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Item 8. Financial Statements and Supplementary Data

2026-03-12 compared with 2025-03-20 · 145 added, 169 removed, 685 unchanged (31% of the section changed)

60 unchanged sentences

Our testing included among other things, confirming selected notes receivable, determining if the notes were performing according to their terms and testing the Company’s evaluation of the underlying security interest if necessary.

Revenue Recognition (straight-line) for commercial tenants

Description of the Matter

During 2024, the Company recognized office rental revenues and tenant recoveries of $13.0 million and deferred rent receivables of $3.8 million at December 31, 2024.

As described in Note 2 to the consolidated financial statements, the Company recognizes revenue from commercial properties on a straight-line basis over the terms of the related leases.

Auditing the Company's straight-line calculations is complex due to the free rent periods, lease amendments and escalation clauses contained in many of the leases.

How We Addressed the Matter in Our Audit

We obtained an understanding of the Company's controls over office rental revenues and tenant recoveries, including controls over management’s calculation of the straight-line calculation and deferred rent receivable.

To test the straight-line rent revenue and deferred rent receivable, we performed audit procedures that included, among others, evaluating the data and assumptions used in determining the calculation and agreeing amounts in the calculation to copies of lease agreements.

In addition, we tested the completeness and accuracy of the data that was used in management’s straight-line rent and deferred rent receivable calculation.

Emphasis of Liquidity

66 unchanged sentences

Equity in income from unconsolidated joint ventures 119 1,449 3,242

(Loss) gain on real estate transactions ( 23,989 ) ( 1,923 ) 87,132

Gain (loss) on real estate transactions 19,988 ( 23,989 ) ( 1,923 )

Income tax provision ( 2,667 ) 3,607 ( 1,456 )

Net (loss) income ( 13,439 ) 5,251 475,317

Net income (loss) 18,539 ( 13,439 ) 5,251

Net income attributable to noncontrolling interest ( 2,836 ) ( 1,264 ) ( 1,283 )

Net (loss) income applicable to the Company $ ( 14,703 ) $ 3,968 $ 373,349

Net income (loss) applicable to the Company $ 15,703 $ ( 14,703 ) $ 3,968

Earnings per share

12 unchanged sentences

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

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 —

Adjustment of noncontrolling interest — — ( 452 ) — ( 452 ) 452 —

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

3 unchanged sentences

Balance, December 31, 2024 1,801 162 61,161 538,699 601,823 200,447 802,270

Net income — — — 15,703 15,703 2,836 18,539

Purchase of IOR shares — — — — — ( 1,082 ) ( 1,082 )

Adjustment to noncontrolling interest — — ( 122 ) — ( 122 ) 122 —

Balance, December 31, 2025 $ 1,801 $ 162 $ 61,039 $ 554,402 $ 617,404 $ 202,323 $ 819,727

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

5 unchanged sentences

Cash Flow From Operating Activities:

Net (loss) income $ ( 13,439 ) $ 5,251 $ 475,317

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

Loss (gain) on sale, remeasurement or write down of assets 23,989 1,923 ( 87,132 )

Net income (loss) $ 18,539 $ ( 13,439 ) $ 5,251

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

(Gain) loss on real estate transactions ( 19,988 ) 23,989 1,923

Gain on foreign currency transactions — — ( 993 )

1 unchanged sentence

Depreciation and amortization 12,634 12,533 14,571

Provision (recovery) for doubtful accounts 166 1,593 ( 3,284 )

Provision for doubtful accounts 104 166 1,593

Equity in income from unconsolidated joint ventures ( 119 ) ( 1,449 ) ( 3,242 )

5 unchanged sentences

Accounts payable and other liabilities ( 1,511 ) ( 14,696 ) ( 28,794 )

Net cash provided by (used in) operating activities 1,089 ( 31,054 ) ( 45,386 )

Net cash (used in) provided by operating activities ( 5,553 ) 1,089 ( 31,054 )

Cash Flow From Investing Activities:

