x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
75-2847135
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
Large accelerated filer ¨
|
Accelerated filer
|
¨
|
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
|
Smaller reporting company
|
x
|
Common Stock, $.01 par value
|
11,525,389
|
(Class)
|
(Outstanding at May 5, 2012)
|
·
|
Page 4-8, Item 1 “Financial Statements.” The consolidated balance sheets, consolidated statements of operations, consolidated statements of shareholders’ equity, consolidated statements of comprehensive income(loss) and consolidated statements of cash flow have been revised, in the current period, to reflect the overaccrual of professional fees in the amount of $575,000. This resulted in a decrease in the General and administrative costs for the current period and a decrease in the Accounts payable and other liabilities.
|
·
|
Page 18, Item 1, Note 8 “Operating Segments.” The reduction of General and administrative costs were reflected in the Operating Segments for the current period.
|
·
|
Page 25, Item 2, “Management Discussion and Analysis of Financial Condition and Results of Operations.” The Results of Operations were adjusted to reflect the reduction in net loss applicable to common shares for the current period.
|
·
|
Exhibit 31.1 – Certification by the Principal Executive Officer required by Securities Exchange Act Rules 13a-14 and 15d-14.
|
·
|
Exhibit 31.2 – Certification by the Principal Financial Officer required by Securities Exchange Act Rules 13a-14 and 15d-14.
|
·
|
Exhibit 32.1 – Certification pursuant to 18 U.S.C. 1350 as adopted to Section 906 of the Sarbanes-Oxley Act of 2002.
|
PAGE
|
||
PART I. FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
Consolidated Balance Sheets at March 31, 2012 (unaudited) and December 31, 2011
|
4
|
|
Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited)
|
5
|
|
Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2012 (unaudited)
|
6
|
|
Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2012 and 2011 (unaudited)
|
7
|
|
Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)
|
8
|
|
Notes to Consolidated Financial Statements
|
9
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
21
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
29
|
Item 4.
|
Controls and Procedures
|
29
|
PART II. OTHER INFORMATION
|
||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
30
|
Item 6.
|
Exhibits
|
31
|
SIGNATURES
|
32
|
AMERICAN REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
(unaudited)
|
||||||||
March 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
(dollars in thousands, except share
and par value amounts)
|
||||||||
Assets
|
||||||||
Real estate, at cost
|
$ | 1,081,349 | $ | 1,120,122 | ||||
Real estate held for sale at cost, net of depreciation ($3,168 and $1,752,for 2012 and 2011)
|
28,663 | 15,015 | ||||||
Real estate subject to sales contracts at cost, net of depreciation ($10,000 and $9,790 in 2012 and 2011)
|
45,956 | 49,982 | ||||||
Less accumulated depreciation
|
(160,628 | ) | (158,489 | ) | ||||
Total real estate
|
995,340 | 1,026,630 | ||||||
Notes and interest receivable
|
||||||||
Performing (including $100,713 and $104,969 in 2012 and 2011 from affiliates and related parties)
|
114,810 | 110,136 | ||||||
Non-performing (including $3,279 and $0 in 2012 and 2011 from affiliates and related parties)
|
9,160 | 4,787 | ||||||
Less allowance for estimated losses (including $18,962 and $8,962 in 2012 and 2011 from affiliates and related parties)
|
(23,383 | ) | (13,383 | ) | ||||
Total notes and interest receivable
|
100,587 | 101,540 | ||||||
Cash and cash equivalents
|
8,161 | 20,312 | ||||||
Investments in unconsolidated subsidiaries and investees
|
7,848 | 10,746 | ||||||
Other assets (including $22 and $11 in 2012 and 2011 from affiliates and related parties)
|
69,718 | 76,243 | ||||||
Total assets
|
$ | 1,181,654 | $ | 1,235,471 | ||||
Liabilities and Shareholders’ Equity
|
||||||||
Liabilities:
|
||||||||
Notes and interest payable
|
$ | 833,969 | $ | 855,619 | ||||
Notes related to assets held-for-sale
|
20,089 | 13,830 | ||||||
Notes related to subject to sales contracts
|
40,615 | 44,516 | ||||||
Stock-secured notes payable and margin debt
|
26,486 | 26,898 | ||||||
Affiliate payables
|
638 | 10,294 | ||||||
Deferred gain (including $77,227 and $71,964 in 2012 and 2011 from sales to related parties)
|
79,072 | 78,750 | ||||||
Accounts payable and other liabilities (including $1,861 and $1,822 in 2012 and 2011 to affiliates and related parties)
|
94,088 | 110,307 | ||||||
1,094,957 | 1,140,214 | |||||||
Shareholders’ equity:
|
||||||||
Preferred stock, $2.00 par value, authorized 15,000,000 shares, issued and outstanding Series A, 3,353,954
shares in 2012 and 2011 (liquidation preference $10 per share), including 900,000 shares in 2012 and 2011
held by subsidiaries
|
4,908 | 4,908 | ||||||
Common stock, $.01 par value, authorized 100,000,000 shares; issued 11,941,174 shares and outstanding
11,525,389 shares in 2012 and in 2011
|
115 | 115 | ||||||
Treasury stock at cost; 415,785 shares in 2012 and 2011 and 234,314 and 236,587 shares held by TCI
as of 2012 and 2011.
