014 | |
| | | (dollars in thousands) | |
| Fees: | | | | | | | | | | | | |
| Advisory | | $ | 10,918 | | | $ | 9,775 | | | $ | 8,943 | |
| Construction advisory | | | — | | | | — | | | | — | |
| Mortgage brokerage and equity refinancing | | | 775 | | | | 1,612 | | | | 1,152 | |
| Net income | | | 257 | | | | 492 | | | | 3,669 | |
| Property acquisition and sales | | | — | | | | 921 | | | | 177 | |
| | | $ | 11,950 | | | $ | 12,800 | | | $ | 13,941 | |
| Other Expense: | | | | | | | | | | | | |
| Cost reimbursements | | $ | 3,826 | | | $ | 3,675 | | | $ | 3,449 | |
| Interest paid (received) | | | (1,144 | ) | | | (1,234 | ) | | | (1,043 | ) |
| | | $ | 2,682 | | | $ | 2,441 | | | $ | 2,406 | |
| Revenue: | | | | | | | | | | | | |
| Rental | | $ | 708 | | | $ | 726 | | | $ | 701 | |
| | | | | | | | | | | | | |
| Fees paid to Regis and related parties: | | | | | | | | | | | | |
| | | | 2016 | | | | 2015 | | | | 2014 | |
| | | (dollars in thousands) | |
| Fees: | | | | | | | | | | | | |
| Property acquisition | | $ | 10,775 | | | $ | 1,932 | | | $ | 348 | |
| Property management, construction management and leasing commissions | | | 888 | | | | 717 | | | | 583 | |
| Real estate brokerage | | | 787 | | | | 1,105 | | | | 2,848 | |
| | | $ | 12,450 | | | $ | 3,754 | | | $ | 3,779 | |
The Company received rental revenue of $0.7 million in each of the three years ended December 31, 2016 from2020, 2019 and 2018, respectively, for office space leased to Pillar and its related partiesRegis.
Property operating expense includes $990, $991 and $254 for
properties owned by the
Company.As ofyears ended December 31, 2016,2020, 2019 and 2018, respectively, for management fees on commercial properties payable to Regis.
General and administrative expense includes $3,869, $4,429 and $1,267 for the Company had notesyears ended December 31, 2020, 2019 and interest receivables, net of allowances, of $102.9 million2018, respectively, for employee compensation and $7.8 million, respectively, due fromother reimbursable costs payable to Pillar.
Advisor fees paid to Pillar were $9,409, $9,216 and $12,106 for the years ended December 31, 2020, 2019 and 2018, respectively.
Notes receivable are includes amounts held by UHF
and Pillar (See Note 8 – Notes Receivable). UHF is determined to be a related
party. See Part 2, Item 8. Note 3. “Notes and Interest Receivable.” During the current period, the Company recognized interest income of $12.4 million, originated $4.7 million, received principal payments of $4.9 million and received interest payments of $10.8 million from these related party
notes receivables.On January 1, 2012, the Company’s subsidiary, TCI, entered into a development agreement with UHF, a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment propertiesdue to UHF in prior years. Due to this ongoing relationship and theour significant investment in the performance of the collateral secured underby the notes receivable, UHF has been determined to be a related party.
The Company isreceivable. Interest income on these notes was $19,515, $23,670 and $5,406 for the primary guarantor, on a $60.4 million mezzanine loan between UHF and a lender. In addition, ARL, and an officer of the Company are limited recourse guarantors of the loan. As ofyears ended December 31, 2016, UHF2020, 2019 and 2018, respectively.
Interest expense on notes payable to Pillar was $6,632, $9,282 and $2,240 for the years ended December 31, 2020, 2019 and 2018, respectively.
Related party receivables represents amounts outstanding from Pillar for loans and advances, net of unreimbursed fees, expenses and costs as provided above.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in compliance withthousands, except per share amounts)
13. Noncontrolling Interests
The noncontrolling interest represents the
covenants to the loan agreement.The Company is part of a tax sharing and compensating agreement with respect to federal income taxes between ARL,third party ownership interest in TCI and IOTIncome Opportunity Realty Investors, Inc. ("IOR"). We owned 78.4% of TCI and their subsidiaries that was entered into81.1% in July of 2009. The expense (benefit) in each year was calculated based onIOR during the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 35%.
The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as ofyears ended December 31, 2016 (dollars in thousands):
| | | Pillar | |
| Related party receivable, December 31, 2015 | | $ | 28,147 | |
| Cash transfers | | | 31,670 | |
| Advisory fees | | | (10,918 | ) |
| Net income fee | | | (257 | ) |
| Cost reimbursements | | | (3,826 | ) |
| Interest income | | | 1,144 | |
| Notes receivable purchased | | | (5,356 | ) |
| Fees and commissions | | | (1,551 | ) |
| Expenses paid by Advisor | | | (8,630 | ) |
| Financing (mortgage payments) | | | 5,025 | |
| Sales/purchases transactions | | | (10,776 | ) |
| Tax sharing | | | — | |
| Purchase of obligations | | | — | |
| Related party receivable, December 31, 2016 | | $ | 24,672 | |
As of December 31, 2016, subsidiaries hold approximately 91 acres of land, at various locations that were sold2020.
14. Stockholders Equity
Dividends:
Our decision to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions TCI has deferred the recording of the sales in accordance with ASC 360-20.NOTE 8. DIVIDENDS
ARL’s Board of Directors established a policy that dividend declarationsdeclare dividends on common stock would beare determined on an annual basis following the end of each year. In accordance with that policy, no dividends on ARL’sour common stock were declared for 2016, 2015,2020, 2019, or 2014.2018. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including the Company’s our
financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.NOTE 9. PREFERRED STOCK
Thereour board of directors.
Preferred Stock:
We are authorized to issue up to 15,000,000 shares of Series A 10.0% Cumulative Convertible Preferred Stock authorized, with a par value of $2.00 per share andwith a liquidation preference of $10.00 per share plus accrued and unpaid dividends. Dividends are payable quarterly at the annual rate of $1.00 per share, or $.25 per share quarterly to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors.declared. The Series A Preferred Stock may be converted into ARL common stock at 90.0% of the average daily closing price of ARL’sour common stock for the prior 20 trading days. At December 31, 2016, 2,000,614 shares
15. Deferred Income
In previous years, the Company has sold properties to related parties where we have had continuing involvement in the form of
Series A Preferred Stock were outstanding. Ofmanagement or financial assistance associated with the
outstanding shares, 900,000 are held by ARL. Dividends are not paid on the shares owned by ARL.Prior to July 17, 2014, RAI owned 2,451,435 sharessale of the outstanding Series A 10.0.0% convertible preferred stockproperties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method is not met, and had accrued dividends unpaidas such the Company has deferred some or all of $15.1 million. On July 17, 2014, RAI converted 890,797 shares, including $6.3 million in accumulated dividends unpaidthe gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gains on these shares, intotransactions have been deferred until the requisite number of shares of common stock. This conversion resulted in the issuance of 2,502,230 new shares of ARL common stock. On April 9, 2015, RAI converted 460,638 shares including $2.3 million in accumulated dividends unpaid for these shares, into the requisite number of shares of common stock. This conversion resulted in the issuance of 1,486,741 new shares of ARL common stock.properties are sold to a non-related third party. As of December 31, 2016, RAI owns 1,100,000 shares2020, we had deferred gain of $19,821.
16. Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the
outstanding Series A convertible preferred stockdifferences between the financial statement and
has accrued dividends unpaidtax bases of
$9.7 million.Thereassets and liabilities using enacted tax rates in effect for the year in which the differences are 91,000 sharesexpected to reverse. The effect of Series D 9.50% Cumulative Preferred Stock authorized,a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a par valuetwo-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of $2.00the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
The (benefit) expense for income taxes consists of:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Current: | | | | | |
| Federal | $ | 0 | | | $ | 0 | | | $ | 42,231 | |
| State | (147) | | | 0 | | | 1,210 | |
| Deferred and Other: | | | | | |
| Federal | 0 | | | 0 | | | (42,231) | |
| State | 0 | | | 0 | | | 0 | |
| Total tax (benefit) expense | $ | (147) | | | $ | 0 | | | $ | 1,210 | |
The reconciliation between our effective tax rate on income from operations and a liquidation preferencethe statutory rate is as follows:
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| Income tax (benefit) expense at federal statutory rate | $ | 2,335 | | | $ | (4,566) | | | $ | 31,739 | |
| State and local income taxes net of federal tax (benefit) expense | (147) | | | 0 | | | 1,210 | |
| Permanent tax differences | (1,846) | | | (2,499) | | | (224) | |
| Temporary tax differences | | | | | |
| Installment note on land sale | 0 | | | 0 | | | (2,875) | |
| Allowance for losses on note receivables | (77) | | | (246) | | | (712) | |
| Deferred gains | (878) | | | (1,920) | | | (7,041) | |
| Basis differences on fixed assets | 1,307 | | | 0 | | | 22,110 | |
| Other basis/timing differences | 2,296 | | | 3,172 | | | (766) | |
| Generation (use) on net operating loss carryforwards | (3,137) | | | 6,059 | | | (42,231) | |
| Reported tax (benefit) expense | $ | (147) | | | $ | 0 | | | $ | 1,210 | |
| Effective tax rate | 4.7 | % | | 0 | % | | 0.7 | % |
We are subject to taxation in the United States and various states and foreign jurisdictions. As of
$20.00 per share. DividendsDecember 31, 2020, our tax years for 2019, 2018, and 2017 are
payable at the annual rate of $1.90 per year or $.475 per quartersubject to
stockholders of record on the last day of each March, June, September and December when and as declaredexamination by the
Board of Directors. The Series D Preferred Stock is reserved for the conversion of the Class A limited partner units of Ocean Beach Partners, L.P. The Class A units may be exchanged for Series D Preferred Stock at the rate of 20 Class A units for each share of Series D Preferred Stock. Between June 1, 2001 and May 31, 2006, all unexchanged Class A units are exchangeable. At December 31, 2016, no shares of Series D Preferred Stock were outstanding.There are 500,000 shares of Series E 6.0% Cumulative Preferred Stock authorized, with a par value $2.00 per share and a liquidation preference of $10.00 per share. Dividends are payable at the annual rate of $0.60 per share or $0.15 per quarter to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors. At December 31, 2016, no shares of Series E Preferred Stock were outstanding.
100,000 shares of Series J 8% Cumulative Convertible Preferred Stock have been designated pursuant to a Certificate of Designation filed March 16, 2006, as an instrument amendatory to ARL’s Amended Articles of Incorporation, with a par value of $2.00 per share, and a liquidation preference of $1,000 per share. Dividends are payable at the annual rate of $80 per share, or $20 per quarter, to stockholders of record on the last day of each of March, June, September and December, when and as declared by the Board of Directors. Although the Series J 8% Cumulative Convertible Preferred Stock has been designated, no shares have been issuedtax authorities. With few exceptions, as of December 31, 2016.
NOTE 10. STOCK OPTIONS
In January 1999, stockholders approved2020, we are no longer subject to U.S federal, state, local, or foreign examinations by tax authorities for the Director’s Stock Option Plan (the “Director’s Plan”) which providedyears before 2016.
The 2020 and 2019 effective tax rate is driven primarily by the passing of the Tax Cuts and Jobs Act by congress on December 22, 2017. This act reduced the statutory tax rate for optionscorporations to purchase up21% starting in 2019. As a result, our tax assets were remeasured to 40,000 shares of common stock. In December 2005,reflect the Director’s Plan was terminated. Options granted pursuant tonew tax rate for future years with the Director’s Plan were immediately exercisable and expiredimpact on the earlier2018 provision for income taxes.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Components of the first anniversaryNet Deferred Tax Asset or Liability
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 |
| Deferred tax assets: | | | |
| Allowance for losses on notes | $ | 2,674 | | | $ | 2,751 | |
| Basis difference in fixed assets | 1,426 | | | 0 | |
| Deferred gain | 5,168 | | | 5,199 | |
| Foreign currency translations | 3,818 | | | 1,522 | |
| Net operating loss carryforward | 15,234 | | | 18,371 | |
| Total deferred tax assets | 28,320 | | | 27,843 | |
| Less: valuation allowance | (28,320) | | | (21,180) | |
| Total net deferred tax assets | $ | 0 | | | $ | 6,663 | |
| | | |
| Deferred tax liabilities: | | | |
| Deferred gain | $ | 0 | | | $ | 0 | |
| Basis differences for fixed assets | 0 | | | 6,663 | |
| Total deferred tax liability | $ | 0 | | | $ | 6,663 | |
| Current net deferred tax asset | 0 | | | 6,663 | |
| Long-Term net deferred tax liability | 0 | | | (6,663) | |
| Net deferred tax asset (liability) | $ | 0 | | | $ | 0 | |
We have state net operating losses in many of the date onvarious states in which a Director ceaseswe operate.
We assess the available positive and negative evidence to
be a Director or ten years from the date of grant. Each Independent Director was granted an option to purchase 1,000 common shares. As of December 31, 2014, there were 1,000 shares of stock options outstanding which were exercisable at $9.70 per share. These options expired unexercised January 1, 2015.NOTE 11. INCOME TAXES
For 2016, IOT hadestimate if sufficient future taxable income while ARL and TCI had taxable losses withwill be generated to use the overall group having taxable income. For 2015, ARL, TCI and IOT had a combined net taxable loss and ARL recorded no current tax benefit or expense. For 2014, ARL, TCI and IOT had a combined net taxable loss and ARL recorded no current tax (benefit) or expense. The expense (benefit) in each year was calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory rate of 35%.
Current expense (benefit) is attributable to (dollars in thousands):
| | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | |
| Income (loss) from continuing operations | | $ | 46 | | | $ | 517 | | | $ | (20,413 | ) |
| Income (loss) from discontinued operations | | | (1 | ) | | | 483 | | | | 20,413 | |
| The full 2013 tax (benefit) to ARL comes from MRHI | | $ | 45 | | | $ | 1,000 | | | $ | — | |
The Federal income tax expense differs from the amount computed by applying the corporate tax rate of 35% to the income before income taxes as follows (dollars in thousands):
| | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | |
| Computed “expected” income tax (benefit) expense | | $ | (827 | ) | | $ | (800 | ) | | $ | 14,061 | |
| Book to tax differences in gains on sale of property | | | (2,757 | ) | | | (3,744 | ) | | | (2,350 | ) |
| Book to tax differences of depreciation and amortization | | | (497 | ) | | | (193 | ) | | | (1,415 | ) |
| Other book to tax differences | | | 4,126 | | | | 5,737 | | | | (10,296 | ) |
| Total | | $ | 45 | | | $ | 1,000 | | | $ | — | |
| | | | | | | | | | | | | |
| Alternative minimum tax | | $ | — | | | $ | — | | | $ | — | |
Deferred income taxes reflect the tax effects of temporary timing differences between carrying amounts of assets and liabilities reflected on the financial statements and the amounts used for income tax purposes. ARL’s tax basis in its net assets differs from the amount at which its net assets are reported for financial statement purposes, principally due to the accounting for gains and losses on property sales, and depreciation on owned properties. The tax effects of temporary differences and net operating loss carry forwards that give rise to theexisting deferred tax assets are presented below (amounts in thousands):
| | | 2016 | | | 2015 | | | 2014 | |
| | | | | | | | | | |
| Net operating losses | | $ | 64,048 | | | $ | 67,112 | | | $ | 74,357 | |
| AMT credits | | | 2,418 | | | | 2,751 | | | | 2,201 | |
| Basis difference of: | | | | | | | | | | | | |
| Real estate holdings and equipment | | | (1,580 | ) | | | (11,197 | ) | | | 10,337 | |
| Notes receivable | | | 10,756 | | | | 6,475 | | | | 6,946 | |
| Investments | | | (13,775 | ) | | | (14,966 | ) | | | (14,950 | ) |
| Notes payable | | | 2,700 | | | | 3,455 | | | | 8,189 | |
| Deferred gains | | | 21,462 | | | | 19,868 | | | | 18,086 | |
| Total | | | 86,029 | | | | 73,498 | | | | 105,166 | |
| Deferred tax valuation allowance | | | (86,029 | ) | | | (73,498 | ) | | | (105,166 | ) |
| Net deferred tax asset | | $ | — | | | $ | — | | | $ | — | |
assets. At December 31, 2016, 2015 and 2014 ARL2020, we had a net deferred tax asset due to tax deductions available to itus in future years. However, as managementwe could not determine that it was more likely than not that ARLwe would realize the benefit of the deferred tax asset, we established a 100% valuation allowance was established.
ARL has prior tax net operating lossesallowance.
17. Commitments and
capital loss carryforwards of approximately $61.0 million expiring through the year 2033. The alternative minimum tax credit balance decreased in 2016 to approximately $2.4 million. The credit has no expiration date.ARL is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods. Management believes ARL is no longer subject to income tax examinations for years prior to 2012.
NOTE 12. FUTURE MINIMUM RENTAL INCOME UNDER OPERATING LEASES
ARL’s operations include the leasing of commercial properties (office buildings, industrial warehouses and retail centers). The leases, thereon, expire at various dates through 2025. The following is a schedule of minimum future rents due to ARL under non-cancelable operating leases as of December 31, 2016 (dollars in thousands):
| Year | | | Amount | |
| 2017 | | | $ | 25,384 | |
| 2018 | | | | 23,223 | |
| 2019 | | | | 17,573 | |
| 2020 | | | | 13,592 | |
| 2021 | | | | 11,564 | |
| Thereafter | | | | 19,815 | |
| Total | | | $ | 111,151 | |
NOTE 13. OPERATING SEGMENTS
Our segments are based on management’s method of internal reporting which classifies its operations by property type. The segments are commercial, apartments, land and other. Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative and other expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their operating income and cash flow.
Items of income that are not reflected in the segments are interest, other income, equity in partnerships and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued operations before gains on sale of real estate.
The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt.
