FORM 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2020
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Transcontinental Realty Investors, Inc.
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Nevada | 94-6565852 | ||||||||||||||||
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1603 LBJ Freeway, | Suite 800
| Dallas | TX | 75234 | |||||||||||||
(Address of principal executive offices) | (Zip Code) | ||||||||||||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common Stock | TCI | NYSE | ||||||
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
| Large accelerated filer ☐ | Accelerated filer ☐ | |||||||||||
Non-accelerated filer | Smaller reporting company ☒ | |||||||||||
Emerging growth Company ☐ | ||||||||||||
Based on the last sale at the close of business on June 30, 2019, the
registrant's most recently completed second fiscal quarter based upon the price at which the common stock was last sold on that day.
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2
TCIAccordingly, we include IOR’s financial results in our consolidated financial statements. IOR’s primary business is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with investing in mortgage loans.
On July 17, 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%appropriate to over 80%more than one of the sharesentities, the investment opportunity may be allocated to the entity which has had funds available for investment for the longest period of common stock of IOR outstanding. Upon acquisitiontime, or, if appropriate, the investment may be shared among all three or two of the additional shares in 2009, IOR’s results of operations began to be consolidated with those of the Company for tax and financial reporting purposes. As of December 31, 2019, TCI owned 81.23% of the outstanding IOR common shares. Shares of IOR common stock are listed and traded on the NYSE American under the symbol “IOR”.
TCI’s Board of Directors are 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 toentities.
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.), effective August 7, 2014), a Nevada corporation, the sole shareholdercontrolling stockholder of which is a trust known as the May Trust, became the Company’s external contractual Advisor and Cash Manager. ARL.
3
| Property | Location | No. of Units | Costs to Date (1) | Total Projected Costs (1) | ||||||||||||||||||||||
| Athens | Athens, AL | 232 | 270 | 34,800 | ||||||||||||||||||||||
| Heritage McKinney | McKinney, TX | 170 | 231 | 24,650 | ||||||||||||||||||||||
| Total | 402 | $ | 501 | $ | 59,450 | |||||||||||||||||||||
Southern Properties Capital Ltd. (“Southern” or “SPC”) 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 any other security) are listed and traded 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 These investments have included in the consolidated financial statements of TCI.
On January 1, 2012, the Company entered into a development agreement withnotes receivables from 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.("UHF") Due to thisour ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, we consider UHF has been determined to be a related party.
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 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 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.
Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.
At December 31, 2019, our portfolio of income-producing properties consisted of:
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4
The following table sets forth the location of our real estate held for investment (income-producing properties only) by asset type as of December 31, 2019:
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| Apartments |
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| Apartments |
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| Commercial |
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Location |
| No. |
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| Units |
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| No. |
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| Units |
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| No. |
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| SF |
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Alabama |
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| 1 |
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| 200 |
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| 1 |
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| 168 |
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| — |
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| — |
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Arkansas |
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| — |
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| — |
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| 5 |
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| 1,122 |
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| — |
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| — |
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Colorado |
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| — |
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| — |
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| 2 |
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| 260 |
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| — |
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| — |
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Florida |
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| 1 |
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| 33 |
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| 2 |
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| 388 |
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| 1 |
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| 6,722 |
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Georgia |
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| — |
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| — |
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| 1 |
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| 222 |
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| — |
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| — |
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Louisiana |
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| 2 |
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| 384 |
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| 3 |
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| 464 |
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| — |
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| — |
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Mississippi |
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| 2 |
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| 400 |
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| 1 |
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| 196 |
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| — |
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| — |
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North Carolina |
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| — |
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| — |
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| 1 |
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| 201 |
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| — |
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| — |
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Nevada |
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| — |
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| — |
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| 1 |
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| 308 |
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| — |
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| — |
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Tennessee |
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| 1 |
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| 144 |
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| 4 |
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| 708 |
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| — |
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| — |
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Texas-Greater Dallas-Ft Worth |
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| — |
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| — |
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| 19 |
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| 3,709 |
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| 4 |
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| 1,473,634 |
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Texas-Greater Houston |
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| — |
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| — |
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| 2 |
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| 416 |
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| 1 |
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| 95,329 |
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Texas-Other |
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| 3 |
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| 496 |
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| 9 |
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| 1,726 |
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| — |
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| — |
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Wisconsin |
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| — |
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| — |
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| — |
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| — |
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| 1 |
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| 122,205 |
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Total |
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| 10 |
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| 1,657 |
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| 51 |
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| 9,888 |
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| 7 |
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| 1,697,890 |
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We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties, and debt financing primarily in the form of property-specific, first-lien mortgage loans from commercial banks and institutional lenders. We financeMost of the mortgage notes payable on our development projects principallymultifamily properties are insured with short-term, variable-rate construction loans thatDepartment of Housing and Urban Development ("HUD"). HUD back mortgage notes payable generally provides for lower interest rates and longer term than conventional debt. However, HUD insured mortgage notes payable are refinanced withsubject to extensive regulations over the proceedsorigination and transfers of long-term, fixed-rate amortizing mortgages whenmortgage notes payable and restrictions on the development has been completedamount and occupancy has been stabilized.timing of distribution of cash flows from the underlying real estate. When we sell properties, we may carry a portion of the sales price, generally in the form of a short-term interest bearing seller-financed note receivable, secured by the property being sold. We may also from time to time enter into partnerships or joint ventures with various investors to acquire land or income-producing properties, or to sell interests in some of our properties.
5
At December 31, 2019, our apartment projects in development included (dollars in thousands):
Property |
| Location |
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| No. of Units |
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| Costs to Date (1) |
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| Total Projected Costs (1) |
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Sugar Mill III |
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| Addis, LA |
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| 72 |
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| $ | 7,417,244 |
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| $ | 10,014,582 |
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Parc at Denham Springs Phase II |
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| Denham Springs, LA |
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| 144 |
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| 17,791,765 |
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| 18,767,871 |
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Forest Pines II (Forest Grove) |
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| Bryan, TX |
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| 84 |
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| 4,843,342 |
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| 11,258,990 |
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LD Athens |
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| Athens, Al |
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| 232 |
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| 81,372 |
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| 30,519,021 |
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McKinney Heritage |
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| McKinney, TX |
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| 176 |
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| 88,931 |
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| 24,767,176 |
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Total |
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| 708 |
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| $ | 30,222,654 |
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| $ | 95,327,640 |
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(1)Costs include construction hard costs, construction soft costs and loan borrowing costs.
We have made investments in a number of large tracts of undeveloped and partially developed land and intend to continue to improve these tracts of land for our own development purposes or make the improvements necessary to ready the land for sale to other developers.
At December 31, 2019, our investments in undeveloped and partially developed land consisted of the following (dollars in thousands):
Location |
| Acquired |
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| Acres |
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| Cost |
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| Intended Use |
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Dallas, TX |
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| 1996-2013 |
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| 11.57 |
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| 3,057 |
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| Mixed use |
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Farmers Branch, TX |
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| 2008 |
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| 60.62 |
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| 10,966 |
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| Mixed use |
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Kaufman County, TX |
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| 2011 |
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| 1,781.83 |
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| 49,238 |
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| Mixed use |
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Various |
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| 1990-2008 |
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| 96.97 |
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| 6,742 |
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| Various |
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Total Land Holdings |
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| 1,950.99 |
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| $ | 70,003 |
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6
Significant Real Estate Acquisitions/Dispositions and Financings
The following is a description of the Company’s significant real estate and financing transactions during the year ended December 31 2019:
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The Company continues to invest in the development of apartment projects. During the year ended December 31, 2019, TCI has invested $28.5 million related to the construction or predevelopment of various apartment complexes and capitalized $0.8 million of interest costs.
7
Business Plan and Investment Policy
Our business objective is to maximize long-term value for our stockholders by investing in residential and commercial real estate through the acquisition, development and ownership of apartments, commercial properties and land. We intendenables us to achieve this objective through acquiringhigher construction quality, greater control over construction schedules and developing properties in multiple markets and operating as an industry-leading landlord.cost savings. We believe this objective will provide the benefits of enhanced investment opportunities, economies of scale and risk diversification, both in terms of geographic market and real estate product type. We believe our objective will also result in continuing accessactively monitor construction progress to favorably priced debt and equity capital. In pursuing our business objective, we seekensure quality workmanship to achieve a combination of internal and external growth while maintaining a strong balance sheet and employing a strategy of financial flexibility. We maximize the value of our apartments and commercial properties by maintaining high occupancy levels while charging competitive rental rates, controlling costs and focusing on tenant retention. We also pursue attractive development opportunities either directly or in partnership with other investors.
For our portfolio of commercial properties, we generate increased operating cash flow through annual contractual increases in rental rates under existing leases. We also seek to identify best practices within our industry and across our business units in order to enhance cost savings and gain operating efficiencies. We employ capital improvement and preventive maintenance programs specifically designed to reduce operating costs and increase the long-term value of our real estate investments.
We seek to acquire properties consistent with our business objectives and strategies. We execute our acquisition strategy by purchasing properties which management believes will create stockholder value over the long-term. We will also sell properties when management believes value has been maximized or when a property is no longer considered an investment to be held long-term.
We are continuously in various stages of discussions and negotiations with respect to development, acquisition, and disposition of projects. The consummation of any current or future development, acquisition, or disposition, if any, and the pace at which any may be completed cannot be assured or predicted.
Substantially all of our properties are owned by subsidiary companies, many of which are single-asset entities. This ownership structure permits greater access to financing for individual properties and permits flexibility in negotiating aenable sale of either the asset or the equity interests in the entity owning the asset. From time-to-time, our subsidiaries have invested in joint ventures with other investors, creating the possibility of risks that do not exist with properties solely owned by a TCI subsidiary. In those instances where other investors are involved, those other investors may have business, economic, or other objectives that are inconsistent with our objectives, which may in turn, require usdeveloped lots to make investment decisions different from those if we were the sole owner.
Real estate generally cannot be sold quickly. We may not be able to promptly dispose of properties in response to economic or other conditions. To offset this challenge, selective dispositions have been a part of our strategy to maintain an efficient investment portfolio and to provide additional sources of capital. We finance acquisitions through mortgages, internally generated funds, and, to a lesser extent, property sales. Those sources provide the bulk of funds for future acquisitions. We may purchase properties by assuming existing loans secured by the acquired property. When properties are acquired in such a manner, we customarily seek to refinance the asset in order to properly leverage the asset in a manner consistent with our investment objectives.
Our businesses are not generally seasonal with regard to real estate investments. Our investment strategy seeks both current income and capital appreciation. Our plan of operation is to continue, to the extent our liquidity permits, to make equity investments in income-producing real estate such as apartments and commercial properties. We may also invest in the debt or equity securities of real estate-related entities. We intend to pursue higher risk, higher reward investments, such as improved and unimproved land where we can obtain reasonably-priced financing for substantially all of a property’s purchase price. We intend to continue the development of apartment properties in selected markets in Texas and in other locations where we believe adequate levels of demand exist. We intend to pursue sales opportunities for properties in stabilized real estate markets where we believe our properties’ value has been maximized. We also intend to be an opportunistic seller of properties in markets where demand exceeds current supply. Although we no longer actively seek to fund or purchase mortgage loans, we may, in selected instances, originate mortgage loans or we may provide purchase money financing in conjunction with a property sale.
8
Our Board of Directors has broad authority under our governing documents to make all types of investments, and we may devote available resources to particular investments or types of investments without restriction on the amount or percentage of assets that may be allocated to a single investment or to any particular type of investment, and without limit on the percentage of securities of any one issuer that may be acquired. Investment objectives and policies may be changed at any time by the Board without stockholder approval.
The specific composition from time-to-time of our real estate portfolio owned by TCI directly and through our subsidiaries depends largely on the judgment of management to changing investment opportunities and the level of risk associated with specific investments or types of investments. We intend to maintain a real estate portfolio that is diversified by both location and type of property.
Competition
As described above
In addition, as described in Part III, Item 13. “Certain Relationships and Related Transactions, and Director Independence”, TCI competes with related parties of Pillar having similar investment objectives related tosegments: the acquisition, development, disposition, leasingownership and financingmanagement of real estatemultifamily properties, and real estate-related investments. In resolving any potential conflictsthe acquisition, development, ownership and management of interestcommercial properties; which may arise,are primarily office properties. The services for our office segment include primarily rental of office space and other tenant services, including parking and storage space rental. The services for our multifamily segment include primarily rental of apartments and other tenant services, including parking and storage space rental. See Note 15 to our consolidated financial statements in Item 8 of this Report for more information regarding our segments.
We have historically engaged in and will continue to engage in certain business transactions with related parties, including but not limited to asset acquisitions 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 the best interests of the Company.
9
TCI maintains
10
