The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Transcontinental Realty Investors, Inc. “TCI” and consolidated entities have been prepared in conformity with accounting principles generally accepted in the United States of America, the most significant of which are described in Note 1. “Summary of Significant Accounting Policies.” The Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial Statements. The data presented in the Notes to Consolidated Financial Statements are as of December 31 of each year and for the year then ended, unless otherwise indicated. Dollar amounts in tables are in thousands, except per share amounts.
Certain prior year amounts have been reclassified to conform to the current year presentation on the consolidated statements of operations, consolidated balance sheets and the consolidated statements of cash flows.
NOTE 1.
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business.
TCI, a Nevada corporation, is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE American”) under the symbol “TCI”.
TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with American Realty Investors, Inc. “ARL”, whose common stock is traded on the NYSE American under the symbol “ARL”. Subsidiaries of ARL own approximately 77.68% of the Company’s common stock.
In 2009, the Company acquired an additional 2,518,934 shares of common stock of Income Opportunity Realty Investors, Inc. “IOR”, and in doing so, increased its ownership from approximately 25% to over 80% of the shares of common stock of IOR outstanding. Upon acquisition of the additional shares in 2009, IOR’s results of operations began consolidating with those of the Company for tax and financial reporting purposes. As of December 31, 2017, TCI owned 81.25% of the outstanding IOR common shares. Shares of IOR are traded on the New York Exchange (“NYSE American”) under the symbol “IOR”.
At the time of the acquisition, the historical accounting value of IOR’s assets was $112 million and liabilities were $43 million. In that the shares of IOR acquired by TCI were from a related party, the values recorded by TCI are IOR’s historical accounting values at the date of transfer. The Company’s fair valuation of IOR’s assets and liabilities at the acquisition date approximated IOR’s book value. The net difference between the purchase price and historical accounting basis of the assets and liabilities acquired was $25.9 million and has been reflected by TCI as deferred income. The deferred income will be recognized upon the sale of the land that IOR held on its books as of the date of sale, to an independent third party.
TCI’s Board of Directors is responsible for directing the overall affairs of TCI and for setting the strategic policies that guide the Company. As of April 30, 2011, the Board of Directors delegated the day-to-day management of the Company to Pillar Income Asset Management, Inc. (“Pillar”), a Nevada corporation under a written Advisory Agreement that is reviewed annually by TCI’s Board of Directors. The directors of TCI are also directors of ARL and IOR. The Chairman of the Board of Directors of TCI also serves as the Chairman of the Board of Directors of ARL and IOR. The officers of TCI also serve as officers of ARL, IOR and Pillar.
Since April 30, 2011, Pillar, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc. “RAI”, a Nevada corporation, the sole shareholder of which is May Realty Holdings, Inc. (“MRHI”, formerly known as Realty Advisors Management, Inc. “RAMI”, effective August 7, 2014), a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external Advisor and Cash Manager. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as an Advisor and Cash Manager to ARL and IOR. As the contractual advisor, Pillar is compensated by TCI under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”. TCI has no employees. Employees of Pillar render services to TCI in accordance with the terms of the Advisory Agreement.
Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), manages our commercial properties and provides brokerage services. Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. Refer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. TCI engages third-party companies to lease and manage its apartment properties.
Southern Properties Capital Ltd. (“Southern”) is a wholly owned subsidiary of TCI that was incorporated on August 16, 2016 for the purpose of raising funds by issuing debentures that cannot be converted into shares on the Tel-Aviv Stock Exchange ("TASE"). Southern operates in the United States and is primarily involved in investing in, developing, constructing and operating income-producing properties of multi-family residential real estate assets. Southern is included in the consolidated financial statements of TCI.
On January 1, 2012, the Company entered into a development agreement with Unified Housing Foundation, Inc. “UHF” a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.
On November 19, 2018, we executed an agreement between the Macquarie Group (“Macquarie”) and Southern and TCI to create a joint venture, Victory Abode Apartments, LLC (“VAA”) to address existing and future demand for quality multifamily residential housing through acquisition and development of sustainable Class A multifamily housing in focused secondary and tertiary markets. In connection with the formation of the joint venture, Southern and TCI contributed a portfolio of 49 income producing apartment complexes, and 3 development projects in various stages of construction and received cash consideration of $236.8 million. At the time of the transfer of the properties, the joint venture assumed all liabilities of those properties, including mortgage debt to the Department of Housing and Urban Development (“HUD”).
VAA is equally owned and controlled by Abode JVP, LLC, a wholly-owned subsidiary of Southern and Summerset Intermediate Holdings 2 LLC (“Summerset”), a wholly-owned indirect subsidiary of Macquarie. Pursuant to the Agreement, Abode JVP, LLC and Summerset each own voting and profit participation rights of 50% and 49%, respectively (“Class A Members”). The remaining 2% of the profits interest is held by Daniel J. Moos, who serves as the President and Chief Executive officer of the Company (“Class B Member”) and Manager of the joint venture.
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 and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate income from gains on sales of income-producing properties and land. At December 31, 2018, we owned nine residential apartment communities comprising of 1,489 units, seven commercial properties comprising an aggregate of approximately 1.7 million rentable square feet, an investment in 2,405 acres of undeveloped and partially developed land. In addition, our joint venture VAA owns forty-nine residential apartment communities comprised of 9,192 units.
Basis of presentation
.
The Company presents its financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.
For entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities are included in consolidated net income. TCI’s investments in ARL and VAA are accounted for under the equity method.
The Company in accordance with the VIE guidance in ASC 810 “Consolidations” consolidates nine and fifty-one multifamily residential properties located throughout the United States at December 31, 2018 and December 31, 2017, respectively, with total units of 1,489 and 8,427, respectively. Assets totaling approximately $461.7 million and approximately $1,112.7 million at December 31, 2018 and 2017, respectively, are consolidated and included in “Real estate, at cost” on the balance sheet and are all collateral for their respective mortgage notes payable, none of which are recourse to the partnership in which they are in or to the Company.
Real estate, depreciation, and impairment
.
Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated remaining useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements—10-40 years; furniture, fixtures and equipment—5-10 years). We continually evaluate the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, “Property, Plant and Equipment,” Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.
Properties that are treated as “subject to sales contract” on the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we have not recognized the legal sale according to the guidance in ASC 360-20 due to various factors. For sales transactions where the guidance reflects a sale did not occur, the asset involved in the transaction, including the debt, if applicable, and property operations, remain on the books of the Company. We continue to charge depreciation to expense as a period cost for the property until such time as the property has been classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets.”
Real estate held for sale
.
We classify properties as held for sale when certain criteria are met in accordance with GAAP. At that time, we present the assets and obligations of the property held for sale separately in our consolidated balance sheet and we cease recording depreciation and amortization expense related to that property. Properties held for sale are reported at the lower of their carrying amount or their estimated fair value, less estimated costs to sell. We did not have any real estate assets classified as held for sale at December 31, 2018 or 2017.
Effective as of January 1, 2015, we adopted the revised guidance in Accounting Standards Update No. 2014-08 regarding discontinued operations. For sales of real estate or assets classified as held for sale after January 1, 2015, we will evaluate whether a disposal transaction meets the criteria of a strategic shift and will have a major effect on our operations and financial results to determine if the results of operations and gains on sale of real estate will be presented as part of our continuing operations or as discontinued operations in our consolidated statements of operations. If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not, it will be presented in continuing operations.
Any properties that are treated as “subject to sales contract” on the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we have not recognized the legal sale according to the guidance in ASC 360-20 due to various factors, disclosed in Item 1 “Significant Real Estate Acquisitions/Dispositions and Financing.” Any sale transaction where the guidance reflects that a sale had not occurred, the asset involved in the transaction, including the debt, if appropriate, and property operations, remained on the books of the Company. We continue to charge depreciation to expense as a period costs for the property until such time as the property has been classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairment or Disposal of Long-Lived Assets.”
Cost capitalization
.
The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. Capitalized development costs include interest, property taxes, insurance, and other direct project costs incurred during the period of development.
A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.
Fair value measurement
.
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:
Level 1
|
—
|
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
|
Level 2
|
—
|
Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
Level 3
|
—
|
Unobservable inputs that are significant to the fair value measurement.
|
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Related parties
.
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.
Recognition of revenue
.
Our revenues, which are composed largely of rental income, include rents reported on a straight-line basis over the lease term. In accordance with ASC 805 “Business Combinations”, we recognize rental revenue of acquired in-place “above-” and “below-market” leases at their fair values over the terms of the respective leases.
Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers; we have discretion in selecting the supplier and have the credit risk with respect to paying the supplier.
Rental revenue for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.
Sales and the associated gains or losses related to real estate assets are recognized in accordance with the provisions of ASC Topic 360-20, “Property, Plant and Equipment—Real Estate Sale.” The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain recognition and accounts for the continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.
Non-performing notes receivable.
We consider a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement.
Interest recognition on notes receivable
.
We record interest income as earned in accordance with the terms of the related loan agreements.
Allowance for estimated losses
.
We assess the collectability of notes receivable on a periodic basis, the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. Refer to Note 5 “Notes and Interest Receivable” for details on our notes receivable.
Cash equivalents.
For purposes of the Consolidated Statements of Cash Flows, all highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.
Restricted cash.
Restricted cash is comprised primarily of cash balances held in escrow by financial institutions under the terms of certain secured notes payable and certain unsecured bonds payable.
Concentration of credit risk.
The Company maintains its cash balances at commercial banks and through investment companies, the deposits of which are insured by the Federal Deposit Insurance Corporation (FDIC). At December 31, 2017 and 2016, the Company maintained balances in excess of the insured amount.
Earnings per share
.
Income (loss) per share is presented in accordance with ASC 620 “Earnings per Share” and is computed based upon the weighted average number of shares of common stock outstanding during each year.
Use of estimates.
In the preparation of Consolidated Financial Statements in conformity with GAAP, it is necessary for management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expense for the year ended. Actual results could differ from those estimates.
Income taxes
.
The Company is a “C” corporation” for U.S. federal income tax purposes. The Company and the rest of the ARL group are included in the MRHI, consolidated group for tax purposes. TCI is a member of a tax sharing agreement that specifies the manner in which the group will share the consolidated tax liability and also how certain tax attributes are to be treated among members of the group.
Recent accounting pronouncements
.
In May 2014, Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” was issued. This new guidance established a new single comprehensive revenue recognition model and provides for enhanced disclosures. Under the new policy, the nature, timing and amount of revenue recognized for certain transactions could differ from those recognized under existing accounting guidance. This new standard does not affect revenue recognized under lease contracts. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The Company does not believe the adoption of this guidance had a material impact on its financial statements.
In February 2016, FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. This guidance establishes a new model for accounting for leases and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position and results of operations, if any.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those years; however, early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable. The Company adopted this standard effective on January 1, 2018. ASU 2016-15 will impact our presentation of operating, investing and financing activities related to certain cash receipts and payments on our consolidated statements of cash flows.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which clarifies guidance on the classification and presentation of changes in restricted cash. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. Upon adoption, restricted cash balances will be included along with cash and cash equivalents as of the end of the period and beginning period, respectively, in the Company’s consolidated statement of cash flows for all periods presented. Upon adoption, separate line items showing changes in restricted cash balances will be eliminated from the Company’s consolidated statement of cash flows. The Company adopted this guidance effective on January 1, 2018. ASU 2016-18 will impact our presentation of operating, investing and financing activities related to restricted cash on our consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business and thus will be treated as asset acquisitions. Acquisition costs for those acquisitions that are not businesses will be capitalized rather than expensed. The Company adopted this guidance effective January 1, 2018. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In February 2017, the FASB issued
ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20), which requires
that all entities account for the derecognition of a business in accordance with ASC 810, including instances in which the business
is considered in-substance real estate. The ASU requires the Company to measure at fair value any retained interest in a partial
sale of real estate. The ASU is effective for annual periods, and interim periods therein, beginning after December 15, 2017.
