What changed in this filing

/stocks — the workspaceLOADING

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-21 compared with 2023-03-23 · 147 added, 173 removed, 748 unchanged (30% of the section changed)

51 unchanged sentences

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.

We also searched for any significant declines in operating results of a real estate asset that could be due to a triggering event or an indicator of potential impairment.

Collectability of Notes Receivable

18 unchanged sentences

Emphasis of Liquidity

As described in the Note 19, management intends to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet the Company’s liquidity requirements.

As described in Note 19, management intends to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet the Company’s liquidity requirements.

Supplemental Information

60 unchanged sentences

26,847 26,559 17,760

Interest expense (including $ 8,667 , $ 5,661 and $ 6,632 for 2022, 2021 and 2020, respectively, from related parties)

Interest expense

( 9,502 ) ( 17,529 ) ( 23,419 )

1 unchanged sentence

Loss on early extinguishment of debt ( 1,710 ) ( 2,805 ) ( 1,451 )

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

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

Equity in income from unconsolidated joint ventures 3,242 469,268 14,634

(Loss) gain on sale, remeasurement or write down of assets ( 1,923 ) 87,132 24,647

Income tax provision ( 1,456 ) ( 98,108 ) 1,067

17 unchanged sentences

Net income — — — 3,347 3,347 3,098 6,445

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 — — 2 ( 2 ) — — — —

Adjustment of noncontrolling interest — — — ( 34,361 ) — ( 34,361 ) 34,361 —

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

Cancellation of treasury shares — — 2 ( 2 ) — — — —

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

Net income — — — — 3,968 3,968 1,283 5,251

Repurchase of treasury shares by IOR — — — — — — ( 908 ) ( 908 )

Adjustment to noncontrolling interest — — — ( 452 ) — ( 452 ) 452 —

Balance, December 31, 2023 $ 1,801 $ 162 $ — $ 61,638 $ 553,402 $ 617,003 $ 199,508 $ 816,511

7 unchanged sentences

Net income $ 5,251 $ 475,317 $ 6,445

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 )

Adjustments to reconcile net income to net cash used in operating activities:

Loss (gain) on sale, remeasurement or write down of assets 1,923 ( 87,132 ) ( 24,647 )

(Gain) loss on foreign currency transactions ( 993 ) ( 20,067 ) 6,175

1 unchanged sentence

Depreciation and amortization 14,571 13,111 15,029

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

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

Provision (recovery) for doubtful accounts 1,593 ( 3,284 ) ( 1,326 )

Equity in income from unconsolidated joint ventures ( 3,242 ) ( 469,268 ) ( 14,634 )

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

4 unchanged sentences

Accounts payable and other liabilities ( 28,794 ) 39,053 ( 2,564 )

Net cash (used in) provided by operating activities ( 45,386 ) ( 11,523 ) 3,498

Net cash used in operating activities ( 31,054 ) ( 45,386 ) ( 11,523 )

Cash Flow From Investing Activities:

10 unchanged sentences

Cash Flow From Financing Activities:

Proceeds from mortgages, other notes and bonds payable — 20,015 30,727

Proceeds from mortgages and other notes payable — — 20,015

Payments on mortgages, other notes and bonds payable ( 137,657 ) ( 111,022 ) ( 118,900 )

Repurchase IOR shares ( 908 ) — —

Debt extinguishment costs ( 435 ) ( 1,355 ) ( 4,086 )

1 unchanged sentence

Net cash used in financing activities ( 139,020 ) ( 112,377 ) ( 103,585 )

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

Net (decrease) increase in cash and cash equivalents ( 143,261 ) 149,594 ( 14,286 )

Cash and cash equivalents, beginning of year 222,328 72,734 87,020

16 unchanged sentences

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").

(“SPC”), which was formed for the purpose of raising funds by issuing non-convertible bonds that were listed and traded on the Tel-Aviv Stock Exchange ("TASE").

At December 31, 2023, our property portfolio consisted of:

17 unchanged sentences

Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.

Certain prior year amounts have been reclassified to conform wi th the current year presentation.

These reclassifications had no effect on the reported results of operation.

An adjustment has been made to reclassify $ 8,667 and $ 5,661 interest expense to related parties for the years ended December 31, 2022 and 2021, respectively, from interest expense to interest income on our consolidated statements of operations.

AMERICAN REALTY INVESTORS, INC.