financial condition or operating results will continue to be affected by the COVID – 19 pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted. the pandemic, the actions taken to contain or mitigate its impact, the timing of distribution and effectiveness of vaccines and the willingness and ability of the public to get vaccinated in a timely manner, and the direct and indirect economic effects of the pandemic and related containment measures, among others. Also, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in this Report. us. If the availability of land or high quality properties in our markets diminishes, operating results could be adversely affected. properties. or acquire and redevelop or renovate existing properties. We conduct some of our operations through a joint venture in which we share control over certain economic and business interests with our joint venture partner. Our joint terms that are detrimental to us. We intend to devote resources to the development of new projects. industry. receivable has been fully reserved. joint venture agreement. those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”). Fair Value of Financial Instruments 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: Parties Environmental Matters in the United States of America. requirements. 24, 2021 2020 Our primary business is the acquisition, development and ownership of income-producing Basis of presentation VIE. In determining whether we are the primary beneficiary, cash flows. fair value less cost to sell.Risk Factors RelatedBusinessbusinessoperating results depend, in large part, on revenues derived from leasing space in our residential multifamily communities to residential tenants and the ability of tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID – 19 pandemic and measures implemented to prevent its spread have and may continue to adversely affect our returns and profitability. As a result, our ability to make distributions may be impactedcompromised, and we could experience volatility with respect to the market value of our properties and common stock. The spread of COVID – 19 has resulted in increases in unemployment and mass layoffs, and some tenants have experienced deteriorating financial conditions and are unwilling or unable to pay all or part of their rent on a timely basis, or at all, and the continued spread of COVID – 19 as well as a sustained economic downturn may result in further increases or sustainment of these situations. In some cases, we may be legally required or otherwise agree to restructure tenants’ rent obligations and may not be able to do so in terms favorable to us as those currently in place. Further, various city, county and state laws restricting rent increases in times of emergency may come into effect in connection with the COVID – 19 pandemic, and numerous state, local, federal and industry-initiated efforts have and may continue to affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations or prohibitions on evicting tenants unwilling or unable to pay rent and prohibitions on the ability to collect unpaid rent during certain time frames. Additionally, eviction moratoriums have passed at various formats at every level of government, and while we strive to comply, given some of the conflicting standards and unclear requirements, strict compliance may be difficult. Some residents’ views about their obligations to pay rent, even when financially capable of meeting the rent obligation, have shifted away from viewing rent as a primary and necessary financial obligation, and this shift may continue or worsen as a result of the pandemic impacteviction moratoriums and the coronavirus (“COVID 19”)various laws affecting our abilities to collect rent. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our property and have inlimited ability to renew existing leases or sign new leases at projected rents. Additionally, market fluctuations as a result of the U.S. and global economy.During 2020, a strain of coronavirus (“COVID – 19”) was reported worldwide, resulting in decreased economic activity and concerns about the pandemic, which would adversely affect the broader global economy. The Company is taking all necessary steps to keep our business premises, tenants, vendors and employees in a safe environment and are constantly monitoring the impact of COVID – 19. At this point, the extent to which COVID – 19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments or refinancing for existing assets on satisfactory terms, or at all. In addition, moratoriums on construction and macroeconomic factors have caused some construction delays and may cause construction contractors to be unable to perform and governmental inspections and approvals to be delayed or postponed, which may cause a delivery date of certain development projects or investments in third-party development projects to be materially extended. Market fluctuations and construction delays experienced by our vendors may also negatively impact their ability to provide services to us. Further, while we carry general liability, pollution and property insurance, along with other insurance policies, and may provide some coverage for any losses or costs incurred in connection with the COVID – 19 pandemic, given the novelty of the issue and scale of losses incurred throughout the world, there is no guarantee that we will be able to recover all or any portion of our losses and costs under these policies.economyimpact of the COVID – 19 pandemic continues to evolve rapidly, and our business is uncertain, but pandemics or other significant public health events could have a material adversethe extent of its effect on our businessoperational and resultsfinancial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of operations.the Company haswe have limited or no control, such as:●lack of demand for space in areas where the properties are located;●inability to retain existing tenants and attract new tenants;●oversupply of or reduced demand for space and changes in market rental rates;●defaults by tenants or failure to pay rent on a timely basis;●the need to periodically renovate and repair marketable space;●physical damage to properties;●economic or physical decline of the areas where properties are located; and●potential risk of functional obsolescence of properties over time.the Company.11properties.ourits ability to develop additional properties.●construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property;●construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;●some developments may fail to achieve expectations, possibly making them less profitable;●we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project;●we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. If we determine to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss;●we may expend funds on and devote management’s time to projects which will not be completed; and●occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may result in lower than projected rental rates and reduced income from operations.●when we are able to locate a desired property, competition from other real estate investors may significantly increase the seller’s offering price;●acquired properties may fail to perform as expected;12●the actual costs of repositioning or redeveloping acquired properties may be higher than original estimates;●acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures; and●we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into existing operations, and results of operations and financial condition could be adversely affected.the Companywe may suffer economic harm as a result of adverse conditions in those markets.The Company’sOur overall performance is largely dependent on economic conditions in those regions.20192020 of approximately $493.3$474.0 million. Substantially all assets have been pledged to secure debt. These borrowings increase the risk of loss because they represent a prior claim on assets and most require fixed payments regardless of profitability. Our leveraged position makes us vulnerable to declines in the general economy and may limit the Company’sour ability to pursue other business opportunities in the future.the Company relies.we rely. There is no guarantee that we will be able to access these markets or any other source of capital. The ability to access the public debt and equity markets depends on a variety of factors, including:●general economic conditions affecting these markets;●our own financial structure and performance;●the market’s opinion of real estate companies in general; and●the market’s opinion of real estate companies that own similar properties;13the Company’sour indebtedness.itsour debt will be repaid prior to maturity. Therefore, we are likely to refinance a portion of itsour outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or the terms of any refinancing will not be as favorable as the terms of the maturing debt. If principal balances due at maturity cannot be refinanced, extended, or repaid with proceeds from other sources, such as the proceeds of sales of assets or new equity capital, cash flow may not be sufficient to repay all maturing debt in years when significant “balloon” payments come due.unattractive terms.the Companywe may guarantee. The Company’sOur obligation to pay interest on this financing continues until the rental project is completed, leased upleased-up and permanent financing is obtained, or the project is sold, or the construction loan is otherwise paid. Unexpected delays in completion of one or more ongoing projects could also have a significant adverse impact on business operations and cash flow.limited and generally reallimited. Real estate investments generally cannot be sold quickly. In the event that we must sell assets to generate cash flow, we cannot predict whether there will be a market for those assets in the time period desired, or whether we will be able to sell the assets at a price that will allow the Companyus to fully recoup its investment. We may not be able to realize the full potential value of the assets and may incur costs related to the early pay-offextinguishment of the debt secured by such assets.14●we may abandon a project after spending time and money determining its feasibility;●construction costs may materially exceed original estimates;●the revenue from a new project may not be enough to make it profitable or generate a positive cash flow;●we may not be able to obtain financing on favorable terms for development of a property, if at all;●we may not complete construction and lease-ups on schedule, resulting in increased development or carrying costs; and●we may not be able to obtain, or may be delayed in obtaining, necessary governmental permits.industry.●our real estate assets are concentrated primarily in the southwest and any deterioration in the general economic conditions of this region could have an adverse effect;●changes in interest rates may make the ability to satisfy debt service requirements more burdensome;●lack of availability of financing may render the purchase, sale or refinancing of a property more difficult or unattractive;●changes in real estate and zoning laws;●increases in real estate taxes and insurance costs;●federal or local economic or rent control;●acts of terrorism; and●hurricanes, tornadoes, floods, earthquakes and other similar natural disasters.●downturns in the national, regional and local economic conditions (particularly increases in unemployment);15●competition from other office and commercial buildings;●local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space;●changes in interest rates and availability of financing;●vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;●increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs;●civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;●significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;●declines in the financial condition of our tenants and our ability to collect rents from our tenants; and●decreases in the underlying value of our real estate.16●the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;●significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;●our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense;●reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and●one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.UNRESOLVED STAFF COMMENTSNone.17ITEM 2.PROPERTIESOnCount Property Location Year Constructed Units Occupancy Consolidated Properties 1 Chelsea Beaumont, TX 1999 144 91.7 % 2 Forest Grove Bryan, TX 2020 84 100.0 % 3 Landing Bayou Houma, LA 2005 240 92.2 % 4 Legacy at Pleasant Grove Texarkana, TX 2006 208 93.3 % 5 Overlook at Allenville Phase II Sevierville, TN 2012 144 94.1 % 6 Parc at Denham Springs Phase II Denham Springs, LA 2010 144 83.3 % 7 Sugar Mill Phase III Baton Rouge, LA 2015 72 41.7 % 8 Toulon Gautier, MS 2011 240 97.2 % 9 Villas at Bon Secour Gulf Shores, AL 2007 200 96.4 % 10 Vista Ridge Tupelo, MS 2009 160 98.2 % 1,636 Joint Venture Properties 1 Abode Red Rock Las Vegas, NV 2018 308 90.2 % 2 Apalachee Point Villas Tallahassee, FL 2018 200 91.4 % 3 Blue Lake Villas Waxahachie, TX 2002 186 94.9 % 4 Blue Lake Villas Phase II Waxahachie, TX 2004 70 94.0 % 5 Breakwater Bay Beaumont, TX 2003 176 92.3 % 6 Bridgewood Ranch Kaufman, TX 2007 106 96.0 % 7 Capitol Hill Little Rock, TX 2003 156 91.8 % 8 Centennial Village Oak Ridge, TN 2011 252 97.8 % 9 Crossing as Opelika Opelika, AL 2011 168 96.2 % 10 Dakota Arms Lubbock, TX 2005 208 94.7 % 11 Desoto ranch DeSoto, TX 2003 248 95.1 % 12 Eagle Crossing Dallas, TX 2017 150 96.5 % 13 Falcon Lake Arlington, TX 2002 248 96.0 % 14 Heather Creek Mesquite, TX 2003 200 96.7 % 15 Lake Forest Humble, TX 2004 240 92.5 % 16 Lakeside Lofts Farmers Branch, TX 2020 245 89.7 % 17 Lodge at Pecan Creek Denton, TX 2011 192 93.3 % 18 Lofts at Reynolds Asheville, NC 2012 201 96.9 % 19 Mansions of Mansfield Mansfield, TX 2008 208 95.0 % 20 McKinney Point McKinney, TX 2017 198 93.6 % 21 Metropolitan Little rock, AR 2008 260 91.4 % 22 Mission Oaks San Antonio, TX 2006 228 94.6 % 23 Northside on Travis Sherman, TX 2008 200 93.2 % 24 Oak Hollow Sequin, TX 2011 160 92.5 % 25 Oak Hollow Phase II Sequin, TX 2018 96 90.7 % 26 Oceanaire Biloxi, MS 2009 196 95.8 % 27 Overlook at Allensville Square Sevierville, TX 2012 144 95.5 % 28 Parc at Bentonville Bentonville, AR 2017 216 94.5 % 29 Parc at Clarksville Clarksville, TN 2018 168 96.3 % 30 Parc at Denham Springs Denham Spring, LA 2007 224 90.0 % 31 Parc at Garland Garland, TX 2010 198 94.7 % 32 Parc at Mansfield Mansfield, TX 2017 99 93.5 % 33 Parc at Maumelle Little Rock, AR 2015 240 96.5 % 34 Parc at Metro Center Nashville, TN 2005 144 85.9 % 35 Parc at Rogers Rogers, AR 2006 250 93.3 % Count Property Location Year Constructed Units Occupancy 36 Parc at Wylie Wylie, TX 2007 198 93.5 % 37 Preserve at Pecan Creek Denton, TX 2008 192 90.2 % 38 Preserve at Prairie Pointe Lubbock, TX 2005 184 96.5 % 39 Residences at Holland Lake Weatherford, TX 2004 208 92.2 % 40 Sawgrass Creek New Port Richey, FL 2018 188 95.9 % 41 Sonoma Court Rockwall, TX 2011 124 94.9 % 42 Sugar Mill Phase I Baton Rouge, LA 2009 160 68.8 % 43 Sugar Mill Phase II Baton Rouge, LA 2016 80 71.0 % 44 Tattersall Village Hinesville, GA 2010 222 90.0 % 45 Terra Lago Rowlett, TX 2018 451 87.4 % 46 Tradewinds Midland, TX 2015 214 85.4 % 47 Villas of Park West I Pueblo, CO 2005 148 95.4 % 48 Villas of Park West II Pueblo, CO 2010 112 94.6 % 49 Vistas of Vance Jackson San Antonio, TX 2005 240 93.5 % 50 Waterford At Summer Park Rosenberg, TX 2013 196 95.2 % 51 Windsong Fort Worth, TX 2003 188 94.1 % 9,888 61 Total Mutltifamily Properties 11,524 2019, our portfolio consisted of seventeen income-producing properties consisting of ten apartment communities totaling 1,657 units, seven commercial properties consisting of five office buildings and two retail centers. In addition, we own or control 1,951 acres of improved and unimproved land held for future development or sale.The average annual rental and other property revenue per square foot is $13.36 for the Company’s residential apartment portfolio and $25.61 for the commercial portfolio. Through our joint venture VAA we have a 50 percent ownership interest to a portfolio of fifty-one income-producing properties with a total of 9,888 units, which generated an average annual rental revenue of $14.74 per square foot.The table below shows information relating to those properties in which we own or have an ownership interest through subsidiaries, all of which are suitable and adequate for the purpose for which each is utilized: Residential Apartments Location Units Occupancy Chelsea Beaumont, TX 144 90.97% Farnham Park Port Arthur, TX 144 95.83% Landing Bayou Houma, LA 240 89.58% Legacy at Pleasant Grove Texarkana, TX 208 88.94% Toulon Gautier, MS 240 98.33% Villager Fort Walton, FL 33 90.91% Villas at Bon Secour Apts Gulf Shores, AL 200 92.00% Vista Ridge Tupelo, MS 160 93.13% Overlook at Allensville Phase II Sevierville, TN 144 89.58% Parc at Denham Springs Phase II Denham Springs, LA 144 5.56% 10 Total Apartment Units 1,657 Office Buildings Location SqFt Occupancy 600 Las Colinas Irving, TX 512,173 79.43% 770 South Post Oak Houston, TX 95,438 83.85% Browning Place (Park West I) Farmers Branch, TX 625,297 87.03% Senlac (VHP) Farmers Branch, TX 2,821 100.00% Stanford Center Dallas, TX 333,234 90.91% 5 Total Office Buildings 1,568,963 Retail Centers Location SqFt Occupancy Bridgeview Plaza LaCrosse, WI 122,205 37.25% Fruitland Park Fruitland Park, FL 6,722 100.00% 2 Total Retail Centers 128,927 Total Commercial 1,697,890 Company owned VAA owned Total Location No. Units No. Units No. Units Alabama 1 200 1 168 2 368 Arkansas — — 4 966 4 966 Colorado — — 2 260 2 260 Florida — — 2 388 2 388 Georgia — — 1 222 1 222 Louisiana 3 456 3 464 6 920 Mississippi 2 400 1 196 3 596 North Carolina — — 1 201 1 201 Nevada — — 1 308 1 308 Tennessee 1 144 3 564 4 708 Texas 3 436 32 6,151 35 6,587 10 1,636 51 9,888 61 11,524 Our joint venture investee VAA, owns the following residential properties:Residential Apartments Location Units Occupancy Abode Red Rock Apartments Las Vegas, NV 308 83.04% Apalachee Point Villas Apartments Tallahassee, FL 200 91.88% Blue Lake Villas Apartments Waxahachie, TX 186 90.78% Blue Lake Villas Apartments Phase II Waxahachie, TX 70 89.02% Breakwater Bay Apartments. Beaumont, TX 176 97.53% Bridgewood Ranch Apartments Kaufman, TX 106 94.39% Capitol Hill Apartments Little Rock, AR 156 91.17% Centennial Village Apartments Oak Ridge,TN 252 94.83% Crossings at Opelika Apartments Opelika, AL 168 97.29% Dakota Arms Apartments Lubbock, TX 208 96.17% Desoto Ranch Apartments DeSoto, TX 248 92.61% Eagle Crossing Apartments Dallas, TX 150 97.63% Falcon Lake Apartments Arlington, TX 248 95.30% Heather Creek Apartments Mesquite, TX 200 96.64% Lake Forest Apartments Humble, TX 240 90.67% Lakeside Lofts Farmers Branch, TX 245 0.00% Lodge at Pecan Creek Apartments Denton, TX 192 95.04% Lofts at Reynolds Apartments Asheville, NC 201 93.87% Mansions Of Mansfield Apartments Mansfield, TX 208 96.38% McKinney Point Apartments McKinney, TX 198 91.96% Metropolitan Apartments Little Rock, AR 260 92.40% Mission Oaks Apartments San Antonio, TX 228 92.17% Northside on Travis Apartments Sherman, TX 200 90.03% Oak Hollow Phase I Apartments Seguin, TX 160 88.08% Oak Hollow Phase II Apartments Seguin, TX 96 86.61% Oceanaire Apartments Biloxi, MS 196 94.76% Overlook At Allensville Square Apartments Phase I Sevierville, TN 144 92.66% Parc at Wylie Apartments Wylie, TX 198 92.09% Parc at Bentonville Apartments Bentonville, AR 216 92.60% Parc at Clarksville Apartments Clarksville, TN 168 91.45% Parc at Denham Springs Apartments Phase I Denham Spring, LA 224 95.86% Parc at Garland Apartments Garland, TX 198 94.68% Parc at Mansfield Apartments Mansfield, TX 99 94.87% Parc at Maumelle Apartments Little Rock, AR 240 94.51% Parc at Metro Center Apartments Nashville, TN 144 97.48% Parc at Rogers Apartments Rogers, AR 250 92.99% Preserve at Pecan Creek Apartments Denton, TX 192 89.65% Preserve at Prairie Pointe Apartments Lubbock, TX 184 95.94% Residences at Holland Lake Apartments Weatherford, TX 208 94.45% Sawgrass Creek Apartments New Port Richey, FL 188 92.73% Sonoma Court Apartments Rockwall, TX 124 89.98% Sugar Mill Apartments, Phase I Baton Rouge, LA 160 76.24% Sugar Mill Apartments, Phase II Addis, LA 80 76.59% Tattersall Village Apartments Hinesville, GA 222 93.76% Terra Lago Apartments Rowlett, TX 451 69.45% Tradewinds Apartments Midland, TX 214 94.36% Villas of Park West Apartments Phase I Pueblo, CO 148 95.27% Villas of Park West Apartments Phase II Pueblo, CO 112 93.77% Vistas Of Vance Jackson Apartments San Antonio, TX 240 94.50% Waterford at Summer Park Apartments Rosenberg, TX 196 93.49% Windsong Apartments Fort Worth, TX 188 93.15% 51 Total Apartment Units 9,888 Development Project Lakeside Lofts Apartments Farmers Branch, TX 249 Grand total 10,137 Count Property Location Year Constructed Square Feet Occupancy Office Buildings 1 600 Las Colinas Irving, TX 1984 512,173 79.4 % 2 770 South Post Oak Houston, TX 1980 95,438 83.9 % 3 Browning Place Farmers Branch, TX 1982 625,297 87.0 % 4 Senlac Farmers Branch, TX 2025 2,821 100.0 % 5 Stanford Center Dallas, TX 1982 333,234 90.9 % 1,568,963 Retail Centers 1 Fruitland Park Fruitland Park, FL 2025 6,722 100.0 % 6 1,575,685 2019:Year of Lease
Expiration Rentable Square Feet
Subject to Expiring Leases Current
Annualized (1)
Contractual Rent Under
Expiring Leases Current
Annualized (1)
Contractual
Rent Under Expiring
Leases (P.S.F.) Percentage of Total
Square Feet Percentage of Gross Rentals 2020 139,905 $ 3,082,003 $ 22.03 8.2 % 10.9 % 2021 123,629 2,344,184 18.96 7.3 % 8.3 % 2022 267,882 5,981,809 22.33 15.8 % 21.1 % 2023 362,224 6,035,138 16.66 21.3 % 21.3 % 2024 271,071 6,010,250 22.17 16.0 % 21.2 % 2025 125,667 2,909,360 23.15 7.4 % 10.3 % 2026 30,505 793,130 26.00 1.8 % 2.8 % Thereafter 56,926 1,152,892 20.25 3.4 % 4.1 % Total 1,377,809 $ 28,308,766 81.2 % 100 % (1)2020: Year of Lease
ExpirationRentable Square Feet
Subject to Expiring LeasesCurrent
Annualized
Contractual Rent Under
Expiring Leases (1,000s)Current
Annualized
Contractual
Rent Under Expiring
Leases (P.S.F.)Percentage of Total
Square FeetPercentage of Gross
