AMERICAN REALTY INVESTORS INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Page Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB ID 782 ) 23 Consolidated Balance Sheets at December 31, 2025 and 2024 25 Consolidated Statements of Operations for the Years Ended December 31, 2025, 2024 and 2023 26 Consolidated Statements of Equity for the Years Ended December 31, 2025, 2024 and 2023 26 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 28 Notes to Consolidated Financial Statements 29 Financial Statement Schedules Schedule III—Real Estate and Accumulated Depreciation 47 Schedule IV—Mortgage Loan Receivables on Real Estate 49 22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of and Stockholders of American Realty Investors, Inc. Dallas, Texas Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of American Realty Investors, Inc. and Subsidiaries as of December 31, 2025 and 2024, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes and schedules (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of American Realty Investors, Inc. as of December 31, 2025 and 2024 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Basis of Opinion These consolidated financial statements are the responsibility of Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Impairment of investment in real estate Description of the Matter The Company’s net investment in real estate totaled $602.4 million as of December 31, 2025. As discussed in Note 2 to the consolidated financial statements, the Company periodically assesses whether there has been any impairment in the carrying value of its properties and whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. Impairment is recognized on real estate assets held for investment when indicators of impairment are present and the future undiscounted cash flows for a real estate asset are less than its carrying amount, at which time the real estate asset is written down to its estimated fair value. 23 Auditing the Company's impairment assessment for real estate assets was complex because of the subjective auditor judgment necessary in evaluating management’s identification of indicators of potential impairment. Our evaluation of management’s identification of indicators of impairment included our related assessment of such indicators, either individually or in combination, in determining whether a triggering event has occurred that requires the Company to evaluate the recoverability of the real estate asset. How We Addressed the Matter in Our Audit We obtained an understanding of the Company’s controls over the Company’s real estate asset impairment assessment process. Our testing of the Company’s impairment assessment included, among other procedures, evaluating significant judgments applied in determining whether indicators of impairment existed for the Company’s real estate assets. 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 that could be due to a triggering event or an indicator of potential impairment. Collectability of Notes Receivable Description of the Matter At December 31, 2025, the Company had notes receivable in the amount of $142.4 million. The Company performs an assessment as to whether or not substantially all of the amounts due under these notes receivable is deemed probable of collection. Subsequently, for notes where the Company concludes that it is not probable that it will collect substantially all payments due under the note, the Company creates an allowance for any amounts not probable of collection. Auditing the Company's collectability assessment is complex due to the judgment involved in the Company’s determination of the collectability of these notes. The determination involves consideration of the terms of the note, whether or not the note is currently performing, and any security for the note. How We Addressed the Matter in Our Audit We obtained an understanding of the Company's controls over notes receivable and their collectability assessment. 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. Emphasis of Liquidity As described in Note 18, 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 The supplemental information contained in Schedules III and IV has been subjected to audit procedures performed in conjunction with the audit of the Company’s financial statements. The supplemental information is the responsibility of the Company’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Security and Exchange Commission’s rules. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole. FARMER, FUQUA & HUFF, PC Richardson, Texas March 12, 2026 We have served as the Company’s auditor since 2004. 