The Company adopted ASU 2017-05 effective January 1, 2018. The Company does not believe the adoption of this guidance will have
a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
that eliminates, adds and modifies certain disclosure requirements for fair value measurements. The effective date of the standard
is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in
unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should
be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU
2018-13 may have on its consolidated financial statements.
NOTE 2.
INVESTMENT IN VAA
On November 19, 2018, we executed an agreement between the Macquarie Group (“Macquarie”) and SPC and TCI to create a joint venture, Victory Abode Apartments, LLC (“VAA”) to address existing and future demand for quality multifamily residential housing through acquisition and development of sustainable Class A multifamily housing in focused secondary and tertiary markets. In connection with the formation of the joint venture, SPC and TCI contributed a portfolio of 49 income producing apartment complexes, and 3 development projects in various stages of construction. TCI received cash consideration of $236.8 million and recognized a gain of approximately $154.1 million. At the time of the transfer of the properties, the joint venture assumed all liabilities of those properties, including mortgage debt to the Department of Housing and Urban Development (“HUD”).
VAA is equally owned and controlled by Abode JVP, LLC, a wholly-owned subsidiary of SPC and Summerset Intermediate Holdings 2 LLC (“Summerset”), a wholly-owned indirect subsidiary of Macquarie. Pursuant to the Agreement, Abode JVP, LLC and Summerset each own voting and profit participation rights of 50% and 49%, respectively (“Class A Members”). The remaining 2% of the profit participation interest is held by Daniel J. Moos TCI’s President and Chief Executive Officer (“Class B Member”) who serves also as the Manager of the joint venture. In addition, upon the closing of the agreement the Class B Member received a one time consideration payment of $1.9 million.
The Company accounts for VAA as an equity method investment. Under the equity method of accounting, our net equity is reflected within the Consolidated Balance Sheets, and our share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds.
The following is a summary of the financial position and results of operations of VAA (dollars in thousands):
VAA
|
December 31, 2018
|
|
Balance Sheet
|
|
|
|
Net real estate assets
|
$
|
1,257,557
|
|
Other assets
|
|
67,020
|
|
Debt, net
|
|
(791,225)
|
|
Other liabilities
|
|
(280,288)
|
|
Total equity
|
|
(253,064)
|
|
|
For the period November 19
to December 31, 2018
|
|
Results of Operations
|
|
|
|
Total revenue
|
$
|
12,887
|
|
Total property, operating, and maintenance expenses
|
|
(4,507)
|
|
Total other expense
|
|
(18,102)
|
|
Net loss
|
$
|
(9,722)
|
The following is a reconciliation from VAA's net loss to TCI's equity in earnings of VAA (dollars in thousands):
|
For the period November 19
to December 31, 2018
|
VAA net loss
|
$
|
(9,722
|
)
|
Adjustments to reconcile to earnings from VAA
|
|
|
|
Interest expense on mezzanine loan
|
|
2,815
|
|
In-place lease intangibles - amortization expense
|
|
3,983
|
|
Depreciation basis differences
|
|
3,012
|
|
Adjusted net income
|
$
|
88
|
|
Percentage ownership in VAA
|
|
50
|
%
|
Earnings from VAA
|
$
|
44
|
|
The following table shows the location of properties owned by VAA:
|
|
Apartments
|
Location
|
|
No.
|
|
Units
|
Alabama
|
|
|
1
|
|
|
|
168
|
|
Arkansas
|
|
|
6
|
|
|
|
1,320
|
|
Colorado
|
|
|
2
|
|
|
|
260
|
|
Florida
|
|
|
2
|
|
|
|
388
|
|
Georgia
|
|
|
1
|
|
|
|
222
|
|
Louisiana
|
|
|
3
|
|
|
|
464
|
|
Mississippi
|
|
|
1
|
|
|
|
196
|
|
Nevada
|
|
|
1
|
|
|
|
308
|
|
North Carolina
|
|
|
1
|
|
|
|
201
|
|
Tennessee
|
|
|
4
|
|
|
|
708
|
|
Texas-Greater Dallas-Ft Worth
|
|
|
13
|
|
|
|
2,323
|
|
Texas-Greater Houston
|
|
|
1
|
|
|
|
176
|
|
Texas-Other
|
|
|
13
|
|
|
|
2,458
|
|
Total
|
|
|
49
|
|
|
|
9,192
|
|
At December 31, 2018, our apartment projects in development included (dollars in thousands):
Property
|
|
Location
|
|
|
No. of Units
|
|
|
|
Costs to Date
(1)
|
|
|
|
Total Projected Costs
(1)
|
|
Terra Lago apartments
|
|
Rowlett, TX
|
|
|
451
|
|
|
|
66,395
|
|
|
$
|
—
|
|
Lakeside lofts apartments
|
|
Farmers Branch, TX
|
|
|
494
|
|
|
|
50,357
|
|
|
|
80,622
|
|
Sawgrass Creek apartments Phase II
|
|
Tampa, FL
|
|
|
143
|
|
|
|
25,113
|
|
|
|
26,799
|
|
Total
|
|
|
|
|
1,088
|
|
|
$
|
141,865
|
|
|
$
|
107,421
|
|
(1)
Costs include construction hard costs, construction soft costs and loan borrowing costs.
NOTE 3.
REAL ESTATE
A summary of our real estate owned as of the end of the year is listed below (dollars in thousands):
|
|
2018
|
|
|
2017
|
|
Apartments
|
|
$
|
126,274
|
|
|
$
|
737,661
|
|
Apartments under construction
|
|
|
25,289
|
|
|
|
104,791
|
|
Commercial properties
|
|
|
224,167
|
|
|
|
200,803
|
|
Land held for development
|
|
|
84,016
|
|
|
|
69,466
|
|
Real estate subject to sales contract
|
|
|
3,986
|
|
|
|
45,739
|
|
Total real estate, at cost, less impairment
|
|
|
463,732
|
|
|
|
1,158,460
|
|
Less accumulated deprecation
|
|
|
(79,228
|
)
|
|
|
(178,590
|
)
|
Total real estate, net of depreciation
|
|
$
|
384,504
|
|
|
$
|
979,870
|
|
Expenditures for repairs and maintenance are charged to operations as incurred. Significant betterments are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.
Depreciation is computed on a straight line basis over the estimated useful lives of the assets as follows:
Land improvements
|
25 to 40 years
|
|
|
Buildings and improvements
|
10 to 40 years
|
|
|
Tenant improvements
|
Shorter of useful life or terms of related lease
|
|
|
Furniture, fixtures and equipment
|
3 to 7 years
|
Fair Value Measurement
The Company applies the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures,” to the valuation of real estate assets. The Company is required to assess the fair value of its consolidated real estate assets with indicators of impairment. The value of impaired real estate assets is determined using widely accepted valuation techniques, including discounted cash flow analyses on the expected cash flow of each asset, as well as the income capitalization approach, which considers prevailing market capitalization rates, analyses of recent comparable sales transactions, information from actual sales negotiations and bona fide purchase offers received from third parties. The methods used to measure fair value may produce an amount that may not be indicative of net realizable value or reflective of future values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The fair value measurements used in these evaluations are considered to be Level 2 and 3 valuations within the fair value hierarchy in the accounting rules, as there are significant observable (Level 2) and unobservable inputs (Level 3). Examples of Level 2 inputs the Company utilizes in its fair value calculations are appraisals and bona fide purchase offers from third parties. Examples of Level 3 inputs the Company utilizes in its fair value calculations are discount rates, market capitalization rates, expected lease rental rates, timing of new leases, an estimate of future sales prices and comparable sales prices of similar assets, if available. There was no provision for impairment during the years ended December 31, 2018, 2017 and 2016.
The highlights of our significant real estate transactions for the year ended December 31, 2018, are discussed below.
Purchases
During the year ended December 31, 2018, the Company purchased through one of its subsidiaries, eight residential apartment communities. A multi-family 80 unit community located in Baton Rouge, LA for a total purchase price of $12 million, paid through a seller’s financing note of $1.9 million, issuance of note payable of $8.6 million, and exercising an option to purchase of $1.5 million paid in the previous year. A multi-family 99 unit residential apartment community located in Mansfield, TX for a total purchase price of $14.8 million, paid through a seller’s financing note of $2.3 million, and an issuance of a note payable of $11.0 million. A multi-family 200 unit residential apartment community located in Gulf Shores, AL for a total purchase price of $18.1 million, paid through an issuance of a note payable of $11.5 million. A multi-family 144 unit residential apartment community located in Beaumont, TX for a total purchase price of $12.3 million. A multi-family 240 unit residential apartment community located in Houma, LA for a total purchase price of $20.1 million. A multi-family 208 unit residential apartment community located in Texarkana, TX for a total purchase price of $14.7 million. A multi-family 160 unit residential apartment community located in Tupelo, MS for a total purchase price of $11.1 million.
Sales
For the year ended December 31, 2018, TCI sold 62 acres of land to an independent third party for a total sales price of $3.0 million and recorded a gain of $1.3 million from the land sale. In the second quarter, a golf course comprising approximately 96.09 acres sold for an aggregate sales price of $2.3 million, out of which, $0.6 million was received in cash and $1.7 million in note receivables. During the first quarter, the Company sold six income-producing properties to a related party for an aggregate purchase price of $8.5 million, out of which, $2.1 million was received in cash and $6.4 million in note receivables. During the fourth quarter, the Company sold one income-producing properties to a related party for a purchase price of $2.2 million No gain or loss was recorded from the sale of income-producing properties.
In addition, on November 19, 2018 TCI through one of its subsidiaries formed VAA a joint venture with Macquarie. In connection with the formation of the joint venture, TCI contributed fifty-two properties and received a cash consideration of $236.8 million from Macquarie for a voting and profit participation right of 50% and 49%, respectively, 2% of the profits interest is held by Daniel J. Moos, who serves as the President and Chief Executive officer of the Company (“Class B Member”) and Manager of the joint venture. The Company recognized a gain of approximately $154.1 million from the sale of the contributed properties to the joint venture.
Mercer Crossing
In addition to the real estate sales noted above the Company recorded sales from a development project known as Mercer Crossing.
At November 2015, our real estate land holdings at Mercer Crossing consisted of land developable into residential homes and commercial projects, located in Farmers Branch, Texas. In November 2015, the Company entered into a sales contract with an unrelated party. The contract was for all of the developable land owned by the Company. In addition, IOR and ARL also sold land in this transaction. Total consideration for the sale was $75 million. The agreement among the parties to this transaction provides for TCI to hold the subordinated note from the buyer in the amount of $50 million. At the closing, due to the inadequate down payment from the buyer and the level of seller financing involved, the transaction was accounted for under the deposit method. Under the deposit method, no revenue is recognized and the asset sold remains on the books until the criteria for full revenue recognition are met.
During the third quarter of 2018, due to significant cumulative sales of real estate to unrelated third parties and cash received by TCI, the criteria for recording full accrual accounting had been met. Through the period ended August 21, 2018 approximately $28.1 million of the assets previously held by the Company were sold, resulting in a gain of $7.5 million.
On August 22, 2018 the Company reacquired all the unsold portions of the real estate from the November 2015 transaction for the amount that remained from the original sales price.
During the period August 23, 2018 through December 31, 2018 additional Mercer Crossing real estate was sold for $11.7 million resulting in a net gain on sale of real estate of $5.6 million.
As of December 31, 2018, the Company has approximately 86 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions TCI has deferred the recording of the sales in accordance with ASC 360-20.
We continue to invest in the development of apartment projects. During the year ended December 31, 2018, we have invested $14.8 million related to the construction or predevelopment of various apartment complexes and capitalized $0.1 million of interest costs.