Rentals2021 134,027 $ 2,923 $ 21.81 8.5 % 10.9 % 2022 295,412 6,737 22.81 18.7 % 25.0 % 2023 296,233 4,815 16.26 18.8 % 17.9 % 2024 129,926 3,039 23.39 8.2 % 11.3 % 2025 149,448 3,569 23.88 9.5 % 13.3 % Thereafter 287,491 5,821 20.25 18.2 % 21.6 % 1,292,537 $ 26,904 81.9 % 100.0 % as of December 31, 2019, multiplied by twelve. This amount reflects total rent before any rent abatements and includes expense reimbursements, which may be estimates as of such date.The table below shows information related to the land parcels we own as of December 31, 2019:LandLocationAcresDedeauxProjectGulfport, MSLocation 9.90AcresDominion Held for DevelopmentEQK Portage Kent, OH 49 McKinney 36 Collin County, TX 18 Ocean Estates Gulfport, MS 12 Willowick Pensacola, FL 40 Mercer Phase IICrossing CommercialFarmers Branch, TX 5.2919 GautierWindmills FarmGautier, MSKaufman County, TX 3.461,555 Lacy LonghornOtherVarious 40 1,733 Held subject to sales contract Mercer Crossing Farmers Branch, TX 4.8615 Lake Shore VillasWindmill FarmsHumble, TX 1.35Lubbock Lubbock, TX 2.87McKinney 36Collin County, TX 17.89MinivestDallas, TX 0.23Nicholson CroslinDallas, TX 0.80Nicholson MendozaDallas, TX 0.35Ocean EstatesGulfport, MS 11.79T Palm DesertRiverside, California 1.27Travis Ranch Kaufman County, TX 8.66213 Union Pacific Railroad Dallas, TX 0.04228 Willowick Pensacola, FL 39.78Mercer Crossing1,961Farmers Branch, TX 19.00Windmills Farm Kaufman County, TX 1,701.05Total Land/Development 1,828.59Land Subject to Sales ContractLocationAcresMercer Crossing Farmers Branch, TX 41.62Windmill FarmsKaufman County, TX 80.78Total Land Subject to Sales Contract 122.40Total Land 1,950.99ITEM 3.LEGAL PROCEEDINGSART and ART Midwest, Inc.WhileCompany and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 in litigation with Mr. David Clapper and entities related to Mr. Clapper (collectively, the “Clapper Parties”). The matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. “ART” and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgment in favor of the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurred and remanded the case back to the trial court to recalculate the damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. “EQK”, and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. In February 2018 the court determined that this legal matter should not have been filed in federal court and therefore granted motions to dismiss on jurisdictional grounds. In June 2018, the court overruled its own grant of motions to dismiss and reinstated the case. We continue to vigorously defend the case and management believes it has defenses to the claims. The case has not been set for trial. In 2005, ART filed suit against a major national law firm over the initial transaction. That action was initially abated while the principal case with the Clapper Parties was pending, but the abatement was recently lifted. The trial court subsequently dismissed the case on procedural grounds, but ART has filed a notice of appeal. The appeal was heard in February 2018 and the case was subsequently appealed to the Texas Supreme Court. The application for Review is still pending with the Texas Supreme Court. In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued such note at zero.Dynex Capital, Inc.On July 20, 2015, the 68th 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, resultedplaintiff 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 Judgmentlawsuit against Dynex Commercial, Inc. on July 20, 2015.The Final Judgment entered against Dynex Commercial, Inc. on July 20,(“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded Basic was $0.256 million in damages, plus pre-judgment interestus with a judgment of $0.192 million for a total amount$49.0 million. We are pursuing all legal means to collect this award. However, due to the uncertainty of $0.448 million. The Judgment awarded ART was $14.2 million in damages, plus pre-judgment interestthe collectability of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI was $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 untilaward, the date their respective damages were paid. Lastly, the Judgement awarded Basic, ART, and TCI was $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc.TCI is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as pursue additional claims, if any, against Dynex Capital, Inc. Post judgment interest continues to accrue.LitigationOn February 4, 2019, an individual claiming to be a stockholder holding 7,900 shares of Common Stock of Income Opportunity Realty Investors, Inc. (“IOR”Berger”) filed a Complaint inlawsuit against 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”), certainCompany, its directors, its officers and directors of the Companies (“Additional Parties”) and two other individuals. The Complaint filedothers that alleges that the salewe completed improper sales and/or exchangetransfers 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 ofwith IOR. The case alleges otherBerger requests that we pay off various related claims. The Plaintiff seeks certification as a representative ofparty loans to IOR and all of its shareholders, unspecified damages, a returnthat IOR then distribute the funds 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 DefendantsIOR's stockholders. We intend to vigorously defend against the action, deny allallegations.allegationsproperties that we contributed to the joint venture are subject to an earn-out provision that provides for a remeasurement of the Complaint, andvalue of those properties after a two-year period following the completion of construction. As of December 31, 2020, we have recorded a liability of $10.0 million, which we believe is the allegationsamount that will be required to be wholly without any merit. The Defendantssettle our obligation. We have been unable to reach agreement with our joint venture partner on the remeasured value. As a result, the parties have filed motions to dismissfor arbitration in accordance with the case in its entirety in June 2019. On February 26, 2020, the Court denied IOR’s demand futility motion. The remainder of the motions to dismiss are pending.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.ITEM 4.MINE SAFETY DISCLOSURESITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESTCI’s Common American under the symbol “TCI”. The following table sets forth the high and low sales prices as reported in the consolidated reporting system of the NYSE American for the quarters ended: 2019 2018 High Low High Low First Quarter $ 38.34 $ 27.60 $ 46.00 $ 25.14 Second Quarter $ 34.01 $ 22.85 $ 52.00 $ 23.90 Third Quarter $ 33.15 $ 23.00 $ 38.25 $ 28.36 Fourth Quarter $ 41.50 $ 27.00 $ 37.42 $ 26.73 2020 2019 High Low High Low First Quarter $ 39.86 $ 16.00 $ 38.34 $ 27.60 Second Quarter $ 40.42 $ 16.50 $ 34.01 $ 22.85 Third Quarter $ 30.43 $ 29.99 $ 33.15 $ 23.00 Fourth Quarter $ 32.26 $ 21.75 $ 41.50 $ 27.00 25, 2020,22, 2021, the closing price of TCI’sour common stock as reported on the NYSE American was $22.00$21.50 per share, and was held by approximately 2,2902,149 holders of record.TCI’s2018 or 2017.2018. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including the Company’sour financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.In December 1989, the Board of Directors approvedauthorizingthat allows for the repurchase of a total of 687,000 shares of TCI’s Common stock. In June 2000, the Board increased this authorization to 1,387,000 shares. On August 10, 2010, the Board of Directors approved an increase in the share repurchase program for up to an additional 250,000 shares of common stock which resulted in a total authorization under the repurchase program for up to 1,637,000 shares of our common stock. This repurchase program has no termination date. There were no shares repurchased for the year ended December 31, 2019.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 at2020 and the initial rate of 7% annually. The dividend rate increases ratably from 7% to 9% in future periods andprogram has 650,250 share remaining that can be redeemed at any point after September 30, 2011. During the fourth quarterrepurchased as 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, 20192020.2018, there were no preferred shares outstanding.not included.ITEM 6.SELECTED FINANCIAL DATAThe following table sets forth selected consolidated financial data derived from our audited financial statements for each of the five years in the period ended December 31, 2019. The data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in Part II, Item 7 of this Annual Report and the consolidated financial statements and the accompanying notes set forth in Part II, Item 8 of this Annual Report. For the Years Ended December 31, 2019 2018 2017 2016 2015 (dollars in thousands, except share and per share amounts) EARNINGS DATA Rental and other property revenues $ 47,970 $ 120,955 $ 125,233 $ 118,471 $ 102,220 Total operating expenses 55,706 104,834 105,128 100,824 92,919 Operating (loss) income (7,736 ) 16,121 20,105 17,647 9,301 Other expenses (35,210 ) (1,401 ) (49,967 ) (36,628 ) (36,095 ) (Loss) income before gain on formation of joint venture, gain on land sales, non-controlling interest, and taxes (42,946 ) 14,720 (29,862 ) (18,981 ) (26,794 ) Gain on disposition of 50% interest in VAA — 154,126 — — — (Loss) gain on income producing properties (80 ) — 9,842 16,207 18,911 Gain on land sales 14,889 17,404 4,884 3,121 — Income tax benefit (expense) 2,000 (3,210 ) (180 ) (24 ) (517 ) Net (loss) income from continuing operations (26,137 ) 183,040 (15,316 ) 323 (8,400 ) Net (loss) income from discontinuing operations — — — (1 ) 896 Net (loss) income (26,137 ) 183,040 (15,316 ) 322 (7,504 ) Net income attributable to non-controlling interest (783 ) (1,590 ) (499 ) (285 ) (132 ) Net (loss) income attributable to Transcontinental Realty Investors, Inc. (26,920 ) 181,450 (15,815 ) 37 (7,636 ) Preferred dividend requirement — (900 ) (900 ) (900 ) (900 ) Net (loss) income applicable to common shares $ (26,920 ) $ 180,550 $ (16,715 ) $ (863 ) $ (8,536 ) PER SHARE DATA Earnings per share - basic (Loss) income from continuing operations $ (3.00 ) $ 20.89 $ (1.86 ) $ (0.07 ) $ (1.08 ) Income (loss) from discontinued operations — — — — 0.10 Net (loss) income applicable to common shares $ (3.09 ) $ 20.71 $ (1.92 ) $ (0.10 ) $ (0.98 ) Weighted average common shares used in computing earnings per share 8,717,767 8,717,767 8,717,767 8,717,767 8,717,767 Earnings per share - diluted (Loss) income from continuing operations $ (3.00 ) $ 20.89 $ (1.86 ) $ (0.07 ) $ (1.08 ) Income (loss) from discontinued operations — — — — 0.10 Net (loss) income applicable to common shares $ (3.09 ) $ 20.71 $ (1.92 ) $ (0.10 ) $ (0.98 ) Weighted average common shares used in computing diluted earnings per share 8,717,767 8,717,767 8,717,767 8,717,767 8,717,767 BALANCE SHEET DATA Real estate, net $ 387,790 $ 384,504 $ 979,870 $ 891,173 $ 844,019 Notes and interest receivable, net 120,986 83,541 70,166 79,308 69,551 Investment in VAA 59,148 68,399 — — — Total assets 865,918 862,380 1,313,422 1,185,914 1,110,204 Notes and interest payable 246,546 277,237 �� 894,482 841,516 779,434 Bonds and interest payable 229,722 158,574 113,047 — — Shareholders’ equity 354,067 380,401 208,261 224,477 225,055 Book value per share 40.61 43.64 23.89 25.75 25.82
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONStheour consolidated financial statements and related notes thereto appearing elsewhere in Part II, Item 8 of this report.The Annual Report on Form 10-K contains forward-looking statements withinReport. Our results of operations for the meaning of the federal securities laws, principally, but not only, under the captions “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may beyear ended December 31, 2020 were affected by knownthe acquisitions and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whetherdisposition, refinancing activity, development activity as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:●general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);●risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments;●failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;●risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);●risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;●costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;●potential liability for uninsured losses and environmental contamination;●risks associated with our dependence on key personnel whose continued service is not guaranteed; and●the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.”The risks included here are not exhaustive. Other sections of this report, including Part I Item 1A. “Risk Factors,” include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.development. The Company’sdevelopment throughout the Southern United States. Our portfolio of income-producing properties includes residential apartment communities, office buildings and other commercial properties. Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project.acquire land primarilyhave no employees. Employees of Pillar render services to us in urban in-fill locations or high-growth suburban markets.accordance with the terms of the Advisory Agreement. Pillar is considered to be a related party due to its common ownership with American Realty Investors, Inc. (“ARL”), who is our controlling shareholder.are an active buyerthen immediately transferred our respective ownership interests in the multifamily apartments ("VAA Portfolio") to VAA in exchange for a 50% voting interest / 49% profit participation interest ("Class A interest") in VAA and note payable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the Contribution, VAA owned and sellercontrolled 52 multifamily apartments. VAA assumed all liabilities of real estate.the Companywe sold 105.1 acres of land for an aggregate sales price of $30.0 million and purchased 41.9 acres for an aggregate purchase price of approximately $4.6 million. In addition,Company acquired 1.27year ended December 31, 2020, we sold a total of 58.8 acres of land from our holdings in exchangeWindmill Farms for $12.9 million, in aggregate, resulting in gains on sale of $11.1 million. In addition, we sold 26.8 acres of land from our holdings in Mercer Crossing during the year ended December 31, 2020 for $15.8 million, resulting in a gain on sale of $10.3 million.receivablepayable on Browning Place, which resulted in a loss on early extinguishment of debt of $5.2 million. Concurrent with the repayment of the mortgage note payable, we issued $78.1 million of Series C bonds (See Note 11 in our consolidated financial statements), which are collateralized by Browning Place, bear interest at 4.65% and mature on January 31, 2023.face valuecommitment from our lender to extend the maturity of $1.8 million.We soldour multifamily residential property, located in Mary Ester, Floridareduced interest rate of 5%.sales pricecost of $3.1$17.2 million and recognized a loss on the sale of $0.08 million.The Company purchased an option to buy 37.8 acres of land (6.3 acres located in Collin County, Texas and 31.5 acres located in Clark County, Nevada) for $2.0$14.2 million, from a third party land developer.We advanced $21.4 million to several developers with the option to purchase the residential properties under constructionrespectively. a future date, and sold fresh water district receivables related to infrastructure development work at Windmill Farms, located in Kaufman County, Texas for $12.0 million.As of December 31, 2019, we owned 1,657 units2020, are as follow: (dollars in ten residential apartment communities,thousands)Property Location No. of Units Costs to Date (1) Total Projected Costs (1) Athens Athens, AL 232 270 34,800 Heritage McKinney McKinney, TX 170 231 24,650 Total 402 $ 501 $ 59,450 seven commercial properties comprising of approximately 1.7 million rentable square feet. In addition, we own approximately 1,951 acres of land held for development. The Company currently owns income-producing properties and land in eight states.We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders. We finance our development projects principally with short-term, variable interest rate construction loans that are converted to long-term, fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized. The Company will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in some of its wholly-owned properties. When the Company sells assets, it may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. The Company generates operating revenues primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants.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 is the Company’s external Advisor and Cash Manager under a contractual arrangement that is reviewed annually by our Board of Directors. 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 TCI’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.Effective since January 1, 2011, Regis manages our commercial properties and provides brokerage services. Regis is entitled to receive a fee for its property management and brokerage services. Refer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage.” The Company contracts with third-party companies to lease and manage our apartment communities. We presentaccordanceconformity with United States generally accepted accounting principles in(“GAAP”) requires management to make estimates and assumptions that affect the United States (“GAAP”).The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally allreported amounts of which are wholly-owned,assets and all entities in which we have a controlling interest.For entities in which we have less than a controlling financial interest or entities where we are not deemed to beliabilities and disclosure of contingent assets and liabilities at the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our sharedate of the net earnings or lossesfinancial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.entities are included in consolidated net income. TCI’s investment in ARL is accountedestimates and assumptions include judgments on revenue recognition, estimates for under the equity method. In accordance with the VIE guidance in ASC 810 “Consolidations,” the Company consolidated ten multifamily residential properties at December 31, 2019common area maintenance and nine at December 31, 2018, located throughout the United States ranging from 1,657 units to 1,489 units. Assets totaling approximately $478 million and approximately $464 million at December 31, 2019 and 2018, 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 EstateUpon acquisitions of real estate we assesstax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the fair valueallocation of acquiredpurchase price between tangible and intangible assets, including land, buildings, tenant improvements, “above-”capitalization of costs and “below-market” leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilitiesfair value measurements. Our significant accounting policies are described in accordance with ASC Topic 805 “Business Combinations”, and allocate the purchase pricemore detail in Note 2—Summary of Significant Accounting Policies in our notes to the acquired assets and assumed liabilities, including land at appraised value and buildings at replacement cost.We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. Estimates of future cash flowsconsolidated financial statements. However, the following policies are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on our acquisitions to date, our allocation to customer relationship intangible assets has been immaterial.We record acquired “above-” and “below-market” leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amountsdeemed to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases.Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.Transfers to or from our parent, ARL, or other related parties reflect a basis equal to the cost basis in the asset at the time of the sale. Depreciation and ImpairmentReal estate is stated at depreciated cost. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to the development of properties are capitalized. 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.Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. Fair value is determined by a recent appraisal, comparable based upon prices for similar assets, executed sales contract, a present value and/or a valuation technique based upon a multiple of earnings or revenue. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. If we determine that impairment has occurred, the affected assets must be reduced to their fair value. We did not record any impairment charges for the years ended December 31, 2019 and 2018.Real Estate Assets Held for SaleWe 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, 2019 or 2018.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.”Investment in Unconsolidated Real Estate VenturesExcept for ownership interests in variable interest entities, we account for our investments in unconsolidated real estate ventures under the equity method of accounting because the Company exercises significant influence over, but does not control, these entities. These investments are recorded initially at cost, as investments in unconsolidated real estate ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on the Company’s balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated real estate ventures over the life of the related asset. 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. For ownership interests in variable interest entities, the Company consolidates those in which we are the primary beneficiary.Recognition of Rental IncomeRental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. In accordance with ASC Topic 805, we recognize rental revenue of acquired in-place “above-“and “below-market” leases at their fair values over the terms of the respective leases. On our Consolidated Balance Sheets, we include as a receivable the excess of rental income recognized over rental payments received pursuant to the terms of the individual commercial lease agreements.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 multi-family real estate 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 normally 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.Other revenue primarily consists of garage, parking, and utility-related fees; termination and late charge fees; non-refundable fees; and various other revenue amounts related to rental activities. Those revenue amounts are recognized when the service is provided.LeasesThe Company is party to leases as a lessor of residential apartment communities and commercial buildings. The Company adopted ASU 2016-02, Leases, as of January 1, 2019 using the prospective adoption approach, applying the provisions of the new standard to existing leases as of the date of adoption.Lessor ConsiderationsThe Company evaluated leases in which it is the lessor, which are comprised of residential apartment community leases. The accounting model for lessors did not significantly change as a result of ASU 2016-02, with the impacts primarily related to the accounting for sales-type and direct financing leases. The Company evaluated its residential leases determining that they continue to be operating leases. For lease agreements that provide for rent concessions and/or scheduled fixed and determinable rent increases, rental income is recognized on a straight-line basis over the non - cancelable term of the lease. The Company’s residential lease term is generally one year.Additionally, for the Company’s residential leases, which are comprised of the lease component and common area maintenance as a non-lease component, the Company determined that (1) the leases are operating leases, (2) the lease component is the predominant component, and (3) that all components of its operating leases share the same timing and pattern of transfer.Implementation Considerations and ImpactAs discussed above, the Company elected to apply certain lessor practical expedients allowed under the standard including:●by class of underlying asset for residential leases, to not separate non-lease components from lease components and instead to account for each separate lease and non-lease component as a single lease component;●to exclude costs paid by lessees directly to third parties on behalf of the Company; and●to exclude sales taxes and other similar taxes assessed by a government authority and collected by the Company from the lessee.Revenue Recognition on the Sale of Real EstateSales and the associated gains or losses of 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, we defer some or all of the gain recognition and account 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 ReceivableWe 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 ReceivableWe record interest income as earned in accordance with the terms of the related loan agreements.Allowance for Estimated LossesWe 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.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.partiesCombination”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 itsour own separate interests, or affiliates of the entity.Results of OperationsThe discussion of our results of operations is based on management’s review of operations, which is based on our segments. Our segments consist of apartments, commercial buildings, land and other. For discussion purposes, we break these segments down into the following sub-categories; same property portfolio, acquired properties, and developed properties in the lease-up phase. The same property portfolio consists of properties that were held by us for the entire period for both years being compared. The acquired property portfolio consists of properties that we acquired but have not held for the entire period for both periods being compared. Developed properties in the lease-up phase consist of completed projects that are being leased-up. As we complete each phase of the project, we lease-up that phase and include those revenues in our continued operations. Once a developed property becomes leased-up (80% or more) and is held the entire period for both years under comparison, it is considered to be included in the same property portfolio. Income- producing properties that we have sold during the year are reclassified to discontinued operations for all periods presented. The other segment consists of revenue and operating expenses related to the notes receivable and corporate entities.The following discussion is based on our Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 as included in Item 8. “Consolidated Financial Statements and Supplementary Data”. Continuing operations relates to income-producing properties that were held during those years as adjusted for sales in the subsequent years.The following table shows the total number of income-producing properties, and other key financial measures as of December 31, 2019, 2018 and 2017: 2019 2018 2017 Residential properties (Company owned) 10 9 51 Residential properties (total apartment units) 1,657 1,489 8,606 Residential - average annual rental revenue per sqf $ 13.36 $ 6.53 $ 11.83 VAA joint venture - residential properties 51 49 — VAA residential properties (total apartment units) 9,888 9,192 — VAA residential - average annual rental revenue per sqf $ 14.74 $ 12.83 $ — Commercial properties (Company owned) 7 7 7 Commercial properties - total sqf 1,697,890 1,697,890 1,697,890 Commercial - average annual rental revenue per sqf $ 25.61 $ 19.80 $ 18.55 Comparison of the year ended December 31, 2019 to the year ended December 31, 2018:For the year ended December 31, 2019, we reported net loss applicable to common shares of $26.9 million or $3.09 per share compared to a net income applicable to common shares of $180.6 million or $20.71 per share for the year ended December 31, 2018.Revenues Rental and other property revenues were $47.9 million for the year ended December 31, 2019, compared to $121.0 million for the same period in 2018. The $73.1 million decrease is primarily due to a decrease in the amount of multifamily residential apartment buildings currently in our portfolio of ten as compared to forty-eight multifamily residential apartment buildings for the period January 1 through November 19, 2018 as a result of the deconsolidation of forty-nine residential apartment properties that were sold into the VAA Joint Venture on November 19, 2018. As the assets are now treated as unconsolidated investments, our share of rental revenues is part of income from unconsolidated investments in the current period and are no longer treated as rental income (Refer to Note 2). ExpensesProperty operating expenses decreased by $34.2 million to $25.2 million for the year ended December 31, 2019 as compared to $59.4 million for the same period in 2018. The decrease