Check the appropriate box
below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following
provisions:
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of
1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf
by the undersigned, hereunto duly authorized.
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Dated: April 2, 2020
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AMERICAN REALTY INVESTORS, INC.
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By:
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/s/ Daniel J. Moos
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Daniel J. Moos
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President and
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Chief Executive Officer
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Exhibit "99.1"
NEWS RELEASE
FOR IMMEDIATE RELEASE
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Contact:
American Realty Investors, Inc.
Investor Relations
Daniel Moos
(469) 522-4200
investor.relations@americanrealtyinvest.com
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American Realty Investors,
Inc. reports 2019 results
Dallas (April 1, 2020) - American Realty Investors, Inc. (NYSE:ARL), a Dallas-based real
estate investment company, is reporting its Results of Operations for the year ended December 31, 2019. The Company’s holdings consist of Transcontinental Realty Investors, Inc.
(NYSE: TCI). Being that The Company’s operational activities are limited to the ownership of TCI, this annual report will primarily discuss the operational activity of TCI.
With the current Coronavirus presenting a concern it was deemed appropriate to provide additional context to both the past years results and our business outlook. We remain
confident the underlying need for quality multi-family housing will remain strong. Should circumstances change or our view be less optimistic, we have the ability to dramatically
slow our pace of our new development efforts. For example, to date, TCI’s existing portfolio has seen a significant increase in value. For FYE 2018, same store aggregate appraised
value of TCI’s holdings was approximately $244.4 million. Whereas for FYE 2019, same store aggregate appraised value of TCI’s holdings was $298.7 million. This represents a $54.2
million or 22% increase in overall asset value year over year.
Though the Company reported a net loss of $15.9 million or $1.00 per diluted share loss, this was
driven by the overall strategic direction we adopted for TCI several years ago, of both investing and expanding the core multi-family portfolio. In particular, as certain new multifamily
development projects are completed, in which the Company has made significant new investments, it is expected that net income will be positively impacted in 2020 and 2021. Also, the
Company retired higher interest rate debt with lower cost capital, purchased a ground lease, and made sizeable tenant capital improvements tied to the commercial portfolio.
The significant differences between FYE 2018 and 2019 are specifically and directly related to the following components:
1.
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In November 2018 the Company created a new subsidiary Victory Abode Apartments, LLC (“VAA”) and contributed 52 multi-family projects that it owned and operated to VAA.
TCI subsequently sold a 50% interest to a third party and recorded a $154.1 million gain. This transaction transferred a significant portion of Revenue to VAA and is attributed for the
reduction in revenue from $121.0 million in 2018 to $47.9 million in 2019. The Gain on disposition of this transaction is currently being deployed for the development of new multifamily
properties according to TCI’s overall strategy. TCI’s efforts in 2019 were to continue to grow and develop new multifamily properties and the integration of certain operating processes with
regards to VAA.
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In February of 2020, Standard & Poor’s Global Ratings announced the increase of Southern
Properties Capital (a wholly owned subsidiary of TCI) issued rating to A- from BBB+ for bonds (Series A and B). In
addition, Series C bond rating (secured by one of Southern Properties Capital’s commercial properties) increased to A from
A-. These credit rating increases are due to S&P’s expectation of continued improvement in coverage ratios
tied to the expansion of The Company’s portfolio.
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In 2019, TCI deployed over $33.7 million towards the development of over 2,600 units across more than 6 projects. There are also over a dozen
projects in the pipeline that include parcels of land already owned by the Company. This recapitalization will strengthen TCI’s position in the marketplace and
overall financial health for the benefit of its shareholders. There was also $25 million dedicated to Windmill Farms development; the Company anticipates revenues
exceeding that amount over the next few years, plus recovery tied to the reimbursement of development expenses by the issuance of revenue bond sales tied to the Water District.
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All new multifamily real estate projects within TCI’s future pipeline are progressing in various stages of development. This requires initial investment with
little to no cash flow from operations until additional assets become stabilized.
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The Company believes that both the development of new projects and the historically low interest rate
environment has positioned the Company along the strategic lines that it previously indicated. The Company has created a dynamic platform to continue its expansion in the multifamily sector.
The ongoing plan is to continue to develop and acquire apartments in the geographic markets where demand exceeds supply.
Revenues
Rental and other property revenues were $47.9 million for the year ended December 31, 2019. This represents a decrease of $73.1 million, as compared to the prior
year revenues of $121.0 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
Expenses
Property operating expenses were $25.7 million for the year ended December 31, 2019. This represents a decrease of $33.9 million, compared to the prior year operating
expenses of $59.6 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
Depreciation and amortization expenses were $13.4 million for the year ended December 31, 2019. This represents a decrease of $9.3 million compared to prior year
depreciation of $22.7 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.
General and administrative expenses were $13.3 million for the year ended December 31, 2019.
This represents a decrease of $0.6 million compared to the prior year expenses of $12.7 million. There was a $0.5 million
decrease reflected to Advisory fees. The overall SG&A costs did not decrease associated with the JV, as the principal
partners contribute resources on a non-allocated basis.
Other income (expense)
Interest income was $25.9 million for the year ended December 31, 2019 compared to $21.6 million
for the year ended December 31, 2018 for an increase of $4.3 million. This increase was primarily due to an increase of $3.8 million
in interest on receivable owed from the Advisor.
Mortgage and loan interest expense was $39.9 million for the year ended December 31, 2019. This represents
a decrease of $26.2 million compared to the prior year expense of $66.1 million. The decrease is primarily due to the contribution
of fifty-two properties to the joint venture VAA on November 19, 2018.
There was no material gain or loss on sales of income producing properties during the year ended
December 31, 2019, as our focus was not on the sale of any assets. Over the past several years we have successfully disposed of
underperforming assets. As such, there are only a few remaining assets that we have a strong intention of selling. There are also
a few more strategic assets that we are positioned for sale as market conditions dictate.
The company recorded a non-cash charge of $15.1 million tied to currency rate exposure associated
with TCI’s Bond Offering (SPC). Historically, the exchange ratio reflects an imbalance which is not expected to continue.
To this point; the exchange rate has enhanced since 12/31/19. It should be noted that we completed a currency transaction on 3/18/20
that covered the July 2020 Bond payment. In reality this transaction dropped the projected non-cash loss by over $1.3 million.
Gain on land sales was $15.3 million and $17.4 million for the years ended December 31, 2019 and
2018, respectively.
Other income was $11.0 million and $28.9 million for the years ended December 31, 2019 and 2018,
respectively. TCI’s Other income category is traditionally low and was abnormally high in 2018 due to a $17.6 million gain
recognized in September 2018 for deferred income associated with the sale of assets, as well as income of approximately $7.6 million
from insurance proceeds on Mahogany Run Golf Course.
About American Realty Investors,
Inc.
American Realty Investors, Inc.,
a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including apartments,
office buildings, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases
and partnerships and invests in mortgage loans on real estate. For more information, visit the Company’s website at
www.americanrealtyinvest.com.