6 unchanged sentences

Proceeds from sale of assets 34,796 1,342 188

Contribution to unconsolidated joint venture ( 1,270 ) — —

Distributions from unconsolidated joint ventures — — 21,409

3 unchanged sentences

Payments on mortgages, other notes and bonds payable ( 35,154 ) ( 12,452 ) ( 137,657 )

Repurchase IOR shares ( 802 ) ( 908 ) —

Purchase IOR shares ( 1,082 ) ( 802 ) ( 908 )

Debt extinguishment costs — — ( 435 )

1 unchanged sentence

Net cash provided by (used in) financing activities 27,546 1,659 ( 139,020 )

Net (decrease) increase in cash and cash equivalents ( 38,592 ) ( 143,261 ) 149,594

Net decrease in cash and cash equivalents ( 11,062 ) ( 38,592 ) ( 143,261 )

Cash and cash equivalents, beginning of year 40,475 79,067 222,328

10 unchanged sentences

From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties.

We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies.

We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space.

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

3 unchanged sentences

At December 31, 2025, our property portfolio consisted of:

• Thirteen multifamily properties in operation, comprising 2,128 units;

• Three multifamily properties in lease-up, comprising 672 units;

• One multifamily property under development, comprising 234 units;

• Commercial pr operties , consisting of four office buildings with an aggregate of approximately 1,001,549 rentable square feet;

• Fourteen multifamily properties in operation, comprising 2,328 units;

• Four multifamily properties under development, comprising 906 units;

• Approximately 1,792 acres of developed and undeveloped land.

85 unchanged sentences

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss.

The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements.

Our adoption of this update in December 2024 did not have a material impact on our disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

In December 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”).

ASU 2023-09 requires entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of ASU 2023-09 on our consolidated financial statements.

Our adoption of ASU 2023-09 on January 1, 2025 did not have a material impact on our disclosures in our financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

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We are currently evaluating the impact of these standards on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements ("ASU 2025-11").

The amendments in the update clarify interim reporting disclosure requirements in ASC 270 and introduces a new disclose principal for reporting material events occurring after the most recent annual period.

The update is effective for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted.

We are current evaluating the the potential impact of adopting ASU 2025-11 on our consolidated financial statements.

AMERICAN REALTY INVESTORS, INC.

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2025 2024 2023

Net (loss) income $ ( 13,439 ) $ 5,251 $ 475,317

Net income (loss) $ 18,539 $ ( 13,439 ) $ 5,251

Net income attributable to noncontrolling interest ( 2,836 ) ( 1,264 ) ( 1,283 )

Net (loss) income applicable to the Company $ ( 14,703 ) $ 3,968 $ 373,349

Net income (loss) applicable to the Company $ 15,703 $ ( 14,703 ) $ 3,968

Weighted-average common shares outstanding - basic and diluted 16,152,043 16,152,043 16,152,043

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Accrued development cost $ 7,204 $ 13,209 $ 1,664

Note received in exchange for interest in unconsolidated joint venture $ 12,685 $ — $ —

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

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

AMERICAN REALTY INVESTORS, INC.

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(i) the acquisition, development, ownership and management of multifamily properties ("Residential Segment") and (ii) the acquisition, ownership and management of commercial real estate properties ("Commercial Segment").

The services for our segments include property rentals and other tenant services, including parking and storage space rental.

Asset information by segment is not reported because we do not use this measure to assess performance or make decisions to allocate resources.

Therefore, depreciation and amortization expense is not allocated among segments.

General and administrative expenses, advisory fees, interest income and interest expense are not included in segment profit as our internal reporting addresses these items on a corporate level.

The services for our segments include rental of property and other tenant services, including parking and storage space rental.

The key operating metric that the CODM utilizes to evaluate the segments is net operating income ("NOI"), which we defined as property revenue less direct property operating expenses.

NOI excludes depreciation, interest income and expenses, general and administrative expenses, advisory fees and income taxes.