Presented below is the Company’s reportable segments’ operating income including segment assets and expenditures for the years 2016, 2015 and 2014 (dollars in thousands):
| For the Twelve Months Ended December 31, 2016 | | Commercial
Properties | | | Apartments | | | Land | | | Other | | | Total | |
| Operating revenue | | $ | 33,026 | | | $ | 86,603 | | | $ | 30 | | | $ | 4 | | | $ | 119,663 | |
| Operating expenses | | | (20,398 | ) | | | (40,786 | ) | | | (1,745 | ) | | | (21 | ) | | | (62,950 | ) |
| Depreciation and amortization | | | (9,099 | ) | | | (14,759 | ) | | | — | | | | 73 | | | | (23,785 | ) |
| Mortgage and loan interest | | | (7,191 | ) | | | (25,381 | ) | | | (2,232 | ) | | | (24,558 | ) | | | (59,362 | ) |
| Interest income | | | — | | | | — | | | | — | | | | 20,453 | | | | 20,453 | |
| Gain on sale of income producing properties | | | (238 | ) | | | 16,445 | | | | — | | | | — | | | | 16,207 | |
| Gain on land sales | | | — | | | | — | | | | 3,121 | | | | — | | | | 3,121 | |
| Segment operating income (loss) | | $ | (3,900 | ) | | $ | 22,122 | | | $ | (826 | ) | | $ | (4,049 | ) | | $ | 13,347 | |
| Capital expenditures | | $ | 5,008 | | | $ | 864 | | | $ | 268 | | | $ | — | | | $ | 6,140 | |
| Assets | | $ | 150,838 | | | $ | 622,061 | | | $ | 128,107 | | | $ | — | | | $ | 901,006 | |
| | | | | | | | | | | | | | | | | | | | | |
| Property Sales | | | | | | | | | | | | | | | | | | | | |
| Sales price | | $ | 1,500 | | | $ | 20,350 | | | $ | 29,128 | | | $ | — | | | $ | 50,978 | |
| Cost of sale | | | (1,738 | ) | | | (3,905 | ) | | | (26,007 | ) | | | — | | | | (31,650 | ) |
| Gain on sale | | $ | (238 | ) | | $ | 16,445 | | | $ | 3,121 | | | $ | — | | | $ | 19,328 | |
| For the Twelve Months Ended December 31, 2015 | | Commercial
Properties | | | Apartments | | | Land | | | Other | | | Total | |
| Operating revenue | | $ | 30,540 | | | $ | 73,543 | | | $ | — | | | $ | 105 | | | $ | 104,188 | |
| Operating expenses | | | (17,761 | ) | | | (34,955 | ) | | | (1,029 | ) | | | (257 | ) | | | (54,002 | ) |
| Depreciation and amortization | | | (8,993 | ) | | | (12,498 | ) | | | — | | | | 73 | | | | (21,418 | ) |
| Mortgage and loan interest | | | (6,919 | ) | | | (23,699 | ) | | | (4,694 | ) | | | (17,165 | ) | | | (52,477 | ) |
| Interest income | | | — | | | | — | | | | — | | | | 16,674 | | | | 16,674 | |
| Gain on land sales | | | — | | | | — | | | | 21,648 | | | | — | | | | 21,648 | |
| Segment operating income (loss) | | $ | (3,133 | ) | | $ | 2,391 | | | $ | 15,925 | | | $ | (570 | ) | | $ | 14,613 | |
| Capital expenditures | | $ | 8,133 | | | $ | 506 | | | $ | 2,621 | | | $ | — | | | $ | 11,260 | |
| Assets | | $ | 155,147 | | | $ | 551,415 | | | $ | 146,945 | | | $ | — | | | $ | 853,507 | |
| | | | | | | | | | | | | | | | | | | | | |
| Property Sales | | | | | | | | | | | | | | | | | | | | |
| Sales price | | $ | — | | | $ | 11,129 | | | $ | 107,298 | | | $ | — | | | $ | 118,427 | |
| Cost of sale | | | — | | | | (10,394 | ) | | | (88,387 | ) | | | — | | | | (98,781 | ) |
| Recognized prior deferred gain | | | — | | | | — | | | | 2,737 | | | | — | | | | 2,737 | |
| Gain on sale | | $ | — | | | $ | 735 | | | $ | 21,648 | | | $ | — | | | $ | 22,383 | |
| For the Twelve Months Ended December 31, 2014 | | Commercial
Properties | | | Apartments | | | Land | | | Other | | | Total | |
| Operating revenue | | $ | 20,476 | | | $ | 58,882 | | | $ | 1 | | | $ | 53 | | | $ | 79,412 | |
| Operating expenses | | | (13,127 | ) | | | (27,588 | ) | | | (1,397 | ) | | | (12 | ) | | | (42,124 | ) |
| Depreciation and amortization | | | (7,413 | ) | | | (10,270 | ) | | | — | | | | 90 | | | | (17,593 | ) |
| Mortgage and loan interest | | | (6,139 | ) | | | (19,403 | ) | | | (4,684 | ) | | | (10,600 | ) | | | (40,826 | ) |
| Interest income | | | — | | | | — | | | | — | | | | 20,054 | | | | 20,054 | |
| Gain on land sales | | | — | | | | — | | | | 561 | | | | — | | | | 561 | |
| Segment operating income (loss) | | $ | (6,203 | ) | | $ | 1,621 | | | $ | (5,519 | ) | | $ | 9,585 | | | $ | (516 | ) |
| Capital expenditures | | $ | 4,874 | | | $ | 320 | | | $ | 2,436 | | | $ | — | | | $ | 7,630 | |
| Assets | | $ | 142,118 | | | $ | 390,366 | | | $ | 167,279 | | | $ | — | | | $ | 699,763 | |
| | | | | | | | | | | | | | | | | | | | | |
| Property Sales | | | | | | | | | | | | | | | | | | | | |
| Sales price | | $ | 19,182 | | | $ | 115,273 | | | $ | 8,091 | | | $ | — | | | | 142,546 | |
| Cost of sale | | | (9,168 | ) | | | (63,408 | ) | | | (7,530 | ) | | | — | | | | (80,106 | ) |
| Gain (loss) on sale | | $ | 10,014 | | | $ | 51,865 | | | $ | 561 | | | $ | — | | | $ | 62,440 | |
The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations (dollars in thousands):
| | | For Twelve Months Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Segment operating income (loss) | | $ | 13,347 | | | $ | 14,613 | | | $ | (516 | ) |
| Other non-segment items of income (expense) | | | | | | | | | | | | |
| General and administrative | | | (7,119 | ) | | | (6,893 | ) | | | (10,282 | ) |
| Provision on impairment of notes receivable and real estate assets | | | — | | | | (5,300 | ) | | | — | |
| Net income fee to related party | | | (257 | ) | | | (492 | ) | | | (3,669 | ) |
| Advisory fee to related party | | | (10,918 | ) | | | (9,775 | ) | | | (8,943 | ) |
| Other income | | | 2,091 | | | | 4,106 | | | | 1,415 | |
| Loss on sale of investments | | | — | | | | (1 | ) | | | (92 | ) |
| Earnings from unconsolidated joint ventures and investees | | | 493 | | | | 428 | | | | 347 | |
| Litigation settlement | | | — | | | | (352 | ) | | | 3,591 | |
| Income tax benefit (expense) | | | (46 | ) | | | (517 | ) | | | 20,413 | |
| Gain (loss) from continuing operations | | $ | (2,409 | ) | | $ | (4,183 | ) | | $ | 2,264 | |
SEGMENT ASSET RECONCILIATION TO TOTAL ASSETS
The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Balance Sheets (dollars in thousands):
| | | | | | | | | | |
| | | For the Years Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Segment assets | | $ | 901,006 | | | $ | 853,507 | | | $ | 699,763 | |
| Investments in unconsolidated subsidiaries and investees | | | 6,087 | | | | 8,365 | | | | 4,279 | |
| Notes and interest receivable | | | 126,564 | | | | 120,243 | | | | 134,366 | |
| Other assets and receivables | | | 141,252 | | | | 135,253 | | | | 127,090 | |
| Total assets | | $ | 1,174,909 | | | $ | 1,117,368 | | | $ | 965,498 | |
NOTE 14. DISCONTINUED OPERATIONS
Prior to January 1, 2015, we applied the provisions of ASC 360, “Property, Plant and Equipment,” which requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.
Effective January 1, 2015, the Company adopted the provisions of ASU 2014-08, which changed the criteria of ASC 360 related to determining which disposals qualify to be accounted for as discontinued operations and modified related reporting and disclosure requirements. Disposals representing a strategic shift in operations that have a major effect on a company’s operations and financial results will be presented as discontinued operations.
There were no sales of income-producing properties during 2016 or 2015 that met the criteria for discontinued operations. Amounts included in discontinued operations represent the residual amounts from sales classified as discontinued operations prior to January 1, 2015. The following table summarizes revenue and expense information for the properties sold that qualified as discontinued operations (dollars in thousands):
| | | For the Years Ended December 31, | |
| | | 2016 | | | 2015 | | | 2014 | |
| Revenues: | | | | | | | | | |
| Rental and other property revenues | | $ | — | | | $ | 355 | | | $ | 5,612 | |
| | | | — | | | | 355 | | | | 5,612 | |
| Expenses: | | | | | | | | | | | | |
| Property operating expenses | | | 2 | | | | (345 | ) | | | 2,350 | |
| Depreciation | | | — | | | | — | | | | 751 | |
| General and administrative | | | — | | | | 99 | | | | 451 | |
| Total operating expenses | | | 2 | | | | (246 | ) | | | 3,552 | |
| | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | |
| Other income (expense) | | | — | | | | 45 | | | | (507 | ) |
| Mortgage and loan interest | | | — | | | | (2 | ) | | | (3,204 | ) |
| Loan charges and prepayment penalties | | | — | | | | — | | | | (1,656 | ) |
| Litigation settlement | | | — | | | | — | | | | (250 | ) |
| Total other expenses | | | — | | | | 43 | | | | (5,617 | ) |
| | | | | | | | | | | | | |
| Loss from discontinued operations before gain on sale of real estate and taxes | | | (2 | ) | | | 644 | | | | (3,557 | ) |
| Gain on sale of real estate from discontinued operations | | | — | | | | 735 | | | | 61,879 | |
| Income tax benefit (expense) | | | 1 | | | | (483 | ) | | | (20,413 | ) |
| Income (loss) from discontinued operations | | $ | (1 | ) | | $ | 896 | | | $ | 37,909 | |
NOTE 15. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of quarterly results of operations for the years 2016, 2015 and 2014. Quarterly results presented differ from those previously reported in ARL’s Form 10-Q due to the reclassification of the operations of properties sold or held for sale to discontinued operations in accordance with ASC topic 360:
| | | Three Months Ended 2016 | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | |
| | | (dollars in thousands, except share and per share amounts) | |
| 2016 | | | | | | | | | | | | |
| Total operating revenues | | $ | 29,205 | | | $ | 30,834 | | | $ | 30,067 | | | $ | 29,557 | |
| Total operating expenses | | | 25,881 | | | | 26,212 | | | | 26,272 | | | | 26,664 | |
| Operating income (loss) | | | 3,324 | | | | 4,622 | | | | 3,795 | | | | 2,893 | |
| Other expense | | | (8,470 | ) | | | (8,156 | ) | | | (9,252 | ) | | | (10,447 | ) |
| Loss before gain on sales, non-contolling interest, and taxes | | | (5,146 | ) | | | (3,534 | ) | | | (5,457 | ) | | | (7,554 | ) |
| Gain (loss) on sale of income producing properties | | | (244 | ) | | | 5,168 | | | | — | | | | 11,283 | |
| Gain (loss) on land sales | | | 1,652 | | | | 1,719 | | | | 555 | | | | (805 | ) |
| Income tax benefit (expense) | | | — | | | | — | | | | (46 | ) | | | — | |
| Net income (loss) from continued operations | | | (3,738 | ) | | | 3,353 | | | | (4,948 | ) | | | 2,924 | |
| Net loss from discontinued operations | | | 2 | | | | — | | | | — | | | | (3 | ) |
| Net income (loss) | | | (3,736 | ) | | | 3,353 | | | | (4,948 | ) | | | 2,921 | |
| Less: net income (loss) attributable to non-controlling interest | | | 530 | | | | (864 | ) | | | 1,194 | | | | (1,182 | ) |
| Preferred dividend requirement | | | (497 | ) | | | (53 | ) | | | (275 | ) | | | (276 | ) |
| Net income (loss) applicable to common shares | | $ | (3,703 | ) | | $ | 2,436 | | | $ | (4,029 | ) | | $ | 1,463 | |
| | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | |
| Earnings per share - basic | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | (0.24 | ) | | $ | 0.16 | | | $ | (0.26 | ) | | $ | 0.09 | |
| Income from discontinued operations | | | — | | | | — | | | | — | | | | — | |
| Net income (loss) applicable to common shares | | $ | (0.24 | ) | | $ | 0.16 | | | $ | (0.26 | ) | | $ | 0.09 | |
| Weighted average common shares used in computing earnings per share | | | 15,514,360 | | | | 15,514,360 | | | | 15,514,360 | | | | 15,514,360 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share - diluted | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | (0.24 | ) | | $ | 0.16 | | | $ | (0.26 | ) | | $ | 0.09 | |
| Income from discontinued operations | | | — | | | | — | | | | — | | | | — | |
| Net income (loss) applicable to common shares | | $ | (0.24 | ) | | $ | 0.16 | | | $ | (0.26 | ) | | $ | 0.09 | |
| Weighted average common shares used in computing diluted earnings per share | | | 15,514,360 | | | | 15,514,360 | | | | 15,514,360 | | | | 15,514,360 | |
| | | Three Months Ended 2015 | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | |
| | | (dollars in thousands, except share and per share amounts) | |
| 2015 | | | | | | | | | | | | |
| Total operating revenues | | $ | 23,156 | | | $ | 24,241 | | | $ | 27,826 | | | $ | 28,965 | |
| Total operating expenses | | | 21,155 | | | | 20,388 | | | | 25,741 | | | | 30,596 | |
| Operating income (loss) | | | 2,001 | | | | 3,853 | | | | 2,085 | | | | (1,631 | ) |
| Other expense | | | (2,338 | ) | | | (5,139 | ) | | | (11,152 | ) | | | (12,993 | ) |
| Loss before gain on land sales, non-contolling interest, and taxes | | | (337 | ) | | | (1,286 | ) | | | (9,067 | ) | | | (14,624 | ) |
| Gain (loss) on land sales | | | 2,876 | | | | 3,027 | | | | 1,958 | | | | 13,787 | |
| Income tax benefit | | | 103 | | | | (12 | ) | | | 274 | | | | (882 | ) |
| Net income (loss) from continued operations | | | 2,642 | | | | 1,729 | | | | (6,835 | ) | | | (1,719 | ) |
| Net income from discontinued operations | | | 190 | | | | (22 | ) | | | 508 | | | | 220 | |
| Net income (loss) | | | 2,832 | | | | 1,707 | | | | (6,327 | ) | | | (1,499 | ) |
| Less: net income (loss) attributable to non-controlling interest | | | 508 | | | | (540 | ) | | | 1,164 | | | | 195 | |
| Preferred dividend requirement | | | (390 | ) | | | (275 | ) | | | (275 | ) | | | (276 | ) |
| Net income (loss) applicable to common shares | | $ | 2,950 | | | $ | 892 | | | $ | (5,438 | ) | | $ | (1,580 | ) |
| | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | |
| Earnings per share - basic | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | 0.20 | | | $ | 0.06 | | | $ | (0.38 | ) | | $ | (0.12 | ) |
| Income from discontinued operations | | | 0.01 | | | | — | | | | 0.03 | | | | 0.01 | |
| Net income (loss) applicable to common shares | | $ | 0.21 | | | $ | 0.06 | | | $ | (0.35 | ) | | $ | (0.11 | ) |
| Weighted average common shares used in computing earnings per share | | | 14,027,619 | | | | 15,367,320 | | | | 15,514,360 | | | | 15,514,360 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share - diluted | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | 0.16 | | | $ | 0.05 | | | $ | (0.38 | ) | | $ | (0.12 | ) |
| Income from discontinued operations | | | 0.01 | | | | — | | | | 0.03 | | | | 0.01 | |
| Net income (loss) applicable to common shares | | $ | 0.17 | | | $ | 0.05 | | | $ | (0.35 | ) | | $ | (0.11 | ) |
| Weighted average common shares used in computing diluted earnings per share | | | 17,426,707 | | | | 17,844,339 | | | | 15,514,360 | | | | 15,514,360 | |
| | | Three Months Ended 2014 | |
| | | March 31, | | | June 30, | | | September 30, | | | December 31, | |
| | | (dollars in thousands, except share and per share amounts) | |
| 2014 | | | | | | | | | | | | |
| Total operating revenues | | $ | 19,159 | | | $ | 19,500 | | | $ | 19,326 | | | $ | 21,427 | |
| Total operating expenses | | | 18,957 | | | | 19,914 | | | | 18,858 | | | | 24,882 | |
| Operating income (loss) | | | 202 | | | | (414 | ) | | | 468 | | | | (3,455 | ) |
| Other expense | | | (2,440 | ) | | | (3,630 | ) | | | (4,274 | ) | | | (5,167 | ) |
| Loss before gain on land sales, non-contolling interest, and taxes | | | (2,238 | ) | | | (4,044 | ) | | | (3,806 | ) | | | (8,622 | ) |
| Gain (loss) on land sales | | | 753 | | | | (159 | ) | | | 40 | | | | (73 | ) |
| Income tax benefit | | | 2,049 | | | | 2,195 | | | | 786 | | | | 15,383 | |
| Net income (loss) from continued operations | | | 564 | | | | (2,008 | ) | | | (2,980 | ) | | | 6,688 | |
| Net income from discontinued operations | | | 3,805 | | | | 4,077 | | | | 1,461 | | | | 28,566 | |
| Net income (loss) | | | 4,369 | | | | 2,069 | | | | (1,519 | ) | | | 35,254 | |
| Less: net income (loss) attributable to non-controlling interest | | | (819 | ) | | | (551 | ) | | | 200 | | | | (8,118 | ) |
| Preferred dividend requirement | | | (613 | ) | | | (613 | ) | | | (427 | ) | | | (390 | ) |
| Net income (loss) applicable to common shares | | $ | 2,937 | | | $ | 905 | | | $ | (1,746 | ) | | $ | 26,746 | |
| | | | | | | | | | | | | | | | | |
| PER SHARE DATA | | | | | | | | | | | | | | | | |
| Earnings per share - basic | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | (0.08 | ) | | $ | (0.28 | ) | | $ | (0.24 | ) | | $ | (0.13 | ) |
| Income from discontinued operations | | | 0.33 | | | | 0.35 | | | | 0.11 | | | | 2.04 | |
| Net income (loss) applicable to common shares | | $ | 0.25 | | | $ | 0.07 | | | $ | (0.13 | ) | | $ | 1.91 | |
| Weighted average common shares used in computing earnings per share | | | 11,525,389 | | | | 11,525,389 | | | | 13,619,647 | | | | 14,027,618 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share - diluted | | | | | | | | | | | | | | | | |
| Loss from continued operations | | $ | (0.08 | ) | | $ | (0.28 | ) | | $ | (0.24 | ) | | $ | (0.13 | ) |
| Income from discontinued operations | | | 0.33 | | | | 0.35 | | | | 0.11 | | | | 2.04 | |
| Net income (loss) applicable to common shares | | $ | 0.25 | | | $ | 0.07 | | | $ | (0.13 | ) | | $ | 1.91 | |
| Weighted average common shares used in computing diluted earnings per share | | | 11,525,389 | | | | 11,525,389 | | | | 13,619,647 | | | | 14,027,618 | |
NOTE 16. COMMITMENTS, CONTINGENCIES, AND LIQUIDITY
Liquidity. ManagementWe believes that ARLwe will generate excess cash flow from property operations in 2017,the next twelve months; such excess, however, willmight not be sufficient to discharge all of ARL’sour obligations as they becamebecome due. Management intendsWe intend to sell land and income-incomeproducing real estate,income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet itsour liquidity requirements.
Guarantees. TCI is a
We were the primary guarantor, on a $60.4 million$24,300 mezzanine loan between UHF and a lender. In addition, ARL, and an officerThe guarantee was remove on January 29, 2021, concurrent with the repayment of the Companyloan by UHF.
We are
limited recourse guarantors of the
loan. As of December 31, 2016 UHF wasdefendant in
compliance with the covenants to the loan agreement.LK-Four Hickory, LLC owns a commercial office building in Dallas, Texas. On January 17, 2012, TCI sold its investment in LK-Four Hickory, LLC, however ARL continues to be a guarantor on the bank debt which had an outstanding balance of $20.9 million at December 31, 2016.
Partnership Buyouts. ARL is the limited partner in various partnerships related to the construction of residential properties. As permitted in the respective partnership agreements, ARL intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buyout the nonaffiliated partners are limited to development fees earned by the nonaffiliated partners, and are set forth in the respective partnership agreements.
ART and ART Midwest, Inc.
While the Company and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 inongoing litigation with Mr. David Clapper and related entities related to Mr. Clapper (collectively, "Clapper”) regarding a multifamily property transaction that occurred in 1988. In March 2016, the “Clapper Parties”). The matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. (“ART”) and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgmentcourt ruled in favor of Clapper and awarded them approximately $59,000. We appealed the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurredruling and remanded the case back to the trial courthas been set to recalculatebegin in May 2021.
We were the
damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. (“EQK”), and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. Management is vigorously defending this Litigation.
In 2005, ART filed suit against a major national law firm over the initial transaction. That action was initially abated while the principal case with the Clapper Parties was pending, but the abatement was recently lifted. The trial court subsequently dismissed the case on procedural grounds, but ART has filed a notice of appeal. In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued such note at zero.