47 unchanged sentences

Concentration of credit risk

We maintain our cash balances at commercial banks and through investment companies, the deposits that are insured by the Federal Deposit Insurance Corporation (FDIC).

We maintain our cash balances at commercial banks and through investment companies, the deposits that are insured by the Federal Deposit Insurance Corporation.

At December 31, 2023 and 2022, the Company maintained balances in excess of the insured amount.

5 unchanged sentences

Comprehensive income (loss)

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

Net income and comprehensive income are the same for the years ended December 31, 2023, 2022 and 2021.

Use of estimates

4 unchanged sentences

(Dollars in thousands, except per share amounts)

Recent accounting pronouncements.

In March 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 (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

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

25 unchanged sentences

$ 79,067 $ 222,328 $ 72,734

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 on mortgages, other notes and bonds payable

5 unchanged sentences

2023 2022 2021

Property acquired in exchange for reduction of related party receivable $ 8,764 $ — $ —

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

4 unchanged sentences

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

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

Note receivable issued in exchange for property $ — $ — $ 1,761

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

AMERICAN REALTY INVESTORS, INC.

34 unchanged sentences

Loss on early extinguishment of debt ( 1,710 ) ( 2,805 ) ( 1,451 )

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

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

Equity in income from unconsolidated joint ventures 3,242 469,268 14,634

(Loss) gain on sale, remeasurement or write down of assets ( 1,923 ) 87,132 24,647

Income tax provision ( 1,456 ) ( 98,108 ) 1,067

37 unchanged sentences

Total real estate $ 501,586 $ 493,821

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

On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida (" Lake Wales ") that is expected to be completed in 2025 for a total cost of approximately $ 55,330 .

The cost of construction will be funded in part by a $ 33,000 construction loan (See Note 12 – Mortgages and Other Notes Payable ).

The development agreement provides for a $ 1,637 fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land and certain entitlement costs from a related party at an appraised value of $ 6,064 .

As of December 31, 2023, we have incurred a total of $ 16,913 in development costs.

On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney , Texas (" Merano ") that is expected to be completed in 2025 for a total cost of approximately $ 51,910 .

The cost of construction will be funded in part by a $ 25,407 construction loan (See Note 12 – Mortgages and Other Notes Payable ).

The development agreement provides for a $ 1,551 fee that will be paid to Pillar over the construction period.

As of December 31, 2023, we have incurred a total of $ 7,155 in development costs.

On December 15, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in Temple , Texas (" Bandera Ridge ") that is expected to be completed in 2025 for a total cost of approximately $ 49,603 .

The cost of construction will be funded in part by a $ 23,500 construction loan (See Note 12 – Mortgages and Other Notes Payable ).

The development agreement provides for a $ 1,607 fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land from a related party at an appraised value of $ 2,700 .

As of December 31, 2023, we have incurred a total of $ 3,124 in development costs.

Construction in progress consists of development of Windmill Farms and the costs associated with our ground-up development projects.

We incurred depreciation expense of $ 12,887 , $ 8,962 and $ 10,820 for the years ending December 31, 2023, 2022 and 2021, respectively.

7 unchanged sentences

$ ( 1,923 ) $ 87,132 $ 24,647

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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

1 unchanged sentence

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).

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

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 .

The sales price was funded by the issuance of a $ 1,761 note receivable and the assumption of a $ 665 mortgage note payable on the property.

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 sale of $ 2,684 .

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

We used the proceeds from the sale to pay off the $ 14,740 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 ( 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).

(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.

We used the proceeds from the sale 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.

We used the proceeds from the sale to 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).

Short-term Investments

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

At December 31, 2023, the average interest rate on the notes was 5.65 % .

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

8 unchanged sentences

Bellwether Ridge(1) 3,798 3,798 5.00 % 11/1/2026

Cascades at Spring Street(2)(3) 180 180 5.38 % 6/30/2027

Dominion at Mercer Crossing(4) 6,354 — 9.50 % 6/7/2028

Echo Station(2)(3) 10,305 10,305 5.38 % 12/31/2032

Forest Pines(1) 6,472 6,472 5.00 % 5/1/2024

Lake Wales 3,000 3,000 9.50 % 6/30/2026

Inwood on the Park(2)(3) 20,325 20,325 5.38 % 6/30/2028

Kensington Park(2)(3) 10,262 11,835 5.38 % 3/31/2027

Lake Shore Villas(2)(3) 6,000 6,000 5.38 % 12/31/2032

Legacy Pleasant Grove 496 496 12.00 % 10/23/2024

McKinney Ranch 3,926 3,926 6.00 % 9/15/2024

Ocean Estates II(2)(3) 3,615 3,615 5.38 % 5/31/2028

One Realco Land Holding, Inc.

