American Realty Investors, Inc. Reports Earnings for Quarter Ended September 30, 2024

Rhea-AI Summary

American Realty Investors (NYSE:ARL) reported Q3 2024 results with a net loss of $17.5 million ($1.08 per diluted share), compared to net income of $3.0 million ($0.18 per share) in Q3 2023. Total occupancy was 79%, with 95% in multifamily and 48% in commercial properties. Rental revenues decreased to $11.1 million from $11.8 million year-over-year. The company secured a $6.6 million loan for Forest Grove and a $27.5 million construction loan for a new Dallas multifamily project. A significant $23.4 million settlement payment was made to resolve long-standing Clapper litigation from 1999.

Positive

• Secured new 45,000 sq ft lease at Stanford Center with 20% rent increase
• Obtained $27.5M construction loan for new 234-unit multifamily development
• 95% occupancy rate in multifamily properties
• Resolution of long-standing Clapper litigation

Negative

• Net loss of $17.5M compared to $3.0M profit in prior year
• Rental revenue declined by $0.8M to $11.1M
• Commercial properties occupancy at only 48%
• $23.4M settlement payment impacting financial results

Insights

Financial Analyst

The Q3 2024 results reveal significant challenges for ARL. The $17.5 million net loss, compared to a $3.0 million profit last year, was primarily driven by the $23.4 million Clapper Settlement. Core operational metrics show concerning trends with commercial property occupancy at just 48%, though multifamily remains strong at 95%.

The bright spots include a new 45,000 sq ft lease at Stanford Center with 20% higher rates and a $27.5 million construction loan for a new Dallas multifamily development. However, rental revenues declined by $0.8 million year-over-year due to weak commercial occupancy. The resolution of the 25-year-old Clapper litigation, while costly, removes a significant legal overhang.

Real Estate Market Analyst

The property portfolio shows a stark divergence between asset classes. While multifamily maintains robust 95% occupancy, the struggling commercial segment at 48% occupancy reflects broader market challenges in the office sector. The new Stanford Center lease with 20% rent growth demonstrates potential for premium office space recovery, but overall market dynamics remain challenging.

The strategic focus on multifamily expansion through the Mountain Creek development ($49.8 million project) aligns with stronger fundamentals in the residential sector. The refinancing activity, including the Forest Grove loan at SOFR + 1.85%, shows continued access to capital despite market headwinds.

DALLAS--(BUSINESS WIRE)-- American Realty Investors, Inc. (NYSE:ARL) is reporting its results of operations for the three months ended September 30, 2024. For the three months ended September 30, 2024, we reported net income attributable to common shares of $17.5 million or $1.08 per diluted share, compared to net income attributable to common shares of $3.0 million or $0.18 per diluted share for the same period in 2023.

Financial Highlights

• Total occupancy was 79% at September 30, 2024, which includes 95% at our multifamily properties and 48% at our commercial properties.
• On July 10, 2024, we replaced the existing loan on Forest Grove with a $6.6 million loan that bears interest at SOFR plus 1.85% and matures on August 1, 2031.
• On October 18, 2024, we completed a 45,000 square foot lease at Stanford Center. This is the first new lease at the property following our major renovation of the property. The new lease provides a 14% increase in occupancy to the property and a 20% increase in rent per square foot over recent expired leases at the property. The lease is expected to commence in April 2025.
• On October 21, 2024, we obtained a $27.5 million construction loan to finance the development of a 234 unit multifamily property in Dallas, Texas ("Mountain Creek") that is expected to be completed in 2026 for a total cost of approximately $49.8 million. The construction loan on Mountain Creek bears interest at SOFR plus 3.45% and matures on October 20, 2026.
• On October 31, 2024, we paid $23.4 million to resolve all claims litigation with David Clapper and related entities related (collectively, the “Clapper") that had been ongoing since 1999. The matter originally involved a transaction in 1998 in which we were to acquire eight multifamily properties from the Clapper. As a result of the settlement, we accrued a loss on real estate transactions of $23.4 million during the three and nine months ended September 30, 2024.

Financial Results

Rental revenues decreased $0.8 million from $11.8 million for the three months ended September 30, 2023 to $11.1 million for the three months ended September 30, 2024. The decrease in rental revenue is primarily due to a decrease in occupancy at our commercial properties. We expect occupancy to improve in the fourth quarter due to our recently completed 45,000 square foot lease at Stanford Center.

Net operating loss was $2.1 million for the three months ended September 30, 2023 and September 30, 2024. Our decrease in revenue was offset by a decrease in operating expenses, including a decrease in general and administrative expenses.

Net income attributable to common shares decreased $20.4 million from net income of $3.0 million for the three months ended September 30, 2023 to a net loss of $17.5 million for the three months ended September 30, 2024. The decrease in net income is primarily attributed to our accrual of the $23.4 million Clapper Settlement in 2024.

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)
(Unaudited)
				Three Months Ended September 30,								Nine Months Ended September 30,
				2024				2023				2024				2023
Revenues:
Rental revenues				$	11,074			$	11,838			$	33,541			$	34,236
Other income					533				688				1,738				2,217
Total revenue					11,607				12,526				35,279				36,453
Expenses:
Property operating expenses					6,989				7,443				20,247				20,580
Depreciation and amortization					3,120				3,313				9,429				9,615
General and administrative					1,590				1,579				4,550				8,424
Advisory fee to related party					1,971				2,295				5,910				6,883
Total operating expenses					13,670				14,630				40,136				45,502
Net operating loss					(2,063	)			(2,104	)			(4,857	)			(9,049	)
Interest income					5,506				9,008				16,033				25,201
Interest expense					(2,123	)			(1,954	)			(5,958	)			(7,574	)
Gain on foreign currency transactions					-				-				-				993
Loss on early extinguishment of debt					-				-				-				(1,710	)
Equity in income from unconsolidated joint ventures					423				234				1,407				2,946
(Loss) gain on real estate transactions					(23,400	)			(32	)			(23,400	)			156
Income tax provision					4,641				(1,127	)			3,552				(2,416	)
Net (loss) income					(17,016	)			4,025				(13,223	)			8,547
Net income attributable to noncontrolling interest					(444	)			(1,037	)			(1,319	)			(2,456	)
Net (loss) income attributable to the common shares				$	(17,460	)		$	2,988			$	(14,542	)		$	6,091
Earnings per share
Basic and diluted				$	(1.08	)		$	0.18			$	(0.90	)		$	0.38
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 ARL's net income for Q3 2024?

ARL reported a net loss of $17.5 million ($1.08 per diluted share) for Q3 2024.

What is the occupancy rate of ARL's properties in Q3 2024?

Total occupancy was 79%, with 95% in multifamily properties and 48% in commercial properties.

How much was the Clapper settlement paid by ARL in October 2024?

ARL paid $23.4 million to resolve all claims litigation with David Clapper and related entities.

What is the value and purpose of ARL's new construction loan obtained in October 2024?

ARL obtained a $27.5 million construction loan to finance the development of a 234-unit multifamily property in Dallas, Texas, expected to be completed in 2026.