24 AMERICAN REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except par value amounts) December 31, 2025 2024 Assets: Real estate $ 602,431 $ 557,388 Cash and cash equivalents 14,180 19,918 Restricted cash 15,233 20,557 Short-term investments 74,964 79,800 Notes receivable (including $ 67,349 and $ 71,365 at December 31, 2025 and 2024, respectively, from related parties) 142,439 138,349 Investment in unconsolidated joint ventures 1,270 10,246 Receivable from related parties 103,558 97,544 Other assets (including $ 1,475 and $ 1,855 at December 31, 2025 and 2024, respectively, from related parties) 143,250 109,000 Total assets $ 1,097,325 $ 1,032,802 Liabilities and Equity Liabilities: Mortgages and other notes payable $ 214,367 $ 185,398 Accounts payable and other liabilities (including $ 30 and $ 601 at December 31, 2025 and 2024, respectively, to related parties) 49,629 32,105 Accrued interest 3,811 3,238 Deferred revenue 9,791 9,791 Total liabilities 277,598 230,532 Equity: Shareholders' equity Preferred stock, Series A, $ 2.00 par value, 15,000,000 shares authorized, 900,614 shares issued and outstanding 1,801 1,801 Common stock, $ 0.01 par value, 100,000,000 shares authorized; 16,152,043 shares issued and outstanding 162 162 Additional paid-in capital 61,039 61,161 Retained earnings 554,402 538,699 Total shareholders’ equity 617,404 601,823 Noncontrolling interest 202,323 200,447 Total equity 819,727 802,270 Total liabilities and equity $ 1,097,325 $ 1,032,802 The accompanying notes are an integral part of these consolidated financial statements. 25 AMERICAN REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) For the Years Ended December 31, 2025 2024 2023 Revenues: Rental revenues (including $ 579 , $ 652 and $ 882 for 2025, 2024 and 2023, respectively, from related parties) $ 46,366 $ 44,763 $ 47,023 Other income 3,648 2,555 3,477 Total revenue 50,014 47,318 50,500 Expenses: Property operating expenses (including $ 353 , $ 346 and $ 366 for 2025, 2024 and 2023, respectively, from related parties) 27,885 27,063 27,896 Depreciation and amortization 12,577 12,276 13,646 General and administrative (including $ 4,262 , $ 3,871 and $ 4,006 for 2025, 2024 and 2023, respectively, from related parties) 6,459 6,395 10,011 Advisory fee to related party 9,522 8,225 10,187 Total operating expenses 56,443 53,959 61,740 Net operating loss ( 6,429 ) ( 6,641 ) ( 11,240 ) Interest income (including $ 7,478 , $ 8,985 and $ 13,259 for 2025, 2024 and 2023, respectively, from related parties) 14,637 19,973 26,847 Interest expense ( 6,825 ) ( 7,838 ) ( 9,502 ) Gain on foreign currency transactions — — 993 Loss on early extinguishment of debt ( 284 ) — ( 1,710 ) Equity in income from unconsolidated joint ventures 119 1,449 3,242 Gain (loss) on real estate transactions 19,988 ( 23,989 ) ( 1,923 ) Income tax provision ( 2,667 ) 3,607 ( 1,456 ) Net income (loss) 18,539 ( 13,439 ) 5,251 Net income attributable to noncontrolling interest ( 2,836 ) ( 1,264 ) ( 1,283 ) Net income (loss) applicable to the Company $ 15,703 $ ( 14,703 ) $ 3,968 Earnings per share Basic and diluted $ 0.97 $ ( 0.91 ) $ 0.25 Weighted average common shares used in computing earnings per share Basic and diluted 16,152,043 16,152,043 16,152,043 The accompanying notes are an integral part of these consolidated financial statements. AMERICAN REALTY INVESTORS, INC. CONSOLIDATED STATEMENT OF EQUITY (Dollars in thousands, except share amounts) 26 Preferred Stock Common Stock Paid-in Capital Retained Earnings Total Stockholders' Equity Noncontrolling Interest Total Equity Balance, January 1, 2023 $ 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 of noncontrolling interest — — ( 452 ) — ( 452 ) 452 — Balance, December 31, 2023 1,801 162 61,638 553,402 617,003 199,508 816,511 Net (loss) income — — — ( 14,703 ) ( 14,703 ) 1,264 ( 13,439 ) Repurchase of treasury shares by IOR — — — — — ( 802 ) ( 802 ) Adjustment to noncontrolling interest — — ( 477 ) — ( 477 ) 477 — 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. 27 AMERICAN REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) For the Years Ended December 31, 2025 2024 2023 Cash Flow From Operating Activities: 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 ) Loss on early debt extinguishment 284 — 1,710 Depreciation and amortization 12,634 12,533 14,571 Provision for doubtful accounts 104 166 1,593 Equity in income from unconsolidated joint ventures ( 119 ) ( 1,449 ) ( 3,242 ) Distribution of income from unconsolidated joint ventures — 1,263 — Changes in assets and liabilities, net of acquisitions and dispositions: Other assets ( 10,055 ) ( 6,872 ) ( 10,273 ) Related party receivables ( 6,014 ) ( 1,011 ) ( 11,081 ) Accrued interest payable 573 605 ( 1,719 ) Accounts payable and other liabilities ( 1,511 ) ( 14,696 ) ( 28,794 ) Net cash (used