NOTE 4.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 2018 and 2017, the Company paid interest of $61.6 million and $36.4 million, respectively.
Cash and cash equivalents, and restricted cash for fiscal year ended 2018 and 2017 was $106.6 million and $88.5 million, respectively. The following is a reconciliation of the Company’s cash and cash equivalents, and restricted cash to the total presented in the consolidated statement of cash flows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash and cash equivalents
|
|
$
|
36,358
|
|
|
$
|
33,563
|
|
Restricted cash (cash held in escrow)
|
|
|
37,946
|
|
|
|
44,705
|
|
Restricted cash (certificate of deposits)
|
|
|
9,688
|
|
|
|
5,651
|
|
Restricted cash (held with Trustee)
|
|
|
22,573
|
|
|
|
4,423
|
|
Cash and cash equivalents and restricted cash
|
|
$
|
106,565
|
|
|
$
|
88,342
|
|
Amounts included in restricted cash represent funds required to meet contractual obligations with certain financial institutions for the payment of reserve replacement and tax and insurance escrow. In addition, restricted cash includes funds to the Bond’s Trustee for payment of principal and interests.
NOTE 5.
NOTES AND INTEREST RECEIVABLE
A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and personal guarantees of the borrower and, unless noted otherwise, are so secured. Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity (dollars in thousands).
|
|
Maturity
|
|
Interest
|
|
|
|
|
|
|
Borrower
|
|
Date
|
|
Rate
|
|
|
Amount
|
|
|
Security
|
Performing loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H198, LLC (Las Vegas Land)
|
|
|
01/20
|
|
|
12.00
|
%
|
|
|
5,907
|
|
|
Secured
|
H198, LLC (Legacy at Pleasant Grove Land)
|
|
|
10/19
|
|
|
12.00
|
%
|
|
|
496
|
|
|
Secured
|
Oulan-Chikh Family Trust
|
|
|
03/21
|
|
|
8.00
|
%
|
|
|
174
|
|
|
Secured
|
H198, LLC (McKinney Ranch Land)
|
|
|
09/20
|
|
|
6.00
|
%
|
|
|
4,554
|
|
|
Secured
|
Forest Pines
|
|
|
09/19
|
|
|
5.00
|
%
|
|
|
2,223
|
|
|
Secured
|
Spyglass Apartments of Ennis, LP
|
|
|
11/19
|
|
|
5.00
|
%
|
|
|
5,083
|
|
|
Secured
|
Bellwether Ridge
|
|
|
05/20
|
|
|
5.00
|
%
|
|
|
3,429
|
|
|
Secured
|
Parc at Windmill Farms
|
|
|
05/20
|
|
|
5.00
|
%
|
|
|
6,066
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Echo Station)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
1,481
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Lakeshore Villas)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
2,000
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Lakeshore Villas)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
6,369
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Limestone Ranch)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
1,953
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Limestone Ranch)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
2,000
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Limestone Ranch)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
4,000
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Timbers of Terrell)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
1,323
|
|
|
Secured
|
Unified Housing Foundation, Inc. (Tivoli)
(1)
|
|
|
12/32
|
|
|
12.00
|
%
|
|
|
6,140
|
|
|
Secured
|
Unified Housing Foundation, Inc.
(1)
|
|
|
12/19
|
|
|
12.00
|
%
|
|
|
10,401
|
|
|
Unsecured
|
Unified Housing Foundation, Inc.
(1)
|
|
|
06/20
|
|
|
12.00
|
%
|
|
|
11,075
|
|
|
Unsecured
|
Other related party notes
|
|
|
Various
|
|
|
Various
|
|
|
|
2,290
|
|
|
Various secured interests
|
Other non-related party notes
|
|
|
Various
|
|
|
Various
|
|
|
|
1,631
|
|
|
Various secured interests
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
6,771
|
|
|
|
Total Performing
|
|
|
|
|
|
|
|
|
$
|
85,366
|
|
|
|
Allowance for estimated losses
|
|
|
|
|
|
|
|
|
|
(1,825
|
)
|
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
83,541
|
|
|
|
(1)
Related party notes
|
|
(2)
An allowance was taken for estimated losses at full value of note.
|
As of December 31, 2018, the obligors on $49.0 million or 57.4% of the mortgage notes receivable portfolio were due from related entities. The Company recognized $5.7 million of interest income from these related party notes receivables.
As of December 31, 2018, none of the mortgage notes receivable portfolio were non-performing.
The Company has various notes receivable from Unified Housing foundation, Inc. “UHF”. UHF is determined to be a related party due to our significant investment in the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow from operations, sale or refinancing of the underlying properties. These notes are cross collateralized to the extent that any surplus cash available from any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes. Furthermore, any surplus cash available from any of the properties UHF owns, besides the properties underlying these notes, can be used to repay outstanding interest and principal for these notes. The allowance on the notes was a purchase allowance that was netted against the notes when acquired.
NOTE 6.
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES
Investments in unconsolidated subsidiaries, jointly owned companies and other investees in which we have a 20% to 50% ownership interest or otherwise exercise significant influence are carried at cost, adjusted for the Company’s proportionate share of their undistributed earnings or losses, via the equity method of accounting. ARL is our parent company and is an unconsolidated joint venture.
Investments accounted for via the equity method consists of the following, except for VAA which is discussed in Note 2.
|
Percentage ownership as of December 31,
|
|
2018
|
|
2017
|
|
2016
|
American Realty Investors, INC.
(1)
|
0.90%
|
|
0.90%
|
|
0.90%
|
(1)
Unconsolidated investment in parent company
|
The following is a summary of the financial position and results of operations of ARL (dollars in thousands). Summary data presented below excludes investments in VAA. For additional information refer to Note 2.
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
ARL
|
|
|
|
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
549
|
|
|
$
|
12,349
|
|
|
$
|
14,504
|
|
Notes receivable
|
|
|
42,517
|
|
|
|
41,928
|
|
|
|
47,257
|
|
Other assets
|
|
|
66,712
|
|
|
|
126,238
|
|
|
|
127,001
|
|
Notes payable
|
|
|
(9,637
|
)
|
|
|
(6,507
|
)
|
|
|
(9,485
|
)
|
Other liabilities
|
|
|
(21,123
|
)
|
|
|
(102,014
|
)
|
|
|
(111,707
|
)
|
Shareholders’ equity/partners capital
|
|
|
(79,018
|
)
|
|
|
(71,994
|
)
|
|
|
(67,570
|
)
|
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Rents, interest and other income
|
|
$
|
7,132
|
|
|
$
|
9,193
|
|
|
$
|
7,251
|
|
Depreciation
|
|
|
—
|
|
|
|
(157
|
)
|
|
|
(175
|
)
|
Operating expenses
|
|
|
(2,420
|
)
|
|
|
(3,149
|
)
|
|
|
(3,633
|
)
|
Gain on land sales
|
|
|
—
|
|
|
|
4,765
|
|
|
|
—
|
|
Interest expense
|
|
|
(7,191
|
)
|
|
|
(6,228
|
)
|
|
|
(6,274
|
)
|
Income (loss) from continuing operations
|
|
$
|
(2,479
|
)
|
|
$
|
4,424
|
|
|
$
|
(2,831
|
)
|
Net income (loss)
|
|
$
|
(2,479
|
)
|
|
$
|
4,424
|
|
|
$
|
(2,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s proportionate share of income (loss)
(1)
|
|
$
|
(22
|
)
|
|
$
|
40
|
|
|
$
|
(25
|
)
|
(1)
|
Income (loss) represents continued and discontinued operations
|
During the fourth quarter of 2018, TCI purchased from RAI 900,000 shares of ARL Series A convertible Preferred Stock for $9.0 million. The Series A Preferred Stock may be converted into common stock at 90.0% of the average daily closing price of ARL’s common stock for the prior 20 trading days.
The investment in ARL convertible Preferred Stock is being carried at the Company’s cost of $9 million and is included in investment in other unconsolidated investees. Additionally, TCI purchased from RAI $9.9 million accrued unpaid dividends related to the ARL Series A convertible Preferred Stock which is carried at the cost and included in investment in unconsolidated investees on the balance sheet.
NOTE 7.
NOTES AND INTEREST PAYABLE
Below is a summary of our notes and interest payable as of December 31, 2018 (dollars in thousands):
|
|
Notes
Payable
|
|
|
Accrued
Interest
|
|
|
Total
|
|
Apartments
|
|
$
|
94,759
|
|
|
$
|
270
|
|
|
$
|
95,029
|
|
Apartments under Construction
|
|
|
14,402
|
|
|
|
—
|
|
|
|
14,402
|
|
Commercial
|
|
|
135,951
|
|
|
|
450
|
|
|
|
136,401
|
|
Land
|
|
|
22,200
|
|
|
|
124
|
|
|
|
22,324
|
|
Real estate held for sale
|
|
|
376
|
|
|
|
—
|
|
|
|
376
|
|
Other
|
|
|
18,130
|
|
|
|
—
|
|
|
|
18,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
285,818
|
|
|
$
|
844
|
|
|
$
|
286,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred borrowing costs
|
|
|
(9,425
|
)
|
|
|
—
|
|
|
|
(9,425
|
)
|
|
|
$
|
276,393
|
|
|
$
|
844
|
|
|
$
|
277,237
|
|
The following table summarizes our contractual obligations for principal payments as of December 31, 2018 (dollars in thousands):
Year
|
|
Amount
|
|
2019
|
|
$
|
38,107
|
|
2020
|
|
|
8,822
|
|
2021
|
|
|
43,202
|
|
2022
|
|
|
43,304
|
|
2023
|
|
|
37,260
|
|
Thereafter
|
|
|
115,123
|
|
Total
|
|
$
|
285,818
|
|
Interest payable at December 31, 2018 was $0.8 million. Our debt has interest rates ranging from 2.5% to 9.5% per annum with maturity dates between 2019 and 2055. The mortgages were collateralized by deeds of trust on real estate having a net carrying value of $384.5 million.
During 2018 the Company refinanced or modified one loan with a total principal balance of $40.0 million. The refinancing resulted in a lower interest rate and the extension of the term of the loan. The transaction provides for lower monthly payments over the term of loan.
There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan. We are in constant contact with these lenders, working together in order to modify the terms of these loans and we anticipate a timely resolution that is similar to the existing agreement or subsequent modification.
In conjunction with the development of various apartment projects and other developments, we drew down $81.0 million in construction loans during the year ended December 31, 2018.
NOTE 8.
BONDS AND BONDS INTEREST PAYABLE
In August 2016, Southern Properties Capital LTD (“Southern”), a British Virgin Islands corporation was incorporated for the purpose of raising funds by issuing Bonds to be traded on the TASE. The Company transferred certain residential and commercial properties located in the United States to Southern, its wholly owned subsidiary.
On February 13, 2017, Southern filed a final prospectus with the TASE for an offering and sale of nonconvertible Series A Bonds to be issued by Southern. The bonds are obligations of Southern. During the year ended December 31, 2017 on three separate occasions Southern issued nonconvertible Series A Bonds with a total value of approximately NIS400 million New Israeli Shekels (“NIS”) or approximately $115 million dollars. The Series A Bonds have a stated interest rate of 7.3%. At March 31, 2018 the effective interest rate is 9.17%. The bonds require semi-annual equal installments on January 31 and July 31 of each year from 2019 to 2023 (inclusive). The interest will be repaid on January 31 and July 31 of each of the years 2018 to 2023 (inclusive), with the first payment commencing on July 31, 2017.
On January 25, 2018, interest payment of approximately NIS 14.6 million (or approximately $4.3 million) was paid to the Series A bondholders.
