American Realty Investors, Inc. (NYSE:ARL), a Dallas-based real estate investment company, is reporting its Results of Operations for the year ended December 31, 2019. The Company’s holdings consist of Transcontinental Realty Investors, Inc. (NYSE: TCI). Being that The Company’s operational activities are limited to the ownership of TCI, this annual report will primarily discuss the operational activity of TCI. With the current Coronavirus presenting a concern it was deemed appropriate to provide additional context to both the past years results and our business outlook. We remain confident the underlying need for quality multi-family housing will remain strong. Should circumstances change or our view be less optimistic, we have the ability to dramatically slow our pace of our new development efforts. For example, to date, TCI’s existing portfolio has seen a significant increase in value. For FYE 2018, same store aggregate appraised value of TCI’s holdings was approximately $244.4 million. Whereas for FYE 2019, same store aggregate appraised value of TCI’s holdings was $298.7 million. This represents a $54.2 million or 22% increase in overall asset value year over year.
Though the Company reported a net loss of $15.9 million or $1.00 per diluted share loss, this was driven by the overall strategic direction we adopted for TCI several years ago, of both investing and expanding the core multi-family portfolio. In particular, as certain new multifamily development projects are completed, in which the Company has made significant new investments, it is expected that net income will be positively impacted in 2020 and 2021. Also, the Company retired higher interest rate debt with lower cost capital, purchased a ground lease, and made sizeable tenant capital improvements tied to the commercial portfolio.
The significant differences between FYE 2018 and 2019 are specifically and directly related to the following components:
1. In November 2018 the Company created a new subsidiary Victory Abode Apartments, LLC (“VAA”) and contributed 52 multi-family projects that it owned and operated to VAA. TCI subsequently sold a 50% interest to a third party and recorded a $154.1 million gain. This transaction transferred a significant portion of Revenue to VAA and is attributed for the reduction in revenue from $121.0 million in 2018 to $47.9 million in 2019. The Gain on disposition of this transaction is currently being deployed for the development of new multifamily properties according to TCI’s overall strategy. TCI’s efforts in 2019 were to continue to grow and develop new multifamily properties and the integration of certain operating processes with regards to VAA.
In February of 2020, Standard & Poor’s Global Ratings announced the increase of Southern Properties Capital (a wholly owned subsidiary of TCI) issued rating to A- from BBB+ for bonds (Series A and B). In addition, Series C bond rating (secured by one of Southern Properties Capital’s commercial properties) increased to A from A-. These credit rating increases are due to S&P’s expectation of continued improvement in coverage ratios tied to the expansion of The Company’s portfolio.
In 2019, TCI deployed over $33.7 million towards the development of over 2,600 units across more than 6 projects. There are also over a dozen projects in the pipeline that include parcels of land already owned by the Company. This recapitalization will strengthen TCI’s position in the marketplace and overall financial health for the benefit of its shareholders. There was also $25 million dedicated to Windmill Farms development; the Company anticipates revenues exceeding that amount over the next few years, plus recovery tied to the reimbursement of development expenses by the issuance of revenue bond sales tied to the Water District.
2. All new multifamily real estate projects within TCI’s future pipeline are progressing in various stages of development. This requires initial investment with little to no cash flow from operations until additional assets become stabilized.
The Company believes that both the development of new projects and the historically low interest rate environment has positioned the Company along the strategic lines that it previously indicated. The Company has created a dynamic platform to continue its expansion in the multifamily sector. The ongoing plan is to continue to develop and acquire apartments in the geographic markets where demand exceeds supply.
Revenues
Rental and other property revenues were $47.9 million for the year ended December 31, 2019. This represents a decrease of $73.1 million, as compared to the prior year revenues of $121.0 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
Expenses
Property operating expenses were $25.7 million for the year ended December 31, 2019. This represents a decrease of $33.9 million, compared to the prior year operating expenses of $59.6 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
Depreciation and amortization expenses were $13.4 million for the year ended December 31, 2019. This represents a decrease of $9.3 million compared to prior year depreciation of $22.7 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
General and administrative expenses were $13.3 million for the year ended December 31, 2019. This represents a decrease of $0.6 million compared to the prior year expenses of $12.7 million. There was a $0.5 million decrease reflected to Advisory fees. The overall SG&A costs did not decrease associated with the JV, as the principal partners contribute resources on a non-allocated basis.
Other income (expense)
Interest income was $25.9 million for the year ended December 31, 2019 compared to $21.6 million for the year ended December 31, 2018 for an increase of $4.3 million. This increase was primarily due to an increase of $3.8 million in interest on receivable owed from the Advisor.