in property operating expenses is primarily due to the deconsolidation of forty-nine residential apartment properties that were sold into the VAA Joint Venture during the fourth quarter of 2018 which resulted in a decrease in salary and related payroll expenses of $6.7 million, real estate taxes of $11.6 million, management fees paid to third parties of $2.6 million and other general property operating and maintenance expenses of $13.3 million.Depreciation and amortization decreased by $9.4 million to $13.4 million during the year ended December 31, 2019 as compared to $22.8 million for the same period in 2018. This decrease is primarily due to the deconsolidation of the residential apartments in connection with our previous sale and contribution of our interests to the VAA Joint Venture.General and administrative expense was $10.9 million for the year ended December 31, 2019, compared to $11.4 million for the same period in 2018. The decrease of $0.5 million in general and administrative expenses is the result of a decrease in fees paid to our Advisors of $0.4 million and other general and administrative expenses of $0.1 million.Net income fee was $0.4 million for the year ended December 31, 2019. This represents a decrease of $0.2 million compared to the prior year net income fee of $0.6 million. The net income fee paid to Pillar is calculated at 7.5% of net income.Advisory fees were $5.8 million for the year ended December 31, 2019. This represents a decrease of $4.9 million compared to the prior year advisory fees of $10.7 million. Advisory fees are computed based on a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value.Other income (expense) Interest income was $19.6 million for the year ending December 31, 2019, compared to $15.8 million for the same period in 2018. The increase of $3.8 was primarily due to an increase of $2.4 million in interest on receivable owed from our Advisors, and $1.4 in interest on notes receivable from other related parties.Other income was $0.084 million for the year ending December 31, 2019, compared to $28.2 million for the same period in 2018. For the year ending December 31, 2019, we recognized a gain of approximately $8.1 million as a result of deferred income associated with the sale of property in previous years, received cash proceeds of $0.2 million from the collection of tax increment incentives from the city of Farmers Branch, Texas related to infrastructure development work at Mercer Crossing, and recognized miscellaneous income of approximately $1.1 million, offset by general expenses of approximately $9.3 million. For the same period a year ago, we received insurance proceeds of $7.6 million on Mahogany Run Golf Course, recognized a gain of $17.6 million as a result of deferred income related to the sale of land, and recognized miscellaneous income of approximately $2.2 million.Mortgage and loan interest expense was $31.8 million for the year ending December 31, 2019, compared to $58.9 million for the same period in 2018. The decrease of $27.1 million is due to the deconsolidation of residential apartment properties into the VAA Joint Venture which were encumbered by mortgage debt.Foreign currency transaction was a loss of $15.1 million for the year ending December 31, 2019, as compared to a gain of $12.4 million for the same period in 2018. The loss is due to the unfavorable exchange rate between the Israel Shekels and the U.S. Dollar related to our Israel Shekels denominated bonds and the increase in our bonds obligations during the year ended December 31, 2019 as compared to the same period a year ago.Loss on debt extinguishment was $5.2 million in 2019 with no comparable amount in 2018. The loss is the result of debt borrowing costs write-off of $1.4 million and prepayment penalty of approximately $3.9 million associated with the payment of $41.5 million of mortgage debt related to one of our commercial building.Loss from unconsolidated investments was a net of $2.8 million for the year ending December 31, 2019 as compared to net earnings of $1.1 million for the year ended December 31, 2018. The loss from unconsolidated investments in 2019, was driven primarily from our share in the losses reported by our joint venture VAA of $2.8 million (Refer to Note 2).Loss from the sale of income-producing property increased for the year ending December 31, 2019 as compared to the same period a year ago. During the year ended December 31, 2019, we sold a multifamily residential property for a sales price of $3.1 million and recorded a loss of $0.08 million. During year ended December 31, 2018, we sold six multifamily residential properties at an aggregate sales price of $8.5 million and recorded no gain or loss from the sale.Gain on land sales decreased by $2.5 million for the year ending December 31, 2019, to $14.9 million as compared to $17.4 million for the same period a year ago. During the year ending December 31, 2019, we sold 105.1 acres of land for an aggregate sales price of $30.0 million and recorded a gain of $14.9 million. For the same period a year ago, we sold approximately 112.2 acres of land for an aggregate sales price of $43.3 million and recorded a gain of $17.4 million.Comparison of the year ended December 31, 2018 to the year ended December 31, 2017:For the year ended December 31, 2018, we reported net income applicable to common shares of $180.6 million or $20.71 per share compared to a net loss applicable to common shares of $16.7 million or ($1.92) per share for the year ended December 31, 2017. The current year net income applicable to common shares includes a gain on the formation of the joint venture VAA of $154.1 million. Current year net income also includes gain on sales of land of $17.4 million and no gain on sales of income-producing properties, compared to the prior year net loss which included gain on sales of income producing properties of $9.8 million and gain on land sales of $4.9 million.Revenues Rental and other property revenues were $121.0 million for the year ended December 31, 2018. This represents a decrease of $4.2 million, as compared to the prior year revenues of $125.2 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018. ExpensesProperty operating expenses were $59.4 million for the year ended December 31, 2018. This represents a decrease of $3.7 million, compared to the prior year operating expenses of $63.1 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018. Depreciation and amortization expenses were $22.8 million for the year ended December 31, 2018. This represents a decrease of $2.8 million compared to prior year depreciation of $25.6 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018. General and administrative expenses were $11.4 million for the year ended December 31, 2018. This represents an increase of $5.1 million compared to the prior year expenses of $6.3 million. The increase in general and administrative expenses was due primarily to an increase in fees paid to our Advisors of approximately $1.5 million, general fees of approximately $1.5 million associated with finalizing the formation of the joint venture, legal and regulatory fees of $0.8 million and general and professional fees of approximately $1.0 million.Net income fee was $0.6 million for the year ended December 31, 2018. This represents an increase of $0.3 million compared to the prior year net income fee of $0.3 million. The net income fee paid to Pillar is calculated at 7.5% of net income.Advisory fees were $10.7 million for the year ended December 31, 2018. This represents an increase of $0.7 million compared to the prior year advisory fees of $10.0 million. Advisory fees are computed based on a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value.Other income (expense) Interest income was $15.8 million for the year ending December 31, 2018 compared to $13.9 million for the year ended December 31, 2017 for an increase of $1.9 million. This increase was primarily due to an increase of $2.7 million in interest on receivable owed from our Advisors, offset by a decrease of $0.8 in interest on notes receivable from other related parties.Other income was $28.2 million and $0.6 million for the years ended December 31, 2018 and 2017, respectively. The increase of $27.6 million was primarily due to a $17.6 million gain recognized in September 2018 for deferred income associated with the sale of assets, as well as income of approximately $7.6 million from insurance proceeds on Mahogany Run Golf Course.Mortgage and loan interest expense was $58.9 million for the year ended December 31, 2018. This represents a decrease of $1.0 million compared to the prior year expense of $59.9 million. The decrease is primarily due to the contribution of fifty-two properties to the joint venture VAA on November 19, 2018. No gain on sales of income producing properties was recognized during the year ended December 31, 2018. Gain on sale of income-producing properties was $9.8 million for the year ended December 31, 2017, attributable to the recognition of deferred gain.Gain on land sales was $17.4 million and $4.9 million for the years ended December 31, 2018 and 2017, respectively. The increase of approximately $12.5 million was primarily due to sales of land at Mercer Crossing recognized in 2018.Gain on disposition of 50% interest in VAA was $154.1 million for the year ended December 31, 2018. There was no such gain in prior years, the gain was the result of the contribution of fifty-two properties to the joint venture VAA.Liquidity and Capital ResourcesGeneralOur principal liquidity needs are:●fund normal recurring expenses;●meet debt service and principal repayment obligations including balloon payments on maturing debt;●fund capital expenditures, including tenant improvements and leasing costs;●fund development costs not covered under construction loans; and●fund possible property acquisitions.Our principal sources of cash have been and will continue to be:●property operations;●proceeds from land and income-producing property sales;●collection of mortgage notes receivable;●collections of receivables from related companies;●refinancing of existing mortgage notes payable; and●additional borrowings, including mortgage notes payable, and lines of credit.It is important to realize that the current status of the banking industry has had a significant effect on our industry. The banks’ willingness and/or ability to originate loans affects our ability to buy and sell property, and refinance existing debt. We are unable to foresee the extent and length of this down-turn. A continued and extended decline could materially impact our cash flows. We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans, which are converted to traditional mortgages upon completion of the project.We may also issue additional equity securities, including common stock. Management anticipates that our cash and cash equivalents as of December 31, 2019, along with cash that will be generated in 2020 from notes and interest receivables, will be sufficient to meet all of our cash requirements. Management intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet its liquidity requirements. Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of the Company’s current maturity obligations.Management reviews the carrying values of TCI’s properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. The property review generally includes: (1) selective property inspections; (2) a review of the property’s current rents compared to market rents; (3) a review of the property’s expenses; (4) a review of maintenance requirements; (5) a review of the property’s cash flow; (6) discussions with the manager of the property; and (7) a review of properties in the surrounding area. For notes receivable, impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings. The note receivable review includes an evaluation of the collateral property securing such note.Cash Flow SummaryThe following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows in Part II, Item 8. “Consolidated Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands): Year Ended December 31, 2019 2018 Incr /(Decr) Net cash (used in) operating activities $ (35,747 ) $ (181,187 ) $ 145,440 Net cash (used in) provided by investing activities $ (9,598 ) $ 147,625 $ (157,223 ) Net cash provided by financing activities $ 22,041 $ 51,785 $ (29,744 ) The primary use of cash for operations is daily operating costs, general and administrative expenses, advisory fees, and land holding costs. Our primary source of cash from operating activities is from rental income on properties.Our primary cash outlays for investing activities are for construction and development, acquisition of land and income-producing properties, and capital improvements to existing properties. Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties.Our primary cash outlays for investing activities are for construction and development, acquisition of land and income-producing properties, and capital improvements to existing properties. During the year ended December 31, 2019, we advanced $21.4 million toward various notes receivable, purchased land for development for $3.4 million, and invested approximately $33.7 million for the construction and development of new properties and improvement of income producing properties. For the year ended December 31, 2018, we advanced $16.8 million toward various notes receivable and invested $85.1 million for development of new properties and improvement of income producing properties. Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties. During the year ended December 31, 2019, we received aggregate sales proceeds of $27.3 million from the sale of 105.1 acres of land and recorded a gain of $15.1 million, received $13.9 in payments from related party note receivables, and sold a residential property for which we received cash proceeds of $1.3 million and a plot of land valued at $1.8 million. For the year ended December 31, 2018, we received aggregate sales proceeds of $11.9 million from the sale of approximately 112 acres of land and recorded a gain on the sale of $17.4 million. In addition, we received aggregate sale proceeds of $4.9 million from the sale of seven income producing properties and a golf course, $236.8 million from the formation of the joint venture with Macquarie, and collected $6.5 million from a related party note receivable.Our primary sources of cash from financing activities are from proceeds on notes payables. Our primary cash outlays are for recurring debt payments and payments on maturing notes payable.For the year ended December 31, 2019, the increase in cash flow from financing activities was due to proceeds from borrowings of $25.7 million, and $78.1 million from the sale of nonconvertible Series C Bonds by Southern, offset by payments to our notes payable of $51.9 million and bond payments of $21.7 million.For the year ended December 31, 2018, the increase in cash flow from financing activities was due primarily to proceeds from borrowings of $123.3 million, and proceeds received from the sale of nonconvertible Series B Bonds by Southern of $59.2 million, offset by payments to our notes payable of $124.6 million.Equity Investments TCI has from time to time purchased shares of IOR and ARL. The Company may purchase additional equity securities of IOR and ARL through open market and negotiated transactions to the extent TCI’s liquidity permits. Equity securities of ARL and IOR held by TCI may be deemed “restricted securities” under Rule 144 of the Securities Act of 1933 (“Securities Act”). Accordingly, TCI may be unable to sell such equity securities other than in a registered public offering or pursuant to an exemption under the Securities Act for a one-year period after they are acquired. Such restrictions may reduce TCI’s ability to realize the full fair value of such investments if TCI attempted to dispose of such securities in a short period of time.TCI also holds a voting and profit participation right of 50% and 49%, respectively in VAA. VAA actively participates in the development and/or acquisitions of Class A multi-family assets. Contractual ObligationsThe following table represents our contractual obligations at December 31, 2019 (in thousands): Total 2020 2021 2022 2023 2024 Thereafter Notes and interest payable (1) $ 334,132 $ 36,592 $ 63,775 $ 18,920 $ 41,951 $ 5,401 $ 167,493 Bonds and interest payable (1) 276,642 37,317 47,573 45,057 120,324 13,599 12,772 Total $ 610,774 $ 73,909 $ 111,348 $ 63,977 $ 162,275 $ 19,000 $ 180,265 (1)TCI’s long-term debt may contain financial covenants that, if certain thresholds are not met, could allow the lender to accelerate principal payments or cause the note to become due immediately.TCIwe may be potentially liable for removal or remediation costs, as well as certain other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.Management isTCI’sour business, assets or results of operations.TCI’sour operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, TCI’sour earnings from short-term investments, the cost of new financings and the cost of variable interest rate debt will be affected.For the Years Ended December 31, 2020 2019 Variance Multifamily Segment Revenue $ 14,686 $ 13,517 $ 1,169 Operating expenses (8,482) (8,824) 342 6,204 4,693 1,511 Commercial Segment Revenue 37,223 32,714 4,509 Operating expenses (15,878) (16,389) 511 21,345 16,325 5,020 Segment operating income 27,549 21,018 6,531 Other non-segment items of income (expense) Depreciation and amortization (14,755) (13,379) (1,376) General, administrative and advisory (17,935) (17,114) (821) Interest, net (10,714) (12,209) 1,495 Loss on extinguishment of debt — (5,219) 5,219 (Loss) gain on foreign currency transactions (13,378) (15,108) 1,730 Gain sale or write down of assets 32,107 14,809 17,298 Income (loss) from joint ventures (519) (2,758) 2,239 Other income 5,109 3,823 1,286 Net income (loss) $ 7,464 $ (26,137) $ 33,601 Year Ended December 31, 2020 2019 Incr /(Decr) Net cash provided by (used in) operating activities $ 5,631 $ (35,747) $ 41,378 Net cash provided by (used in) investing activities $ 381 $ (9,598) $ 9,979 Net cash (used in) provided by financing activities $ (2,306) $ 22,041 $ (24,347) For the Year Ended
December 31,2020 2019 2018 Net income (loss) attributable to the Company $ 6,669 $ (26,920) $ 180,550 Depreciation and amortization on consolidated assets 14,755 13,379 22,761 Gain on sale or write down of assets (32,107) (14,809) (171,530) Gain on sale of land 23,383 14,889 17,404 Depreciation and amortization on unconsolidated joint ventures at pro rata share 3,291 238 (1,863) FFO-Basic and Diluted 15,991 (13,223) 47,322 Loss on extinguishment of debt — 5,219 — Loss (gain) on foreign currency transaction 13,378 15,108 (12,399) FFO-adjusted $ 29,369 $ 7,104 $ 34,923 TCI’s primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest at variable rates that fluctuate with market interest ratesmaturing debt that has to be refinanced. TCI’s future operations, cash flow and fair values of financial instruments are also partially dependent on the then existing market interest rates and market equity prices.As of December 31, 2019, our outstanding notes payable consisted of approximately $253.1 million, out of which $249.2 million were notes with fixed interest rates and $3.9 million represented a note with a variable interest rate of 9.75%. Our overall weighted average interest rate at December 31, 2019 and 2018 was 4.9% and 7.1%, respectively.TCI’s interest rate sensitivity position is managed by the capital markets department. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. TCI’s earnings are affected as changes in short-term interest rates affect its cost of variable-rate debt and maturing fixed-rate debt.If market interest rates for our variable-rate debt average 100 basis points more in 2020 than they did during 2019, TCI’s interest expense would increase and net income would decrease by $0.036 million. This amount is determined by considering the impact of hypothetical interest rates on TCI’s borrowing cost. The analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in TCI’s financial structure.The following table contains exposures at December 31, 2019. Anticipation of exposures or risk on positions that could possibly arise was not considered. TCI’s ultimate interest rate risk and its effect on operations will depend on future capital market exposures, which cannot be anticipated with a probable assurance level (dollars in thousands): 2020 2021 2022 2023 2024 Thereafter Total Note Receivable Fixed interest rate - fair value $ 114,182 Instrument’s maturities $ 54,807 $ 33,328 $ 5,096 $ — $ — $ 20,951 $ 114,182 Interest 10,442 6,833 3,126 2,514 2,514 2,514 $ 27,943 Weighted Average Rate 6.59 % 11.12 % 12.00 % 12.00 % 12.00 % 12.00 % Notes Payable: Variable Rate - fair value $ 3,908 Instrument’s maturities $ 3,908 $ — $ — $ — $ — $ — $ 347 Interest 347 — — — — — 2,467 Average interest rate (1) 9.75 % — — — — — Fixed interest rate - fair value $ 249,207 Instrument’s maturities $ 22,074 $ 55,393 $ 13,437 $ 36,770 $ 1,995 $ 119,538 $ 249,207 Interest 10,263 8,382 5,483 5,181 3,406 47,954 $ 80,669 Average interest rate 8.73 % 5.90 % 3.99 % 5.22 % 3.63 % 3.74 % (1) Interest rates on variable rate notes payable are equal to the variable rates in effect on December 31, 2019.ITEM 8.CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAPageFinancial StatementsPage Financial Statements 4041424344Statements of Consolidated Comprehensive Income (Loss) – Years Ended December 31, 2019, 2018 and 20174546Financial Statement Schedules 7476All other schedules are omitted because they are not required, are not applicable or the information required is included in the Financial Statements or the notes thereto.20192020 and 2018,2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019,2020, and the related notes and schedules collectively(collectively referred to as the “consolidatedconsolidated financial statements.”statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of TranscontinentalAmerican Realty Investors, Inc. as of December 31, 20192020 and 20182019 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with U.S.accounting principles generally accepted accounting principles.Transcontinental Realty Investors, Inc.’s management intends to sell landincome-producing assets, refinance real estate and income-producing properties and refinance or extend debtobtain additional borrowings primarily secured by real estate to meet the Company’s liquidity needs.the financial date required to be set forth therein in relation to the financial statements as a whole.30, 202040 December 31, 2019 2018 (dollars in thousands, except share and par value amounts) Assets Real estate, at cost $ 469,997 $ 461,718 Real estate subject to sales contracts at cost 7,966 2,014 Less accumulated depreciation (90,173 ) (79,228 ) Total real estate 387,790 384,504 Notes and interest receivable (including $57,260 in 2019 and $51,945 in 2018 from related parties) 120,986 83,541 Cash and cash equivalents 51,179 36,358 Restricted cash 32,082 70,207 Investment in VAA 59,148 68,399 Investment in other unconsolidated investees 22,632 22,172 Receivable from related parties 141,541 133,642 Other assets 50,560 63,557 Total assets $ 865,918 $ 862,380 Liabilities and Shareholders’ Equity Liabilities: Notes and interest payable $ 246,546 $ 277,237 Bonds and bond interest payable 229,722 158,574 Deferred revenue (including $9,468 in 2019 and $17,522 in 2018 to related parties) 9,468 17,522 Deferred tax liability — 2,000 Accounts payable and other liabilities (including $935 in 2019 and $3 in 2018 to related parties) 26,115 26,646 Total liabilities 511,851 481,979 Shareholders’ equity: Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2019 and 2018; outstanding 8,717,767 shares in 2019 and 2018 87 87 Treasury stock at cost, 200 shares in 2019 and 2018 (2 ) (2 ) Paid-in capital 257,853 258,050 Retained earnings 74,665 101,585 Total Transcontinental Realty Investors, Inc. shareholders’ equity 332,603 359,720 Non-controlling interest 21,464 20,681 Total shareholders’ equity 354,067 380,401 Total liabilities and shareholders’ equity $ 865,918 $ 862,380 December 31, 2020 2019 Assets Real estate $ 377,383 $ 387,790 Cash and cash equivalents 36,761 51,179 Restricted cash 50,206 32,082 Notes receivable (including $62,448 and $53,027 at December 31, 2020 and 2019, respectively, from related parties) 123,556 112,357 Investment in unconsolidated joint ventures 51,786 81,780 Receivable from related parties 159,777 141,541 Other assets 79,613 59,189 Total assets $ 879,082 $ 865,918 Liabilities and Equity Liabilities: Mortgages and other notes payable $ 236,069 $ 241,527 Bonds payable 237,888 223,265 Accounts payable and other liabilities (including $930 and $935 at December 31, 2020 and 2019, respectively, to related parties) 26,729 30,361 Interest payable 7,550 7,230 Deferred revenue 9,315 9,468 Total liabilities 517,551 511,851 Equity: Shareholders' equity Common stock, $0.01 par value, 10,000,000 shares authorized; 8,639,516 shares issued, 8,639,316 outstanding 87 87 Treasury stock at cost, 200 shares (2) (2) Additional paid-in capital 260,388 257,853 Retained earnings 81,334 74,665 Total