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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission File Number 001-09240

AMERICAN REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada94-6565852
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1603 Lyndon B. Johnson Freeway, Suite 800, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
(469) 522-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockARLNYSE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐
Accelerated filer  ☐
Non-accelerated filer  ☒
Smaller reporting company   
Emerging growth Company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No.
As of May 13, 2021, there were 16,152,043 shares of common stock outstanding.



Table of Contents
AMERICAN REALTY INVESTORS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE

2

Table of Contents
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS 
(dollars in thousands, except share and par value amounts)
(Unaudited)
March 31, 2021December 31, 2020
Assets
Real estate, net$351,120 $377,383 
Notes receivable (including $75,135 and $70,375 at March 31, 2021 and December 31, 2020, respectively, from related parties)
137,718 130,626 
Cash and cash equivalents53,865 36,814 
Restricted cash21,196 50,206 
Investment in unconsolidated joint ventures55,764 60,425 
Receivable from related parties126,810 129,335 
Other assets76,664 80,975 
Total assets$823,137 $865,764 
Liabilities and Equity
Liabilities:
Mortgages and notes payable224,817 242,711 
Bonds payable208,021 237,888 
Accounts payable and other liabilities (including $14,724 and $12,488 at March 31, 2021 and December 31, 2020, respectively, to related parties)
23,502 27,299 
Accrued interest payable3,385 7,639 
Deferred revenue9,791 19,821 
Total liabilities469,516 535,358 
Equity
Shareholders' Equity:
Preferred stock, Series A, $2.00 par value, 15,000,000 shares authorized, 1,800,614 shares issued and outstanding
1,801 1,801 
Common stock, $0.01 par value, 100,000,000 shares authorized; 16,152,043 and 16,209,228 shares issued at March 31, 2021 and December 31, 2020, respectively; and 16,152,043 shares outstanding
162 162 
Treasury stock, 57,185 at December 31, 2020
 (2)
Paid-in capital62,090 62,092 
Retained earnings190,806 172,738 
Total shareholders' equity254,859 236,791 
Non-controlling interest98,762 93,615 
Total equity353,621 330,406 
Total liabilities and equity$823,137 $865,764 
The accompanying notes are an integral part of these consolidated financial statements.
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AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
20212020
Revenues:
Rental revenues (including $242 and $221 for three months ended March 31, 2021 and 2020, respectively, from related parties)
$10,361 $11,442 
Other income1,467 1,688 
   Total revenue11,828 13,130 
Expenses:
Property operating expenses (including $382 and $242 for three months ended March 31, 2021 and 2020, respectively, from related parties)
5,832 6,309 
Depreciation and amortization3,327 3,394 
General and administrative (including $1,670 and $1,133 for three months ended March 31, 2021 and 2020, respectively, from related parties)
3,235 4,292 
Advisory fee to related party2,436 2,373 
   Total operating expenses14,830 16,368 
   Net operating loss(3,002)(3,238)
Interest income (including $4,769 and $5,073 for the three months ended March 31, 2021 and 2020, respectively, from related parties)
5,644 5,754 
Interest expense (including $1,395 and $1,915 for the three months ended March 31, 2021 and 2020, respectively, from related parties)
(7,738)(9,602)
(Loss) gain on foreign currency transactions7,617 7,843 
Equity in income (loss) from unconsolidated joint ventures3,336 (260)
Gain on sale or write-down of assets, net17,398 4,138 
Income tax provision(40)(247)
Net income23,215 4,388 
Net income attributable to noncontrolling interest(5,147)(1,442)
Net income attributable to the Company$18,068 $2,946 
Earnings per share - basic
Basic and diluted$1.12 $0.18 
Weighted average common shares used in computing earnings per share
Basic and diluted16,152,043 15,997,076 
The accompanying notes are an integral part of these consolidated financial statements.