The following table presents our profit by reportable segment:

2 unchanged sentences

Residential Segment

Revenue $ 34,103 $ 34,962 $ 19,601

Operating expenses ( 18,252 ) ( 17,749 ) ( 9,524 )

Profit from segment 15,851 17,213 10,077

Revenues $ 34,128 $ 34,103 $ 34,962

Segment expenses

Property tax and insurance ( 11,003 ) ( 10,679 ) ( 9,776 )

Repairs and maintenance ( 3,885 ) ( 3,970 ) ( 4,317 )

Other property expenses ( 4,416 ) ( 3,603 ) ( 3,656 )

NOI from residential segment 14,824 15,851 17,213

Commercial Segment

Revenue 12,967 14,943 17,059

Operating expenses ( 8,811 ) ( 10,147 ) ( 8,815 )

Profit from segment 4,156 4,796 8,244

Total profit from segments $ 20,007 $ 22,009 $ 18,321

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

Revenues 14,932 12,967 14,943

Segment expenses

Property tax and insurance ( 2,740 ) ( 3,204 ) ( 4,266 )

Repairs and maintenance ( 1,323 ) ( 1,293 ) ( 1,228 )

Other property expenses ( 4,518 ) ( 4,314 ) ( 4,653 )

NOI from commercial segment 6,351 4,156 4,796

Total NOI from segments $ 21,175 $ 20,007 $ 22,009

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

The following table reconciles NOI from reportable segments to net income (loss):

For the Years Ended December 31,

2025 2024 2023

Profit from reportable segments $ 20,007 $ 22,009 $ 18,321

NOI from reportable segments $ 21,175 $ 20,007 $ 22,009

Other non-segment items of income (expense)

8 unchanged sentences

Equity in income from unconsolidated joint ventures 119 1,449 3,242

(Loss) gain on real estate transactions ( 23,989 ) ( 1,923 ) 87,132

Gain (loss) on real estate transactions 19,988 ( 23,989 ) ( 1,923 )

Income tax provision ( 2,667 ) 3,607 ( 1,456 )

Net (loss) income $ ( 13,439 ) $ 5,251 $ 475,317

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Net income (loss) $ 18,539 $ ( 13,439 ) $ 5,251

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

17 unchanged sentences

Total rental revenue $ 46,366 $ 44,763 $ 47,023

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(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 properties, which typically have lease terms of one-year or less:

13 unchanged sentences

Total real estate $ 602,431 $ 557,388

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

Windmill Farms is a collection of freshwater districts ("Districts") in Kaufman County Texas that is being developed into single family lots, multifamily properties and retail properties.

In connection with the project, we develop the infrastructure in Windmill Farms in order for the land to appreciate and to sell to home builders land units (“lots”) designated for residential construction of single family homes according to the land use.

The infrastructure costs (See Note 11 – Other Assets ) are reimbursed by the Districts through the issuance of municipal bonds in accordance with various indemnity agreements.

We currently have agreements to develop two parcels of land in Windmill Farms .

The agreements provide for the development of 125 acres of raw land into approximately 470 land lots to be used for single family homes for a total of $ 24,279 .

During 2024, we spent $ 3,616 on reimbursable infrastructure investments.

On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida (" Alera ") 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.

As of December 31, 2024, we have incurred a total of $ 36,583 in development costs, including $ 1,172 in development fees.

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, 2024, we have incurred a total of $ 24,828 in development costs, including $ 1,029 in development fees.

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.

As of December 31, 2024, we have incurred a total of $ 26,273 in development costs, including $ 684 in development fees.

On October 21, 2024, we entered into a development agreement with Pillar to build a 234 unit multifamily property in Dallas , Texas (" Mountain Creek ") that is expected to be completed in 2026 for a total cost of approximately $ 49,791 .

The cost of construction will be funded in part by a $ 27,500 construction loan (See Note 12 – Mortgages and Other Notes Payable ).

The development agreement provides for a $ 1,574 fee that will be paid to Pillar over the construction period.

As of December 31, 2024, we have incurred a total of $ 5,037 in development costs.

We incurred depreciation expense of $ 11,851 , $ 11,662 and $ 12,887 for the years ending December 31, 2025, 2024 and 2023, respectively.