shareholders’ equity 341,807 332,603 Noncontrolling interest 19,724 21,464 Total equity 361,531 354,067 Total liabilities and equity $ 879,082 $ 865,918 For the Years Ended December 31, 2019 2018 2017 (dollars in thousands, except per share amounts) Revenues: Rental and other property revenues (including $841, $767 and $839 for the years ended 2019, 2018 and 2017, respectively, from related parties) $ 47,970 $ 120,955 $ 125,233 Expenses: Property operating expenses (including $991, $943 and $929 for the years ended 2019, 2018 and 2017, respectively, from related parties) 25,213 59,420 63,056 Depreciation and amortization 13,379 22,761 25,558 General and administrative (including $4,144, $4,578 and $3,120 for the years ended 2019, 2018 and 2017, respectively, from related parties) 10,951 11,359 6,269 Net income fee to related party 357 631 250 Advisory fee to related party 5,806 10,663 9,995 Total operating expenses 55,706 104,834 105,128 Net operating (loss) income (7,736 ) 16,121 20,105 Other income (expenses): Interest income (including $17,413, $13,132 and $11,485 for the years ended 2019, 2018 and 2017, respectively, from related parties) 19,607 15,793 13,862 Other income 84 28,150 625 Mortgage and loan interest (including $1,999, $423 and $1,174 for the year ended 2019, 2018 and 2017, respectively, from related parties) (31,816 ) (58,872 ) (59,944 ) Foreign currency transaction (loss) gain (15,108 ) 12,399 (4,536 ) Loss on debt extinguishment (5,219 ) — — Equity (loss) earnings from VAA (2,774 ) 44 — Earnings from other unconsolidated investees 16 1,085 26 Total other expenses (35,210 ) (1,401 ) (49,967 ) (Loss) income before gain on disposition of 50% interest in VAA, gain on land sales, non-controlling interest, and taxes (42,946 ) 14,720 (29,862 ) Gain on disposition of 50% interest in VAA — 154,126 — (Loss) gain on sale of income producing properties (80 ) — 9,842 Gain on land sales 14,889 17,404 4,884 Net (loss) income from continuing operations before taxes (28,137 ) 186,250 (15,136 ) Income tax expense - current — (1,210 ) (180 ) Income tax benefit (expense) - deferred 2,000 (2,000 ) — Net (loss) income from continuing operations (26,137 ) 183,040 (15,316 ) Net (loss) income (26,137 ) 183,040 (15,316 ) Net (income) attributable to non-controlling interest (783 ) (1,590 ) (499 ) Net (loss) income attributable to Transcontinental Realty Investors, Inc. (26,920 ) 181,450 (15,815 ) Preferred dividend requirement — (900 ) (900 ) Net (loss) income applicable to common shares $ (26,920 ) $ 180,550 $ (16,715 ) Earnings per share - basic Net (loss) income from continuing operations $ (3.00 ) $ 20.89 $ (1.86 ) Net (loss) income applicable to common shares $ (3.09 ) $ 20.71 $ (1.92 ) Earnings per share - diluted Net (loss) income from continuing operations $ (3.00 ) $ 20.89 $ (1.86 ) Net (loss) income applicable to common shares $ (3.09 ) $ 20.71 $ (1.92 ) Weighted average common shares used in computing earnings per share 8,717,767 8,717,767 8,717,767 Weighted average common shares used in computing diluted earnings per share 8,717,767 8,717,767 8,717,767 Amounts attributable to Transcontinental Realty Investors, Inc. Net (loss) income from continuing operations $ (26,137 ) $ 183,040 $ (15,316 ) Net (loss) income applicable to common shares $ (26,920 ) $ 180,550 $ (16,715 ) For the Years Ended December 31, 2020 2019 2018 Revenues: Rental revenues (including $1,083, $841 and $737 for 2020, 2019 and 2018, respectively, from related parties) $ 51,909 $ 46,231 $ 113,944 Other income 5,113 1,823 35,161 Total revenue 57,022 48,054 149,105 Expenses: Property operating expenses (including $990, $991 and $943 for 2020, 2019 and 2018, respectively, from related parties) 24,360 25,213 59,420 Depreciation and amortization 14,755 13,379 22,761 General and administrative (including $3,869, $4,144 and $4,578 for 2020, 2019 and 2018, respectively, from related parties) 9,287 8,704 11,359 Advisory fee to related party 8,648 8,410 11,294 Total operating expenses 57,050 55,706 104,834 Net operating (loss) income (28) (7,652) 44,271 Interest income (including $19,515, $17,413 and $13,132 for 2020, 2019 and 2018, respectively, from related parties) 18,660 19,607 15,793 Interest expense (including $1,581, $1,999 and $423 for the year ended 2020, 2019 and 2018, respectively, from related parties) (29,374) (31,816) (58,872) (Loss) gain on foreign currency transactions (13,378) (15,108) 12,399 Loss on extinguishment of debt 0 (5,219) 0 Equity in (loss) income from unconsolidated joint ventures (519) (2,758) 1,129 Gain on sale or write-down of assets, net 32,107 14,809 171,530 Income tax provision (4) 2,000 (3,210) Net income (loss) 7,464 (26,137) 183,040 Net (income) attributable to noncontrolling interest (795) (783) (1,590) Net income (loss) attributable to the Company 6,669 (26,920) 181,450 Preferred dividend 0 0 (900) Net income (loss) attributable to common shares $ 6,669 $ (26,920) $ 180,550 Earnings per share - basic Basic and diluted $ 0.77 $ (3.09) $ 20.71 Weighted average common shares used in computing earnings per share Basic and diluted 8,639,316 8,717,767 8,717,767 42SHAREHOLDERS’ EQUITY2019 Total Comprehensive Common Stock Treasury Paid-in Retained Non-controlling Equity Income (Loss) Shares Amount Stock Capital Earnings Interest Balance, December 31, 2016 $ 224,477 $ (64,852 ) 8,717,967 $ 87 $ (2 ) $ 269,849 $ (64,050 ) $ 18,592 Net loss (15,316 ) (15,316 ) — — — — (15,815 ) 499 Series D preferred stock dividends (9.0% per year) (900 ) — — — — (900 ) — — Balance, December 31, 2017 $ 208,261 $ (80,168 ) 8,717,967 $ 87 $ (2 ) $ 268,949 $ (79,865 ) $ 19,091 Net income 183,040 181,450 — — — — 181,450 1,590 Series D preferred stock dividends (9.0% per year) (900 ) — — — — (900 ) — — Redemption of Series D preferred stock (10,000 ) — — — — (9,999 ) — — Balance, December 31, 2018 $ 380,401 $ 101,282 8,717,967 $ 87 $ (2 ) $ 258,050 $ 101,585 $ 20,681 Distribution to equity partner (197 ) — — — — (197 ) — — Net loss (26,137 ) (26,920 ) — — — — (26,920 ) 783 Balance, December 31, 2019 $ 354,067 $ 74,362 8,717,967 $ 87 $ (2 ) $ 257,853 $ 74,665 $ 21,464 Common Stock Treasury
StockPaid-in
CapitalRetained
EarningsTotal Shareholders' Equity Noncontrolling
InterestTotal Equity Balance, January 1, 2018 $ 87 $ (2) $ 268,950 $ (79,865) $ 189,170 $ 19,091 $ 208,261 Net income — — — 181,450 181,450 1,590 183,040 Series D preferred stock dividends (9% per year) — — (900) — (900) — (900) Redemption of Series D preferred stock — — (10,000) — (10,000) — (10,000) Balance, December 31, 2018 87 (2) 258,050 101,585 359,720 20,681 380,401 Net loss — — — (26,920) (26,920) 783 (26,137) Distribution to equity partner — — (197) — (197) — (197) Balance, December 31, 2019 87 (2) 257,853 74,665 332,603 21,464 354,067 Net income — — — 6,669 6,669 795 7,464 Adjustment to noncontrolling interest — — 2,535 — 2,535 (2,535) 0 Balance, December 31, 2020 $ 87 $ (2) $ 260,388 $ 81,334 $ 341,807 $ 19,724 $ 361,531 (unaudited) Year Ended December 31, 2019 2018 2017 (dollars in thousands) Cash Flow From Operating Activities: Net (loss) income $ (26,137 ) $ 183,040 $ (15,316 ) Adjustments to reconcile net (loss) income to net cash (used in) operating activities: Gain on disposition of 50% inerest in VAA — (154,126 ) — Loss (gain) on sale of income-producing properties 80 — (9,842 ) Foreign currency transaction loss (gain) 15,108 (12,399 ) 4,536 Loss on debt extinguishment 5,219 — — Gain on sale of land (14,889 ) (17,404 ) (4,884 ) Depreciation and amortization 13,379 22,761 25,558 Amortization of deferred borrowing costs 662 4,994 3,574 Amortization of bond issuance costs 1,544 2,994 971 Loss (earnings) from joint venture 2,774 (44 ) — Earnings from other unconsolidated investees (16 ) (1,085 ) (26 ) (Increase) decrease in assets: Accrued interest receivable (8,916 ) (22,601 ) (668 ) Other assets (1,149 ) (105,531 ) (1,433 ) Prepaid expense 10,237 19,124 (5,661 ) Rent receivables 626 (3,213 ) 543 Related party receivables (35,257 ) (14,995 ) (9,972 ) Increase (decrease) in liabilities: Accrued interest payable 2,349 (2,307 ) 4,573 Other liabilities (1,361 ) (80,395 ) (17,027 ) Net cash (used in) operating activities (35,747 ) (181,187 ) (25,074 ) Cash Flow From Investing Activities: Proceeds from disposition of 50% interest in VAA — 236,752 — Proceeds from notes receivable 13,862 6,541 26,230 Originations or advances on notes receivable (21,434 ) (16,801 ) (16,420 ) Acquisition of land held for development (3,422 ) — — Acquisition of income-producing properties — (10,558 ) (37,044 ) Distribution from equity investee 6,701 — — Distributions to equity partner (197 ) — — Proceeds from sale of income-producing properties 1,296 4,889 — Proceeds from sale of land 27,326 11,857 6,301 Improvement of income-producing properties (5,257 ) (3,688 ) (64,443 ) Construction and development of new properties (28,473 ) (81,367 ) (12,936 ) Net cash (used in) provided by investing activities (9,598 ) 147,625 (98,312 ) Cash Flow From Financing Activities: Proceeds from notes payable 25,675 123,345 135,116 Recurring payment of principal on notes payable (10,446 ) (124,616 ) (83,070 ) Payment on commercial note payable (41,531 ) — — Debt extinguishment costs (3,799 ) — — Proceeds from bonds 78,125 59,213 115,335 Bond payments (21,742 ) — — Bond issuance costs (4,241 ) (5,257 ) (6,887 ) Deferred financing costs — — (3,599 ) Preferred stock dividends - Series D — (900 ) (900 ) Net cash provided by financing activities 22,041 51,785 155,995 Net (decrease) increase in cash, cash equivalents and restricted cash (23,304 ) 18,223 32,609 Cash, cash equivalents and restricted cash, beginning of period 106,565 88,342 55,733 Cash, cash equivalents and restricted cash, end of period $ 83,261 $ 106,565 $ 88,342 Supplemental disclosures of cash flow information: Cash paid for interest $ 29,430 $ 61,587 $ 49,791 Schedule of noncash investing and financing activities: Land received in exchange for note receivable $ 1,800 $ — $ — Notes receivable received from sale of income-producing properties $ — $ 1,735 $ — Seller financing note - acquisition of income-producing properties $ — $ 1,895 $ — Notes payable issued on acquisition of income-producing properties $ — $ 31,175 $ — Notes payable issued on acquisition of land $ 1,155 $ — $ — Year Ended December 31, 2020 2019 2018 Cash Flow From Operating Activities: Net income (loss) $ 7,464 $ (26,137) $ 183,040 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on sale or write down of assets (32,107) (14,809) (171,530) Loss (gain) income on foreign currency transactions 13,378 15,108 (12,399) Loss on debt extinguishment 0 5,219 0 Depreciation and amortization 18,579 15,585 30,749 Provision for bad debts 984 0 0 Equity in loss (income ) from unconsolidated joint ventures 519 2,758 (1,129) Distribution of income from unconsolidated joint ventures 1,782 0 0 Changes in assets and liabilities, net of dispositions: Other assets (7,397) 798 (112,221) Related party receivables 4,389 (35,257) (14,995) Accrued interest payable (1,340) 2,349 (2,307) Accounts payable and other liabilities (620) (1,361) (80,395) Net cash provided by (used in) operating activities 5,631 (35,747) (181,187) Cash Flow From Investing Activities: Collection of notes receivable 4,436 13,862 6,541 Originations and advances on notes receivable (33,015) (21,434) (16,801) Acquisition of real estate 0 (3,422) (10,558) Development and renovation of real estate (17,505) (33,730) (85,055) Deferred leasing costs (2,603) 0 0 Proceeds from sale of assets 40,982 28,622 253,498 Distribution from unconsolidated joint ventures 8,086 6,504 0 Net cash provided by (used in) investing activities 381 (9,598) 147,625 Cash Flow From Financing Activities: Proceeds from mortgages, other notes and bonds payable 30,727 103,800 182,558 Payments on mortgages, other notes and bonds payable (31,736) (73,719) (124,616) Debt extinguishment costs 0 (3,799) 0 Deferred financing costs (1,297) (4,241) (5,257) Preferred stock dividends 0 0 (900) Net cash (used in) provided by financing activities (2,306) 22,041 51,785 Net increase (decrease) in cash, cash equivalents and restricted cash 3,706 (23,304) 18,223 Cash, cash equivalents and restricted cash, beginning of period 83,261 106,565 88,342 Cash, cash equivalents and restricted cash, end of period $ 86,967 $ 83,261 $ 106,565 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, 2019 2018 2017 (dollars in thousands) Net (loss) income $ (26,137 ) $ 183,040 $ (15,316 ) Total comprehensive (loss) income (26,137 ) 183,040 (15,316 ) Comprehensive (income) attributable to non-controlling interest (783 ) (1,590 ) (499 ) Comprehensive (loss) income attributable to Transcontinental Realty Investors, Inc. $ (26,920 ) $ 181,450 $ (15,815 ) The accompanying notes are an integral part of these consolidated financial statements.TRANSCONTINENTAL REALTY INVESTORS, INC.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 areamounts.Certain prior year amounts have been reclassifiedamounts)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 POLICIESOrganization and business.TCI,Transcontinental Realty Investors, Inc., a Nevada corporation is headquarteredwhich was formed in Dallas, Texas and its1984. Our common stock is listed and trades on the New York Stock Exchange (“NYSE American”NYSE”) 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 We are owned approximately 78% by American Realty Investors, Inc. “ARL”(“ARL”), whose common stock is traded on the NYSE American under the symbol “ARL”. Subsidiaries of ARL own approximately 78.38% 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%7% by the parent 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, 2019, TCI owned 81.23% of the outstanding IOR common shares. Shares of IOR are traded on the New York Exchange (“NYSE American”) under the symbol “IOR”.TCI’s Board of Directors are 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. 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 47 income producing apartment complexes, and 5 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.residentialmultifamily and commercial real estate properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate incomerevenues from gains on sales of income-producing properties and land.2019, we owned ten residential apartment communities comprising2020, our portfolio of 1,657 units, sevenincome-producing properties consisted of:anin aggregate of approximately 1.7 million rentable1,600,000 square feet, anfeet;1,951 acresVAA.undevelopedthe Companies employees are Pillar employees. Our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and partially developed land. In addition, our joint venture VAA owns fifty-one residential apartment communities comprisedbrokerage services. Our multifamily properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 12 – Related Party Transactions).9,888 units.Significant Accounting Policies. The Company presents its(“GAAP”). The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and allAmerica.controlling interest. Arrangements that are not controlled throughmajority of the voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance withinterest of the provisions and guidance of ASC Topic 810 “Consolidation”, whereby weentity. We have determined that we are a primary beneficiary of the VIE and meet certain criteriawhen we have (i) the power to direct the activities 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 whenVIE that most significantly impacts its economic performance, and (ii) 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 obligationobligations to absorb expected losses or residual returns of the entity, or have voting rightsright to receive benefits that are not proportionalcould potentially be significant 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.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’ownership interest, management representation, ability to control or significantly influence key decisionsdecision and other contractual rights. We account 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 iswe are not deemed to be the primary beneficiary the entities are accounted for usingunder the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities are included in consolidated net income. TCI’s investmentsour results of operations.ARL and VAA are accounted for underthousands, except per share amounts)equity method.The Company in accordance with the VIE guidance in ASC 810 “Consolidations” consolidates ten and nine multifamily residential properties located throughout the United States at December 31, 2019 and December 31, 2018, respectively, with total units of 1,657 and 1,489, respectively. Assets totaling $477.9 million and $463.7 million at December 31, 2019 and 2018, respectively, are consolidated and included in “Real estate, at cost”current year presentation on the consolidated balance sheetsheets, consolidated statements of operations and are all collateral for their respective mortgage notes payable, nonethe consolidated statements of which are recourse to the partnership in which they are in or to the Company. .10-4010 to 40 years; furniture, fixtures and equipment—5-105 to 10 years).continually evaluateassess whether an indicator of impairment in the recoverability of the carrying value of itsour real estate assets usingexists by considering expected future operating income, trends and prospects, as well as the methodology prescribed in ASC Topic 360, “Property, Plant and Equipment,” Factors considered by management in evaluating impairmenteffects of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating lossesdemand, competition 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 investmenteconomic factors. Such factors include projected rental revenue, operating costs and capital expenditures as well as estimated holding periods and capitalization rates. If an impairment indicator exists, the determination of recoverability is not considered impaired ifmade based upon the estimated undiscounted estimated future net cash flows, excluding interest expense. The amount of an asset (bothimpairment loss, if any, is determined by comparing the annual estimatedfair value, as determined by a discounted 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 reduceflows analysis, with the carrying value of the asset to its estimated fair value.Properties that are treated as “subject to sales contract” onrelated assets. We generally hold and operate our income producing real estate long-term, which decreases the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” are those in which we havelikelihood of their carrying values 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 beenbeing recoverable. Real estate classified as held for sale in accordance with guidance reflected in ASC 360-10-45 “Impairmentare measured at the lower of the carrying amount or Disposal of Long-Lived Assets.”.20192020 or 2018.2019.
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.
A variety of Capitalized costs are incurred inalso include direct and certain indirect costs clearly associated with 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”. Theproject. Indirect 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, salariesinsurance and relatedcertain shared administrative costs. In assessing the amounts of direct and indirect costs and otherto be capitalized, allocations are made to projects based on estimates of the actual amount of time spent on each activity. Indirect costs incurred during thenot clearly associated with specific projects are expensed as period of development. costs.
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:
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.
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.
Sales
Non-performing notes receivable.Restricted Cash
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 consideredwhen purchased to be cash equivalents.
Restricted cash. equivalents, for which cost approximates fair value. Restricted cash is comprised primarily ofincludes cash balances held in escrow by financial institutions under the terms of certain secured notes payable and certain unsecured bonds payable.
Earnings
amounts)
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.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions from ASC 740. Also, the amendments in this Update simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the impact that the adoption of ASU 2019-12 may have on its consolidated financial statements.
pronouncements.
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 does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. ASU 2016-02 was effective for reporting periods beginning after December 15, 2018. The adoption of ASU 2016-02January 1, 2020, did not have a material impact on the Company’sour financial position and results of operations.
In May 2014, Accounting Standards Update (“ASU”) No. 2014-09 (“March 2020, the FASB issued 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. As the majority2020-04, Reference Rate Reform (Topic 848): Facilitation of the Company’s revenueEffects of Reference Rate Reform on Financial Reporting. The standard provides guidance, optional expedients and exceptions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The standard was effective upon issuance and can be applied through December 31, 2022. We have mortgage notes payable with interest rates that reference LIBOR, and therefore, we will adopt this standard when LIBOR is from rental revenuediscontinued.
On November 19, 2018, we executed an agreement betweenduring the Macquarie Groupyear ended December 2020.
VAA is equally owned and controlledhas been computed 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 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 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 ofdividing net income or loss fromavailable to common shares, adjusted for preferred dividends, by the joint ventures is included withinweighted-average number of common shares outstanding during the Consolidated Statementsperiod.
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income (loss) | $ | 7,464 | $ | (26,137) | $ | 183,040 | |||||||||||
| Net (income) attributable to noncontrolling interest | (795) | (783) | (1,590) | ||||||||||||||
| Net income (loss) attributable to the Company | 6,669 | (26,920) | 181,450 | ||||||||||||||
| Preferred dividend | 0 | 0 | (900) | ||||||||||||||
| Net income (loss) attributable to common shares | $ | 6,669 | $ | (26,920) | $ | 180,550 | |||||||||||
| Weighted-average common shares outstanding-basic and diluted | 8,639 | 8,718 | 8,718 | ||||||||||||||
| EPS - attributable to common shares- basic and diluted | $ | 0.77 | $ | (3.09) | $ | 20.71 | |||||||||||
other supplemental cash flow information:
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Cash paid for interest | $ | 27,127 | $ | 29,430 | $ | 61,587 | |||||||||||
| Cash - Beginning of period | |||||||||||||||||
| Cash and cash equivalents | $ | 51,179 | $ | 36,358 | $ | 42,705 | |||||||||||
| Restricted cash | 32,082 | 70,207 | 45,637 | ||||||||||||||
| $ | 83,261 | $ | 106,565 | $ | 88,342 | ||||||||||||
| Cash - End of Period | |||||||||||||||||
| Cash and cash equivalents | $ | 36,761 | $ | 51,179 | $ | 36,358 | |||||||||||
| Restricted cash | 50,206 | 32,082 | 70,207 | ||||||||||||||
| $ | 86,967 | $ | 83,261 | $ | 106,565 | ||||||||||||
| Proceeds from mortgages, notes and bonds payable | |||||||||||||||||
| Proceeds from mortgages and notes payable | $ | 10,942 | $ | 25,675 | $ | 123,345 | |||||||||||
| Proceeds from bonds | 19,785 | 78,125 | 59,213 | ||||||||||||||
| $ | 30,727 | $ | 103,800 | $ | 182,558 | ||||||||||||
| Payment of mortgages, notes and bonds payable | |||||||||||||||||
| Recurring payment on mortgages and notes payable | $ | 12,144 | $ | 51,977 | $ | 124,616 | |||||||||||
| Bond payments | 19,592 | 21,742 | 0 | ||||||||||||||
| $ | 31,736 | $ | 73,719 | $ | 124,616 | ||||||||||||
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Property acquired in exchange for note payable | $ | 3,350 | $ | 1,155 | $ | 1,895 | |||||||||||
| Note receivable issued in exchange for property | 1,761 | 0 | 0 | ||||||||||||||
| Property acquired in exchange for note receivable | 0 | 1,800 | 1,735 | ||||||||||||||
| Debt assumed in sale of properties | 8,238 | 0 | 31,175 | ||||||||||||||
| As of December 31, | ||||||||
| Balance Sheet | 2019 | 2018 | ||||||
| Net real estate assets | $ | 1,242,957 | $ | 1,257,557 | ||||
| Other assets | 62,222 | 67,020 | ||||||
| Debt, net | (832,779 | ) | (791,225 | ) | ||||
| Other liabilities | (271,291 | ) | (280,288 | ) | ||||
| Total equity | (201,109 | ) | (253,064 | ) | ||||
| Results of Operations | For the Year Ended December 31, 2019 | For the period November 19 to December 31, 2018 | ||||||
| Total revenue | $ | 115,377 | $ | 12,887 | ||||
| Total property, operating, and maintenance expenses | (56,967 | ) | (4,507 | ) | ||||
| Interest expense | (61,487 | ) | (5,818 | ) | ||||
| Depreciation and Amortization | (43,942 | ) | (6,987 | ) | ||||
| Total other expense | (3,377 | ) | (5,297 | ) | ||||
| Net loss | $ | (50,396 | ) | $ | (9,722 | ) |
The following issegment profit as our internal reporting addresses these items on a reconciliation from VAA’s net loss to TCI’s equitycorporate level.
