UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act

 

 

Date of Report (Date of earliest event reported): April 1, 2020                                                            

 

 

TRANSCONTINENTAL REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Nevada

 

001-09240

 

94-6565852

(State or other

jurisdiction of incorporation)

(Commission

File No.)

(I.R.S. Employer

Identification No.)

     
   

1603 LBJ Freeway, Suite 800

Dallas, Texas

75234
(Address of principal executive offices) (Zip Code)
       

 

Registrant’s telephone number, including area code 469-522-4200                                                                   

                                                                                                                                                                       

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

 

[  ]Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Title of Each Class

 

 

Trading Symbol

 

Name of Each Exchange

on which Registered

 

Common Stock, par value $0.01

 

TCI

 

New York Stock Exchange

 

Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[  ]

 

1 
 

Section 2 – Financial Information

 

Item 2.02. Results of Operations and Financial Condition

 

On April 1, 2020, Transcontinental Realty Investors, Inc. (“

TCI” or the “Company”) announced its operational results for the year ended December 31, 2019. A copy of the announcement is attached as Exhibit “99.1.”

 

The information furnished pursuant to Item 2.02 in this Form 8-K, including Exhibit “99.1” attached hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, unless we specifically incorporate it by reference in a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934. We undertake no duty or obligation to publicly update or revise the information furnished pursuant to Item 2.02 of this Current Report on Form 8-K.

 

Section 9 – Financial Statements and Exhibits

 

Item 9.01. Financial Statements and Exhibits

 

(d)       Exhibits.

 

The following exhibit is furnished with this Report:

 

                    Exhibit No. Description

 

99.1*       Press release dated April 1, 2020 

 

_________________________

* Furnished herewith

 

2 
 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

  Dated: April 2, 2020    
       
      TRANSCONTINENTAL REALTY INVESTORS, INC.
       
       
By: /s/ Daniel J. Moos
    Daniel J. Moos
    President and
    Chief Executive Officer

 

 

3 
 

 

Exhibit "99.1"

 

NEWS RELEASE

 

FOR IMMEDIATE RELEASE

Contact:

 

Transcontinental Realty Investors, Inc.

Investor Relations

Daniel Moos

(469) 522-4200

investor.relations@transconrealty-invest.com

 

Transcontinental Realty Investors, Inc. reports 2019 results

Dallas (April 1, 2020) - 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.

 

4 
 
    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.

 

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.

5 
 

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.

 

6 
 

 

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 )

 

7 
 

 

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  

The following information was filed by Transcontinental Realty Investors Inc (TCI) on Friday, April 3, 2020 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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