AMERICAN REALTY INVESTORS INC

1. Organization

As used herein, the terms “the Company”, “we”, “our” or “us” refer to American Realty Investors, Inc., a Nevada corporation, which was formed in 1999. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”) and over 90% of our stock is owned by related party entities.

Our primary business is the acquisition, development and ownership of income-producing multifamily and commercial properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space. We also generate income from the sale of land.

As of June 30, 2026, we own approximately 79.2% of Transcontinental Realty Investors, Inc. ("TCI") and substantially all of our operations are conducted through TCI, whose common stock is listed on the NYSE under the symbol “TCI”. Accordingly, we include TCI’s financial results in our consolidated financial statements.

At June 30, 2026, our portfolio of properties consisted of:

•Thirteen multifamily properties in operation, comprising 2,128 units;

•Three multifamily properties in lease-up, comprising 672 units;

•One multifamily property under development, comprising 234 units;

•Commercial properties, consisting offour office buildings with an aggregate of approximately 1,001,549 rentable square feet; and

•Approximately 1,786 acres of developed and undeveloped land.

Our day-to-day operations are managed by Pillar Income Asset Management, Inc. (“Pillar”). Pillar's duties include, but are not limited to, locating, evaluating and recommending real estate-related investment opportunities, asset management, property development, construction management and arranging debt and equity financing. We have no employees; all of our services are performed by Pillar employees. Three of our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Our multifamily properties and one of our commercial properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 12 – Related Party Transactions).

2. Summary of Significant Accounting Policies

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 (“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.

Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no effect on the reported results of operations.

The consolidated balance sheet at December 31, 2025 was derived from the audited consolidated 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025.

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decisions and other contractual rights. We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The standard requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. Our adoption of the standard on January 1, 2026 did not have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The amendment in the update clarifies interim reporting disclosure requirements in ASC 270 and introduces a new disclosure principle for reporting material events occurring after the most recent annual period. The update is effective for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the potential impact of adopting ASU 2025-11 on our consolidated financial statements.

3. Earnings Per Share

Earnings Per Share (“EPS”) is computed by dividing net income available to common shares by the weighted-average number of common shares outstanding during the period. Shares issued during the period are weighted for the portion of the period that they were outstanding.

The following table details our basic and diluted earnings per common share calculation:

4. Operating Segments

Segment information is prepared on the same basis that our chief operating decision maker ("CODM") reviews information to assess performance and make resource allocation decisions. Our CODM is our President and Chief Executive Officer. We operate intwo reportable segments: (i) the acquisition, development, ownership and management of multifamily properties ("Multifamily Segment") and (ii) the acquisition, ownership and management of commercial real estate properties ("Commercial Segment"). The services for our segments include rental of property and other tenant services, including parking and storage space rental. The key operating metric that the CODM utilizes to evaluate the segments is net operating income ("NOI"), which we defined as property revenue less direct property operating expenses. NOI excludes depreciation, interest income and expenses, general and administrative expenses, advisory fees and income taxes.

The following table presents our reportable segments for the three and six months ended June 30, 2026 and 2025:

The table below reflects the reconciliation of NOI from reportable segments to net (loss) income for the three and six months ended June 30, 2026 and 2025:

5. Lease Revenue

We lease our multifamily properties and commercial properties under agreements that are classified as operating leases. Our multifamily property leases generally include minimum rents and charges for ancillary services. Our commercial property leases generally include minimum rents and recoveries for property taxes and common area maintenance. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases.

The following table summarizes the components of our rental revenue for the three and six months ended June 30, 2026 and 2025:

The following table summarizes the future rental payments that are payable to us from non-cancelable leases. The table excludes multifamily leases, which typically have a term of one-year or less:

6. Real Estate Activity

Below is a summary of our real estate as of June 30, 2026 and December 31, 2025:

We incurred depreciation expense of $3,501 and $2,880 for the three months ended June 30, 2026 and 2025, respectively, $6,943 and $5,601 for the six months ended June 30, 2026 and 2025, respectively.

Construction Activities

As of June 30, 2026, construction in progress includes $46,480 of land lot development costs related to Windmill Farms and $17,021 of costs related to the construction of Mountain Creek, a 234 unit multifamily property in Dallas, Texas, which we expect to complete in 2027. We have entered into a development agreement with Pillar (See Note 12 –Related Party Transactions) to develop the property, which is being funded in part by a construction loan (See Note 11 –Mortgages and Other Notes Payable).

Sale of assets

Gain on sale or write down of assets, net for the three and six months ended June 30, 2026 and 2025 consists of the following:

(1)Includes the gain on dispositions of land from our investment in Windmill Farms and other land holdings.