| For the Year Ended December 31, 2019 | For the period November 19 to December 31, 2018 | |||||||
| VAA net loss | $ | (50,396 | ) | $ | (9,722 | ) | ||
| Adjustments to reconcile to income (loss) from VAA | ||||||||
| Interest expense on mezzanine loan | 25,014 | 2,815 | ||||||
| In-place lease intangibles - amortization expense | 14,703 | 3,983 | ||||||
| Depreciation basis differences | 5,132 | 3,012 | ||||||
| Net loss | $ | (5,547 | ) | $ | 88 | |||
| Percentage ownership in VAA | 50 | % | 50 | % | ||||
| Loss from VAA | $ | (2,774 | ) | $ | 44 | |||
thousands, except per share amounts)
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Multifamily Segment | |||||||||||||||||
| Revenue | $ | 14,686 | $ | 13,517 | $ | 80,821 | |||||||||||
| Operating expenses | (8,482) | (8,824) | (42,588) | ||||||||||||||
| Profit from segment | 6,204 | 4,693 | 38,233 | ||||||||||||||
| Commercial Segment | |||||||||||||||||
| Revenue | 37,223 | 32,714 | 33,123 | ||||||||||||||
| Operating expenses | (15,878) | (16,389) | (16,832) | ||||||||||||||
| Profit from segment | 21,345 | 16,325 | 16,291 | ||||||||||||||
| Total profit from all segments | $ | 27,549 | $ | 21,018 | $ | 54,524 | |||||||||||
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Profit from reportable segments | $ | 27,549 | $ | 21,018 | $ | 54,524 | |||||||||||
| Other non-segment items of income (expense) | |||||||||||||||||
| Depreciation and amortization | (14,755) | (13,379) | (22,761) | ||||||||||||||
| General and administrative | (9,287) | (8,704) | (11,359) | ||||||||||||||
| Advisory fee to related party | (8,648) | (8,410) | (11,294) | ||||||||||||||
| Other income | 5,113 | 1,823 | 35,161 | ||||||||||||||
| Interest income | 18,660 | 19,607 | 15,793 | ||||||||||||||
| Interest expense | (29,374) | (31,816) | (58,872) | ||||||||||||||
| (Loss) gain on foreign currency transactions | (13,378) | (15,108) | 12,399 | ||||||||||||||
| Loss on extinguishment of debt | 0 | (5,219) | 0 | ||||||||||||||
| Equity in (loss) income from unconsolidated joint ventures | (519) | (2,758) | 1,129 | ||||||||||||||
| Gain on sale or write-down of assets, net | 32,107 | 14,809 | 171,530 | ||||||||||||||
| Income tax provision | (4) | 2,000 | (3,210) | ||||||||||||||
| Net income (loss) | $ | 7,464 | $ | (26,137) | $ | 183,040 | |||||||||||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Segment assets | $ | 342,965 | $ | 348,404 | |||||||
| Real estate | 65,149 | 70,006 | |||||||||
| Investment in unconsolidated joint ventures | 51,786 | 81,780 | |||||||||
| Notes receivable | 123,556 | 112,357 | |||||||||
| Receivable from related parties | 159,777 | 141,541 | |||||||||
| Cash and other non-segment assets | 135,849 | 111,830 | |||||||||
| Total assets | $ | 879,082 | $ | 865,918 | |||||||
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Fixed component | $ | 49,974 | $ | 43,749 | $ | 112,203 | |||||||||||
| Variable component | 1,935 | 2,482 | 1,741 | ||||||||||||||
| Total rental revenue | $ | 51,909 | $ | 46,231 | $ | 113,944 | |||||||||||
| Apartments | ||||||||
| Location | No. | Units | ||||||
| Alabama | 1 | 168 | ||||||
| Arkansas | 5 | 1,122 | ||||||
| Colorado | 2 | 260 | ||||||
| Florida | 2 | 388 | ||||||
| Georgia | 1 | 222 | ||||||
| Louisiana | 3 | 464 | ||||||
| Mississippi | 1 | 196 | ||||||
| North Carolina | 1 | 201 | ||||||
| Nevada | 1 | 308 | ||||||
| Tennessee | 4 | 708 | ||||||
| Texas-Greater Dallas-Ft Worth | 19 | 3,709 | ||||||
| Texas-Greater Houston | 2 | 416 | ||||||
| Texas-Other | 9 | 1,726 | ||||||
| Total | 51 | 9,888 | ||||||
one-year or less:
| Year | Amount | |||||||
| 2021 | $ | 23,419 | ||||||
| 2022 | 21,363 | |||||||
| 2023 | 16,003 | |||||||
| 2024 | 10,889 | |||||||
| 2025 | 6,938 | |||||||
| Thereafter | 25,566 | |||||||
| Total | $ | 104,178 | ||||||
| Property | Location | No. of Units | Costs to Date (1) | Total Projected Costs (1) | ||||||||||
| Lakeside Lofts apartments | Farmers Branch, TX | 249 | $ | 50,357 | $ | 80,622 | ||||||||
| Total | 249 | $ | 50,357 | $ | 80,622 | |||||||||
(1) Costs include construction hard costs, construction soft costs and loan borrowing costs.
During 2019, the Company received $19.4 million cash distribution from VAA as a result of the annual surplus cash computation from its HUD collaterized residential properties and other amounts owed to the Company as agreed to in the joint venture operating agreement.
53
At December 31, 2019 and 2018, TCI’s real estate investment is comprised of the following (dollars in thousands):
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Apartments | $ | 156,173 | $ | 126,274 | ||||
| Apartments under construction | 22,363 | 27,261 | ||||||
| Commercial properties | 229,424 | 224,167 | ||||||
| Land held for development | 62,037 | 84,016 | ||||||
| Real estate subject to sales contract | 7,966 | 2,014 | ||||||
| Total real estate, at cost, less impairment | $ | 477,963 | $ | 463,732 | ||||
| Less accumulated deprecation | (90,173 | ) | (79,228 | ) | ||||
| Total real estate, net of depreciation | $ | 387,790 | $ | 384,504 | ||||
Expendituresfollowing:
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land | $ | 50,759 | $ | 49,887 | |||||||
| Building and improvements | 297,644 | 286,280 | |||||||||
| Tenant improvements | 30,935 | 49,431 | |||||||||
| Construction in progress | 77,891 | 84,399 | |||||||||
| Total cost | 457,229 | 469,997 | |||||||||
| Less accumulated deprecation | (82,418) | (90,173) | |||||||||
| Total real estate, net | 374,811 | 379,824 | |||||||||
| Property held for sale | 2,572 | 7,966 | |||||||||
| Total real estate | $ | 377,383 | $ | 387,790 | |||||||
Depreciation is computed on a straight line basis over the estimated useful lives of the assets as follows:
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, 2019, 2018 and 2017.
The following is a description of the Company’s significant real estate transactions for the year ended December 31, 2019:
The Company continuesWe continue to invest in the development of apartment projects.multifamily properties. During the year ended December 31, 2019, TCI has2020, we invested $28.5 million$17,505 related to the construction and development projects.
| For the Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Land(1) | $ | 23,383 | $ | 14,889 | $ | 17,404 | |||||||||||
| Multifamily(2) | 3,702 | (80) | 154,126 | ||||||||||||||
| Commercial(3) | 4,610 | 0 | 0 | ||||||||||||||
| Other(4) | 412 | 0 | 0 | ||||||||||||||
| $ | 32,107 | $ | 14,809 | $ | 171,530 | ||||||||||||
For the years ended
| Carrying Value | Interest Rate | Maturity Date | ||||||||||||||||||||||||
| Borrower / Project | 2020 | 2019 | ||||||||||||||||||||||||
| ABC Land and Development, Inc. | $ | 4,408 | $ | 4,408 | 9.50 | % | 6/30/21 | |||||||||||||||||||
| ABC Paradise, LLC | 1,210 | 1,210 | 9.50 | % | 6/30/21 | |||||||||||||||||||||
| Autumn Breeze(1) | 1,867 | 1,302 | 5.00 | % | 7/1/22 | |||||||||||||||||||||
| Bellwether Ridge(1) | 3,858 | 3,765 | 5.00 | % | 11/1/21 | |||||||||||||||||||||
| Forest Pines(1) | 2,869 | 2,868 | 5.00 | % | 11/1/22 | |||||||||||||||||||||
| JEM Holdings, Inc. | 0 | 300 | 6.00 | % | 7/1/16 | |||||||||||||||||||||
| Lake Wales | 3,000 | 3,000 | 9.50 | % | 6/30/21 | |||||||||||||||||||||
| Legacy Pleasant Grove | 496 | 496 | 12.00 | % | 10/23/22 | |||||||||||||||||||||
| McKinney Ranch | 4,554 | 4,554 | 6.00 | % | 9/15/22 | |||||||||||||||||||||
| One Realco Land Holding, Inc. | 1,728 | 1,728 | 9.50 | % | 6/30/21 | |||||||||||||||||||||
| Oulad-Chikh Family Trust | 0 | 174 | 8.00 | % | 3/1/21 | |||||||||||||||||||||
| Parc at Ingleside(1) | 2,523 | 1,531 | 5.00 | % | 12/1/21 | |||||||||||||||||||||
| Parc at Windmill Farms(1) | 7,803 | 7,602 | 5.00 | % | 11/1/22 | |||||||||||||||||||||
| Phillips Foundation for Better Living, Inc.(2) | 0 | 314 | 12.00 | % | 3/31/22 | |||||||||||||||||||||
| Phillips Foundation for Better Living, Inc.(2) | 61 | 0 | 12.00 | % | 3/31/23 | |||||||||||||||||||||
| Plum Tree(1) | 857 | 413 | 5.00 | % | 4/26/26 | |||||||||||||||||||||
| Riverview on the Park Land, LLC | 1,045 | 1,045 | 9.50 | % | 6/30/21 | |||||||||||||||||||||
| RNC Portfolio, Inc. | 8,853 | 8,802 | 5.00 | % | 9/1/24 | |||||||||||||||||||||
| Spartan Land | 5,907 | 5,907 | 12.00 | % | 1/16/23 | |||||||||||||||||||||
| Spyglass of Ennis(1) | 5,360 | 5,288 | 5.00 | % | 11/1/22 | |||||||||||||||||||||
| Steeple Crest(1) | 6,498 | 6,665 | 5.00 | % | 8/1/21 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 2,880 | 3,793 | 12.00 | % | 7/31/21 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 212 | 212 | 12.00 | % | 8/30/21 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 6,831 | 6,831 | 12.00 | % | 10/31/21 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 10,896 | 10,926 | 12.00 | % | 12/31/21 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 10,096 | 10,096 | 12.00 | % | 3/31/22 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 6,990 | 0 | 12.00 | % | 3/31/23 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 3,615 | 0 | 12.00 | % | 5/31/23 | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (2)(3) | 19,139 | 19,127 | 12.00 | % | 12/31/32 | |||||||||||||||||||||
| $ | 123,556 | $ | 112,357 | |||||||||||||||||||||||
Cash and cash equivalents, and restricted cash for fiscal year ended 2019 and 2018 was $83.3 million and $106.6 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, | ||||||||
| 2019 | 2018 | |||||||
| Cash and cash equivalents | $ | 51,179 | $ | 36,358 | ||||
| Restricted cash (cash held in escrow) | 15,540 | 37,946 | ||||||
| Restricted cash (certificate of deposits) | 3,759 | 9,688 | ||||||
| Restricted cash (held with Trustee) | 12,783 | 22,573 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 83,261 | $ | 106,565 | ||||
Amounts included in restricted cash represent funds required to meet contractual obligations with certain financial institutions for the payment of reserve replacementunderlying development property, and tax and insurance escrow. In addition, restricted cash includes funds to the Bond’s Trustee for payment of principal and interests.
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 generallyis 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).
Borrower | Maturity Date | Interest Rate | Amount | Security | |||||||||
| Performing loans: | |||||||||||||
| Prospectus Endeavors 4, LLC | 01/23 | 12.00 | % | 5,907 | Secured | ||||||||
| Prospectus Endeavors 6, LLC | 10/22 | 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 | 11/20 | 5.00 | % | 2,868 | Secured | ||||||||
| Spyglass Apartments of Ennis, LP | 11/20 | 5.00 | % | 5,288 | Secured | ||||||||
| Bellwether Ridge | 05/20 | 5.00 | % | 3,765 | Secured | ||||||||
| Parc at Windmill Farms | 05/20 | 5.00 | % | 7,602 | Secured | ||||||||
| Autumn Breeze | 10/21 | 5.00 | % | 1,302 | Secured | ||||||||
| Plum Tree | 10/21 | 5.00 | % | 413 | Secured | ||||||||
| Ingleside | 12/21 | 5.00 | % | 1,531 | Secured | ||||||||
| RNC | 09/24 | 5.00 | % | 8,802 | Secured | ||||||||
| Revolving Line of Credit Steeple Crest | 10/20 | 5.00 | % | 6,665 | Secured | ||||||||
| RAI PFBL 2018 Purch Fee Note Weatherford | 12/21 | 12.00 | % | 525 | 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. (1) | 12/21 | 12.00 | % | 10,401 | Unsecured | ||||||||
| Unified Housing Foundation, Inc. (1) | 06/20 | 12.00 | % | 5,314 | Unsecured | ||||||||
| Unified Housing Foundation, Inc. (1) | 03/22 | 12.00 | % | 4,782 | Unsecured | ||||||||
| Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | 07/21 | 12.00 | % | 838 | Secured | ||||||||
| Unified Housing Foundation, Inc. (Limestone Ranch) (1) | 07/21 | 12.00 | % | 773 | Secured | ||||||||
| Unified Housing Foundation, Inc. (Marquis at Vista Ridge) (1) | 07/21 | 12.00 | % | 839 | Secured | ||||||||
| Unified Housing Foundation, Inc. (Timbers at the Park) (1) | 07/21 | 12.00 | % | 432 | Secured | ||||||||
| Unified Housing Foundation, Inc. (Trails at White Rock) (1) | 07/21 | 12.00 | % | 913 | Secured | ||||||||
| Unified Housing Foundation, Inc. (Bella Vista) (1) | 08/21 | 12.00 | % | 212 | Secured | ||||||||
| Unified Housing Foundation, Inc. (1) | 10/21 | 12.00 | % | 6,831 | Unsecured | ||||||||
| Other related party notes | Various | Various | 3,553 | Various secured interests | |||||||||
| Other non-related party notes | Various | Various | 10,276 | Various secured interests | |||||||||
| Accrued interest | 8,629 | ||||||||||||
| Total Performing | $ | 122,811 | |||||||||||
| Allowance for estimated losses | (1,825 | ) | |||||||||||
| Total | $ | 120,986 | |||||||||||
(1) Related party notes
As of December 31, 2019, the obligors on $54.0 million of the mortgage notes receivable portfolio were due from related entities.underlying development property.
As of December 31, 2019, none of the mortgage notes receivable portfolio were non-performing.
The Company has various notes receivable from Unified Housing foundation, Inc. “UHF”. UHFborrower is determined to be a related party due to our significant investment in the performance of the collateral secured underby the notes receivable. Payments
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, adjustedin certain multifamily properties to Macquarie for a $236.8 million cash payment, resulting in a gain on sale of assets of $154.1 million. We then immediately transferred our respective ownership interests in the Company’s proportionate sharemultifamily projects ("VAA Portfolio") to VAA in exchange for a 50% voting interest / 49% profit participation interest ("Class A interest") in VAA a
Ourmatures concurrently with the termination of VAA. Accordingly, we account for our interest in the common stock of ARL in the amount of 0.90% is accounted for under theMezzanine Loan as additional equity method.
The summary data presented belowinterest and includes our investments accounted for under the equity method, except for our investment in VAA which is discussed in detail in Note 2 ‘Investment in VAA’.
The following is a summary of the financial position and results of operationsany interest payments accrued as income from our unconsolidated parent (dollars in thousands):
| December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| ARL | ||||||||||||
| Real estate, net of accumulated depreciation | $ | — | $ | 549 | $ | 12,349 | ||||||
| Notes receivable | 35,213 | 42,517 | 41,928 | |||||||||
| Other assets | 67,441 | 66,712 | 126,238 | |||||||||
| Notes payable | (8,327 | ) | (9,637 | ) | (6,507 | ) | ||||||
| Other liabilities | (26,947 | ) | (21,123 | ) | (102,014 | ) | ||||||
| Shareholders’ equity/partners capital | (67,380 | ) | (79,018 | ) | (71,994 | ) | ||||||
| For the Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Rents, interest and other income | $ | 12,569 | $ | 7,132 | $ | 9,193 | ||||||
| Depreciation | — | — | (157 | ) | ||||||||
| Operating expenses | (3,765 | ) | (2,420 | ) | (3,149 | ) | ||||||
| Gain on land sales | 1,016 | — | 4,765 | |||||||||
| Interest expense | (8,043 | ) | (7,191 | ) | (6,228 | ) | ||||||
| Income (loss) from continuing operations | $ | 1,777 | $ | (2,479 | ) | $ | 4,424 | |||||
| Net income (loss) | $ | 1,777 | $ | (2,479 | ) | $ | 4,424 | |||||
| Company’s proportionate share of income (loss) | $ | 16 | $ | (22 | ) | $ | 40 | |||||
During the fourth quarter ofjoint ventures.
The investment$18,878 and $3,747, respectively. RAI has a controlling ownership interest 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 dividendstherefore deemed a related party. The transfer was recorded at cost as an increase to the ARL Series A convertible Preferred Stock whichrelated party receivable.
| As of December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Condensed Balance Sheets of VAA | ||||||||||||||
| Assets | ||||||||||||||
| Real estate | $ | 1,217,725 | $ | 1,242,957 | ||||||||||
| Other assets | 63,102 | 62,222 | ||||||||||||
| Total assets | $ | 1,280,827 | $ | 1,305,179 | ||||||||||
| Liabilities and Partners Capital | ||||||||||||||
| Mortgage notes payable | $ | 830,721 | $ | 832,858 | ||||||||||
| Mezzanine notes payable | 239,878 | 240,422 | ||||||||||||
| Other liabilities | 37,262 | 30,790 | ||||||||||||
| Our share of partners' capital | 84,983 | 99,775 | ||||||||||||
| Outside partner's capital | 87,983 | 101,334 | ||||||||||||
| Total liabilities and partners' capital | $ | 1,280,827 | $ | 1,305,179 | ||||||||||
| Investment in unconsolidated joint ventures | ||||||||||||||
| Our share of partners' capital | $ | 84,983 | $ | 99,775 | ||||||||||
| Our share of Mezzanine note payable | 119,939 | 120,211 | ||||||||||||
| Basis adjustment (1) | (153,136) | (160,838) | ||||||||||||
| Our investment in unconsolidated joint ventures | 51,786 | 59,148 | ||||||||||||
| Investment ARL common shares | 0 | 606 | ||||||||||||
| Investment in ARL preferred shares | 0 | 22,026 | ||||||||||||
| Total investment in unconsolidated joint ventures | $ | 51,786 | $ | 81,780 | ||||||||||
| For the Years Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Condensed Statements of Operations of VAA | ||||||||||||||||||||
| Revenue | ||||||||||||||||||||
| Rental revenue | $ | 117,336 | $ | 109,746 | $ | 11,568 | ||||||||||||||
| Other revenue | 5,779 | 5,631 | 1,319 | |||||||||||||||||
| Total revenue | 123,115 | 115,377 | 12,887 | |||||||||||||||||
| Expenses | ||||||||||||||||||||
| Operating expenses | 62,458 | 60,516 | 9,827 | |||||||||||||||||
| Depreciation and amortization | 30,456 | 43,942 | 6,987 | |||||||||||||||||
| Interest | 56,903 | 61,315 | 5,795 | |||||||||||||||||
| Total expenses | 149,817 | 165,773 | 22,609 | |||||||||||||||||
| Net loss | $ | (26,702) | $ | (50,396) | $ | (9,722) | ||||||||||||||
| Our share of net (loss) income in unconsolidated joint ventures | $ | (519) | $ | (2,758) | $ | 1,129 | ||||||||||||||
| Carrying Value | Interest Rate | Maturity Date | |||||||||||||||||||||||||||
| Property/ Entity | 2020 | 2019 | |||||||||||||||||||||||||||
| 600 Las Colinas | $ | 35,589 | $ | 36,302 | 5.30 | % | 11/1/2023 | ||||||||||||||||||||||
| 770 South Post Oak | 11,871 | 12,077 | 4.40 | % | 6/1/2025 | ||||||||||||||||||||||||
| Bridge View Plaza(1) | 0 | 3,824 | 7.75 | % | 11/1/2020 | ||||||||||||||||||||||||
| Chelsea | 8,194 | 8,749 | 3.40 | % | 12/1/2050 | ||||||||||||||||||||||||
| EQK Portage - Land(2) | 3,350 | 0 | 10.00 | % | 11/13/2024 | ||||||||||||||||||||||||
| HSW Partners(3) | 14,690 | 13,032 | 9.50 | % | 6/17/2021 | ||||||||||||||||||||||||
| Farnham Park(4) | 0 | 9,144 | 3.39 | % | 12/1/2050 | ||||||||||||||||||||||||
| Forest Grove(5) | 7,333 | 1,390 | 3.75 | % | 5/5/2024 | ||||||||||||||||||||||||
| Landing Bayou | 14,643 | 15,467 | 3.50 | % | 9/1/2053 | ||||||||||||||||||||||||
| Athens(6) | 1,155 | 1,155 | 5.90 | % | 8/28/2022 | ||||||||||||||||||||||||
| Legacy at Pleasant Grove | 13,653 | 13,944 | 3.60 | % | 4/1/2048 | ||||||||||||||||||||||||
| McKinney 36 Land | 820 | 944 | 8.00 | % | 6/30/2022 | ||||||||||||||||||||||||
| Overlook at Allenville Phase II | 15,621 | 15,798 | 3.80 | % | 5/1/2059 | ||||||||||||||||||||||||
| Parc at Denham Springs Phase II | 16,128 | 14,785 | 4.10 | % | 2/1/2060 | ||||||||||||||||||||||||
| Stanford Center(7) | 39,093 | 39,255 | 6.00 | % | 2/26/2022 | ||||||||||||||||||||||||
| Sugar Mill Phase III | 9,298 | 5,908 | 4.50 | % | 2/1/2060 | ||||||||||||||||||||||||
| Toulon | 13,975 | 14,219 | 3.20 | % | 12/1/2051 | ||||||||||||||||||||||||
| Villager(8) | 0 | 556 | 2.50 | % | 3/1/2043 | ||||||||||||||||||||||||
| Villas at Bon Secour | 10,280 | 11,026 | 4.00 | % | 1/1/2022 | ||||||||||||||||||||||||
| Vista Ridge | 9,979 | 10,122 | 4.00 | % | 8/1/2053 | ||||||||||||||||||||||||
| Windmill Farms(9) | 10,397 | 13,830 | 6.00 | % | 2/28/2023 | ||||||||||||||||||||||||
| $ | 236,069 | $ | 241,527 | ||||||||||||||||||||||||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Apartments | $ | 120,024 | $ | 94,759 | ||||
| Apartments under Construction | 9,017 | 14,402 | ||||||
| Commercial | 92,838 | 135,951 | ||||||
| Land | 14,806 | 22,200 | ||||||
| Real estate held for sale | — | 376 | ||||||
| Corporate and other notes | 16,430 | 18,130 | ||||||
| Total notes payable | $ | 253,115 | $ | 285,818 | ||||
| Less: unamortized deferred borrowing costs | (7,342 | ) | (9,425 | ) | ||||
| Total outstanding notes payable, net | $ | 245,773 | $ | 276,393 | ||||
| Accrued Interest | 773 | 844 | ||||||
| Total notes payable, net and accrued interest | $ | 246,546 | $ | 277,237 | ||||
Future principal payments due (including scheduled amortization payments and payments due upon maturity)connection with the sale of the underlining property (See Note 7 – Real Estate Activity).
| Year | Amount | ||||
| 2020 | $ | 25,982 | |||
| 2021 | 55,393 | ||||
| 2022 | 13,437 | ||||
| 2023 | 36,770 | ||||
| 2024 | 1,995 | ||||
| Thereafter | 119,538 | ||||
| Total | $ | 253,115 | |||
prime rate plus 0.5%.
share amounts)
In conjunction with the developmentagreement.
