Transcontinental Realty Investors Q3 2024 Update

TL;DR

TCI's Q3 2024 10-Q is in. Check financials.

AI Summary

Transcontinental Realty Investors Inc. (TCI) filed its 10-Q for the period ending September 30, 2024. The filing details financial performance and operational updates for the third quarter of 2024. Specific financial figures and operational metrics are provided within the report.

Why It Matters

This filing provides investors with a quarterly update on the financial health and operational status of Transcontinental Realty Investors Inc., crucial for investment decisions.

Risk Assessment

Risk Level: low — This is a standard quarterly financial filing with no immediate red flags or significant negative events indicated.

Key Players & Entities

• TRANSCONTINENTAL REALTY INVESTORS INC (company) — Filer
• 0000733590 (company) — Central Index Key
• 20240930 (date) — Period of Report
• 20241107 (date) — Filing Date
• DALLAS (location) — Business Address City

FAQ

Filing Documents

• tci-20240930.htm (10-Q) — 963KB
• tci2024093010-qex311.htm (EX-31.1) — 10KB
• tci2024093010-qex312.htm (EX-31.2) — 10KB
• tci2024093010-qex321.htm (EX-32.1) — 6KB
• 0000733590-24-000020.txt ( ) — 5542KB
• tci-20240930.xsd (EX-101.SCH) — 45KB
• tci-20240930_cal.xml (EX-101.CAL) — 58KB
• tci-20240930_def.xml (EX-101.DEF) — 173KB
• tci-20240930_lab.xml (EX-101.LAB) — 400KB
• tci-20240930_pre.xml (EX-101.PRE) — 310KB
• tci-20240930_htm.xml (XML) — 846KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Consolidated Balance Sheets at September 30, 2024 and December 31, 2023 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023 4 Consolidated Statements of Equity for the three and nine months ended September 30, 2024 and 2023 5 Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 6

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3.

Quantitative and Qualitative Disclosures About Market Risks

Quantitative and Qualitative Disclosures About Market Risks 25 Item 4.

Controls and Procedures

Controls and Procedures 26

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 26 Item 1A.

Risk Factors

Risk Factors 26 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26 Item 3. Defaults Upon Senior Securities 26 Item 4. Mine Safety Disclosures 26 Item 5. Other Information 26 Item 6. Exhibits 27

Signatures

Signatures 29 2 Table of Contents TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share and par value amounts) (Unaudited) September 30, 2024 December 31, 2023 Assets Real estate $ 527,562 $ 501,586 Cash and cash equivalents 39,507 36,700 Restricted cash 29,588 42,327 Short-term investments 92,052 90,448 Notes receivable (including $ 61,245 and $ 65,057 at September 30, 2024 and December 31, 2023, respectively, from related parties) 128,229 133,837 Receivables from related party 139,398 136,211 Other assets (including $ 831 and $ 1,742 at September 30, 2024 and December 31, 2023, respectively, from related parties) 100,253 101,935 Total assets $ 1,056,589 $ 1,043,044 Liabilities and Equity Liabilities: Mortgages and other notes payable $ 180,272 $ 179,141 Accounts payable and other liabilities (including $ 604 and $ 1,016 at September 30, 2024 and December 31, 2023, respectively, to related parties) 20,139 13,735 Accrued interest 3,082 2,633 Deferred revenue 581 581 Total liabilities 204,074 196,090 Equity Shareholders' Equity: Common stock, $ 0.01 par value, 10,000,000 shares authorized; 8,639,316 shares issued and outstanding 86 86 Additional paid-in capital 261,399 260,990 Retained earnings 570,685 564,931 Total shareholders' equity 832,170 826,007 Noncontrolling interest 20,345 20,947 Total equity 852,515 846,954 Total liabilities and equity $ 1,056,589 $ 1,043,044 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenues: Rental revenues (including $ 159 and $ 232 for the three months ended September 30, 2024 and 2023, respectively, and $ 495 and $ 731 for the nine months ended

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 1. Organization As used herein, the terms "the Company", "we", "our", or "us" refer to Transcontinental Realty Investors, Inc., a Nevada corporation, which was formed in 1984. Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "TCI". We are owned approximately 78 % by American Realty Investors, Inc. ("ARL"), whose common stock is listed on the NYSE under the symbol "ARL", and 8 % by the controlling shareholder of ARL. Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate 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 also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate income from the sales of income-producing properties and land. At September 30, 2024, our portfolio of properties consisted of: Four office buildings comprising in aggregate of approximately 1,056,793 square feet; Fourteen multifamily properties, owned directly by us, comprising of 2,328 units; and Approx imately 1,843 acres of devel oped 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 and real estate-related investment opportunities, asset management, property development, construction management and arranging debt and equity financing with third party lenders and investors. We have no employees; all of our services are performed by Pillar employees. Three of our commerci