|
(6,395 | ) | (6,395 | ) | ||||
Paid-in capital
|
106,127 | 105,388 | ||||||
Retained earnings
|
(53,786 | ) | (47,486 | ) | ||||
Accumulated other comprehensive income
|
(786 | ) | (786 | ) | ||||
Total American Realty Investors, Inc. shareholders' equity
|
50,183 | 55,744 | ||||||
Non-controlling interest
|
36,514 | 39,513 | ||||||
Total equity
|
86,697 | 95,257 | ||||||
Total liabilities and equity
|
$ | 1,181,654 | $ | 1,235,471 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
|
AMERICAN REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||
(unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
(dollars in thousands, except share
and per share amounts)
|
||||||||
Revenues:
|
||||||||
Rental and other property revenues (including $167 and $0 for the three months ended
2012 and 2011 respectively from affiliates and related parties)
|
$ | 30,318 | $ | 27,918 | ||||
Expenses:
|
||||||||
Property operating expenses(including $307 and $297 for the three months ended 2012
and 2011 respectively from affiliates and related parties)
|
16,208 | 15,919 | ||||||
Depreciation and amortization
|
5,503 | 5,282 | ||||||
General and administrative(including $922 and $1,187 for the three months ended 2012
and 2011 respectively from affiliates and related parties)
|
2,606 | 3,242 | ||||||
Provision on impairment of notes receivable and real estate assets
|
- | 5,178 | ||||||
Advisory fee to affiliate
|
2,658 | 3,522 | ||||||
Total operating expenses
|
26,975 | 33,143 | ||||||
Operating income
|
3,343 | (5,225 | ) | |||||
Other income (expense):
|
||||||||
Interest income(including $3,431 and $466 for the three months ended 2012 and 2011
respectively from affiliates and related parties)
|
3,340 | 668 | ||||||
Other income (including $1,500 and $0 for the three months ended 2012 and 2011
respectively from affiliates and related parties)
|
1,628 | 1,214 | ||||||
Mortgage and loan interest (including $922 and $306 for the three months ended
2012 and 2011 respectively from affiliates and related parties)
|
(17,735 | ) | (14,666 | ) | ||||
Loss on sale of investments
|
(362 | ) | - | |||||
Earnings from unconsolidated subsidiaries and investees
|
117 | (95 | ) | |||||
Total other expenses
|
(13,012 | ) | (12,879 | ) | ||||
Loss before gain on land sales, non-controlling interest, and taxes
|
(9,669 | ) | (18,104 | ) | ||||
Gain (loss) on land sales
|
(1,021 | ) | 5,344 | |||||
Loss from continuing operations before tax
|
(10,690 | ) | (12,760 | ) | ||||
Income tax benefit
|
1,125 | 485 | ||||||
Net loss from continuing operations
|
(9,565 | ) | (12,275 | ) | ||||
Discontinued operations:
|
||||||||
Loss from discontinued operations
|
(375 | ) | (2,750 | ) | ||||
Gain on sale of real estate from discontinued operations
|
3,588 | 4,137 | ||||||
Income tax expense from discontinued operations
|
(1,125 | ) | (485 | ) | ||||
Net income from discontinued operations
|
2,088 | 902 | ||||||
Net loss
|
(7,477 | ) | (11,373 | ) | ||||
Net loss attributable to non-controlling interest
|
1,177 | 2,170 | ||||||
Net loss attributable to American Realty Investors, Inc.
|
(6,300 | ) | (9,203 | ) | ||||
Preferred dividend requirement
|
(613 | ) | (617 | ) | ||||
Net loss applicable to common shares
|
$ | (6,913 | ) | $ | (9,820 | ) | ||
Earnings per share - basic
|
||||||||
Loss from continuing operations
|
$ | (0.78 | ) | $ | (0.93 | ) | ||
Income from discontinued operations
|
0.18 | 0.07 | ||||||
Net loss applicable to common shares
|
$ | (0.60 | ) | $ | (0.86 | ) | ||
Earnings per share - diluted
|
||||||||
Loss from continuing operations
|
$ | (0.78 | ) | $ | (0.93 | ) | ||
Income from discontinued operations
|
0.18 | 0.07 | ||||||
Net loss applicable to common shares
|
$ | (0.60 | ) | $ | (0.86 | ) | ||
Weighted average common share used in computing earnings per share
|
11,525,389 | 11,493,115 | ||||||
Weighted average common share used in computing diluted earnings per share
|
11,525,389 | 11,493,115 | ||||||
Amounts attributable to American Realty Investors, Inc.
|
||||||||
Loss from continuing operations
|
$ | (8,388 | ) | $ | (10,105 | ) | ||
Income from discontinued operations
|
2,088 | 902 | ||||||
Net loss
|
$ | (6,300 | ) | $ | (9,203 | ) |
AMERICAN REALTY INVESTORS, INC.
