What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-03-23 compared with 2022-03-29 · 210 added, 201 removed, 711 unchanged (37% of the section changed)

109 unchanged sentences

16,152,043 shares issued and 16,152,043 outstanding

Treasury stock at cost, — shares

Additional paid-in capital 62,090 62,090

26 unchanged sentences

( 26,196 ) ( 29,080 ) ( 35,004 )

Loss on foreign currency transactions ( 6,175 ) ( 13,378 ) ( 15,108 )

Loss on extinguishment of debt ( 1,451 ) — ( 5,219 )

Gain (loss) on foreign currency transactions 20,067 ( 6,175 ) ( 13,378 )

Loss on early extinguishment of debt ( 2,805 ) ( 1,451 ) —

Equity in income (loss) from unconsolidated joint ventures 469,268 14,634 ( 379 )

Gain on sale or write-down of assets 24,647 36,895 15,192

Gain on sale, remeasurement or write down of assets 87,132 24,647 36,895

Income tax provision ( 98,108 ) 1,067 147

Net income (loss) 6,445 11,267 ( 21,743 )

Net (income ) loss attributable to noncontrolling interest ( 3,098 ) ( 2,237 ) 5,785

Net income (loss) attributable to the Company 3,347 9,030 ( 15,958 )

Preferred dividend — — ( 1 )

Net income (loss) applicable to common shares $ 3,347 $ 9,030 $ ( 15,959 )

Earnings per share - basic

Basic $ 0.21 $ 0.56 $ ( 1.00 )

Diluted $ 0.21 $ 0.56 $ ( 1.00 )

Net income 475,317 6,445 11,267

Net income attributable to noncontrolling interest ( 101,968 ) ( 3,098 ) ( 2,237 )

Net income applicable to the Company $ 373,349 $ 3,347 $ 9,030

Earnings per share

Basic and diluted $ 23.11 $ 0.21 $ 0.56

Weighted average common shares used in computing earnings per share

Basic 16,152,043 16,045,796 15,997,076

Diluted 16,152,043 16,045,796 15,997,076

Basic and diluted 16,152,043 16,152,043 16,045,796

The accompanying notes are an integral part of these consolidated financial statements.

9 unchanged sentences

Net income — — — 9,030 9,030 2,237 11,267

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 loss — — — — 9,030 9,030 2,237 11,267

Issuance of common shares — — — 3,747 — 3,747 — 3,747

6 unchanged sentences

Balance, December 31, 2021 1,801 162 — 62,090 176,085 240,138 96,713 336,851

Net income — — — — 373,349 373,349 101,968 475,317

Balance, December 31, 2022 $ 1,801 $ 162 $ — $ 62,090 $ 549,434 $ 613,487 $ 198,681 $ 812,168

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

Cash Flow From Operating Activities:

Net income (loss) $ 6,445 $ 11,267 $ ( 21,743 )

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Gain on sale or write down of assets ( 24,647 ) ( 36,895 ) ( 15,192 )

Loss on foreign currency transactions 6,175 13,378 15,108

Loss on debt extinguishment 1,451 — 5,219

Net income $ 475,317 $ 6,445 $ 11,267

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Gain on sale, remeasurement or write down of assets ( 87,132 ) ( 24,647 ) ( 36,895 )

(Gain ) loss on foreign currency transactions ( 20,067 ) 6,175 13,378

Loss on early debt extinguishment 2,805 1,451 —

Depreciation and amortization 13,111 15,029 18,579

(Recovery) provision for doubtful accounts ( 3,284 ) ( 1,326 ) 984

Equity in earnings from unconsolidated joint ventures ( 14,634 ) 379 2,313

Equity in (income) loss from unconsolidated joint ventures ( 469,268 ) ( 14,634 ) 379

Distribution of income from unconsolidated joint ventures 5,200 3,157 1,782

Changes in assets and liabilities, net of dispositions:

Changes in assets and liabilities, net of acquisitions and dispositions:

Other assets 7,782 ( 14,205 ) ( 3,450 )

7 unchanged sentences

Purchase of short-term investments ( 277,641 ) ( 16,000 ) —

Acquisition of real estate — — ( 3,422 )

Redemption of short-terms investments 175,250 — —

Development and renovation of real estate ( 18,686 ) ( 8,070 ) ( 17,505 )

2 unchanged sentences

Contribution to unconsolidated joint venture — ( 411 ) —

Distribution from unconsolidated joint ventures 7,430 8,086 6,504

Net cash provided by (used in) by investing activities 100,822 4,196 ( 3,705 )

Distributions from unconsolidated joint ventures 384,284 7,430 8,086

Net cash provided by investing activities 307,357 100,822 4,196

Cash Flow From Financing Activities:

3 unchanged sentences

Deferred financing costs — ( 614 ) ( 1,297 )

Repurchase of preferred stock — — —

Preferred stock dividends — — —

Net cash (used in) provided by financing activities ( 103,585 ) ( 3,985 ) 21,042

Net (decrease) increase in cash and cash equivalents ( 14,286 ) 3,709 ( 23,304 )

Net cash used in financing activities ( 112,377 ) ( 103,585 ) ( 3,985 )

Net increase (decrease) in cash and cash equivalents 149,594 ( 14,286 ) 3,709

Cash and cash equivalents, beginning of year 72,734 87,020 83,311

7 unchanged sentences

Over 90 % of our stock is owned by related party entities.

Our primary business is the acquisition, development and ownership of income-producing multifamily apartment communities and commercial real estate properties.

Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate properties.

In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets.

1 unchanged sentence

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.

We also generate income from the sales of income-producing properties and land.

We own approximately 78.4 % of the common stock of Transcontinental Realty Investors, Inc.

("TCI") and substantially all of our operations are conducted through TCI, whose common stock is listed on the NYSE under the symbol “TCI”.

3 unchanged sentences

At December 31, 2022, our property portfolio consisted of:

● Five commercial properties, consisting of four office buildings and 1 retail property, comprising in aggregate of approximately 1,063,515 square feet;

● Nine multifamily apartment communities owned directly by us, comprising in 1,492 units, excluding apartments being developed;

● Approximately 1,875 acres of developed and undeveloped land;

● Fifty-two multifamily apartment communities, totaling 10,281 units, owned by our joint venture.

● Four office buildings ("commercial properties") comprising in aggregate of approximately 1,056,793 square feet;

● Fourteen multifamily properties comprising in 2,328 units;

● Approxima tely 1,858 acres of developed and undeveloped land.

Our day to day operations are managed by Pillar Income Asset Management, Inc.

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 our employees are Pillar employees.Four of our commercial properties are managed by Regis Realty Prime, LLC (“Regis”).

Their duties include, but are not limited to, locating, evaluating and recommending real estate-related investment opportunities and arranging debt and equity financing with third party lenders and investors.

All of our employees are Pillar employees.

Three of our commercial properties are managed by Regis Realty Prime, LLC (“Regis”).

Regis provides leasing, construction management and brokerage services.

Our multifamily properties are managed by outside management companies.

All of our multifamily properties and one of our commercial properties are managed by outside management companies.

Pillar and Regis are considered to be related parties (See Note 14 – Related Party Transactions).

21 unchanged sentences

Real estate classified as held for sale are measured at the lower of the carrying amount or 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, 2021 or 2020.

Cost capitalization

8 unchanged sentences

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 capitalize leasing costs on our commercial properties, which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement.

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

5 unchanged sentences

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.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Related parties

13 unchanged sentences

At December 31, 2022 and 2021, the Company maintained balances in excess of the insured amount.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

We are a “C” corporation” for U.S.

1 unchanged sentence

However, we are included in the May Realty Holdings, Inc.

(the "MRHI").

consolidated group for tax purposes.

1 unchanged sentence

Comprehensive income (loss)

Net income (loss) and comprehensive income (loss) are the same for the year ended December 31, 2021, 2020 and 2019.

Net income and comprehensive income are the same for the year ended December 31, 2022, 2021 and 2020.

Use of estimates

1 unchanged sentence

Actual results could differ from those estimates.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Recent accounting pronouncements.

In October 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-17, Consolidation (Topic 810):

Targeted Improvements to Related Party Guidance for Variable Interest Entities.

This standard 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 service providers are variable interests.

The adoption of the standard on January 1, 2020, did not have a material impact on our financial position and results of operations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

1 unchanged sentence

The standard provides guidance, optional expedients and exceptions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

The standard was effective 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 in 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 result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease 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 31, 2021.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

We do not have any mortgage notes payable with interest rates that reference LIBOR, and therefore, the adoption of this standard did not have an impact on our consolidated financial statements.

Earnings Per Share

3 unchanged sentences

2022 2021 2020

Net income (loss) $ 6,445 $ 11,267 $ ( 21,743 )

Net (income ) loss attributable to noncontrolling interest ( 3,098 ) ( 2,237 ) 5,785

Net income (loss) attributable to the Company 3,347 9,030 ( 15,958 )

Preferred dividend — — ( 1 )

Net income (loss) applicable to common shares $ 3,347 $ 9,030 $ ( 15,959 )

Net income $ 475,317 $ 6,445 $ 11,267

Net income attributable to noncontrolling interest ( 101,968 ) ( 3,098 ) ( 2,237 )

Net income applicable to the Company $ 373,349 $ 3,347 $ 9,030

Weighted-average common shares outstanding - basic and diluted 16,152 16,152 16,046

EPS - attributable to common shares - basic and diluted $ 23.11 $ 0.21 $ 0.56

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Supplemental Cash Flows Information

3 unchanged sentences

Cash paid for interest $ 22,211 $ 28,891 $ 31,453

Cash - beginning of year

Cash paid for income taxes $ 55,288 $ 910 $ 2,530

Cash, cash equivalents and restricted cash - beginning of year

Cash and cash equivalents $ 50,748 $ 36,814 $ 51,228

1 unchanged sentence

$ 72,734 $ 87,020 $ 83,311

Cash - end of year

Cash, cash equivalents and restricted cash - end of year

Cash and cash equivalents $ 113,445 $ 50,748 $ 36,814

1 unchanged sentence

$ 222,328 $ 72,734 $ 87,020

Proceeds from mortgages, notes and bonds payable

Mortgages and notes payable $ 20,015 $ 10,942 $ 25,675

Proceeds from mortgages, other notes and bonds payable

Mortgages and other notes payable $ — $ 20,015 $ 10,942

Bonds payable — — 19,785

$ — $ 20,015 $ 30,727

Payment of mortgages, notes and bonds payable

Mortgages and notes payable $ 65,242 $ 13,823 $ 52,976

Payment on mortgages, other notes and bonds payable

Mortgages and other notes payable $ 67,263 $ 65,242 $ 13,823

Bonds payable 43,759 53,658 19,592

$ 111,022 $ 118,900 $ 33,415

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following is a schedule of noncash investing and financing activities:

1 unchanged sentence

2022 2021 2020

Assets distributed from joint venture $ 133,372 $ — $ —

Liabilities assumed by joint venture $ 72,143 $ — $ —

Distribution from joint venture applied to Earn Out Obligation $ 34,159 $ 5,441 $ —

Assets contributed to joint venture $ — $ 18,608 $ —

1 unchanged sentence

Notes receivable received in exchange for related party receivable $ — $ 9,259 $ —

Distribution from joint venture applied to Earn Out Obligation $ 5,441 $ — $ —

Property acquired in exchange for note payable $ — $ — $ 3,350

1 unchanged sentence

Debt assumed in sale of properties $ — $ — $ 8,238

Property acquired in exchange for note receivable $ — $ — $ 1,800

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Operating Segments

19 unchanged sentences

The following table reconciles our profit by reportable segment to net income (loss):

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

For the Years Ended December 31,

2022 2021 2020

Segment operating income $ 16,948 $ 27,549 $ 20,537

Profit from reportable segments $ 15,741 $ 16,948 $ 27,549

Other non-segment items of income (expense)

1 unchanged sentence

General and administrative ( 10,033 ) ( 15,942 ) ( 10,614 )

Advisory Fee ( 13,985 ) ( 9,409 ) ( 9,216 )

Advisory fee to related party ( 8,753 ) ( 13,985 ) ( 9,409 )

Other income 3,464 4,231 7,117

1 unchanged sentence

Interest expense ( 26,196 ) ( 29,080 ) ( 35,004 )

Loss on foreign currency transactions ( 6,175 ) ( 13,378 ) ( 15,108 )

Los on extinguishment of debt ( 1,451 ) — ( 5,219 )

Gain (loss) on foreign currency transactions 20,067 ( 6,175 ) ( 13,378 )

Loss on early extinguishment of debt ( 2,805 ) ( 1,451 ) —

Equity in income (loss) from unconsolidated joint ventures 469,268 14,634 ( 379 )

Gain on sale or write-down of assets 24,647 36,895 15,192

Gain on sale, remeasurement or write down of assets 87,132 24,647 36,895

Income tax provision ( 98,108 ) 1,067 147

Net income (loss) $ 6,445 $ 11,267 $ ( 21,743 )

Net income $ 475,317 $ 6,445 $ 11,267

The table below reconciles the segment information to the corresponding amounts in the consolidated balance sheets:

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Segment assets $ 461,303 $ 263,937

3 unchanged sentences

Receivable from related parties 108,184 100,599

Other assets and receivables 143,860 137,264

Cash, short-term investments and other non-segment assets 392,410 143,860

Total assets $ 1,197,479 $ 770,569

10 unchanged sentences

Total rental revenue $ 34,080 $ 37,808 $ 51,909

The following table summarizes the future rental payments to us from under non-cancelable leases, which excludes multifamily properties, which typically have lease terms of one-year or less:

2023 $ 11,620

Thereafter 21,713

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

The following table summarizes the future rental payments to us from under non-cancelable leases, which excludes multifamily leases, which typically have a term of one-year or less:

2022 $ 13,368

Thereafter 20,008

Real Estate Activity

6 unchanged sentences

Less accumulated deprecation ( 66,054 ) ( 62,933 )

Total real estate, net 296,197 374,811

Property held for sale 166 2,572

Total real estate $ 493,821 $ 296,363

Our property held for sale consists of land parcels at Mercer Crossing that are currently under contract for sale and our construction in progress consists of development of Windmill Farms.

Construction in progress consists of development of Windmill Farms and the renovation cost associated with Landing Bayou.

We incurred depreciation expense of $ 8,962 , $ 10,820 and $ 14,755 for the years ending December 31, 2022, 2021 and 2020, respectively.

Gain on sale or write-down of assets, net consists of the following:

6 unchanged sentences

$ 87,132 $ 24,647 $ 36,895

(1) Includes the gain sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.

(2) Includes the gain from the sale of a 50 % ownership interest in Overlook at Allensville Phase II (See Note 9 – Investment in Unconsolidated Joint Ventures) and the gains on the sale of various multifamily properties that had previously been deferred (See Note 16 – Deferred Income).

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(3) On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $ 74,750 , resulting in gain on sale of $ 27,270 .

We used the proceeds to pay down the mortgage note payable on the property (See Note 10 - Mortgages and Other Notes Payable) and for general corporate purposes.

(1) Includes the sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.

(2) On November 1, 2022, we acquired control of the VAA Holdback Portfolio VAA (See Note 11 – Acquisitions), which resulted in a $ 73,187 gain on remeasurement of assets.

On September 16, 2022, in connection with the sale of properties by VAA (See Note 10 - Investment in Unconsolidated Joint Ventures), we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge , Louisiana for $ 11,800 , resulting in a gain on sale of $ 1,871 .

We used the proceeds to pay off the $ 9,551 mortgage note payable on the property and for general corporate purposes.

On March 30, 2021 we sold a 50 % ownership interest in Overlook at Allensville Phase II to Macquarie in 2021 ( See Note 10 – Investment in Unconsolidated Joint Ventures).

In 2021, we also recognized the gain on the sale of various multifamily properties that had previously been deferred (See Note 17 – Deferred Income).

On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $ 26,750 , resulting in a gain on sale of $ 9,364 .