Construction Activities

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

Windmill Farms is a collection of freshwater districts ("Districts") in Kaufman County Texas that is being developed into single family lots ("Lots"), multifamily properties and retail properties.

In connection with the project, we develop the infrastructure in Windmill Farms, including roads, water and sewer, to facilitate the sale of Lots to home builders for construction of single family homes.

We receive reimbursement of the infrastructure costs ("District Receivables") through the issuance of municipal bonds by the Districts.

As of December 31, 2025, we have $ 55,693 in District Receivables included in other assets (See Note 11 – Other Assets ) and $ 46,895 of Lot development costs included in construction in progress.

We have entered into several development agreements with Pillar (See Note 13 – Related Party Transactions ) to develop multifamily properties ("Development Projects").

Each Development Project is funded in part by a construction loan (See Note 12 – Mortgages and Other Notes Payable) .

The following is a summary of the total projected and incurred costs of the Development Projects as of December 31, 2025 :

Project Units Location Total Project Cost Total Project Cost Incurred

Alera 240 Lake Wales, FL $ 55,330 $ 55,394

Bandera Ridge 216 Temple, TX 49,603 48,082

Merano 216 McKinney, TX 51,910 48,971

Mountain Creek 234 Dallas, TX 49,971 9,268

906 $ 206,814 $ 161,715

During the year ended December 31, 2025, we expended $ 68,995 in the construction of the Development Projects, which was funded in part by $ 63,781 in borrowing from our construction loans.

As of December 31, 2025, we have substantially completed the construction of Alera , Bandera Ridge and Merano and transferred the costs associated with those projects to land and building improvements.

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

(Loss) gain on real estate transactions consists of the following:

Disposition of assets

Gain (loss) on real estate transactions consists of the following:

For the Year Ended

2 unchanged sentences

Residential properties(2) 12,204 — —

Commercial properties(3) — — 686

Other(3) 3,064 ( 25,084 ) ( 2,111 )

$ 19,988 $ ( 23,989 ) $ ( 1,923 )

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

(2) 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 from the sale to pay off the $ 14,740 mortgage note payable on the property and for general corporate purposes.

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

On November 1, 2022, we acquired control of the VAA Holdback Portfolio VAA (See Note 10 – Investment in Unconsolidated Joint Ventures ), which resulted in a $ 73,187 gain on remeasurement of assets.

(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 from the sale for general corporate purposes.

(4) On October 31, 2024, we paid $ 23,400 to Clapper to resolve all claims related to real estate dispute ( See Note 19 – Commitments and Contingencies ) .

Other amounts i nclude write-off of development costs.

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

(2) On October 10, 2025, we sold Villas at Bon Secour, a 200 unit multifamily property in Gulf Shores, Alabama for $ 28,000 , resulting in a gain on sale of $ 12,204 .

We used the proceeds to pay off the $ 18,767 mortgage note payable on the property and for general corporate purposes.

(3) Includes the sale of our joint venture interest in Milano (See Note 10 - Investment in Unconsolidated Joint Ventures) and the write-off of development costs.

On October 31, 2024, we paid $ 23,400 to resolve all claims and disputes with David Clapper and entities related to Mr.

Clapper (collectively, “Clapper").

These claims originally involved a transaction in 1998 in which we were to acquire eight multifamily properties from Clapper.

Short-term Investments

The following is a summary of our short term investment as of December 31, 2024 and 2023:

The following is a summary of our short term investments as of December 31, 2025 and 2024:

Corporate bonds, at par value $ 58,035 $ 80,000

17 unchanged sentences

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

Cascades at Spring Street(2)(3) — 180 4.96 % 6/30/2027

Dominion at Mercer Crossing(2) 6,167 6,167 7.75 % 6/7/2028

1 unchanged sentence

Forest Pines(1) 6,472 6,472 5.00 % 5/1/2027

Gruppa Florentina(6) 8,880 — 4.50 % 12/31/2037

Inwood on the Park(3)(4) 19,985 20,208 4.24 % 6/30/2028

21 unchanged sentences

(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 note bears interest at prime plus 1 %.

