Transcontinental Realty Investors, Inc. Reports 2019 Results

Transcontinental Realty Investors, Inc. (NYSE: TCI), a Dallas-based real estate investment company, is reporting its Results of Operations for the year ended December 31, 2019. With the current Coronavirus presenting a concern; we remain confident the underlying need for quality multi-family housing will remain strong. Should circumstances change or our view be less optimistic, we have the ability to dramatically slow our pace of our new development efforts. However, to date, TCI’s existing portfolio has seen a significant increase in value. For FYE 2018, same store aggregate appraised value of TCI’s holdings was approximately $244.4 million. Whereas for FYE 2019, same store aggregate appraised value of TCI’s holdings was $298.7 million. This represents a $54.2 million or 22% increase in overall asset value year over year.

Though the Company reported a net loss of $26.9 million or $3.09 per diluted share loss. This was driven by the overall strategic direction of both investing and expanding the core multi-family portfolio. In particular, as certain new multifamily development projects are completed, in which the Company has made significant new investments, it is expected that net income will be positively impacted in 2020 and 2021. Also, the Company paid higher interest rate debt with lower cost capital, purchased a ground lease, and made sizeable tenant capital improvements tied to the commercial portfolio.

The significant differences between FYE 2018 and 2019 are specifically and directly related to the following components:

1. In November 2018 the Company created a new subsidiary Victory Abode Apartments, LLC ("VAA") and contributed 52 multi-family projects that it owned and operated to VAA. TCI subsequently sold a 50% interest to a third party and recorded a $154.1 million gain. This transaction transferred a significant portion of Revenue to VAA and is attributed for the reduction in revenue from $121.0 million in 2018 to $47.9 million in 2019. The Gain on disposition of this transaction is currently being deployed for the development of new multifamily properties according to TCI’s overall strategy. TCI’s efforts in 2019 were to continue to grow and develop new multifamily properties and the integration of certain operating processes with regards to VAA.

In February of 2020, Standard & Poor’s Global Ratings announced the increase of Southern Properties Capital (a wholly owned subsidiary of TCI) issued rating to A- from BBB+ for bonds (Series A and B). In addition, Series C bond rating (secured by one of Southern Properties Capital’s commercial properties) increased to A from A-. These credit rating increases are due to S&P’s expectation of continued improvement in coverage ratios tied to the expansion of The Company’s portfolio.

In 2019, TCI deployed over $33.7 million towards the development of over 2,600 units across more than 6 projects. There are also over a dozen projects in the pipeline that include parcels of land already owned by the Company. This recapitalization will strengthen TCI’s position in the marketplace and overall financial health for the benefit of its shareholders. There was also $25 million dedicated to Windmill Farms development; the Company anticipates revenues exceeding that amount over the next few years, plus recovery tied to the reimbursement of development expenses by the issuance of revenue bond sales tied to the Water District.

2. All new multifamily real estate projects within TCI’s future pipeline are progressing in various stages of development. This requires initial investment with little to no cash flow from operations until additional assets become stabilized.

The Company believes that both the development of new projects and the historically low interest rate environment has positioned the Company along the strategic lines that it previously indicated. The Company has created a dynamic platform to continue its expansion in the multifamily sector. The ongoing plan is to continue to develop and acquire apartments in the geographic markets where demand exceeds supply.

Revenues

Rental and other property revenues were $47.9 million for the year ended December 31, 2019. This represents a decrease of $73.1 million, as compared to the prior year revenues of $121.0 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.

Expenses

Property operating expenses were $25.2 million for the year ended December 31, 2019. This represents a decrease of $34.2 million, compared to the prior year operating expenses of $59.4 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.

Depreciation and amortization expenses were $13.4 million for the year ended December 31, 2019. This represents a decrease of $9.4 million compared to prior year depreciation of $22.8 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.

General and administrative expenses were $10.9 million for the year ended December 31, 2019. This represents a decrease of $0.5 million compared to the prior year expenses of $11.4 million. There was a $0.5 million decrease reflected to Advisory fees. The overall SG&A costs did not decrease associated with the JV; as the principal partners contribute resources on a non-allocated basis.

Other income (expense)

Interest income was $19.6 million for the year ended December 31, 2019 compared to $15.8 million for the year ended December 31, 2018 for an increase of $3.8 million. This increase was primarily due to an increase of $3.8 million in interest on receivable owed from the Advisor.

Mortgage and loan interest expense was $31.8 million for the year ended December 31, 2019. This represents a decrease of $27.1 million compared to the prior year expense of $58.9 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018.