We used the proceeds to pay off the $ 14,740 mortgage note payable on the property and for general corporate purposes.

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 $ 898 .

2 unchanged sentences

The sales price was funded by cash payment of $ 4,215 and the assumption of the $ 9,085 mortgage note payable on the property.

(4) Includes a $ 29,600 loss on the remeasurement of the Earn Out Obligation in connection with our investment in VAA (See Note 9 - Investment in Unconsolidated Joint Ventures).

Short-term Investments

The Company has an investment in variable denominated floating rate notes with a a financial institution.

The notes are have no stated maturity and are subject to immediate repayment at the Company’s option.

At December 31, 2021, the interest rate on the notes was 1.15 %.

(3) On May 17, 2022 , we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $ 750 , resulting in a gain on sale of $ 667 .

We used the proceeds for general corporate purposes.

On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $ 74,750 , resulting in gain on sale of $ 27,270 .

We used the proceeds to pay pay off the $ 35,946 mortgage note payable on the property and for general corporate purposes.

(4) In 2021, we incurred a $ 29,600 loss on the remeasurement of the Earn Out Obligation in connection with our investment in VAA (See Note 10 - Investment in Unconsolidated Joint Ventures).

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

Short-term Investments

We have investment in variable denominated floating rate notes and commercial paper with maturities of less than 180 days.

At December 31, 2022, the average interest rate on the notes was 4.67 % .

Notes Receivable

15 unchanged sentences

Parc at Ingleside(1) 3,759 3,700 5.00 % 11/1/2026

Parc at Opelika(1) 2,305 — 10.00 % 1/13/2023

Parc at Opelika Phase II(1)(4) 3,190 2,305 10.00 % 1/13/2023

Parc at Windmill Farms(1)(4) 7,886 7,830 5.00 % 11/1/2022

Phillips Foundation for Better Living, Inc.(2) 182 813 12.00 % 3/31/2024

Phillips Foundation for Better Living, Inc.(2) 813 — 12.00 % 3/31/2024

Plum Tree(1) 1,767 1,537 5.00 % 4/26/2026

Riverview on the Park Land, LLC 1,045 1,045 9.50 % 6/30/2026

RNC Portfolio, Inc.

— 8,853 5.00 % 9/1/2024

Spartan Land 5,907 5,907 12.00 % 1/16/2025

13 unchanged sentences

$ 139,609 $ 136,607

(1) The note is convertible, at our option, into a 100 % ownership interest in the underlying development property, and are collateralized by the underlying development property.

(1) The note is convertible, at our option, into a 100 % ownership interest in the underlying development property, and is collateralized by the underlying development property.

(2) The borrower is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.

1 unchanged sentence

(“UHF”) are funded from surplus cash flow from operations, sale or refinancing of the underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes.

(4) We are working with the borrower to extend the maturity and/or exercise or conversion option.

AMERICAN REALTY INVESTORS, INC.

2 unchanged sentences

Investment in Unconsolidated Joint Ventures

On November 16, 2018 , we formed Victory Abode Apartments, LLC ("VAA"), a joint venture with the Macquarie Group (“Macquarie”).

On November 16, 2018 , we formed the Victory Abode Apartments, LLC ("VAA"), a joint venture with the Macquarie Group (“Macquarie”).

VAA was formed as a result of a sale of the 50 % ownership interest in 51 multifamily properties owned by us in exchange for a 50 % voting interest / 49 % profit participation interest ("Class A interest") in VAA a nd a note payable (“Mezzanine Loan”).

Concurrent with the Contributi on, VAA issued Class B interests with a 2 % profits participation interest and no voting rights to Daniel J.

Moos, our former President and Chief Executive Officer (“Class B Member”).

The Class B Member serves as the Manager of VAA.

Interest on the Mezzanine loan is limited to cash generated from the properties and matures concurrently with the termination of VAA.

Accordingly, we account for our interest in the Mezzanine Loan as additional equity interest and includes any interest payments accrued as income from unconsolidated joint ventures.In connection with the formation of VAA, ten out of the initial properties were subject to an earn-out provision ("Earn Out") that provides for a remeasurement of value after a two-year period following the completion of construction.

Upon the formation of VAA, we recorded a liability ("Earn Out Obligation") for the $ 10,000 advance on the Earn Out that we received from Macquarie.

Concurrent with the Contributi on, VAA issued Class B interests with a 2 % profits participation interest and no voting rights to the manager (“Class B Member”).

In connection with the formation of VAA, ten out of the initial properties were subject to an earn-out provision ("Earn Out") that provides for a remeasurement of value after a two-year period following the completion of construction.

Upon the formation of VAA, we recorded a liability ("Earn Out Obligation") of $ 10,000 for the advance on the Earn Out that we received from Macquarie.

On March 30, 2021, we sold a 50 % ownership interest in Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie for $ 2,551 resulting in gain on sale of $ 1,417 .

2 unchanged sentences

Our position and claims were declined, and the position of Macquarie was fully accepted.

As a result, we are required to pay approximately $ 39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $ 29,600 during the year ended December 31, 2021 (See Note 7 – Real Estate Activity).

In accordance with the joint venture operating agreement, the Earn Out Obligation will be paid from our share of future distributions from VAA, which generally occur each six months .

In July 2021, our $ 5,441 distribution from VAA was paid directly to Macquarie as a reduction of the Earn Out Obligation.

On November 17, 2021 , we entered into a Major Decision with Macquarie to engage a broker and initiate a sale of all the properties held by the VAA.