(3) 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) 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.

(6) On December 5, 2025, we received the note as payment for our interest in Milano (See Note 10 - Investment in Unconsolidated Joint Ventures).

The note bears interest at 4.50 % until December 31, 2026, then 6.00 % until December 31, 2029, and then 7.00 % until maturity.

The note is collateralized by the equity interest in Milano.

AMERICAN REALTY INVESTORS, INC.

2 unchanged sentences

Investment in Unconsolidated Joint Ventures

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.

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 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 seven remaining properties ("VAA Holdback Portfolio") 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.

On March 23, 2023, we received $ 17,976 from our joint venture in Victory Abode Apartments, LLC ("VAA") , which represented the remaining distribution of proceeds from the sale of the 45 properties in September 2022 that had been held by VAA.

We dissolved VAA in 2024.

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

Milano also has 23 franchised locations.

On December 5, 2025 , we sold our interest in Gruppa for $ 12,685 , which resulted in gain on sale of $ 2,318 .

The sales price was funded by a note receivable (See Note 9 - Notes Receivable) that is collateralize by the ownership interest in Milano.

Concurrent with the sale of Milano, we invested $ 1,270 for a 20 % ownership interest in Aventi Bene, Inc.

("Aventi"), a newly formed joined venture that invests in various emerging restaurant concepts.

We account for our investment in Aventi under the equity method of accounting.

At December 31, 2025 and 2024, our other assets are comprised of the following:

4 unchanged sentences

Prepaid expenses and other assets 8,380 12,312

Income tax receivable 39,040 —

Deferred tax assets 977 5,705

12 unchanged sentences

Alera(2) 29,243 8,554 6.87 % 3/15/2026

Bandera Ridge(3) 18,808 — 6.66 % 12/15/2028

Blue Lake Villas 9,146 9,327 3.15 % 11/1/2055

5 unchanged sentences

Legacy at Pleasant Grove 12,034 12,381 3.55 % 4/1/2048

Merano(5) 24,284 — 7.00 % 11/6/2028

New Concept Energy(7) 3,542 3,542 4.24 % 9/30/2027

5 unchanged sentences

Villas at Bon Secour(6) — 18,798 — % 9/1/2031

Villas of Park West I(3) 8,983 9,181 3.04 % 3/1/2053

Villas of Park West II(3) 8,158 8,334 3.18 % 3/1/2053

Villas of Park West Phase I 8,779 8,983 3.04 % 3/1/2053

Villas of Park West Phase II 7,977 8,158 3.18 % 3/1/2053

Vista Ridge 9,165 9,342 4.00 % 8/1/2053

1 unchanged sentence

$ 214,367 $ 185,398

(1) On March 15, 2023, we entered into a $ 33,000 construction loan to finance the development of Alera (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.

(2) On July 10, 2024, we replaced the existing loan on the property with a $ 6,558 loan that bears interest at SOFR plus 2.15 % and matures on August 1, 2031.

(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 10 - Investment in Unconsolidated Joint Ventures) and obtained final lender approval of the assumption in 2024.

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

(5) On June 6, 2024 , we extended the maturity of the loan to September 30, 2027 with an interest rate at SOFR.

As of December 31, 2024 , 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.

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, 2024 , no advances have been drawn on the loan.

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, 2024 , no advances have been drawn on the loan.

(1) On May 30, 2025, we paid off the loan with cash on hand.

(2) The construction loan allow s borrowings up to $ 33,000 to finance the development of Alera (See Note 7 - Real Estate Activity), bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3 % and matures on March 15, 2026, with two one-year extension options.

(3) The construction loan allows borrowings up to $ 23,500 construction loan to finance the development of Bandera Ridge (See Note 7 - Real Estate Activity), bears interest at SOFR plus 3 % and matures on December 15, 2028.

(4) The loan that bears interest at SOFR plus 2.15 % and matures on August 1, 2031.