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AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF EQUITY
(dollars in thousands, except share amounts)
(Unaudited)


Preferred StockCommon StockTreasury
Stock
Paid-in
Capital
Retained
Earnings
Total Shareholders' EquityNoncontrolling
Interest
Total Equity
Three Months Ended March 31, 2021
Balance, December 31, 2020$1,801 $162 (2)62,092 172,738 $236,791 $93,615 $330,406 
Cancellation of treasury shares— — 2 (2)— — —  
Net income— — — — 18,068 18,068 5,147 23,215 
Balance, March 31, 2021$1,801 $162 $ $62,090 $190,806 $254,859 $98,762 $353,621 
Three Months Ended March 31, 2020
Balance, December 31, 2019$3,601 $164 $(6,395)$78,421 $163,708 $239,499 $57,017 $296,516 
Net income— — — — 2,946 2,946 1,442 4,388 
Balance, March 31, 2020$3,601 $164 $(6,395)$78,421 $166,654 $242,445 $58,459 $300,904 

The accompanying notes are an integral part of these consolidated financial statements.
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AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
For the Three Months Ended March 31,
20212020
Cash Flow From Operating Activities:
Net income$23,215 $4,388 
Adjustments to reconcile net income to net cash used in operating activities:
Gain on sale or write down of assets(17,398)(4,138)
Gain on foreign currency transactions(7,617)(7,843)
Depreciation and amortization3,953 4,325 
Provision for bad debts(1,017)(542)
Equity in (income ) loss from unconsolidated joint ventures(3,336)260 
Distribution of income from unconsolidated joint ventures3,157  
Changes in assets and liabilities, net of dispositions:
Other assets2,981 (544)
Related party receivables2,525 (151)
Accrued interest payable(4,244)(3,193)
Accounts payable and other liabilities(3,668)(4,164)
Net cash used in operating activities(1,449)(11,602)
Cash Flow From Investing Activities:
Collection of notes receivable9,373 5,042 
Originations and advances on notes receivable(10,448)(768)
Acquisition of real estate (2,000)
Development and renovation of real estate(4,978)(7,742)
Deferred leasing costs(755) 
Proceeds from sale of assets14,434 5,638 
Contribution to unconsolidated joint ventures(411) 
Distribution from unconsolidated joint ventures7,430 5,264 
Net cash provided by investing activities14,645 5,434 
Cash Flow From Financing Activities:
Proceeds from mortgages, other notes and bonds payable 5,114 
Payments on mortgages, other notes and bonds payable(25,133)(14,153)
Debt extinguishment costs  
Deferred financing costs(22) 
Preferred stock dividends  
Net cash used in financing activities(25,155)(9,039)
Net decrease in cash, cash equivalents and restricted cash(11,959)(15,207)
Cash, cash equivalents and restricted cash, beginning of period87,020 83,311 
Cash, cash equivalents and restricted cash, end of period$75,061 $68,104 
The accompanying notes are an integral part of these consolidated financial statements.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)

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 trades on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”) and over 90% of our stock is owned by related party entities.
Our primary business is the acquisition, development and ownership of income-producing multifamily and commercial 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 to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.
We own approximately 78.4% of Transcontinental Realty Investors, Inc. ("TCI") and substantially all of our operations are conducted through TCI, whose common stock is traded on the NYSE under the symbol “TCI”. Accordingly, we include TCI’s financial results in our consolidated financial statements. Substantially all of TCI's assets are held by its wholly-owned subsidiary, Southern Properties Capital Ltd. (“SPC”), which was formed for the purpose of raising funds by issuing non-convertible bonds that are listed and traded on the Tel-Aviv Stock Exchange ("TASE").
At March 31, 2021, our portfolio of income-producing properties consisted of:
●     Six commercial properties consisting of five office buildings and 1 retail property comprising in aggregate of approximately 1,575,685 square feet;
●    Nine multifamily properties owned directly by us comprising in 1,492 units, excluding apartments being developed;
●    Approximately 1,922 acres of developed and undeveloped land; and
●    Fifty-two multifamily properties totaling 10,032 units owned by our 50% owned investment in VAA.
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 and real estate-related investment opportunities and arranging debt and equity financing with third party lenders and investors. All of the Companies employees are Pillar employees. Our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and brokerage services. Our multifamily properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 12 – Related Party Transactions).
2.    Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.
The consolidated balance sheet at December 31, 2020 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2020. Certain 2020 consolidated financial statement amounts have been reclassified to conform to the current presentation.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
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.
Newly Issued Accounting Standards
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides guidance, optional expedients and exceptions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The standard was effective upon issuance and can be applied through December 31, 2022. We have mortgage notes payable with interest rates that reference LIBOR, and therefore, we will adopt this standard when LIBOR is discontinued.
On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance in ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our adoption of the guidance of the Q&A did not have a significant impact on our consolidated financial statements during the three months ended March 31, 2021 and 2020.
3.    Earnings Per Share
Earnings Per Share (“EPS”) have 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. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.
The following table details our basic and diluted earnings per common share calculation:
Three Months Ended March 31,
20212020
Net income$23,215 $4,388 
Net income attributable to non-controlling interest(5,147)(1,442)
Net income loss attributable to the Company$18,068 $2,946 
Weighted-average common shares outstanding — basic and diluted16,152,043 15,997,076 
EPS - attributable to common shares — basic and diluted$1.12 $0.18 