(2)This represents additional costs associated with Villas at Bon Secour, a 200 unit multifamily property in Gulf Shores, Alabama, which we sold on October 10, 2025.

7. Short-term Investments

The following is a summary of our short term investment as of June 30, 2026 and December 31, 2025:

The average interest rate on the investments was 4.10% and 4.27% at June 30, 2026 and December 31, 2025, respectively.

8. Notes Receivable

The following table summarizes our notes receivable as of June 30, 2026 and December 31, 2025:

(1)The note is convertible, at our option, into a 100% ownership interest in the underlying development property, and is collateralized by the underlying development property.

(2) The note bears interest at prime plus 1%.

(3) Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“UHF”) are funded from surplus cash flow from operations, sale or refinancing of the underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes. The notes bear interest at the Secured Overnight Financing Rate ("SOFR") in effect on the last day of the preceding calendar quarter. UHF is determined to be a related party (See Note 12 - Related Party Transactions).

(4) We are working with the borrower to extend the maturity and/or exercise our conversion option.

(5) The note bears interest at 4.50% until December 31, 2026, then 6.00% until December 31, 2029, and then 7.00% until maturity. The note is collateralized by the equity interest in Gruppa that we sold in 2025 (See Note 9 – Investment in Unconsolidated Joint Ventures).

9. Investment in Unconsolidated Joint Ventures

We had a 20% ownership interest in Gruppa Florentina, LLC ("Gruppa" or "Milano"), which operates several pizza parlors in Central and Northern California. Milano also has 23 franchised locations.

On December 5, 2025, we sold our interest in Gruppa for$12,685, which resulted in gain on sale of$2,318. The sales price was funded by a note receivable (See Note 8 - Notes Receivable) that is collateralized by the equity interest in Milano that we sold in 2025.

Concurrent with the sale of Milano, we invested$1,270 for a 20% ownership interest in Avanti Bene, Inc. ("Avanti"), a newly formed joint venture that invests in various emerging restaurant concepts. We account for our investment in Avanti under the equity method of accounting.

10. Other Assets

At June 30, 2026 and December 31, 2025, our other assets are comprised of the following:

(1) Represents roads, sewer, and utility infrastructure costs in connection with our development of Windmill Farms (See Note 6 - Real Estate Activity). These costs are reimbursable through road and utility bonds issued by certain freshwater districts of Kaufman County Texas.

(2) Includes $1,214 and $1,475 at June 30, 2026 and December 31, 2025, respectively, related to notes receivable from UHF (See Note 8 - Notes Receivable and Note 12 - Related Party Transactions ).

11. Mortgages and Other Notes Payable

The following table summarizes our mortgages and other notes payable as of June 30, 2026 and December 31, 2025:

(1)The construction loan allows borrowings up to $33,000, bears interest at SOFR plus 3% and was to mature on March 15, 2026. The loan has been extended to September 15, 2026, withtwo one-year extension options.

(2) The construction loan allows borrowings up to $23,500, bears interest at SOFR plus 3% and matures on December 15, 2028.

(3) The loan is insured by the U.S. Department of Housing and Urban Development under the Federal Housing Administration program.

(4) The loan that bears interest at SOFR plus 2.15% and matures on August 1, 2031.

(5) The construction loan allows borrowings up to $25,407, bears interest at prime plus 0.25% and matures on November 6, 2028.

(6) The loan bears interest at SOFR.

We have a construction loan to build Mountain Creek (See Note 6 - Real Estate Activity) that allows for borrowings of up to $27,500, bears interest at SOFR plus 3.45% and matures on March 15, 2029. As of June 30, 2026, we have not borrowed on the loan.

As of June 30, 2026, we were in compliance with all of our loan covenants.

All of the above mortgages and other notes payable are collateralized by the underlying property. In addition, we have guaranteed the loans on Alera, Bandera Ridge, Merano, and Mountain Creek.

12. Related Party Transactions

We engage in certain services and business transactions with related parties, including but not limited to, the rent of office space, leasing services, asset management, administrative services, and the acquisition and dispositions of real estate. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to, or in our best interest.

Pillar and Regis are wholly owned by a subsidiary of May Realty Holdings, Inc. ("MRHI"), which owns appro ximately 91.0% of the Company. Pillar is compensated for advisory services in accordance with an advisory agreement and is compensated for development and construction services in accordance with project specific development agreements. Regis receives property management fees in accordance with the terms of its property-level management agreements. In addition, Regis is entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement.

Rental income includes $152 and $144 for thethree months ended June 30, 2026 and 2025, respectively, and $345 and $289 for thesix months ended June 30, 2026 and 2025, respectively, for office space leased to Pillar and Regis.