In connection with the sale, VAA will distribute seven of its existing properties to us (referred to herein as the "Holdback Properties") and we in turn, will contribute one of our properties ("Contributed Property") into the portfolio offered for sale to third-parties.

The remaining forty-five properties as referred to herein as the VAA Portfolio.

The sales price for the Holdback Properties and Contributed Property will be the estimated value of these properties as stated in the agreement, multiplied by the ratio of the actual sales price of the VAA Portfolio over the estimated value of the portfolio as stated in the agreement.

The Major Decision agreement will terminate on August 1, 2022, if the VAA Portfolio has not been sold.

We also own a 20 % ownership interest in a 20 % interest in Gruppa Florentina, LLC ("Milano"), which operates several pizza parlors in Central and Northern California.

As a result, we were required to pay approximately $ 39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $ 29,600 in 2021 (See Note 7 – Real Estate Activity).

In accordance with the joint venture operating agreement, the Earn Out Obligation was paid from our share of subsequent distributions from VAA.

On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) owned by VAA and one property owned by our SPC subsidiary.

On September 15, 2022, VAA, SPC, Macquarie and Pillar entered a Distribution and Holdback Property Agreement (“Distribution Agreement”), which provided the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“VAA Holdback Portfolio”).

On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $ 1,810,700 , resulting in gain on sale of $ 738,444 to the joint venture.

In connection with sale, we received an initial distribution of $ 182,848 from VAA, which included the payment of the remaining balance of the Earn Out Obligation.

On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the VAA Holdback Portfolio (See Note 11 - Acquisitions) and a cash payment of $ 204,036 .

We are in the process of negotiating the assumption of the mortgage notes payable on the VAA Holdback Portfolio with the lenders.

We plan to use our share of the proceeds from the sale of the VAA Sale Portfolio to investment in additional income-producing real estate, pay down our debt and for general corporate purposes.

Our ownership interest in VAA is held by SPC, and is therefore subject to the debt covenants of bonds issued by SPC.

These provisions include restrictions on the distribution of cash from SPC (See Note 13 - Bonds Payable).

We also own a 20 % ownership 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 trade name Angelo & Vito’s Pizzerias.

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As of December 31,

Assets from discontinued operations $ — $ 1,135,769

Real estate 13,140 142,629

2 unchanged sentences

Liabilities and Partners Capital (1)

Liabilities from discontinued operations $ 8,824 $ 807,382

Mortgage notes payable 16,267 83,955

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Total expenses 75,169 95,104 74,504

Net loss $ ( 14,898 ) $ ( 25,101 ) $ ( 48,093 )

Our share of net (loss) income in unconsolidated joint ventures $ 14,634 $ ( 379 ) $ ( 2,313 )

(1) These amounts include revenue of $ 139,161 , $ 123,576 and $ 115,377 of VAA during the years ended December 31, 2021 , 2020 and 2019 , respectively, and expenses of $ 155,847 , $ 150,278 and $ 165,773 of VAA during the years ended December 31, 2021 , 2020 and 2019 , respectively.

Loss from continuing operations ( 22,714 ) ( 19,958 ) ( 20,534 )

Income (loss) from discontinued operations (2) 708,341 7,416 ( 4,567 )

Net income (loss) $ 685,627 $ ( 12,542 ) $ ( 25,101 )

Our share of net income (loss) in unconsolidated joint ventures $ 469,268 $ 14,634 $ ( 379 )

AMERICAN REALTY INVESTORS, INC.

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(Dollars in thousands, except per share amounts)

(1) These amounts include reve nue of $ 11,963 , $ 15,336 and $ 14,024 of VAA during the years ended December 31, 2022, 2021 and 2020, respectively, and expenses of $ 36,076 , $ 39,438 and $ 36,159 of VAA during the years ended December 31, 2022, 2021 and 2020, respectively.

(2) The amount for the year ended December 31, 2022, includes $ 738,444 gain on sale of asset and $ 31,281 loss on early extinguishment of debt that were incurred in connection with the sale of the VAA Sale Portfolio.

On November 1, 2022, we acquired the remaining 50 % ownership interest in the VAA Holdback Portfolio that we did not previously own through a distribution from VAA (See Note 10 – Investment in Unconsolidated Joint Ventures).

Prior to the acquisition, we had accounted for the VAA Holdback Portfolio under the equity method of accounting as part of our investment in VAA.

As a result of this transaction,we obtained 100 % ownership of the VAA Holdback Portfolio.

The acquisition was completed in order to obtain 100 % ownership and control over this well positioned portfolio of multifamily residential properties in southern United States.

The VAA Holdback Portfolio consisted of the following properties:

Property Location Units

Blue Lake Villas Waxahachie, TX 186

Blue Lake Villas Phase II Waxahachie, TX 70

Northside on Travis Sherman, TX 200

Parc at Denham Springs Denham Spring, LA 224

Residences at Holland Lake Weatherford, TX 208

Villas of Park West I Pueblo, CO 148

Villas of Park West II Pueblo, CO 112

The following is a summary of the preliminary allocation of the fair value of the VAA Holdback Portfolio:

Real estate $ 219,500

Other assets 4,843

Total assets acquired 224,343

Mortgage notes payable 70,330

Accounts payable and other liabilities 1,624

Accrued interest 190

Total liabilities assumed 72,144

Fair value of acquired net assets ( 100 % ownership)

We have determined that the purchase price represented the fair value of the additional ownership interest in the VAA Holdback Portfolio that was acquired.