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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
4.    Supplemental Cash Flow Information
The following presents the schedule of interest paid and other supplemental cash flow information:
Three Months Ended March 31,
20212020
Cash paid for interest$9,713 $13,090 
Cash - Beginning of period
Cash and cash equivalents$36,814 $51,228 
Restricted cash50,206 32,083 
$87,020 $83,311 
Cash - End of Period
Cash and cash equivalents$53,865 $39,946 
Restricted cash21,196 28,158 
$75,061 $68,104 
Proceeds from mortgages, notes and bonds payable
Proceeds from mortgages and notes payable$ $5,114 
Proceeds from bonds  
$ $5,114 
Payment of mortgages, notes and bonds payable
Recurring payment on mortgages and notes payable$2,421 $2,592 
Bond payments22,712 11,561 
$25,133 $14,153 
The following is a schedule of noncash investing and financing activities:
Three Months Ended March 31,
20212020
Property acquired in exchange for note payable$ $3,350 
Assets contributed to joint venture18,608  
Liabilities assumed by joint venture17,592  
5.    Operating Segments
Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in two reportable segments: (i) the acquisition, development, ownership and management of multifamily apartment communities and (ii) the acquisition, ownership and management of commercial real estate properties. The services for our multifamily segment include rental of apartments 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.

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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
The following table presents our reportable segments for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
Multifamily Segment
Revenues$3,836 $3,556 
Operating expenses(2,123)(1,945)
Profit from segment1,713 1,611 
Commercial Segment
Revenues6,525 7,886 
Operating expenses(3,709)(4,364)
Profit from segment2,816 3,522 
Total profit from segments$4,529 $5,133 
The table below reflects the reconciliation of total profit from segments to net income for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
Total profit from segments$4,529 $5,133 
Other non-segment items of income (expense)
Depreciation(3,327)(3,394)
General and administrative(3,235)(4,292)
Advisory fee to related party(2,436)(2,373)
Other income1,467 1,688 
Interest income5,644 5,754 
Interest expense(7,738)(9,602)
Gain on foreign currency transaction7,617 7,843 
Income (losses) from unconsolidated joint ventures3,336 (260)
Gain on sales or write-down of assets17,398 4,138 
Income tax expense(40)(247)
Net income$23,215 $4,388 

6.    Lease Revenue
We lease our multifamily apartment communities and commercial properties under agreements that are classified as operating leases. Our multifamily leases generally includes 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.

