ARL 10-K & 10-Q changes, risk factors and insider trading
American Realty Investors Inc. · NYSE · Real Estate Operators (No Developers) & Lessors · CIK 1102238 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “A shift toward remote or hybrid work could reduce demand for office space and adversely affect our office portfolio and financial performance.”
New heading “Our property insurance coverage is limited, and any uninsured losses could cause us to lose part or all of our investment in our insured properties.”
Removed heading “Our ability to achieve growth in operating income depends in part on its ability to develop additional properties or acquire and redevelop or renovate existing properties.”
Largest changes
“Epidemics, pandemics or other outbreaks of an illness, disease or virus, such as COVID-19, can severely disrupt general economic activities in a variety of ways that are difficult to predict. For example, governments and businesses may take actions to mitigate the public health crisis, including quarantines, stay-at-home orders, density limitations, social distancing measures, and/or restrictions on types of business that may continue to operate. …”see in full comparison
“Our ability to achieve growth in operating income depends in part on its ability to develop additional properties or acquire and redevelop or renovate existing properties.”see in full comparison
“Our property insurance coverage is limited, and any uninsured losses could cause us to lose part or all of our investment in our insured properties.”see in full comparison
“A shift toward remote or hybrid work could reduce demand for office space and adversely affect our office portfolio and financial performance.”see in full comparison
“•construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;”see in full comparison
“These conditions could negatively impact our net operating income, cash flows, and property values, potentially requiring additional capital expenditures, impairments of office assets, or dispositions at unfavorable prices. Declines in asset values or cash flows could also increase leverage, limit access to capital, or adversely affect our ability to refinance existing indebtedness. If these risks materialize, our business, financial condition, and results of operations could be materially adversely affected.”see in full comparison
Full comparison: every changed paragraph (27)
The following discusses those risk factors that we believe could affecthave a material effect on our business, operations and financial condition. If any of these risks, as well as other risks and uncertainties that we have not yet identified or that we currently believe are not material, become realized, we could be materially adversely affected and the value of our securities could decline.affected. In addition, the following risk factors may contain “forward looking statements” and should be read in conjunction with Management’s Discussion and Analysis of Financial condition and Results of Operations, and the financial statements and related notes in this Annual Report on Form 10-K. All investors should carefully consider the following risk factors in conjunction with the other information in this report before trading our securities.
•competition from other real estate investors, including other real estate operating companies, publicly-traded real estate investment trusts ("REITs") and institutional investment funds;
We experience a great deal of competition in attracting tenants for the properties and in locating land to develop andas well as properties to acquire.
Epidemics, pandemics or other outbreaks of an illness, disease or virus, such as COVID-19, can severely disrupt general economic activities in a variety of ways that are difficult to predict. For example, governments and businesses may take actions to mitigate the public health crisis, including quarantines, stay-at-home orders, density limitations, social distancing measures, and/or restrictions on types of business that may continue to operate. The extent to which an outbreak could impact our business will depend on factors such as the duration and spread, its severity, the actions taken to contain the virus, the emergence and impact of future virus variants, and how quickly and to what extent normal economic and operating conditions resume. The impacts to our business could impact our financial condition, results of operations, cash flows, liquidity and our ability to meet our debt service obligations.
A shift toward remote or hybrid work could reduce demand for office space and adversely affect our office portfolio and financial performance.
The continued adoption of remote and hybrid work arrangements may reduce long-term demand for traditional office space. If tenants reduce their office footprints, do not renew leases, or seek more flexible terms, we could experience higher vacancy rates, lower rental income, increased leasing concessions, and longer lease-up periods across our office portfolio.
These conditions could negatively impact our net operating income, cash flows, and property values, potentially requiring additional capital expenditures, impairments of office assets, or dispositions at unfavorable prices. Declines in asset values or cash flows could also increase leverage, limit access to capital, or adversely affect our ability to refinance existing indebtedness. If these risks materialize, our business, financial condition, and results of operations could be materially adversely affected.