in) provided by operating activities ( 5,553 ) 1,089 ( 31,054 ) Cash Flow From Investing Activities: Collection of notes receivable 8,594 5,792 1,967 Originations and advances on notes receivable — — ( 6,500 ) Purchase of short-term investments ( 84,569 ) ( 59,097 ) ( 91,007 ) Redemption of short-terms investments 89,405 69,745 120,346 Development and renovation of real estate ( 79,492 ) ( 57,933 ) ( 18,462 ) Deferred leasing costs ( 519 ) ( 1,189 ) ( 1,128 ) Proceeds from sale of assets 34,796 1,342 188 Contribution to unconsolidated joint venture ( 1,270 ) — — Distributions from unconsolidated joint ventures — — 21,409 Net cash (used in) provided by investing activities ( 33,055 ) ( 41,340 ) 26,813 Cash Flow From Financing Activities: Proceeds from mortgages and other notes payable 63,782 15,112 — Payments on mortgages, other notes and bonds payable ( 35,154 ) ( 12,452 ) ( 137,657 ) Purchase IOR shares ( 1,082 ) ( 802 ) ( 908 ) Debt extinguishment costs — — ( 435 ) Deferred financing costs — ( 199 ) ( 20 ) Net cash provided by (used in) financing activities 27,546 1,659 ( 139,020 ) 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 Cash and cash equivalents, end of year $ 29,413 $ 40,475 $ 79,067 The accompanying notes are an integral part of these consolidated financial statements. 28 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 1. Organization As used herein, the terms “the Company”, “We”, “Our”, or “Us” refer to American Realty Investors, Inc., a Nevada corporation, which was formed in 1999. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “ARL”. Over 90 % of our stock is owned by related party entities. 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. 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. 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”. Accordingly, we include TCI’s financial results in our consolidated financial statements. 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; and • Approximately 1,792 acres of developed and undeveloped land. Our day to day operations are managed by Pillar Income Asset Management, Inc. (“Pillar”). 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. 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 13 – Related Party Transactions). 2. Summary of Significant Accounting Policies Basis of presentation These consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America. We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights. We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. 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. 29 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Real estate, depreciation, and impairment Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated remaining useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements— 10 to 40 years; furniture, fixtures and equipment— 5 to 10 years). We assess whether an indicator of impairment in the value of our real estate exists by considering expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include projected rental revenue, operating costs and capital expenditures as well as estimated holding periods and capitalization rates. If an impairment indicator exists, the determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. We generally hold and operate our income producing real estate long-term, which decreases the likelihood of their carrying values not being recoverable. Real estate classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell. Cost capitalization The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. We also capitalize development costs including costs directly related to planning, developing, initial leasing and constructing a property as well as interest, property taxes, insurance, and other direct project costs incurred during the period of development. Capitalized costs also include direct and certain indirect costs clearly associated with the project. Indirect costs include real estate taxes, insurance and certain shared administrative costs. In assessing the amounts of direct and indirect costs to be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs not clearly associated with specific projects are expensed as period costs. We consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction. 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. We allocate these costs to individual tenant leases and amortize them over the related lease term. Short-Term Investments We account for our investment in corporate bonds and demand notes (collectively "debt securities") as held-to-maturity securities as we have the intent and the ability to hold these securities until maturity. Accordingly, our debt securities are carried at their amortized cost. The discount on these debt securities is amortized into interest income on a straight-line basis over the term of the underlying notes, which approximate the effective interest method. 