Property operating expense includes $92 and $88 for thethree months ended June 30, 2026 and 2025, respectively, and $190 and $174 for thesix months ended June 30, 2026 and 2025, respectively, for management fees on commercial properties payable to Regis.

General and administrative expense includes $1,044 and $1,057 for thethree months ended June 30, 2026 and 2025, respectively, and $2,047 and $2,059 for thesix months ended June 30, 2026 and 2025, respectively, for employee compensation and other reimbursable costs payable to Pillar.

Advisory fees paid to Pillar were $2,044 and $2,042 for thethree months ended June 30, 2026 and 2025, respectively, and $4,127 and $4,511 for the six months ended June 30, 2026 and 2025, respectively. Development fees paid to Pillar were$192 and $488 for thethree months ended June 30, 2026 and 2025, respectively, and$300 and $1,218 for the six months ended June 30, 2026 and 2025, respectively.

Notes receivable include amounts held by UHF (See Note 8 – Notes Receivable). UHF is deemed to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. In addition, we have a related party receivable from Pillar ("Pillar Receivable"), which represents amounts advanced to Pillar net of unreimbursed fees, expenses and costs as provided above. The Pillar Receivable bears interest at SOFR as of the last day of the preceding calendar quarter. Interest income on the UHF notes and the Pillar Receivable was $1,393 and $1,892 for thethree months ended June 30, 2026 and 2025, respectively, and$3,163 and $3,791 for thesix months ended June 30, 2026 and 2025, respectively.

13. Noncontrolling Interests

The noncontrolling interest represents the third party ownership interest in TCI and Income Opportunity Realty Investors, Inc. ("IOR").

On January 12, 2026, we purchased 70,023 shares of TCI in a private transaction for a total cost of $3,886.

On January 29, 2025, TCI acquired 21,678 shares of IOR through a tender offer for a total cost of $454. In addition, TCI purchased 32,845 common shares of IOR in the open market in 2025 for a total cost of $583. During thesix months ended June 30, 2026, TCI purchased an additional 23,560 shares of IOR in the open market for a total cost of $425.

We owned 79.2% and 78.4% of TCI at June 30, 2026 and December 31, 2025, respectively, which in turn owned 85.1% of IOR as of June 30, 2026 and December 31, 2025.

14. Deferred Income

In previous years, we sold properties to related parties at a gain and therefore the sales criteria for the full accrual method was not met, and as such we deferred the gain recognition and accounted for the sales by applying the finance, deposit, installment or cost recovery methods, as appropriate. The gain on these transactions is deferred until the properties are sold to a non-related third party.

As of June 30, 2026 and December 31, 2025, we had deferred gain of $9,791.

15. Income Taxes

We are part of a tax sharing and compensating agreement with respect to federal income taxes with MRHI, TCI and IOR. In accordance with the agreement, our expense in each year is calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 21%.

The following table summarizes our income tax (benefit) provision:

16. Commitments and Contingencies

We believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due. We intend to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet our liquidity requirements.

We are defendants in litigation related to a property sale that was completed in 2008, which was tried to a jury in March 2023. On March 18, 2023, the jury in the case returned a verdict in our favor. The trial court granted the Plaintiffs ("Nixdorf") a new trial, which we challenged by mandamus. On January 14, 2026, the Dallas Court of Appeals granted our petition and ordered the trial court to (1) vacate its new-trial order and (2) enter judgment in our favor on the jury’s verdict. On June 19, 2026, the Texas Supreme Court denied Nixdorf's appeal.

We were a defendant in litigation with BT Cole Two regarding their exercise of an option to purchase 200 developed lots in Windmill Farms. The dispute relates to alleged contract breaches arising from alleged development delays and associated purchase pricing amount for the lots. The matter is currently in the discovery phase, with mediation anticipated before trial currently scheduled for October 2026. We intend to continue to vigorously defend against the allegations. While the ultimate outcome of the dispute is not determinable at this time, a loss is possible but the range of which, if any, cannot be reasonably estimated at this time.

17. Subsequent Events

The date to which events occurring after June 30, 2026, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is August 6, 2026, which is the date on which the consolidated financial statements were available to be issued.

On July 31, 2026, TCI acquired 269,299 share of IOR common stock from Realty Advisors, Inc. ("RAI") for 134,649 newly issued common shares of TCI based on exchange rate of 0.5 share of TCI common stock in exchange for each share of IOR common stock. The issuance of 134,649 new shares of TCI common stock increased the number of outstanding TCI shares of common stock to 8,773,965 shares at July 31, 2026. RAI is our controlling shareholder and a wholly-owned subsidiary of MRHI.