|
||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2012
|
||||||||||||||||||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||||||
Total
|
Comprehensive
|
Series A
Preferred |
Common Stock
|
Treasury
|
Paid-in
|
Retained
|
Other
Comprehensive |
Non-controlling
|
||||||||||||||||||||||||||||||||
Capital
|
Loss
|
Stock
|
Shares
|
Amount
|
Stock
|
Capital
|
Earnings
|
Income (Loss)
|
Interest
|
|||||||||||||||||||||||||||||||
Balance, December 31, 2011
|
$ | 95,257 | $ | (137,440 | ) | $ | 4,908 | 11,941,174 | $ | 115 | $ | (6,395 | ) | $ | 105,388 | $ | (47,486 | ) | $ | (786 | ) | $ | 39,513 | |||||||||||||||||
Net loss
|
(7,477 | ) | (7,477 | ) | - | - | - | - | - | (6,300 | ) | - | (1,177 | ) | ||||||||||||||||||||||||||
Sale of controlling interest
|
1,149 | - | - | - | - | - | - | - | - | 1,149 | ||||||||||||||||||||||||||||||
Acquisition of non-controlling interest
|
(69 | ) | - | - | - | - | - | - | - | - | (69 | ) | ||||||||||||||||||||||||||||
Sale of non-controlling interest
|
(1,468 | ) | - | - | - | - | - | 1,434 | (2,902 | ) | ||||||||||||||||||||||||||||||
Distribution of non-controlling interest
|
(82 | ) | - | - | - | - | - | (82 | ) | - | - | - | ||||||||||||||||||||||||||||
Series A preferred stock cash dividend ($1.00 per share)
|
(613 | ) | - | - | - | - | - | (613 | ) | - | - | - | ||||||||||||||||||||||||||||
Balance, March 31, 2012
|
$ | 86,697 | $ | (144,917 | ) | $ | 4,908 | 11,941,174 | $ | 115 | $ | (6,395 | ) | $ | 106,127 | $ | (53,786 | ) | $ | (786 | ) | $ | 36,514 | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
|
AMERICAN REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
||||||||
(unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
(dollars in thousands)
|
||||||||
Net loss
|
$ | (7,477 | ) | $ | (11,373 | ) | ||
Other comprehensive loss
|
||||||||
Unrealized loss on foreign currency translation
|
- | (786 | ) | |||||
Unrealized gain (loss) on investment securities
|
- | - | ||||||
Total other comprehensive loss
|
- | (786 | ) | |||||
Comprehensive loss
|
(7,477 | ) | (12,159 | ) | ||||
Comprehensive loss attributable to non-controlling interest
|
1,177 | 2,170 | ||||||
Comprehensive loss attributable to American Realty Investors, Inc.
|
$ | (6,300 | ) | $ | (9,989 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
|
AMERICAN REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(unaudited)
|
||||||||
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
(dollars in thousands)
|
||||||||
Cash Flow From Operating Activities:
|
||||||||
Net loss
|
$ | (7,477 | ) | $ | (11,373 | ) | ||
Adjustments to reconcile net loss applicable to common
shares to net cash used in operating activities:
|
||||||||
Gain on sale of land
|
1,021 | (5,344 | ) | |||||
Gain on sale of income producing properties
|
(3,588 | ) | (4,137 | ) | ||||
Depreciation and amortization
|
5,746 | 7,188 | ||||||
Provision for impairment of notes receivable and real estate assets
|
- | 6,059 | ||||||
Amortization of deferred borrowing costs
|
917 | 1,108 | ||||||
Earnings from unconsolidated subsidiaries and investees
|
(117 | ) | 95 | |||||
(Increase) decrease in assets:
|
||||||||
Accrued interest receivable
|
(2,544 | ) | (740 | ) | ||||
Other assets
|
- | 827 | ||||||
Prepaid expense
|
68 | 919 | ||||||
Escrow
|
7,814 | 11,227 | ||||||
Rent receivables
|
(302 | ) | (535 | ) | ||||
Affiliate receivable
|
- | (4,048 | ) | |||||
Increase (decrease) in liabilities:
|
||||||||
Accrued interest payable
|
(1,047 | ) | 5,677 | |||||
Affiliate payables
|
(9,656 | ) | (12,219 | ) | ||||
Other liabilities
|
(13,681 | ) | (11,007 | ) | ||||
Net cash used in operating activities
|
(22,846 | ) | (16,303 | ) | ||||
Cash Flow From Investing Activities:
|
||||||||
Proceeds from notes receivables
|
12,776 | 9,391 | ||||||
Origination of notes receivable
|
(9,279 | ) | - | |||||
Proceeds from sales of income producing properties
|
18,678 | 3,912 | ||||||
Proceeds from sale of land
|
10,897 | 46,657 | ||||||
Proceeds from sale of investment in unconsolidated real estate entities
|
- | 897 | ||||||
Proceeds from sale of investments
|
114 | - | ||||||
Investment in unconsolidated real estate entities
|
2,898 | (111 | ) | |||||
Improvement of land held for development
|
(136 | ) | (1,214 | ) | ||||
Improvement of income producing properties
|
(394 | ) | (386 | ) | ||||
Acquisition of non-controlling interest
|
(138 | ) | (23 | ) | ||||
Sale of non-controlling interest
|
(1,468 | ) | - | |||||
Sale of controlling interest
|
1,262 | 2,012 | ||||||
Construction and development of new properties
|
(3,189 | ) | (14,087 | ) | ||||
Net cash provided by investing activities
|
32,021 | 47,048 | ||||||
Cash Flow From Financing Activities:
|
||||||||
Proceeds from notes payable
|
60,915 | 30,812 | ||||||
Recurring amortization of principal on notes payable
|
(6,027 | ) | (3,294 | ) | ||||
Debt assumption by buyer, part of seller proceeds
|
(17,073 | ) | - | |||||
Payments on maturing notes payable
|
(56,474 | ) | (64,409 | ) | ||||
Stock-secured borrowings and margin debt
|
- | 3,164 | ||||||
Deferred financing costs
|
(1,972 | ) | (260 | ) | ||||
Distributions to non-controlling interests
|
(82 | ) | (366 | ) | ||||
Preferred stock dividends - Series A
|
(613 | ) | (617 | ) | ||||
Repurchase of common stock/treasury stock
|
- | (62 | ) | |||||
Conversion of preferred stock into common stock
|
- | 31 | ||||||
Net cash used in financing activities
|
(21,326 | ) | (35,001 | ) | ||||
Net decrease in cash and cash equivalents
|
(12,151 | ) | (4,256 | ) | ||||
Cash and cash equivalents, beginning of period
|
20,312 | 12,649 | ||||||
Cash and cash equivalents, end of period
|
$ | 8,161 | $ | 8,393 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid for interest
|
$ | 47,231 | $ | 16,795 | ||||
Schedule of noncash investing and financing activities:
|
||||||||
Notes receivable received from affiliate
|
$ | 9,279 | $ | - |
|
•
|
17 commercial properties consisting of 11 office buildings, one industrial warehouse, four retail properties and one parking garage, comprising in aggregate approximately 3.9 million rentable square feet;
|
|
•
|
One hotel comprising 161 rooms;
|
|
•
|
49 apartment communities totaling 9,097 units, excluding apartments being developed; and
|
|
•
|
5,125 acres of developed and undeveloped land.
