American Realty Investors, Inc. reports Earnings for Quarter Ended December 31, 2024

Rhea-AI Summary

American Realty Investors, Inc. (ARL) reported a net loss of $2.1 million for the quarter ended December 31, 2023, compared to a net income of $43.4 million in the same period in 2022. Total occupancy was 77%, with positive financial highlights in rental revenues but a decrease in net operating income. The company secured construction loans for multifamily properties in Texas, impacting its financial results.

Positive

• Rental revenues increased by $1.0 million from the prior year.
• Total occupancy stood at 77% with strong performance in multifamily properties.
• Secured construction loans for new multifamily properties in Texas.
• Extended loan maturity for Windmill Farms.
• Expected completion of Merano and Bandera Ridge properties in 2025.
• Reported a net loss of $2.1 million for the quarter.

Negative

• Net operating income decreased by $3.6 million.
• Net income attributable to common shares decreased by $45.6 million.
• Decrease in gain on sale or write down of assets.
• Increase in property operating and depreciation expenses.
• Increase in general administrative and advisory expenses.

Insights

Real Estate Investment Analyst

The reported net loss of $2.1 million by American Realty Investors, Inc. for the quarter ending December 31, 2023, marks a significant shift from the net income of $43.4 million in the same period the previous year. This reversal from profit to loss is a red flag for investors, particularly given the substantial decrease in gain on sale, remeasurement, or write down of assets. The real estate market is known for its cyclical nature and such downturns in profitability can be indicative of broader market trends or company-specific issues.

Another point of interest is the occupancy rates, with multifamily properties performing well at 92%, while commercial properties lag at 49%. This disparity may reflect changing market dynamics, such as a trend towards remote working impacting commercial real estate demand. The construction loans for new multifamily properties in Texas suggest a strategic focus on residential real estate, which may be an attempt to capitalize on a more stable demand compared to commercial spaces.

Investors would also note the increase in property operating and depreciation expenses alongside general administrative and advisory expenses. These rising costs could be squeezing the company's margins, which is concerning when paired with a decrease in net operating income. It's essential to monitor these trends to understand whether they are temporary fluctuations or signs of a more persistent issue.

Financial Analyst

The decrease in net income for American Realty Investors, Inc. is primarily attributed to a significant decrease in gain on sale, remeasurement, or write down of assets, which is a stark contrast to the previous year's performance. The financial health of a company is often reflected in its ability to maintain or increase its net income and such a drastic decrease could potentially impact the company's stock price and investor confidence.

The extension of the maturity of the loan on Windmill Farms with a 7.50% interest rate is another critical aspect. This extension could be seen as a strategic move to manage cash flow and debt obligations more effectively. However, the interest rate is relatively high, which could lead to increased financial burden over time.

From an investment perspective, the increased rental revenues are a positive sign, indicating potential growth areas for the company. However, the increase is modest compared to the overall decrease in net operating income, which suggests that the company may need to further optimize its operations and cost management strategies to improve its financial standing in the long term.

Market Research Analyst

The real estate sector is heavily influenced by economic conditions, interest rates and consumer behavior. The report from American Realty Investors, Inc. provides valuable insights into the current state of the market. The contrast between occupancy rates in multifamily and commercial properties could indicate a shift in the real estate market, where residential demand remains robust while commercial spaces face challenges.

Understanding the underlying factors that contribute to these occupancy rates is important for predicting future market trends. For instance, the high occupancy in multifamily units could be driven by demographic shifts or housing shortages in certain regions. Conversely, the low occupancy in commercial properties might be a result of ongoing changes in the workplace, such as the rise of remote work and e-commerce, which reduce the need for physical office and retail spaces.

These trends have significant implications for real estate investment strategies. Investors and stakeholders should pay close attention to how American Realty Investors, Inc. navigates these market shifts and whether their focus on developing new multifamily properties aligns with long-term market demands.

DALLAS--(BUSINESS WIRE)-- American Realty Investors, Inc. (NYSE:ARL) is reporting its results of operations for the quarter ended December 31, 2023. For the three months ended December 31, 2023, we reported net loss attributable to common shares of $2.1 million or $0.13 per diluted share, compared to net income attributable to common shares of $43.4 million or $2.69 per diluted share for the same period in 2022.

Financial Highlights

• Total occupancy was 77% at December 31, 2023, which includes 92% at our multifamily properties and 49% at our commercial properties.
• On November 6, 2023, we entered into a $25.4 million construction loan to construct a 216 unit multifamily property in McKinney, Texas ("Merano") that bears interest at prime plus 0.25% and matures on November 6, 2028. Merano is expected to be completed in 2025 for a total cost of approximately $51.9 million. As of December 31, 2023, we have incurred a total of $7.2 million in development costs.
• On December 15, 2023, we entered into a $23.5 million construction loan to construct a 216 unit multifamily property in Temple, Texas ("Bandera Ridge") that bears interest at SOFR plus 3% and matures on December 15, 2028. Bandera Ridge is expected to be completed in 2025 for a total cost of approximately $49.6 million. As of December 31, 2023, we have incurred a total of $3.1 million in development costs.
• On February 8, 2024, we extended the maturity of our loan on Windmill Farms to February 28, 2026 at an interest rate of 7.50%.