30 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Fair value measurement Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date that is other than in a forced or liquidation sale. In determining fair value we apply the following hierarchy: Level 1 —Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets. Level 2 —Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 —Unobservable inputs that are significant to the fair value measurement. 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. Related parties Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity. Recognition of revenue Rental revenue includes fixed minimum rents, reimbursement of operating costs and other leasing income. Rental revenue for residential property, which is generally leased for twelve months or less, is recorded when due from residents, whereas rental revenue for commercial properties, which is generally leased for more than twelve months, is recognized on a straight-line basis over the terms of the related leases. Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers; we have discretion in selecting the supplier and have the credit risk with respect to paying the supplier. An allowance for credit losses is recorded for all past due rents and operating expense reimbursements considered to be uncollectible. Cash and Cash Equivalents and Restricted Cash We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value. Restricted cash includes cash balances held in escrow by financial institutions under the terms of certain secured notes payable and certain unsecured bonds payable. 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. At December 31, 2025 and 2024, the Company maintained balances in excess of the insured amount. 31 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Income taxes We are a “C” corporation” for U.S. federal income tax purposes. However, we are included in the May Realty Holdings, Inc. ("MRHI"). consolidated group for tax purposes. We have a tax sharing agreement that specifies the manner in which the group will share the consolidated tax liability and also how certain tax attributes are to be treated among members of the group. Comprehensive income (loss) Net income and comprehensive income are the same for the years ended December 31, 2025, 2024 and 2023. Use of estimates In the preparation of consolidated financial statements in conformity with GAAP, it is necessary for management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expense for the year ended. Actual results could differ from those estimates. Recent Accounting Pronouncements 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. 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): Disaggregation of Income Statement Expenses (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. 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. 32 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 3. Earnings Per Share Earnings per share (“EPS”) has been computed by dividing net income available to common shares, adjusted for preferred dividends, by the weighted-average number of common shares outstanding during the period. The following table provides our basic and diluted EPS calculation: For the Year Ended December 31, 2025 2024 2023 Net income (loss) $ 18,539 $ ( 13,439 ) $ 5,251 Net income attributable to noncontrolling interest ( 2,836 ) ( 1,264 ) ( 1,283 ) 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 EPS attributable to common shares - basic and diluted $ 0.97 $ ( 0.91 ) $ 0.25 4. Supplemental Cash Flows Information The following presents the schedule of interest paid and other supplemental cash flow information: For the Years Ended December 31, 2025 2024 2023 Cash paid for interest $ 5,562 $ 6,353 $ 11,014 Cash paid for income taxes $ 2,281 $ 3,403 $ 38,072 Cash, cash equivalents and restricted cash - beginning of year Cash and cash equivalents $ 19,918 $ 36,740 $ 113,445 Restricted cash 20,557 42,327 108,883 $ 40,475 $ 79,067 $ 222,328 Cash, cash equivalents and restricted cash - end of year Cash and cash equivalents $ 14,180 $ 19,918 $ 36,740 Restricted cash 15,233 20,557 42,327 $ 29,413 $ 40,475 $ 79,067 Payment on mortgages, other notes and bonds payable Mortgages and other notes payable $ 35,154 $ 12,452 $ 6,481 Bonds payable — — 131,176 $ 35,154 $ 12,452 $ 137,657 The following is a schedule of noncash investing and financing activities: For the Years Ended December 31, 2025 2024 2023 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 33 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 5. Operating