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 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 decision 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. 3. Earnings Per Share Earnings per share ("EPS") is computed by dividing net income attributable to the Company by the weighted-average number of common shares outstanding during the period. The following table details our basic and diluted earnings per common share calculation: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 1,910 $ 4,762 $ 6,363 $ 9,353 Net income attributable to noncontrolling interest ( 203 ) ( 311 ) ( 609 ) ( 855 ) Net income attributable to the Company $ 1,707 $ 4,451 $ 5,754 $ 8,498 Weighted-average common shares outstanding — basic and diluted 8,639,316 8,639,316 8,639,316 8,639,316 EPS - attributable to common shares — basic and diluted $ 0.20 $ 0.52 $ 0.67 $ 0.98 4. Supplemental Cash Flow Information The following presents the schedule of interest paid and other supplemental cash

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The following is a schedule of noncash investing activity: Nine Months Ended September 30, 2024 2023 Property acquired in exchange for reduction of related party receivable $ — $ 6,064 5. Operating Segments Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in two reportable segments: (i) the acquisition, development, ownership and management of multifamily properties and (ii) the acquisition, ownership and management of commercial properties. The services for our multifamily segment include rental of apartments and other tenant services, including parking and storage space rental. Asset information by segment is not reported because we do not use this measure to assess performance or make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses, advisory fees, interest income and interest expense are not included in segment profit as our internal reporting addresses these items on a corporate level. 9 Table of Contents TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The following table presents our reportable segments for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Multifamily Segment Revenues $ 7,967 $ 7,899 $ 23,947 $ 22,930 Operating expenses ( 4,642 ) ( 4,811 ) ( 13,358 ) ( 12,997 ) Profit from segment 3,325 3,088 10,589 9,933 Commercial Segment Revenues 3,107 3,939 9,594 11,306 Operating expenses ( 2,347 ) ( 2,632 ) ( 6,889 ) ( 7,583 ) Profit from segment 760 1,307 2,705 3,723 Total profit from segments $ 4,085 $ 4,395 $ 13,294 $ 13,656 The table below reflects the reconciliation of total profit from segments to net income for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Total profit from segments $ 4,085 $ 4,395 $ 13,294 $ 13,656 Other non-segment items of income (expense) Depreciation and amortization ( 3,120 ) ( 3,313 ) ( 9,429 ) ( 9,615 ) General and administrative ( 1,223 ) ( 1,432 ) ( 3,898 ) ( 7,836 ) Advisory fee to related party ( 1,944 ) ( 2,112 ) ( 5,789 ) ( 6,282 ) Other income 533 687 1,738 2,216 Interest income 5,917 9,676 17,244 26,998 Interest expense ( 2,075 ) ( 1,902 ) ( 5,806 ) ( 7,415 ) Gain on foreign currency transactions — — — 993 Loss on early extinguishment of debt — — — ( 1,710 ) Income from unconsolidated joint venture 283 85 827 798 Gain on sales or write-down of assets — — — 188 Income tax provision ( 546 ) ( 1,322 ) ( 1,818 ) ( 2,638 ) Net income $ 1,910 $ 4,762 $ 6,363 $ 9,353 6. 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 incl

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) The following table summarizes the components of our rental revenue for the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Fixed component $ 10,841 $ 11,338 $ 32,667 $ 32,968 Variable component 233 500 874 1,268 $ 11,074 $ 11,838 $ 33,541 $ 34,236 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: 2024 $ 11,754 2025 11,241 2026 10,810 2027 10,430 2028 8,542 Thereafter 13,299 $ 66,076 7. Real Estate Activity Below is a summary of our real estate as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Land $ 104,156 $ 104,156 Building and improvements 374,892 372,399 Tenant improvements 16,503 16,286 Construction in progress 108,112 76,110 Total cost 603,663 568,951 Less accumulated depreciation ( 76,101 ) ( 67,365 ) Total real estate $ 527,562 $ 501,586 We incurred depreciation expense of $ 2,966 and $ 3,313 for the three months ended September 30, 2024 and 2023, respectively, and $ 8,970 and $ 9,615 for the nine months ended September 30, 2024 and 2023, respectively. Construction Activities Construction in progress includes the cost of development of Windmill Farms and the costs associated with our multifamily projects. 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 $ 55,330 . The cost of construction will be funded in part by a $ 33,000 construction loan (See Note 11 – Mortgages and Other Notes Payable). The development agreement provides for a $ 1,637 fee that will be paid to Pillar over t