4 unchanged sentences

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

Plaza at Chase Oaks(2)(3) 11,772 11,772 5.38 % 3/31/2028

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

Polk County Land 3,000 3,000 9.50 % 6/30/2026

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

2 unchanged sentences

Steeple Crest(1) 6,498 6,498 5.00 % 8/1/2026

Unified Housing Foundation(2)(3) 2,881 2,881 12.00 % 6/30/2023

Unified Housing Foundation(2)(3) 212 212 12.00 % 6/30/2023

Unified Housing Foundation(2)(3) 6,831 6,831 12.00 % 6/30/2023

Unified Housing Foundation(2)(3) 10,401 10,401 12.00 % 6/30/2023

Unified Housing Foundation(2)(3) 10,096 10,096 12.00 % 3/31/2024

Unified Housing Foundation(2)(3) 6,990 6,990 12.00 % 3/31/2025

Unified Housing Foundation(2)(3) 3,615 3,615 12.00 % 5/31/2023

Unified Housing Foundation(2)(3) 27,477 24,053 12.00 % 12/31/2032

Unified Housing Foundation(2)(3) 6,521 6,521 12.00 % 3/31/2024

Unified Housing Foundation(2)(3) 1,549 1,549 12.00 % 4/30/2024

Unified Housing Foundation(2)(3) 180 183 12.00 % 6/30/2024

Timbers at The Park(2)(3) 11,173 11,173 5.38 % 12/31/2032

Tuscany Villas(2)(3) 1,548 1,548 5.38 % 4/30/2027

$ 144,142 $ 139,609

3 unchanged sentences

(“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.

On October 1, 2023, the interest rate on the notes was amended from a fixed rate of 12.0 % to a floating rate indexed to the Secured Overnight Financing Rate ("SOFR") in effect on the last day of the preceding calendar quarter.

In connection with the amendment, accrued interest of $ 4,159 was forgiven in exchange for participation in the proceeds from any future sale or refinancing of the underlying property.

(4) The note bears interest at prime plus 1.0 %.

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

AMERICAN REALTY INVESTORS, INC.

2 unchanged sentences

Investment in Unconsolidated Joint Ventures

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 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 .

Concurrent with the sale, we each contributed our 50 % ownership interests in Overlook at Allensville Phase II into VAA.

On July 13, 2021, we received the arbitration result of a dispute regarding the measurement of the Earn Out Obligation.

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

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).

On November 16, 2018 , our SPC subsidiary 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 a portfolio multifamily properties owned by us in exchange for a 50 % voting interest in VAA a nd a note payable (“Mezzanine Loan”).

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

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

Upon remeasurement, the Earn Out Obligation was determined to be approximately $ 39,600 , and as a result, we 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.

Concurrent with the sale, we each contributed our 50 % ownership interests in the property into 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.

On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $ 1,810,700 , resulting in a 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.

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

On March 23, 2023, we received $ 17,976 from VAA, which represented the remaining distribution of the proceeds from the sale of the VAA Sale Portfolio.

We used our share of the proceeds from the sale of the VAA Sale Portfolio to invest in short-term investments, investment in real estate, pay down our debt and for general corporate purposes.

We also have 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.

4 unchanged sentences

As of December 31,

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

Real estate $ 13,897 $ 13,140

Cash, cash equivalents and restricted cash 20,047 66,364

Other assets 57,005 35,938

3 unchanged sentences

Mortgage notes payable 13,841 16,267

Mezzanine notes payable — 242,942

Other liabilities 27,947 13,412

4 unchanged sentences

Our share of partners' capital $ 10,207 $ 27,973

Our share of Mezzanine note payable and accrued interest — 125,306

Basis adjustment (2) ( 147 ) 253

12 unchanged sentences

Total expenses 56,337 75,169 95,104

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

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

Income (loss) from continuing operations 3,720 ( 22,714 ) ( 19,958 )

Income from discontinued operations (2) 1,837 708,341 7,416

Net income (loss) $ 5,557 $ 685,627 $ ( 12,542 )

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

Our share of net income in unconsolidated joint ventures $ 3,242 $ 469,268 $ 14,634

AMERICAN REALTY INVESTORS, INC.