On February 15, 2018, Southern issued Series B bonds in the amount of NIS 137.7 million par value (approximately $39.2 million as of February 15, 2018). The Series B bonds are registered on the TASE. The bonds are reported in NIS and bear annual interest rate of 6.8%. Interest shall be repaid January 31 and July 31 of each of the years 2019 to 2023 (inclusive), first payment commencing on July 31, 2018. The principal shall be repaid in ten equal installments on January 31 and July 31 of each of the years from 2021 to 2025 (inclusive). A total bond issuance cost of $1.4 million was incurred. The effective interest rate is 7.99%.
On July 19, 2018, Southern closed a private placement of its Series B bonds in the amount of NIS 72.3 million (or approximately $19.8 million). The bonds are reported in NIS, are registered on the TASE, bear an annual interest rate of 6.8% and have an effective interest rate of 9.60%. Interest will be paid on January 31 and July 31 of each of the years 2019 and 2013 (inclusive). The principal will be repaid in ten equal installment on January 31 and July 31 of each of the years from 2021 to 2012 (inclusive). The Company incurred bonds issuance costs of approximately $1.9 million.
On July 26, 2018, interest payment of approximately NIS 18.9 million (or approximately $5.2 million) was paid to the Series A and B bondholders.
In December 2018, the Company deposited $16.2 million with the bond Trustee for upcoming January 2019 Series A and B bonds principal and interest payments.
The outstanding balance of these Bonds at December 31, 2018 is as follows:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Bonds (Series A)
|
|
$
|
106,686
|
|
|
$
|
115,336
|
|
Bonds (Series B)
|
|
|
36,740
|
|
|
|
—
|
|
Bonds (Series B expansion)
|
|
|
19,290
|
|
|
|
—
|
|
Less: deferred issuance expense, net
|
|
|
(8,179
|
)
|
|
|
(5,916
|
)
|
Accrued Interest
|
|
|
4,037
|
|
|
|
3,627
|
|
|
|
$
|
158,574
|
|
|
$
|
113,047
|
|
b.
|
Aggregate maturities are as follows:
|
|
|
|
|
|
December 31,
2018
|
|
|
|
December 31,
2017
|
First year
|
|
$
|
21,345
|
|
|
$
|
—
|
Second Year
|
|
|
21,345
|
|
|
|
23,067
|
Third year
|
|
|
32,550
|
|
|
|
23,067
|
Fourth year
|
|
|
32,550
|
|
|
|
23,067
|
Fifth year
|
|
|
32,550
|
|
|
|
23,067
|
Thereafter
|
|
|
22,376
|
|
|
|
23,068
|
|
|
$
|
162,716
|
|
|
$
|
115,336
|
The funds were used primarily for the acquisition and development of additional real estate operations in the United States. The funds were raised and will be repaid in NIS, however the funds raised have been converted to US dollars. The Company records unrealized gains or losses each quarter based upon the relative exchange values of the US dollar and the NIS; however, no gain or loss will be realized until a conversion from US dollars to NIS actually occurs in the future. The recorded unrealized gain or loss is reflected as a separate line item to highlight the fact that it is a non-cash transaction until such time as actual payment of principal and interest on the bonds is made. For the year ended December 31, 2018, the Company recorded a gain on foreign currency transaction of approximately $12.4 million.
NOTE 9.
RELATED PARTY TRANSACTIONS AND FEES
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.
The Company has historically engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. 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.
Since April 30, 2011, Pillar, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is RAI, a Nevada corporation, the sole shareholder of which is MRHI, a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external Advisor and Cash Manager. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as an Advisor and Cash Manager to TCI and IOR. As the contractual advisor, Pillar is compensated by TCI under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”. TCI has no employees. Employees of Pillar render services to TCI in accordance with the terms of the Advisory Agreement
Effective January 1, 2011, Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), the sole member of which is Realty Advisors, LLC, manages our commercial properties and provides brokerage services. Regis receives property management fees, construction management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. Refer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. TCI engages third-party companies to lease and manage its apartment properties.
Below is a description of the related party transactions and fees between Pillar and Regis:
Fees, expenses and revenue paid to and/or received from our advisor:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
Fees:
|
|
|
|
|
|
|
|
|
|
Advisory
|
|
$
|
10,663
|
|
|
$
|
9,995
|
|
|
$
|
9,490
|
|
Mortgage brokerage and equity refinancing
|
|
|
852
|
|
|
|
1,551
|
|
|
|
775
|
|
Net income
|
|
|
631
|
|
|
|
250
|
|
|
|
257
|
|
|
|
$
|
12,146
|
|
|
$
|
11,796
|
|
|
$
|
10,522
|
|
Other Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost reimbursements
|
|
$
|
4,398
|
|
|
$
|
2,895
|
|
|
$
|
3,228
|
|
Interest received
|
|
|
(7,404
|
)
|
|
|
(4,859
|
)
|
|
|
(4,216
|
)
|
|
|
$
|
(3,006
|
)
|
|
$
|
(1,964
|
)
|
|
$
|
(988
|
)
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
|
|
$
|
1,178
|
|
|
$
|
783
|
|
|
$
|
708
|
|
Fees paid to Regis and related parties:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition
|
|
$
|
43,856
|
|
|
$
|
9,819
|
|
|
$
|
10,776
|
|
Property management, construction management and leasing commissions
|
|
|
540
|
|
|
|
963
|
|
|
|
888
|
|
Real estate brokerage
|
|
|
2,068
|
|
|
|
1,369
|
|
|
|
787
|
|
|
|
$
|
46,464
|
|
|
$
|
12,151
|
|
|
$
|
12,451
|
|
The Company received rental revenue of $1.2 million, $0.8 million, and $0.7 million in the years ended December 31, 2018, 2017, and 2016, respectively, from Pillar and its related parties for properties owned by the Company.
As of December 31, 2018, the Company had notes and interest receivable of $49.0 million due from UHF, a related party. During 2018, the Company recognized interest income of $5.7 million, originated $5.3 million, received no principal payments, and received interest payments of $6.1 million from these related party notes receivables.
On January 1, 2012, the Company entered into a development agreement with UHF, a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.
The Company is the primary guarantor, on a $39.1 million mezzanine loan between UHF and a lender. In addition, ARL, and an officer of the Company are limited recourse guarantors of the loan. As of December 31, 2018 UHF was in compliance with the covenants to the loan agreement.
The Company is part of a tax sharing and compensating agreement with respect to federal income taxes between ARL, TCI and IOR and their subsidiaries that was entered into in July of 2009. That agreement continued until August 31, 2012, at which time a new tax sharing and compensating agreement was entered into by ARL, TCI, IOR and MRHI for the remainder of 2012 and subsequent years. The expense (benefit) in each year was calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 21%.
The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of December 31, 2018 (dollars in thousands):
|
|
Pillar
|
|
|
ARL
|
|
|
Total
|
|
Related party receivable, December 31, 2017
|
|
$
|
—
|
|
|
$
|
111,665
|
|
|
$
|
111,665
|
|
Cash transfers
|
|
|
71,034
|
|
|
|
—
|
|
|
|
71,034
|
|
Advisory fees
|
|
|
(10,662
|
)
|
|
|
—
|
|
|
|
(10,662
|
)
|
Net income fee
|
|
|
(631
|
)
|
|
|
—
|
|
|
|
(631
|
)
|
Fees and commissions
|
|
|
(2,919
|
)
|
|
|
—
|
|
|
|
(2,919
|
)
|
Cost reimbursements
|
|
|
(4,398
|
)
|
|
|
—
|
|
|
|
(4,398
|
)
|
Interest income
|
|
|
—
|
|
|
|
7,229
|
|
|
|
7,229
|
|
Notes receivable purchased
|
|
|
(5,314
|
)
|
|
|
—
|
|
|
|
(5,314
|
)
|
Expenses (paid)/received by advisor
|
|
|
1,221
|
|
|
|
—
|
|
|
|
1,221
|
|
Financing (mortgage payments)
|
|
|
10,273
|
|
|
|
—
|
|
|
|
10,273
|
|
Sales/Purchases transactions
|
|
|
(43,856
|
)
|
|
|
—
|
|
|
|
(43,856
|
)
|
Related party receivable, December 31, 2018
|
|
$
|
14,748
|
|
|
$
|
118,894
|
|
|
$
|
133,642
|
|
As of December 31, 2018, the Company has approximately 86 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets.
NOTE 10.
DIVIDENDS
TCI’s Board of Directors established a policy that dividend declarations on common stock would be determined on an annual basis following the end of each year. In accordance with that policy, no dividends on TCI’s common stock were declared for 2018, 2017, or 2016. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.
NOTE 11.
PREFERRED STOCK
In November 2006, TCI issued 100,000 shares of Series D Preferred Stock with a liquidation preference of $100 per share. The preferred stock is not convertible into any other security, requires dividends payable at the initial rate of 7% annually. The dividend rate increases ratably from 7% to 9% in future periods and can be redeemed at any point after September 30, 2011.
During the fourth quarter of 2018, all 100,000 shares of Series D Preferred Stock were redeemed for $17.2 million, of which $7.2 million was accrued unpaid dividends. At December 31, 2018, there were no preferred shares outstanding.
NOTE 12.
INCOME TAXES
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
For financial reporting purposes, income before income taxes were:
|
|
Years Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
TOTAL
|
|
$
|
186,250
|
|
|
$
|
(15,136
|
)
|
|
$
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expense (benefit) for income taxes consists of:
|
|
Years Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
42,805
|
|
|
$
|
(5,603
|
)
|
|
|
121
|
)
|
State
|
|
|
1,210
|
|
|
|
10
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred and other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(40,805
|
)
|
|
|
5,603
|
|
|
|
(98
|
)
|
State
|
|
|
|
|
|
|
170
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tax Expense
|
|
$
|
3,210
|
|
|
$
|
180
|
|
|
$
|
23
|
|
The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:
|
|
Years Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Income tax expense (benefit) at federal statutory rate
|
|
$
|
39,113
|
|
|
$
|
(5,603
|
)
|
|
$
|
121
|
|
State and local income taxes net of federal tax benefit
|
|
|
1,210
|
|
|
|
10
|
|
|
|
—
|
|
Permanent differences
|
|
|
(143
|
)
|
|
|
—
|
|
|
|
—
|
|
Timing differences
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment note on land sale
|
|
|
(2,876
|
)
|
|
|
(1,917
|
)
|
|
|
—
|
|
Allowance for losses on notes
|
|
|
(383
|
)
|
|
|
(256
|
)
|
|
|
—
|
|
Deferred gains
|
|
|
(9,417
|
)
|
|
|
(7,723
|
)
|
|
|
—
|
|
Basis difference on fixed assets
|
|
|
23,675
|
|
|
|
10,082
|
|
|
|
—
|
|
Other basis/timing differences
|
|
|
(7,164
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
Use/generation of net operating loss carryforwards
|
|
|
(42,805
|
)
|
|
|
5,603
|
|
|
|
(97
|
)
|
Calculated income tax expense
|
|
|
1,210
|
|
|
|
180
|
|
|
|
24
|
|
Effective Tax Rate
|
|
|
0.6
|
%
|
|
|
N/A
|
|
|
|
6.9
|
%
|
The company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2018, the Company’s tax years for 2017, 2016, and 2015 are subject to examination by the tax authorities. With few exceptions, as of December 31, 2018, the Company is no longer subject to U.S federal, state, local, or foreign examinations by tax authorities for the years before 2015.
The 2018 and 2017 effective tax rate is driven primarily by the passing of the Tax Cuts and Jobs Act by congress on December 22, 2017. This act reduced the statutory tax rate for corporations from 35% to 21% starting in 2018. As a result, the tax assets of TCI had to be re-priced to reflect the new tax rate for future years with the impact on the 2017 provision for income taxes.