Segments Segment information is prepared on the same basis that our chief operating decision maker ("CODM") reviews information to assess performance and make resource allocation decisions. Our CODM is our President and Chief Executive Officer. We operate in two reportable segments: (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 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: For the Years Ended December 31, 2025 2024 2023 Residential Segment 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 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 34 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 NOI from reportable segments $ 21,175 $ 20,007 $ 22,009 Other non-segment items of income (expense) Depreciation and amortization ( 12,577 ) ( 12,276 ) ( 13,646 ) General and administrative ( 6,459 ) ( 6,395 ) ( 10,011 ) Advisory fee to related party ( 9,522 ) ( 8,225 ) ( 10,187 ) Other income 954 248 595 Interest income 14,637 19,973 26,847 Interest expense ( 6,825 ) ( 7,838 ) ( 9,502 ) Gain on foreign currency transactions — — 993 Loss on early extinguishment of debt ( 284 ) — ( 1,710 ) Equity in income from unconsolidated joint ventures 119 1,449 3,242 Gain (loss) on real estate transactions 19,988 ( 23,989 ) ( 1,923 ) Income tax provision ( 2,667 ) 3,607 ( 1,456 ) 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: December 31, 2025 2024 Segment assets $ 571,503 $ 523,792 Real estate 57,463 59,197 Investments in unconsolidated joint ventures 1,270 10,246 Notes receivable 142,439 138,349 Receivable from related parties 103,558 97,544 Cash, short-term investments and other non-segment assets 221,092 203,674 Total assets $ 1,097,325 $ 1,032,802 6. Lease Revenue We lease our multifamily properties and commercial properties under agreements that are classified as operating leases. Our multifamily leases generally include minimum rents and charges for ancillary services. Our commercial property leases generally included minimum rents and recoveries for property taxes and common area maintenance. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases. The following table summarizes the components of rental revenue for the years ended December 31, 2025, 2024 and 2023: For the Year Ended December 31, 2025 2024 2023 Fixed component $ 44,906 $ 43,676 $ 45,466 Variable component 1,460 1,087 1,557 Total rental revenue $ 46,366 $ 44,763 $ 47,023 35 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: Year Amount 2026 $ 14,208 2027 13,914 2028 13,212 2029 10,768 2030 8,046 Thereafter 17,256 Total $ 77,404 36 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 7. Real Estate Activity At December 31, 2025 and 2024, our real estate investment is comprised of the following: December 31, 2025 2024 Land $ 113,357 $ 104,076 Building and improvements 500,292 375,430 Tenant improvements 20,388 16,629 Construction in progress 56,163 140,046 Total cost 690,200 636,181 Less accumulated deprecation ( 87,769 ) ( 78,793 ) Total real estate $ 602,431 $ 557,388 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. 37 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) Disposition of assets Gain (loss) on real estate transactions consists of the following: For the Year Ended December 31, 2025 2024 2023 Land(1) $ 4,720 $ 1,095 $ 188 Residential properties(2) 12,204 — — 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 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. 8. Short-term Investments The following is a summary of our short term investments as of December 31, 2025 and 2024: December 31, 2025 2024 Corporate bonds, at par value $ 58,035 $ 80,000 Demand notes 17,418 325 75,453 80,325 Less discount ( 489 ) ( 525 ) $ 74,964 $ 79,800 The average interest rate on the investments was 4.27 % and 5.20 % at December 31, 2025 and December 31, 2024, respectively. 38 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 9. Notes Receivable The following table summarizes our notes receivables at December 31, 2025 and 2024: Carrying Value Interest Rate Maturity Date Borrower / Project 2025 2024 ABC Land and Development, Inc. $ 4,408 $ 4,408 9.50 % 6/30/2026 ABC Paradise, LLC 1,210 1,210 9.50 % 6/30/2026 Autumn Breeze(1) 1,043 1,451 5.00 % 7/1/2028 Bellwether Ridge(1) 3,798 3,798 5.00 % 11/1/2026 Dominion at Mercer Crossing(2) 6,167 6,167 7.75 % 6/7/2028 Echo Station(3)(4) 9,881 10,120 4.24 % 12/31/2032 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 Kensington Park(3)(4) 5,196 6,994 4.24 % 3/31/2027 Lake Shore Villas(3)(4) 4,852 5,855 4.24 % 12/31/2032 Prospectus Endeavors 496 496 6.00 % 10/23/2029 McKinney Ranch 3,926 3,926 6.00 % 9/15/2029 Ocean Estates II(3)(4) 3,591 3,615 4.24 % 5/31/2028 One Realco Land Holding, Inc. 1,728 1,728 9.50 % 6/30/2026 Parc at Ingleside(1) 3,759 3,759 5.00 % 11/1/2026 Parc at Opelika Phase II(1)(5) 3,190 3,190 10.00 % 1/13/2023 Parc at Windmill Farms(1)(5) 7,886 7,886 5.00 % 11/1/2022 Phillips Foundation for Better Living, Inc.