6 unchanged sentences

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

The VAA Holdback Portfolio consisted of the following properties:

7 unchanged sentences

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:

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

Real estate $ 219,500

26 unchanged sentences

Forest Grove 6,988 7,128 3.75 % 5/5/2024

Landing Bayou 14,161 14,407 3.50 % 9/1/2053

Landing on Bayou Cane 14,442 14,161 3.50 % 9/1/2053

Legacy at Pleasant Grove 12,716 13,039 3.60 % 4/1/2048

5 unchanged sentences

Residences at Holland Lake(2) 10,424 10,622 3.60 % 3/1/2053

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

Sugar Mill Phase III(3) — 9,216 4.50 % 2/1/2060

Toulon(4) — 13,697 3.20 % 12/1/2051

Villas at Bon Secour 19,205 19,410 3.08 % 9/1/2031

4 unchanged sentences

$ 182,683 $ 188,004

(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.

(1) On August 28, 2023, we paid off the loan.

(2) On November 1, 2022, we agreed to assume the mortgage note payable from our joint venture in connection with the acquisition of the underlying property (See Note 11 - Acquisitions) and obtained final lender approval of the assumption in 2023.

(3) On November 1, 2022, we agreed to assume the mortgage note payable from our joint venture in connection with the acquisition of the underlying property (See Note 11 - Acquisitions) and obtained final lender approval of the assumption in 2024.

(4) On February 28, 2023, we extended the maturity of the loan to February 28, 2024 and an interest rate of 7.75 %.

On February 8, 2024, we extended the maturity to February 28, 2026 at an interest rate of 7.50 %.

As of December 31, 2023 , 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.

On March 15, 2023 , we entered into a $ 33,000 construction loan to finance the development of Lake Wales (See Note 7 - Real Estate Activity) that bears interest at SOFR plus 3 % and matures on March 15, 2026 , with two one-year extension options.

As of December 31, 2023 , no advances have been drawn on the loan.

On November 6, 2023 , we entered into a $ 25,407 construction loan to finance the development of Merano (See Note 7 - Real Estate Activity) that bears interest at prime plus 0.25 % and matures on November 6, 2028 .

As of December 31, 2023 , no advances have been drawn on the loan.

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

On December 15, 2023 , we entered into a $ 23,500 construction loan to finance the development of Bandera Ridge (See Note 7 - Real Estate Activity) that bears interest at SOFR plus 3 % and matures on December 15, 2028 .

As of December 31, 2023 , no advances have been drawn on the loan.

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

In addition, we have guaranteed the loans on Bandera Ridge, Forest Grove, Lake Wales, Merano and Villas at Bon Secour.

Future principal payments due on our notes payable at December 31, 2023 are as follows:

3 unchanged sentences

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.

We issued three series of nonconvertible bonds ("Bonds") through SPC, which were traded on the TASE.

The Bonds were denominated in New Israeli Shekels ("NIS") and provided for semiannual principal and interest payments.

In connection with the Bonds, we incurred a gain (loss) on foreign currency transactions of $ 993 , $ 20,067 , and $( 6,175 ), for the years ended December 31, 2023 , 2022 and 2021, respectively.

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

December 31, Interest Rate

Bond Issuance 2022 2021 Maturity

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

Interest Rate

Bond Issuance Amount Maturity

Series A Bonds(1) $ 28,971 7.30 % 7/31/23

1 unchanged sentence

Series C Bonds(2) 66,546 4.65 % 1/31/23

131,323 194,880

Less unamortized deferred issuance costs ( 2,105 )

129,218 189,452

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

(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

(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.

On January 31, 2023, we completed our scheduled bond payment, which included the full repayment of the Series C bonds.

On May 4, 2023, we paid off the remaining balances of the Series A and Series B Bonds and withdrew from the TASE.

AMERICAN REALTY INVESTORS, INC.

13 unchanged sentences

Advisory fees paid to Pillar were $ 10,187 , $ 8,753 and $ 13,985 for the years ended December 31, 2023, 2022 and 2021, respectively.

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.

Notes receivable include amounts held by UHF (See Note 9 – Notes Receivable), which is deemed to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.

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

Interest income on UHF notes and r elated party receivables was $ 13,260 , $ 15,600 and $ 14,138 for the years ended December 31, 2023, 2022 and 2021, respectively.

Accrued interest on the UHF notes of $ 2,012 and $ 4,663 is included in other assets at December 31, 2023 and 2022, respectively .

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 IOR, during the years ended December 31, 2022, 2021 and 2020.