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
| Year | Amount | |||||||
| 2021 | $ | 14,079 | ||||||
| 2022 | 14,403 | |||||||
| 2023 | 37,690 | |||||||
| 2024 | 2,575 | |||||||
| 2025 | 12,927 | |||||||
| Thereafter | 159,580 | |||||||
| 241,254 | ||||||||
| Deferred finance cost | (5,185) | |||||||
| $ | 236,069 | |||||||
On February 13, 2017, Southern filed a final prospectus with the TASE for an offering and salePayable
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 registeredtraded on the TASE. The bondsBonds are reporteddenominated in NISNew Israeli Shekels ("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.
On July 28, 2019, SPC issued Series C bonds in the amount of NIS 275 million (or approximately $78.1 million). The bonds are reported in NIS, and registered on the TASE, and bear an annual interest of 4.65%. The interest will be paid on January 31 and July 31 of each of the years 2020 through 2023, with the principal payment due in 2023. The Company incurred bond issuance costs of approximately $4.2 million.
On September 23, 2019, Southern entered into a foreign exchange risk hedging transaction agreement with Bank Leumi with the aim of hedging the risk that the NIS exchange rate against the dollar will fall below 3, thereby reducing the exposure of the bonds (Series A, B and C) to exchange rate volatility. The term of the agreement is six months and the face value of the transaction is NIS 664 million ($ 221 million). The hedge transaction costs as well as the fair value as of December 31, 2019 were immaterial.
During the year ended December 31, 2019, the Company made payments of $21.8 million and $11.6 million on bondprovide for semiannual principal and interests, respectively.
On January 27, 2020, the Company madeinterest payments of NIS 60.6 million in bond principal on the Series A and interests on the Series A, B, C (or approximately $17.6 million).
through maturity.
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Bonds (Series A) | $ | 92,653 | $ | 106,686 | ||||
| Bonds (Series B) | 39,844 | 36,740 | ||||||
| Bonds (Series B expansion) | 20,920 | 19,290 | ||||||
| Bonds (Series C) | 79,572 | — | ||||||
| Total outstanding bonds | $ | 232,989 | $ | 162,716 | ||||
| Less: deferred bond issuance costs | (9,724 | ) | (8,179 | ) | ||||
| Total outstanding bonds, net | 223,265 | 154,537 | ||||||
| Accrued Interest | 6,457 | 4,037 | ||||||
| Total oustanding bonds, net and accrued interest | $ | 229,722 | $ | 158,574 | ||||
| December 31, | ||||||||||||||||||||||||||
| Bond Issuance | 2020 | 2019 | Interest Rat | Maturity | ||||||||||||||||||||||
| Series A Bonds(1)(2) | $ | 95,133 | $ | 92,653 | 7.30 | % | 7/31/23 | |||||||||||||||||||
| Series B Bonds(3) | 65,318 | 60,764 | 6.80 | % | 7/31/25 | |||||||||||||||||||||
| Series C Bonds(2) | 85,537 | 79,572 | 4.65 | % | 1/31/23 | |||||||||||||||||||||
| 245,988 | 232,989 | |||||||||||||||||||||||||
| Less unamortized deferred issuance costs | (8,100) | (9,724) | ||||||||||||||||||||||||
| $ | 237,888 | $ | 223,265 | |||||||||||||||||||||||
| Year | Agrregage Maturities | ||||
| 2020 | $ | 23,148 | |||
| 2021 | 35,301 | ||||
| 2022 | 35,301 | ||||
| 2023 | 114,873 | ||||
| 2024 | 12,153 | ||||
| Thereafter | 12,213 | ||||
| $ | 232,989 | ||||
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
| Year | Amount | |||||||
| 2021 | $ | 44,775 | ||||||
| 2022 | 44,775 | |||||||
| 2023 | 130,310 | |||||||
| 2024 | 13,064 | |||||||
| 2025 | 13,064 | |||||||
| $ | 245,988 | |||||||
NOTE 9. RELATED PARTY TRANSACTIONS AND FEES
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships.2020, we were in compliance with our bond covenants.
The Company has historically engaged in and may continue toParty Transactions
Since April 30, 2011,
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.an agreement.
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:
| For the year ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (dollars in thousands) | ||||||||||||
| Fees: | ||||||||||||
| Advisory | $ | 5,806 | $ | 10,663 | $ | 9,995 | ||||||
| Mortgage brokerage and equity refinancing | — | 852 | 1,551 | |||||||||
| Net income fee | 357 | 631 | 250 | |||||||||
| $ | 6,163 | $ | 12,146 | $ | 11,796 | |||||||
| Other Expense: | ||||||||||||
| Cost reimbursements | $ | 6,687 | $ | 4,398 | $ | 2,895 | ||||||
| Interest paid (received) | (8,475 | ) | (7,404 | ) | (4,859 | ) | ||||||
| $ | (1,788 | ) | $ | (3,006 | ) | $ | (1,964 | ) | ||||
| Revenue: | ||||||||||||
| Rental | $ | 1,311 | $ | 1,178 | $ | 783 | ||||||
Fees paid to Regis and related parties:
| For the year ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (dollars in thousands) | ||||||||||||
| Fees: | ||||||||||||
| Property Sales/Acquisition | $ | 318 | $ | 43,856 | $ | 9,819 | ||||||
| Property management, construction management and leasing commissions | 165 | 540 | 963 | |||||||||
| Real estate brokerage | 71 | 2,068 | 1,369 | |||||||||
| $ | 554 | $ | 46,464 | $ | 12,151 | |||||||
The Company received rental revenue of $1.3 million, $1.2 million, and $0.8 million in$737 for the years ended December 31, 2020, 2019 and 2018, and 2017, respectively, fromfor office space leased to Pillar and its related partiesRegis.
As ofyears ended December 31, 2020, 2019 and 2018, respectively, for management fees on commercial properties payable to Regis.
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 propertiesdue to UHF in prior years. Due to this ongoing relationship and theour significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was $19,515, $17,413 and $13,132 for the years ended December 31, 2020, 2019 and 2018, respectively.
The Company issymbol of IOR. We owned 18.9% in in IOR during the primary guarantor, on a $25.0 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 ofyears ended December 31, 2020, 2019 UHF was in compliance with the covenantsand 2018.
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%.
In addition, SPC is part of a management service agreement with the controlling shareholder owned company in which SPC for an annual payment of 0.5% on the value of the investment properties receives from the Advisor office space, administrative and management services. During 2019, SPC paid management fees to Pillar in the amount of $2.2 million.
The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of December 31, 2019 (dollars in thousands):
| Pillar | ARL | Total | ||||||||||
| Related party receivable, beginning balance, December 31, 2018 | $ | — | $ | 133,642 | $ | 133,642 | ||||||
| Cash transfers | 29,395 | — | 29,395 | |||||||||
| Advisory fees | (5,806 | ) | — | (5,806 | ) | |||||||
| Net income fee | (357 | ) | — | (357 | ) | |||||||
| Fees and commissions | (71 | ) | — | (71 | ) | |||||||
| Cost reimbursements | (6,687 | ) | — | (6,687 | ) | |||||||
| Interest income | — | 8,475 | 8,475 | |||||||||
| Notes receivable purchased | (28,669 | ) | — | (28,669 | ) | |||||||
| Expenses (paid)/received by advisor | 9,073 | — | 9,073 | |||||||||
| Financing (mortgage payments) | — | — | — | |||||||||
| Sales/Purchases Commissions | (318 | ) | — | (318 | ) | |||||||
| Intercompany property transfers | 2,864 | — | 2,864 | |||||||||
| Income tax expense | — | — | — | |||||||||
| Deferred tax asset | — | — | — | |||||||||
| Purchase of obligations | — | — | ||||||||||
| Related party receivable, ending balance, December 31, 2019 | $ | (576 | ) | $ | 142,117 | $ | 141,541 | |||||
NOTE 10. DEFERRED INCOME
In previous years, the Company has sold properties to related parties where we have had continuing involvement in the form of management or financial assistance associated with the sale of the properties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method is not met, and as such the Company has deferred some or all of the gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gains on these transactions have been deferred until the properties are sold to a non-related third party. As of December 31, 2019, we had a deferred gain of $9.5 million.
NOTE 11. DIVIDENDS
TCI’s Board of Directors established a policy that dividend declarationsdeclare dividends on common stock would beare determined on an annual basis following the end of each year. In accordance with that policy, no dividends on TCI’sour common stock were declared for 2020, 2019, 2018, or 2017.2018. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including the Company’s our
NOTE 12. PREFERRED STOCK
During the fourth quarter ofyear ended December 31, 2018, all 100,000 shares of Series D Preferred Stock were redeemed for $17.2 million,$17,200, of which $7.2 million$7,200 was accrued unpaid dividends. At December 31, 2020, 2019 and 2018, there were no0 preferred shares outstanding.
NOTE 13. INCOME TAXES
(Loss) income from continuing operations before income taxes
| Years Ended December 31, | |||||||||||
| 2019 | 2018 | 2017 | |||||||||
| (In thousands) | |||||||||||
| $ | (28,137 | ) | $ | 186,250 | $ | (15,136 | ) | ||||
| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (In thousands) | ||||||||||||
| Current: | ||||||||||||
| Federal | $ | — | $ | 42,805 | $ | (5,603 | ) | |||||
| State | — | 1,210 | 10 | |||||||||
| Deferred and Other: | ||||||||||||
| Federal | (2,000 | ) | (40,805 | ) | 5,603 | |||||||
| State | — | — | 170 | |||||||||
| Total tax (benefit) expense | $ | (2,000 | ) | $ | 3,210 | $ | 180 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | 0 | 0 | $ | 42,805 | |||||||||||||
| State | 4 | 0 | 1,210 | ||||||||||||||
| Deferred and Other: | |||||||||||||||||
| Federal | 0 | (2,000) | (40,805) | ||||||||||||||
| State | 0 | 0 | 0 | ||||||||||||||
| Total tax expense (benefit) | $ | 4 | $ | (2,000) | $ | 3,210 | |||||||||||
| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (In thousands) | ||||||||||||
| Income tax (benefit) expense at federal statutory rate | $ | (5,909 | ) | $ | 39,113 | $ | (5,603 | ) | ||||
| State and local income taxes net of federal tax benefit | 1,210 | 10 | ||||||||||
| Permanent differences | (2,406 | ) | (143 | ) | — | |||||||
| Timing differences | ||||||||||||
| Installment note on land sale | — | (2,876 | ) | (1,917 | ) | |||||||
| Allowance for losses on note | — | (383 | ) | (256 | ) | |||||||
| Deferred gains | (588 | ) | (9,417 | ) | (7,723 | ) | ||||||
| Basis difference on fixed assets | — | 23,675 | 10,082 | |||||||||
| Other basis/timing differences | 3,173 | (7,164 | ) | (16 | ) | |||||||
| Generation (use) of net operating loss carryforwards | 5,730 | (42,805 | ) | 5,603 | ||||||||
| Calculated income tax expense | $ | — | $ | 1,210 | $ | 180 | ||||||
| Effective tax rate | 0.0 | % | 0.6 | % | N/A | |||||||
The company is
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Income tax (benefit) expense at federal statutory rate | $ | 1,568 | $ | (5,909) | $ | 39,113 | |||||||||||
| State and local income taxes net of federal tax benefit | 4 | 0 | 1,210 | ||||||||||||||
| Permanent differences | (1,766) | (2,406) | (143) | ||||||||||||||
| Timing differences | |||||||||||||||||
| Installment note on land sale | 0 | 0 | (2,876) | ||||||||||||||
| Allowance for losses on note | 0 | 0 | (383) | ||||||||||||||
| Deferred gains | (878) | (588) | (9,417) | ||||||||||||||
| Basis difference on fixed assets | 1,307 | 0 | 23,675 | ||||||||||||||
| Other basis/timing differences | 2,296 | 3,173 | (7,164) | ||||||||||||||
| Generation (use) of net operating loss carryforwards | (2,527) | 3,730 | (40,805) | ||||||||||||||
| Calculated income tax expense (benefit) | $ | 4 | $ | (2,000) | $ | 3,210 | |||||||||||
| Effective tax rate | 0 | % | 0 | % | 0.6 | % | |||||||||||
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| (In thousands) | ||||||||
| Deferred Tax Assets: | ||||||||
| Cumulative foreign currency translation loss | $ | 1,522 | $ | — | ||||
| Deferred gain | 1,988 | — | ||||||
| Net operating loss carryforward | 9,633 | 3,904 | ||||||
| Total Deferred Tax Assets | 13,143 | 3,904 | ||||||
| Less: valuation allowance | (6,480 | ) | — | |||||
| Total net deferred tax assets | $ | 6,663 | $ | 3,904 | ||||
| Deferred Tax Liabilities: | ||||||||
| Deferred gain | $ | — | $ | 2,603 | ||||
| Basis differences for fixed assets | 6,663 | 3,301 | ||||||
| Total Deferred Tax Liability | $ | 6,663 | $ | 5,904 | ||||
| Net deferred tax asset (liability) | $ | — | $ | (2,000 | ) | |||
| Current net deferred tax asset | 6,663 | 3,904 | ||||||
| Long-term net deferred tax liability | 6,663 | 5,904 | ||||||
| Net deferred tax liability | $ | — | $ | (2,000 | ) | |||
Operating Loss and Tax Credit Carryforwards
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cumulative foreign currency translation loss | $ | 3,818 | 1,522 | ||||||||
| Basis difference for fixed assets | 1,426 | 0 | |||||||||
| Deferred gain | 1,956 | 1,988 | |||||||||
| Net operating loss carryforward | 7,107 | 9,633 | |||||||||
| 14,307 | 13,143 | ||||||||||
| Less: valuation allowance | (14,307) | (6,480) | |||||||||
| $ | 0 | $ | 6,663 | ||||||||
| Deferred gain | $ | 0 | $ | 0 | |||||||
| Basis differences for fixed assets | 0 | 6,663 | |||||||||
| Total Deferred Tax Liability | $ | 0 | $ | 6,663 | |||||||
| Current net deferred tax asset | 0 | 6,663 | |||||||||
| Long-term net deferred tax liability | 0 | (6,663) | |||||||||
| $ | 0 | $ | 0 | ||||||||
Valuation Allowance
Management assessesWe assess 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, 2019 TCI2020, we had a net deferred tax asset due to tax deductions available to itus in future years. However, as managementwe could not determine that it was more likely than not that TCIwe would realize the benefit of the deferred tax asset, we established a 100% valuation allowance was established.
NOTE 14. FUTURE MINIMUM RENTAL INCOME UNDER OPERATING LEASES
TCI’S real estate operations include the leasing of commercial properties (office buildings, industrial warehousesallowance.
| Year | Amount | ||||
| 2020 | 26,208 | ||||
| 2021 | 23,558 | ||||
| 2022 | 20,382 | ||||
| 2023 | 14,882 | ||||
| 2024 | 8,861 | ||||
| Thereafter | 7,109 | ||||
| Total | $ | 101,000 | |||
NOTE 15. 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 incomeContingencies
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 2019, 2018 and 2017 (dollars in thousands):
| Commercial | ||||||||||||||||||||
| For the Year Ended December 31, 2019 | Properties | Apartments | Land | Other | Total | |||||||||||||||
| Rental and other property revenues | $ | 32,707 | $ | 15,257 | $ | — | $ | 6 | $ | 47,970 | ||||||||||
| Property operating expenses | (15,805 | ) | (8,375 | ) | (255 | ) | (778 | ) | (25,213 | ) | ||||||||||
| Depreciation | (10,229 | ) | (3,150 | ) | — | — | (13,379 | ) | ||||||||||||
| Mortgage and loan interest | (7,018 | ) | (4,069 | ) | (1,000 | ) | (19,729 | ) | (31,816 | ) | ||||||||||
| Loss on debt extinguishment | (5,219 | ) | — | — | — | (5,219 | ) | |||||||||||||
| Interest income | — | — | — | 19,607 | 19,607 | |||||||||||||||
| Loss on sale of income producing property | — | (80 | ) | — | — | (80 | ) | |||||||||||||
| Gain on land sales | — | — | 14,889 | — | 14,889 | |||||||||||||||
| Segment operating (loss) income | $ | (5,564 | ) | $ | (417 | ) | $ | 13,634 | $ | (894 | ) | $ | 6,759 | |||||||
| Capital expenditures | $ | 5,257 | $ | 25,001 | $ | 3,489 | $ | — | $ | 33,747 | ||||||||||
| Assets | $ | 229,424 | $ | 178,536 | $ | 70,003 | $ | — | $ | 477,963 | ||||||||||
| Property Sales | ||||||||||||||||||||
| Sales price | $ | — | $ | 3,096 | $ | 30,012 | $ | — | $ | 33,108 | ||||||||||
| Cost of sale | — | (3,176 | ) | (15,123 | ) | — | (18,299 | ) | ||||||||||||
| (Loss) gain on sales | $ | — | $ | (80 | ) | $ | 14,889 | $ | — | $ | 14,809 | |||||||||
| 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 | $ | 2,313 | $ | 8,512 | $ | 43,311 | $ | — | $ | 54,136 | ||||||||||
| Cost of sale | (2,313 | ) | (8,512 | ) | (25,907 | ) | — | (36,732 | ) | |||||||||||
| 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 | ||||||||||
The table below reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations:
| For the Years Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Segment operating income | $ | 6,759 | $ | 13,099 | $ | 5,263 | ||||||
| Other non-segment items of income (expense) | ||||||||||||
| General and administrative | (10,951 | ) | (11,359 | ) | (6,269 | ) | ||||||
| Net income fee to related party | (357 | ) | (631 | ) | (250 | ) | ||||||
| Advisory fee to related party | (5,806 | ) | (10,663 | ) | (9,995 | ) | ||||||
| Other income | 84 | 28,150 | 625 | |||||||||
| Gain on formation of joint venture | — | 154,126 | — | |||||||||
| Foreign currency translation (loss) gain | (15,108 | ) | 12,399 | (4,536 | ) | |||||||
| (Loss) earnings from joint venture | (2,774 | ) | 44 | — | ||||||||
| Earnings from other unconsolidated investees | 16 | 1,085 | 26 | |||||||||
| Income tax benefit (expense) | 2,000 | (3,210 | ) | (180 | ) | |||||||
| Net (loss) income from continuing operations | $ | (26,137 | ) | $ | 183,040 | $ | (15,316 | ) | ||||
The table below reconciles the segment information to the corresponding amounts in the Consolidated Balance Sheets:
| As of December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Segment assets | $ | 387,790 | $ | 384,504 | $ | 979,870 | ||||||
| Investments in unconsolidated subsidiaries and investees | 81,780 | 90,571 | 2,472 | |||||||||
| Notes and interest receivable | 120,986 | 83,541 | 70,166 | |||||||||
| Other assets and receivables | 275,362 | 303,764 | 260,914 | |||||||||
| Total assets | $ | 865,918 | $ | 862,380 | $ | 1,313,422 | ||||||
NOTE 16. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of TCI’s quarterly results of operations for the years 2019, 2018 and 2017. 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 2019 | ||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | |||||||||||||
| (dollars in thousands, except share and per share amounts) | ||||||||||||||||
| Total operating revenues | $ | 11,929 | $ | 11,840 | $ | 11,883 | $ | 12,318 | ||||||||
| Total operating expenses | 13,182 | 15,220 | 12,948 | 14,356 | ||||||||||||
| Operating loss | (1,253 | ) | (3,380 | ) | (1,065 | ) | (2,038 | ) | ||||||||
| Other expense | (6,389 | ) | (4,639 | ) | (11,841 | ) | (12,341 | ) | ||||||||
| (Loss) income before gain on formation of joint venture, gain on sales, non-controlling interest, and taxes | (7,642 | ) | (8,019 | ) | (12,906 | ) | (14,379 | ) | ||||||||
| (Loss) on sale of income producing properties | — | (80 | ) | — | — | |||||||||||
| Gain on land sales | 2,216 | 2,133 | 5,140 | 5,400 | ||||||||||||
| Income tax benefit - deferred | — | — | — | 2,000 | ||||||||||||
| Net (loss) income from continued operations | (5,426 | ) | (5,966 | ) | (7,766 | ) | (6,979 | ) | ||||||||
| Net loss | (5,426 | ) | (5,966 | ) | (7,766 | ) | (6,979 | ) | ||||||||
| Less: net (loss) attributable to non-controlling interest | (183 | ) | (379 | ) | (21 | ) | (200 | ) | ||||||||
| Net loss applicable to common shares | $ | (5,609 | ) | $ | (6,345 | ) | $ | (7,787 | ) | $ | (7,179 | ) | ||||
| PER SHARE DATA | ||||||||||||||||
| Earnings per share - basic | ||||||||||||||||
| (Loss) income from continued operations | $ | (0.62 | ) | $ | (0.68 | ) | $ | (0.89 | ) | $ | (0.81 | ) | ||||
| Net (loss) income applicable to common shares | $ | (0.64 | ) | $ | (0.73 | ) | $ | (0.89 | ) | $ | (0.83 | ) | ||||
| 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 | $ | (0.62 | ) | $ | (0.68 | ) | $ | (0.89 | ) | $ | (0.81 | ) | ||||
| Net (loss) income applicable to common shares | $ | (0.64 | ) | $ | (0.73 | ) | $ | (0.89 | ) | $ | (0.83 | ) | ||||
| 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 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 formation of joint venture | — | — | — | 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 | ||||||||||||
69
| 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 | ||||||||||||
70
NOTE 17. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
Liquidity. Management believes that TCIwe will generate excess cash from property operations in 2020;the next twelve months; such excess, however, might not be sufficient to discharge all of TCI’sour obligations as they become due. Management intendsWe intend to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet itsour liquidity requirements.