Port Olpenitz
ARL, through a foreign subsidiary, was involved in developing a maritime harbor town on the 420 acre site of the former naval base of Olpenitz in Kappeln, Germany. Disputes with the local partner related to his mismanagement of the project resulted in his being replaced as the managing partner which was followed by a filing for bankruptcy protection in Germany to completely remove him from the project. An insolvency manager was placed in control of the project in order to protect the creditors and as of December 31, 2013, had sold the vast majority of assets (almost all land) of the project. The Company no longer has any financial responsibility for the obligations of the creditors related to the project and has claims filed for loans relating to our investment in the project. Due to the questionable collectability of these loans from the proceeds of the project, the Company has written off the unreserved balance of $5.3 million in the project. As of December 13, 2013, ARL had filed two lawsuits in Germany to recover funds invested in the project. The lawsuits are against: 1) the former German partner and his company, and 2) against the law firm in Hamburg originally hired to protect ARL’s investment in the project. At this time it is unknown how much can be recovered or how successful the litigation will be.
Dynex Capital, Inc.
On July 20, 2015, the 68th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).
An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resultedplaintiff in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgmentlawsuit against Dynex Commercial, Inc. on July 20, 2015.
The Final Judgment entered(“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded us with a judgment of $24,800. We are pursuing all legal means to collect this award. However, due to the uncertainty of the collectability of the award, the receivable has been fully reserved.
In February 2019, we were charged in a lawsuit brought by Paul Berger (“Berger”) that alleges that we a completed improper sales and/or transfers of property with IOR. Berger requests that we pay off various related party loans to IOR and that IOR then distribute the funds to its shareholders. We intend to vigorously defend against Dynex Commercial, Inc. on July 20, 2015 awarded Basic $0.256 millionthe allegations.
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in damages, plus pre-judgment interestthousands, except per share amounts)
In connection with the formation of
$0.192 millionVAA, 10 of the properties that we contributed to the joint venture are subject to an earn-out provision that provides for a
total amount of $0.448 million. The Judgment awarded ART $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages are paid. Lastly, the Judgement awarded Basic, ART, and TCI $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc. The Company is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as explore possible additional claims, if any, against Dynex Capital, Inc.
NOTE 17. EARNINGS PER SHARE
Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC Topic 260 “Earnings Per Share.” The computation of basic EPS is calculated by dividing net income available to common shareholders from continuing operations, adjusted for preferred dividends, by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portionremeasurement of the value of those properties after a two-year period that they were outstanding.
following the completion of construction. As of December 31, 2016,2020, we have 2,000,614 sharesrecorded a liability of Series A 10.0% cumulative convertible preferred stock,$10,000, which are outstanding. These shareswe believe is the amount that will be required to settle our obligation. We have been unable to reach agreement with our joint venture partner on the remeasured value. As a result, the parties have filed for arbitration in accordance with the joint venture agreement.
18. Quarterly Results of Operations
The following is a tabulation of our quarterly results of operations for the years 2020, 2019 and 2018. Quarterly results presented may
be converted into common stock at 90%differ from those previously reported in our Form 10-Q due to the reclassification of the
average daily closing price of the common stock for the prior 20 trading days. These are considered in the computation of diluted earnings per share if the effect of applying the if-converted method is dilutive. Of the outstanding 2,000,614 shares, 900,000 are held by ARL. Dividends are not paid on the shares owned by ARL.Prior to July 17, 2014, RAI owned 2,451,435 shares of the outstanding Series A 10.0.0% convertible preferred stock and had accrued dividends unpaid of $15.1 million. On July 17, 2014, RAI converted 890,797 shares, including $6.3 million in accumulated dividends unpaid for these shares, into the requisite number of shares of common stock. This conversion resulted in the issuance of 2,502,230 new shares of ARL common stock. On April 9, 2015, RAI converted 460,638 shares including $2.3 million in accumulated dividends unpaid for these shares, into the requisite number of shares of common stock. This conversion resulted in the issuance of 1,486,741 new shares of ARL common stock. As of December 31, 2016, RAI owns 1,100,000 shares of the outstanding Series A convertible preferred stock and has accrued dividends unpaid of $9.7 million.
| | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Quarter Ended |
| March 31, | | June 30, | | September 30, | | December 31 |
| Revenues | $ | 13,130 | | | $ | 14,741 | | | $ | 11,937 | | | $ | 19,218 | |
| Net operating (loss) income | (3,238) | | | 1,491 | | | (2,303) | | | 3,938 | |
| Net income (loss) attributable to the Company | 2,946 | | | (2,306) | | | 7,987 | | | 403 | |
| Net income (loss) attributable to the Company per share - basic and diluted | $ | 0.18 | | | $ | (0.14) | | | $ | 0.50 | | | $ | 0.02 | |
The Company had 135,000 shares of Series K convertible preferred stock, which were held by TCI and used as collateral on a note. The note has been paid in full and the Series K preferred stock was cancelled May 7, 2014.
Prior to January 1, 2015, the Company had 1,000 shares of stock options outstanding. These options expired unexercised January 1, 2015. The options are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the computation for the prior periods if applying the “treasury stock” method is dilutive.
As of December 31, 2016, the Series A convertible preferred stock and the stock options were anti-dilutive and therefore not included in the EPS calculation.
NOTE 18. SUBSEQUENT EVENTS
| | | | | | | | | | | | | | | | | | | | | | | |
| 2019 Quarter Ended |
| March 31, | | June 30, | | September 30, | | December 31 |
| Revenues | $ | 15,596 | | | $ | 15,204 | | | $ | 13,231 | | | $ | 14,957 | |
| Net operating income (loss) | 1,932 | | | (1,013) | | | (578) | | | (731) | |
| Net (loss) income attributable to the Company | (6,147) | | | (2,778) | | | (7,571) | | | 538 | |
| Net (loss) income attributable to the Company per share - basic and diluted | $ | (0.38) | | | $ | (0.17) | | | $ | (0.47) | | | $ | 0.03 | |
19. Subsequent Events
The date to which events occurring after December 31,
2016,2020, the date of the most recent balance sheet, have been evaluated for possible
adjustmentadjustments to the financial statements or disclosure is March
31, 2017,24, 2021, which is the date
onof which the financial statements were available to be issued. There are no subsequent events that would require an adjustment to the financial statements.
On February 13, 2017, Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), filed a final prospectus with the Tel Aviv Stock Exchange LTD (the “TASE”) for an offering and sale of nonconvertible Series A Bonds (the “Debentures”), to be issued by Southern, which is an indirect subsidiary of TCI. Southern, in turn, wholly owns interest in other entities, which, in turn, are the principal owners of various residential and commercial properties located in the south and southwestern portions of the United States. The Debentures are unsecured obligations of Southern. On February 14, 2017, Southern commenced the institutional tender of the Debentures and has accepted application for 276 million Israeli, new Shekels (approximately $73,651,065 USD, based on the exchange rate of 3.7474 Shekels to the U.S. Dollar effective February 14, 2017) in both institutional and public tenders, at an annual interest rate averaging approximately 7.38%.
52
| | Schedule III |
| AMERICAN REALTY INVESTORS, INC. | |
| REAL ESTATE AND ACCUMULATED DEPRECIATION | |
| December 31, 2016 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Cost Capitalized
Subsequent to | | | Asset | | | Gross Amounts of Which | | | | | | | | | | | | Life on Which | |
| | | | | | Initial Cost | | | Acquisition | | | Impairment | | | Carried at End of Year | | | | | | | | | | | | Depreciation | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In Latest | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Statement | |
| | | | | | | | | Building & | | | | | | Asset | | | | | | Building & | | | | | | Accumulated | | | Date of | | | Date | | | of Operation | |
| Property/Location | | Encumbrances | | | Land | | | Improvements | | | Improvements | | | Impairment | | | Land | | | Improvements | | | Total | | | Depreciation | | | Construction | | | Acquired | | | is Computed | |
| | | (dollars in thousands) | | | | | | | | | | |
| Properties Held for Investment Apartments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Anderson Estates, Oxford, MS | | | 796 | | | | 378 | | | | 2,683 | | | | 313 | | | | — | | | | 378 | | | | 2,996 | | | | 3,373 | | | | 732 | | | | 2003 | | | | 01 | /06 | | | 40 years | |
| Blue Lake Villas I, Waxahachie, TX | | | 10,589 | | | | 526 | | | | 10,784 | | | | (601 | ) | | | — | | | | 526 | | | | 10,183 | | | | 10,709 | | | | 3,533 | | | | 2003 | | | | 01 | /02 | | | 40 years | |
| Blue Lake Villas II, Waxahachie, TX | | | 3,832 | | | | 287 | | | | 4,451 | | | | 45 | | | | — | | | | 287 | | | | 4,496 | | | | 4,783 | | | | 1,023 | | | | 2004 | | | | 01 | /04 | | | 40 years | |
| Breakwater Bay, Beaumont, TX | | | 9,271 | | | | 740 | | | | 10,435 | | | | 63 | | | | — | | | | 740 | | | | 10,498 | | | | 11,238 | | | | 3,123 | | | | 2004 | | | | 05 | /03 | | | 40 years | |
| Bridgewood Ranch, Kaufman, TX | | | 6,340 | | | | 762 | | | | 6,856 | | | | 57 | | | | — | | | | 762 | | | | 6,913 | | | | 7,675 | | | | 1,553 | | | | 2007 | | | | 04 | /08 | | | 40 years | |
| Capitol Hill, Little Rock, AR | | | 8,893 | | | | 1,860 | | | | 7,948 | | | | 55 | | | | — | | | | 1,860 | | | | 8,002 | | | | 9,862 | | | | 2,506 | | | | 2003 | | | | 03 | /03 | | | 40 years | |
| Centennial, Oak Ridge, TN | | | 20,794 | | | | 2,570 | | | | 22,589 | | | | — | | | | — | | | | 2,570 | | | | 22,589 | | | | 25,159 | | | | 800 | | | | 2011 | | | | 07 | /14 | | | 40 years | |
| Curtis Moore Estates, Greenwood, MS | | | 1,444 | | | | 186 | | | | 5,733 | | | | 946 | | | | — | | | | 186 | | | | 6,679 | | | | 6,865 | | | | 1,772 | | | | 2003 | | | | 01 | /06 | | | 40 years | |
| Crossing at Opelika, Opelika, AL | | | 14,700 | | | | 1,590 | | | | 14,314 | | | | — | | | | — | | | | 1,590 | | | | 14,314 | | | | 15,904 | | | | 267 | | | | 2015 | | | | 12 | /15 | | | 40 years | |
| Dakota Arms, Lubbock, TX | | | 12,356 | | | | 921 | | | | 12,644 | | | | 358 | | | | — | | | | 921 | | | | 13,002 | | | | 13,923 | | | | 3,860 | | | | 2004 | | | | 01 | /04 | | | 40 years | |
| David Jordan Phase II, Greenwood, MS | | | 563 | | | | 51 | | | | 1,521 | | | | 295 | | | | — | | | | 51 | | | | 1,816 | | | | 1,867 | | | | 461 | | | | 1999 | | | | 01 | /06 | | | 40 years | |
| David Jordan Phase III, Greenwood, MS | | | 573 | | | | 83 | | | | 2,115 | | | | 420 | | | | — | | | | 83 | | | | 2,535 | | | | 2,618 | | | | 590 | | | | 2003 | | | | 01 | /06 | | | 40 years | |
| Desoto Ranch, DeSoto, TX | | | 15,119 | | | | 1,472 | | | | 17,856 | | | | (1,131 | ) | | | — | | | | 1,472 | | | | 16,725 | | | | 18,197 | | | | 5,403 | | | | 2002 | | | | 05 | /02 | | | 40 years | |
| Falcon Lakes, Arlington, TX | | | 13,530 | | | | 1,438 | | | | 15,094 | | | | (725 | ) | | | — | | | | 1,438 | | | | 14,369 | | | | 15,806 | | | | 5,203 | | | | 2001 | | | | 10 | /01 | | | 40 years | |
| Heather Creek, Mesquite, TX | | | 11,162 | | | | 1,326 | | | | 12,015 | | | | 69 | | | | — | | | | 1,326 | | | | 12,083 | | | | 13,410 | | | | 3,626 | | | | 2003 | | | | 03 | /03 | | | 40 years | |
| Holland Lake, Weatherford, TX | | | 11,669 | | | | 1,449 | | | | 14,612 | | | | — | | | | — | | | | 1,449 | | | | 14,612 | | | | 16,061 | | | | 609 | | | | 2004 | | | | 05 | /14 | | | 40 years | |
| Lake Forest, Houston, TX | | | 12,007 | | | | 335 | | | | 12,267 | | | | 1,615 | | | | — | | | | 335 | | | | 13,883 | | | | 14,218 | | | | 3,919 | | | | 2004 | | | | 01 | /04 | | | 40 years | |
| Legacy at Pleasant Grove, Texarkana, TX | | | 14,757 | | | | 2,005 | | | | 17,892 | | | | — | | | | — | | | | 2,005 | | | | 17,892 | | | | 19,897 | | | | 932 | | | | 2006 | | | | 12 | /14 | | | 40 years | |
| Lodge at Pecan Creek, Denton, TX | | | 16,174 | | | | 1,349 | | | | 16,180 | | | | — | | | | — | | | | 1,349 | | | | 16,180 | | | | 17,529 | | | | 2,090 | | | | 2011 | | | | 10 | /05 | | | 40 years | |
| Mansions of Mansfield, Mansfield, TX | | | 15,347 | | | | 977 | | | | 17,799 | | | | 76 | | | | — | | | | 977 | | | | 17,875 | | | | 18,851 | | | | 3,465 | | | | 2009 | | | | 09 | /05 | | | 40 years | |
| Metropolitan Apartments | | | 24,303 | | | | 3,229 | | | | 29,003 | | | | 0 | | | | | | | | 3,229 | | | | 29,003 | | | | 32,232 | | | | 363 | | | | | | | | | | | | | |
| Mission Oaks, San Antonio, TX | | | 14,670 | | | | 1,266 | | | | 16,627 | | | | 212 | | | | — | | | | 1,266 | | | | 16,839 | | | | 18,105 | | | | 4,077 | | | | 2005 | | | | 05 | /05 | | | 40 years | |
| Monticello Estate, Monticello, AR | | | 445 | | | | 36 | | | | 1,493 | | | | 264 | | | | — | | | | 36 | | | | 1,757 | | | | 1,793 | | | | 422 | | | | 2001 | | | | 01 | /06 | | | 40 years | |
| Northside on Travis, Sherman, TX | | | 13,099 | | | | 1,301 | | | | 14,560 | | | | 26 | | | | — | | | | 1,301 | | | | 14,586 | | | | 15,887 | | | | 2,671 | | | | 2009 | | | | 10 | /07 | | | 40 years | |
| Oak Hollow, Sequin, TX | | | 11,832 | | | | 1,435 | | | | 12,405 | | | | — | | | | | | | | 1,435 | | | | 12,405 | | | | 13,840 | | | | 465 | | | | 2011 | | | | 07 | /14 | | | 40 years | |
| Overlook at Allensville, Sevierville, TN | | | 11,374 | | | | 1,228 | | | | 12,297 | | | | — | | | | | | | | 1,228 | | | | 12,297 | | | | 13,524 | | | | 567 | | | | 2012 | | | | 10 | /15 | | | 40 years | |
| Oceanaire Apartments | | | 13,607 | | | | 1,397 | | | | 12,575 | | | | — | | | | | | | | 1,397 | | | | 12,575 | | | | 13,972 | | | | — | | | | | | | | | | | | | |
| Parc at Clarksville, Clarksville, TN | | | 12,658 | | | | 571 | | | | 14,300 | | | | 118 | | | | — | | | | 571 | | | | 14,418 | | | | 14,990 | | | | 3,022 | | | | 2007 | | | | 06 | /02 | | | 40 years | |
| Parc at Denham Springs, Denham Springs, LA | | | 18,520 | | | | 1,022 | | | | 20,188 | | | | 8 | | | | — | | | | 1,022 | | | | 20,195 | | | | 21,218 | | | | 3,012 | | | | 2011 | | | | 07 | /07 | | | 40 years | |
| Parc at Maumelle, Little Rock, AR | | | 15,694 | | | | 1,153 | | | | 17,688 | | | | 671 | | | | — | | | | 1,153 | | | | 18,359 | | | | 19,512 | | | | 4,759 | | | | 2006 | | | | 12 | /04 | | | 40 years | |
| Parc at Metro Center, Nashville, TN | | | 10,316 | | | | 960 | | | | 12,226 | | | | 543 | | | | — | | | | 960 | | | | 12,769 | | | | 13,729 | | | | 3,359 | | | | 2006 | | | | 05 | /05 | | | 40 years | |
| Parc at Rogers, Rogers, AR | | | 20,382 | | | | 1,482 | | | | 22,993 | | | | 449 | | | | (3,180 | ) | | | 1,482 | | | | 23,442 | | | | 21,745 | | | | 4,321 | | | | 2007 | | | | 04 | /04 | | | 40 years | |
| Preserve at Pecan Creek, Denton, TX | | | 14,251 | | | | 885 | | | | 16,626 | | | | 59 | | | | — | | | | 885 | | | | 16,685 | | | | 17,570 | | | | 3,473 | | | | 2008 | | | | 10 | /05 | | | 40 years | |
| Preserve at Prairie Pointe, Lubbock, TX | | | 10,057 | | | | 1,074 | | | | 10,603 | | | | 178 | | | | | | | | 1,074 | | | | 10,782 | | | | 11,856 | | | | 462 | | | | 2005 | | | | 04 | /15 | | | 40 years | |
| Riverwalk Phase I, Greenville, MS | | | 282 | | | | 23 | | | | 1,537 | | | | 180 | | | | — | | | | 23 | | | | 1,718 | | | | 1,741 | | | | 464 | | | | 2003 | | | | 01 | /06 | | | 40 years | |
| Riverwalk Phase II, Greenville, MS | | | 1,089 | | | | 52 | | | | 4,007 | | | | 408 | | | | — | | | | 52 | | | | 4,415 | | | | 4,467 | | | | 1,467 | | | | 2003 | | | | 01 | /06 | | | 40 years | |
| Sawgrass Creek | | | 0 | | | | 784 | | | | 7,056 | | | | 0 | | | | | | | | 784 | | | | 7,056 | | | | 7,840 | | | | 73 | | | | | | | | | | | | | |
| Sonoma Court, Rockwall, TX | | | 10,616 | | | | 941 | | | | 11,074 | | | | — | | | | — | | | | 941 | | | | 11,074 | | | | 12,014 | | | | 1,500 | | | | 2011 | | | | 07 | /10 | | | 40 years | |
| Sugar Mill, Baton Rouge, LA | | | 11,216 | | | | 1,437 | | | | 13,367 | | | | 205 | | | | — | | | | 1,437 | | | | 13,572 | | | | 15,009 | | | | 2,500 | | | | 2009 | | | | 08 | /08 | | | 40 years | |
| Tattersall Village | | | 26,121 | | | | 2,691 | | | | 23,961 | | | | 0 | | | | | | | | 2,691 | | | | 23,961 | | | | 26,652 | | | | — | | | | | | | | | | | | | |
| Toulon, Gautier, MS | | | 20,356 | | | | 1,621 | | | | 20,107 | | | | 372 | | | | — | | | | 1,621 | | | | 20,479 | | | | 22,099 | | | | 2,765 | | | | 2011 | | | | 09 | /09 | | | 40 years | |
| Tradewinds, Midland, TX | | | 14,477 | | | | 3,300 | | | | 20,073 | | | | 0 | | | | | | | | 3,300 | | | | 20,073 | | | | 23,373 | | | | 748 | | | | 2015 | | | | 06 | /15 | | | 40 years | |
| Villager, Ft. Walton, FL | | | 733 | | | | 141 | | | | 1,268 | | | | 0 | | | | | | | | 141 | | | | 1,268 | | | | 1,409 | | | | 53 | | | | 1972 | | | | 06 | /15 | | | 40 years | |