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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
The following table summarizes the components of rental revenue for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
Fixed component$9,863 $10,812 
Variable component498 630 
$10,361 $11,442 
The following table summarizes the future rental payments to us from under non-cancelable leases. The table exclude multifamily leases, which typically have a term of one-year or less:
2021$17,909 
202221,363 
202316,003 
202410,889 
20256,938 
Thereafter25,566 
$98,668 
7.    Real Estate Activity
Below is a summary of the real estate owned as of March 31, 2021 and December 31, 2020:
March 31, 2021December 31, 2020
Land$48,357 $50,759 
Building and improvements281,115 297,644 
Tenant improvements30,935 30,935 
Construction in progress73,656 77,891 
   Total cost434,063 457,229 
Less accumulated deprecation(84,603)(82,418)
   Total real estate, net349,460 374,811 
Property held for sale1,660 2,572 
Total real estate$351,120 $377,383 
The gain (loss) on sale or write-down of assets, net for the three months ended March 31, 2021 and 2020 consist of the following:
Three Months Ended March 31,
20212020
Land(1)$5,957 $4,138 
Residential Properties(2)11,441  
$17,398 $4,138 

(1)Includes the sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.
(2)Includes the gain from Overlook at Allensville Phase II transaction (See Note 9 – Investment in Unconsolidated Joint Ventures) and the recognition of gains on various multifamily properties that had been previously been deferred (See Note 14 – Deferred Income).
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
8.    Notes Receivable
The following table summarizes our notes receivable as of March 31, 2021 and December 31, 2020:
Carrying value
Property/BorrowerMarch 31, 2021December 31, 2020Interest RateMaturity Date
ABC Land and Development, Inc.$4,408 $4,408 9.50 %6/30/21
ABC Paradise, LLC1,210 1,210 9.50 %6/30/21
Autumn Breeze(1)2,102 1,867 5.00 %7/1/22
Bellwether Ridge(1)3,971 3,858 5.00 %11/1/21
Forest Pines(1)2,872 2,869 5.00 %11/1/22
Lake Wales3,000 3,000 9.50 %6/30/21
Legacy Pleasant Grove496 496 12.00 %10/23/22
McKinney Ranch4,554 4,554 6.00 %9/15/22
One Realco Land Holding, Inc.1,728 1,728 9.50 %6/30/21
Parc at Ingleside(1)2,670 2,523 5.00 %12/1/21
Parc at Opelika(1)1,698  10.00 %1/13/23
Parc at Windmill Farms(1)7,937 7,803 5.00 %11/1/22
Phillips Foundation for Better Living, Inc.(2) 61 12.00 %3/31/23
Phillips Foundation for Better Living, Inc.(2)1,009  12.00 %3/31/24
Plum Tree(1)1,102 857 5.00 %4/26/26
Riverview on the Park Land, LLC1,045 1,045 9.50 %6/30/21
RNC Portfolio, Inc.8,853 8,853 5.00 %9/1/24
Spartan Land5,907 5,907 12.00 %1/16/23
Spyglass of Ennis(1)5,362 5,360 5.00 %11/1/22
Steeple Crest(1)6,498 6,498 5.00 %8/1/21
Unified Housing Foundation, Inc. (2)(3)2,880 2,880 12.00 %7/31/21
Unified Housing Foundation, Inc. (2)(3)212 212 12.00 %8/30/21
Unified Housing Foundation, Inc. (2)(3)6,831 6,831 12.00 %10/31/21
Unified Housing Foundation, Inc. (2)(3)10,401 10,896 12.00 %12/31/21
Unified Housing Foundation, Inc. (2)(3)10,096 10,096 12.00 %3/31/22
Unified Housing Foundation, Inc. (2)(3)6,990 6,990 12.00 %3/31/23
Unified Housing Foundation, Inc. (2)(3)3,615 3,615 12.00 %5/31/23
Unified Housing Foundation, Inc. (2)(3)23,746 26,209 12.00 %12/31/32
Unified Housing Foundation, Inc. (2)(3)6,525  12.00 %3/31/24
$137,718 $130,626 
(1)The note is convertible, at our option, into a 100% ownership interest in the underlying development property, and is collateralized by the underlying development property.
(2) The borrower is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.
(3) 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.