Fair value of existing ownership interest (at 50 % ownership)

Carrying value of investment 146,313

Gain on remeasurement of assets $ 73,187

From November 1, 2022 , we have included the VAA Holdback Portfolio in our consolidated financial statements.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Mortgages and Other Notes Payable

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Property/ Entity 2022 2021

600 Las Colinas(1) $ — $ 35,589 5.30 % 11/1/2023

770 South Post Oak $ 11,406 $ 11,635 4.40 % 6/1/2025

Athens 1,155 1,155 4.00 % 8/28/2023

Blue Lake Villas(1) 9,673 — 3.15 % 11/1/2055

Blue Lake Villas Phase II(1) 3,424 — 2.85 % 6/1/2052

Chelsea 7,875 8,037 3.40 % 12/1/2050

EQK Portage - Land 3,350 3,350 10.00 % 11/13/2024

HSW Partners(3) — 17,790 9.50 % 6/17/2021

EQK Portage 3,350 3,350 10.00 % 11/13/2024

Forest Grove 7,128 7,263 3.75 % 5/5/2024

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Legacy at Pleasant Grove 13,039 13,352 3.60 % 4/1/2048

McKinney 36 Land — 820 8.00 % 6/30/2022

New Concept Energy 3,542 3,542 6.00 % 9/30/2023

Overlook at Allensville Phase II(5) — 15,621 3.80 % 5/1/2059

Northside on Travis(1) 11,656 — 2.50 % 2/1/2053

Parc at Denham Springs(1) 16,737 — 3.75 % 4/1/2051

Parc at Denham Springs Phase II 15,789 15,962 4.05 % 2/1/2060

RCM HC Enterprises(5) 5,086 5,086 5.00 % 12/31/2022

Residences at Holland Lake(1) 10,622 — 3.60 % 3/1/2053

Stanford Center(2) — 38,979 6.00 % 2/26/2023

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Villas at Bon Secour 19,410 19,492 3.08 % 9/1/2031

Villas of Park West I(1) 9,373 — 3.04 % 3/1/2053

Villas of Park West II(1) 8,504 — 3.18 % 3/1/2053

Vista Ridge 9,674 9,830 4.00 % 8/1/2053

1 unchanged sentence

$ 188,004 $ 183,392

(1) On August 26, 2021, we paid off the loan in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).

(2) On March 2, 2021, the loan was extended to August 28, 2022.

(3) On June 4, 2021, the lender assumed the remaining $ 1,986 balance of our loan from HSW Partners and extended the maturity to December 17, 2026.

(4) The loan bears interest at prime rate plus 0.5 %.

(5) On March 30, 2021 , the loan was assumed by VAA in connection with our contribution of the underlying property to the joint venture (See Note 9 – Investment in Unconsolidated Joint Ventures).

(6) On March 4, 2021, the loan was extended to February 28, 2023 at an interest rate of 5 %.

(7) On January 14, 2022, we paid off the loan in connection with the sale of the underlying property (See Note 20 - Subsequent Events).

(8) On August 25, 2021, we replaced the existing loan on the property with a new $ 20,015 loan that bears interest at 3.08 % and matures on September 1, 2031.

(9) On March 4, 2021, the loan was extended to February 28, 2023 at an interest rate of 5 %.

(1) On November 1, 2022, we assumed the mortgage note payable in connection with the acquisition of the underlying property (See Note 11 - Acquisitions).

(2) On October 21, 2022, we paid off the loan, which resulted in a loss on early extinguishment of debt of $ 1,639 .

(3) On September 16, 2022, we paid off the loan in connection with the sale of the underlying property (See Note 7 - Real Estate Activity), which resulted in a loss on early extinguishment of debt of $ 1,166 .

(4) On January 14, 2022, we paid off the loan in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).

(5) We are currently negotiating an extension of the loan with the lender.

Interest payable at December 31, 2022 and 2021, was $ 2,004 and $ 1,522 , respectively.

We capitalized interest of $ 3,417 and $ 3,733 during the years ended December 31, 2022 and 2021, respectively.

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 working with our existing lenders and new lenders to modify, extend the loans before they become due or refinancing the loans with terms that are similar to the existing agreement.

As of December 31, 2022 , we were in compliance with all of our loan covenants except for the minimum debt service coverage ratio (“DSCR”) for the loan on 770 South Post Oak.

As a result, the lender requires us to lock the surplus cash flow of the property into a designated deposit account controlled by them, until we are in compliance with the DSCR for a period of two consecutive quarters.

All of the above mortgages and other notes payable are collateralized by the underlying property.

In addition, we have guaranteed the loans on Athens, Forest Grove and Villas at Bon Secour.

AMERICAN REALTY INVESTORS, INC.

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The Bonds are denominated in New Israeli Shekels ("NIS") and provide for semiannual principal and interest payments through maturity.

In connection with the Bonds, we incurred a loss on foreign currency transactions of $ 6,175 , $ 13,378 , and $ 15,108 , for the years ended December 31, 2021 , 2020 and 2019, respectively.

We have a hedging agreement that effectively prevents the exchange rate for the NIS to the U.S.

Dollar from falling below 2.7 .

In connection with the Bonds, we incurred a gain (loss) on foreign currency transactions of $ 20,067 , $( 6,175 ), and $( 13,378 ), for the years ended December 31, 2022 , 2021 and 2020, respectively.