| Villas at Park West I, Pueblo, CO | | | 10,410 | | | | 1,171 | | | | 10,453 | | | | — | | | | — | | | | 1,171 | | | | 10,453 | | | | 11,624 | | | | 544 | | | | 2005 | | | | 12 | /14 | | | 40 years | |
| Villas at Park West II, Pueblo, CO | | | 9,418 | | | | 1,463 | | | | 13,060 | | | | — | | | | — | | | | 1,463 | | | | 13,060 | | | | 14,523 | | | | 680 | | | | 2010 | | | | 12 | /14 | | | 40 years | |
| Vista Ridge, Tupelo, MS | | | 10,661 | | | | 1,339 | | | | 13,398 | | | | — | | | | | | | | 1,339 | | | | 13,398 | | | | 14,737 | | | | 849 | | | | 2009 | | | | 10 | /15 | | | 40 years | |
| Vistas of Vance Jackson, San Antonio, TX | | | 15,076 | | | | 1,265 | | | | 16,540 | | | | 189 | | | | — | | | | 1,265 | | | | 16,728 | | | | 17,993 | | | | 4,728 | | | | 2004 | | | | 01 | /04 | | | 40 years | |
| Waterford, Roseberg, TX | | | 17,167 | | | | 2,341 | | | | 20,880 | | | | 0 | | | | | | | | 2,341 | | | | 20,880 | | | | 23,221 | | | | 783 | | | | 2013 | | | | 06 | /14 | | | 40 years | |
| Westwood, Mary Ester, FL | | | 4,167 | | | | 692 | | | | 6,650 | | | | 0 | | | | | | | | 692 | | | | 6,650 | | | | 7,343 | | | | 263 | | | | 1972 | | | | 06 | /15 | | | 40 years | |
| Windsong, Fort Worth, TX | | | 10,599 | | | | 790 | | | | 11,526 | | | | 69 | | | | — | | | | 790 | | | | 11,596 | | | | 12,386 | | | | 3,724 | | | | 2002 | | | | 07 | /03 | | | 40 years | |
| Total Apartments Held for Investment | | $ | 553,509 | | | $ | 57,396 | | | $ | 634,328 | | | $ | 5,806 | | | $ | (3,180 | ) | | $ | 57,396 | | | $ | 640,135 | | | $ | 694,351 | | | $ | 97,580 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Apartments Under Construction | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lakeside Lofts, Farmers Branch, TX | | | 0 | | | | 0 | | | | — | | | | 1,744 | | | | — | | | | — | | | | 1,744 | | | | 1,744 | | | | — | | | | — | | | | 12 | /14 | | | — | |
| Terra Lago, Rowlett, TX | | | 13,005 | | | | 6,023 | | | | | | | | 15,406 | | | | | | | | 6,023 | | | | 15,406 | | | | 21,429 | | | | | | | | — | | | | 11 | /15 | | | — | |
| Overlook at Allensville Square II, Seigerville, TN | | | 0 | | | | 1,843 | | | | | | | | 271 | | | | | | | | 1,843 | | | | 271 | | | | 2,114 | | | | | | | | — | | | | 11 | /15 | | | — | |
| Total Apartments Under Construction | | $ | 13,005 | | | $ | 7,866 | | | $ | — | | | $ | 17,421 | | | $ | — | | | $ | 7,866 | | | $ | 17,421 | | | $ | 25,288 | | | $ | — | | | | | | | | | | | | | |
| AMERICAN REALTY INVESTORS, INC. | Schedule III |
| REAL ESTATE AND ACCUMULATED DEPRECIATION | Continued |
| December 31, 2016 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Cost Capitalized
Subsequent to | | | Asset | | | Gross Amounts of Which | | | | | | | | | | | | Life on Which | |
| | | | | | Initial Cost | | | Acquisition | | | Impairment | | | Carried at End of Year | | | | | | | | | | | | Depreciation | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In Latest | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Statement | |
| | | | | | | | | Building & | | | | | | Asset | | | | | | Building & | | | | | | Accumulated | | | Date of | | | Date | | | of Operation | |
| Property/Location | | Encumbrances | | | Land | | | Improvements | | | Improvements | | | Impairment | | | Land | | | Improvements | | | Total | | | Depreciation | | | Construction | | | Acquired | | | is Computed | |
| | | (dollars in thousands) | | | | | | | | | | |
| Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 600 Las Colinas, Las Colinas, TX | | | 39,237 | | | | 5,751 | | | | 51,759 | | | | 16,941 | | | | — | | | | 5,751 | | | | 68,700 | | | | 74,451 | | | | 23,729 | | | | 1984 | | | | 08 | /05 | | | 40 years | |
| 770 South Post Oak, Houston, TX | | | 12,700 | | | | 1,763 | | | | 15,834 | | | | 165 | | | | | | | | 1,763 | | | | 15,999 | | | | 17,762 | | | | 660 | | | | 1970 | | | | 07 | /15 | | | 40 years | |
| Bridgeview Plaza, LaCrosse, WI | | | 5,218 | | | | — | | | | — | | | | 1,008 | | | | — | | | | — | | | | 1,008 | | | | 1,008 | | | | 522 | | | | 1979 | | | | 03 | /03 | | | 40 years | |
| Browning Place (Park West I), Farmers Branch, TX | | | 23,193 | | | | 5,096 | | | | 45,868 | | | | 14,355 | | | | — | | | | 5,096 | | | | 60,223 | | | | 65,319 | | | | 21,301 | | | | 1984 | | | | 04 | /05 | | | 40 years | |
| Cross County Mall, Matoon, IL | | | — | | | | 608 | | | | 5,677 | | | | 8,194 | | | | — | | | | 608 | | | | 13,871 | | | | 14,479 | | | | 12,324 | | | | 1971 | | | | 08 | /79 | | | 40 years | |
| Mahogany Run Golf Course, US Virgin Islands | | | — | | | | 7,168 | | | | 6,031 | | | | 141 | | | | (5,300 | ) | | | 7,168 | | | | 6,173 | | | | 8,041 | | | | 323 | | | | 1981 | | | | 11 | /14 | | | 40 years | |
| Fruitland Plaza, Fruitland Park, FL | | | — | | | | 23 | | | | — | | | | 77 | | | | — | | | | 23 | | | | 77 | | | | 100 | | | | 46 | | | | — | | | | 05 | /92 | | | 40 years | |
| Senlac VHP, Farmers Branch, TX | | | — | | | | 622 | | | | — | | | | 142 | | | | — | | | | 622 | | | | 142 | | | | 765 | | | | 134 | | | | — | | | | 08 | /05 | | | 40 years | |
| Stanford Center, Dallas, TX | | | 28,000 | | | | 3,878 | | | | 34,862 | | | | 7,793 | | | | (9,600 | ) | | | 3,878 | | | | 42,655 | | | | 36,933 | | | | 8,980 | | | | — | | | | 06 | /08 | | | 40 years | |
| Total Commercial Held for Investment | | $ | 108,348 | | | $ | 24,910 | | | $ | 160,031 | | | $ | 48,816 | | | $ | (14,900 | ) | | $ | 24,910 | | | $ | 208,847 | | | $ | 218,857 | | | $ | 68,017 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Land | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2427 Valley View Ln, Farmers Branch, TX | | | — | | | | 76 | | | | — | | | | — | | | | — | | | | 76 | | | | — | | | | 76 | | | | — | | | | — | | | | 07 | /12 | | | — | |
| Audubon, Adams County, MS | | | — | | | | 519 | | | | 297 | | | | 297 | | | | — | | | | 815 | | | | — | | | | 815 | | | | — | | | | — | | | | 03 | /07 | | | — | |
| Bonneau Land, Farmers Branch, TX | | | — | | | | 1,309 | | | | — | | | | — | | | | — | | | | 1,309 | | | | — | | | | 1,309 | | | | — | | | | — | | | | 12 | /14 | | | — | |
| Cooks Lane, Fort Worth, TX | | | 394 | | | | 1,094 | | | | — | | | | — | | | | — | | | | 1,094 | | | | — | | | | 1,094 | | | | — | | | | — | | | | 06 | /04 | | | — | |
| Dedeaux, Gulfport, MS | | | — | | | | 1,612 | | | | 46 | | | | 46 | | | | (38 | ) | | | 1,620 | | | | — | | | | 1,620 | | | | — | | | | — | | | | 10 | /06 | | | — | |
| Denham Springs, Denham Springs, LA | | | 153 | | | | 714 | | | | — | | | | — | | | | — | | | | 714 | | | | — | | | | 714 | | | | — | | | | — | | | | 08 | /08 | | | — | |
| Dominion Mercer | | | 3,572 | | | | 3,688 | | | | — | | | | — | | | | — | | | | 3,688 | | | | — | | | | 3,688 | | | | — | | | | — | | | | 10 | /16 | | | — | |
| Gautier Land, Gautier, MS | | | — | | | | 202 | | | | — | | | | — | | | | — | | | | 202 | | | | — | | | | 202 | | | | — | | | | — | | | | 07 | /98 | | | — | |
| GNB Land, Farmers Branch, TX | | | 8,695 | | | | 4,385 | | | | 32 | | | | 32 | | | | — | | | | 4,418 | | | | — | | | | 4,418 | | | | — | | | | — | | | | 07 | /06 | | | — | |
| Hollywood Casino Land Tract II, Farmers Branch, TX | | | 1,410 | | | | 3,192 | | | | 620 | | | | 674 | | | | — | | | | 4,486 | | | | — | | | | 4,486 | | | | — | | | | — | | | | 03 | /08 | | | — | |
| Lacy Longhorn Land, Farmers Branch, TX | | | — | | | | 1,169 | | | | — | | | | (760 | ) | | | — | | | | 408 | | | | — | | | | 408 | | | | — | | | | — | | | | 06 | /04 | | | — | |
| Lake Shore Villas, Humble, TX | | | — | | | | 81 | | | | 3 | | | | 3 | | | | — | | | | 84 | | | | — | | | | 84 | | | | — | | | | — | | | | 03 | /02 | | | — | |
| Lubbock Land, Lubbock, TX | | | — | | | | 234 | | | | — | | | | — | | | | — | | | | 234 | | | | — | | | | 234 | | | | — | | | | — | | | | 01 | /04 | | | — | |
| Luna Ventures, Farmers Branch TX | | | — | | | | 2,934 | | | | — | | | | — | | | | — | | | | 2,934 | | | | — | | | | 2,934 | | | | — | | | | — | | | | 04 | /08 | | | — | |
| Mandahl Bay Land | | | — | | | | 667 | | | | — | | | | — | | | | — | | | | 667 | | | | | | | | 667 | | | | — | | | | — | | | | 01 | /05 | | | — | |
| Manhattan Land, Farmers Branch, TX | | | — | | | | — | | | | — | | | | (344 | ) | | | — | | | | (344 | ) | | | — | | | | (344 | ) | | | — | | | | — | | | | 02 | /00 | | | — | |
| McKinney 36, Collin County, TX | | | 1,415 | | | | 647 | | | | 164 | | | | (198 | ) | | | — | | | | 613 | | | | — | | | | 613 | | | | — | | | | — | | | | 01 | /98 | | | — | |
| Meloy/Portage Land, Kent OH | | | 1,160 | | | | 5,119 | | | | — | | | | — | | | | (1,069 | ) | | | 4,050 | | | | — | | | | 4,050 | | | | — | | | | — | | | | 02 | /04 | | | — | |
| Minivest Land, Dallas, TX | | | — | | | | 7 | | | | — | | | | — | | | | — | | | | 7 | | | | — | | | | 7 | | | | — | | | | — | | | | 04 | /13 | | | — | |
| Mira Lago, Farmers Branch, TX | | | — | | | | 59 | | | | 15 | | | | (7 | ) | | | — | | | | 67 | | | | — | | | | 67 | | | | — | | | | — | | | | 05 | /01 | | | — | |
| Nakash, Malden, MO | | | — | | | | 113 | | | | — | | | | (10 | ) | | | — | | | | 103 | | | | — | | | | 103 | | | | — | | | | — | | | | 01 | /93 | | | — | |
| Nashville, Nashville, TN | | | — | | | | 662 | | | | 59 | | | | (384 | ) | | | — | | | | 338 | | | | — | | | | 338 | | | | — | | | | — | | | | 06 | /02 | | | — | |
| Nicholson Croslin, Dallas, TX | | | — | | | | 184 | | | | — | | | | (118 | ) | | | — | | | | 66 | | | | — | | | | 66 | | | | — | | | | — | | | | 10 | /98 | | | — | |
| Nicholson Mendoza, Dallas, TX | | | — | | | | 80 | | | | — | | | | (51 | ) | | | — | | | | 29 | | | | — | | | | 29 | | | | — | | | | — | | | | 10 | /98 | | | — | |
| Ocean Estates, Gulfport, MS | | | — | | | | 1,418 | | | | 390 | | | | 390 | | | | — | | | | 1,808 | | | | — | | | | 1,808 | | | | — | | | | — | | | | 10 | /07 | | | — | |
| Senlac Land Tract II, Farmers Branch, TX | | | — | | | | 656 | | | | — | | | | — | | | | — | | | | 656 | | | | — | | | | 656 | | | | — | | | | — | | | | 08 | /05 | | | — | |
| Sugar Mill Land, Baton Rouge, LA | | | 116 | | | | 445 | | | | 242 | | | | 242 | | | | — | | | | 687 | | | | — | | | | 687 | | | | — | | | | — | | | | 08 | /13 | | | — | |
| Texas Plaza Land, Irving, TX | | | — | | | | 1,738 | | | | — | | | | — | | | | (238 | ) | | | 1,500 | | | | — | | | | 1,500 | | | | — | | | | — | | | | 12 | /06 | | | — | |
| Travis Ranch Land, Kaufman County, TX | | | 757 | | | | 1,030 | | | | — | | | | — | | | | — | | | | 1,030 | | | | — | | | | 1,030 | | | | — | | | | — | | | | 08 | /08 | | | — | |
| Travis Ranch Retail, Kaufman City, TX | | | — | | | | 1,517 | | | | — | | | | — | | | | — | | | | 1,517 | | | | — | | | | 1,517 | | | | — | | | | — | | | | 08 | /08 | | | — | |
| Union Pacific Railroad Land, Dallas, TX | | | — | | | | 130 | | | | — | | | | — | | | | — | | | | 130 | | | | — | | | | 130 | | | | — | | | | — | | | | 03 | /04 | | | — | |
| Valley View 34 (Mercer Crossing), Farmers Branch, TX | | | — | | | | 1,173 | | | | — | | | | (945 | ) | | | — | | | | 228 | | | | — | | | | 228 | | | | — | | | | — | | | | 08 | /08 | | | — | |
| Willowick Land, Pensacola, FL | | | — | | | | 137 | | | | — | | | | — | | | | — | | | | 137 | | | | — | | | | 137 | | | | — | | | | — | | | | 01 | /95 | | | — | |
| Windmill Farms Land, Kaufman County, TX | | | 25,332 | | | | 49,371 | | | | — | | | | 15,009 | | | | (20,564 | ) | | | 43,817 | | | | — | | | | 43,817 | | | | — | | | | — | | | | 11 | /11 | | | — | |
| Total Land Held for Investment | | $ | 42,698 | | | $ | 86,363 | | | $ | 1,869 | | | $ | 13,876 | | | $ | (21,909 | ) | | $ | 79,188 | | | $ | — | | | $ | 79,188 | | | $ | — | | | | | | | | | | | | | |
| AMERICAN REALTY INVESTORS, INC. | Schedule III |
| REAL ESTATE AND ACCUMULATED DEPRECIATION | Continued |
| December 31, 2015 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Cost Capitalized
Subsequent to | | | Asset | | | Gross Amounts of Which | | | | | | | | | | | | Life on Which | |
| | | | | | Initial Cost | | | Acquisition | | | Impairment | | | Carried at End of Year | | | | | | | | | | | | Depreciation | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In Latest | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Statement | |
| | | | | | | | | Building & | | | | | | Asset | | | | | | Building & | | | | | | Accumulated | | | Date of | | | Date | | | of Operation | |
| Property/Location | | Encumbrances | | | Land | | | Improvements | | | Improvements | | | Impairment | | | Land | | | Improvements | | | Total | | | Depreciation | | | Construction | | | Acquired | | | is Computed | |
| | | (dollars in thousands) | | | | | | | | | | |
| Corporate Departments/Investments/Misc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TCI - Corporate | | | 162,232 | | | | — | | | | | | | | — | | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| ARI - Corporate | | | 5,486 | | | | — | | | | — | | | | — | | | | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total Corporate Debt | | $ | 167,718 | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Properties Held for Investment/Corporate Debt | | $ | 885,278 | | | $ | 176,535 | | | $ | 796,227 | | | $ | 85,919 | | | $ | (39,989 | ) | | $ | 169,360 | | | $ | 866,403 | | | $ | 1,017,684 | | | $ | 165,597 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Properties Held for Sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dunes Plaza, Michigan City, IN | | | 376 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1978 | | | | 03/92 | | | | 40 years | |
| Total Commercial Held for Sale | | $ | 376 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Properties Held for Sale | | $ | 376 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Properties Subject to Sales Contract Apartments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
| Total Aparments Subject to Sales Contract | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | — | | | | | | | | | | | | | | | | — | | | | | | | | — | | | | | | | | | |
| Total Commercial Subject to Sales Contract | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Land | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dominion Tract, Dallas, TX | | $ | 3,360 | | | $ | 3,931 | | | $ | — | | | $ | (304 | ) | | | (1,624 | ) | | $ | 2,003 | | | $ | — | | | $ | 2,003 | | | $ | — | | | | — | | | | 03/99 | | | | — | |
| Hollywood Casino Tract I, Farmers Branch, TX | | | 1,410 | | | | 3,350 | | | | 147 | | | | (1,013 | ) | | | (176 | ) | | | 2,308 | | | | — | | | | 2,308 | | | | — | | | | — | | | | 03/08 | | | | — | |
| LaDue Land, Farmers Branch, TX | | | — | | | | 1,900 | | | | — | | | | — | | | | (55 | ) | | | 1,845 | | | | — | | | | 1,845 | | | | — | | | | — | | | | 07/98 | | | | — | |
| Three Hickory Land, Farmers Branch, TX | | | — | | | | 1,202 | | | | — | | | | — | | | | — | | | | 1,202 | | | | — | | | | 1,202 | | | | — | | | | — | | | | 03/14 | | | | — | |
| Travelers Land, Farmers Branch, TX | | | — | | | | 21,511 | | | | — | | | | 4 | | | | — | | | | 21,515 | | | | — | | | | 21,515 | | | | — | | | | — | | | | 11/06 | | | | — | |
| Travelers Land, Farmers Branch, TX | | | — | | | | 6,891 | | | | — | | | | (4,978 | ) | | | — | | | | 1,913 | | | | — | | | | 1,913 | | | | — | | | | — | | | | 11/06 | | | | — | |
| Valwood Land, Farmers Branch, TX | | | — | | | | 3,332 | | | | — | | | | — | | | | — | | | | 3,332 | | | | — | | | | 3,332 | | | | — | | | | | | | | 03/14 | | | | | |
| Walker Land, Dallas County, TX | | | — | | | | 19,728 | | | | — | | | | (5,992 | ) | | | (562 | ) | | | 13,174 | | | | — | | | | 13,174 | | | | — | | | | — | | | | 09/06 | | | | — | |
| Whorton Land, Bentonville, AR | | | 372 | | | | 3,510 | | | | — | | | | 568 | | | | (2,451 | ) | | | 1,627 | | | | — | | | | 1,627 | | | | — | | | | — | | | | 06/05 | | | | — | |
| Total Land Subject to Sales Contract | | $ | 5,142 | | | $ | 65,355 | | | $ | 147 | | | $ | (11,714 | ) | | $ | (4,868 | ) | | $ | 48,919 | | | $ | — | | | $ | 48,919 | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Properties Subject to Sales Contract | | $ | 5,142 | | | $ | 65,355 | | | $ | 147 | | | $ | (11,714 | ) | | $ | (4,868 | ) | | $ | 48,919 | | | $ | — | | | $ | 48,919 | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Land Sold | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | $ | — | | | $ | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| Total Land Subject to Sales Contract | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL: Real Estate | | $ | 890,796 | | | $ | 241,890 | | | $ | 796,374 | | | $ | 74,205 | | | $ | (44,857 | ) | | $ | 218,280 | | | $ | 866,403 | | | $ | 1,066,603 | | | $ | 165,597 | | | | | | | | | | | | | |
| REAL ESTATE AND ACCUMULATED DEPRECIATION |
| As of December 31, |
| | | | | | | | | | |
| | | 2016 | | | 2015 | | | 2014 | |
| | | (dollars in thousansds) | |
| Reconciliation of Real Estate | | | | | | | | | | | | |
| Balance at January 1, | | $ | 1,003,545 | | | $ | 831,540 | | | $ | 848,062 | |
| Additions | | | | | | | | | | | | |
| Acquisitions, improvements and construction | | | 112,762 | | | | 216,090 | | | | 75,945 | |
| Deductions | | | | | | | | | | | | |
| Sale of real estate | | | (49,704 | ) | | | (38,785 | ) | | | (92,467 | ) |
| Asset impairments | | | — | | | | (5,300 | ) | | | — | |
| Balance at December 31, | | $ | 1,066,603 | | | $ | 1,003,545 | | | $ | 831,540 | |
| | | | | | | | | | | | | |
| Reconciliation of Accumulated Depreciation | | | | | | | | | | | | |
| Balance at January 1, | | $ | 150,038 | | | $ | 131,777 | | | $ | 147,768 | |
| Additions | | | | | | | | | | | | |
| Depreciation | | | 23,277 | | | | 20,386 | | | | 18,077 | |
| Deductions | | | | | | | | | | | | |
| Sale of real estate | | | (7,718 | ) | | | (2,125 | ) | | | (34,068 | ) |
| Balance at December 31, | | $ | 165,597 | | | $ | 150,038 | | | $ | 131,777 | |
SCHEDULE IV
AMERICAN REALTY INVESTORS, INC.