Mortgage and loan interest expense was $39.9 million for the year ended December 31, 2019. This represents a decrease of $26.2 million compared to the prior year expense of $66.1 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
There was no material gain or loss on sales of income producing properties during the year ended December 31, 2019, as our focus was not on the sale of any assets. Over the past several years we have successfully disposed of underperforming assets. As such, there are only a few remaining assets that we have a strong intention of selling. There are also a few more strategic assets that we are positioned for sale as market conditions dictate.
The company recorded a non-cash charge of $15.1 million tied to currency rate exposure associated with TCI’s Bond Offering (SPC). Historically, the exchange ratio reflects an imbalance which is not expected to continue. To this point; the exchange rate has enhanced since 12/31/19. It should be noted that we completed a currency transaction on 3/18/20 that covered the July 2020 Bond payment. In reality this transaction dropped the projected non-cash loss by over $1.3 million.
Gain on land sales was $15.3 million and $17.4 million for the years ended December 31, 2019 and 2018, respectively.
Other income was $11.0 million and $28.9 million for the years ended December 31, 2019 and 2018, respectively. TCI’s Other income category is traditionally low and was abnormally high in 2018 due to a $17.6 million gain recognized in September 2018 for deferred income associated with the sale of assets, as well as income of approximately $7.6 million from insurance proceeds on Mahogany Run Golf Course.
About American Realty Investors, Inc.
American Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including apartments, office buildings, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. For more information, visit the Company’s website at www.americanrealtyinvest.com.
| AMERICAN REALTY INVESTORS, INC. | ||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||
For the Years Ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
(dollars in thousands, except per share amounts) | ||||||||||||
| Revenues: | ||||||||||||
| Rental and other property revenues (including $841, $144 and $839 for the year ended 2019, 2018 and 2017, respectively, from related parties) | $ | 47,970 | $ | 120,956 | $ | 126,221 | ||||||
| Expenses: | ||||||||||||
| Property operating expenses (including $991, $254 and $959 for the year ended 2019, 2018 and 2017, respectively, from related parties) | 25,694 | 59,587 | 64,091 | |||||||||
| Depreciation and amortization | 13,379 | 22,670 | 25,679 | |||||||||
| General and administrative (including $4,429, $1,267 and $3,225 for the year ended 2019, 2018 and 2017, respectively, from related parties) | 13,336 | 12,708 | 7,691 | |||||||||
| Net income fee to related party | 357 | 631 | 250 | |||||||||
| Advisory fee to related party | 6,612 | 11,475 | 11,082 | |||||||||
| Total operating expenses | 59,378 | 107,071 | 108,793 | |||||||||
| Net operating (loss) income | (11,408 | ) | 13,885 | 17,428 | ||||||||
| Other income (expenses): | ||||||||||||
| Interest income (including $23,760, $5,406 and $16,298 for the year ended 2019, 2018 and 2017, respectively, from related parties) | 25,955 | 21,645 | 18,941 | |||||||||
| Other income | 11,018 | 28,993 | 4,082 | |||||||||
| Mortgage and loan interest (including $9,282, $2,240 and $6,695 for the year ended 2019, 2018 and 2017, respectively, from related parties) | (39,860 | ) | (66,063 | ) | (66,171 | ) | ||||||
| Loss on the sale of investments | - | - | (331 | ) | ||||||||
| Foreign currency transaction gain (loss) | (15,108 | ) | 12,399 | (4,536 | ) | |||||||
| Loss on extinguishment of debt | (5,219 | ) | - | - | ||||||||
| Equity (loss) earnings from VAA | (2,774 | ) | 44 | - | ||||||||
| Earnings from unconsolidated subsidiaries and investees | 461 | 1,469 | 309 | |||||||||
| Total other (expenses) | (25,527 | ) | (1,513 | ) | (47,706 | ) | ||||||
| (Loss) income before gain on land sales, non-controlling interest, and taxes | (36,935 | ) | 12,372 | (30,278 | ) | |||||||
| Gain on disposition of 50% interest in VAA | - | 154,126 | - | |||||||||
| Gain on sale of income-producing properties | (80 | ) | - | 16,698 | ||||||||
| Gain on land sales | 15,272 | 17,404 | 4,884 | |||||||||
| Net (loss) income from continuing operations before taxes | (21,743 | ) | 183,902 | (8,696 | ) | |||||||
| Income tax expense | - | (1,210 | ) | (180 | ) | |||||||