Considerable uncertainty still surrounds the recent Covid-19 pandemic, including its conclusion, the availability of and effectiveness of vaccines, the potential short-term and long term effects, including but not limited to shifts in consumer housing demand based on geography, affordability, housing type (e.g., multi-family vs. single family) and unit type (e.g., office studio vs. multi-bedroom), mainly resulting from the paradigm shift of work culture, the decentralization of corporate headquarters and the success of “work from home” models. Moreover, local, state and national measures taken to limit the spread of the recent pandemic have already resulted in significant economic impacts and mortality rates, the duration and scope of which cannot currently be predicted. The extent to which our financial condition or operating results will be effected in the future by any future pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted with any degree of accuracy.
FACTORS AFFECTING OUR ASSETSCOMPANY
We rely on third party property managers to manage the daily operations of our properties. These management companies are directly responsible for the day-to-day operation of our properties with limited supervision by us, and they often have potentially significant decision-making authority with respect to those properties. Thus, the success of our business may depend in large part on the ability of our third-party property managers to manage the day-to-day operations, andThus any adversity experienced by our property managers could adversely impact the operation and profitability of our properties.
These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in criminal or fraudulentunprofessional activity. If any of these events occur, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties. In addition, disputes may arise between us and these third-party managers and operators, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective service providers to operate and manage the relevant properties, which in turn could adversely affect us, including damage to our relationships with such franchisers or we may be in breach of our management agreement.
Our property insurance coverage is limited, and any uninsured losses could cause us to lose part or all of our investment in our insured properties.
We carry property and general liability insurance on all of our properties with coverage limits that we deem adequate and appropriate under the circumstances (certain policies subject to deductibles) to insure against property restoration and liability claims, which include the cost of legal defense. There are, however, certain types of extraordinary losses that either may be uninsurable or are not generally insured because it is not economically feasible to insure against those losses. Should any uninsured loss occur, we could lose our investment in, and anticipated revenues from, a property, and these losses could have a material adverse effect on our operations. The occurrence of storm damage, flood or other natural disaster or personal injury on our properties in excess of our insured limits may materially and adversely affect our business, financial condition and results of operations.
Our properties are subject to increases in operating expenses such as insurance, cleaning, maintenance, electricity, heating, ventilation and air conditioning, administrative costs and other costs associated with security, landscaping, repairs, and maintenance of the properties. While some current tenants are obligated by their leases to reimburse us for a portion of these costs, there is no assurance that these tenants will make such payments or agree to pay these costs upon renewal or new tenants will agree to pay these costs. If operating expenses increase in our markets, we may not be able to increase rents or reimbursements in all of these markets to offset the increased expenses, without at the same time decreasing occupancy rates. If this occurs, our ability to make distributions to shareholders and service indebtedness could be adversely affected.
Our ability to achieve growth in operating income depends in part on its ability to develop additional properties or acquire and redevelop or renovate existing properties.
We intend to continue to develop properties where warranted by market conditions. We have a number of ongoing development and land projects being readied for commencement. Additionally, general construction and development activities include the following risks:
•construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property;
•construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;
•some developments may fail to achieve expectations, possibly making them less profitable;
•we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project;
•we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. If we determine to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss;
•we may expend funds on and devote management’s time to projects which will not be completed; and
•occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may result in lower than projected rental rates and reduced income from operations.
A significant portion of our debt is insured with HUDHUD.
As of December 31, 2024,2025, we had $126.3$123.6 million in mortgage notes payable insured by the U.S. Department of Housing and Urban Development ("HUD"),HUD, which represented 68%58% of our totalmortgage indebtedness.notes payable. HUD insured loans allow Lenders to extend loans at a relatively lowlower interest rate for terms of up to 40 years for properties under new construction, or up to 35 years for acquisition or refinancing of existing properties. In return for lower interest rates and favorable terms, HUD loans involve extensive regulatory compliance.
We currently have, and may incur more, indebtedness that bears interest at variable rates. Accordingly, ifIf interest rates increase, so willmay theour interest costs, which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders. Further, rising interest rates could limit our ability to refinance existing debt when it matures.