MORTGAGE LOANS
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31,
2016| Description | | Interest
Rate | | | Final
Maturity
Date | | Periodic Payment Terms | | Prior Liens | | Face Amount of Mortgage | | Carrying
Amount of
Mortgage | | Principal or Loans Subject to Delinquent Principal or Interest | |
| | | | | | | | | | (dollars in thousands) | | | |
| | | | | | | | | | | | | | | | | |
| Christine Tunney | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 49 | | | 48 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Compton Partners | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 289 | | | 289 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| David Monier | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 97 | | | 97 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Earl Samson III | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 96 | | | 96 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Edward Samson III | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 96 | | | 96 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| H198, LLC | | | 12.00 | % | | 01/20 | | | | | — | | | 5,907 | | | 5,907 | | | — | |
| Las Vegas Land | | | | | | | | | | | | | | | | | | | | | |
| Hammon Operating Corporation | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 193 | | | 193 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Harold Wolfe | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 193 | | | 193 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Herrick Partners | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 91 | | | 91 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Mary Anna MacLean | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 193 | | | 193 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Michael Monier | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 304 | | | 304 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Michale Witte | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 96 | | | 96 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Palmer Brown Madden | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 96 | | | 96 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Richard Schmaltz | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 203 | | | 203 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Robert Baylis | | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 193 | | | 193 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
Sherman Bull
| | | 10.00 | % | | 09/17 | | Interest only paid quarterly. | | | — | | | 193 | | | 193 | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Cliffs of El Dorado/UH of McKinney, LLC) | | | 12.00 | % | | 12/32 | | Excess cash flow | | | 12,663 | | | 2,469 | | | 2,097 | | | — | |
| 100% Interest in UH of Mckinney, LLC | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Echo Station) | | | 12.00 | % | | 12/32 | | Excess cash flow | | | 9,719 | | | 1,809 | | | 1,481 | | | — | |
| 100% Interest in UH of Temple, LLC | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost | | Cost
Capitalized
Subsequent to
Acquisition | | Gross Amount Carried at End of Year | | | | | | |
| Property/Location | | Encumbrances | | Land | | Buildings | | | Land | | Building &
Improvements | | Total | | Accumulated
Depreciation | | Date of
Construction | | Date
Acquired |
| Multifamily | | | | | | | | | | | | | | | | | | | | |
| Chelsea | | $ | 8,194 | | | $ | 1,225 | | | $ | 11,230 | | | $ | 6 | | | $ | 1,231 | | | $ | 11,230 | | | $ | 12,461 | | | $ | 596 | | | 1999 | | 2018 |
| Forest Grove | | 7,333 | | | 1,440 | | | 10,234 | | | 26 | | | 1,440 | | | 10,260 | | | 11,700 | | | 150 | | | 2020 | | 2020 |
| Landing Bayou | | 14,643 | | | 2,011 | | | 18,255 | | | 14 | | | 2,011 | | | 18,269 | | | 20,280 | | | 948 | | | 2005 | | 2018 |
| Legacy at Pleasant Grove | | 13,653 | | | 2,005 | | | 18,109 | | | 0 | | | 2,005 | | | 18,109 | | | 20,114 | | | 2,761 | | | 2006 | | 2014 |
| Overlook at Allenville Phase II | | 15,621 | | | 2,410 | | | 17,033 | | | 12 | | | 2,410 | | | 17,045 | | | 19,455 | | | 749 | | | 2012 | | 2015 |
| Parc at Denham Springs Phase II | | 16,128 | | | 1,505 | | | 16,975 | | | 0 | | | 1,505 | | | 16,975 | | | 18,480 | | | 449 | | | 2010 | | 2009 |
| Sugar Mill Phase III | | 9,298 | | | 576 | | | 9,755 | | | 7 | | | 576 | | | 9,762 | | | 10,338 | | | 138 | | | 2015 | | 2015 |
| Toulon | | 13,975 | | | 1,621 | | | 20,107 | | | 372 | | | 1,993 | | | 20,107 | | | 22,100 | | | 4,775 | | | 2011 | | 2009 |
| Villas at Bon Secour | | 10,280 | | | 2,715 | | | 15,385 | | | 0 | | | 2,715 | | | 15,385 | | | 18,100 | | | 929 | | | 2007 | | 2018 |
| Vista Ridge | | 9,979 | | | 1,339 | | | 13,398 | | | 0 | | | 1,339 | | | 13,398 | | | 14,737 | | | 2,241 | | | 2009 | | 2015 |
| | 119,104 | | | 16,847 | | | 150,481 | | | 437 | | | 17,225 | | | 150,540 | | | 167,765 | | | 13,736 | | | | | |
| Development | | | | | | | | | | | | | | | | | | | | |
| Forest Pines | | 0 | | | 3,600 | | | 0 | | | 301 | | | 3,600 | | | 301 | | | 3,901 | | | 0 | | | | | 2020 |
| Heritage McKinney | | 0 | | | 3,037 | | | 0 | | | 231 | | | 3,037 | | | 231 | | | 3,268 | | | 0 | | | | | 2017 |
| | 0 | | | 6,637 | | | 0 | | | 532 | | | 6,637 | | | 532 | | | 7,169 | | | 0 | | | | | |
| Commercial | | | | | | | | | | | | | | | | | | | | |
| 600 Las Colinas | | 35,589 | | | 5,751 | | | 55,460 | | | 9,609 | | | 5,751 | | | 65,069 | | | 70,820 | | | 27,702 | | | 1984 | | 2005 |
| 770 South Post Oak | | 11,871 | | | 1,763 | | | 16,312 | | | 615 | | | 1,763 | | | 16,927 | | | 18,690 | | | 2,465 | | | 1970 | | 2015 |
| Browning Place | | 85,537 | | | 5,096 | | | 49,441 | | | 14,428 | | | 5,096 | | | 63,869 | | | 68,965 | | | 24,624 | | | 1984 | | 2005 |
| Stanford Center | | 39,093 | | | 20,278 | | | 25,876 | | | 6,223 | | | 20,278 | | | 32,099 | | | 52,377 | | | 13,817 | | | 2007 | | 2008 |
| Other | | 0 | | | 646 | | | 74 | | | 0 | | | 646 | | | 74 | | | 720 | | | 74 | | | | | |
| | 172,090 | | | 33,534 | | | 147,163 | | | 30,875 | | | 33,534 | | | 178,038 | | | 211,572 | | | 68,682 | | | | | |
| Land | | | | | | | | | | | | | | | | | | | | |
| Mercer Crossing | | 0 | | | 5,406 | | | 0 | | | 0 | | | 5,406 | | | 0 | | | 5,406 | | | 0 | | | | | 2008 |
| Windmill Farms | | 10,397 | | | 43,973 | | | 0 | | | 4,329 | | | 48,302 | | | 0 | | | 48,302 | | | 0 | | | | | 2011 |
| Other | | 5,325 | | | 16,571 | | | 0 | | | 3,016 | | | 19,587 | | | 0 | | | 19,587 | | | 0 | | | | | |
| | 15,722 | | | 65,950 | | | 0 | | | 7,345 | | | 73,295 | | | 0 | | | 73,295 | | | 0 | | | | | |
| | $ | 306,916 | | | $ | 122,968 | | | $ | 297,644 | | | $ | 39,189 | | | $ | 130,691 | | | $ | 329,110 | | | $ | 459,801 | | | $ | 82,418 | | | | | |
SCHEDULE IV
(Continued)
AMERICAN REALTY INVESTORS, INC.
MORTGAGE LOANS
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31,
2016| Description | | Interest Rate | | | Final Maturity Date | | | Periodic Payment Terms | | Prior Liens | | | Face Amount of Mortgage | | | Carrying Amount of Mortgage | | | Principal or Loans Subject to Delinquent Principal or Interest | |
| | | | | | | | | | | (dollars in thousands) | | | | |
| Unified Housing Foundation, Inc. (Inwood on the Park/UH of Inwood, LLC) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 22,227 | | | | 5,462 | | | | 5,059 | | | | — | |
| 100% Interest in UH of Inwood, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Kensington Park/UH of Kensington, LLC) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 18,723 | | | | 4,310 | | | | 3,933 | | | | — | |
| 100% Interest in UH of Kensington, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) (31.5% of cash flow) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 15,756 | | | | 8,836 | | | | 6,368 | | | | — | |
| Interest in Unified Housing Foundation Inc. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 15,965 | | | | 2,959 | | | | 2,732 | | | | — | |
| 100% Interest in HFS of Humble, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Limestone Canyon) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 13,621 | | | | 9,216 | | | | 7,293 | | | | — | |
| 100% Interest in UH of Austin, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Limestone Ranch) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 18,641 | | | | 12,335 | | | | 7,953 | | | | — | |
| 100% Interest in UH of Vista Ridge, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Parkside Crossing) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 11,544 | | | | 2,772 | | | | 2,272 | | | | — | |
| 100% Interest in UH of Parkside Crossing, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Reserve at White Rock I) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 15,640 | | | | 2,794 | | | | 2,485 | | | | — | |
| 100% Interest in UH of Harvest Hill I, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Reserve at White Rock II) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 14,026 | | | | 2,843 | | | | 2,555 | | | | — | |
| 100% Interest in UH of Harvest Hill, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Sendero Ridge) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 22,984 | | | | 12,663 | | | | 9,303 | | | | — | |
| 100% Interest in UH of Sendero Ridge, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Timbers of Terrell) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 7,294 | | | | 1,702 | | | | 1,323 | | | | — | |
| 100% Interest in UH of Terrell, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Tivoli) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 10,398 | | | | 12,761 | | | | 7,966 | | | | — | |
| 100% Interest in UH of Tivoli, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unified Housing Foundation, Inc. (Trails at White Rock) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 21,712 | | | | 4,245 | | | | 3,815 | | | | — | |
| 100% Interest in UH of Harvest Hill III, LLC | | | | | | | | | | | | | | | | | | | | | | | | | |
| William H. Ingram | | | 10.00 | % | | 09/17 | | | Interest only paid quarterly. | | | — | | | | 96 | | | | 96 | | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | | | | | |
| William S. Urkiel | | | 10.00 | % | | 09/17 | | | Interest only paid quarterly. | | | — | | | | 97 | | | | 97 | | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | | | | — | |
| Willingham Revocable Trust | | | 10.00 | % | | 09/17 | | | Interest only paid quarterly. | | | — | | | | 96 | | | | 96 | | | | — | |
| Class A limited partnership interests in Edina Park Plaza Associates, L.P. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Various related party notes | | | various | | | various | | | Excess cash flow | | | — | | | | 1,349 | | | | 1,349 | | | | — | |
| Various non-related party notes | | | various | | | various | | | | | | — | | | | 496 | | | | 796 | | | | — | |
SCHEDULE IV
(Continued)
| | | | | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Reconciliation of Real Estate | | | | | | |
| Balance at January 1, | | $ | 477,963 | | | $ | 463,732 | | | $ | 1,165,662 | |
| Additions | | 21,223 | | | 92,964 | | | 175,996 | |
| Deductions | | (39,385) | | | (78,733) | | | (877,926) | |
| Balance at December 31, | | $ | 459,801 | | | $ | 477,963 | | | $ | 463,732 | |
| | | | | | |
| Reconciliation of Accumulated Depreciation | | | | | | |
| Balance at January 1, | | 90,173 | | | 79,228 | | | 177,546 | |
| Additions | | 12,188 | | | 13,379 | | | 22,761 | |
| Deductions | | (19,943) | | | (2,434) | | | (121,079) | |
| Balance at December 31, | | $ | 82,418 | | | $ | 90,173 | | | $ | 79,228 | |
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
SCHEDULE IV - MORTGAGE LOANS
December
31, 2016| Description | | Interest Rate | | | Final Maturity Date | | | Periodic Payment Terms | | Prior Liens | | | Face Amount of Mortgage | | | Carrying Amount of Mortgage | | | Principal or Loans Subject to Delinquent Principal or Interest | |
| | | | | | | | | | | (dollars in thousands) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Leman Development, Ltd. (1) | | | 0.00 | % | | N/A | | | | | | — | | | | 1,500 | | | | 1,500 | | | | — | |
| One Realco Corporation (1) | | | 3.00 | % | | 01/17 | | | Interest and principal due at maturity. | | | — | | | | 10,000 | | | | 7,000 | | | | — | |
| Oulan-Chikh Family Trust | | | 8.00 | % | | 03/21 | | | | | | — | | | | 174 | | | | 174 | | | | — | |
Realty Advisors Management, Inc.
| | | 2.28 | % | | 12/19 | | | Interest only paid quarterly. | | | — | | | | 20,387 | | | | 20,387 | | | | — | |
| Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) (68.5% of cash flow) | | | 12.00 | % | | 12/32 | | | Excess cash flow | | | 15,965 | | | | 2,189 | | | | 2,000 | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 12/18 | | | Excess cash flow | | | — | | | | 2,665 | | | | 2,657 | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 06/19 | | | Excess cash flow | | | — | | | | 5,400 | | | | 5,400 | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 12/17 | | | Excess cash flow | | | — | | | | 1,207 | | | | 1,207 | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 06/17 | | | Excess cash flow | | | — | | | | 1,261 | | | | — | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 12/18 | | | Excess cash flow | | | — | | | | 3,994 | | | | 3,994 | | | | — | |
| Unified Housing Foundation, Inc. | | | 12.00 | % | | 12/18 | | | Excess cash flow | | | — | | | | 6,407 | | | | 6,407 | | | | — | |
| Various related party notes | | | various | | | various | | | Excess cash flow | | | — | | | | 1,420 | | | | 1,404 | | | | — | |
| Various non-related party notes | | | various | | | various | | | | | | — | | | | 4,742 | | | | 4,742 | | | | — | |
| | | | | | | | | | | | | | | | | | | | $ | 134,230 | | | | | |
| | | | | | | | | | | | | | | | | Accrued interest | | | | 9,371 | | | | | |
| | | | | | | | | | | | | | | | | Allowance for estimated losses | | | | (17,037 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 126,564 | | | | | |
(1) Fully reserved
SCHEDULE IV
(Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Interest Rate | | Maturity Date | | Periodic Payment
Terms | | Prior Liens | | Face Amount | | Carrying Value |
| Convertible loans | | | | | | | | | | | | |
| Autumn Breeze | | 5.00% | | 7/1/2022 | | No payments until maturity or conversion | | $ | 0 | | | $ | 1,867 | | | $ | 1,867 | |
| Bellwether Ridge | | 5.00% | | 11/1/2021 | | No payments until maturity or conversion | | 0 | | | 3,858 | | | 3,858 | |
| Forest Pines | | 5.00% | | 11/1/2022 | | No payments until maturity or conversion | | 0 | | | 2,869 | | | 2,869 | |
| Parc at Ingleside | | 5.00% | | 12/1/2021 | | No payments until maturity or conversion | | 0 | | | 2,523 | | | 2,523 | |
| Parc at Windmill Farms | | 5.00% | | 11/1/2022 | | No payments until maturity or conversion | | 0 | | | 7,803 | | | 7,803 | |
| Plum Tree | | 5.00% | | 4/26/2026 | | No payments until maturity or conversion | | 0 | | | 857 | | | 857 | |
| Spyglass of Ennis | | 5.00% | | 11/1/2022 | | No payments until maturity or conversion | | 0 | | | 5,360 | | | 5,360 | |
| Steeple Crest | | 5.00% | | 8/1/2021 | | No payments until maturity or conversion | | 0 | | | 6,498 | | | 6,498 | |
| | | | | | | | 0 | | | 31,635 | | | 31,635 | |
| Land loans | | | | | | | | | | | | |
| ABC Land and Development, Inc. | | 9.50% | | 6/30/2021 | | No payments until maturity | | 0 | | | 4,408 | | | 4,408 | |
| ABC Paradise, LLC | | 9.50% | | 6/30/2021 | | No payments until maturity | | 0 | | | 1,210 | | | 1,210 | |
| Lake Wales | | 9.50% | | 6/30/2021 | | No payments until maturity | | 0 | | | 3,000 | | | 3,000 | |
| Legacy Pleasant Grove | | 12.00% | | 10/23/2022 | | No payments until maturity | | 0 | | | 496 | | | 496 | |
| McKinney Ranch | | 6.00% | | 9/15/2022 | | No payments until maturity | | 0 | | | 4,554 | | | 4,554 | |
| One Realco Land Holding, Inc. | | 9.50% | | 6/30/2021 | | No payments until maturity | | 0 | | | 1,728 | | | 1,728 | |
| Riverview on the Park Land, LLC | | 9.50% | | 6/30/2021 | | No payments until maturity | | 0 | | | 1,045 | | | 1,045 | |
| RNC Portfolio, Inc. | | 5.00% | | 9/1/2024 | | No payments until maturity | | 0 | | | 8,853 | | | 8,853 | |
| Spartan Land | | 12.00% | | 1/16/2023 | | No payments until maturity | | 0 | | | 5,907 | | | 5,907 | |
| | | | | | | | 0 | | | 31,201 | | | 31,201 | |
| Subsidized housing | | | | | | | | | | | | |
| Phillips Foundation for Better Living, Inc. | | 12.00% | | 3/31/2023 | | Payments from excess property cash flows | | 0 | | | 61 | | | 61 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 7/31/2021 | | Payments from excess property cash flows | | 0 | | | 2,880 | | | 2,880 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 8/30/2021 | | Payments from excess property cash flows | | 0 | | | 212 | | | 212 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 10/31/2021 | | Payments from excess property cash flows | | 0 | | | 6,831 | | | 6,831 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 12/31/2021 | | Payments from excess property cash flows | | 0 | | | 10,896 | | | 10,896 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 3/31/2022 | | Payments from excess property cash flows | | 0 | | | 10,096 | | | 10,096 | |
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Interest Rate | | Maturity Date | | Periodic Payment
Terms | | Prior Liens | | Face Amount | | Carrying Value |
| Unified Housing Foundation, Inc. | | 12.00% | | 3/31/2023 | | Payments from excess property cash flows | | 0 | | | 6,990 | | | 6,990 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 5/31/2023 | | Payments from excess property cash flows | | 0 | | | 3,615 | | | 3,615 | |
| Unified Housing Foundation, Inc. | | 12.00% | | 12/31/2032 | | Payments from excess property cash flows | | 0 | | | 26,209 | | | 26,209 | |
| | | | | | | | 0 | | | 67,790 | | | 67,790 | |
| | | | | | | | $ | 0 | | | $ | 130,626 | | | $ | 130,626 | |
AMERICAN REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
SCHEDULE IV - MORTGAGE LOANS
As of December 31,
| | | 2016 | | | 2015 | | | 2014 | |
| | | (dollars in thousands) | |
| | | | | | | | | | |
| Balance at January 1, | | $ | 137,280 | | | $ | 152,645 | | | $ | 156,415 | |
| Additions | | | | | | | | | | | | |
| New mortgage loans | | | 11,703 | | | | 18,055 | | | | 32,380 | |
| Increase (decrease) of interest receivable on mortgage loans | | | 13,835 | | | | 11,130 | | | | (10,097 | ) |
| Deductions | | | | | | | | | | | | |
| Amounts received | | | (19,217 | ) | | | (16,486 | ) | | | (25,492 | ) |
| Non-cash reductions | | | — | | | | (28,064 | ) | | | (561 | ) |
| | | | | | | | | | | | | |
| Balance at December 31, | | $ | 143,601 | | | $ | 137,280 | | | $ | 152,645 | |
| | | | | | | | | | | | | | | | | |
| | 2020 | | 2019 | | 2018 |
| Balance at January 1, | $ | 143,087 | | | $ | 114,893 | | | $ | 102,143 | |
| Additions | 15,312 | | | 60,154 | | | 21,291 | |
| Deductions | (27,773) | | | (31,960) | | | (8,541) | |
| Balance at December 31, | $ | 130,626 | | | $ | 143,087 | | | $ | 114,893 | |
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive
Officer and
Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive
Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive
Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of internal control over financial reporting. These limitations include the possibility of human error, the circumvention of overriding of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.