Financial Results

Rental revenues increased $1.0 million from $11.8 million for the three months ended December 31, 2022 to $12.8 million for the three months ended December 31, 2023. The increase in rental revenue is primarily due to a $0.9 million increase at our multifamily properties and an increase of $0.1 million from the commercial properties. The increase in revenue from the multifamily properties is primarily due to the acquisition of the VAA Holdback Portfolio in 2022.

Net operating income decreased $3.6 million from net operating income of $1.4 million for three months ended December 31, 2022 to net operating loss of $2.2 million for the three months ended December 31, 2023. The decrease in net operating income is primarily due to an increase of $2.7 million in property operating and depreciation expenses and an increase of $1.7 million in general administrative and advisory expenses offset in part by the $1.0 million increase in rental revenue as noted above.

Net income attributable to common shares decreased $45.6 million from net income of $43.4 million for the three months ended December 31, 2022 to a net loss of $2.1 million for the three months ended December 31, 2023. The decrease in net income is primarily attributed to the $72.6 million decrease in gain on sale, remeasurement or write down of assets offset in part by a $17.5 million decrease in tax provision. The decrease in gain on our sale or write down of assets and tax provision is due to the remeasurement of the VAA Holdback Portfolio that was acquired in 2022.

About American Realty Investors, Inc.

American Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including office buildings, apartments, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. The Company also holds mortgage receivables. The Company’s primary asset and source of its operating results is its investment in Transcontinental Realty Investors, Inc. (NYSE:TCI). For more information, visit the Company’s website at www.americanrealtyinvest.com.

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
		Three Months Ended December 31,								Twelve Months Ended December 31,
		2023				2022				2023				2022
Revenues:
Rental revenues		$	12,787			$	11,770			$	47,023			$	34,080
Other income			1,260				1,539				3,477				3,464
Total revenue			14,047				13,309				50,500				37,544
Expenses:
Property operating expenses			7,316				5,798				27,896				18,339
Depreciation and amortization			4,031				2,846				13,646				9,686
General and administrative			1,587				2,077				10,011				10,033
Advisory fee to related party			3,304				1,139				10,187				8,753
Total operating expenses			16,238				11,860				61,740				46,811
Net operating (loss) income			(2,191	)			1,449				(11,240	)			(9,267	)
Interest Income			1,646				6,621				26,847				26,559
Interest expense			(1,928	)			(4,227	)			(9,502	)			(17,529	)
Gain on foreign currency transactions			-				630				993				20,067
Loss on early extinguishment of debt			-				-				(1,710	)			(2,805	)
Equity in (loss) income from unconsolidated joint ventures			296				(2,117	)			3,242				469,268
(Loss) Gain on sale or write-down of assets, net			(2,079	)			70,552				(1,923	)			87,132
Income tax provision			960				(16,492	)			(1,456	)			(98,108	)
Net (loss ) income			(3,296	)			56,416				5,251				475,317
Net income attributable to noncontrolling interest			1,173				(12,982	)			(1,283	)			(101,968	)
Net (loss) income attributable to the common shares		$	(2,123	)		$	43,434			$	3,968			$	373,349
Earnings per share - basic
Basic and diluted		$	(0.13	)		$	2.69			$	0.25			$	23.11
Weighted average common shares used in computing earnings per share
Basic and diluted			16,152,043				16,152,043				16,152,043				16,152,043

 

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American Realty Investors, Inc.

Investor Relations

Erik Johnson (469) 522-4200

investor.relations@americanrealtyinvest.com

Source: American Realty Investors, Inc.

FAQ

What was American Realty Investors, Inc.'s net loss for the quarter ended December 31, 2023?

American Realty Investors, Inc. reported a net loss of $2.1 million for the quarter ended December 31, 2023.

What was the total occupancy rate for American Realty Investors, Inc. at December 31, 2023?

American Realty Investors, Inc. had a total occupancy rate of 77% at December 31, 2023.

What were the key financial highlights for American Realty Investors, Inc. in the quarter?

Key financial highlights included an increase in rental revenues, securing construction loans for new properties, and extending loan maturity for Windmill Farms.

What caused the decrease in net income attributable to common shares for American Realty Investors, Inc.?

The decrease in net income was primarily due to a decrease in gain on sale or write down of assets and an increase in operating and administrative expenses.

What are the expected completion dates for the Merano and Bandera Ridge properties?

Merano and Bandera Ridge properties are expected to be completed in 2025.

What financial changes impacted American Realty Investors, Inc.'s net income for the quarter?

Financial changes, including a decrease in gain on sale or write down of assets and an increase in expenses, led to a decrease in net income for the quarter.