Components of the Net Deferred Tax Asset or Liability
|
|
Years Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
|
(in thousands)
|
|
Allowance for losses on notes
|
|
$
|
—
|
|
|
$
|
383
|
|
Installment note on land sale
|
|
|
—
|
|
|
|
2,876
|
|
Deferred gain
|
|
|
—
|
|
|
|
6,814
|
|
Net operating loss carryforward
|
|
|
3,904
|
|
|
|
46,709
|
|
Subtotal
|
|
|
3,904
|
|
|
|
56,782
|
|
Less: valuation allowance
|
|
|
—
|
|
|
|
(29,806
|
)
|
Total net deferred tax assets
|
|
|
3,904
|
|
|
|
26,976
|
|
|
|
|
|
|
|
|
|
|
Deferred gain
|
|
|
2,603
|
|
|
|
—
|
|
Basis differences for fixed assets
|
|
|
3,301
|
|
|
|
26,976
|
|
Total deferred tax liability
|
|
|
5,904
|
|
|
|
26,976
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Current net deferred tax asset
|
|
|
3,904
|
|
|
|
26,976
|
|
Long-term net deferred tax liability
|
|
$
|
5,904
|
|
|
$
|
26,976
|
|
Net deferred tax asset (liability)
|
|
|
(2,000
|
)
|
|
|
—
|
|
Operating Loss and Tax Credit Carryforwards
We have state NOLs in many of the various states in which we operate.
Valuation Allowance
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. At December 31, 2018, 2017 and 2016 TCI had a net deferred tax asset due to tax deductions available to it in future years. However, as management could not determine that it was more likely than not that TCI would realize the benefit of the deferred tax asset, a 100% valuation allowance was established.
NOTE 13.
FUTURE MINIMUM RENTAL INCOME UNDER OPERATING LEASES
TCI’S real estate operations include the leasing of commercial properties (office buildings, industrial warehouses and retail centers). These leases expire at various dates through 2029. The following is a schedule of minimum future rents on non-cancelable operating leases at December 31, 2018 (dollars in thousands):
Year
|
|
Amount
|
|
2019
|
|
|
27,346
|
|
2020
|
|
|
23,805
|
|
2021
|
|
|
21,249
|
|
2022
|
|
|
18,033
|
|
2023
|
|
|
12,825
|
|
Thereafter
|
|
|
13,983
|
|
Total
|
|
$
|
117,241
|
|
NOTE 14.
OPERATING SEGMENTS
Our segments are based on management’s method of internal reporting which classifies its operations by property type. The segments are commercial, apartments, land and other. Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their operating income and cash flow.
Items of income that are not reflected in the segments are interest, other income, equity in partnerships and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued operations before gains on sale of real estate.
The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt.
Presented below is the Company’s reportable segments’ operating income including segment assets and expenditures for the years 2018, 2017 and 2016 (dollars in thousands):
|
|
Commercial
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
Properties
|
|
Apartments
|
|
Land
|
|
Other
|
|
Total
|
Rental and other property revenues
|
|
$
|
33,113
|
|
|
$
|
87,832
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
120,955
|
|
Property operating expenses
|
|
|
(16,558
|
)
|
|
|
(42,134
|
)
|
|
|
(275
|
)
|
|
|
(453
|
)
|
|
|
(59,420
|
)
|
Depreciation
|
|
|
(9,530
|
)
|
|
|
(13,217
|
)
|
|
|
—
|
|
|
|
(14
|
)
|
|
|
(22,761
|
)
|
Mortgage and loan interest
|
|
|
(7,662
|
)
|
|
|
(20,671
|
)
|
|
|
(318
|
)
|
|
|
(30,221
|
)
|
|
|
(58,872
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,793
|
|
|
|
15,793
|
|
Gain on land sales
|
|
|
—
|
|
|
|
—
|
|
|
|
17,404
|
|
|
|
—
|
|
|
|
17,404
|
|
Segment operating income (loss)
|
|
$
|
(637
|
)
|
|
$
|
11,810
|
|
|
$
|
16,811
|
|
|
$
|
(14,885
|
)
|
|
$
|
13,099
|
|
Capital expenditures
|
|
|
8,246
|
|
|
|
16,954
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,200
|
|
Assets
|
|
$
|
153,018
|
|
|
$
|
143,500
|
|
|
$
|
84,016
|
|
|
$
|
3,970
|
|
|
$
|
384,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
43,311
|
|
|
$
|
—
|
|
|
$
|
43,311
|
|
Cost of sale
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,907
|
)
|
|
|
—
|
|
|
|
(25,907
|
)
|
Gain on land sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,404
|
|
|
$
|
—
|
|
|
$
|
17,404
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended December 31, 2017
|
|
Properties
|
|
Apartments
|
|
Land
|
|
Other
|
|
Total
|
Rental and other property revenues
|
|
$
|
32,323
|
|
|
$
|
92,807
|
|
|
$
|
87
|
|
|
$
|
16
|
|
|
$
|
125,233
|
|
Property operating expenses
|
|
|
(17,724
|
)
|
|
|
(43,677
|
)
|
|
|
(667
|
)
|
|
|
(988
|
)
|
|
|
(63,056
|
)
|
Depreciation
|
|
|
(9,200
|
)
|
|
|
(16,354
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(25,558
|
)
|
Mortgage and loan interest
|
|
|
(7,528
|
)
|
|
|
(22,346
|
)
|
|
|
(1,588
|
)
|
|
|
(28,482
|
)
|
|
|
(59,944
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,862
|
|
|
|
13,862
|
|
Recognition of deferred gain on sale of income producing properties
|
|
|
—
|
|
|
|
9,842
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,842
|
|
Gain on land sales
|
|
|
—
|
|
|
|
—
|
|
|
|
4,884
|
|
|
|
—
|
|
|
|
4,884
|
|
Segment operating income (loss)
|
|
$
|
(2,129
|
)
|
|
$
|
20,272
|
|
|
$
|
2,716
|
|
|
$
|
(15,596
|
)
|
|
$
|
5,263
|
|
Capital expenditures
|
|
$
|
3,157
|
|
|
$
|
1,402
|
|
|
$
|
609
|
|
|
$
|
—
|
|
|
$
|
5,168
|
|
Assets
|
|
$
|
137,157
|
|
|
$
|
726,852
|
|
|
$
|
115,205
|
|
|
$
|
656
|
|
|
$
|
979,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,177
|
|
|
$
|
—
|
|
|
$
|
11,177
|
|
Cost of sale
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,293
|
)
|
|
|
—
|
|
|
|
(6,293
|
)
|
Recognized prior deferred gain
|
|
|
—
|
|
|
|
9,842
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,842
|
|
Gain on sale
|
|
$
|
—
|
|
|
$
|
9,842
|
|
|
$
|
4,884
|
|
|
$
|
—
|
|
|
$
|
14,726
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended December 31, 2016
|
|
Properties
|
|
Apartments
|
|
Land
|
|
Other
|
|
Total
|
Rental and other property revenues
|
|
$
|
31,864
|
|
|
$
|
86,603
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
118,471
|
|
Property operating expenses
|
|
|
(19,476
|
)
|
|
|
(40,786
|
)
|
|
|
(1,634
|
)
|
|
|
(22
|
)
|
|
|
(61,918
|
)
|
Depreciation
|
|
|
(8,924
|
)
|
|
|
(14,759
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,683
|
)
|
Mortgage and loan interest
|
|
|
(7,167
|
)
|
|
|
(25,381
|
)
|
|
|
(1,746
|
)
|
|
|
(18,794
|
)
|
|
|
(53,088
|
)
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,670
|
|
|
|
14,670
|
|
Gain (loss) on sale of income producing properties
|
|
|
(238
|
)
|
|
|
16,445
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,207
|
|
Gain on land sales
|
|
|
—
|
|
|
|
—
|
|
|
|
3,121
|
|
|
|
—
|
|
|
|
3,121
|
|
Segment operating income (loss)
|
|
$
|
(3,941
|
)
|
|
$
|
22,122
|
|
|
$
|
(259
|
)
|
|
$
|
(4,142
|
)
|
|
$
|
13,780
|
|
Capital expenditures
|
|
$
|
4,577
|
|
|
$
|
863
|
|
|
$
|
269
|
|
|
$
|
—
|
|
|
$
|
5,709
|
|
Assets
|
|
$
|
148,689
|
|
|
$
|
624,433
|
|
|
$
|
118,051
|
|
|
$
|
—
|
|
|
$
|
891,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price
|
|
$
|
1,500
|
|
|
$
|
20,350
|
|
|
$
|
29,128
|
|
|
$
|
—
|
|
|
$
|
50,978
|
|
Cost of sale
|
|
|
(1,738
|
)
|
|
|
(3,905
|
)
|
|
|
(26,007
|
)
|
|
|
—
|
|
|
|
(31,650
|
)
|
Gain on sale
|
|
$
|
(238
|
)
|
|
$
|
16,445
|
|
|
$
|
3,121
|
|
|
$
|
—
|
|
|
$
|
19,328
|
|
The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations (dollars in thousands):
|
|
For the Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Segment operating income (loss)
|
|
$
|
13,099
|
|
|
$
|
5,263
|
|
|
$
|
13,780
|
|
Other non-segment items of income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
(11,359
|
)
|
|
|
(6,269
|
)
|
|
|
(5,476
|
)
|
Net income fee to related party
|
|
|
(631
|
)
|
|
|
(250
|
)
|
|
|
(257
|
)
|
Advisory fee to related party
|
|
|
(10,663
|
)
|
|
|
(9,995
|
)
|
|
|
(9,490
|
)
|
Other income
|
|
|
28,150
|
|
|
|
625
|
|
|
|
1,816
|
|
Gain on disposition of 50% interest in VAA
|
|
|
154,126
|
|
|
|
—
|
|
|
|
—
|
|
Foreign currency translation gain (loss)
|
|
|
12,399
|
|
|
|
(4,536
|
)
|
|
|
—
|
|
Earnings from VAA
|
|
|
44
|
|
|
|
—
|
|
|
|
—
|
|
Earnings (losses) from other unconsolidated investees
|
|
|
1,085
|
|
|
|
26
|
|
|
|
(26
|
)
|
Income tax benefit (expense)
|
|
|
(3,210
|
)
|
|
|
(180
|
)
|
|
|
(24
|
)
|
Net income (loss) from continuing operations
|
|
$
|
183,040
|
|
|
$
|
(15,316
|
)
|
|
$
|
323
|
|
The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Balance Sheets (dollars in thousands):
|
|
For the Years Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Segment assets
|
|
$
|
384,504
|
|
|
$
|
979,870
|
|
|
$
|
891,173
|
|
Investments in unconsolidated subsidiaries and investees
|
|
|
90,571
|
|
|
|
2,472
|
|
|
|
2,446
|
|
Notes and interest receivable
|
|
|
83,541
|
|
|
|
70,166
|
|
|
|
79,308
|
|
Other assets and receivables
|
|
|
303,764
|
|
|
|
260,914
|
|
|
|
212,987
|
|
Total assets
|
|
$
|
862,380
|
|
|
$
|
1,313,422
|
|
|
$
|
1,185,914
|
|
NOTE 15.