We have in the past, and may in the future, develop and/or acquire properties in partnerships and similar joint ventures, including those in which we may own a preferred interest, when we believe circumstances warrant this type of investment. Our organizational documents do not limit the amount of available funds that we can invest in partnerships or other joint venture structures. As of December 31, 2024, we had no active joint ventures with any investment funds at risk. Investments in partnerships and joint ventures, including limited liability companies, involve risks such as the following:
Management's Discussion & Analysis (MD&A)
New heading “Disposition Activities”
New heading “Comparison of the year ended December 31, 2025 to the year ended December 31, 2024:”
Removed heading “Acquisitions and Dispositions”
Removed heading “Comparison of the year ended December 31, 2023 to the year ended December 31, 2022:”
Largest changes
“Comparison of the year ended December 31, 2025 to the year ended December 31, 2024:”see in full comparison
“Comparison of the year ended December 31, 2023 to the year ended December 31, 2022:”see in full comparison
“•The $5.6 million decrease in general, administrative and advisory expenses is primarily due to a reduction in legal cost associated with the Nixdorf litigation in 2023 and due to auditing and other administrative expenses associated with the bonds payable, which were repaid in 2023.”see in full comparison
“•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).”see in full comparison
Full comparison: every changed paragraph (65)
The following is a summary of our recent acquisition, disposition, financing and development activities:
Disposition Activities
Acquisitions and Dispositions
•On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26.8 million, resulting in a gain on sale of $9.4 million. We used the proceeds from the sale to pay off the $14.7 million mortgage note payable on the property and for general corporate purposes.
•On May 17, 2022, we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $0.8 million, resulting in a gain on sale of $0.7 million. We used the proceeds from the sale for general corporate purposes.
•On September 16, 2022, we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge, Louisiana for $11.8 million in connection with the sale of properties by VAA (See "Other Developments"), resulting in a gain on sale of $1.9 million. We used the proceeds from the sale to pay off the $9.6 million mortgage note payable on the property and for general corporate purposes.
•On November 1, 2022, we acquired the seven multifamily properties from VAA (See "Other Developments") with a fair value of $219.5 million.
•During the year ended December 31, 2022, we sold a total of 26.9 acres of land from our holdings in Windmill Farms for $5.1 million in aggregate, resulting in gains on sale of $4.2 million. In addition, we sold 0.9 acres of land from our holdings in Mercer Crossing for $0.7 million, resulting in a gain on sale of $0.2 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.
•On January 14, 2022, we paid off the $14.7 million loan on Toulon in connection with the sale of the underlying property (See "Acquisitions and Dispositions").
•On March 3, 2022, we extended the loan on Stanford Center to February 26, 2023.
•On September 1, 2022, we extended our loan on Athens to August 28, 2023.
•On September 16, 2022, we paid off the $9.6 million loan on Sugar Mill Phase III in connection with the sale of the underlying property (See "Acquisitions and Dispositions").
•On October 21, 2022, we paid off the $38.5 million loan on Stanford Center from a portion of our share of the proceeds from sale of the VAA Sale Portfolio (See "Other Developments").
•On November 1, 2022, we agreed to assume the $70.3 million mortgage notes payable on the VAA Holdback Portfolio in connection with the distribution of the underlying properties from VAA (See "Other Developments").
•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 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. As of December 31, 2024, no advances have been drawn on the loan.
•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%.
•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 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 OctoberJune 20,17, 2026.2027.
•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.
We have agreements to develop two parcels of land ("PODs") 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 for a total of $24.3 million. We estimate that we will complete the development of these PODs over a two-year period starting during the fourth quarter of 2024.homes. During 2024,2025, we spent $3.6$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:
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.
On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida ("Alera") that is expected to be completed in 2025 for a total cost of approximately $55.3 million. The cost of construction will be funded in part by a $33.0 million construction loan (See "Financing Activities"). The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period. In connection with the closing of the loan, we purchased the land and certain entitlement costs from a related party at an appraised value of $6.1 million. As of December 31, 2024, we have incurred a total of $36.6 million in development costs.
On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney, Texas ("Merano") that is expected to be completed in 2025 for a total cost of approximately $51.9 million. The cost of construction will be funded in part by a $25.4 million construction loan (See "Financing Activities"). The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period. As of December 31, 2024, we have incurred a total of $24.8 million in development costs.
On December 15, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in Temple, Texas ("Bandera Ridge") that is expected to be completed in 2025 for a total cost of approximately $49.6 million. The cost of construction will be funded in part by a $23.5 million construction loan (See "Financing Activities"). The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period. In connection with the closing of the loan, we purchased the land from a related party at an appraised value of $2.7 million. As of December 31, 2024, we have incurred a total of $26.3 million in development costs.