(5) The construction loan allows borrowings up to $ 25,407 to finance the development of Merano (See Note 7 - Real Estate Activity), bears interest at prime plus 0.25 % and matures on November 6, 2028.

(6) On October 10, 2025, the loan was paid off in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).

(7) The loan bears interest at SOFR.

We have a construction loan to build Mountain Creek (See Note 7 - Real Estate Activity) that allows for borrowings of up to $ 27,500 , bears interest at SOFR plus 3.45 % and matures on March 15, 2029.

As of December 31, 2025, we have not borrowed on the loan.

As of December 31, 2025 , we were in compliance with all of our loan covenants.

AMERICAN REALTY INVESTORS, INC.

1 unchanged sentence

(Dollars in thousands, except per share amounts)

On October 21, 2024, we entered into a $ 27,500 construction loan to finance the development Mountain Creek (See Note 7 - Real Estate Activity) that bears interest at SOFR plus 3.45 % and matures on March 15, 2029 .

As of December 31, 2024 , 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 Alera, Bandera Ridge, Merano, Mountain Creek, Villas at Bon Secour and Windmill Farms.

In addition, we have guaranteed the loans on Alera, Bandera Ridge, Merano, and Mountain Creek.

Future principal payments due on our notes payable at December 31, 2025 are as follows:

2025 $ 14,338

Thereafter 170,639

Deferred finance cost ( 571 )

Bonds Payable

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.

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.

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

AMERICAN REALTY INVESTORS, INC.

5 unchanged sentences

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 affiliates of the MRHI, which indirectly owns appro ximately 90.8 % of our common shares.

Pillar and Regis are wholly owned by Realty Advisors, Inc.

(“RAI”), a Nevada corporation, which owns appro ximately 90.8 % of our common shares.

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

5 unchanged sentences

Advisory fees paid to Pillar were $ 9,522 , $ 8,225 and $ 10,187 for the years ended December 31, 2025, 2024 and 2023, respectively.

Development fees paid to Pillar were $ 2,236 and $ 649 for the year ended December 31, 2024 and 2023, respectively.

Development fees paid to Pillar were $ 1,888 and $ 2,236 for the years ended December 31, 2025 and 2024, respectively.

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

9 unchanged sentences

On December 16, 2024, TCI announced an offer ("Tender Offer") to purchase up to 100,000 shares of the outstanding common shares of IOR at a price of $ 18 per share, subject to certain conditions.

The Tender Offer was completed on January 29, 2025, which resulted in TCI's acquisition of 21,678 shares for a total purchase price of $ 390 plus associated expenses.

Upon completion of the Tender Offer, TCI's ownership in IOR was increased to 83.7 %.

The Tender Offer was completed on January 29, 2025, which resulted in TCI's acquisition of 21,678 shares for a total purchase price of $ 454 .

TCI subsequently purchased an additional 32,845 common share of IOR in the market during the remainder of the year for an additional cost of $ 583 .

We owned approximately 78.4 % of TCI at December 31, 2025 and December 31, 2024, which in turn owned approximately 84.6 % and 83.2 % of IOR as of December 31, 2025 and December 31, 2024 , respectively .

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

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:

14 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,

2025 2024 2023

Federal $ ( 3,754 ) $ 1,293 $ 77,374

State 147 163 7,710

Deferred and Other:

Federal — — 13,024

Total tax (benefit) expense $ ( 3,607 ) $ 1,456 $ 98,108

Current $ 1,907 $ ( 3,607 ) $ 1,456

Deferred 760 — —

$ 2,667 $ ( 3,607 ) $ 1,456

AMERICAN REALTY INVESTORS, INC.

4 unchanged sentences

2025 2024 2023

Income tax (benefit) expense at federal statutory rate $ ( 3,598 ) $ 1,293 $ 118,940

Income tax expense (benefit) at federal statutory rate $ 4,424 $ ( 3,598 ) $ 1,293

State and local income taxes net of federal tax expense 1,053 147 163

Temporary tax differences

Generation (use) of net operating loss carryforwards ( 4,765 ) — —

Other basis/timing differences 496 — —

Change in valuation allowance 1,459 ( 156 ) —

Reported tax (benefit) expense $ ( 3,607 ) $ 1,456 $ 98,108

Reported tax expense (benefit) $ 2,667 $ ( 3,607 ) $ 1,456

Effective tax rate 12.7 % 23.6 % 24.9 %

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

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

As of December 31, 2025, our tax years for 2022 through 2025 are subject to examination by the tax authorities.