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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
9.    Investment in Unconsolidated Joint Ventures
On November 19, 2018, we formed the VAA joint venture with the Macquarie Group (“Macquarie”). In connection with the formation of VAA, we sold a 50% ownership interest in certain multifamily properties to Macquarie for a $236,800 cash payment, resulting in a gain on sale of assets of $154,100. We then immediately transferred our respective ownership interests in the multifamily projects ("VAA Portfolio") to VAA in exchange for a 50% voting interest and a 49% profit participation interest ("Class A interest") in VAA and note payable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the Contribution, VAA owned and controlled 52 multifamily properties. VAA assumed all liabilities of those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”).
Concurrent with the Contribution, VAA issued Class B interests with a 2% profits participation interest and no voting rights to Daniel J. Moos, our former President and Chief Executive Officer (“Class B Member”). The Class B Member serves as the Manager of VAA.
Interest on the Mezzanine loan is limited to cash generated from the properties and matures concurrently with the termination of VAA. Accordingly, we account for our interest in the Mezzanine Loan as additional equity interest and includes any interest payments accrued as income from unconsolidated joint ventures.
On March 30, 2021, we sold a 50% ownership interest in the special purpose entity that owned Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie bank for $2,551 resulting in gain on sale of assets of $1,417. Concurrent with the sale, we each contributed our 50% ownership interests into VAA.
We also own a 20% ownership interest in a 20% interest in Gruppa Florentina, LLC ("Milano"), which operates several pizza parlors in Central and Northern California. Milano also has 23 franchised locations, including two operating, under the trade name Angelo & Vito’s Pizzerias.
The following is a summary of our investment in unconsolidated joint ventures:
March 31, 2021December 31, 2020
Assets (1)
Real estate$1,242,582 $1,230,197 
Other assets100,206 113,537 
   Total assets$1,342,788 $1,343,734 
Liabilities and Partners Capital (1)
Mortgage notes payable$873,579 $843,522 
Mezzanine notes payable245,356 239,878 
Other liabilities27,921 45,619 
Our share of partners' capital85,842 93,334 
Outside partner's capital110,090 121,381 
   Total liabilities and partners' capital$1,342,788 $1,343,734 
Investment in unconsolidated joint ventures
Our share of partners' capital$122,678 $93,334 
Our share of Mezzanine note payable85,842 119,939 
Basis adjustment (2)(152,756)(152,848)
   Total investment in unconsolidated joint ventures$55,764 $60,425 

(1)    These amounts include the assets of $1,280,899 and $1,279,197 of VAA at March 31, 2021 and December 31, 2020, respectively, and liabilities of $1,125,391 and $1,106,231 of VAA at March 31, 2021 and December 31, 2020, respectively.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
(2)     We amortize the difference between the cost of our investments in unconsolidated joint ventures and the book value of our underlying equity into income on a straight-line basis consistent with the lives of the underlying assets.
The following is a summary of our loss from investments in unconsolidated joint ventures:
Three Months Ended March 31,
20212020
Revenue (1)
   Rental revenue$31,070 $28,194 
   Other revenue15,289 54,803 
      Total revenue46,359 82,997 
Expenses (1)
   Operating expenses28,039 63,827 
   Depreciation and amortization8,062 9,168 
   Interest14,175 15,593 
      Total expenses50,276 88,588 
Net loss$(3,917)$(5,591)
Our share of net loss in unconsolidated joint ventures$3,336 $(260)