There was no material gain or loss on sales of income producing properties was recognized during the year ended December 31, 2019, as our focus was not on the sale of any assets. Over the past several years we have successfully disposed of underperforming assets. As such, there are only a few remaining assets we have a strong intention of selling. There are also a few more strategic assets that we are positioned for sale as market conditions dictate.

The company recorded a non-cash charge of $15.1 million tied to currency rate exposure associated with TCI’s Bond Offering (SPC). Historically, the exchange ratio reflects an imbalance which is not expected to continue. To this point; the exchange rate has enhanced since 12/31/19. It should be noted that we completed a currency transaction on 3/18/20 that covered the July 2020 Bond payment. In reality this transaction dropped the projected non-cash loss by over $1.3 million.

Gain on land sales was $14.9 million and $17.4 million for the years ended December 31, 2019 and 2018, respectively.

Other income was $0.084 million and $28.2 million for the years ended December 31, 2019 and 2018, respectively. TCI’s Other income category is traditionally low and was abnormally high in 2018 due to a $17.6 million gain recognized in September 2018 for deferred income associated with the sale of assets, as well as income of approximately $7.6 million from insurance proceeds on Mahogany Run Golf Course.

About Transcontinental Realty Investors, Inc.

Transcontinental Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including apartments, office buildings, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. For more information, visit the Company’s website at www.transconrealty-invest.com.

 
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS 
     
      For the Years Ended December 31,
     

 

2019

 

 

 

2018

 

 

 

2017

 

      (dollars in thousands, except per share amounts) 
Revenues:             
  Rental and other property revenues (including $841, $767 and $839 for the years ended 2019, 2018 and 2017, respectively, from related parties)  

 $

47,970

 

 

 $

120,955

 

 

 $

125,233

 

               
Expenses:              
  Property operating expenses  (including $991, $943 and $929 for the years ended 2019, 2018 and 2017, respectively, from related parties)  

 

 25,213

 

 

 

 59,420

 

 

 

63,056

 

  Depreciation and amortization   

 

13,379

 

 

 

22,761

 

 

 

25,558

 

  General and administrative (including $4,144, $4,578 and $3,120  for the years ended 2019, 2018 and 2017, respectively, from related parties)  

 

10,951

 

 

 

11,359

 

 

 

6,269

 

  Net income fee to related party  

 

357

 

 

 

631

 

 

 

250

 

  Advisory fee to related party  

 

 5,806

 

 

 

 10,663

 

 

 

9,995

 

            Total operating expenses   

 

 55,706

 

 

 

104,834

 

 

 

 105,128

 

   Net operating (loss) income  

 

(7,736

)

 

 

 16,121

 

 

 

 20,105

 

               
Other income (expenses):            
  Interest income (including $17,413, $13,132 and $11,485 for the years ended 2019, 2018 and 2017, respectively, from related parties)  

 

19,607

 

 

 

 15,793

 

 

 

13,862

 

  Other income  

 

84

 

 

 

 28,150

 

 

 

625

 

  Mortgage and loan interest (including $1,999, $423 and $1,174 for the year ended 2019, 2018 and 2017,  respectively, from related parties)  

 

(31,816

)

 

 

(58,872

)

 

 

(59,944

)

  Foreign currency transaction (loss) gain  

 

(15,108

)

 

 

12,399

 

 

 

(4,536

)

  Loss on debt extinguishment  

 

(5,219

)

 

 

-

 

 

 

-

 

  Equity (loss) earnings from VAA  

 

                                   (2,774

)

 

 

 44

 

 

 

-

 

  Earnings from other unconsolidated investees  

 

 16

 

 

 

1,085

 

 

 

26

 

            Total other expenses  

 

(35,210

)

 

 

(1,401

)

 

 

(49,967

)

  (Loss) income before gain on disposition of 50% interest in VAA, gain on land sales, non-controlling interest, and taxes  

 

(42,946

)

 

 

 14,720

 

 

 

(29,862

)

               
  Gain on disposition of 50% interest in VAA  

 

-

 

 

 

 154,126

 

 

 

  -

 

  (Loss) gain on sale of income producing properties  

 

(80

)

 

 

-

 

 

 

9,842

 

  Gain on land sales   

 

 14,889

 

 

 

 17,404

 

 

 

4,884

 

  Net (loss) income from continuing operations before taxes  

 

(28,137

)

 

 

  186,250

 

 

 

(15,136

)

  Income tax expense - current  

 

-

 

 

 

(1,210

)

 

 

(180

)

  Income tax benefit (expense) - deferred  

 

 2,000

 

 

 

(2,000

)

 

 

 -

 

  Net (loss) income from continuing operations  

 