|
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.
|
Borrower
|
Date
|
Rate
|
Amount
|
Security
|
|||
Performing loans:
|
|||||||
Miscellaneous non-related party notes
|
Various
|
Various
|
4,097
|
Various security interests
|
|||
Miscellaneous related party notes (1)
|
Various
|
Various
|
2,321
|
Various security interests
|
|||
Unified Housing Foundation, Inc. (Cliffs of El Dorado) (1)
|
12/27
|
5.25%
|
2,097
|
100% Interest in Unified Housing of McKinney, LLC
|
|||
Unified Housing Foundation, Inc. (Echo Station) (1)
|
12/27
|
5.25%
|
1,481
|
100% Interest in Unified Housing of Temple, LLC
|
|||
Unified Housing Foundation, Inc. (Inwood on the Park) (1)
|
12/27
|
5.25%
|
5,059
|
100% Interest in Unified Housing Inwood, LLC
|
|||
Unified Housing Foundation, Inc. (Kensington Park) (1)
|
12/27
|
5.25%
|
3,936
|
100% Interest in Unified Housing Kensington, LLC
|
|||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
|
12/27
|
5.25%
|
2,000
|
Unsecured
|
|||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
|
12/27
|
5.25%
|
9,096
|
Membership interest in Housing for Seniors of Humble, LLC
|
|||
Unified Housing Foundation, Inc. (Limestone Canyon) (1)
|
07/15
|
5.25%
|
3,057
|
100% Interest in Unified Housing of Austin, LLC
|
|||
Unified Housing Foundation, Inc. (Limestone Canyon) (1)
|
12/27
|
5.25%
|
4,663
|
100% Interest in Unified Housing of Austin, LLC
|
|||
Unified Housing Foundation, Inc. (Limestone Ranch) (1)
|
07/15
|
5.25%
|
2,250
|
100% Interest in Unified Housing of Vista Ridge, LLC
|
|||
Unified Housing Foundation, Inc. (Limestone Ranch) (1)
|
12/27
|
5.25%
|
6,000
|
100% Interest in Unified Housing of Vista Ridge, LLC
|
|||
Unified Housing Foundation, Inc. (Parkside Crossing) (1)
|
12/27
|
5.25%
|
2,272
|
100% Interest in Unified Housing of Parkside Crossing, LLC
|
|||
Unified Housing Foundation, Inc. (Sendero Ridge) (1)
|
07/15
|
5.25%
|
5,174
|
100% Interest in Unified Housing of Sendero Ridge, LLC
|
|||
Unified Housing Foundation, Inc. (Sendero Ridge) (1)
|
12/27
|
5.25%
|
4,812
|
100% Interest in Unified Housing of Sendero Ridge, LLC
|
|||
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)
|
12/27
|
5.25%
|
1,323
|
100% Interest in Unified Housing of Terrell, LLC
|
|||
Unified Housing Foundation, Inc. (Tivoli) (1)
|
12/27
|
5.25%
|
7,965
|
100% Interest in Unified Housing of Tivoli, LLC
|
|||
Unified Housing Foundation, Inc. (Reserve at White Rock Phase I) (1)
|
12/27
|
5.25%
|
2,485
|
100% Interest in Unified Housing of Harvest Hill I, LLC
|
|||
Unified Housing Foundation, Inc. (Reserve at White Rock Phase II) (1)
|
12/27
|
5.25%
|
2,555
|
100% Interest in Unified Housing of Harvest Hill, LLC
|
|||
Unified Housing Foundation, Inc. (Trails at White Rock) (1)
|
12/27
|
5.25%
|
3,815
|
100% Interest in Unified Housing of Harvest Hill III, LLC
|
|||
Unified Housing Foundation, Inc.(1)
|
12/12
|
5.00%
|
6,000
|
Unsecured
|
|||
Realty Advisors Management, Inc. (1)
|
12/16
|
4.00%
|
20,387
|
Unsecured
|
|||
One Realco Corporation - ART Sale (1)
|
01/17
|
3.00%
|
10,000
|
Unsecured
|
|||
Accrued interest
|
1,965
|
||||||
Total Performing
|
$ 114,810
|
||||||
Non-Performing loans:
|
|||||||
Ocean Beach Partners, L.P. (1) |
12/11
|
7.00%
|
3,279 |
Folsom Land (36 acres in Farmers Branch, TX)
|
|||
130 Windmill Farms, L.P. |
10/11
|
7.00%
|
507 |
Unsecured
|
|||
Dallas Fund XVII L.P. (2) |
10/09
|
9.00%
|
1,432 |
Unsecured
|
|||
Leman Development, Ltd. |
07/11
|
7.00%
|
1,500 |
Unsecured
|
|||
Tracy Suttles |
12/11
|
0.00%
|
1,077 |
Unsecured
|
|||
Miscellaneous non-related party notes |
Various
|
Various
|
1,019 |
Various secured interest
|
|||
Accrued interest | 346 | ||||||
Total Non-Performing
|
$ 9,160 | ||||||
Allowance for estimated losses | (23,383) | ||||||