On October 21, 2024, we entered into a development agreement with Pillar to build a 234 unit multifamily property in Dallas, Texas ("Mountain Creek") that is expected to be completed in 2026 for a total cost of approximately $49.8 million. The cost of construction will be funded in part by a $27.5 million construction loan (See "Financing Activities"). The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period. As of December 31, 2024, we have incurred a total of $5.0 million in development costs.
On September 16, 2022, VAA sold 45 properties (“VAA Sale Portfolio”) for $1.8 billion, resulting in a gain on sale of $738.4 million to the joint venture. In connection with the sale, we received an initial distribution of $182.8 million from VAA.
On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the remaining seven properties (collectively referred to herein as the “VAA Holdback Portfolio”) and a cash payment of $204.0 million. The VAA Holdback Portfolio consists of Blue Lake Villas, a 186 unit multifamily property in Waxahachie, Texas; Blue Lake Villas Phase II, a 70 unit multifamily property in Waxahachie, Texas; Northside on Travis, a 200 unit multifamily property in Sherman, Texas; Parc at Denham Springs, a 224 unit multifamily property in Denham Spring, Louisiana; Residences at Holland Lake, a 208 unit multifamily property in Weatherford, Texas; Villas of Park West I, a 148 unit multifamily property in Pueblo, Colorado; and Villas of Park West II, a 112 unit multifamily property in Pueblo, Colorado.
On March 23, 2023, we received $18.0 million from VAA,our joint venture in Victory Abode Apartments, LLC ("VAA"), which represented the remaining distribution of the proceeds from the sale of the VAA45 Saleproperties Portfolio.in InSeptember December2022 2024,that wehad been held by VAA. We dissolved VAA.VAA in 2024.
We used our share of the proceeds from the sale of the VAA Sale Portfolio to invest in short-term investments and real estate, pay down our debt and for general corporate purposes.
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 Settlementsettlement Agreement and General Release (the “Settlement Agreement”)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.
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.
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 RedevelopmentSame Property,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 leased-upare in lease-up (“RedevelopmentDevelopment PropertyProperties”), 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 leased-upcomplete andor in operation for the entirety of both periods of the comparison.
For the comparison of the year ended December 31, 20242025 to the year ended December 31, 2023,2024, the RedevelopmentDevelopment Properties were Alera, Bandera Ridge and Merano (See "Development Activities" in Management's Overview); and the Disposition Property iswas LandingVillas onat BayouBon Cane. The change in revenues and expenses of the Redevelopment Property from 2023 to 2024 is primarily due to the lease-up of the property in 2023 as the restored units were placed in service.Secour. There were no Acquisition Properties or Disposition Properties for the comparison of the year ended December 31, 2024 to the year ended December 31, 2023.Properties.
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.
Our $18.7 million decrease in net income in 2024 is primarily attributed to the following:
•The $1.4 million decrease in profit from the multifamily properties is due to a $1.0 million decrease from the Redevelopment Property. The decrease in profit from the Redevelopment property is due to the receipt of $1.3 million of business interruption insurance proceeds in 2023.
• The $0.4 million decrease in profit from the commercial properties is primarily due to a decline in occupancy.
•The $5.6 million decrease in general, administrative and advisory expenses is primarily due to a reduction in legal cost associated with the Nixdorf litigation in 2023 and due to auditing and other administrative expenses associated with the bonds payable, which were repaid in 2023.
•The $22.1 million increase in loss on real estate transactions is primarily due to the settlement of the Clapper litigation in 2024 (See "Other Transactions" in Management's Overview).
•The $5.2 million decrease in interest income, net is due to a $6.9 million decrease in interest income offset in part by a $1.7 million decrease in interest expense. The decrease in interest income is primarily due to a decrease in interest rates on the UHF notes in 2023 and a decrease in interest rates on the Pillar Receivable in 2024. The decrease in interest expense is primarily due to the repayment of the bonds payable in 2023 (See "Financing Activities" in Management's Overview).
•The loss from early extinguishment of debt and the gain on foreign currency transactions are due to the bonds payable that were outstanding in 2023.
•The decrease in gain on foreign currency transactions is due to the change in the U.S. Dollar and the New Israeli Shekel conversion rate in connection with the bonds that were listed on the Tel-Aviv Stock Exchange (See "Financing Activities").