|
QUARTERLY RESULTS OF OPERATIONS
|
The following is a tabulation of TCI’s quarterly results of operations for the years 2018, 2017 and 2016. Quarterly results presented may differ from those previously reported in TCI’s Form 10-Q due to the reclassification of the operations of properties sold or held for sale to discontinued operations in accordance with ASC topic 360:
|
|
Three Months Ended 2018
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
(dollars in thousands, except share and per share amounts)
|
Total operating revenues
|
|
$
|
31,082
|
|
|
$
|
31,607
|
|
|
$
|
33,505
|
|
|
$
|
24,761
|
|
Total operating expenses
|
|
|
25,894
|
|
|
|
26,966
|
|
|
|
27,734
|
|
|
|
24,240
|
|
Operating income
|
|
|
5,188
|
|
|
|
4,641
|
|
|
|
5,771
|
|
|
|
521
|
|
Other (expense) income
|
|
|
(6,624
|
)
|
|
|
2,731
|
|
|
|
5,896
|
|
|
|
(3,404
|
)
|
(Loss) income before gain on formation of joint venture, gain on sales, non-contolling interest, and taxes
|
|
|
(1,436
|
)
|
|
|
7,372
|
|
|
|
11,667
|
|
|
|
(2,883
|
)
|
Gain on disposition of 50% interest in VAA
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
154,126
|
|
Gain on land sales
|
|
|
1,335
|
|
|
|
—
|
|
|
|
12,243
|
|
|
|
3,826
|
|
Income tax expense
|
|
|
—
|
|
|
|
—
|
|
|
|
(792
|
)
|
|
|
(2,418
|
)
|
Net (loss) income from continued operations
|
|
|
(101
|
)
|
|
|
7,372
|
|
|
|
23,118
|
|
|
|
152,651
|
|
Net (loss) income
|
|
|
(101
|
)
|
|
|
7,372
|
|
|
|
23,118
|
|
|
|
152,651
|
|
Less: net (loss) attributable to non-controlling interest
|
|
|
(132
|
)
|
|
|
(126
|
)
|
|
|
(915
|
)
|
|
|
(417
|
)
|
Preferred dividend requirement
|
|
|
(222
|
)
|
|
|
(224
|
)
|
|
|
(227
|
)
|
|
|
(227
|
)
|
Net (loss) income applicable to common shares
|
|
$
|
(455
|
)
|
|
$
|
7,022
|
|
|
$
|
21,976
|
|
|
$
|
152,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continued operations
|
|
$
|
(0.05
|
)
|
|
$
|
0.81
|
|
|
$
|
2.52
|
|
|
$
|
17.44
|
|
Net (loss) income applicable to common shares
|
|
$
|
(0.05
|
)
|
|
$
|
0.81
|
|
|
$
|
2.52
|
|
|
$
|
17.44
|
|
Weighted average common shares used in computing earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continued operations
|
|
$
|
(0.05
|
)
|
|
$
|
0.81
|
|
|
$
|
2.52
|
|
|
$
|
17.44
|
|
Net (loss) income applicable to common shares
|
|
$
|
(0.05
|
)
|
|
$
|
0.81
|
|
|
$
|
2.52
|
|
|
$
|
17.44
|
|
Weighted average common shares used in computing diluted earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
Three Months Ended 2017
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
(dollars in thousands, except share and per share amounts)
|
Total operating revenues
|
|
$
|
31,535
|
|
|
$
|
31,302
|
|
|
$
|
31,491
|
|
|
$
|
30,905
|
|
Total operating expenses
|
|
|
26,337
|
|
|
|
25,460
|
|
|
|
25,725
|
|
|
|
27,606
|
|
Operating income (loss)
|
|
|
5,198
|
|
|
|
5,842
|
|
|
|
5,766
|
|
|
|
3,299
|
|
Other expense
|
|
|
(10,658
|
)
|
|
|
(15,613
|
)
|
|
|
(8,967
|
)
|
|
|
(14,729
|
)
|
Loss before gain on sales, non-contolling interest, and taxes
|
|
|
(5,460
|
)
|
|
|
(9,771
|
)
|
|
|
(3,201
|
)
|
|
|
(11,430
|
)
|
Gain (loss) on sale of income producing properties
|
|
|
—
|
|
|
|
—
|
|
|
|
9,841
|
|
|
|
1
|
|
Gain (loss) on land sales
|
|
|
445
|
|
|
|
(476
|
)
|
|
|
530
|
|
|
|
4,385
|
|
Income tax benefit (expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(180
|
)
|
Net income (loss) from continued operations
|
|
|
(5,015
|
)
|
|
|
(10,247
|
)
|
|
|
7,170
|
|
|
|
(7,224
|
)
|
Net income (loss)
|
|
|
(5,015
|
)
|
|
|
(10,247
|
)
|
|
|
7,170
|
|
|
|
(7,224
|
)
|
Less: net (income) loss attributable to non-controlling interest
|
|
|
(119
|
)
|
|
|
(163
|
)
|
|
|
(96
|
)
|
|
|
(121
|
)
|
Preferred dividend requirement
|
|
|
(222
|
)
|
|
|
(224
|
)
|
|
|
(224
|
)
|
|
|
(230
|
)
|
Net (loss) income applicable to common shares
|
|
$
|
(5,356
|
)
|
|
$
|
(10,634
|
)
|
|
$
|
6,850
|
|
|
$
|
(7,575
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continued operations
|
|
$
|
(0.61
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
0.79
|
|
|
$
|
(0.88
|
)
|
Net income (loss) applicable to common shares
|
|
$
|
(0.61
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
0.79
|
|
|
$
|
(0.88
|
)
|
Weighted average common shares used in computing earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continued operations
|
|
$
|
(0.61
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
0.79
|
|
|
$
|
(0.88
|
)
|
Net income (loss) applicable to common shares
|
|
$
|
(0.61
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
0.79
|
|
|
$
|
(0.88
|
)
|
Weighted average common shares used in computing diluted earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
Three Months Ended 2016
|
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
(dollars in thousands, except share and per share amounts)
|
Total operating revenues
|
|
$
|
28,903
|
|
|
$
|
30,521
|
|
|
$
|
29,776
|
|
|
$
|
29,271
|
|
Total operating expenses
|
|
|
24,823
|
|
|
|
24,751
|
|
|
|
25,429
|
|
|
|
25,821
|
|
Operating income (loss)
|
|
|
4,080
|
|
|
|
5,770
|
|
|
|
4,347
|
|
|
|
3,450
|
|
Other expense
|
|
|
(9,054
|
)
|
|
|
(7,901
|
)
|
|
|
(9,309
|
)
|
|
|
(10,364
|
)
|
Loss before gain on sales, non-controlling interest, and taxes
|
|
|
(4,974
|
)
|
|
|
(2,131
|
)
|
|
|
(4,962
|
)
|
|
|
(6,914
|
)
|
Gain (loss) on sale of income producing properties
|
|
|
(244
|
)
|
|
|
5,168
|
|
|
|
—
|
|
|
|
11,283
|
|
Gain (loss) on land sales
|
|
|
1,652
|
|
|
|
1,719
|
|
|
|
555
|
|
|
|
(805
|
)
|
Income tax benefit (expense)
|
|
|
1
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
—
|
|
Net income (loss) from continued operations
|
|
|
(3,565
|
)
|
|
|
4,756
|
|
|
|
(4,432
|
)
|
|
|
3,564
|
|
Net loss from discontinued operations
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
Net income (loss)
|
|
|
(3,563
|
)
|
|
|
4,756
|
|
|
|
(4,432
|
)
|
|
|
3,561
|
|
Less: net (income) loss attributable to non-controlling interest
|
|
|
23
|
|
|
|
(97
|
)
|
|
|
(114
|
)
|
|
|
(97
|
)
|
Preferred dividend requirement
|
|
|
(222
|
)
|
|
|
(224
|
)
|
|
|
(227
|
)
|
|
|
(227
|
)
|
Net (loss) income applicable to common shares
|
|
$
|
(3,762
|
)
|
|
$
|
4,435
|
|
|
$
|
(4,773
|
)
|
|
$
|
3,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continued operations
|
|
$
|
(0.43
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.55
|
)
|
|
$
|
0.37
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) applicable to common shares
|
|
$
|
(0.43
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.55
|
)
|
|
$
|
0.37
|
|
Weighted average common shares used in computing earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continued operations
|
|
$
|
(0.43
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.55
|
)
|
|
$
|
0.37
|
|
Income from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) applicable to common shares
|
|
$
|
(0.43
|
)
|
|
$
|
0.51
|
|
|
$
|
(0.55
|
)
|
|
$
|
0.37
|
|
Weighted average common shares used in computing diluted earnings per share
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
|
|
8,717,767
|
|
NOTE 16.
|
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
|
Liquidity.
Management believes that TCI will generate excess cash from property operations in 2019; such excess, however, will not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements.
Partnership Buyouts
. TCI is the limited partner in various partnerships related the construction of residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the nonaffiliated partners are limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements.
Dynex Capital, Inc.
On July 20, 2015, the 68
th
Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).
An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resulted in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgment against Dynex Commercial, Inc. on July 20, 2015.
The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic $0.256 million in damages, plus pre-judgment interest of $0.192 million for a total amount of $0.448 million. The Judgment awarded ART $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages are paid. Lastly, the Judgement awarded Basic, ART, and TCI $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc.
The Company is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as explore possible additional claims, if any, against Dynex Capital, Inc.
Berger Litigation
On February 4, 2019, an individual claiming to be a stockholder holding 7,900 shares of Common Stock of Income Opportunity Realty Investors, Inc. (“IOR”) filed a Complaint in the United States District Court for the Northern District of Texas, Dallas Division, individually and allegedly derivatively on behalf of IOR, against Transcontinental Realty Investors, Inc. (“TCI”), American Realty Investors, Inc. (“ARL”), (TCI is a shareholder of IOR, ARL is a shareholder of TCI) Pillar Income Asset Management, Inc. (“Pillar”), ( collectively the “Companies”), certain officers and directors of the Companies (“Additional Parties”) and two other individuals. The Complaint filed alleges that the sale and/or exchange of certain tangible and intangible property between the Companies and IOR during the last ten years of business operations constitutes a breach of fiduciary duty by the one or more of Companies, the Additional Defendants and/or the directors of IOR. The case alleges other related claims. The Plaintiff seeks certification as a representative of IOR and all of its shareholders, unspecified damages, a return to IOR of various funds and an award of costs, expenses, disbursements (including Plaintiff’s attorneys’ fees) and prejudgment and post-judgment interest. The named Defendants intend to vigorously defend the action, deny all of the allegations of the Complaint, and believe the allegations to be wholly without any merit. While only in the early stages of defending the case, it is not clear that Plaintiff owns any shares of Common Stock of IOR or would be a proper representative of IOR or a class of minority stockholders.
Litigation.
The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.
Guarantees.
The Company is the primary guarantor on a $39.1 million mezzanine loan between UHF and a lender. In addition, ARL and an officer of the Company are limited recourse guarantors of the loan. As of December 31, 2018, UHF was in compliance with the covenants to the loan agreement.
NOTE 17.
EARNINGS PER SHARE
Earnings per share.
Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC 260 “Earnings per Share.” Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.
Prior to July 9, 2014, TCI had 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. These 30,000 shares were owned by RAI, a related party, and had accrued dividends unpaid of $0.9 million. The stock had a liquidation preference of $100.00 per share and could be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. On July 9, 2014, RAI converted all 30,000 shares into the requisite number of shares of common stock. The conversion resulted in the issuance of 304,298 new shares of common stock. The effects of the Series C Cumulative Convertible Preferred Stock are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the calculation for the prior periods if applying the if-converted method is dilutive.
As of December 31, 2018, there are no preferred stock or stock options that are required to be included in the calculation of EPS.
NOTE 18.
SUBSEQUENT EVENTS
The date to which events occurring after December 31, 2018, the date of the most recent balance sheet, have been evaluated for possible adjustments to the financial statements or disclosure is March 31, 2019, which is the date of which the financial statements were available to be issued. There are no subsequent events that would require an adjustment to the financial statements.