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 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 $ 51,910 . The cost of construction will be funded in part by a $ 25,407 construction loan (See Note 11 – Mortgages and Other Notes Payable ). The development agreement provides for a $ 1,551 fee that will be paid to Pillar over the construction period. As of September 30, 2024, we have incurred a total of $ 15,588 in development costs, including $ 809 in development fees. 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 $ 49,603 . The cost of construction will be funded in part by a $ 23,500 construction loan (See Note 11 – Mortgages and Other Notes Payable ). The development agreement provides for a $ 1,607 fee that will be paid to Pillar over the construction period. As of September 30, 2024, we have incurred a total of $ 11,087 in development costs, including $ 336 in development fees. 8. Short-term Investments The following is a summary of our short term investment as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Corporate bonds, at par value $ 80,266 $ 90,000 Demand notes 12,228 1,484 92,494 91,484 Less discount ( 442 ) ( 1,036 ) $ 92,052 $ 90,448 The average interest rate on the investments was 5.50 % and 5.65 % at September 30, 2024 and December 31, 2023, respectively. 12 Table of Contents TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 9. Notes Receivable The following table summarizes our notes receivable as of September 30, 2024 and December 31, 2023: Carrying value Property/Borrower September 30, 2024 December 31, 2023 Interest Rate Maturity Date ABC Land and Development, Inc. $ 4,408 $ 4,408 9.50 % 6/30/26 ABC Paradise, LLC 1,210 1,210 9.50 % 6/30/26 Autumn Breeze(1) 1,451 2,157 5.00 % 7/1/25 Bellwether Ridge(1) 3,798 3,798 5.00 % 11/1/26 Cascades at Spring Street(2)(3) — 180 5.33 % 6/30/27 Dominion at Mercer Crossing(4) 6,167 6,354 9.00 % 6/7/28 Forest Pines(1) 6,472 6,472 5.00 % 5/1/27 Inwood on the Park(2)(3) 20,208 20,325 5.33 % 6/30/28 Kensington Park(2)(3) 6,994 10,262 5.33 % 3/31/27 Lake Shore Villas(2)(3) 5,855 6,000 5.33 % 12/31/32 Prospectus Endeavors 496 496 6.00 % 10/23/29 McKinney Ranch 3,926 3,926 6.00 % 9/15/29 Ocean Estates II(2)(3) 3,615 3,615 5.33 % 5/31/28 One Realco Land Holding, Inc. 1,728 1,728 9.50 % 6/30/26 Parc at Ingleside(1) 3,759 3,759 5.00 % 11/1/26 Parc at Opelika Phase II(1)(5) 3,190 3,190 10.00 % 1/13/23 Parc at Windmill Farms(1)(5) 7,886 7,886 5.00 % 11/1/22 Phillips Foundation for Better Living, Inc.(2) 107 182 5.33 % 3/31/28 Plaza at Chase Oaks(2)(3) 11,772 11,772 5.33 % 3/31/28 Plum Tree(1) 1,478 1,767 5.00 % 4/26/26 Polk County Land 3,000 3,000 9.50 % 6/30/26 Riverview on the Park Land, LLC 1,045 1,045 9.50 % 6/30/26 Spartan Land 5,907 5,907 6.00 % 1/16/25 Spyglass of Ennis(1) 4,705 5,179 5.00 % 11/1/24 Steeple Crest(1) 6,358 6,498 5.00 % 8/1/26 Timbers at The Park(2)(3) 11,146 11,173 5.33 % 12/31/32 Tuscany Villas(2)(3) 1,548 1,548 5.33 % 4/30/27 $ 128,229 $ 133,837 (1) The note is convertible, at our option, into a 100 % ownership interest in the underlying property, and is collateralized by the underlying property. (2) The borrower is determined to be a related party due to our significant investment in the perfor

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) (Unaudited) 10. Investment in Unconsolidated Joint Ventures Other assets includes our joint venture investment in Victory Abode Apartments, LLC ("VAA"). VAA was formed as a result of our sale of a 50 % ownership interest in a portfolio of multifamily properties to Macquarie in exchange for a 50 % voting interest in VAA a nd a note payable. On September 16, 2022, VAA sold 45 of its properties ("VAA Sale Portfolio") for $ 1,810,700 , resulting in a gain on sale of $ 738,444 to the joint venture. In connection with the sale, we received an initial distribution of $ 182,848 from VAA. On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the remaining seven properties of VAA ("VAA Holdback Portfolio") and a cash payment of $ 204,036 . On March 23, 2023, we received $ 17,976 from VAA, which represented the remaining distribution of the proceeds from the sal

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