(3) — 107 4.24 % 3/31/2028 Plaza at Chase Oaks(3)(4) 11,303 11,772 4.24 % 3/31/2028 Plum Tree(1) 1,240 1,478 5.00 % 8/17/2028 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 Spartan Land 5,907 5,907 6.00 % 1/16/2027 Spyglass of Ennis(1) 4,705 4,705 5.00 % 11/1/2028 Steeple Crest(1) 6,230 6,358 5.00 % 8/1/2026 Timbers at The Park(3)(4) 11,072 11,146 4.24 % 12/31/2032 Tuscany Villas(3)(4) 1,469 1,548 4.24 % 4/30/2027 $ 142,439 $ 138,349 (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. (4) Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“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. (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. 39 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 10. Investment in Unconsolidated Joint Ventures 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. 11. Other Assets At December 31, 2025 and 2024, our other assets are comprised of the following: December 31, 2025 2024 Acquisition deposits $ 15,269 $ 15,824 Windmill Farms infrastructure receivables (1) 55,693 54,518 Interest receivable 18,647 16,652 Tenant and other receivables 5,244 3,989 Prepaid expenses and other assets 8,380 12,312 Income tax receivable 39,040 — Deferred tax assets 977 5,705 $ 143,250 $ 109,000 (1) Represents roads, sewer, and utility infrastructure costs in connection with our development of Windmill Farms (See Note 7 - Real Estate Activity). These costs are reimbursable through bonds issued by the municipality in accordance with underlying indemnity agreements. 40 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 12. Mortgages and Other Notes Payable Below is a summary of our notes and interest payable as of December 31, 2025 and 2024 : Carrying Value Interest Rate Maturity Date Property/ Entity 2025 2024 770 South Post Oak(1) $ — $ 10,939 — % 6/1/2025 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 Blue Lake Villas Phase II 3,192 3,271 2.85 % 6/1/2052 Chelsea 7,686 7,878 3.36 % 12/1/2050 EQK Portage 3,350 3,350 5.00 % 11/13/2029 Forest Grove(4) 6,442 6,421 6.02 % 8/1/2031 Landing on Bayou Cane 13,872 14,162 3.52 % 9/1/2053 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 Northside on Travis 10,849 11,125 2.50 % 2/1/2053 Parc at Denham Springs 15,683 16,048 3.75 % 4/1/2051 Parc at Denham Springs Phase II 15,223 15,419 4.05 % 2/1/2060 RCM HC Enterprises 5,086 5,086 5.00 % 12/31/2029 Residences at Holland Lake 10,006 10,219 3.60 % 3/1/2053 Villas at Bon Secour(6) — 18,798 — % 9/1/2031 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 Windmill Farms — 2,395 — % 2/28/2026 $ 214,367 $ 185,398 (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. 41 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 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, and Mountain Creek. Future principal payments due on our notes payable at December 31, 2025 are as follows: Year Amount 2026 $ 2,809 2027 32,150 2028 3,008 2029 3,112 2030 3,220 Thereafter 170,639 214,938 Deferred finance cost ( 571 ) $ 214,367 42 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 13. Related Party Transactions We engage in certain business transactions with related parties, including but not limited to acquisitions and dispositions of real estate. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. 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 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. Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement. In addition, Regis is entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. Rental income includes $ 579 , $ 652 and $ 882 for the years ended December 31, 2025, 2024 and 2023, respectively, for office space leased to Pillar and Regis. Property operating expense includes $ 353 , $ 346 and $ 366 for the years ended December 31, 2025, 2024 and 2023, respectively, for management fees on commercial properties payable to Regis. General and administrative expense includes $ 4,262 , $ 3,871 and $ 4,006 for the years ended December 31, 2025, 2024 and 2023, respectively, for employee compensation and other reimbursable costs payable to Pillar. 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 $ 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). UHF is deemed to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. In addition, we have a related party receivable from Pillar (" Pillar Receivable "), which represents amounts advanced to Pillar net of unreimbursed fees, expenses and costs as provided above. The Pillar Receivable bears interest in accordance with a cash management agreement. On January 1, 2024, an amendment to the cash management agreement changed the interest rate on the Pillar Receivable from prime plus one percent to SOFR. Interest income on the UHF notes and the Pillar Receivable was $ 7,478 , $ 8,985 and $ 13,259 for the years ended December 31, 2025, 2024 and 2023, respectively. Accrued interest on the UHF notes of $ 1,475 and $ 1,855 is included in other assets at December 31, 2025 and 2024, respectively. 