Management assessed the effectiveness of
the Company’sour internal control over financial reporting as of December 31,
2016.2020. In making this assessment, management used the criteria set forth in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO)(2013). Based on management’s assessments and those criteria, management has concluded that Company’s internal control over financial reporting was effective as of December 31,
2016.2020.
This annual report does not include an attestation report of
the Company’sour registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by
the Company’sour registered public accounting firm pursuant to temporary rules of the
Securities and Exchange CommissionSEC that permit
the Companyus to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
In preparation for management’s report on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal control over financial reporting. There were no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31,
20162020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | OTHER INFORMATION |
Item 9B. OTHER INFORMATION
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The affairs of
ARLthe Company are managed by
aour Board of Directors. The Directors are elected at the annual meeting of stockholders or
are appointed by the incumbent Board and serve until the next annual meeting of stockholders or until a successor has been elected or
appointed.Itapproved.
An objective is
the Board’s objective thatfor a majority of
theour Board
consists ofto be independent directors. For a
Directordirector to be considered independent, the Board must determine that the
Directordirector does not have any direct or indirect material relationship with
ARL.the Company. The Board has established guidelines to assist it in determining director independence which conform to, or are more exacting than, the independence requirements in the New York Stock Exchange
("NYSE") listing rules. The independence guidelines are set forth in
ARL’sour “Corporate Governance Guidelines”. The text of this document has been posted on
ARL’s Internetour internet website at
http://www.amrealtytrust.comwww.americanrealty-invest.com ("Investor Relations Website") and is available in print to any shareholder who requests it. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination.
ARL hasWe have adopted a code of conduct that applies to all Directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Stockholders may find our code of conduct on our website by going to our website address at http://www.amrealtytrust.com.Investor Relations Website. We will post any amendments to the code of conduct, as well as any waivers that are required to be disclosed by the rules of the SECSecurity Exchange Commission (the "SEC") or the New York Stock Exchange,NYSE on our website.
Our Board of Directors has adopted charters for our Audit, Compensation and Governance and Nominating Committees of the Board of Directors. Stockholders may find these documents on our website by going to
the website address at http://www.amrealtytrust.com.our Investor Relations Website. You may also obtain a printed copy of the materials referred to by contacting us at the following address:
American Realty Investors, Inc.
1603 LBJ Freeway, Suite 800
All members of the Audit Committee and
theNominating and Corporate Governance
and Nominating CommitteeCommittees must be independent directors. Members of the Audit Committee must also satisfy additional independence requirements, which provide (i) that they may not accept, directly or indirectly, any consulting, advisory, or compensatory fee from
ARLthe Company or any of its subsidiaries other than their
Director’sdirector’s compensation (other than in their capacity as a member of the Audit Committee, the Board of Directors, or any other committee of the Board), and (ii) no member of the Audit Committee may be an “affiliated person” of
ARLthe Company or any of its subsidiaries, as defined by the
Securities and Exchange Commission.TheSEC.
Our current
Directors of ARLdirectors are listed below, together with their ages, terms of service, all positions and offices with
ARLus and
itsour current advisor, Pillar, their principal occupations, business experience and directorships with other companies during the last five years or more. The designation “affiliated”, when used below with respect to a
Director,director, means that the
Directordirector is an officer, director or employee of Pillar, an officer of the Company, or an officer or director of a related party of the Company. The designation
“independent,”“independent”, when used below with respect to a Director, means that the Director is neither an officer of the Company nor a director, officer or employee of Pillar (but may be a director of the
Company),Company, although the Company may have certain business or professional relationships with such Director as discussed in
Part III, Item 13.
“CertainCertain Relationships and Related Transactions, and Director
Independence”.Independence.
HENRY A. BUTLER, age
66,70, Director, Affiliated, since
February 2011November 2005 and Chairman of the Board since May
20112009
Retired (since April 30, 2019); Mr. Butler has served as Vice President Land Sales for Pillar Income Asset Management, LLC sincefrom April 2011 and its predecessor, Prime Income Asset Management, LLC from July 2003 to April 2011.30, 2019. Mr. Butler has been a Director of the Company since February 2011November 2005 and Chairman of the Board since May 2011.2009. He has also served as Chairman of the Board since May 2009 and as a Director since July 2003 of ARLTCI and Chairman of the Board since May 20092011 and a Director since February 2011 of IOR.
WILLIAM J. HOGAN, age 63, Director, Independent, since February 2020
Registered Representative and Investment Advisor Representative, employed (since January 2013) by Cetera Advisor Networks LLC, a general securities and investment advisory firm, with an office in San Antonio, Texas. From November 2009 through December
20012012, Mr. Hogan was a registered representative, employed by Financial Network Investment Corp. in San Antonio, Texas. He holds Series 7 (General Securities Representative), Series 63 (Uniform Securities Agent State Law) and Series 65 (Investment Advisor) licenses issued by Financial Industry Regulatory Authority (“FINRA”). Mr. Hogan was elected as a director of
TCI.the Company and TCI on January 28, 2020 effective February 1, 2020.
ROBERT A. JAKUSZEWSKI, age
54,58, Director, Independent, since
March 2004.November 2005
Mr. Jakuszewski is currently has served as a Territory Manager for Artesa Labs since April 2015. He was a Medical Specialist from January 2014 to April 2015 for VAYA Pharma, Inc., Senior Medical Liaison from January 2013 to July 2013 for Vein Clinics of America, and the Vice President of Sales and Marketing from September 1998 to December 2012 for New Horizons Communications, Inc. Mr. Jakuszewski has been a Director of the Company since
March 2004.November 2005. He has also been a Director of
ARLTCI since November 2005 and a Director of
TCIIOR since
November 2005.March 2004.
TED R. MUNSELLE, age
61,64, Director, Independent, since
May 2009February 2004
Mr. Munselle has been Vice President and Chief Financial Officer of Landmark Nurseries, Inc. since October 1998. On February 17, 2012, he was appointed as a member of the Board of Directors for Spindletop Oil & Gas Company and as Chairman of their Audit Committee. Spindletop’s stock is traded on the Over-the-Counter (OTC) market. Mr. Munselle has been a Director of the Company since
May 2009.February 2004. He has also served as Director of
ARLTCI since February 2004 and Director of
TCIIOR since
February 2004.March 2009. Mr. Munselle is qualified as an Audit Committee financial expert within the meaning of SEC regulations and the Board of Directors
of IOT has determined that he has accounting and related financial management expertise within the meaning of the listing standards of the
NYSE MKT.NYSE. Mr. Munselle is a Certified Public Accountant.
BRADFORD A. PHILLIPS, age 55, Director, since March 2021
Mr. Phillips has been the Chief Executive Officer and Chairman of LBL Group of Insurance Companies since 1999. He has served as President of Midland Securities, LLC, a Dallas, TX based broker/dealer since 2002. Prior to joining LBL Group, he served as President of InterFirst Capital Corporation of Los Angeles, California. Mr. Phillips holds a number of securities licenses, including the Series 4 (Options Principal), Series 7 (General Securities License), Series 24 (General Securities Principal), Series 27 (Financial and Operations Principal), Series 53 (Municipal Securities Principal), Series 55 (Equity Trading Principal), and Series 63 (Blue Sky Securities License). He has also been a Director of TCI since March 2021.
RAYMOND
R.D. ROBERTS,
SR.SR.., age
84,89, Director, Independent, since June 2016
Mr. Roberts is currently retired. Mr. Roberts has served as Director of the Company since June 2, 2016. He has also served as Director of
ARLTCI and
TCIIOR since June 2, 2016. For more than five years prior to December 31, 2014, he was Director of Aviation of Steller Aviation, Inc., a privately held corporation engaged in the business of aircraft (Boeing 737) and logistical management.
Board Meetings and Committees
The Board of Directors held
sevenfive meetings during
2016.2020. For such year, no incumbent
Directordirector attended fewer than
85%75% of the aggregate of (1) the total number of meetings held by the Board during the period for which
he/he or she had been a
Directordirector and (2) the total number of meetings held by all committees of the Board on which
he/he or she served during the
periodsperiod that
he/shehe served. Under
ARL’sour Corporate Governance Guidelines, each Director is expected to dedicate sufficient time, energy and attention to ensure the diligent performance of his or her duties, including by attending meetings of the stockholders of the Company, the Board and Committees of which he is a member. The Board of Directors has standing Audit, Compensation and Governance and Nominating Committees.
The members of the Board of Directors on the date of this Report and the Committees of the Board on which they serve are identified below:
| | | | | | | | | | | | | | | | | |
Director | Audit Committee | | Governance and Nominating
Committee | | Compensation Committee |
| Henry A. Butler | | | | | |
| William J. Hogan | X | | X | | X |
| Robert A. Jakuszewski | X | | Chair | | X |
| Ted R. Munselle | Chair | | X | | X |
| Bradford A. Phillips | | | | | |
| Raymond D. Roberts, Sr. | X | | X | | Chair |
Audit Committee. The
current Audit Committee
was formed on February 19, 2004,is responsible for review and
its function is to review ARL’soversight of our operating and accounting procedures.
The charter of theOur Audit Committee
has also been adopted by the Board. The charter
of the Audit Committee was adopted on February 19, 2004 and is available on
the company’s investor relationsour Investor Relations website
(www.amrealtytrust.com)(www.transconrealty-invest.com). The Audit Committee is an “audit committee” for purposes of Section 3(a)(58) of the
Securities Exchange
ActAct. All of
1934. Thethe current members of the Audit Committee
all of whom are independent within the meaning of the SEC Regulations, the listing standards of the
New York Stock Exchange, Inc.,NYSE and
ARL’sour Corporate Governance
Guidelines, are Messrs. Jakuszewski, Munselle (Chairman) and Roberts.Guidelines. Mr. Ted R. Munselle, a
memberthe chairman of
theour Audit Committee, is qualified as an Audit Committee financial expert within the meaning of SEC Regulations, and the Board has determined that he has accounting and related financial management expertise within the meaning of the listing standards of the
New York Stock Exchange, Inc.NYSE. All of the members of the Audit Committee meet the experience requirements of the listing standards of the
listing standards of the New York Stock Exchange.NYSE. The Audit Committee met five times during
2016.2020.
Governance and Nominating Committee. The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of
ARL’sour Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance self-evaluation. The Charter of the Governance and Nominating Committee was adopted on March
22, 2004. The current members of the Committee are Messrs. Jakuszewski (Chairman), Roberts17, 2004 and
Munselle.is available on our Investor Relations Website. The Governance and Nominating Committee met two
times during
2016.2020.
Compensation Committee. The Compensation Committee is responsible for overseeing the policies of the Company relating to compensation to be paid by the Company to
the Company’sour principal executive officer and any other officers designated by the Board and make recommendations to the Board with respect to such policies, produce necessary reports and executive compensation for inclusion in
the Company’sour Proxy Statement in accordance with applicable rules and regulations and to monitor the development and implementation of succession plans for the principal executive officers and other key executives and make recommendations to the Board with respect to such plans. The charter of
theour Compensation Committee
was adopted on March 22, 2004, and is available on
the Company’sour Investor Relations
website (www.amrealtytrust.com). The current members of the Compensation Committee are Messrs. Roberts (Chairman), Jakuszewski and Munselle.Website. All of the members of the Compensation Committee are independent within the meaning of the listing standards of the NYSE and
the Company’sour Corporate Governance Guidelines. The Compensation Committee is to be comprised of at least two directors who are independent of Management and the Company. The Compensation Committee met two
times during
2016.The members of the Board of Directors on the date of this Report and the Committees of the Board on which they serve are identified below:
| | Audit Committee | | Governance and Nominating Committee | | Compensation Committee |
Robert A. Jakuszewski | | X | | Chair | | X |
Ted R. Munselle | | Chair | | X | | X |
Raymond R. Roberts. Sr | | X | | X | | Chair |
Henry A. Butler | | | | | | |
2020.
Presiding Director
In March 2004, the Board created a new position
The primary responsibility of
our presiding director
whose primary responsibility is to preside over periodic executive sessions of the Board in which Management directors and other members of Management do not participate. The presiding director also advises the Chairman of the Board and, as appropriate, Committee Chairs with respect to agendas and information needs relating to Board and Committee meetings, provides advice with respect to the selection of Committee Chairs and performs other duties that the Board may from time to time delegate to assist the Board in fulfillment of its responsibilities.
The day following the annual meeting of stockholders held December 7, 201616, 2020 representing all stockholders of record dated November 2, 2016,2020, the full Board met and re-appointed Ted R. Munselle as Presiding Director, to serve in such position until the Company’s next annual meeting of stockholders to be held subsequently in 2017.
2021.
Determination of Director’s Independence
In February 2004, the Board adopted its
Our Corporate Governance
Guidelines. The Guidelines
adopted by the Board("Guideines") meet or exceed the new listing standards adopted during that year by the
New York Stock Exchange.NYSE. The full text of
the Guidelinesour Guideines can be found on
the Company’sour Investor Relations
website (www.amrealtytrust.com).Website.
Pursuant to the Guidelines,Guideines, the Board undertook its annual review of director independence in March 8, 2016,February 2020 and during this review, the Board considered transactions and relationships between each director or any member of his or her immediate family and ARLthe Company and its subsidiariessubsidiaries and related parties, including those reported under Certain Relationships and Related Transactions below. The Board also examined transactions and relationshipsrelationship between directors or their related parties and members of ARL’sour senior management or their related parties. As provided in the Guidelines,Guideines, the purpose of such review was to determine whether such relationships or transactions were inconsistent with the determination that the director is independent. Prior to this election as director, on January 28, 2020, the Board undertook a similar review with respect to Mr. Hogan.
As a result of
this review,these reviews, the Board affirmatively determined of the then directors, Messrs. Munselle,
Hogan, Jakuszewski and Roberts are each independent of the Company and its Management under the standards set forth in the Corporate Governance Guidelines.
Executive officers of the Company are listed below, all
except one of whom are employed by Pillar.
Mr. Bertcher is employed by New Concept Energy, Inc (“NCE”). None of the executive officers receive any direct remuneration from the Company nor do any hold any options granted by the Company. Their positions with the Company are not subject to a vote of stockholders. In addition to the following executive officers, the Company has several vice presidents and assistant secretaries who are not listed herein. The ages, terms of service and all positions and offices with the Company, Pillar, other related entities, other principal occupations, business experience and directorships with other
publicly heldpublicly-held companies during the last five years or more are set forth below. No family relationships exist among any of the executive officers or directors of the Company.
DANIEL J. MOOS, 66
ERIK L. JOHNSON, 53
Mr.
MoosJohnson has served as
the Executive Vice President
since April 2007 and Chief
ExecutiveFinancial Officer
of the Company and ARL since
March 2010 of IOT, ARL and TCI. Mr. Moos has also served as Prime’s President since April 2007, Secretary since June 2011 and Treasurer since October 2013.August 17, 2020. He has also
been Chief Financial Officer of Pillar since June 29, 2020. Prior to joining the Company, he served as
a Director since December 2016,Vice President
since December 2010, Chief Executive Officer since March 2011of Financial Reporting at Macerich (NYSE: MAC) and
Treasurer since October 2013 of Pillar.GENE S. BERTCHER, 68
Mr. Bertcher has served as Executive Vice President since February 2008,the Chief FinancialAccounting Officer since May 2008of North American Scientific, Inc. He began his career as an auditor with PricewaterhouseCooppers and Treasurer since October 2013 of IOT, ARL and TCI. Mr. Bertcher has also served in the following capacities for New Concept Energy, Inc. (“NCE”), a Nevada corporation which has its common stock listed on the NYSE: Director since June 1999, Chairman of the Board since December 2006, Chief Executive Officer since December 2006, President since November 2004, Chief Financial Officer since November 1989, Treasurer since November 1989 and Secretary since October 2012. Mr. Bertcher has been employed by NCE since November 1989. He is a Certified Public Accountant.
CPA.
Mr. Corna has served as Executive Vice President, General Counsel/Tax Counsel and Secretary of the Company, ARL and IOR since February 2004 of IOT, ARL and TCI.2004. He has also been Executive Vice President-TaxPresident since AprilMarch 2011 and Secretary since December 2010 of Pillar. Mr. Corna was also a Director and Vice President from June 2004 to December 2010 and Secretary from January 2005 to December 2010 of First Equity Properties, Inc., a Nevada corporation with securities registered under Section 12(g)
ALLA DZYUBA, 44
Mrs. Dzyuba has served as the Vice President and Chief Accounting Officer of the
Exchange Act.Company, ARL, and Southern Properties Capital, Ltd, our wholly owned subsidiary (“SPC”), since July 2019 as well as Director for SPC since April 2018. Mrs. Dzyuba has been employed by Pillar since June 2004, she has over fifteen years of real estate accounting and financial reporting experience, including six years of broker-dealer regulatory reporting experience.
In addition to the foregoing executive officers, we have several vice presidents and assistant secretaries that are not listed herein. Since the August 14, 2020 resignation of Daniel J. Moos, age 70, the offices of President and Chief Executive Officer has been vacant. Mr. Moos was President (from April 2007 and August 14, 2020) and Chief Executive Officer (from March 2010 until August 14, 2020). At the time of his resignation, Mr. Moos advised that his resignation was not the result of any disagreement with the Company, its management, the Board of Directors, or any committee of the Board with respect to procedure, policies or operations.
We have adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to all directors, officers, and employees (including those of
the contractual Advisor to ARL)our Advisor). In addition,
ARL haswe have adopted a code of ethics entitled “Code of Ethics for Senior Financial Officers” that applies to the principal executive officer, president, principal financial officer, chief financial officer,
principalchief accounting officer, and controller. The text of these documents has been posted on
ARL’s internet website at http://www.amrealtytrust.comour Investor Relations Website and are available in print to any stockholder who requests them.