Total
|
$ 100,587
|
||||||
(1) Related party notes
|
||||||||||||
(2) Note matured and an allowance was taken for estimated losses at full value of note
|
Percentage ownership as of March 31,
|
||||||||
2012
|
2011
|
|||||||
Garden Centura, L.P. (1)
|
0.00 | % | 5.00 | % | ||||
Gruppa Florentina, LLC (1)
|
20.00 | % | 20.00 | % | ||||
LK-Four Hickory, LLC (1)
|
0.00 | % | 28.57 | % | ||||
(1) Other investees
|
For the Three Months ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Other Investees
|
||||||||
Real estate, net of accumulated depreciation
|
$ | 11,703 | $ | 119,203 | ||||
Notes receivable
|
5,789 | 5,118 | ||||||
Other assets
|
30,751 | 42,076 | ||||||
Notes payable
|
(13,670 | ) | (87,381 | ) | ||||
Other liabilities
|
(6,342 | ) | (15,711 | ) | ||||
Shareholders' equity/partners capital
|
(28,231 | ) | (63,305 | ) | ||||
Revenue
|
$ | 11,609 | $ | 14,088 | ||||
Depreciation
|
(334 | ) | (1,640 | ) | ||||
Operating expenses
|
(10,388 | ) | (11,644 | ) | ||||
Gain on land sales
|
- | - | ||||||
Interest expense
|
(302 | ) | (1,185 | ) | ||||
Income from continuing operations
|
$ | 585 | $ | (381 | ) | |||
Income from discontinued operations
|
- | - | ||||||
Net income
|
$ | 585 | $ | (381 | ) | |||
|
||||||||
Company's proportionate share of earnings
|
$ | 117 | 24 |
Pillar
|
|||||
Balance, December 31, 2011 | $ | (10,294 | ) | ||
Cash transfers
|
(1,835 | ) | |||
Advisory fees
|
(2,658 | ) | |||
Commissions to Pillar/Regis
|
(1,388 | ) | |||
Cost reimbursements
|
(835 | ) | |||
Interest to Advisor
|
(204 | ) | |||
POA fees
|
(52 | ) | |||
Net income fee
|
(42 | ) | |||
Expenses paid by Advisor
|
(1,037 | ) | |||
Financing (mortgage payments)
|
1,589 | ||||
Note receivable with affiliate
|
6,874 | ||||
Sales/Purchases transactions
|
(58 | ) | |||
Intercompany property transfers
|
9,302 | ||||
Balance, March 31, 2012 | $ | (638 | ) |
Commercial
|
||||||||||||||||||||||||
For the Three Months Ended March 31, 2012
|
Properties
|
Apartments
|
Hotels
|
Land
|
Other
|
Total
|
||||||||||||||||||
Operating revenue
|
$ | 9,197 | $ | 20,536 | $ | 544 | $ | - | $ | 41 | $ | 30,318 | ||||||||||||
Operating expenses
|
5,273 | 9,715 | 553 | 279 | 388 | 16,208 | ||||||||||||||||||
Depreciation and amortization
|
1,671 | 3,886 | 15 | - | (69 | ) | 5,503 | |||||||||||||||||
Mortgage and loan interest
|
2,995 | 10,922 | 62 | 1,704 | 2,052 | 17,735 | ||||||||||||||||||
Interest income
|
- | - | - | 3,340 | 3,340 | |||||||||||||||||||
Loss on land sales
|
- | - | - | (1,021 | ) | - | (1,021 | ) | ||||||||||||||||
Segment operating gain (loss)
|
$ | (742 | ) | $ | (3,987 | ) | $ | (86 | ) | $ | (3,004 | ) | $ | 1,010 | $ | (6,809 | ) | |||||||
Capital expenditures
|
447 | 198 | - | 5 | - | 650 | ||||||||||||||||||
Assets
|
172,663 | 564,401 | 192 | 229,421 | - | 966,677 | ||||||||||||||||||
Property Sales
|
||||||||||||||||||||||||
Sales price
|
$ | - | $ | 21,146 | $ | - | $ | 11,543 | $ | - | $ | 32,689 | ||||||||||||
Cost of sale
|
- | 17,558 | - | 12,564 | - | 30,122 | ||||||||||||||||||
Deferred current gain
|
- | - | - | - | - | - | ||||||||||||||||||
Recognized prior deferred gain
|
- | - | - | - | - | - | ||||||||||||||||||
Gain (loss) on sale
|
$ | - | $ | 3,588 | $ | - | $ | (1,021 | ) | $ | - | $ | 2,567 | |||||||||||
Commercial
|
||||||||||||||||||||||||
For the Three Months Ended March 31, 2011
|
Properties
|
Apartments
|
Hotels
|
Land
|
Other
|
Total
|
||||||||||||||||||
Operating revenue
|
$ | 9,322 | $ | 17,798 | $ | 520 | $ | 270 | $ | 8 | $ | 27,918 | ||||||||||||
Operating expenses
|
5,868 | 8,973 | 452 | 577 | 49 | 15,919 | ||||||||||||||||||
Depreciation and amortization
|
1,978 | 3,376 | 16 | - | (88 | ) | 5,282 | |||||||||||||||||
Mortgage and loan interest
|