14. Noncontrolling Interests The noncontrolling interest represents the third party ownership interest in TCI and Income Opportunity Realty Investors, Inc. ("IOR"). At December 31, 2025, we owned 78.4 % of TCI, which in turn owned 84.6 % of IOR. 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 $ 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 . 43 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 15. Stockholders' Equity Dividends: Our decision to declare dividends on common stock is determined on an annual basis following the end of each year. In accordance with that policy, no dividends on our common stock were declared for 2025, 2024 , or 2023 . 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. 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 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. 16. Deferred Income In previous years, we sold properties to related parties where we have had continuing involvement in the form of management or financial assistance associated with the sale of the properties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method was not met, and as such we deferred the gain recognition and accounted for the transaction by applying the finance, deposit, installment or cost recovery methods, as appropriate. The gains on these transactions have been deferred until the properties are sold to a non-related third party. As of December 31, 2025, we had deferred gain of $ 9,791 . 17. Income Taxes We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. 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 expense (benefit) for income taxes consists of: Years Ended December 31, 2025 2024 2023 Current $ 1,907 $ ( 3,607 ) $ 1,456 Deferred 760 — — $ 2,667 $ ( 3,607 ) $ 1,456 44 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: Years Ended December 31, 2025 2024 2023 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 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. 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, 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: December 31, 2025 2024 Basis difference in fixed assets $ 171 $ 2,333 Deferred gain and net operating loss carryforward 806 3,372 $ 977 $ 5,705 18. Commitments and Contingencies We believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due. 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 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. 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. 45 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 19. Quarterly Results of Operations The following is a tabulation of our quarterly results of operations for the years 2025 and 2024. Quarterly results presented may differ from those previously reported in our Form 10-Q due to the reclassification of the operations. 2025 Quarter Ended March 31, June 30, September 30, December 31 Revenues $ 12,008 $ 12,160 $ 12,835 $ 13,011 Net operating loss ( 813 ) ( 1,013 ) ( 1,573 ) ( 3,030 ) 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 2024 Quarter Ended March 31, June 30, September 30, December 31 Revenues $ 11,899 $ 11,773 $ 11,607 $ 12,039 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 ) EPS - basic and diluted $ 0.11 $ 0.07 $ ( 1.08 ) $ ( 0.01 ) 20. Subsequent Events The date to which events occurring after December 31, 2025, the date of the most recent balance sheet, have been evaluated for possible adjustments to the financial statements or disclosure is March 12, 2026, which is the date of which the financial statements were available to be issued. There are no subsequent events that would require an adjustment to the financial statements. 