American Realty Investors, Inc. Reports First Quarter 2017 Results

DALLAS–()–American Realty Investors, Inc. (NYSE:ARL), a Dallas-based real estate
investment company, today reported results of operations for the first
quarter ended March 31, 2017. For the three months ended March 31, 2017,
we reported a net loss applicable to common shares of $6.0 million or
($0.39) per diluted loss per share compared to a net loss applicable to
common shares of $3.7 million or ($0.24) per diluted loss per share for
the same period ended 2016. Included in the net loss from operations is
non-cash expenses of depreciation and amortization of $6.3 million and
$5.8 million for the three months ended March 31, 2017 and 2016
respectively.

The growth in revenue and corresponding improvement in Net Operating
Income for the three months ended March 31, 2017 demonstrates the
viability of our business strategy. Management will continue its plan
for growth from its operating properties and expects to reinvest in
areas that will complement this growth; further management will maintain
strong attention to all details of its operations including appropriate
expense controls.

Our ability to take advantage of lower-interest rate mortgages available
has reduced our monthly obligations and increased cash flow within our
multifamily portfolio.

Revenues

Rental and other property revenues were $31.8 million for the three
months ended March 31, 2017. This represents an increase of $2.6 million
compared to the prior period revenues of $29.2 million. This change, by
segment, is an increase in the apartment portfolio of $1.3 million, and
an increase in the commercial portfolio of $1.3 million. The increase in
our apartment portfolio was mainly due to the acquisition of new
properties. Our apartment portfolio continues to thrive in the current
economic conditions with occupancies averaging over 95%. We have been
able to surpass expectations due to the high-quality product offered,
strength of our management team and our commitment to our tenants. We
are continuing to market our properties aggressively to attract new
tenants and strive for continuous improvement of our properties in order
to maintain our existing tenants.

Expense

Property operating expenses were $16.3 million for the three months
ended March 31, 2017. This represents an increase of $1.1 million
compared to the prior period operating expenses of $15.2 million. This
change, by segment, is an increase in the apartment portfolio of $1.4
million, which was consistent with the acquisition of new properties. In
addition, there was a decrease of $0.2 million in property operating
expenses for the commercial portfolio.

Depreciation and amortization expense was $6.3 million for the three
months ended March 31, 2017. This represents an increase of $0.5 million
compared to the prior period expense of $5.8 million. This change by
segment is an increase of $0.5 million in the apartment portfolio.

Advisory fees decreased less than $0.1 million for the three months
ended March 31, 2017 compared to the prior period. Advisory fees are
computed based on a gross asset fee of 0.0625% per month (0.75% per
annum) of the weighted average of the gross asset value.

Other income (expense)

Mortgage and loan interest expense was $16.8 million for the three
months ended March 31, 2017. This represents an increase of $2.6 million
compared to the prior period expense of $14.2 million. The change by
segment is an increase in the other portfolio of $1.7 million and an
increase in the apartment portfolio of $0.6 million. Within the other
portfolio, the increase was primarily due to $1.3 million of interest
expense related to the Israeli bond sale, which closed in the first
quarter of 2017. In addition, we secured a new mezzanine debt obligation
in the third quarter of 2016. The increase within the apartment
portfolio is primarily due to loan charges and prepayment penalties for
the refinancing of two mortgage loans at lower interest rates.

Gain on land sales decreased for the three months ended March 31, 2017
compared to the prior period. During the first quarter of 2017, we sold
2.49 acres of land for a sales price of $1.1 million and recorded a gain
of $0.4 million. During the first quarter of 2016, we sold 40.88 acres
of land for a sales price of $4.2 million and recorded a gain of $1.7
million.

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 office buildings, apartments, 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. The Company also holds mortgage
receivables. For more information, visit the Company’s website at www.americanrealtyinvest.com.

   
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended
March 31,
  2017     2016  
(dollars in thousands, except per share amounts)
Revenues:
Rental and other property revenues (including $190 and $173 for the
three months ended 2017 and 2016, respectively, from related parties)
$ 31,822 $ 29,205
 
Expenses:
Property operating expenses (including $237 and $210 for the three
months ended 2017 and 2016, respectively, from related parties)
16,265 15,216
Depreciation and amortization 6,330 5,830
General and administrative (including $962 and $918 for the three
months ended 2017 and 2016, respectively, from related parties)
2,031 2,025
Net income fee to related party 60 72
Advisory fee to related party   2,659     2,738  

Total operating expenses

  27,345     25,881  
Net operating income 4,477 3,324
Other income (expenses):
Interest income (including $4,476 and $4,528 for the three months
ended 2017 and 2016, respectively, from related parties)
4,792 5,291
Other income 1,443 298
Mortgage and loan interest (including $1,511 and $1,092 for the
three months ended 2017 and 2016, respectively, from related parties)
(16,796 ) (14,214 )
Foreign currency transaction loss (323 )
Earnings from unconsolidated subsidiaries and investees   55     155  
Total other expenses   (10,829 )   (8,470 )
Loss before gain on land sales, non-controlling interest, and taxes (6,352 ) (5,146 )
Loss on sale of income producing properties (244 )
Gain on land sales   445     1,652  
Net loss from continuing operations before taxes (5,907 ) (3,738 )
Income tax benefit       1  
Net loss from continuing operations (5,907 ) (3,737 )
Discontinued operations:
Net income from discontinued operations 3
Income tax expense from discontinued operations       (1 )
Net income from discontinued operations       2  
Net loss (5,907 ) (3,735 )
Net income attributable to non-controlling interest   193     530  
Net loss attributable to American Realty Investors, Inc. (5,714 ) (3,205 )
Preferred dividend requirement   (275 )   (497 )
Net loss applicable to common shares $ (5,989 ) $ (3,702 )
Earnings per share – basic
Net loss from continuing operations $ (0.39 ) $ (0.24 )
 
Earnings per share – diluted
Net loss from continuing operations $ (0.39 ) $ (0.24 )
 
Weighted average common shares used in computing earnings per share 15,514,360 15,514,360
Weighted average common shares used in computing diluted earnings
per share
15,514,360 15,514,360
 
Amounts attributable to American Realty Investors, Inc.
Net loss from continuing operations $ (5,714 ) $ (3,207 )
Net income from discontinued operations       2  
Net loss applicable to American Realty Investors, Inc. $ (5,714 ) $ (3,205 )
   
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
 
 
March 31, December 31,
  2017     2016  
(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost $ 1,035,008 $ 1,017,684
Real estate subject to sales contracts at cost 48,323 48,919
Less accumulated depreciation   (171,607 )   (165,597 )
Total real estate 911,724 901,006
Notes and interest receivable:
Performing (including $121,173 in 2017 and $125,799 in 2016 from
related parties)
138,733 143,601
Less allowance for estimated losses (including $15,537 in 2017 and
2016 from related parties)
  (17,037 )   (17,037 )
Total notes and interest receivable 121,696 126,564
Cash and cash equivalents 55,284 17,522
Restricted cash 31,259 38,399
Investments in unconsolidated joint ventures and investees 6,141 6,087
Receivable from related party 22,064 24,672
Other assets   65,557     60,659  
Total assets $ 1,213,725   $ 1,174,909  
 
Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable $ 830,742 $ 845,107
Notes related to real estate held for sale 376 376
Notes related to real estate subject to sales contracts 4,177 5,612
Bond and interest payable 71,975
Deferred revenue (including $70,945 in 2017 and $70,935 in 2016 to
related parties)
91,390 91,380
Accounts payable and other liabilities (including $10,793 in 2017
and $10,854 in 2016 to related parties)
  45,183     56,303  
Total liabilities 1,043,843 998,778
 
Shareholders’ equity:
Preferred stock, Series A: $2.00 par value, authorized 15,000,000
shares, issued and outstanding 2,000,614 shares in 2017 and 2016
(liquidation preference $10 per share), including 900,000 shares in
2017 and 2016 held by ARL.
2,205 2,205
Common stock, $0.01 par value, authorized 100,000,000 shares; issued
15,930,145 shares and outstanding 15,514,360 in 2017 and 2016,
including 140,000 shares held by TCI (consolidated) in 2017 and 2016.
159 159
Treasury stock at cost; 415,785 shares in 2017 and 2016, and 140,000
shares held by TCI (consolidated) as of 2017 and 2016
(6,395 ) (6,395 )
Paid-in capital 111,168 111,510
Retained earnings   8,684     14,398  
Total American Realty Investors, Inc. shareholders’ equity 115,821 121,877
Non-controlling interest   54,061     54,254  
Total shareholders’ equity   169,882     176,131  
Total liabilities and shareholders’ equity $ 1,213,725   $ 1,174,909