We owned 78.4 % of TCI, which in turn owned 82.3 % in IOR during the year ended December 31, 2023 and 81.1 % during the years ended December 31, 2022 and 2021.

Stockholders' Equity

2 unchanged sentences

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.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Preferred Stock:

2 unchanged sentences

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.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Deferred Income

18 unchanged sentences

Total tax expense (benefit) $ 1,456 $ 98,108 $ ( 1,067 )

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The reconciliation between our effective tax rate on income from operations and the statutory rate is as follows:

8 unchanged sentences

Effective tax rate 23.6 % 24.9 % 4.6 %

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

We are subject to taxation in the United States and various states and foreign jurisdictions.

5 unchanged sentences

Basis difference in fixed assets 1,952 —

Deferred gain 122 —

Foreign currency translations — 4,279

5 unchanged sentences

valuation allowance — —

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

Net deferred tax liability $ 2,074 $ ( 13,030 )

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

6 unchanged sentences

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 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.

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

The litigation led to a substantial judgment against our affiliate and Clapper subsequently sued numerous other entities including us in Federal Court to collect that judgment.

1 unchanged sentence

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, 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.

Clapper subsequently filed an appeal to the US Fifth Circuit Court of Appeals, and on March 8, 2024, the court reversed the judgment and remanded the case for further proceedings.

Quarterly Results of Operations

4 unchanged sentences

Revenues $ 11,688 $ 12,239 $ 12,526 $ 14,047

Net operating (loss) income ( 4,495 ) ( 3,033 ) ( 3,188 ) 1,449

Net operating loss ( 3,086 ) ( 3,859 ) ( 2,104 ) ( 2,191 )

Net income (loss) attributable to the Company 2,978 125 2,988 ( 2,123 )

3 unchanged sentences

Revenues $ 7,787 $ 8,129 $ 8,319 $ 13,309

Net operating income (loss) ( 3,002 ) ( 8,771 ) ( 5,168 ) ( 3,677 )

Net (loss) income attributable to the Company 18,068 ( 27,328 ) 19,411 ( 6,804 )

Net operating (loss) income ( 4,495 ) ( 3,033 ) ( 3,188 ) 1,449

Net income attributable to the Company 11,314 16,312 302,289 43,434

EPS - basic and diluted $ 0.70 $ 1.01 $ 18.72 $ 2.69

19 unchanged sentences

Forest Grove 6,988 1,440 10,234 37 1,440 10,271 11,711 931 2020 2020

Landing Bayou 14,161 2,011 18,255 ( 1,502 ) 2,011 16,753 18,764 1,732 2005 2018

Landing on Bayou Cane 14,442 2,011 18,255 132 2,011 18,387 20,398 1,929 2005 2018

Legacy at Pleasant Grove 12,716 2,005 18,109 116 2,033 18,197 20,230 4,644 2006 2018

7 unchanged sentences

Vista Ridge 9,512 1,339 13,398 6 1,339 13,404 14,743 3,608 2009 2018

Development projects — — — 27,195 — 27,195 27,195 —

155,119 56,140 279,186 27,734 56,174 306,886 363,060 21,595

29 unchanged sentences

SCHEDULE IV - MORTGAGE LOANS

December 31, 2022

As of December 31, 2023

Description Interest Rate Maturity Date Periodic Payment

Terms Prior Liens Face Amount Carrying Value

Convertible loans

Autumn Breeze 5.00 % 7/1/2025 No payments until maturity or conversion $ 24,474 $ 2,326 $ 2,326

Bellwether Ridge 5.00 % 11/1/2026 No payments until maturity or conversion 17,843 3,798 3,798

Forest Pines 5.00 % 11/1/2022 No payments until maturity or conversion 26,060 6,472 6,472

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

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

Plum Tree 5.00 % 4/26/2026 No payments until maturity or conversion 17,525 1,767 1,767

Spyglass of Ennis 5.00 % 11/1/2022 No payments until maturity or conversion 22,509 5,258 5,258

Steeple Crest 5.00 % 8/1/2026 No payments until maturity or conversion 11,298 6,498 6,498

201,540 40,954 40,954

ABC Land and Development, Inc.