Schedule III
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
REAL ESTATE AND ACCUMULATED DEPRECIATION
|
December 31, 2018
|
|
|
|
|
|
Initial Cost
|
|
|
Cost Capitalized Subsequent to Acquisition
|
|
|
Asset Impairment
|
|
|
Gross Amount of Which Carried at End of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Location
|
|
Encumbrances
|
|
|
Land
|
|
|
Buildings
|
|
|
Improvements
|
|
|
Asset Impairment
|
|
|
Land
|
|
|
Building & Improvements
|
|
|
Total
|
|
|
Accumulated Depreciation
|
|
|
Date of Construction
|
|
|
Date Acquired
|
|
Life on Which Depreciation In Latest Statement of Operation is Computed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties Held for Investment Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy at Pleasant Grove, Texarkana, TX
|
|
|
|
|
|
|
2,005
|
|
|
|
17,892
|
|
|
|
217
|
|
|
|
—
|
|
|
|
2,005
|
|
|
|
18,109
|
|
|
|
20,114
|
|
|
|
1,817
|
|
|
|
2006
|
|
|
12/14
|
|
40 years
|
Toulon, Gautier, MS
|
|
|
|
|
|
|
1,621
|
|
|
|
20,107
|
|
|
|
372
|
|
|
|
—
|
|
|
|
1,621
|
|
|
|
20,479
|
|
|
|
22,100
|
|
|
|
3,770
|
|
|
|
2011
|
|
|
9/09
|
|
40 years
|
Villager, Ft. Walton, FL
|
|
|
|
|
|
|
141
|
|
|
|
1,267
|
|
|
|
—
|
|
|
|
—
|
|
|
|
141
|
|
|
|
1,267
|
|
|
|
1,408
|
|
|
|
116
|
|
|
|
1972
|
|
|
6/15
|
|
40 years
|
Villas at Bon Secour, Gulf Shores, AL
|
|
|
|
|
|
|
2,715
|
|
|
|
15,385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,715
|
|
|
|
15,385
|
|
|
|
18,100
|
|
|
|
160
|
|
|
|
2007
|
|
|
7/18
|
|
40 years
|
Vista Ridge, Tupelo, MS
|
|
|
|
|
|
|
1,339
|
|
|
|
13,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,339
|
|
|
|
13,398
|
|
|
|
14,737
|
|
|
|
1,544
|
|
|
|
2009
|
|
|
10/15
|
|
40 years
|
Westwood, Mary Ester, FL
|
|
|
|
|
|
|
692
|
|
|
|
6,650
|
|
|
|
—
|
|
|
|
—
|
|
|
|
692
|
|
|
|
6,650
|
|
|
|
7,342
|
|
|
|
596
|
|
|
|
1972
|
|
|
6/15
|
|
40 years
|
Chelsea, Beaumont, TX
|
|
|
|
|
|
|
1,225
|
|
|
|
11,025
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,225
|
|
|
|
11,025
|
|
|
|
12,250
|
|
|
|
23
|
|
|
|
1999
|
|
|
11/18
|
|
40 years
|
Farnham Park, Port Aurther, TX
|
|
|
|
|
|
|
1,010
|
|
|
|
9,086
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,010
|
|
|
|
9,086
|
|
|
|
10,096
|
|
|
|
—
|
|
|
|
|
|
|
11/18
|
|
40 years
|
Landing, Houma, LA
|
|
|
|
|
|
|
2,012
|
|
|
|
18,115
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,012
|
|
|
|
18,115
|
|
|
|
20,127
|
|
|
|
38
|
|
|
|
|
|
|
12/18
|
|
40 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments Held for Investment
|
|
$
|
—
|
|
|
$
|
12,760
|
|
|
$
|
112,925
|
|
|
$
|
589
|
|
|
$
|
—
|
|
|
$
|
12,760
|
|
|
$
|
113,514
|
|
|
$
|
126,274
|
|
|
$
|
8,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartments Under Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apalache Point
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
Overlook at Allensville Square II, Sevierville, TN
|
|
|
|
|
|
|
1,933
|
|
|
|
—
|
|
|
|
12,567
|
|
|
|
—
|
|
|
|
1,933
|
|
|
|
12,567
|
|
|
|
14,500
|
|
|
|
—
|
|
|
|
—
|
|
|
11/15
|
|
—
|
Forest Pines
|
|
|
|
|
|
|
5,040
|
|
|
|
—
|
|
|
|
300
|
|
|
|
—
|
|
|
|
5,040
|
|
|
|
300
|
|
|
|
5,340
|
|
|
|
—
|
|
|
|
—
|
|
|
6/17
|
|
—
|
Parc at Denham
|
|
|
|
|
|
|
714
|
|
|
|
—
|
|
|
|
4,138
|
|
|
|
—
|
|
|
|
714
|
|
|
|
4,138
|
|
|
|
4,852
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Sugar Mill II
|
|
|
|
|
|
|
576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
576
|
|
|
|
—
|
|
|
|
576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments Under Construction
|
|
$
|
—
|
|
|
$
|
8,263
|
|
|
$
|
—
|
|
|
$
|
17,026
|
|
|
$
|
—
|
|
|
$
|
8,263
|
|
|
$
|
17,026
|
|
|
$
|
25,289
|
|
|
$
|
—
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Initial Cost
|
|
|
Cost Capitalized Subsequent to Acquisition
|
|
|
Asset Impairment
|
|
|
Gross Amount of Which Carried at End of Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Location
|
|
Encumbrances
|
|
|
Land
|
|
|
Buildings
|
|
|
Improvements
|
|
|
Asset Impairment
|
|
|
Land
|
|
|
Building & Improvements
|
|
|
Total
|
|
|
Accumulated Depreciation
|
|
|
Date of Construction
|
|
|
Date Acquired
|
|
Life on Which Depreciation In Latest Statement of Operation is Computed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 Las Colinas, Las Colinas, TX
|
|
|
|
|
|
|
5,751
|
|
|
|
51,759
|
|
|
|
19,317
|
|
|
|
—
|
|
|
|
5,751
|
|
|
|
71,076
|
|
|
|
76,827
|
|
|
|
29,896
|
|
|
|
1984
|
|
|
8/05
|
|
40 years
|
770 South Post Oak, Houston, TX
|
|
|
|
|
|
|
1,763
|
|
|
|
15,834
|
|
|
|
412
|
|
|
|
—
|
|
|
|
1,763
|
|
|
|
16,246
|
|
|
|
18,009
|
|
|
|
1,619
|
|
|
|
1970
|
|
|
7/15
|
|
40 years
|
Bridgeview Plaza, LaCrosse, WI
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,157
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,157
|
|
|
|
1,157
|
|
|
|
710
|
|
|
|
1979
|
|
|
3/03
|
|
40 years
|
Browning Place (Park West I), Farmers Branch, TX
|
|
|
|
|
|
|
5,096
|
|
|
|
45,868
|
|
|
|
22,848
|
|
|
|
—
|
|
|
|
5,096
|
|
|
|
68,716
|
|
|
|
73,812
|
|
|
|
26,556
|
|
|
|
1984
|
|
|
4/05
|
|
40 years
|
Mahogany Run Golf Course, US Virgin Islands
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
1981
|
|
|
11/14
|
|
40 years
|
Thermalloy
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fruitland Plaza, Fruitland Park, FL
|
|
|
|
|
|
|
23
|
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
|
|
23
|
|
|
|
83
|
|
|
|
106
|
|
|
|
62
|
|
|
|
—
|
|
|
05/92
|
|
40 years
|
Senlac VHP, Farmers Branch, TX
|
|
|
|
|
|
|
622
|
|
|
|
—
|
|
|
|
142
|
|
|
|
—
|
|
|
|
622
|
|
|
|
142
|
|
|
|
764
|
|
|
|
142
|
|
|
|
—
|
|
|
8/05
|
|
40 years
|
Stanford Center, Dallas, TX
|
|
|
|
|
|
|
20,278
|
|
|
|
34,862
|
|
|
|
7,953
|
|
|
|
(9,600
|
)
|
|
|
20,278
|
|
|
|
33,215
|
|
|
|
53,493
|
|
|
|
12,148
|
|
|
|
—
|
|
|
6/08
|
|
40 years
|
Total Commercial Held for Investment
|
|
$
|
224
|
|
|
$
|
33,533
|
|
|
$
|
148,323
|
|
|
$
|
51,912
|
|
|
$
|
(9,600
|
)
|
|
$
|
33,533
|
|
|
$
|
190,635
|
|
|
$
|
224,168
|
|
|
$
|
71,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonneau Land, Farmers Branch, TX
|
|
|
—
|
|
|
|
1,309
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,309
|
|
|
|
—
|
|
|
|
1,309
|
|
|
|
—
|
|
|
|
—
|
|
|
12/14
|
|
—
|
Cooks Lane, Fort Worth, TX
|
|
|
—
|
|
|
|
1,094
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,094
|
|
|
|
—
|
|
|
|
1,094
|
|
|
|
—
|
|
|
|
—
|
|
|
6/04
|
|
—
|
Dedeaux, Gulfport, MS
|
|
|
0
|
|
|
|
1,612
|
|
|
|
—
|
|
|
|
46
|
|
|
|
(38
|
)
|
|
|
1,612
|
|
|
|
8
|
|
|
|
1,620
|
|
|
|
—
|
|
|
|
—
|
|
|
10/06
|
|
—
|
Gautier Land, Gautier, MS
|
|
|
—
|
|
|
|
202
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
202
|
|
|
|
—
|
|
|
|
202
|
|
|
|
—
|
|
|
|
—
|
|
|
7/98
|
|
—
|
Lake Shore Villas, Humble, TX
|
|
|
—
|
|
|
|
81
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
81
|
|
|
|
3
|
|
|
|
84
|
|
|
|
—
|
|
|
|
—
|
|
|
3/02
|
|
—
|
Lubbock Land, Lubbock, TX
|
|
|
—
|
|
|
|
234
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
234
|
|
|
|
—
|
|
|
|
234
|
|
|
|
—
|
|
|
|
—
|
|
|
1/04
|
|
—
|
Nakash, Malden, MO
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
113
|
|
|
|
—
|
|
|
|
—
|
|
|
1/93
|
|
—
|
Nashville, Nashville, TN
|
|
|
—
|
|
|
|
662
|
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
662
|
|
|
|
59
|
|
|
|
721
|
|
|
|
—
|
|
|
|
—
|
|
|
6/02
|
|
—
|
Ocean Estates, Gulfport, MS
|
|
|
—
|
|
|
|
1,418
|
|
|
|
—
|
|
|
|
390
|
|
|
|
—
|
|
|
|
1,418
|
|
|
|
390
|
|
|
|
1,808
|
|
|
|
—
|
|
|
|
—
|
|
|
10/07
|
|
—
|
Texas Plaza Land, Irving, TX
|
|
|
—
|
|
|
|
1,738
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(238
|
)
|
|
|
1,738
|
|
|
|
(238
|
)
|
|
|
1,500
|
|
|
|
—
|
|
|
|
—
|
|
|
12/06
|
|
—
|
Union Pacific Railroad Land, Dallas, TX
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
130
|
|
|
|
—
|
|
|
|
—
|
|
|
3/04
|
|
—
|
Willowick Land, Pensacola, FL
|
|
|
—
|
|
|
|
137
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
137
|
|
|
|
—
|
|
|
|
137
|
|
|
|
—
|
|
|
|
—
|
|
|
1/95
|
|
—
|
Windmill Farms Land, Kaufman County, TX
|
|
|
—
|
|
|
|
56,796
|
|
|
|
—
|
|
|
|
13,911
|
|
|
|
(20,343
|
)
|
|
|
56,796
|
|
|
|
(6,432
|
)
|
|
|
50,364
|
|
|
|
—
|
|
|
|
—
|
|
|
11/11
|
|
—
|
2427 Valley View Ln, Farmers Branch, TX
|
|
|
—
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
76
|
|
|
|
—
|
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
7/12
|
|
—
|
Lacy Longhorn Land, Farmers Branch, TX
|
|
|
0
|
|
|
|
1,169
|
|
|
|
—
|
|
|
|
(760
|
)
|
|
|
—
|
|
|
|
1,169
|
|
|
|
(760
|
)
|
|
|
409
|
|
|
|
—
|
|
|
|
—
|
|
|
6/04
|
|
—
|
Minivest Land, Dallas, TX
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
4/13
|
|
—
|
Mira Lago, Farmers Branch, TX
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
15
|
|
|
|
—
|
|
|
|
59
|
|
|
|
15
|
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
5/01
|
|
—
|
Nicholson Croslin, Dallas, TX
|
|
|
—
|
|
|
|
184
|
|
|
|
—
|
|
|
|
(118
|
)
|
|
|
—
|
|
|
|
184
|
|
|
|
(118
|
)
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
10/98
|
|
—
|
Nicholson Mendoza, Dallas, TX
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
80
|
|
|
|
(51
|
)
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
10/98
|
|
—
|
Valley View 34 (Mercer Crossing), Farmers Branch, TX
|
|
|
—
|
|
|
|
1,173
|
|
|
|
—
|
|
|
|
(945
|
)
|
|
|
—
|
|
|
|
1,173
|
|
|
|
(945
|
)
|
|
|
228
|
|
|
|
—
|
|
|
|
—
|
|
|
8/08
|
|
—
|
Mercer Crossing Land L2876
|
|
|
—
|
|
|
|
12,029
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,029
|
|
|
|
—
|
|
|
|
12,029
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Mercer Crossing Land L2877
|
|
|
—
|
|
|
|
2,834
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,834
|
|
|
|
—
|
|
|
|
2,834
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Dominion Mercer, Farmers Branch, TX
|
|
|
—
|
|
|
|
3,801
|
|
|
|
—
|
|
|
|
2,774
|
|
|
|
—
|
|
|
|
3,801
|
|
|
|
2,774
|
|
|
|
6,575
|
|
|
|
—
|
|
|
|
—
|
|
|
10/16
|
|
—
|
McKinney 36, Collin County, TX
|
|
|
—
|
|
|
|
635
|
|
|
|
—
|
|
|
|
161
|
|
|
|
(19
|
)
|
|
|
635
|
|
|
|
142
|
|
|
|
777
|
|
|
|
—
|
|
|
|
—
|
|
|
1/98
|
|
—
|
McKinney Ranch Land
|
|
|
5,183
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travis Ranch Land, Kaufman County, TX
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
8/08
|
|
—
|
Travis Ranch Retail, Kaufman City, TX
|
|
|
—
|
|
|
|
1,517
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,517
|
|
|
|
—
|
|
|
|
1,517
|
|
|
|
—
|
|
|
|
—
|
|
|
8/08
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Land Held for Investment
|
|
$
|
5,183
|
|
|
$
|
89,170
|
|
|
$
|
—
|
|
|
$
|
15,485
|
|
|
$
|
(20,638
|
)
|
|
$
|
89,170
|
|
|
$
|
(5,153
|
)
|
|
$
|
84,017
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Departments/Investments/Misc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TCI - Corporate
|
|
|
78,134
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Total Corporate Departments/Investments/Misc.