46 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2025 Initial Cost Cost Capitalized Subsequent to Acquisition Gross Amount Carried at End of Year Property/Location Encumbrances Land Buildings Land Building & Improvements Total Accumulated Depreciation Date of Construction Date Acquired Multifamily Alera $ 29,243 $ 5,140 $ 50,235 $ — $ 5,140 $ 50,235 $ 55,375 $ 403 2025 2025 Bandera Ridge 18,808 2,720 45,362 — 2,720 45,362 48,082 293 2025 2025 Blue Lake Villas 9,146 6,920 27,680 225 6,920 27,905 34,825 2,232 2002 2022 Blue Lake Villas Phase II 3,192 2,400 9,600 53 2,400 9,653 12,053 768 2004 2022 Chelsea 7,686 1,225 11,230 62 1,231 11,286 12,517 2,095 1999 2018 Forest Grove 6,442 1,440 10,234 64 1,440 10,298 11,738 1,451 2020 2020 Landing on Bayou Cane 13,872 2,011 18,255 513 2,011 18,768 20,779 2,911 2005 2018 Legacy at Pleasant Grove 12,034 2,005 18,109 176 2,033 18,257 20,290 5,616 2006 2018 Merano 24,284 5,200 43,772 — 5,200 43,772 48,972 205 2025 2025 Mountain Creek — — — 9,268 3,510 5,758 9,268 — Northside on Travis 10,849 7,160 28,640 21 7,160 28,661 35,821 2,270 2008 2022 Parc at Denham Springs 15,683 6,060 24,240 29 6,060 24,269 30,329 1,927 2007 2022 Parc at Denham Springs Phase II 15,223 1,505 16,975 — 1,505 16,975 18,480 2,610 2010 2009 Residences at Holland Lake 10,006 6,300 25,200 51 6,300 25,251 31,551 2,008 2004 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 202,389 66,485 403,170 10,599 70,029 410,225 480,254 33,883 Commercial 770 South Post Oak — 1,763 16,312 1,998 1,763 18,310 20,073 5,148 1970 2015 Browning Place — 5,096 49,441 15,973 5,096 65,414 70,510 34,572 1984 2005 Stanford Center — 20,278 21,510 6,843 20,278 28,353 48,631 14,126 2007 2008 Other — 646 74 4,268 622 4,366 4,988 40 — 27,783 87,337 29,082 27,759 116,443 144,202 53,886 Developed and Undeveloped Land Mercer Crossing — 2,999 — ( 166 ) 2,833 — 2,833 — 2018 Windmill Farms — 43,608 — 3,288 46,896 — 46,896 — 2006 Other 8,436 19,608 — ( 3,593 ) 16,015 — 16,015 — 8,436 66,215 — ( 471 ) 65,744 — 65,744 — $ 210,825 $ 160,483 $ 490,507 $ 39,210 $ 163,532 $ 526,668 $ 690,200 $ 87,769 47 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION As of December 31, 2025 2025 2024 2023 Reconciliation of Real Estate Balance at January 1, $ 636,181 $ 568,951 $ 559,875 Additions 74,082 69,145 29,474 Deductions ( 20,063 ) ( 1,915 ) ( 20,398 ) Balance at December 31, $ 690,200 $ 636,181 $ 568,951 Reconciliation of Accumulated Depreciation Balance at January 1, $ 78,793 $ 67,365 $ 66,054 Additions 11,851 11,662 12,887 Deductions ( 2,875 ) ( 234 ) ( 11,576 ) Balance at December 31, $ 87,769 $ 78,793 $ 67,365 48 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) SCHEDULE IV - MORTGAGE LOANS As of December 31, 2025 Description Interest Rate Maturity Date Periodic Payment Terms Prior Liens Face Amount Carrying Value ABC Land and Development, Inc. 9.50 % 6/30/2026 No payments until maturity $ — $ 4,408 $ 4,408 ABC Paradise, LLC 9.50 % 6/30/2026 No payments until maturity — 1,210 1,210 Autumn Breeze 5.00 % 7/1/2028 No payments until maturity or conversion 23,563 1,043 1,043 Bellwether Ridge 5.00 % 11/1/2026 No payments until maturity or conversion 17,109 3,798 3,798 Dominion at Mercer Crossing 7.75 % 6/7/2028 No payments until maturity 37,572 6,167 6,167 Echo Station 4.24 % 12/31/2032 Payments from excess property cash flows 12,656 9,881 9,881 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 Kensington Park 4.24 % 3/31/2027 Payments from excess property cash flows 14,415 5,196 5,196 Lake Shore Villas 4.24 % 12/31/2032 Payments from excess property cash flows 20,411 4,852 4,852 Prospectus Endeavors 6.00 % 10/23/2029 No payments until maturity — 496 496 McKinney Ranch 6.00 % 9/15/2029 No payments until maturity — 3,926 3,926 Ocean Estates II 4.24 % 5/31/2028 Payments from excess property cash flows — 3,591 3,591 One Realco Land Holding, Inc. 9.50 % 6/30/2026 No payments until maturity — 1,728 1,728 Parc at Ingleside 5.00 % 11/1/2026 No payments until maturity or conversion 23,875 3,759 3,759 Parc at Opelika Phase II 10.00 % 1/13/2023 No payments until maturity or conversion 22,044 3,190 3,190 Parc at Windmill Farms 5.00 % 11/1/2022 No payments until maturity or conversion 33,774 7,886 7,886 Phillips Foundation for Better Living, Inc. 4.24 % 3/31/2028 Payments from excess property cash flows — — — Plaza at Chase Oaks 4.24 % 3/31/2028 Payments from excess property cash flows 8,160 11,303 11,303 Plum Tree 5.00 % 8/17/2028 No payments until maturity or conversion 16,882 1,240 1,240 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 % 1/16/2027 No payments until maturity — 5,907 5,907 Spyglass of Ennis 5.00 % 11/1/2028 No payments until maturity or conversion 21,589 4,705 4,705 Steeple Crest 5.00 % 8/1/2026 No payments until maturity or conversion 10,544 6,230 6,230 Timbers at The Park 4.24 % 12/31/2032 Payments from excess property cash flows 12,594 11,072 11,072 Tuscany Villas 4.24 % 4/30/2027 Payments from excess property cash flows 1,403 1,469 1,469 $ 325,817 $ 142,439 $ 142,439 49 AMERICAN REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) SCHEDULE IV - MORTGAGE LOANS As of December 31, 2025 2024 2023 Balance at January 1, $ 138,349 $ 144,142 $ 139,609 Additions 12,685 — 6,500 Deductions ( 8,595 ) ( 5,793 ) ( 1,967 ) Balance at December 31, $ 142,439 $ 138,349 $ 144,142 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.