With few exceptions, as of December 31, 2024, we are no longer subject to U.S federal, state, local, or foreign examinations by tax authorities for the years before 2021.

With few exceptions, as of December 31, 2025, we are no longer subject to U.S federal, state and local examinations by tax authorities for the years before 2022.

Components of the net deferred tax asset:

Deferred tax asset:

Basis difference in fixed assets $ 171 $ 2,333

Deferred gain and net operating loss carryforward 806 3,372

Net deferred tax asset $ 5,705 $ 2,074

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

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

$ 977 $ 5,705

Commitments and Contingencies

2 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 had been engaged in litigation with David Clapper and entities related to Mr.

Clapper (collectively, “Clapper") since 1999.

The matter originally involved a transaction in 1998 in which we were to acquire eight multifamily properties from the Clapper.

Through the years, several rulings, both for and against us, were issued with a range of settlement from zero to $ 148,000 .

On October 31, 2024, we executed a Settlement Agreement and General Release (the “Settlement Agreement”) and paid $ 23,400 to resolve all claims.

On November 8, 2024, the court dismissed the case with prejudice.

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

We are defendants in litigation related to a property sale 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.

On January 7, 2025, the Fifth District Court of Appeals at Dallas reversed the trial court's judgement and remanded the case to the trial court.

We intend to challenge the ruling by writ of mandamus.

The trial court granted the Plaintiffs a new trial, and we challenged that order by mandamus.

On January 14, 2026, the Dallas Court of Appeals granted our petition and ordered the trial court to (1) vacate its new-trial order and (2) enter judgment in our favor on the jury’s verdict.

We have tendered the proposed order and judgment and await their entry by the trial court.

AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

Quarterly Results of Operations

5 unchanged sentences

Net operating loss ( 813 ) ( 1,013 ) ( 1,573 ) ( 3,030 )

Net income (loss) attributable to the Company 1,751 1,167 ( 17,460 ) ( 161 )

Net income attributable to the Company 2,965 2,827 129 9,782

EPS - basic and diluted $ 0.18 $ 0.18 $ 0.01 $ 0.60

2 unchanged sentences

Revenues $ 11,899 $ 11,773 $ 11,607 $ 12,039

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

Net operating loss ( 1,517 ) ( 1,277 ) ( 2,063 ) ( 1,784 )

Net income (loss) attributable to the Company 1,751 1,167 ( 17,460 ) ( 161 )

29 unchanged sentences

Residences at Holland Lake 10,006 6,300 25,200 51 6,300 25,251 31,551 2,008 2004 2022

Villas at Bon Secour 18,798 2,715 15,385 87 2,715 15,472 18,187 2,491 2007 2018

Villas of Park West I 8,983 8,200 32,800 100 8,200 32,900 41,100 1,783 2005 2022

Villas of Park West II 8,158 6,860 27,440 22 6,860 27,462 34,322 1,487 2010 2022

Villas of Park West Phase I 8,779 8,200 32,800 109 8,200 32,909 41,109 2,613 2005 2022

Villas of Park West Phase II 7,977 6,860 27,440 22 6,860 27,462 34,322 2,175 2010 2022

Vista Ridge 9,165 1,339 13,398 6 1,339 13,404 14,743 4,306 2009 2018

42 unchanged sentences

Forest Pines 5.00 % 5/1/2027 No payments until maturity or conversion 24,945 6,472 6,472

Gruppa Florentina 4.50 % 12/31/2039 Periodic payments — 8,880 8,880

Inwood on the Park 4.24 % 6/30/2028 Payments from excess property cash flows 24,281 19,985 19,985

33 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 8. Financial Statements and Supplementary Data