| Net (loss) income from continuing operations | (21,743 | ) | 182,692 | (8,876 | ) | |||||||
| Net (loss) income | (21,743 | ) | 182,692 | (8,876 | ) | |||||||
| Net loss (income) attributable to non-controlling interest | 5,785 | (8,993 | ) | 445 | ||||||||
| Net (loss) income attributable to American Realty Investors, Inc. | (15,958 | ) | 173,699 | (8,431 | ) | |||||||
| Preferred dividend requirement | (1 | ) | (901 | ) | (1,105 | ) | ||||||
| Net (loss) income applicable to common shares | $ | (15,959 | ) | $ | 172,798 | $ | (9,536 | ) | ||||
| Earnings per share - basic | ||||||||||||
| Net (loss) income from continuing operations | $ | (1.36 | ) | $ | 11.37 | $ | (0.64 | ) | ||||
| Net (loss) income applicable to common shares | $ | (1.00 | ) | $ | 10.81 | $ | (0.61 | ) | ||||
| Earnings per share - diluted | ||||||||||||
| Net (loss) income from continuing operations | $ | (1.36 | ) | $ | 10.89 | $ | (0.64 | ) | ||||
| Net (loss) income applicable to common shares | $ | (1.00 | ) | $ | 10.35 | $ | (0.61 | ) | ||||
| Weighted average common shares used in computing earnings per share | 15,997,076 | 15,982,528 | 15,514,360 | |||||||||
| Weighted average common shares used in computing diluted earnings per share | 15,997,076 | 16,697,966 | 15,514,360 | |||||||||
| Amounts attributable to American Realty Investors, Inc. | ||||||||||||
| Net (loss) income from continuing operations | $ | (21,743 | ) | $ | 182,692 | $ | (8,876 | ) | ||||
| Net (loss) income applicable to common shares | $ | (15,959 | ) | $ | 172,798 | $ | (9,536 | ) | ||||
AMERICAN REALTY INVESTORS, INC. | |||||||||||
CONSOLIDATED BALANCE SHEETS | |||||||||||
December 31, | |||||||||||
2019 | 2018 | ||||||||||
(dollars in thousands, except share and par value amounts) | |||||||||||
Assets | |||||||||||
| Real estate, at cost | $ | 469,997 | $ | 455,993 | |||||||
| Real estate subject to sales contracts at cost | 7,966 | 3,149 | |||||||||
| Less accumulated depreciation | (90,173 | ) | (78,099 | ) | |||||||
| Total real estate | 387,790 | 381,043 | |||||||||
| Notes and interest receivable (including $105,524 in 2019 and $105,803 in 2018 from related parties) | 169,299 | 140,327 | |||||||||
| Less allowance for estimated losses (including $13,099 and $14,269 in 2019 and 2018 from related parties) | (13,099 | ) | (14,269 | ) | |||||||
| Total notes and interest receivable | 156,200 | 126,058 | |||||||||
| Cash and cash equivalents | 51,228 | 36,428 | |||||||||
| Restricted cash | 32,083 | 70,187 | |||||||||
| Investment in VAA | 59,148 | 68,399 | |||||||||
| Investment in other unconsolidated investees | 8,507 | 7,602 | |||||||||
| Receivable from related party | 85,996 | 70,377 | |||||||||
| Other assets | 49,689 | 66,055 | |||||||||
| Total assets | $ | 830,641 | $ | 826,149 | |||||||
Liabilities and Shareholders’ Equity | |||||||||||
| Liabilities: | |||||||||||
| Notes and interest payable | $ | 254,873 | $ | 286,968 | |||||||
| Bond and interest payable | 229,722 | 158,574 | |||||||||
| Deferred revenue (including $24,762 in 2019 and $33,904 in 2018 to related parties) | 24,762 | 33,904 | |||||||||
| Accounts payable and other liabilities (including $11,817 in 2019 and $9,984 in 2018 to related parties) | 24,768 | 25,576 | |||||||||
| Total liabilities | 534,125 | 505,022 | |||||||||
| Shareholders’ equity: | |||||||||||
| Preferred stock, Series A: $2.00 par value, authorized 15,000,000 shares, issued 614 and outstanding 1,800,614 in 2019 and 2018 (liquidation preference $10 per share), including 1,800,000 shares held by ARL and its subsidiaries in 2019 and 2018. | 5 | 5 | |||||||||
| Common stock, $0.01 par value, 100,000,000 shares authorized; 16,412,861 shares issued and 15,997,076 outstanding as of 2019 and 2018 , including 140,000 shares held by TCI (consolidated) in 2019 and 2018. | 164 | 164 | |||||||||
| Treasury stock at cost; 415,785 shares in 2019 and 2018, and 140,000 shares held by TCI (consolidated) as of 2019 and 2018. | (6,395 | ) | (6,395 | ) | |||||||
| Paid-in capital | 82,017 | 84,885 | |||||||||
| Retained earnings | 163,708 | 179,666 | |||||||||
| Total American Realty Investors, Inc. shareholders' equity | 239,499 | 258,325 | |||||||||
| Non-controlling interest | 57,017 | 62,802 | |||||||||
| Total shareholders' equity | 296,516 | 321,127 | |||||||||
| Total liabilities and shareholders' equity | $ | 830,641 | $ | 826,149 | |||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20200330005727/en/
Contacts:
Investor Relations
Daniel Moos (469) 522-4200
investor.relations@americanrealtyinvest.com