2,495 | 6,744 | 62 | 3,800 | 1,565 | 14,666 | ||||||||||||||||||
Interest income
|
- | - | - | 668 | 668 | |||||||||||||||||||
Gain on land sales
|
- | - | - | 5,344 | - | 5,344 | ||||||||||||||||||
Segment operating gain (loss)
|
$ | (1,019 | ) | $ | (1,295 | ) | $ | (10 | ) | $ | 1,237 | $ | (850 | ) | $ | (1,937 | ) | |||||||
Capital expenditures
|
61,254 | 10,920 | 2,792 | 8,924 | 16 | 83,906 | ||||||||||||||||||
Assets
|
182,828 | 541,572 | 252 | 389,805 | (18,991 | ) | 1,095,466 | |||||||||||||||||
Property Sales
|
||||||||||||||||||||||||
Sales price
|
$ | 5,168 | $ | - | $ | - | $ | 50,532 | $ | - | $ | 55,700 | ||||||||||||
Cost of sale
|
4,882 | - | - | 46,328 | - | 51,210 | ||||||||||||||||||
Deferred current gain
|
- | - | - | - | - | - | ||||||||||||||||||
Recognized prior deferred gain
|
3,851 | - | - | 1,140 | - | 4,991 | ||||||||||||||||||
Gain on sale
|
$ | 4,137 | $ | - | $ | - | $ | 5,344 | $ | - | $ | 9,481 |
For Three Months Ended March 31,
|
||||||||
For the Three Months Ended March 31, 2012
|
2012
|
2011
|
||||||
Segment operating loss
|
$ | (6,809 | ) | $ | (1,937 | ) | ||
Other non-segment items of income (expense)
|
||||||||
General and administrative
|
(2,606 | ) | (3,242 | ) | ||||
Advisory fees
|
(2,658 | ) | (3,522 | ) | ||||
Provision on impairment of notes receivable and real estate assets
|
- | (5,178 | ) | |||||
Other income
|
1,628 | 1,214 | ||||||
Loss on sale of investments
|
(362 | ) | - | |||||
Equity in earnings of investees
|
117 | (95 | ) | |||||
Income tax benefit
|
1,125 | 485 | ||||||
Loss from continuing operations
|
$ | (9,565 | ) | $ | (12,275 | ) |
For Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Segment assets
|
$ | 966,677 | $ | 1,095,466 | ||||
Investments in real estate partnerships
|
7,848 | 12,152 | ||||||
Other assets and receivables
|
178,466 | 188,530 | ||||||
Assets held for sale
|
28,663 | 199,485 | ||||||
Total assets
|
$ | 1,181,654 | $ | 1,495,633 |
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
Revenue
|
||||||||
Rental
|
$ | 1,359 | $ | 11,176 | ||||
Property operations
|
1,027 | 7,541 | ||||||
$ | 332 | $ | 3,635 | |||||
Expenses
|
||||||||
Interest
|
(368 | ) | (3,237 | ) | ||||
General and administration
|
(97 | ) | (361 | ) | ||||
Depreciation
|
(242 | ) | (1,906 | ) | ||||
Provision on impairment of real estate assets
|
- | (881 | ) | |||||
$ | (707 | ) | $ | (6,385 | ) | |||
Net loss from discontinued operations before gains on sale of real estate, taxes, and fees
|
(375 | ) | (2,750 | ) | ||||
Gain on sale of discontinued operations
|
3,588 | 4,137 | ||||||
Income from discontinued operations before tax
|
$ | 3,213 | $ | 1,387 | ||||
Income tax expense
|
(1,125 | ) | (485 | ) | ||||
Income from discontinued operations
|
$ | 2,088 | $ | 902 |
|
•
|
general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);
|
|
•
|
risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;
|
|
•
|
demand for apartments and commercial properties in the Company’s markets and the effect on occupancy and rental rates;
|
|
•
|
the Company’s ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;
|
|
•
|
risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;
|
|
•
|
failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;
|
|
•
|
risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);
|
|
•
|
risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;
|
|
•
|
costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;
|
|
•
|
potential liability for uninsured losses and environmental contamination;
|
|
•
|
risks associated with our dependence on key personnel whose continued service is not guaranteed; and
|
|
•
|
the other risk factors identified in this Form 10-Q, including those described under the caption “Risk Factors.”