Compliance with Section 16(a) of the
Securities Exchange Act
of 1934Under the securities laws of the United States,
ARL’s Directors,the directors, executive officers, and any persons holding more than 10% of
ARL’sour shares of
commonCommon stock are required to report their
share ownership and any changes in that ownership to the
Securities and Exchange Commission (the “Commission”).SEC. Specific due dates for these reports have been established and
ARL iswe are required to report any failure to file by these dates. All of these filing requirements were satisfied by
ARL’sour directors,
and executive officers, and 10% holders during the fiscal year
endedending December 31,
2014.2020. In making these statements,
ARL haswe have relied on the written representations of
itsour incumbent
Directorsdirectors and executive officers,
and its 10% holders and copies of the reports that they have filed with the
Commission.SEC.
Pillar has been
ARL’sour Advisor and Cash Manager since April 30, 2011. Although the Board of Directors is directly responsible for managing the affairs of
ARL,the Company, and for setting the policies which guide it,
theour day-to-day operations
of ARL are performed by Pillar, as the contractual advisor, under the supervision of the Board. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with
ARL’sour business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to TCI and
IOT.IOR. As the contractual advisor, Pillar is compensated
by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”.
ARL hasWe have no employees and as such, employees of Pillar render services to
ARLus in accordance with the terms of the Advisory Agreement.
Pillar is a Nevada corporation, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is RAI, a Nevada corporation,
the sole shareholder of which is MRHI, a Nevada corporation, the sole shareholder of which is a trust known as the
May Trust. MRHI. The May Trust is a Trust, the beneficiaries of whichthe MRHI are the children of the late Gene E. Phillips. Mr. Phillips is not an officer, manager or Director of Pillar, Realty Advisors, LLC, RAI, MRHI or ARL, nor is he a Trustee of the May Trust.
Under the Advisory Agreement, Pillar is required to annually formulate and submit, for Board approval, a budget and business plan containing a twelve-month forecast of operations and cash flow, a general plan for asset sales and purchases, lending, foreclosure and borrowing activity, and other investments. Pillar is required to report quarterly to the Board on
ARL’sTCI’s performance against the business plan. In addition, all transactions require prior Board approval, unless they are explicitly provided for in the approved business plan or are made pursuant to authority expressly delegated to Pillar by the Board.
The Advisory Agreement also requires prior Board approval for the retention of all consultants and third party professionals, other than legal counsel. The Advisory Agreement provides that Pillar shall be deemed to be in a fiduciary relationship to
the ARLour stockholders; contains a broad standard governing Pillar’s liability for losses incurred by
ARL;us; and contains guidelines for Pillar’s allocation of investment opportunities as among itself,
ARLthe Company and other entities it advises. Pillar is a company of which Messrs.
Moos, BertcherJohnson and Corna serve as executive
officers.officers, and for which Mr. Moos previously served as an executive officer.
The Advisory Agreement
with Pillar provides for Pillar to be responsible for
theour day-to-day operations
of ARL and
for Pillar to receive, as compensation for basic management and advisory services, a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value (total assets less allowance for amortization, depreciation or depletion and valuation reserves).
In addition to base compensation, Pillar receives the following forms of additional compensation:
| (1) | an annual net income fee equal to 7.5% of ARL’s net income as an incentive for successful investment and management of the Company’s assets; |
| (2) | an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by ARL during such fiscal year exceeds the sum of: |
| (a) | the cost of each such property as originally recorded in ARL’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); |
| (b) | capital improvements made to such assets during the period owned; and |
| (c) | all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; |
(1)an annual net income fee equal to 7.5% of our net income as an incentive for successful investment and management of our assets; | (3) | an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: |
| (a) | up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or |
| (b) | the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; |
| (4) | a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. The phrase “hard costs” means all actual costs of construction paid to contractors, subcontractors and third parties for materials or labor performed as part of the construction but does not include items generally regarded as “soft costs,” which are consulting fees, attorneys’ fees, architectural fees, permit fees and fees of other professionals; and |
| (5) | reimbursement of certain expenses incurred by the advisor in the performance of advisory services. |
(2)an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by us during such fiscal year exceeds the sum of:
(a)the cost of each such property as originally recorded in our books for tax purposes (without deduction for depreciation, amortization or reserve for losses);
(b)capital improvements made to such assets during the period owned; and
(c)all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year;
(3)an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of:
(a)up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or
(b)the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition;
(4)a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. The phrase “hard costs” means all actual costs of construction paid to contractors, subcontractors and third parties for materials or labor performed as part of the construction but does not include items generally regarded as “soft costs,” which are consulting fees, attorneys’ fees, architectural fees, permit fees and fees of other professionals; and
(5)reimbursement of certain expenses incurred by the advisor in the performance of advisory services.
The Advisory Agreement also provides that Pillar receive the following forms of compensation:
| (1) | a mortgage or loan acquisition fee with respect to the acquisition or purchase from an unaffiliated party of any existing mortgage loan by ARL equal to the lesser of: |
| (a) | 1.0% of the amount of the mortgage or loan purchased; or |
| (b) | a brokerage or commitment fee which is reasonable and fair under the circumstances. Such fee will not be paid in connection with the origination or funding of any mortgage loan by ARL; and |
| (2) | a mortgage brokerage and equity refinancing fee for obtaining loans or refinancing on properties equal to the lesser of: |
| (a) | 1.0% of the amount of the loan or the amount refinanced; or |
| (b) | a brokerage or refinancing fee which is reasonable and fair under the circumstances; provided, however, that no such fee shall be paid on loans from Pillar without the approval of ARL’s Board of Directors. No fee shall be paid on loan extensions. |
(1)a mortgage or loan acquisition fee with respect to the acquisition or purchase from an unaffiliated party of any existing mortgage loan by us equal to the lesser of:
(a)1.0% of the amount of the mortgage or loan purchased; or
(b)a brokerage or commitment fee which is reasonable and fair under the circumstances. Such fee will not be paid in connection with the origination or funding of any mortgage loan by us; and
(2)a mortgage brokerage and equity refinancing fee for obtaining loans or refinancing on properties equal to the lesser of:
(a)1.0% of the amount of the loan or the amount refinanced; or
(b)a brokerage or refinancing fee which is reasonable and fair under the circumstances; provided, however, that no such fee shall be paid on loans from Pillar, or a related party of Pillar, without the approval of our Board of Directors. No fee shall be paid on loan extensions.
Under the
ARL Advisory Agreement, all or a portion of the annual advisory fee must be refunded by the Advisor if
theour operating expenses
of ARL (as defined in the Advisory Agreement) exceed certain limits specified in the Advisory Agreement based on
theour book value, net asset value and net income
of ARL during the fiscal year.
The
ARL Advisory Agreement requires Pillar to pay
to ARLus, one-half of any compensation received from third parties with respect to the origination, placement or brokerage of any loan made by
ARL;us; provided, however, that the compensation retained by
Pillar, or any affiliate of Pillar, shall not exceed the lesser of (1) 2.0% of the amount of the loan commitment or (2) a loan brokerage and commitment fee which is reasonable and fair under the circumstances.
The
ARL Advisory Agreement further provides that Pillar shall bear the cost of certain expenses of its employees, excluding fees paid to
ARL’sour Directors; rent and other office expenses of both Pillar and
ARLus (unless
ARLwe maintains office space separate from that of Pillar); costs not directly identifiable to
ARL’sour assets, liabilities, operations, business or financial affairs; and miscellaneous administrative expenses relating to the performance by Pillar of its duties under the Advisory Agreement.
If and to the extent that
ARL shallwe request Pillar, or any director, officer, partner, or employee of Pillar, to render services for
ARLus other than those required to be rendered by the Advisory Agreement, Pillar separately would be compensated for such additional services on terms to be agreed upon between such party and
ARLus from time to time. As discussed below, under “Property Management and Real Estate Brokerage,”
effective January 1, 2011, Regis Realty Prime, LLC,
dba Regis Property Management, LLC (“Regis”)
, the sole member of which is Realty Advisors, LLC, manages our commercial properties and provides brokerage
services under similar terms as the previous agreements with Triad and Regis Realty I.ARL entered intoservices.
We have a Cash Management Agreement with Pillar
on April 30, 2011, to further define the administrationthat provides that all of
the Company’s day-to-day investment operations, relationship contacts, flow ofour funds
and deposit and borrowing of funds. Under the Cash Management Agreement, all funds of the Company are delivered to Pillar which has a deposit liability to
the Companyus and is responsible for payment of all payables and investment of all excess funds which earn interest at the Wall Street Journal prime rate plus 1.0% per annum, as set quarterly on the first day of each calendar quarter. Borrowings for
theour benefit
of the Company bear the same interest rate. The term of the Cash Management Agreement is coterminous with the Advisory Agreement, and is automatically renewed each year unless terminated with the Advisory Agreement.
ARL’s management believesWe believe that the terms of the Advisory Agreement are at least as fair as could be obtained from unaffiliated third parties.
Situations may develop in which theour interests of ARL are in conflict with those of one or more directors or officers in their individual capacities, or of Pillar, or of their respective related parties. In addition to services performed for ARL,us, as described above, Pillar actively provides similar services as agent for, and advisor to, other real estate enterprises, including persons and entities involved in real estate development and financing, including TCIARL and IOT.IOR. The Advisory Agreement provides that Pillar may also serve as advisor to other entities.
As
Advisor,advisor, Pillar is a fiduciary of
ARL’sour public investors. In determining to which entity a particular investment opportunity will be allocated, Pillar will consider the respective investment objectives of each entity and the appropriateness of a particular investment in light of each such entity’s existing mortgage note and real estate portfolios and business plan. To the extent any particular investment opportunity is appropriate to more than one such entity, such investment opportunity will be allocated to the entity that has had funds available for investment for the longest period of time, or, if appropriate, the investment may be shared among various entities.
SeeRefer to Part III, Item 13 “Certain Relationships and Related Transactions, and Director
Independence.”The terms of TCI’s Advisory and Cash Management Agreements with Pillar are substantially the same as those of ARL’s Advisory and Cash Management Agreements.
Independence”.
Pillar may assign the Advisory Agreement only with
theour prior
consent of ARL.consent.
The principal executive officers and directors of Pillar are set forth below:
Name | | Directors/Officer(s) | | | | | | |
Daniel J. MoosName | | President, Chief Executive Officer, Treasurer, DirectorOfficers |
Gene S. BertcherErik L. Johnson | | Chief Financial Officer |
| Gina H. Kay | | Executive Vice President and Chief Accounting Officer |
| Louis J. Corna | | Executive Vice President and Secretary Tax Counsel, General Legal Counsel |
Regis
Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), the sole member of which is Realty Advisors, LLC, manages our commercial properties for a fee of 3.0% or less of the monthly gross rents collected on the commercial properties it manages, and leasing commissions of 6.0% or less in accordance with the terms of its property-level management agreement.
ARL engages
We engage third-party companies to lease and manage our apartment properties for a fee of 6.0% or less of the monthly gross rents collected on the residential properties under their management.
Regis provides real estate brokerage services to
ARLus on a non-exclusive basis, and
receives brokerage commissions of 3% or less of transaction amounts.Regis also providesis entitled to receive a real estate brokerage services to TCI under terms which differ from ARL. TCI’s brokerage agreement is computed on acommission for property purchases and sales in accordance with the following sliding scale as listed below:
| (1) | maximum fee of 4.5% on the first $2.0 million of any purchase or sale transaction of which no more than 3.5% is to be paid to Regis; |
| (2) | maximum fee of 3.5% on transaction amounts between $2.0 million-$5.0 million of which no more than 3.0% is to be paid to Regis; |
| (3) | maximum fee of 2.5% on transaction amounts between $5.0 million-$10.0 million of which no more than 2.0% is to be paid to Regis; and |
| (4) | a maximum fee of 2.0% on transaction amounts in excess of $10.0 million of which no more than 1.5% is to be paid to Regis. |
| ITEM 11. | EXECUTIVE COMPENSATION |
ARL hasof total fees to be paid:
(1)maximum fee of 4.5% on the first $2.0 million of any purchase or sale transaction of which no more than 3.5% is to be paid to Regis;
(2)maximum fee of 3.5% on transaction amounts between $2.0 million-$5.0 million of which no more than 3.0% is to be paid to Regis;
(3)maximum fee of 2.5% on transaction amounts between $5.0 million-$10.0 million of which no more than 2.0% is to be paid to Regis; and
(4)maximum fee of 2.0% on transaction amounts in excess of $10.0 million of which no more than 1.5% is to be paid to Regis.
ITEM 11. EXECUTIVE COMPENSATION
We have no employees, payroll or benefit plans and
payspay no compensation to
itsour executive officers.
The Directors andOur executive officers
of ARL, who are also officers
orand employees of Pillar,
ARL’s advisor,our Advisor, and are compensated by Pillar. Such
affiliated Directors and executive officers perform a variety of services for Pillar and the amount of their compensation is determined solely by Pillar. Pillar does not allocate the cash compensation of its officers among the various entities for which it serves as advisor.
See Part III,Refer to Item 10. “Directors, Executive Officers and Corporate Governance” for a more detailed discussion of
the compensation payable to Pillar by
ARL.us.
The only remuneration paid by
ARLus is to
thoseour directors who are not officers or employees of Pillar or its related companies. The Independent Directors (1) review
theour business plan
of ARL to determine that it is in the best interest of
ARL’sour stockholders, (2) review the advisory contract, (3) supervise the performance of the advisor and review the reasonableness of the compensation paid to the advisor in terms of the nature and quality of services performed, (4) review the reasonableness of
theour total fees and expenses
of ARL and (5) select, when necessary, a qualified independent real estate appraiser to appraise properties
acquiredEffective February 2011 eachEach non-affiliated Director is entitled to receive an annual retainer of $20,000,$12,000, with the Chairman of the Audit Committee to receive a one-time annual fee of $500. Directors who are also employees of the Company or its advisor receive no additional compensation for service as a Director.
During
2016, $67,0942020, $90,200 was paid to non-employee Directors in total Directors’ fees. The fees paid to the directors are as follows:
Henry A. Butler $9,700; William J. Hogan, $20,000; Robert A. Jakuszewski, $20,000; Ted R. Munselle,
$20,500;$20,500 and Raymond D. Roberts, Sr.
$9,927; and Sharon Hunt, a director who resigned in May 2016, $16,667.In January 1999, stockholders approved the Director’s Stock Option Plan (the “Director’s Plan”) which provides for options to purchase up to 40,000 shares of common stock. Options granted pursuant to the Director’s Plan are immediately exercisable and expire on the earlier of the first anniversary of the date on which a Director ceases to be a Director or ten years from the date of grant. On January 1, 2003, 2004, 2005 total options granted were 1,000, 2,000 and 4,000, respectively. In December 2005, the Director’s Plan was terminated. As of December 31, 2014, there were 1,000 shares of stock options outstanding which were exercisable at $9.70 per share. These options expired unexercised January 1, 2016.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2016 regarding compensation plans under which equity securities of ARL are authorized for issuance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The following table sets forth the ownership of
ARL’sour common stock, both beneficially and of record, both individually and in the aggregate, for those persons or entities known
by ARL to be
the ownerbeneficial owners of more than 5.0% of the
outstanding shares of
ARL’sour common stock as of the close of business on March
31, 2017.| Name and Address of Beneficial Owner | | Amount and
Nature
of Beneficial
Ownership* | | | Approximate
Percent of Class ** | |
| | | | | | | |
| RA Stock Holdings, Inc. | | | 1,459,828 | (1) | | | 9.41 | % |
| 1603 LBJ Freeway, Suite 800 | | | | | | | | |
| Dallas, Texas 75234 | | | | | | | | |
| | | | | | | | | |
| Realty Advisors, Inc. | | | 13,292,037 | (1)(2)(3) | | | 85.68 | % |
| 1603 LBJ Freeway, Suite 800 | | | | | | | | |
| Dallas, Texas 75234 | | | | | | | | |
| | | | | | | | | |
| Realty Advisors LLC | | | 9,303,066 | (1)(2) | | | 59.96 | % |
| 1603 LBJ Freeway, Suite 800 | | | | | | | | |
| Dallas, Texas 75234 | | | | | | | | |
| * | “Beneficial Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination thereof. |
| ** | Percentages are based upon 15,514,360 shares outstanding as of March 28, 2017. |
| (1) | Includes 1,459,828 shares owned by RA Stock Holdings, Inc. (RASH), formerly One Realco Stock Holdings, a wholly-owned subsidiary of Realty Advisors, LLC(“RALLC”), over which each of the directors of RASH, Mickey Ned Phillips and Ryan T. Phillips, may be deemed to be the beneficial owners by virtue of their positions as directors of RASH. The directors of RASH disclaim beneficial ownership of such. |
| (2) | Includes 7,843,238 shares owned directly by RALLC (“RALLC”), over which each of the managers, Gene S. Bertcher and Daniel J. Moos, may be deemed to be beneficial owners by virtue of their positions as managers of RALLC. The managers of RALLC disclaim beneficial ownership of such shares. |
| (3) | Includes 3,988,971 shares owned directly by Realty Advisors, Inc. (“RAI”) over which each of the directors and officers of RAI may be deemed beneficial owners, all of which disclaim beneficial ownership. |
| | | | | | | | | | | | | | |
| | Amount and
Nature of
Beneficial
Ownership* | | Approximate Percent
of Class** |
| The May Trust | | 14,669,820 | | | 90.8 | % |
| 1603 LBJ Freeway, Suite 800 | | | | |
| Dallas, Texas 75234 | | | | |
| May Realty Holdings, Inc. | | 14,669,820 | | | 90.8 | % |
| 1603 LBJ Freeway, Suite 800 | | | | |
| Dallas, Texas 75234 | | | | |
| Realty Advisors, Inc. | | 14,669,820 | | | 90.8 | % |
| 1603 LBJ Freeway, Suite 800 | | | | |
| Dallas, Texas 75234 | | | | |
* “Beneficial Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination thereof.
** Percentage is based upon 16,152,043 shares of Common stock outstanding at March 24, 2021.
RAI is a wholly owned subsidiary of MRHI, which is a wholly owned subsidiary of The May Trust. The beneficiaries of the The May Trust are the children of the late Gene E. Phillips.
Security Ownership of Management.
The following table sets forth the ownership of
shares of ARL’sour common stock, both beneficially and of record, both individually
and in the aggregate, for
the Directorsour directors and executive officers
of ARL, as of the close of business on March
28, 2017.| Name of Beneficial Owner | | Amount and
Nature
of Beneficial
Ownership* | | | Approximate Percent of Class ** | |
| Gene S. Bertcher | | | 13,521,251 | (1)(2)(3)(4) | | | 87.15 | % |
| Henry A. Butler | | | 229,214 | (3) | | | 1.48 | % |
| Louis J. Corna | | | 13,521,251 | (1)(2)(3)(4) | | | 87.15 | % |
| Robert A. Jakuszewski | | | 229,214 | (3) | | | 1.48 | % |
| Daniel J. Moos | | | 13,526,251 | (1)(2)(3)(4)(5) | | | 87.19 | % |
| Ted R. Munselle | | | 229,214 | (3) | | | 1.48 | % |
| Raymond R. Roberts, Sr. | | | 229,214 | (3) | | | 1.48 | % |
| All Directors and Executive Officers as a group (7 persons) | | | 13,526,251 | (1)(2)(3)(4)(5) | | | 87.19 | % |
| * | “ | | | | | | | | | | | | | | | |
Name of Beneficial Ownership” means the sole or shared power to vote, or to direct the votingOwner | | Amount and
Nature of
Beneficial
Ownership* | | | Approximate
Percent of Class** |
| Henry A. Butler | | — | | | | — | % |
| Louis J. Corna | | — | | | | — | % |
| Alla Dzyuba | | — | | | | — | % |
| William J. Hogan | | — | | | | — | % |
| Erik L. Johnson | | — | | | | — | % |
| Robert A. Jakuszewski | | — | | | | — | % |
| Ted R. Munselle | | — | | | | — | % |
| Bradford A. Phillips | | — | | | | — | % |
| Raymond D. Roberts, Sr. | | — | | | | — | % |
All Directors and Executive Officers as a security or investment power with respect to a security, or any combination thereof.group (7 individuals) | | — | | | | — | % |
| ** | Percentages are based upon 15,514,360 shares outstanding as of March 18, 2016. |
| (1) | Includes 7,843,238 shares owned direct by RALLC, over which the managers and executive offices of RALLC may be deemed to be the beneficial owners by virtue of their positions as managers and executive officers of RALLC; the managers and executive officers of RALLC disclaim beneficial ownership of such shares. Also includes 3,988,971 shares owned direct by RAI, over which the executive officers of RAI may be deemed to be the beneficial owners by virtue of their positions; the executive officers of RAI disclaim beneficial ownership of such shares. |
| (2) | Includes 1,459,828 shares owned by (RASH), over which the executive officers of RASH may be deemed the beneficial owners by virtue of their positions as executive officers of RASH; the executive officers of RASH disclaim beneficial ownership of such shares. |
| (3) | Includes 229,214 shares owned by Transcontinental Realty Investors, Inc. (“TCI”), over which the directors and executive officers of TCI may be deemed to be the beneficial owners by virtue of their positions as directors and executive officers of TCI; the directors and executive officers of TCI disclaim beneficial ownership of such shares. |
| (4) | Includes 3,988,971 shares owned by RAI, over which the executive officers of RAI may be deemed to be the beneficial owners by virtue of their positions as executive of RAI; the executive officers of RAI disclaim beneficial ownership of such shares. |
| (5) | Daniel J. Moos owns directly 5,000 shares. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
* Beneficial Ownership” means the sole power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination thereof.
