ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and related notes in Part II, Item 8 of this Report. Our results of operations for the year ended December 31, 2025 were affected by a acquisitions and disposition, refinancing activity, development activity as discussed below.
Management's Overview
We are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development throughout the Southern United States. Our portfolio of income-producing properties generally includes multifamily residential properties, office buildings and other commercial properties. Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project.
Our operations are managed by Pillar in accordance with an Advisory Agreement and a Cash Management Agreement. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges our debt and equity financing with third party lenders and investors. We rely upon the employees of Pillar to render services to us in accordance with the terms of the Advisory Agreement. Pillar is considered to be a related party due to its ownership by RAI.
The following is a summary of our recent disposition, financing and development activities:
Disposition Activities
•On December 13, 2024, we sold 30 single family lots from our holdings in Windmill Farms for $1.4 million, resulting in a gain on sale of $1.1 million.
•On March 25, 2025, we received $3.5 million in proceeds from the condemnation settlement that provided for the conveyance of 11.2 acres from our holdings in Windmill Farms, resulting in a gain on sale of $3.1 million.
•On October 10, 2025, we sold Villas at Bon Secour, a 200 unit multifamily property in Gulf Shores, Alabama, for $28.0 million (See "Financing Activities"), resulting in a gain on sale of $12.2 million.
•During the year ended December 31, 2025, we sold 72 lots from our holdings in Windmill Farms for $3.3 million, resulting in a gain on sale of $2.6 million.
Financing Activities
•On January 31, 2023, we paid off our $67.5 million of Series C bonds.
•On February 28, 2023, we extended the maturity of our loan on Windmill Farms until February 28, 2024 at a revised interest rate of 7.75%.
•On March 15, 2023, we entered into a $33.0 million construction loan to finance the development of Alera (See "Development Activities") that bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3% and matures on March 15, 2026, with two one-year extension options.
•On May 4, 2023, we paid off the remaining $14.0 million of our Series A Bonds and $28.9 million of our Series B Bonds, which resulted in a loss on early extinguishment of debt of $1.7 million.
•On August 28, 2023, we paid off our $1.2 million loan on Athens.
•On November 6, 2023, we entered into a $25.4 million construction loan to finance the development of Merano (See "Development Activities") that bears interest at prime plus 0.25% and matures on November 6, 2028.
•On December 15, 2023, we entered into a $23.5 million construction loan to finance the development of Bandera Ridge (See "Development Activities") that bears interest at SOFR plus 3% and matures on December 15, 2028.
•On January 1, 2024, we amended our Cash Management agreement with Pillar. As a result, the interest rate on the related party receivable ("Pillar Receivable") changed from prime plus one to SOFR.
•On February 8, 2024, we extended the maturity of our loan on Windmill Farms to February 28, 2026 at an interest rate of 7.50%. We subsequently paid off the loan on November 24, 2025.
•On July 10, 2024, we replaced the existing loan on Forest Grove with a $6.6 million loan that bears interest at SOFR plus 2.15% and matures on August 1, 2031.
•On October 21, 2024, we entered into a $27.5 million construction loan to finance the development of Mountain Creek (See "Development Activities") that bears interest at SOFR plus 3.45% and matures on June 17, 2027.
•On May 30, 2025, we paid off the $10.8 million loan on 770 South Post Oak with cash on hand.
•On October 10, 2025, we paid off the $18.8 million loan on Villas at Bon Secour in connection with the sale of the underlying property (See "Disposition Activities"), resulting in a loss on early extinguishment of debt of $0.3 million.
Development Activities
We have agreements to develop two parcels of land from our land holdings in Windmill Farms. The agreements provide for the development of 125 acres of raw land into approximately 470 land lots to be used for single family homes. During 2025, we spent $1.8 million on reimbursable infrastructure investments.
During the year ended December 31, 2025, we expended $69.0 million in the construction of four multifamily properties ("Development Projects"), which were funded in part by $63.8 million in borrowing from our construction loans.
The following is a summary of the total projected and incurred costs (dollars in thousands) for the Development Projects as of December 31, 2025:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Project | | Units | | Location | | Total Projected 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 | | | |
As of December 31, 2025, we have substantially completed the construction of the units from Alera, Bandera Ridge and Merano, and expect to complete construction of Mountain Creek in 2026.
Other Developments
On March 23, 2023, we received $18.0 million 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 been engaged in litigation with David Clapper and entities related to Mr. Clapper (collectively, “Clapper") since 1999. The matter originally involved a transaction in 1998 in which we were to acquire eight multifamily properties from the Clapper. Through the years, several rulings, both for and against us, were issued with a range of settlement from zero to $148.0 million. On October 31, 2024, we executed a settlement agreement and paid $23.4 million to resolve all claims.
On December 5, 2025, we sold our interest in Gruppa Florentino, Inc. ("Gruppa" or "Milano") for $12.7 million, which resulted in gain on sale of $2.3 million. 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 $1.3 million 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.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, capitalization of costs and fair value measurements. Our significant accounting policies are described in more detail in Note 2 - Summary of Significant Accounting Policies in our notes to the consolidated financial statements. However, the following policies are deemed to be critical.
Fair Value of Financial Instruments
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. These provisions define fair value as 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, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:
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
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. 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 our own separate interests, or affiliates of the entity.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations, we may be potentially liable for removal or remediation costs, as well as certain other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.
We are not aware of any environmental liability relating to the above matters that would have a material adverse effect on our business, assets or results of operations.
Inflation
The effects of inflation on our operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, our earnings from short-term investments, the cost of new financings and the cost of variable interest rate debt will be affected.
Results of Operations
Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting our properties described above, including those related to the Same Properties, Development Properties, Acquisition Properties and the Disposition Properties (each as defined below).
For purposes of the discussion below, we define "Same Properties" as all of our properties with the exception of those properties that have been recently constructed or are in lease-up (“Development Properties”), properties that have recently been acquired ("Acquisition Properties") and properties that have been disposed ("Disposition Properties"). A developed property is considered substantially completed or leased-up, when it achieves occupancy of 80% or more. We move a property in and out of Same Properties based on whether the property is substantially complete or in operation for the entirety of both periods of the comparison.
For the comparison of the year ended December 31, 2025 to the year ended December 31, 2024, the Development Properties were Alera, Bandera Ridge and Merano (See "Development Activities" in Management's Overview); and the Disposition Property was Villas at Bon Secour. There were no Acquisition Properties.
The following table (amounts in thousands) provides a summary of the results of operations of 2025 and 2024:
| | | | | | | | | | | | | | | | | | | | |
| | For the Years Ended December 31, | | |
| | 2025 | | 2024 | | Variance |
| Multifamily Segment | | | | | | |
| Revenue | | $ | 34,128 | | | $ | 34,103 | | | $ | 25 | |
| Operating expenses | | (19,304) | | | (18,252) | | | (1,052) | |
| | 14,824 | | | 15,851 | | | (1,027) | |
| Commercial Segment | | | | | | |
| Revenue | | 14,932 | | | 12,967 | | | 1,965 | |
| Operating expenses | | (8,581) | | | (8,811) | | | 230 | |
| | 6,351 | | | 4,156 | | | 2,195 | |
| Segment operating income | | 21,175 | | | 20,007 | | | 1,168 | |
| Other non-segment items of income (expense) | | | | | | |
| Depreciation and amortization | | (12,577) | | | (12,276) | | | (301) | |
| General, administrative and advisory | | (15,981) | | | (14,620) | | | (1,361) | |
| Interest income, net | | 7,812 | | | 12,135 | | | (4,323) | |
| Loss on early extinguishment of debt | | (284) | | | — | | | (284) | |
| | | | | | |
| Gain (loss) on real estate transactions | | 19,988 | | | (23,989) | | | 43,977 | |
| Income (loss) from joint ventures | | 119 | | | 1,449 | | | (1,330) | |
| Other (loss) income | | (1,713) | | | 3,855 | | | (5,568) | |
| Net income (loss) | | $ | 18,539 | | | $ | (13,439) | | | $ | 31,978 | |
Comparison of the year ended December 31, 2025 to the year ended December 31, 2024:
Our $32.0 million increase in net income in 2025 is primarily attributed to the following:
•Our multifamily segment had a $1.0 million decrease in NOI, which was attributed to a decrease of $1.3 million from the Development Properties and $0.5 million from the Disposition Property offset in part by an increase of $0.8 million from Same Properties. The decrease in NOI from the Disposition Property is primarily due to the lease-up of newly constructed properties in 2025 (See "Development Activities" in Management's Overview).
•The $2.2 million increase in NOI from our commercial segment is primarily due to an increase in occupancy at Stanford Center.
•The $1.4 million increase in general, administrative and advisory expenses is primarily due to a $1.1 million increase in advisory fees and a $0.4 million increase in pillar reimbursements. The increase in advisory fees is due to an increase in net income and asset value in 2025. The increase in value of assets is primarily due to the Development Projects (See "Development Activities" in Management's Overview).
•The $4.3 million decrease in our interest income, net is due to a $5.3 million decrease in interest income offset in part by a $1.0 million decrease in interest expense. The decrease in interest income was primarily due to a decrease in funds available for investments and a decline in interest rates. Our decrease in interest expense is primarily due to the pay off of the loan on 770 South Post Oak in 2025 and the refinance of Forest Grove in 2024 (See "Financing Activities" in Management's Overview).
•The $44.0 million increase in gain on sale or write down of assets, net is primarily due to $23.4 million loss from Clapper in 2024 (See "Other Developments" in Management's Overview), the sale of Villas at Bon Secour in 2025 (See "Disposition Activities" in Management's Overview), an increase in dispositions of land at Windmill Farms (See "Disposition Activities" in Management's Overview) and decrease in write off of development costs.
•The increase in other expense is primarily due to an increase in income tax provision as a result of the sale of Villas at Bon Secour (See "Disposition Activities" in Management's Overview) in 2025 and a change in the estimate of tax liability in connection with the VAA properties sold in 2022.
Comparison of the year ended December 31, 2024 to the year ended December 31, 2023:
See Item 7 of Part II in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 21, 2025 for a discussion of our results of operations for the year ended December 31, 2024.
Liquidity and Capital Resources
Our principal sources of cash have been, and will continue to be, property operations; proceeds from land and income-producing property sales; collection of mortgage notes receivable; collections of receivables from related companies; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage notes and bonds payable, and lines of credit.
Our principal liquidity needs are to fund normal recurring expenses; meet debt service and principal repayment obligations including balloon payments on maturing debt; fund capital expenditures, including tenant improvements and leasing costs; fund development costs not covered under construction loans; and fund possible property acquisitions.
We anticipate that our cash, cash equivalents and short-term investments as of December 31, 2025, along with cash that will be generated in 2026 from operations, notes receivable and construction loans will be sufficient to meet all of our cash requirements. We may also selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements. Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of our current maturity obligations.
Cash Flow Summary
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2025 | | 2024 | | Variance |
| Net cash (used in) provided by operating activities | $ | (5,553) | | | $ | 1,089 | | | $ | (6,642) | |
| Net cash used in investing activities | $ | (33,055) | | | $ | (41,340) | | | $ | 8,285 | |
| Net cash provided by financing activities | $ | 27,546 | | | $ | 1,659 | | | $ | 25,887 | |
The $8.3 million increase in cash used in investing activities is primarily due to the $33.5 million increase in proceeds from sale of assets offset in part by the $21.6 million increase in development and renovation of real estate and the $5.8 million increase in net purchase of short-term investments. The increase in proceeds from sale of assets is primarily due to the sale of Villas at Bon Secour in 2025 (See "Disposition Activities" in Management's Overview). The increase in development and renovation of real estate relates to the Development Projects (See "Development Activities" in Management's Overview). The increase in net redemption of short-term investments provided additional funds for the development and renovation of real estate and the repayment of the mortgage note on 770 South Post Oak in 2025.
The $25.9 million increase in cash provided by financing activities was due to the $48.7 million increase in borrowings on our construction loans in connection with our development projects (See "Development Activities" in Management's Overview) offset in part by a $22.7 million increase in payments of mortgages and other notes payable (See "Financing Activities" in Management's Overview).
Funds From Operations ("FFO")
We use FFO in addition to net income to report our operating and financial results and consider FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of Real Estate Investment Trusts ("Nareit") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization, impairment write-downs of real estate and write-downs of investments in an affiliate where the write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We also present FFO excluding the impact of the effects of foreign currency translation.
FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as we believe real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. We believe that such a presentation also provides investors with a meaningful measure of our operating results in comparison to the operating results of other real estate companies. In addition, we believe that FFO excluding gain (loss) from foreign currency transactions provide useful supplemental information regarding our performance as they show a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our results.
We believe that FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP, and is not indicative of cash available to fund all cash flow needs. We also caution that FFO, as presented, may not be comparable to similarly titled measures reported by other real estate companies.
We compensate for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of net income to FFO and FFO-diluted. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
The following reconciles our net income attributable to FFO and FFO-basic and diluted, excluding loss from foreign currency transactions and loss on extinguishment of debt for the years ended December 31, 2025, 2024 and 2023 (dollars and shares in thousands):
| | | | | | | | | | | | | | | | | |
| For the Year Ended
December 31, |
| 2025 | | 2024 | | 2023 |
| Net income (loss) attributable to the Company | $ | 15,703 | | | $ | (14,703) | | | $ | 3,968 | |
| Depreciation and amortization on consolidated assets | 12,577 | | | 12,276 | | | 13,646 | |
| (Gain) loss on real estate transactions | (19,988) | | | 23,989 | | | 1,923 | |
| Gain on sale of land | 4,720 | | | 1,095 | | | 188 | |
| | | | | |
| Depreciation and amortization on unconsolidated joint ventures at pro rata share | 239 | | | 206 | | | 272 | |
| FFO-Basic and Diluted | 13,251 | | | 22,863 | | | 19,997 | |
| Loss on early extinguishment of debt | 284 | | | — | | | 1,710 | |
| | | | | |
| Gain on foreign currency transactions | — | | | — | | | (993) | |
| FFO-adjusted | $ | 13,535 | | | $ | 22,863 | | | $ | 20,714 | |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
| | | | | |
| Page |
| Financial Statements | |
| |
| |
| |
| |
| |
| |
| |
| |
| Financial Statement Schedules | |
| |
| |
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.
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.
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.
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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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.
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.
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 properties, 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 with the current year presentation. These reclassifications had no effect on the reported results of operation.
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.
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.
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.
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 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
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 | |
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 | |
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 | |
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.
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.
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.
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.
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 allows borrowings up to $33,000 to finance the development of Alera (See Note 7 - Real Estate Activity), bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3% and matures on March 15, 2026, with two one-year extension options.
(3) The construction loan allows borrowings up to $23,500 construction loan to finance the development of Bandera Ridge (See Note 7 - Real Estate Activity), bears interest at SOFR plus 3% and matures on December 15, 2028.
(4) The loan that bears interest at SOFR plus 2.15% and matures on August 1, 2031.
(5) The construction loan allows borrowings up to $25,407 to finance the development of Merano (See Note 7 - Real Estate Activity), bears interest at prime plus 0.25% and matures on November 6, 2028.
(6) On October 10, 2025, the loan was paid off in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).
(7) The loan bears interest at SOFR.
We have a construction loan to build Mountain Creek (See Note 7 - Real Estate Activity) that allows for borrowings of up to $27,500, bears interest at SOFR plus 3.45% and matures on March 15, 2029. As of December 31, 2025, we have not borrowed on the loan.
As of December 31, 2025, we were in compliance with all of our loan covenants.
AMERICAN REALTY INVESTORS, INC.
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 | |
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 approximately 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.
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 | |
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.
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.
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 | | | | | |
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 | |
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 | |
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 | |