Comparison of the year ended December 31, 2023 to the year ended December 31, 2022:
We anticipate that our cash, cash equivalents and short-term investments as of December 31, 2024,2025, along with cash that will be generated in 20252026 from operations, notes receivable and interestconstruction receivables,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.
What changed in the latest 10-Q
Risk Factors
There have been no material changes from the risk factors previously disclosed in the 2025 10-K. For a discussion on these risk factors, please see “Item 1A. Risk Factors” contained in the 2025 10-K.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Comparison of the six months ended June 30, 2026 to the six months ended June 30, 2025:”
Largest changes
“Comparison of the six months ended June 30, 2026 to the six months ended June 30, 2025:”see in full comparison
“•Our multifamily segment had a $2.8 million decrease in NOI, which was attributed to decreases of $1.4 million from the Development Properties, $1.1 million from the Same Properties and $0.3 million from the Disposition Property. The decrease in NOI from the Same Properties is due to a decrease in occupancy in certain markets due to increased competition from newly constructed properties. The decrease in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2025 (See "Development Activities" in Management's Overview).”see in full comparison
“•The $2.9 million decrease in interest income, net is due to a $0.7 million decrease in interest income and a $2.2 million increase 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. The increase in interest expense is primarily due to the interest on the Development Properties that were placed in service in the fourth quarter of 2025 (See "Development Activities" in Management's Overview).”see in full comparison
•see in full comparisonOurThemultifamily segment had a $1.7$1.1 million decrease inNOI,multifamilywhichNOIwasisattributeddue to decreases of$0.7$0.6 million from the DevelopmentProperties,Properties$0.6and $0.5 million from the SamePropertiesProperties.andThe$0.4decreasemillionin NOI from theDispositionSameProperty.Properties is due to a decrease in occupancy in certain markets due to increased competition from newly constructed properties. The decrease in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2025 (See "Development Activities" in Management's Overview).
Thesee in full comparison$18.4$30.2 million decrease in cash provided by financing activities was primarily duetoathe $15.4$38.0 million decrease inborrowingsproceedsonfrom mortgages and other notes payable offset in part by a $11.1 million decrease in payments of mortgages and other notes payable. The decrease in proceeds from mortgages and other notes payable is due to the completion of Alera, Bandera Ridge and Meranoconstruction loans in 2025(See "Development Activities" in Management's Overview) and the$3.9decreasemillioninpurchasepayments ofadditionalmortgagessharesand other notes payable is due to the repayment ofTCIthe mortgage on 770 South Post Oak in2026.2025.
“Total occupancy for Same Properties was 81% at June 30, 2026, which includes 93% at our multifamily properties and 58% at our commercial properties. Occupancy for our Alera, Bandera Ridge and Merano at June 30, 2026 was 86%, 85% and 77%, respectively.”see in full comparison
Full comparison: every changed paragraph (22)
•During the threesix months ended MarchJune 31,30, 2026, we sold 2142 lots from our holdings in Windmill Farms for $1.0$2.0 million, resulting in a gain on sale of $0.8$1.6 million.
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 the threesix months ended MarchJune 31,30, 2026, we spent $0.4 million on reimbursable infrastructure investments.
We have entered into development agreements with Pillar to develop multifamily properties. Each of these development projects is being funded in part by a construction loan. In 2025, we completed the construction of Alera, a 240 unit multifamily property in Lake Wales, Florida; Bandera Ridge, a 216 unit multifamily property in Temple, Texas; and Merano, a 216 unit multifamily property in McKinney, Texas. All three of these properties are currently in lease-up, which are expected to stabilize in 2026. We are currently constructing Mountain Creek, a 234 unit multifamily property in Dallas, Texas, which is expected to be completed in 2027. As of MarchJune 31,30, 2026, we've incurred a total of $12.6$17.0 million in the construction of Mountain Creek and expect to expend an additional $37.4$33.0 million to complete the project, which will be funded in part by a construction loan that allows for borrowings of up to $27.5 million.
For the comparison of three and six months ended MarchJune 31,30, 2026 to the three and six months ended MarchJune 31,30, 2025, 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.
Total occupancy for Same Properties was 81% at June 30, 2026, which includes 93% at our multifamily properties and 58% at our commercial properties. Occupancy for our Alera, Bandera Ridge and Merano at June 30, 2026 was 86%, 85% and 77%, respectively.