(26,137

)

 

 

 183,040

 

 

 

(15,316

)

  Net (loss) income  

 

(26,137

)

 

 

183,040

 

 

 

(15,316

)

  Net (income) attributable to non-controlling interest  

 

(783

)

 

 

(1,590

)

 

 

(499

)

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

 

                                 (26,920

)

 

 

                                 181,450

 

 

 

                            (15,815

)

  Preferred dividend requirement   

 

-

 

 

 

(900

)

 

 

(900

)

  Net (loss) income applicable to common shares  

 $

(26,920

)

 

 $

180,550

 

 

 $

(16,715

)

               
Earnings per share - basic            
  Net (loss) income from continuing operations   

 $

(3.00

)

 

 $

20.89

 

 

 $

(1.86

)

  Net (loss) income applicable to common shares   

 $

(3.09

)

 

 $

20.71

 

 

 $

(1.92

)

               
Earnings per share - diluted            
  Net (loss) income from continuing operations   

 $

(3.00

)

 

 $

20.89

 

 

 $

(1.86

)

  Net (loss) income applicable to common shares   

 $

(3.09

)

 

 $

20.71

 

 

 $

(1.92

)

               
  Weighted average common shares used in computing earnings per share  

 

                              8,717,767

 

 

 

                              8,717,767

 

 

 

                         8,717,767

 

  Weighted average common shares used in computing diluted earnings per share  

 

                              8,717,767

 

 

 

                              8,717,767

 

 

 

                         8,717,767

 

Amounts attributable to Transcontinental Realty Investors, Inc.            
  Net (loss) income from continuing operations   

 $

(26,137

)

 

 $

183,040

 

 

 $

(15,316

)

  Net (loss) income applicable to common shares   

 $

(26,920

)

 

 $

180,550

 

 

 $

(16,715

)

 

 
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS 
December 31,

 

2019

 

 

2018

 

 
(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost

 $

                                                                           469,997

 

 $

                                                                           461,718

 

Real estate subject to sales contracts at cost

 

                                                                                  7,966

 

 

                                                                                  2,014

 

  Less accumulated depreciation 

 

 (90,173

)

 

(79,228

)

  Total real estate

 

 387,790

 

 

 384,504

 

 
Notes and interest receivable (including $57,260 in 2019 and $51,945 in 2018 from related parties)

 

                                                                              120,986

 

 

                                                                                83,541

 

Cash and cash equivalents 

 

51,179

 

 

36,358

 

Restricted cash

 

                                                                                32,082

 

 

                                                                                70,207

 

Investment in VAA

 

                                                                                59,148

 

 

                                                                                68,399

 

Investment in other unconsolidated investees

 

22,632

 

 

 22,172

 

Receivable from related parties

 

141,541

 

 

 133,642

 

Other assets

 

                                                                                50,560

 

 

                                                                                63,557

 

Total assets

 $

865,918

 

 $

862,380

 

 
Liabilities and Shareholders’ Equity 
Liabilities:  
Notes and interest payable

 $

246,546

 

 $

277,237

 

Bonds and bond interest payable

 

 229,722

 

 

158,574

 

Deferred revenue (including $9,468 in 2019 and $17,522 in 2018 to related parties)

 

                                                                                  9,468

 

 

                                                                                17,522

 

Deferred tax liability

 

 -

 

 

 2,000

 

Accounts payable and other liabilities (including $935 in 2019 and $3 in 2018 to related parties)

 

                                                                                26,115

 

 

                                                                                26,646

 

Total liabilities

 

511,851

 

 

481,979

 

 
Shareholders’ equity:  
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2019 and 2018; outstanding 8,717,767 shares in 2019 and 2018

 

                                                                                       87

 

 

                                                                                       87

 

Treasury stock at cost, 200 shares in 2019 and 2018

 

                                                                                        (2

)

 

                                                                                        (2

)

Paid-in capital 

 

                                                                              257,853

 

 

                                                                              258,050

 

Retained earnings 

 

74,665

 

 

101,585

 

Total Transcontinental Realty Investors, Inc. shareholders' equity

 

                                                                              332,603

 

 

                                                                              359,720

 

Non-controlling interest

 

21,464

 

 

 20,681

 

Total shareholders' equity

 

                                                                              354,067

 

 

                                                                              380,401

 

Total liabilities and shareholders' equity

 $

                                                                           865,918

 

 $

                                                                           862,380

 

 

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200330005744/en/

Contacts

Income Opportunity Realty Investors, Inc.
Investor Relations
Daniel Moos (469) 522-4200
investor.relations@transconrealty-invest.com