|
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.
|
March 31,
|
||||||||
2012
|
2011
|
|||||||
Continuing operations
|
62 | 55 | ||||||
Discontinued operations
|
2 | 15 | ||||||
Total property portfolio
|
64 | 70 |
For the Three Months Ended
|
||||||||
March 31,
|
||||||||
2012
|
2011
|
|||||||
Revenue
|
||||||||
Rental
|
$ | 1,359 | $ | 11,176 | ||||
Property operations
|
1,027 | 7,541 | ||||||
$ | 332 | $ | 3,635 | |||||
Expenses
|
||||||||
Interest
|
(368 | ) | (3,237 | ) | ||||
General and administration
|
(97 | ) | (361 | ) | ||||
Depreciation
|
(242 | ) | (1,906 | ) | ||||
Provision on impairment of real estate assets
|
- | (881 | ) | |||||
$ | (707 | ) | $ | (6,385 | ) | |||
Net loss from discontinued operations before gains on sale of real estate, taxes, and fees
|
(375 | ) | (2,750 | ) | ||||
Gain on sale of discontinued operations
|
3,588 | 4,137 | ||||||
Income from discontinued operations before tax
|
$ | 3,213 | $ | 1,387 | ||||
Income tax expense
|
(1,125 | ) | (485 | ) | ||||
Income from discontinued operations
|
$ | 2,088 | $ | 902 |
|
•
|
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.
|
|
•
|
property operations;
|
|
•
|
proceeds from land and income-producing property sales;
|
|
•
|
collection of mortgage notes receivable;
|
|
•
|
collection of receivables from affiliated companies;
|
|
•
|
refinancing of existing debt; and
|
|
•
|
additional borrowing, including mortgage notes payable and lines of credit.
|
March 31,
|
||||||||||||
2012
|
2011
|
Variance
|
||||||||||
Net cash used in operating activities
|
$ | (22,846 | ) | $ | (16,303 | ) | $ | (6,543 | ) | |||
Net cash provided by investing activities
|
$ | 32,021 | $ | 47,048 | $ | (15,027 | ) | |||||
Net cash used in financing activities
|
$ | (21,326 | ) | $ | (35,001 | ) | $ | 13,675 |
Weighted
|
Effect of 1%
|
|||||||||||
Average
|
Increase In
|
|||||||||||
Balance
|
Interest Rate
|
Base Rates
|
||||||||||
Notes payable:
|
||||||||||||
Variable rate
|
$ | 183,688 | 5.04 | % | $ | 1,837 | ||||||
Total decrease in ARL’s annual net income
|
1,837 | |||||||||||
Per share
|
$ | 0.16 |
Total Number of
|
Maximum Number of
|
|||||||||||||||
Shares Purchased
|
Shares that May
|
|||||||||||||||
Total Number of
|
Average Price
|
as Part of Publicly
|
Yet be Purchased
|
|||||||||||||
Period
|
Shares Purchased
|
Paid per share
|
Announced Program
|
Under the Program
|
||||||||||||
Balance at December 31, 2011
|
986,750 | 263,250 | ||||||||||||||
January 31, 2012
|
- | $ | - | 986,750 | 263,250 | |||||||||||
February 29, 2012
|
- | $ | - | 986,750 | 263,250 | |||||||||||
March 31, 2012
|
- | $ | - | 986,750 | 263,250 | |||||||||||
Total
|
- |
Exhibit
Number
|
Description of Exhibit
|
3.0
|
Certificate of Restatement of Articles of Incorporation of American Realty Investors, Inc. dated August 3, 2000 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
|
3.1
|
Certificate of Correction of Restated Articles of Incorporation of American Realty Investors, Inc. dated August 29, 2000 (incorporated by reference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q dated September 30, 2000).
|
3.2
|
Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series B Cumulative Convertible Preferred Stock dated August 23, 2003 (incorporated by reference to Exhibit 3.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
|
3.3
|
Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc., decreasing the number of authorized shares of and eliminating Series I Cumulative Preferred Stock dated October 1, 2003 (incorporated by reference to Exhibit 3.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
|
3.4
|
Bylaws of American Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form S-4 filed December 30, 1999).
|
4.1
|
Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof of Series F Redeemable Preferred Stock of American Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
|
4.2
|
Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June 18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
|
4.3
|
Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of American Realty Investors, Inc., dated February 3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
|
4.4
|
Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock as filed with the Secretary of State of Nevada on March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006).
|
10.1
|
Advisory Agreement between American Realty Investors, Inc. and Pillar Income Asset Management, Inc., dated April 30, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated May 2, 2011).
|
10.2
|
Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, dated February 24, 2002).
|
31.1*
|
Certification by the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|
31.2*
|
Certification by the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|
32.1*
|
Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
*
|
Filed herewith
|
AMERICAN REALTY INVESTORS, INC.
|
||
Date: June 18, 2012
|
By:
|
/s/ Daniel J. Moos
|
Daniel J. Moos
|
||
President and Chief Executive Officer
(Principal Executive Officer)
|
||
Date: June 18, 2012
|
By:
|
/s/ Gene S. Bertcher
|
Gene S. Bertcher
|
||
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
Exhibit
Number
|
Description of Exhibits
|
31.1*
|
Certification by the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|
31.2*
|
Certification by the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|
32.1*
|
Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
*
|
Filed herewith
|
1.
|
I have reviewed this quarterly report on Form 10-Q/A of American Realty Investors, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
|
|
(d)
|
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated: June 18, 2012
|
/s/ Daniel J. Moos
|
|
Daniel J. Moos
President and Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q/A of American Realty Investors, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
|
|
(d)
|
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
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The registrant’s other certifying officer(s) and I have disclosed, based on the most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated: June 18, 2012
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/s/ Gene S. Bertcher
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Gene S. Bertcher
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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(i)
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The Company’s Quarterly Report on Form 10-Q/A for the three months ended March 31, 2012, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
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(ii)
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The information contained in the Company’s Quarterly Report on Form 10-Q/A for the three months ended March 31, 2012, fairly presents in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated.