1 unchanged sentence

ABC Paradise, LLC 9.50 % 6/30/2026 No payments until maturity — 1,210 1,210

Lake Wales 9.50 % 6/30/2026 No payments until maturity — 3,000 3,000

Autumn Breeze 5.00 % 7/1/2025 No payments until maturity or conversion 24,181 2,157 2,157

Bellwether Ridge 5.00 % 11/1/2026 No payments until maturity or conversion 17,607 3,798 3,798

Cascades at Spring Street 5.38 % 6/30/2027 Payments from excess property cash flows 407 180 180

Dominion at Mercer Crossing 9.50 % 6/7/2028 No payments until maturity 38,564 6,354 6,354

Echo Station 5.38 % 12/31/2032 Payments from excess property cash flows 13,210 10,305 10,305

Forest Pines 5.00 % 5/1/2024 No payments until maturity or conversion 25,701 6,472 6,472

Inwood on the Park 5.38 % 6/30/2028 Payments from excess property cash flows 25,477 20,325 20,325

Kensington Park 5.38 % 3/31/2027 Payments from excess property cash flows 15,364 10,262 10,262

Lake Shore Villas 5.38 % 12/31/2032 Payments from excess property cash flows 25,615 6,000 6,000

Legacy Pleasant Grove 12.00 % 10/23/2024 No payments until maturity — 496 496

McKinney Ranch 6.00 % 9/15/2024 No payments until maturity — 3,926 3,926

Ocean Estates II 5.38 % 5/31/2028 Payments from excess property cash flows 1,700 3,615 3,615

One Realco Land Holding, Inc.

9.50 % 6/30/2026 No payments until maturity — 1,728 1,728

Riverview on the Park Land, LLC 9.50 % 6/30/2026 No payments until maturity — 1,045 1,045

Spartan Land 12.00 % 1/16/2025 No payments until maturity — 5,907 5,907

— 21,720 21,720

Subsidized housing

Parc at Ingleside 5.00 % 11/1/2026 No payments until maturity or conversion 24,513 3,759 3,759

Parc at Opelika Phase II 10.00 % 1/13/2023 No payments until maturity or conversion 22,680 3,190 3,190

Parc at Windmill Farms 5.00 % 11/1/2022 No payments until maturity or conversion 34,683 7,886 7,886

Phillips Foundation for Better Living, Inc.

12.00 % 3/31/2024 Payments from excess property cash flows — 182 182

Unified Housing Foundation 12.00 % 6/30/2023 Payments from excess property cash flows — 2,881 2,881

Unified Housing Foundation 12.00 % 6/30/2023 Payments from excess property cash flows — 212 212

Unified Housing Foundation 12.00 % 6/30/2023 Payments from excess property cash flows — 6,831 6,831

Unified Housing Foundation 12.00 % 6/30/2023 Payments from excess property cash flows — 10,401 10,401

Unified Housing Foundation 12.00 % 3/31/2024 Payments from excess property cash flows — 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 12.00 % 3/31/2025 Payments from excess property cash flows — 6,990 6,990

Unified Housing Foundation 12.00 % 5/31/2023 Payments from excess property cash flows — 3,615 3,615

Unified Housing Foundation 12.00 % 12/31/2032 Payments from excess property cash flows 53,039 27,477 27,477

Unified Housing Foundation 12.00 % 3/31/2024 Payments from excess property cash flows — 6,521 6,521

Unified Housing Foundation 12.00 % 4/30/2024 Payments from excess property cash flows — 1,549 1,549

Unified Housing Foundation 12.00 % 6/30/2024 Payments from excess property cash flows — 180 180

53,039 76,935 76,935

Plaza at Chase Oaks 5.38 % 3/31/2028 Payments from excess property cash flows 9,131 11,772 11,772

Plum Tree 5.00 % 4/26/2026 No payments until maturity or conversion 17,318 1,767 1,767

Polk County Land 9.50 % 6/30/2026 No payments until maturity — 3,000 3,000

Riverview on the Park Land, LLC 9.50 % 6/30/2026 No payments until maturity — 1,045 1,045

Spartan Land 6.00 % 1/16/2025 No payments until maturity — 5,907 5,907

Spyglass of Ennis 5.00 % 11/1/2024 No payments until maturity or conversion 22,214 5,179 5,179

Steeple Crest 5.00 % 8/1/2026 No payments until maturity or conversion 11,057 6,498 6,498

Timbers at The Park 5.38 % 12/31/2032 Payments from excess property cash flows 13,156 11,173 11,173

Tuscany Villas 5.38 % 4/30/2027 Payments from excess property cash flows 1,497 1,548 1,548

$ 344,075 $ 144,142 $ 144,142

11 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