The following table (dollars in thousands) summarizes our results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025:
Comparison of the three months ended MarchJune 31,30, 2026 to the three months ended MarchJune 31,30, 2025:
•OurThe multifamily segment had a $1.7$1.1 million decrease in NOI,multifamily whichNOI wasis attributeddue to decreases of $0.7$0.6 million from the Development Properties,Properties $0.6and $0.5 million from the Same PropertiesProperties. andThe $0.4decrease millionin NOI from the DispositionSame Property.Properties is due to a decrease in occupancy in certain markets due to increased competition from newly constructed properties. The decrease in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2025 (See "Development Activities" in Management's Overview).
•The $0.7$0.2 million increase in NOI from our commercial segment is primarily due to ana increasedecrease in occupancyexpense at Browning Place and Stanford Center.
•The $1.3$1.6 million decrease in interest income, net is due to a $0.2$0.5 million decrease in interest income and a $1.1$1.0 million increase 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. The increase in interest expense is primarily due to the interest on the Development Properties that were placed in service in the fourth quarter of 2025 (See "Development Activities" in Management's Overview).
•The decrease in other income, net is primarily attributed to the decrease in the tax provision, which was due to the gain on real estate transactions in 2025.
Comparison of the six months ended June 30, 2026 to the six months ended June 30, 2025:
Our $8.6 million decrease in net income is primarily attributed to the following:
•Our multifamily segment had a $2.8 million decrease in NOI, which was attributed to decreases of $1.4 million from the Development Properties, $1.1 million from the Same Properties and $0.3 million from the Disposition Property. The decrease in NOI from the Same Properties is due to a decrease in occupancy in certain markets due to increased competition from newly constructed properties. The decrease in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2025 (See "Development Activities" in Management's Overview).
•The $0.9 million increase in NOI from our commercial segment is primarily due to an increase in occupancy at Browning Place and Stanford Center.
•The $2.9 million decrease in interest income, net is due to a $0.7 million decrease in interest income and a $2.2 million increase 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. The increase in interest expense is primarily due to the interest on the Development Properties that were placed in service in the fourth quarter of 2025 (See "Development Activities" in Management's Overview).
Our principal sources of cash have been, and will continue to be, property operations; proceeds from land and income-producing property sales; collection of notes receivable; redemption of short-term investments; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage and other notes payable.
We anticipate that our cash and cash equivalents as of MarchJune 31,30, 2026, along with cash that will be generated from notes related party receivables and investment in short-term investments, will be sufficient to meet all of our cash requirements. We may 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.
The $8.3$8.8 million decrease in cash used in operating activities is primarily due to a $2.0$2.1 million increase in other assets, a $3.7$6.5 million decrease in accounts payable and other liabilities, a decrease in interest income and an increase in our tax provision.liabilities.
The $12.2$20.3 million decrease in cash used in investing activities is primarily due to the $21.8$41.8 million decrease in development and renovation of real estate offset in part by the $8.6$20.2 million decrease in net redemption of short-term investments. The decrease in development and renovation of real estate is primarily due to the completion of the construction of Alera, Bandera Ridge and Merano in 2025 (See "Development Activities" in Management's Overview). The decrease in net redemption of short-term investments was due the decrease in development costs and to the repayment of the mortgage on 770 South Post Oak in 2025.
The $18.4$30.2 million decrease in cash provided by financing activities was primarily due toa the $15.4$38.0 million decrease in borrowingsproceeds onfrom mortgages and other notes payable offset in part by a $11.1 million decrease in payments of mortgages and other notes payable. The decrease in proceeds from mortgages and other notes payable is due to the completion of Alera, Bandera Ridge and Merano construction loans in 2025 (See "Development Activities" in Management's Overview) and the $3.9decrease millionin purchasepayments of additionalmortgages sharesand other notes payable is due to the repayment of TCIthe mortgage on 770 South Post Oak in 2026.2025.
The following table reconciles net income attributable to the Company to FFO for the three and six months ended MarchJune 31,30, 2026 and 2025 (dollars and shares in thousands):
ARL insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
No Form 4 stock transactions in this period.
Well-known investors holding ARL (13F)
None of the 59 investors we track reported a position in their latest 13F.