(1)    These amounts include revenue of $32,685 and $29,559 of VAA during the three months ended March 31, 2021 and 2020, respectively, and expenses of $37,457 and $37,453 of VAA during the three months ended March 31, 2021 and 2020, respectively.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
10.    Mortgages and Other Notes Payable
The following table summarizes our mortgages and other notes payable as of March 31, 2021 and December 31, 2020:
Carrying value
Property / EntityMarch 31, 2021December 31, 2020Effective
Interest Rate
Maturity Date
600 Las Colinas35,396 35,589 5.30 %11/1/2023
770 South Post Oak11,816 11,871 4.40 %6/1/2025
Athens(1)1,155 1,155 5.90 %8/28/2022
Chelsea8,154 8,194 3.40 %12/1/2050
EQK Portage - Land3,350 3,350 10.00 %11/13/2024
HSW Partners17,802 17,790 9.50 %6/17/2021
Forest Grove(2)7,333 7,333 3.75 %5/5/2024
Landing Bayou14,584 14,643 3.50 %9/1/2053
Legacy at Pleasant Grove13,579 13,653 3.60 %4/1/2048
McKinney 36 Land783 820 8.00 %6/30/2022
New Concept Energy3,542 3,542 6.00 %9/30/2021
Overlook at Allensville Phase II(3) 15,621 3.80 %5/1/2059
Parc at Denham Springs Phase II16,087 16,128 4.10 %2/1/2060
Stanford Center39,125 39,093 6.00 %2/26/2022
Sugar Mill Phase III9,278 9,298 4.50 %2/1/2060
Toulon13,914 13,975 3.20 %12/1/2051
Villas at Bon Secour10,226 10,280 4.00 %1/1/2022
Vista Ridge9,942 9,979 4.00 %8/1/2053
Windmill Farms(4)8,751 10,397 6.00 %2/28/2023
$224,817 $242,711 
(1)    On March 2, 2021, the loan was extended to August 28, 2022.
(2)    The loan bears interest at prime rate plus 0.5%March 31, 2021 and December 31, 2020.
(3)    On March 30, 2021, the loan was assumed by VAA in connection with our contribution of of the underlying property to the joint venture (See Note 9 – Investment in Unconsolidated Joint Ventures).
(4)    On March 4, 2021, the loan was extended to February 28, 2023 at an interest of 5%.
Interest payable at March 31, 2021 and December 31, 2020, was $1,169 and $1,123, respectively. We capitalized interest of $858 and $585 during the years ended March 31, 2021 and 2020, respectively.
There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan. We are working with our existing lenders and new lenders to modify, extend the loans before they become due or refinancing the loans with terms that are similar to the existing agreement.
As of March 31, 2021, we were in compliance with all our loan covenants.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
11.    Bonds Payable
We have issued three series of nonconvertible bonds ("Bonds') through SPC, which are traded on the TASE. The Bonds are denominated in New Israeli Shekels ("NIS") and provide for semiannual principal and interest payments through maturity.
In connection with the Bonds, we incurred a (loss) gain on foreign currency transactions of $7,617 and $7,843 for the three months ended March 31, 2021 and 2020, respectively.
The outstanding balance of our Bonds at March 31, 2021 and December 31, 2020 is as follows:
Bond IssuanceMarch 31, 2021December 31, 2020Interest RateMaturity
Series A Bonds(1)$76,448 $95,133 7.30 %7/31/23
Series B Bonds(2)56,688 65,318 6.80 %7/31/25
Series C Bonds(1)82,484 85,537 4.65 %1/31/23
215,620 245,988 
Less unamortized deferred issuance costs(7,599)(8,100)
$208,021 $237,888 
(1)    The bonds are collateralized by the assets of SPC.
(2)    The bonds are collateralized by a trust deed in Browning Place, a 625,297 square foot office building in Farmers Branch, Texas.
12.    Related Party Transactions
We engage in certain business transactions with related parties, including but not limited to asset acquisition 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 an affiliates of the MRHI, which also owns approximately 90.8% of the Company. Pillar is compensated for advisory services in accordance with an 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 $242 and $221 for the three months ended March 31, 2021 and 2020, respectively, for office space leased to Pillar and Regis.
Property operating expense includes $382 and $242 for the three months ended March 31, 2021 and 2020, respectively, for management fees on commercial properties payable to Regis.
General and administrative expense includes $1,670 and $1,133 for the three months ended March 31, 2021 and 2020, respectively, for employee compensation and other reimbursable costs payable to Pillar.
Advisor fees paid to Pillar were $2,436 and $2,373 for the three months ended March 31, 2021 and 2020, respectively.
Notes receivable are includes amounts held by UHF and Pillar (See Note 8 – Notes Notes Receivable). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was $4,769 and $5,073 for the three months ended March 31, 2021 and 2020, respectively.
Interest expense on notes payable to Pillar was $1,395 and $1,915 for the three months ended March 31, 2021 and 2020, respectively.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
Related party receivables represents amounts outstanding from Pillar for loans and unreimbursed fees, expenses and costs as provided above.
13. Noncontrolling Interests
The noncontrolling interest represents the third party ownership interest in TCI and Income Opportunity Realty Investors, Inc. ("IOR"). We owned 78.4% of TCI and 81.1% in in IOR during the three months ended March 31, 2021 and 2020.
14. 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 is not met, and as such we deferred some or all of the gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gain on these transactions have been deferred until the properties are sold to a non-related third party.