** Percentages are based upon 16,152,043 shares of Common Stock outstanding at March 24, 2021.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies with Respect to Certain Activities
Article
1114 of
ARL’sour Articles of Incorporation provides that
ARLwe shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of
ARL,the Company, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act
of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by
ARL’sour Board of Directors or the appropriate committee thereof and (b)
ARL’sour Board of Directors or committee thereof determines that such contract or transaction is fair to
ARLthe Company and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of
our independent directors
of ARL entitled to vote thereon.
Article
1114 defines an “Independent Director” (for purposes of that Article) as one who is neither an officer or employee of
ARL,the Company, nor a director, officer or employee of
ARL’sour advisor.
This definition predates ARL’s director independence guidelines adopted in February 2004.ARL’s
Our policy is to have such contracts or transactions approved or ratified by a majority of the disinterested Directors with full knowledge of the character of such transactions, as being fair and reasonable to the stockholders at the time of such approval or ratification under the circumstances then prevailing. Such Directors also consider the fairness of such transactions to
ARL. Managementthe Company. We believes that, to date, such transactions have represented the best investments available at the time and they were at least as advantageous to
ARLus as other investments that could have been obtained.
ARL
We may enter into future transactions with entities, the officers, directors, or stockholders of which are also officers, directors, or stockholders of
ARL,the Company, if such transactions would be beneficial to
theour operations
of ARL and consistent with
ARL’sour then-current investment objectives and policies, subject to approval by a majority of disinterested Directors as discussed above.
ARL does
We do not prohibit its officers, directors, stockholders, or related parties from engaging in business activities of the types conducted by
ARL.Certain Business Relationships
Pillar has been
ARL’sour Advisor and Cash Manager since April 30, 2011. Although the Board of Directors is directly responsible for managing
theour affairs,
of ARL, and for setting the policies which guide it,
theour day-to-day operations
of ARL are performed by Pillar, as the contractual advisor, under the supervision of the Board. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with
ARL’sour business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to
TCIARL and
IOT.IOR. As the contractual advisor, Pillar is compensated
by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”.
ARL hasWe have no employees and as such, employees of Pillar render services to
ARLus in accordance with the terms of the Advisory Agreement.
Pillar is
a Nevada corporation, the sole shareholder of which isowned by Realty Advisors, LLC,
a Nevada limited liability company, the sole member of which is
owned by RAI,
a Nevada corporation, the sole shareholder of which is
owned by MRHI,
a Nevada corporation, the sole shareholder of which is
a trust known asowned by the May Trust.
All of ARL’s directorsour directors also serve as Directors of TCIARL and IOT. TheIOR. Our executive officers of ARL also serve as executive officers of TCI and IOT.. As such, they owe fiduciary duties to that entity as well as to Pillar under applicable law. TCI has the same relationship with Pillar, as does ARL.the Company. Mr. BertcherDaniel J. Moos is an officer, directorthe sole Manager and employeeClass B 2% income Member of NCEVictory Abode Apartments LLC, and as such also owes fiduciary duties to NCE as well asuntil August 2020, was the President of ARL, TCI and IOT under applicable law.IOR.
Effective since January 1, 2011, Regis
Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), the sole member of which is Realty Advisors, LLC, manages our commercial properties for a fee of 3.0% or less of the monthly gross rents collected on the commercial properties it manages, and leasing commissions of 6.0% or less in accordance with the terms of its property-level management agreement.
ARL engages third-party companies to lease and manage our apartment properties for a fee of 6.0% or less of the monthly gross rents collected on the residential properties under their management.
At December 31,
2016, ARL2020, TCI owned
approximately 77.6% of TCI’s outstanding common stock and through its interest in TCI approximately 81.1% of
IOT’sthe outstanding common
stock.The Company isshares of IOR.
We are part of a tax sharing and compensating agreement with respect to federal income taxes betweenamong ARL, TCI and IOTIOR and their subsidiaries. TheIn accordance with the agreement, our expense (benefit) in each year wasis calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 35%21%.The Company’s subsidiary, TCI, has
We have a development agreement with Unified Housing Foundation, Inc.
(“UHF”)“UHF” a non-profit corporation that provides management services for the development of residential apartment projects in the future.
The Company hasWe have also invested in surplus cash notes receivables from UHF and
hashave sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.
TCI is the primary guarantor, on a $60.4 million mezzanine loan between UHF and a lender. In addition, ARL, and an officer of the Company are limited recourse guarantors of the loan. As of December 31, 2016 UHF was in compliance with the covenants to the loan agreement.
Related Party Transactions
The Company has historically engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in the best interest of our company.
In
2016, the Company2020, we paid
Pillar advisory fees of
$10.9$5.8 million, net income fees of
$0.3$0.4 million
mortgage brokerage and
equity refinancing fees of $0.8 million, cost reimbursements of
$3.8 million and received interest of $1.1 million from Pillar. The Company$3.6 million.
We paid property management fees, construction management fees and leasing commissions of
$x.x$1.0 million to Regis in
2016.2020. In addition, SPC is part of a management service agreement with the controlling shareholder owned company in which SPC for an annual payment of 0.5% on the value of the investment properties receives from the Advisor office space, administrative and management services. During 2020, SPC paid management fees to Pillar in the amount of $2.5 million.
As of December 31, 2016,2020, the Companywe had notes and interest receivables net of allowances, of $102.9$63.3 million and $7.8$3.9 million, respectively, due from UHF, a related party. Seeparties. Refer to Part 2, Item 8. Note 3. “Notes and Interest Receivable.”8 – Notes Receivable of our consolidated financial statements. During the current period, the Companywe recognized interest income of $12.4$6.3 million, originated $4.7$10.9 million, received $1.3 million principal payments, of $4.9 million and received interest payments of $10.8$6.8 million from these related party notes receivables.As of December 31, 2016, subsidiaries hold approximately 91 acres of land, at various locations thatWe were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract”the primary guarantor, on a $24.3 million mezzanine loan between UHF and a lender. The guarantee was remove on January 29, 2021, concurrent with the Consolidated Balance Sheets. Due to the related party naturerepayment of the transactions TCI has deferred the recording of the sales in accordance with ASC 360-20.
Operating Relationships
The Companyloan by UHF.
We received rental revenue
of $0.7$1.1 million,
in each offor the
three years ended
DecemeberDecember 31,
2016 from2020 for office space leased to Pillar and
its related parties for properties owned by the Company.Advances and Loans
Regis.
From time to time,
ARL and its related partieswe have made advances
to eachand/or borrowing to/fom other
related parties, which generally have not had specific repayment terms, did not bear interest, are unsecured, and have been reflected
in ARL’sour financial statements as other assets or other liabilities.
ARL and the AdvisorWe charge interest on the outstanding balance of funds advanced
to or from
ARL.us. The interest rate, set at the beginning of each quarter, is the prime rate plus
1%1.0% on the average daily cash balances advanced. At December 31,
2016, Pillar owes ARL $24.72020, we had a receivable from related parties of $129.3 million.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The following table sets forth the aggregate fees for professional services rendered
Director Independence
See “Determination of Director Independence” under Item 10 above to ARL forwhich reference is made.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For the years 2016ended December 31, 2020 and 20152019, we were billed by ARL’s principal accounting firms, Farmer, Fuqua and Huff, L.P., BDO Seidman, LLP for services in the following categories:
Audit Fees. Fees for audit services were $324,500 and
Swalm & Associates, PC:| | | 2016 | | | 2015 | |
| | | Farmer, Fuqua | | | Swalm & | | | Farmer, Fuqua | | | BDO | | | Swalm & | |
| Type of Fee | | & Huff | | | Associates | | | & Huff | | | Seidman | | | Associates | |
| Audit Fees | | $ | 881,576 | (1) | | $ | 60,551 | (3) | | $ | 821,100 | (4) | | $ | — | | | $ | 54,263 | (3) |
| Tax Fees | | | 44,483 | (2) | | | — | | | | 83,708 | (5) | | | 8,890 | | | | — | |
| Total | | $ | 926,059 | | | $ | 60,551 | | | $ | 904,808 | | | $ | 8,890 | | | $ | 54,263 | |
The audit fees for 2016 and 2015 were for professional services rendered$424,675 for the auditsyears ended December 31, 2020 and reviews of the consolidated financial statements of ARL and its subsidiaries. Tax fees for 2016 and 2015 were for services related to federal and state tax compliance and advice.
All services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either the Board of Directors or the Audit Committee, as required by law. The fees paid to the principal auditors for the services described in the above table fall under the categories listed below:
Audit Fees.2019, respectively. These are fees for professional services performed by the principal auditor for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s 10-Q filings and services that are normally provided in connection with statutory and regulatory filing or engagements.
engagement.
Audit-Related Fees.
No fees for audit-related services were paid for the years ended December 31, 2020 and 2019. These are fees for assurance and related services performed by the principal auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements. These services include attestations by the principal auditor that are not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax Fees. Fees for tax services were $23,850 and $47,052 for the years ended December 31, 2020 and 2019, respectively.. These are fees for professional services performed by the principal auditor with respect to tax compliance, tax
planning, tax consultation, returns preparation and review of returns. The review of tax returns includes the Company and its consolidated subsidiaries. We did
All Other Fees. No other fees were paid for the years ended December 31, 2020 and 2019. These are fees for other permissible work performed by the principal auditor that do not use BDO Seidmanmeet the above category descriptions.
All services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either the Board of Directors or the Audit Committee, as required by law. The fees paid to the principal auditors for
professional taxthe services
during 2016.described in the above table fall under the categories listed below:
These services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in the principal auditor’s core work, which is the audit of the Company’s consolidated financial statements.
The Audit Committee has established policies and procedures for the approval and pre-approval of audit services and permitted non-audit services. The Audit Committee has the responsibility to engage and terminate
ARL’sour independent auditors, to pre-approve their performance of audit services and permitted non-audit services, to approve all audit and non-audit fees, and to set guidelines for permitted non-audit services and fees. All
the fees for
20162020 and
20152019 were pre-approved by the Audit Committee or were within the pre-approved guidelines for permitted non-audit services and fees established by the Audit Committee, and there were no instances of waiver of approved requirements or guidelines during the same periods.
Under the Sarbanes-Oxley Act of 2002 (the “SOX Act”) and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee of the Board of Directors is responsible for the appointment, compensation, and oversight of the work of the independent auditor. The purpose of the provisions of the SOX Act and the SEC rules for the Audit Committee role in retaining the independent auditor is two-fold. First, the authority and responsibility for the appointment, compensation, and oversight of the auditors should be with directors who are independent of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that any non-audit services performed by the auditor do not impair the independence of the independent auditor. To implement the provisions of the SOX Act, the SEC issued rules specifying the types of services that an independent may not provide to its audit client, and governing the Audit Committee’s administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditor’s independence. Accordingly, theOur Audit Committee has adopted a pre-approval policy of audit and non-audit services (the “Policy”), which sets forth the procedures and conditions pursuant to which services to be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers pre-approvalPre-approval of audit services, audit-related services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and will approve or reject each service, taking into account whether services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. Typically, in addition to the generally pre-approved services, other services would include due diligence for an acquisition that may or may not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit Committee designated by the Board or the financial expert member of the Audit Committee responsibilities to pre-approve services to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services, and such authority may only be exercised when the Audit Committee is not in session.
PART IV
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
| (a) | The following documents are filed as part of this Report: |
| 1. | Consolidated Financial Statements |
Report
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)The following documents are filed as part of this Report:
a.Financial Statements
Reports of Independent
CertifiedRegistered Public
AccountantsAccounting Firms
Consolidated Balance
Sheets—Sheets as of December 31,
20162020 and
20152019
Consolidated Statements of
Operations—Operations for the Years Ended December 31,
2016, 20152020, 2019, and
20142018
Consolidated Statements of
Shareholders’ Equity—Stockholders’ Equity for the Years Ended December 31,
2016, 20152020, 2019, and
20142018
Consolidated Statements of Cash
Flows—Flows for the Years Ended December 31,
2016, 20152020, 2019, and
2014Consolidated Statements of Comprehensive Income (Loss) – Years Ended December 31, 2016, 2015 and 2014
2018
Notes to
Consolidated Financial Statements
| 2. | Financial Statement Schedules |
b.Financial Statement Schedules
Schedule III—Real Estate and Accumulated Depreciation
Schedule IV—Mortgage Loan Receivables on Real Estate
All other schedules are omitted because they are not applicable or because the required information is shown in the financial statements or the notes thereto.
| 3. | Incorporated Financial Statements |
Consolidated Financial Statements of Income Opportunity Realty Investors, Inc. (Incorporated by reference to Item 8. of Income Opportunity Realty Investors, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016).
Consolidated Financial Statements of Transcontinental Realty Investors, Inc. (Incorporated by reference to Item 8. of Transcontinental Realty Investors, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016).
c.Exhibits
The following documents are filed as Exhibits to this Report:
Exhibit
Number
| | Description
| | | |
| 3.1 | | |
3.1 | | Certificate of Restatement of Articles of Incorporation of American Realty Investors, Inc., dated August 3, 2000 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| | |
| 3.2 | | Certificate of Correction of Restated Articles of Incorporation of American Realty Investors, Inc., dated August 29, 2000 (incorporate by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| | |
| 3.3 | | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series B Cumulative Convertible Preferred Stock dated August 26, 2003 (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). |
| | |
| 3.4 | | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series I Cumulative Preferred Stock dated October 1, 2003 (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). |
Exhibit
Number
| | Description
|
3.5 | |
| 3.5 | By-laws of American Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4, filed on December 30, 1999). |
| | |
| 4.1 | | Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof of Series F Redeemable Preferred Stock of American Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001). |
| | |
| 4.2 | | Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June 18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). |
| | |
| 4.3 | | Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of American Realty Investors, Inc., dated February 3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002). |
| | |
| 4.4 | | Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock as filed with the Secretary of State of Nevada on March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006). |
| | |
10.1 | | Advisory Agreement between American Realty Investors, Inc. and Pillar Income Asset Management, LLC, dated April 30, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated April 30, 2011). |
| | |
10.2 | | Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, dated February 24, 2002). |
| | |
14.0 | | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004). |
| | |
21.1* | | Subsidiaries of the Registrant. |
| | |
31.1* | | Rule 13a-14(a) Certification by Principal Executive Officer. |
| | |
31.2* | | Rule 13a-14(a) Certification by Principal Financial Officer. |
| | |
32.1* | | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
101.INS | | XBRL Instance Document |
| | |
101.SCH | | XBRL Taxonomy Extension Schema Document |
| | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 2017
| | |
| American realty investors, inc. |
| | |
| By: | /s/ Gene S. Bertcher
|
| Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
| 10.1 | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
| | Title
| | Date
|
| | | | |
/s/ Henry A. Butler
| | Chairman of the Board and Director | | March 31, 2017 |
Henry A. Butler | | | | |
| | | | |
/s/ Robert A. Jakuszewski
| | Director | | March 31, 2017 |
Robert A. Jakuszewski | | | | |
| | | | |
/s/ Raymond R. Roberts, sr.
| | Director | | March 31, 2017 |
Raymond R. Roberts, Sr. | | | | |
| | | | |
/s/ Ted R. Munselle
| | Director | | March 31, 2017 |
Ted R. Munselle | | | | |
| | | | |
/s/ Daniel J. Moos
| | President and Chief Executive Officer | | March 31, 2017 |
Daniel J. Moos | | (Principal Executive Officer) | | |
| | | | |
/s/ Gene S. Bertcher
| | Executive Vice President and Chief Financial Officer | | March 31, 2017 |
Gene S. Bertcher | | (Principal Financial and Accounting Officer) | | |
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
For the Year Ended December 31, 2016
3.1 | Certificate of Restatement of Articles of Incorporation of American Realty Investors, Inc., dated August 3, 2000 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
3.2 | Certificate of Correction of Restated Articles of Incorporation of American Realty Investors, Inc., dated August 29, 2000 (incorporate by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
3.3 | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series B Cumulative Convertible Preferred Stock dated August 26, 2003 (incorporated by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). |
| |
3.4 | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series I Cumulative Preferred Stock dated October 1, 2003 (incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003). |
| |
3.5 | By-laws of American Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4, filed on December 30, 1999). |
| |
4.1 | Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof of Series F Redeemable Preferred Stock of American Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
4.2 | Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June 18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002). |
| |
4.3 | Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of American Realty Investors, Inc., dated February 3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002). |
| |
4.4 | Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock as filed with the Secretary of State of Nevada on March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006). |
| |
10.1 | Advisory Agreement between American Realty Investors, Inc. and Pillar Income Asset Management, LLC, dated April 30, 2011 (incorporated by reference to Exhibit 10.0 to the Registrant’s Current Report on Form 8-K, dated April 30, 2011). |
| |
| 10.2 | Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, dated February 24, 2002). |
| |
| 14.0 | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004). |
| |
21.1* | Subsidiaries of the Registrant.Registrant. |
| |
31.1* | Rule 13a-14(a) Certification by Principal Executive Officer.and Financial Officer. |
| |
31.2* | Rule 13a-14(a) Certification by Principal Financial Officer. |
* Filed herewith.
ITEM 16. FORM 10-K SUMMARY
Optional and not included herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
* | Filed herewith. | | | | | | | |
| | AMERICAN REALTY INVESTORS, INC. |
| | |
| Dated: March 24, 2021 | By: | /s/ ERIK L. JOHNSON |
| | Erik L. Johnson |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Executive and Financial Officer) |
85
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. | | | | | | | | | | | | | | |
| | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ HENRY A. BUTLER | | Chairman of the Board and Director | | March 24, 2021 |
| Henry A. Butler | | | | |
| | | | |
| /s/ WILLIAM J. HOGAN | | Director | | March 24, 2021 |
| William J. Hogan | | | | |
| | | | |
| /s/ ROBERT A. JAKUSZEWSKI | | Director | | March 24, 2021 |
| Robert A. Jakuszewski | | | | |
| | | | |
| /s/ TED R. MUNSELLE | | Director | | March 24, 2021 |
| Ted R. Munselle | | | | |
| | | | |
| /s/ BRADFORD A. PHILLIPS | | Director | | March 24, 2021 |
| Bradford A. Phillips | | | | |
| | | | |
| /s/ RAYMOND D. ROBERTS, SR. | | Director | | March 24, 2021 |
| Raymond D. Roberts, Sr. | | | | |
| | | | |
| /s/ ERIK L. JOHNSON | | Executive Vice President and Chief Financial Officer | | March 24, 2021 |
| Erik L. Johnson | | (Principal Executive and Financial Officer) | | |
| | | | |
| /s/ ALLA DZYUBA | | Vice President and Chief Accounting Officer | | March 24, 2021 |
| Alla Dzyuba | | | | |
| | | | |