The outstanding balance of our Bonds at December 31, 2022 and 2021 is as follows:

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(1) The bonds are collateralized by the assets of SPC.

(2) The bonds are collateralized by a trust deed in Browning Place, a 625,297 square foot office building in Farmers Branch, Texas.

(2) The bonds were collateralized by a trust deed in Browning Place, a 625,297 square foot office building in Dallas, Texas.

On January 31, 2023, the series of bonds were paid off.

The aggregate maturities of our Bonds are as follows:

2023 (1) $ 107,453

The Bonds include a number of covenants, including restrictions on the amount of cash that can distributed from SPC.

As of December 31, 2021, we were in compliance with our bond covenants.

(1) Includes the $ 66,546 Series C Bonds that were repaid on January 31, 2023.

The Bonds include a number of covenants, including restrictions on the amount of cash that can be distributed from SPC.

As of December 31, 2022, we were in compliance with all of our bond covenants.

AMERICAN REALTY INVESTORS, INC.

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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.

Pillar and Regis are wholly owned by an affiliates of the MRHI, which owns appro ximately 90.8 % of our common shares.

Pillar is compensated for advisory services in accordance with an agreement.

Pillar and Regis are wholly owned by an affiliates of the MRHI, which indirectly owns appro ximately 90.8 % of our common shares.

Pillar is compensated for services in accordance with an Advisory Agreement.

Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement.

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Advisory fees paid to Pillar were $ 8,753 , $ 13,985 and $ 9,409 for the years ended December 31, 2022, 2021 and 2020, respectively.

Notes receivable are includes amounts held by UHF and Pillar (See Note 9 – Notes Receivable).

Notes receivable include amounts held by UHF and Pillar (See Note 9 – Notes Receivable).

UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.

Interest income on these notes was $ 16,880 , $ 19,799 and $ 19,515 for the years ended December 31, 2022, 2021 and 2020, respectively.

Accrued interest on the these notes of $ 4,663 and $ 4,535 is included in other assets at December 31, 2022 and 2021, respectively.

Interest expense on notes payable to Pillar was $ 8,667 , $ 5,661 and $ 6,632 for the years ended December 31, 2022, 2021 and 2020, respectively.

Related party receivables represents amounts outstanding from Pillar for loans and advances, net of unreimbursed fees, expenses and costs as provided above.

Related party receivables represent amounts outstanding from Pillar for loans and advances, net of unreimbursed fees, expenses and costs as provided above.

Noncontrolling Interests

The noncontrolling interest represents the third party ownership interest in TCI and Income Opportunity Realty Investors, Inc.

We owned 78.4 % of TCI, which in turn owned 81.1 % in in IOR, during the years ended December 31, 2021, 2020 and 2019.

We owned 78.4 % of TCI, which in turn owned 81.1 % in IOR, during the years ended December 31, 2022, 2021 and 2020.

Stockholders' Equity

1 unchanged sentence

In accordance with that policy, no dividends on our common stock were declared for 2022, 2021 , or 2020 .

Future distributions to common stockholders will be determined in light of conditions then existing, including our financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by our 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 with a par value of $ 2.00 per share with a liquidation preference of $ 10.00 per share plus accrued and unpaid dividends.

Dividends are

Future dividends to common stockholders will be determined in light of conditions then existing, including our financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by our board of directors.

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

payable quarterly at the annual rate of $ 1.00 per share, or $ .25 per share when declared.

Preferred Stock:

Dividends are payable quarterly at the annual rate of $ 1.00 per share, or $ .25 per share when declared.

The Series A Preferred Stock may be converted into common stock at 90.0 % of the average daily closing price of our common stock for the prior 20 trading days.

11 unchanged sentences

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the 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.

The (benefit) expense for income taxes consists of:

The expense (benefit) for income taxes consists of:

Years Ended December 31,

4 unchanged sentences

Federal 13,024 — —

Total tax (benefit) expense $ ( 1,067 ) $ ( 147 ) $ —

Total tax expense (benefit) $ 98,108 $ ( 1,067 ) $ ( 147 )

AMERICAN REALTY INVESTORS, INC.

6 unchanged sentences

State and local income taxes net of federal tax (benefit) expense 7,705 342 ( 146 )

AMT refund ( 1,434 ) — —

Permanent tax differences ( 1,837 ) ( 1,846 ) ( 2,499 )

Alternative minimum tax refund — ( 1,434 ) —

Temporary tax differences

Installment note on land sale — — —

Allowance for losses on note receivables ( 485 ) ( 77 ) ( 246 )

Deferred gains ( 4,893 ) ( 878 ) ( 1,920 )

Basis differences on fixed assets ( 721 ) 1,307 —

Other basis/timing differences ( 2,729 ) 2,296 3,172

Generation (use) on net operating loss carryforwards 10,406 ( 3,137 ) 6,059

Change in valuation allowance ( 28,537 ) ( 259 ) ( 2,336 )

Reported tax (benefit) expense $ 98,108 $ ( 1,067 ) $ ( 147 )

4 unchanged sentences

Components of the Net Deferred Tax Asset or Liability

December 31, 2021

Deferred tax assets:

Deferred tax asset:

Allowance for losses on notes $ 1,470 $ —

Basis difference in fixed assets — 706

Deferred gain 275 5,168

Foreign currency translations 4,279 1,088

Net operating loss carryforward — 15,146

Total deferred tax assets 30,250 28,320

Deferred tax liabilities:

Deferred gain 18,249 2,937

Basis differences for fixed assets 530 —

( 13,030 ) 14,003

valuation allowance — ( 14,003 )

Total net deferred tax assets $ — $ —

Net deferred tax (liability) asset $ ( 13,030 ) $ —

We have state net operating losses in many of the various states in which we operate.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

At December 31, 2021, we had a net deferred tax asset due to tax deductions available to us in future years.