On January 29, 2021, UHF sold El Dorado, a 208 unit multifamily property in McKinney, Texas; Limestone Ranch, a 252 unit multifamily property in Lewisville, Texas; and Marquis, a 276 unit multifamily property in Lewisville, Texas to a non-related third party. As a result, we recognized a gain of $10,026 that had been previously deferred upon our sale of these properties to UHF.
As of March 31, 2021 and December 31, 2020, we had deferred gain of $9,791 and $19,821, respectively.
15. Income Taxes
We are part of a tax sharing and compensating agreement with respect to federal income taxes with ARL. In accordance with the agreement, our expense (benefit) in each year is calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 21%.
The following table summarizes our income tax provision:
Three Months Ended March 31,
20212020
Current$40 $247 
Deferred  
$40 $247 
The 2020 and 2019 effective tax rate is driven primarily by the passing of the Tax Cuts and Jobs Act by congress on December 22, 2017.  This act reduced the statutory tax rate for corporations to 21%, starting in 2019. As a result, our tax assets were remeasured to reflect the new tax rate for future years with the impact on the 2018 provision for income taxes.
16. Comittments and Contigencies
We believes 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 were the primary guarantor, on a $24,300 mezzanine loan between UHF and a lender. The guarantee was removed on January 29, 2021, concurrent with the repayment of the loan by UHF.
We are the defendant in ongoing litigation with Mr. David Clapper and related entities (collectively, "Clapper”) regarding a multifamily property transaction that occurred in 1988. In March 2016, the court ruled in favor of Clapper and awarded them approximately $59,000. We appealed the ruling, and the appellate court remanded the case to trial that began in May 2021.
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AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square of foot amounts)
(Unaudited)
We were the plaintiff in a lawsuit against Dynex Commercial, Inc. (“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded us with a judgment of $24,800. We are pursuing all legal means to collect this award. However, due to the uncertainty of the collectability of the award, the receivable has been fully reserved.
In February 2019, we were charged in a lawsuit brought by Paul Berger (“Berger”) that alleges that we a completed improper sales and/or transfers of property with IOR. Berger requests that we pay off various related party loans to IOR and that IOR then distribute the funds to its shareholders. We intend to vigorously defend against the allegations.
In connection with the formation of VAA, ten of the properties that we contributed to the joint venture are subject to an earn-out provision that provides for a remeasurement of the value of those properties after a two-year period following the completion of construction. As of March 31, 2021, we have recorded a liability of $10,000, which we believe is the amount that will be required to settle our obligation. We have been unable to reach agreement with our joint venture partner on the remeasured value. As a result, the parties have filed for arbitration in accordance with the joint venture agreement.
17 Subsequent Events
The date to which events occurring after March 31, 2021, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is May 13, 2021, which is the date on which the consolidated financial statements were available to be issued.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and in our Form 10-K for the year ended December 31, 2020 (the “Annual Report”).
This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the captions “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);
risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;
demand for apartments and commercial properties in our markets and the effect on occupancy and rental rates;
Our ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;
risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;
failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully
risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);
risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;
costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;
potential liability for uninsured losses and environmental contamination;
risks associated with our dependence on key personnel whose continued service is not guaranteed; and
the other risk factors identified in this Form 10-Q, including those described under the caption “Risk Factors.”
The risks included here are not exhaustive. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements, include among others, the factors listed and described at Part I, Item 1A. “Risk Factors” Annual Report on Form 10-K, which investors should review.
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We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and our property portfolio. While we did not incur significant disruptions during the three months ended March 31, 2021 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The pandemic is having a significant impact on the U.S. economy and on the local markets in which our properties are located. Nearly every industry has been impacted directly or indirectly, and the commercial real estate market has come under pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health