|
|
$
|
78,134
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
Total Properties Held for Investment
|
|
$
|
83,541
|
|
|
$
|
143,726
|
|
|
$
|
261,248
|
|
|
$
|
85,012
|
|
|
$
|
(30,238
|
)
|
|
$
|
143,726
|
|
|
$
|
316,022
|
|
|
$
|
459,748
|
|
|
$
|
79,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties Held for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Held for Sale
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total Properties Held for Sale
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties Subject to Sales Contract Apartments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Apartments Subject to Sales Contract
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Subject to Sales Contract
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominion Tract, Dallas, TX
|
|
|
0
|
|
|
|
2,440
|
|
|
|
—
|
|
|
|
53
|
|
|
|
(133
|
)
|
|
|
2,440
|
|
|
|
(80
|
)
|
|
|
2,360
|
|
|
|
—
|
|
|
|
—
|
|
|
3/99
|
|
—
|
Hollywood Casino Tract I, Farmers Branch, TX
|
|
|
0
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
0
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
6/02
|
|
—
|
Whorton Land, Bentonville, AR
|
|
|
—
|
|
|
|
3,510
|
|
|
|
—
|
|
|
|
568
|
|
|
|
(2,451
|
)
|
|
|
3,510
|
|
|
|
(1,883
|
)
|
|
|
1,627
|
|
|
|
—
|
|
|
|
—
|
|
|
6/05
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Land Subject to Sales Contract
|
|
$
|
—
|
|
|
$
|
5,947
|
|
|
$
|
—
|
|
|
$
|
621
|
|
|
$
|
(2,584
|
)
|
|
$
|
5,947
|
|
|
$
|
(1,963
|
)
|
|
$
|
3,984
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties Subject to Sales Contract
|
|
$
|
—
|
|
|
$
|
5,947
|
|
|
$
|
—
|
|
|
$
|
621
|
|
|
$
|
(2,584
|
)
|
|
$
|
5,947
|
|
|
$
|
(1,963
|
)
|
|
$
|
3,984
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total Land Sold
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL: Real Estate
|
|
$
|
83,541
|
|
|
$
|
149,673
|
|
|
$
|
261,248
|
|
|
$
|
85,633
|
|
|
$
|
(32,822
|
)
|
|
$
|
149,673
|
|
|
$
|
314,059
|
|
|
$
|
463,732
|
|
|
$
|
79,228
|
|
|
|
|
|
|
|
|
|
REAL ESTATE AND ACCUMULATED DEPRECIATION
|
As of December 31, 2018
|
SCHEDULE III
|
(Continued)
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
Reconciliation of Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
1,165,662
|
|
|
$
|
1,066,603
|
|
|
$
|
1,003,545
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, improvements and construction
|
|
|
175,996
|
|
|
|
129,483
|
|
|
|
112,762
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of real estate
|
|
|
(877,926
|
)
|
|
|
(30,424
|
)
|
|
|
(49,704
|
)
|
Asset impairments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at December 31,
|
|
$
|
463,732
|
|
|
$
|
1,165,662
|
|
|
$
|
1,066,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Accumulated Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
|
|
$
|
177,546
|
|
|
$
|
165,597
|
|
|
$
|
150,038
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,761
|
|
|
|
24,417
|
|
|
|
23,277
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of real estate
|
|
|
(121,079
|
)
|
|
|
(12,468
|
)
|
|
|
(7,718
|
)
|
Balance at December 31,
|
|
$
|
79,228
|
|
|
$
|
177,546
|
|
|
$
|
165,597
|
|
SCHEDULE IV
|
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
MORTGAGE LOANS RECEIVABLE
|
December 31, 2018
|
Description
|
|
Interest
Rate
|
|
Final Maturity
Date
|
|
Periodic Payment Terms
|
|
Prior
Liens
|
|
|
Face Amount of
Mortgage
|
|
|
Carrying Amount of Mortgage
|
|
|
Principal or Loans
Subject to Delinquent
Principal or Interest
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H198, LLC
|
|
12.00%
|
|
Jan-19
|
|
Excess cash flow
|
|
$
|
—
|
|
|
$
|
5,907
|
|
|
$
|
5,907
|
|
|
|
—
|
|
Las Vegas Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H198, LLC
|
|
12.00%
|
|
Oct-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
496
|
|
|
|
496
|
|
|
|
—
|
|
Legacy at Pleasant Grove
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H198, LLC
|
|
12.00%
|
|
Oct-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
4,554
|
|
|
|
4,554
|
|
|
|
—
|
|
McKinney Ranch Land
|
|
6%
|
|
Sep-20
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forest Pines
|
|
5%
|
|
Sep-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
2,223
|
|
|
|
2,223
|
|
|
|
|
|
Spyglass Apartments of Ennis, LP
|
|
5%
|
|
Nov-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
5,083
|
|
|
|
5,083
|
|
|
|
|
|
Bellwether Ridge
|
|
5%
|
|
May-20
|
|
Excess cash flow
|
|
|
—
|
|
|
|
3,429
|
|
|
|
3,429
|
|
|
|
|
|
Parc at Windmill Farms
|
|
5%
|
|
May-20
|
|
Excess cash flow
|
|
|
—
|
|
|
|
6,066
|
|
|
|
6,067
|
|
|
|
|
|
Unified Housing Foundation, Inc. (Echo Station)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
9,719
|
|
|
|
1,809
|
|
|
|
1,481
|
|
|
|
—
|
|
100% Interest in UH of Temple, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) (31.5% of cash flow)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
15,756
|
|
|
|
8,836
|
|
|
|
6,369
|
|
|
|
—
|
|
Interest in Unified Housing Foundation Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unified Housing Foundation, Inc. (Limestone Ranch)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
18,641
|
|
|
|
12,335
|
|
|
|
7,953
|
|
|
|
—
|
|
100% Interest in UH of Vista Ridge, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unified Housing Foundation, Inc. (Timbers of Terrell)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
7,294
|
|
|
|
1,702
|
|
|
|
1,323
|
|
|
|
—
|
|
100% Interest in UH of Terrell, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unified Housing Foundation, Inc. (Tivoli)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
10,398
|
|
|
|
10,742
|
|
|
|
6,140
|
|
|
|
—
|
|
100% Interest in UH of Tivoli, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oulan-Chikh Family Trust
|
|
8.00%
|
|
21-Mar
|
|
|
|
|
—
|
|
|
|
174
|
|
|
|
174
|
|
|
|
—
|
|
Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) (68.5% of cash flow)
|
|
12.00%
|
|
Dec-32
|
|
Excess cash flow
|
|
|
15,965
|
|
|
|
2,189
|
|
|
|
2,000
|
|
|
|
—
|
|
Unified Housing Foundation, Inc (2015 Advisory Fee)
|
|
12.00%
|
|
Dec-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
3,994
|
|
|
|
3,994
|
|
|
|
—
|
|
Unified Housing Foundation, Inc (2008-2014 Advisory Fee)
|
|
12.00%
|
|
Dec-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
6,407
|
|
|
|
6,407
|
|
|
|
—
|
|
Unified Housing Foundation, Inc (2017 Advisory Fee)
|
|
12.00%
|
|
Jun-19
|
|
Excess cash flow
|
|
|
—
|
|
|
|
5,760
|
|
|
|
5,760
|
|
|
|
—
|
|
Unified Housing Foundation, Inc (2018 Advisory Fee)
|
|
12.00%
|
|
Jun-21
|
|
Excess cash flow
|
|
|
—
|
|
|
|
5,314
|
|
|
|
5,314
|
|
|
|
|
|
Various related party notes
|
|
various
|
|
various
|
|
Excess cash flow
|
|
|
—
|
|
|
|
2,890
|
|
|
|
2,890
|
|
|
|
—
|
|
Various non-related party notes
|
|
various
|
|
various
|
|
|
|
|
—
|
|
|
|
1,031
|
|
|
|
1,031
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
78,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
|
|
6,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for estimated losses
|
|
|
|
(1,825
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,541
|
|
|
|
|
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
MORTGAGE LOANS RECEIVABLE
|
As of December 31,
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
(dollars in thousands)
|
|
Balance at January 1,
|
|
$
|
70,166
|
|
|
$
|
81,133
|
|
|
$
|
71,376
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
New mortgage loans
|
|
|
13,123
|
|
|
|
16,422
|
|
|
|
11,703
|
|
Increase (decrease) of interest receivable on mortgage loans
|
|
|
6,329
|
|
|
|
668
|
|
|
|
9,878
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts received
|
|
|
(6,077
|
)
|
|
|
(26,230
|
)
|
|
|
(11,824
|
)
|
Non-cash reduction
|
|
|
—
|
|
|
|
(1,827
|
)
|
|
|
—
|
|
Balance at December 31,
|
|
$
|
83,541
|
|
|
$
|
70,166
|
|
|
$
|
81,133
|
|