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Dated: June 18, 2012
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/s/ Daniel J. Moos
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Daniel J. Moos
President and Chief Executive Officer
(Principal Executive Officer)
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Dated: June 18, 2012
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/s/ Gene S. Bertcher
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Gene S. Bertcher
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
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ORGANIZATION AND BASIS OF PRESENTATION
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3 Months Ended | ||||||||||||||||||||
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Mar. 31, 2012
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ORGANIZATION AND BASIS OF PRESENTATION | |||||||||||||||||||||
ORGANIZATION AND BASIS OF PRESENTATION | NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
As used herein, the terms ARL, the Company, we, our or us refer to American Realty Investors, Inc., a Nevada corporation, which was formed in November 1999. In August 2000, the Company acquired American Realty Trust, Inc. (ART), a Georgia corporation and National Realty, L.P. (NRLP), a Delaware partnership.
The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (NYSE) under the symbol (ARL). Approximately 87.6% of ARLs stock is owned by affiliated entities. ARL owns approximately 82.7% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc. (TCI), a Nevada corporation, which has its common stock listed and traded on the New York Stock Exchange (NYSE) under the symbol (TCI). ARL is a C corporation for U.S. federal income tax purposes and has consolidated TCIs accounts and operations since March 2003.
TCI, a subsidiary of ARL, owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (IOT). Effective July 17, 2009, IOTs financial results were consolidated with those of ARL and TCI and their subsidiaries. Shares of IOT are traded on the American Stock Exchange (AMEX) under the symbol (IOT).
ARL invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Prime Income Asset Management, LLC (Prime) served as the Companys external Advisor and Cash Manager until April 30, 2011. Prime also served as an Advisor and Cash Manager to TCI and IOT. Effective April 30, 2011, Pillar Income Asset Management, Inc. (Pillar) became the Companys external Advisor and Cash Manager under similar terms as the previous agreement with Prime. Pillar also serves as an Advisor and Cash Manager to TCI and IOT. Regis Realty Prime, LLC (Regis) manages our commercial and hotel properties, and provides brokerage services. ARL engages third-party companies to lease and manage its apartment properties. We have no employees.
Properties
We own or had interests in a total property portfolio of 67 income-producing properties as of March 31, 2012. The properties consisted of:
We join with various third-party development companies to construct residential apartment communities. We completed construction on five construction projects in 2011 and are in the predevelopment process on several residential apartment communities, scheduled for construction in 2012. At March 31, 2012, we had no apartment projects in development. The third-party developer typically holds a general partner as well as a limited partner interest in a limited partnership formed for the purpose of building a single property while we generally take a limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all required equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our consolidated financial statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developers partnership interests in exchange for any remaining unpaid developer fees.
A maritime harbor town is being constructed on the 420 acre site of the former naval base of Olpenitz between the mouth of the River Schlei and the Baltic Sea in the state of Schleswig-Holstein in North Germany. The project is located less than 30 miles from the Danish border. The town will comprise a marina offering several thousand moorings, premium vacation homes each with their own landing stage as well as exclusive hotels, restaurants, shops and a range of leisure activities from sailing to golfing to cross-country skiing. At the current time over 50 lots in Phase One, of an initial 180, have been sold and are in various stages of construction.
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.
The year-end consolidated balance sheet at December 31, 2011 was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. Certain 2011 financial statement amounts have been reclassified to conform to the 2012 presentation, including adjustments for discontinued operations.
Principles of consolidation
The accompanying financial statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810 Consolidation, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (EITF) Issue 04-5, Investors Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (EITF 04-5). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entitys financial results. All significant intercompany balances and transactions have been eliminated in consolidation.
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.
For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in Gruppa Florentina, LLC, is accounted for under the equity method. Our investments in Garden Centura, L.P. and LK-Four Hickory, LLC were accounted for under the equity method until December 28, 2011 and January 17, 2012, respectively, when they were sold to a third party.
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 useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements 10-40 years; furniture, fixtures and equipment 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, Property, Plant and Equipment. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the assets net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.
Real estate held for sale
We periodically classify real estate assets as held for sale. An asset is classified as held for sale after the approval of our board of directors and after an active program to sell the asset has commenced. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision to no longer market as an asset for sale, the asset is classified as an operating asset and depreciation expense is reinstated. The operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying statements of operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. This classification of operating results as discontinued operations applies retroactively for all periods presented. Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations.
Cost capitalization
Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.
We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.
Fair value measurement
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 a transaction between market participants at the measurement date, 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 entitys 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:
A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Newly issued accounting standards
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our consolidated statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operations. |