American Realty Investors, Inc. Reports Fourth Quarter and Full Year 2012 Results

American Realty Investors, Inc. Reports Fourth Quarter and Full Year 2012 Results

DALLAS--(BUSINESS WIRE)-- American Realty Investors, Inc. (NYS: ARL) , a Dallas-based real estate investment company, today reported results of operations for the fourth quarter ended December 31, 2012. For the three months ended December 31, 2012, the Company reported a net loss applicable to common shares of $5.1 million or $0.45 per share, as compared to a net loss applicable to common shares of $5.9 million or $0.51 per share for the same period ended 2011.

For the twelve months ended December 31, 2012, the Company's net loss applicable to common shares was $8.0 million, which includes gain on land sales of $5.5 million, $4.7 million of provisions on the impairment of notes receivable and real estate assets, and net income from discontinued operations of $4.6 million. The prior year net loss applicable to common shares of $2.2 million includes gain on land sales of $34.2 million, $44.4 million of provisions on the impairment of notes receivable and real estate assets, and net income from discontinued operations of $29.1 million.


The Company has an unwavering commitment to fortify our portfolio and streamline our operational activity, while at the same time maintaining our commitment to creating value. We are pleased that we are seeing improvements in our operations from these endeavors and will continue to adapt to market challenges with an eye on both near term economic challenges and long-term prospects as the real estate market improves.

Our apartment portfolio continues to thrive in the current economic conditions with occupancies averaging over 95%. We continue to work aggressively to attract new tenants and strive for continuous improvement of our properties in order to maintain our existing tenants.

Rental and other property revenues were $119.5 million for the twelve months ended December 31, 2012. This represents an increase of $11.0 million as compared to the prior year revenues of $108.5 million. This change, by segment, is an increase in the apartment portfolio of $9.0 million, an increase in the commercial portfolio of $2.5 million, offset by a decrease in the land portfolio of $0.5 million. Within the apartment portfolio, there was an increase of $6.1 million in the newly constructed residential apartment portfolio and an increase of $2.9 million in the same property portfolio. Our existing commercial portfolio increased by $2.5 million in the same store properties due to a lease termination fee from a settlement agreement with a commercial tenant.

Depreciation expense was $21.6 million for the twelve months ended December 31, 2012. This represents an increase of $2.9 million as compared to the prior year depreciation expense of $18.7 million. This change, by segment, is an increase in our apartment portfolio of $1.4 million and an increase in the commercial portfolio of $1.6 million, offset by a decrease in our other portfolio of $0.1 million. Within the apartment portfolio, the same properties increased by $0.4 million and the developed properties increased by $1.0 million as the buildings became substantially complete and depreciation began. The decrease in the commercial portfolio of $1.6 million relates to the same store properties.

General and administrative expenses were $6.4 million for the twelve months ended December 31, 2012. This represents a decrease of $7.2 million as compared to the prior year expense of $13.6 million. The majority of the reduction is related to land and corporate expenses as professional services decreased by $4.0 million and cost reimbursements to our Advisor decreased by $0.9 million.

The current year provision for impairment of notes receivable, investment in real estate partnerships, and real estate assets was $4.7 million. This was a decrease of $39.7 million as compared to the prior year expense of $44.4 million. In the current year, impairment was recorded as an additional loss in the commercial and land portfolios. In our commercial portfolio, an impairment reserve of $2.4 million was taken in response to a deficiency agreement with the existing lender. In the prior period, impairment was recorded as an additional loss in the investment portfolio of $5.2 million in the apartment properties we currently hold, $2.0 million in commercial properties we currently hold, $2.4 million in land parcels we currently hold, $24.4 million in land that was sold subsequent to the prior period, $0.4 million in impairment on our investments in joint ventures and a $10.0 million reserve related to the assets held by American Realty Trust, Inc. at December 31, 2011.

Advisory fees were $10.2 million for the twelve months ended December 31, 2012. This represents a decrease of $3.0 million as compared to the prior period Advisory fees of $13.2 million. This decrease is due to the sales of land and income-producing properties in the current period.

Other income was $8.0 million for the twelve months ended December 31, 2012. This represents an increase of $5.3 million as compared to the prior year income of $2.7 million. The majority of the increase relates to the development agreement between UHF and TCI for consulting services related to the development of apartment projects.

Interest income was $14.6 million for the twelve months ended December 31, 2012. This represents an increase of $3.7 million as compared to the prior year income of $10.9 million. The majority of the increase is due to the cash received on the cash flow notes from UHF. The residential apartments have generated more surplus cash in the current period, than in the prior period, resulting in a larger recognition of previously unrecognized interest income. Prior to January 1, 2012, accrued interest was recognized to the extent cash was received. Any payments received above the current interest accruals are applied to any previously unrecognized interest before applying to the unpaid principal balance of the notes.

Gain on land sales decreased by $28.8 million for the twelve months ended December 31, 2012 as compared to the prior period. In the current period, we sold 705.84 acres of land in 20 separate transactions for a recorded gain of $5.5 million. In the prior year, we sold 7,821.97 acres of land in 46 separate transactions for a recorded gain of $34.2 million.

Included in discontinued operations are a total of six and 26 properties as of 2012 and 2011, respectively, and one held for sale as of 2012. Properties sold in 2012 have been reclassified to discontinued operations for the current and prior reporting periods. The gain on sale of income-producing properties is also included in discontinued operations for those years.

About American Realty Investors, Inc.

American Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including office buildings, apartments, hotels, shopping centers and developed and undeveloped land. The Company invests in real estate through direct equity ownership and partnerships nationwide. For more information, visit the Company's website at www.americanrealtyinvest.com.

AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31,

2012

2011

2010

(dollars in thousands, except share and par value amounts)

Revenues:

Rental and other property revenues (including $587 and $223 and $955 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

$

119,521

$

108,480

$

106,505

Expenses:

Property operating expenses (including $1,126 and $1,156 and $1,575 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

59,397

58,904

58,768

Depreciation and amortization

21,617

18,703

20,400

General and administrative (including $3,539 and $4,264 and $4,517 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

6,388

13,619

12,457

Provision on impairment of notes receivable and real estate assets

4,730

44,372

51,588

Advisory fee to affiliate

10,182

13,225

15,770

Total operating expenses

102,314

148,823

158,983

Operating income (loss)

17,207

(40,343

)

(52,478

)

Other income (expense):

Interest income (including $14,182 and $9,641 and $7,363 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

14,612

10,948

8,425

Other income (including $6,000 and $0 and $0 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

7,950

2,723

8,726

Mortgage and loan interest (including $3,692 and $1,709 and $3,374 for 2012 and 2011 and 2010 respectively from affiliates and related parties)

(59,034

)

(59,248

)

(65,049

)

Gain (loss) on the sale of investments

(361

)

91

673

Earnings from unconsolidated subsidiaries and investees

372

79

(200

)

Gain on foreign currency translation

-

-

222

Total other expenses

(36,461

)

(45,407

)

(47,203

)

Loss before gain on land sales, non-controlling interest, and taxes

(19,254

)

(85,750

)

(99,681

)

Gain (loss) on land sales

5,475

34,247

(10,103

)

Loss from continuing operations before tax

(13,779

)

(51,503

)

(109,784

)

Income tax benefit

2,474

15,672

1,668

Net loss from continuing operations

(11,305

)

(35,831

)

(108,116

)

Discontinued operations:

Loss from discontinued operations

(1,817

)

(12,131

)

(16,351

)

Gain on sale of real estate from discontinued operations

8,885

56,907

19,306

Income tax expense from discontinued operations

(2,474

)

(15,672

)

(1,034

)

Net income from discontinued operations

4,594

29,104

1,921

Net loss

(6,711

)

(6,727

)

(106,195

)

Net loss attributable to non-controlling interests

1,126

7,017

11,448

Net income (loss) attributable to American Realty Investors, Inc.

(5,585

)

290

(94,747

)

Preferred dividend requirement

(2,452

)

(2,456

)

(2,488

)

Net loss applicable to common shares

$

(8,037

)

$

(2,166

)

$

(97,235

)

Earnings per share - basic

Loss from continuing operations

$

(1.10

)

$

(2.72

)

$

(8.65

)

Income from discontinued operations

0.40

2.53

0.17

Net loss applicable to common shares

$

(0.70

)

$

(0.19

)

$

(8.48

)

Earnings per share - diluted

Loss from continuing operations

$

(1.10

)

$

(2.72

)

$

(8.65

)

Income from discontinued operations

0.40

2.53

0.17

Net loss applicable to common shares

$

(0.70

)

$

(0.19

)

$

(8.48

)

Weighted average common share used in computing earnings per share

11,525,389

11,517,431

11,463,084

Weighted average common share used in computing diluted earnings per share

11,525,389

11,517,431

11,463,084

Amounts attributable to American Realty Investors, Inc.

Loss from continuing operations

$

(10,179

)

$

(28,814

)

$

(96,668

)

Income from discontinued operations

4,594

29,104

1,921

Net income (loss)

$

(5,585

)

$

290

$

(94,747

)

AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

December 31,

December 31,

2012

2011

(dollars in thousands, except share and par value amounts)

Assets

Real estate, at cost

$

1,031,632

$

1,120,122

Real estate held for sale at cost, net of depreciation ($4,393 for 2012 and $1,752 for 2011)

17,040

15,015

Real estate subject to sales contracts at cost, net of depreciation ($15,948 for 2012 and $9,790 for 2011)

42,286

49,982

Less accumulated depreciation

(160,525

)

(158,489

)

Total real estate

930,433

1,026,630

Notes and interest receivable

Performing (including $114,275 in 2012 and $104,969 in 2011 from related parties)

120,998

110,136

Non-performing

4,175

4,787

Less allowance for estimated losses (including $18,962 and $8,962 in 2012 and 2011 from related parties)

(21,704

)

(13,383

)

Total notes and interest receivable

103,469

101,540

Cash and cash equivalents

17,141

20,312

Investments in unconsolidated subsidiaries and investees

8,168

10,746

Other assets (including $0 in 2012 and $11 in 2011 from related parties)

76,134

76,243

Total assets

$

1,135,345

$

1,235,471

Liabilities and Shareholders' Equity

Liabilities:

Notes and interest payable

$

766,101

$

855,619

Notes related to assets held for sale

18,915

13,830

Notes related to assets subject to sales contracts

55,976

44,516

Stock-secured notes payable

28,865

26,898

Payable to related parties

10,922

10,294

Deferred revenue (including $71,303 in 2012 and $71,964 in 2011 from sales to related parties)

73,148

78,750

Accounts payable and other liabilities (including $15,746 in 2012 and $10,805 in 2011 to related parties)

96,314

110,307

1,050,241

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 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 229,214 and 236,587 shares held by TCI (consolidated) as of 2012 and 2011

(6,395

)

(6,395

)

Paid-in capital

105,700

105,388

Retained earnings

(53,071

)

(47,486

)

Accumulated other comprehensive loss

(786

)

(786

)

Total American Realty Investors, Inc. shareholders' equity

50,471

55,744

Non-controlling interest

34,633

39,513

Total equity

85,104

95,257

Total liabilities and equity

$