However, as we could not determine that it was more likely than not that we would realize the benefit of the deferred tax asset, we established a 100 % valuation allowance.

AMERICAN REALTY INVESTORS, INC.

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We intend to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet our liquidity requirements.

We were the primary guarantor, on a $ 24,300 mezzanine loan between UHF and a lender.

The guarantee was removed on January 29, 2021, concurrent with the repayment of the loan by UHF.

We are are also a guarantor on the mortgage notes payable on two properties in that are owned by VAA (See Note 10 - Investment in Unconsolidated Joint Ventures) and four that are owned directly by us (See Note 11 - Mortgages and Other Notes Payable).

We are defendants in litigation related to a property sale ("Nixdorf") that was that was completed in 2008, which was tried to a jury in March 2023.

On March 18, 2023, the jury in the case returned a “Plaintiff take nothing” verdict in our favor.

If judgment is finally rendered by the Court confirming the jury verdict, Plaintiff may well appeal.

We were a defendant in litigation with David Clapper and related entities (collectively, "Clapper”) regarding a multifamily property transaction that occurred in 1988.

2 unchanged sentences

The jury found the defendants owed Clapper nothing and the Court issued a take nothing judgment.

Clapper subsequently filed and appeal to the US Fifth Circuit Court of Appeals.

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 the allegations.

The trial for this matter is scheduled for November 2022.

Clapper subsequently filed and appeal to the US Fifth Circuit Court of Appeals, which has the case under review.

In February 2019, Paul Berger ("Berger") filed suit against us and others that alleged that IOR completed improper sales and/or transfers of property.

Berger sought to proceed derivatively and directly, requested a payoff of various related party loans to IOR and that IOR then distribute the funds to its stockholders.

After discovery and motions to dismiss substantial portions of the complaint, on June 28, 2022, Berger sought to voluntarily dismiss the action for reasons stated in the motion.

The parties did not enter into any settlement, and neither Berger nor their counsel received any consideration for the voluntary dismissal.

On January 4, 2023, the United States District Court entered a formal order that dismissed the action with prejudice.

Quarterly Results of Operations

13 unchanged sentences

EPS - basic and diluted $ 1.12 $ ( 1.69 ) $ 1.20 $ ( 0.42 )

The increase in net income and EPS - basic and diluted during the quarter ended September 30, 2022 is attributable to our share of the gain on the sale of the VAA Sale Portfolio by our joint venture in VAA (See Note 10 – Investment in Unconsolidated Joint Ventures).

Subsequent Events

On January 14, 2022, we sold Toulon, a 240 unit multifamily property property in Gautier, Mississippi for $ 26,750 .

The proceeds were used to pay off the mortgage note payable on the property and for general corporate purposes.

The date to which events occurring after December 31, 2022, the date of the most recent balance sheet, have been evaluated for possible adjustments to the financial statements or disclosure is March 23, 2023, which is the date of which the financial statements were available to be issued.

12 unchanged sentences

Construction Date

Blue Lake Villas $ 9,673 $ 6,920 $ 27,680 $ — $ 6,920 $ 27,680 $ 34,600 $ 115 2002 2022

Blue Lake Villas Phase II 3,424 2,400 9,600 — 2,400 9,600 12,000 40 2004 2022

Chelsea 7,875 1,225 11,230 53 1,231 11,277 12,508 1,192 1999 2018

2 unchanged sentences

Legacy at Pleasant Grove 13,039 2,005 18,109 92 2,033 18,173 20,206 3,716 2006 2018

Northside on Travis 11,656 7,160 28,640 — 7,160 28,640 35,800 119 2008 2022

Parc at Denham Springs 16,737 6,060 24,240 14 6,060 24,254 30,314 101 2007 2022

Parc at Denham Springs Phase II 15,789 1,505 16,975 — 1,505 16,975 18,480 1,297 2010 2009

Sugar Mill Phase III 9,216 576 9,755 ( 15 ) 576 9,740 10,316 382 2015 2015

Toulon 13,697 1,621 20,107 411 1,993 20,146 22,139 5,279 2011 2014

Residences at Holland Lake 10,622 6,300 25,200 7 6,300 25,207 31,507 105 2004 2022

Villas at Bon Secour 19,410 2,715 15,385 52 2,715 15,437 18,152 1,708 2007 2018

Villas of Park West I 9,373 8,200 32,800 — 8,200 32,800 41,000 137 2005 2022

Villas of Park West II 8,504 6,860 27,440 — 6,860 27,440 34,300 114 2010 2022

Vista Ridge 9,674 1,339 13,398 6 1,339 13,404 14,743 2,939 2009 2018

38 unchanged sentences

Parc at Ingleside 5.00 % 11/1/2026 No payments until maturity or conversion 24,815 3,759 3,759

Parc at Opelika 10.00 % 1/13/2023 No payments until maturity or conversion 23,661 2,305 2,305

Parc at Opelika Phase II 10.00 % 1/13/2023 No payments until maturity or conversion 21,904 3,190 3,190

Parc at Windmill Farms 5.00 % 11/1/2022 No payments until maturity or conversion 35,112 7,886 7,886

47 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk