American Realty Investors, Inc. (NYSE: ARL) a Dallas-based real
estate investment company, today reported results of operations for
the third quarter ended September 30, 2017. The reported results
are directly related to the strategic initiative we embraced at the
onset of the year to grow our multi-family apartment base through
Abode Properties, our wholly owned subsidiary.
The growth in revenue and corresponding improvement in Net
Operating Income for the nine months ended September 30, 2017
demonstrates the viability of our business strategy. Management
will continue its plan for growth from its operating properties and
expects to reinvest in areas that will complement this growth;
further, management will maintain strong attention to all details
of its operations including appropriate expense controls.
During the nine months ended September 30, 2017, a subsidiary of
the Company sold bonds on the Tel Aviv, Israel stock exchange. The
bonds will over time be repaid in Israeli shekels; however, upon
sale, the cash received was converted into approximately $113
million US dollars. The cash has been and will be used to pay off
more expensive debt, purchase existing assets, and develop new
multifamily housing projects. The company believes that this new
source of cash will have a substantial positive impact on the
ability of the company to grow as well as pay off relative
expensive shorter-term debt that will more than offset the
additional net interest expense.
The bonds will be repaid in Israeli shekels as the bonds mature
at a rate of 20% each year from 2019 through 2023. Until such
actual payments are made, there will not be any significant need to
convert US dollars to Israeli shekels. The Company records
unrealized gains or losses each quarter based upon the relative
exchange values of the US dollar and the Israeli shekel; however,
no gain or loss will be realized until a conversion from US dollars
to Israeli shekels actually occurs in the future. The recorded
unrealized gain or loss is reflected as a separate line item to
highlight the fact that it is a non-cash transaction until actual
payment of principal and interest on the bonds is made.
For the three months ended September 30, 2017, we reported a net
income applicable to common shares of $9.1 million or $0.59 per
diluted share compared to a net loss applicable to common shares of
$4 million or $0.26 loss per diluted share for the same period
ended 2016. This is directly related to the increased borrowing and
we remain highly certain that dramatic additions to the number of
apartments within the portfolio during this strategic growth period
will ultimately enhance shareholder values even beyond the recent
improvements we have experienced since we announced this approach
in Q4 2016.
“The Company’s strategic posture of maintaining a strong focus
on our multi-family portfolio has created valuable results. We are
committed to solidifying the portfolio and paying very close
attention to all operational details, while at the same time
maintaining our commitment to creating value. We believe our third
quarter 2017 operating results, combined with our recent
acquisitions, demonstrates yet another quarter of stabilized
performance for the Company. We believe the portfolio is well
positioned to deliver solid financial returns for the remainder of
2017,” said Danny Moos, the Company’s Chief Executive Officer and
President. “We are pleased that we are seeing continued
improvements in our operations from these endeavors and will
continue to adapt to market challenges with an eye on both near
term economic challenges and long-term prospects as the real estate
market improves.”
The reported financial results are as follows.
Revenues
Rental and other property revenues were $31.8 million for the
three months ended September 30, 2017. This represents an increase
of $1.7 million compared to the prior period revenues of $30.1
million. The change by segment is an increase of $0.8 million in
each of the apartment and commercial portfolios and an increase of
$0.1 million in the land portfolio. We purchased three and sold one
multifamily property over the prior year which resulted in a net
increase of 103 units and was the primary reason for the increase
in revenues for our apartment portfolio.
Expense
Property operating expenses were $15.4 million for the three
months ended September 30, 2017. This represents a decrease of $0.3
million compared to the prior period operating expenses of $15.7
million. The change by segment was decreases of $0.3 million and
$0.1 million in the commercial and land portfolios, respectively,
partially offset by an increase of $0.1 million in the other
portfolio.
Depreciation and amortization expense was approximately $6.4
million for the three months ended September 30, 2017 for an
increase of $0.4 million compared to the prior period expense of $6
million. This increase is primarily attributable to the acquired
apartment properties.
Other income (expense)
Mortgage and loan interest expense was $15.7 million for the
three months ended September 30, 2017. This represents an increase
of approximately $0.3 million compared to the prior period expense
of $15.4 million. Interest expense for our corporate loans
increased $1.5 million, primarily due to interest expense related
to the Israeli Series A Bonds payable of $2.6 million, partially
offset by a decrease of $0.6 million in interest expense as a
result of a $17.8 million pay down on a corporate loan at the end
of the second quarter of 2017. We also had an increase of $0.2
million in our commercial portfolio, due to securing additional
debt obligation with the refinancing of one of our commercial
loans. These increases were partially offset by a decrease of $1.3
million in interest expense on our apartment portfolio due to a
loan prepayment penalty paid in the third quarter of 2016 for
refinancing of a loan.
A subsidiary of the Company issued $113 million in bonds during
2017 that will be repaid in Israeli shekels as the bonds mature.
During the three months ended September 30, 2017, the Company
recorded an unrealized foreign currency transaction gain of $1.9
million based upon the relative exchange values of the US dollar
and the Israeli shekel as applied to the bond principal and accrued
interest at quarter-end. We did not have any unrealized foreign
currency transaction gain or loss during the three months ended
September 30, 2016.
Gain on sale of income-producing properties was $12.8 million
for the three months ended September 30, 2017, due to recognition
of deferred gain from property sales of two apartment communities
in a prior year. There were no sales of income-producing properties
during the three months ended September 30, 2017 and 2016.
Gain on land sales was $1.1 million for the three months ended
September 30, 2017 compared to $0.6 million for the three months
ended September 30, 2016. In the current period, we sold 3.3 acres
of land for a total sales price of $0.9 million and recorded a gain
of $0.5 million. During the third quarter of 2017, we also
recognized a deferred gain of $0.6 million on a prior year land
sale. During the same period of 2016, we sold 4.8 acres of land for
a sales price of $0.8 million and recorded a gain of $0.6
million.
About American Realty Investors, Inc.
American Realty Investors (www.americanrealtyinvest.com)
maintains a strong emphasis on creating greater shareholder value
through acquisition, financing, operation, developing and the
selective sale of real estate across selective geographic regions
in the United States. A New York Stock Exchange company, American
Realty Investors is traded under the symbol “ARL”. American Realty
Investors produces revenue through the professional management of
apartments, office buildings and select parcels of land that can be
readily developed in the near term. Value is added under American
Realty Investors ownership, and the properties are repositioned
into higher classifications through physical improvements and
improved management.
AMERICAN REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS
OF OPERATIONS (unaudited)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016 (dollars in
thousands, except per share amounts) Revenues: Rental
and other property revenues (including $199 and $174 for the three
months and $289 and $521 for the nine months ended 2017 and 2016,
respectively, from related parties) $ 31,807 $ 30,067 $ 95,216 $
90,106
Expenses: Property operating expenses
(including $245 and $230 for the three months and $721 and $671 for
the nine months ended 2017 and 2016, respectively, from related
parties) 15,403 15,671 47,098 46,078 Depreciation and amortization
6,373 6,025 19,113 17,723 General and administrative (including
$1,074 and $941 for the three months and $2,534 and $1,860 for the
nine months ended 2017 and 2016, respectively, from related
parties) 1,766 1,760 5,797 6,197 Net income fee to related party 53
67 189 193 Advisory fee to related party 2,802
2,749 8,310 8,174 Total
operating expenses 26,397 26,272
80,507 78,365 Net operating income 5,410 3,795
14,709 11,741
Other income (expenses): Interest
income (including $3,638 and $5,395 for the three months and
$13,511 and $14,482 for the nine months ended 2017 and 2016,
respectively, from related parties) 4,232 5,712 14,083 15,791 Other
income 190 252 1,517 1,452 Mortgage and loan interest (including
$1,683 and $1,412 for the three months and $3,529 and $3,860 for
the nine months ended 2017 and 2016, respectively, from related
parties) (15,717 ) (15,362 ) (49,859 ) (43,551 ) Earnings from
unconsolidated subsidiaries and investees 41 146 249 430 Foreign
currency transaction gain (loss) 1,906 -
(1,841 ) - Total other expenses
(9,348 ) (9,252 ) (35,851 ) (25,878 ) Loss
before gain on sale of income-producing properties, gain on land
sales, non-controlling interest, and taxes (3,938 ) (5,457 )
(21,142 ) (14,137 ) Gain on sale of income-producing properties
12,760 - 12,760 4,925 Gain on land sales 1,062
555 1,032 3,925 Net
income (loss) from continuing operations before taxes 9,884 (4,902
) (7,350 ) (5,287 ) Income tax expense - (46 )
- (45 ) Net income (loss) from continuing
operations 9,884 (4,948 ) (7,350 ) (5,332 ) Discontinued
operations: Net income from discontinued operations - - - 3 Income
tax expense from discontinued operations - -
- (1 ) Net income from discontinued
operations - - - 2
Net income (loss) 9,884 (4,948 ) (7,350 ) (5,330 ) Net
(income) loss attributable to non-controlling interest (522
) 1,194 106 860 Net
income (loss) attributable to American Realty Investors, Inc. 9,362
(3,754 ) (7,244 ) (4,470 ) Preferred dividend requirement
(275 ) (275 ) (825 ) (825 ) Net income (loss)
applicable to common shares $ 9,087 $ (4,029 ) $ (8,069 ) $
(5,295 )
Earnings per share - basic and diluted Net
income (loss) $ 0.59 $ (0.26 ) $ (0.52 ) $ (0.34 )
Weighted average common shares used in computing earnings per
share, basic and diluted 15,514,360 15,514,360 15,514,360
15,514,360
Amounts attributable to American Realty
Investors, Inc. Net income (loss) from continuing operations $
9,362 $ (3,754 ) $ (7,244 ) $ (4,472 ) Net income from discontinued
operations - - - 2
Net income (loss) applicable to American Realty Investors,
Inc. $ 9,362 $ (3,754 ) $ (7,244 ) $ (4,470 )
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS September 30,
December 31, 2017 2016 (unaudited)
(dollars in thousands, except share and par value amounts)
Assets Real estate, at cost $ 1,074,107 $ 1,017,684 Real
estate subject to sales contracts at cost, net of depreciation
48,898 48,919 Less accumulated depreciation (183,762 )
(165,597 ) Total real estate 939,243 901,006 Notes and
interest receivable Performing (including $90,601 in 2017 and
$125,799 in 2016 from related parties) 119,592 143,601 Less
allowance for doubtful accounts (including $15,537 in 2017 and 2016
from related parties) (17,037 ) (17,037 ) Total notes
and interest receivable 102,555 126,564 Cash and cash equivalents
57,982 17,522 Restricted cash 42,950 38,399 Investments in
unconsolidated subsidiaries and investees 6,335 6,087 Receivable
from related party 31,027 24,672 Other assets 52,472
60,659 Total assets $ 1,232,564 $ 1,174,909
Liabilities and Shareholders’ Equity
Liabilities: Notes and interest payable $ 832,762 $ 845,107
Notes related to real estate held for
sale
376 376 Notes related to assets subject to sales contract 3,939
5,612 Bond and bond interest payable 107,910 - Deferred revenue
(including $59,763 in 2017 and $70,935 in 2016 from sales to
related parties) 78,336 91,380 Accounts payable and other
liabilities (including $10,772 in 2017 and $10,854 in 2016 to
related parties) 41,485 56,303
1,064,808 998,778 Shareholders’ equity: Preferred stock,
Series A: $2.00 par value, authorized 15,000,000 shares, issued and
outstanding 2,000,614 shares in 2017 and 2016 (liquidation
preference $10 per share), including 900,000 shares in 2017 and
2016 held by ARL or subsidiaries. 2,205 2,205 Common stock, $0.01
par value, authorized 100,000,000 shares; issued 15,930,145 shares
and outstanding 15,514,360 shares in 2017 and 2016, including
140,000 shares held by TCI (consolidated) in 2017 and 2016. 159 159
Treasury stock at cost; 415,785 shares (6,395 ) (6,395 ) Paid-in
capital 110,485 111,510 Retained earnings 7,154
14,398 Total American Realty Investors, Inc.
shareholders' equity 113,608 121,877 Non-controlling interest
54,148 54,254 Total shareholders'
equity 167,756 176,131 Total
liabilities and shareholders' equity $ 1,232,564 $ 1,174,909
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American Realty Investors, Inc.Investor
RelationsGene Bertcher,
800-400-6407investor.relations@americanrealtyinvest.com
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