Guarantees. The Company is
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.
ART and ART Midwest, Inc.
While the Company and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 in litigation with Mr. David Clapper and entities related to Mr. Clapper (collectively, the “Clapper Parties”). The matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. “ART” and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgment in favor of the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurred and remanded the case back to the trial court to recalculate the damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.
The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. “EQK”, and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. In February 2018 the court determined that this legal matter should not have been filed in federal court and therefore granted motions to dismiss on jurisdictional grounds. In June 2018, the court overruled its own grant of motions to dismiss and reinstated the case. We continue to vigorously defend the case and management believes it has defenses to the claims. The case has not been set for trial.
In 2005, ART filed suit against a major national law firm over the initial transaction. That action was initially abated while the principal case with the Clapper Parties was pending, but the abatement was recently lifted. The trial court subsequently dismissed the case on procedural grounds, but ART has filed a notice of appeal. The appeal was heard in February 2018 and the case was subsequently appealed to the Texas Supreme Court. The application for Review is still pending with the Texas Supreme Court. In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued such note at zero.
Dynex Capital, Inc.
On July 20, 2015, the 68th 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, resultedplaintiff 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 Judgmentlawsuit against Dynex Commercial, Inc. on July 20, 2015.
The Final Judgment entered against Dynex Commercial, Inc. on July 20,(“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded Basic was $0.256 millionus with a judgment of $24,800. We are pursuing all legal means to collect this award. However, due to the uncertainty of the collectability of the award, the receivable has been fully reserved.
TCI is workingproperty with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as pursue additional claims, if any, against Dynex Capital, Inc. Post judgment interest continues to accrue.
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 allegesour consolidated subsidiary. Berger requests 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 otherwe pay off various related claims. The Plaintiff seeks certification as a representative ofparty loans to IOR and all ofthat IOR then distribute the funds to 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 Defendantsshareholders. We intend to vigorously defend against the action, deny allallegations.
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.
NOTE 18. 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.
construction. As of December 31, 2020, we have recorded a liability of $10,000, which we believe is the amount that will be required to settle our obligation. We have been unable to reach agreement with our joint venture partner on the remeasured value. As a result, the parties have filed for arbitration in accordance with the joint venture agreement.
NOTE 19. SUBSEQUENT EVENTS
On February 2, 2020, S&P Global Ratings announced the increase of the Company’s issuer rating to ‘ilA-’ from ‘ilBBB+’ for Bonds (Series A and B). In addition, Series C bond rating (secured by one of SPC’s commercial properties) increase to ‘ilA’ from ‘ilA-’ ratingour Form 10-Q due to the expectationreclassification of continued improvement in coverage ratios and the expansion of Company’s portfolio.
During 2020, a strain of coronavirus (“COVID – 19”) was reported worldwide, resulting in decreased economic activity and concerns about the pandemic, which would adversely affect the broader global economy. The Company is taking all necessary steps to keep our business premises, tenants, vendors and employees in a safe environment and are constantly monitoring the impact of COVID – operations.
| 2020 Quarter Ended | |||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||
| Revenues | $ | 12,753 | $ | 13,431 | $ | 12,159 | $ | 18,679 | |||||||||||||||
| Net operating (loss) income | (3,146) | 635 | (1,537) | 4,020 | |||||||||||||||||||
| Net income (loss) attributable to the Company | 4,613 | (4,158) | 7,693 | (1,479) | |||||||||||||||||||
| Net income (loss) attributable to the Company per share - basic and diluted | $ | 0.53 | $ | (0.48) | $ | 0.88 | $ | (0.17) | |||||||||||||||
| 2019 Quarter Ended | |||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||
| Revenues | $ | 15,821 | $ | 12,528 | $ | 13,397 | $ | 6,308 | |||||||||||||||
| Net operating income (loss) | 2,639 | (2,692) | 449 | (8,048) | |||||||||||||||||||
| Net (loss) income attributable to the Company | (5,609) | (6,345) | (7,787) | (7,179) | |||||||||||||||||||
| Net (loss) income attributable to the Company per share - basic and diluted | $ | (0.64) | $ | (0.73) | $ | (0.89) | $ | (0.83) | |||||||||||||||
Subsequent Events
| 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 | $ | 13,944 | $ | 2,005 | $ | 17,892 | $ | 217 | $ | — | $ | 2,005 | $ | 18,109 | $ | 20,114 | $ | 2,289 | 2006 | 12/14 | 40 years | |||||||||||||||||||||||||||
| Toulon, Gautier, MS | 19,575 | 1,621 | 20,107 | 372 | — | 1,621 | 20,479 | 22,100 | 4,273 | 2011 | 9/09 | 40 years | ||||||||||||||||||||||||||||||||||||
| Villager, Ft. Walton, FL | 672 | 141 | 1,267 | — | — | 141 | 1,267 | 1,408 | 148 | 1972 | 6/15 | 40 years | ||||||||||||||||||||||||||||||||||||
| Villas at Bon Secour, Gulf Shores, AL | 11,212 | 2,715 | 15,385 | — | — | 2,715 | 15,385 | 18,100 | 545 | 2007 | 7/18 | 40 years | ||||||||||||||||||||||||||||||||||||
| Vista Ridge, Tupelo, MS | 10,252 | 1,339 | 13,398 | — | — | 1,339 | 13,398 | 14,737 | 1,893 | 2009 | 10/15 | 40 years | ||||||||||||||||||||||||||||||||||||
| Chelsea, Beaumont, TX | 8,794 | 1,225 | 11,025 | 160 | — | 1,225 | 11,185 | 12,410 | 303 | 1999 | 11/18 | 40 years | ||||||||||||||||||||||||||||||||||||
| Overlook at Allensville Phase II, Sevierville, TN | 15,829 | 2,411 | 17,005 | — | — | 2,411 | 17,005 | 19,416 | 319 | 2012 | 11/15 | 40 years | ||||||||||||||||||||||||||||||||||||
| Landing, Houma, LA | 15,484 | 2,012 | 18,115 | 25 | — | 2,012 | 18,140 | 20,152 | 491 | 2005 | 12/18 | 40 years | ||||||||||||||||||||||||||||||||||||
| Farnham Park, Port Aurther, TX | 9,183 | 1,010 | 9,086 | 144 | — | 1,010 | 9,230 | 10,240 | 251 | 1999 | 11/18 | 40 years | ||||||||||||||||||||||||||||||||||||
| Parc at Denham Springs Phase II, Denham Springs, LA | 15,079 | 1,502 | 12,486 | 3,508 | — | 1,502 | 15,994 | 17,496 | 50 | 2010 | 11/9 | 40 years | ||||||||||||||||||||||||||||||||||||
| Total Apartments Held for Investment | $ | 120,024 | $ | 15,981 | $ | 135,766 | $ | 4,426 | $ | — | $ | 15,981 | $ | 140,192 | $ | 156,173 | $ | 10,562 | ||||||||||||||||||||||||||||||
| Apartments Under Construction | ||||||||||||||||||||||||||||||||||||||||||||||||
| Forest Pines, Bryan, TX | — | 5,040 | — | 301 | — | 5,040 | 301 | 5,341 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Sugar Mill III, Addis, LA | 6,302 | 576 | — | 7,023 | — | 576 | 7,023 | 7,599 | — | — | 11/15 | — | ||||||||||||||||||||||||||||||||||||
| McKinney Apts at Heritage, McKinney, TX | — | 2,481 | — | 89 | — | 2,481 | 89 | 2,570 | — | — | 6/17 | — | ||||||||||||||||||||||||||||||||||||
| Forest Pines Phase II (Forest Grove), Bryan, TX | 1,560 | — | — | 4,674 | — | — | 4,674 | 4,674 | — | — | 4/19 | — | ||||||||||||||||||||||||||||||||||||
| LD Athens Lindsay Ln, Athens, LA | 1,155 | 2,098 | — | 81 | — | 2,098 | 81 | 2,179 | — | — | 9/19 | — | ||||||||||||||||||||||||||||||||||||
| Total Apartments Under Construction | $ | 9,017 | $ | 10,195 | $ | — | $ | 12,168 | $ | — | $ | 10,195 | $ | 12,168 | $ | 22,363 | $ | — | ||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||||||||||||||
| 600 Las Colinas, Las Colinas, TX | 37,215 | 5,751 | 51,759 | 20,143 | — | 5,751 | 71,902 | 77,653 | 32,858 | 1984 | 8/05 | 40 years | ||||||||||||||||||||||||||||||||||||
| 770 South Post Oak, Houston, TX | 12,178 | 1,763 | 15,834 | 697 | — | 1,763 | 16,531 | 18,294 | 2,117 | 1970 | 7/15 | 40 years | ||||||||||||||||||||||||||||||||||||
| Bridgeview Plaza, LaCrosse, WI | 3,908 | — | — | 1,207 | — | — | 1,207 | 1,207 | 804 | 1979 | 3/03 | 40 years | ||||||||||||||||||||||||||||||||||||
| Browning Place (Park West I), Farmers Branch, TX | 5,096 | 45,868 | 26,645 | — | 5,096 | 72,513 | 77,609 | 29,867 | 1984 | 4/05 | 40 years | |||||||||||||||||||||||||||||||||||||
| Fruitland Plaza, Fruitland Park, FL | 23 | — | 83 | — | 23 | 83 | 106 | 71 | — | 5/92 | 40 years | |||||||||||||||||||||||||||||||||||||
| Senlac VHP, Farmers Branch, TX | 622 | — | 142 | — | 622 | 142 | 764 | 142 | — | 8/05 | 40 years | |||||||||||||||||||||||||||||||||||||
| Stanford Center, Dallas, TX | 39,537 | 20,278 | 34,862 | 8,251 | (9,600 | ) | 20,278 | 33,513 | 53,791 | 13,752 | — | 6/08 | 40 years | |||||||||||||||||||||||||||||||||||
| Total Commercial Held for Investment | $ | 92,838 | $ | 33,533 | $ | 148,323 | $ | 57,168 | $ | (9,600 | ) | $ | 33,533 | $ | 195,891 | $ | 229,424 | $ | 79,611 | |||||||||||||||||||||||||||||
| Land | ||||||||||||||||||||||||||||||||||||||||||||||||
| Dedeaux, Gulfport, MS | — | 1,612 | — | 46 | (38 | ) | 1,612 | 8 | 1,620 | — | — | 10/06 | — | |||||||||||||||||||||||||||||||||||
| Gautier, Gautier, MS | — | 202 | — | — | — | 202 | — | 202 | — | — | 7/98 | — | ||||||||||||||||||||||||||||||||||||
| Lake Shore Villas, Humble, TX | — | 81 | — | 3 | — | 81 | 3 | 84 | — | — | 3/02 | — | ||||||||||||||||||||||||||||||||||||
| Lubbock, Lubbock, TX | — | 234 | — | — | — | 234 | — | 234 | — | — | 1/04 | — | ||||||||||||||||||||||||||||||||||||
| Ocean Estates, Gulfport, MS | — | 1,418 | — | 390 | — | 1,418 | 390 | 1,808 | — | — | 10/07 | — | ||||||||||||||||||||||||||||||||||||
| Union Pacific Railroad, Dallas, TX | — | 130 | — | — | — | 130 | — | 130 | — | — | 3/04 | — | ||||||||||||||||||||||||||||||||||||
| Willowick, Pensacola, FL | — | 137 | — | — | — | 137 | — | 137 | — | — | 1/95 | — | ||||||||||||||||||||||||||||||||||||
| Windmill Farms, Kaufman County, TX | 13,861 | 55,668 | — | 13,913 | (20,343 | ) | 55,668 | (6,430 | ) | 49,238 | — | — | 11/11 | — | ||||||||||||||||||||||||||||||||||
| T Palm Desert, Riverside, CA | — | 1,800 | — | — | — | 1,800 | — | 1,800 | — | — | 9/19 | — | ||||||||||||||||||||||||||||||||||||
| Lacy Longhorn, Farmers Branch, TX | — | 1,169 | — | — | (760 | ) | 1,169 | (760 | ) | 409 | — | — | 6/04 | — | ||||||||||||||||||||||||||||||||||
| Minivest, Dallas, TX | — | 7 | — | — | 7 | — | 7 | — | — | 4/13 | — | |||||||||||||||||||||||||||||||||||||
| Nicholson Croslin, Dallas, TX | — | 184 | — | — | (118 | ) | 184 | (118 | ) | 66 | — | — | 10/98 | — | ||||||||||||||||||||||||||||||||||
| Nicholson Mendoza, Dallas, TX | — | 80 | — | — | (51 | ) | 80 | (51 | ) | 29 | — | — | 10/98 | — | ||||||||||||||||||||||||||||||||||
| Mercer Crossing, Farmers Branch, TX | — | 10,966 | — | — | 10,966 | — | 10,966 | — | — | 1/08 | — | |||||||||||||||||||||||||||||||||||||
| McKinney 36, Collin County, TX | 945 | 635 | — | 161 | (19 | ) | 635 | 142 | 777 | — | — | 1/98 | — | |||||||||||||||||||||||||||||||||||
| Travis Ranch, Kaufman County, TX | — | 80 | — | — | — | 80 | — | 80 | — | — | 8/08 | — | ||||||||||||||||||||||||||||||||||||
| Dominion Mercer Phase II, Farmers Branch, TX | — | 2,440 | — | 111 | (135 | ) | 2,440 | (24 | ) | 2,416 | — | — | 3/99 | — | ||||||||||||||||||||||||||||||||||
| Total Land Held for Investment | $ | 14,806 | $ | 76,843 | $ | — | $ | 14,624 | $ | (21,464 | ) | $ | 76,843 | $ | (6,840 | ) | $ | 70,003 | $ | — | ||||||||||||||||||||||||||||
| Total Properties Held for Investment | $ | 236,685 | $ | 136,552 | $ | 284,089 | $ | 88,386 | $ | (31,064 | ) | $ | 136,552 | $ | 341,411 | $ | 477,963 | $ | 90,173 | |||||||||||||||||||||||||||||
| Initial Cost | Cost Capitalized Subsequent to Acquisition | Gross Amount Carried at End of Year | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property/Location | Encumbrances | Land | Buildings | Land | Building & Improvements | Total | Accumulated Depreciation | Date of Construction | Date Acquired | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chelsea | $ | 8,194 | $ | 1,225 | $ | 11,230 | $ | 6 | $ | 1,231 | $ | 11,230 | $ | 12,461 | $ | 596 | 1999 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||
| Forest Grove | 7,333 | 1,440 | 10,234 | 26 | 1,440 | 10,260 | 11,700 | 150 | 2020 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Landing Bayou | 14,643 | 2,011 | 18,255 | 14 | 2,011 | 18,269 | 20,280 | 948 | 2005 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Legacy at Pleasant Grove | 13,653 | 2,005 | 18,109 | 0 | 2,005 | 18,109 | 20,114 | 2,761 | 2006 | 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overlook at Allenville Phase II | 15,621 | 2,410 | 17,033 | 12 | 2,410 | 17,045 | 19,455 | 749 | 2012 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Parc at Denham Springs Phase II | 16,128 | 1,505 | 16,975 | 0 | 1,505 | 16,975 | 18,480 | 449 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sugar Mill Phase III | 9,298 | 576 | 9,755 | 7 | 576 | 9,762 | 10,338 | 138 | 2015 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Toulon | 13,975 | 1,621 | 20,107 | 372 | 1,993 | 20,107 | 22,100 | 4,775 | 2011 | 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Villas at Bon Secour | 10,280 | 2,715 | 15,385 | 0 | 2,715 | 15,385 | 18,100 | 929 | 2007 | 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Vista Ridge | 9,979 | 1,339 | 13,398 | 0 | 1,339 | 13,398 | 14,737 | 2,241 | 2009 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 119,104 | 16,847 | 150,481 | 437 | 17,225 | 150,540 | 167,765 | 13,736 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Development | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Forest Pines | 0 | 3,600 | 0 | 301 | 3,600 | 301 | 3,901 | 0 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Heritage McKinney | 0 | 3,037 | 0 | 231 | 3,037 | 231 | 3,268 | 0 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 0 | 6,637 | 0 | 532 | 6,637 | 532 | 7,169 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 600 Las Colinas | 35,589 | 5,751 | 55,460 | 9,609 | 5,751 | 65,069 | 70,820 | 27,702 | 1984 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 770 South Post Oak | 11,871 | 1,763 | 16,312 | 615 | 1,763 | 16,927 | 18,690 | 2,465 | 1970 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Browning Place | 85,537 | 5,096 | 49,441 | 14,428 | 5,096 | 63,869 | 68,965 | 24,624 | 1984 | 2005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stanford Center | 39,093 | 20,278 | 25,876 | 6,223 | 20,278 | 32,099 | 52,377 | 13,817 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 0 | 646 | 74 | 0 | 646 | 74 | 720 | 74 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 172,090 | 33,534 | 147,163 | 30,875 | 33,534 | 178,038 | 211,572 | 68,682 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mercer Crossing | 0 | 5,406 | 0 | 0 | 5,406 | 0 | 5,406 | 0 | 2008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Windmill Farms | 10,397 | 43,973 | 0 | 4,329 | 48,302 | 0 | 48,302 | 0 | 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 5,325 | 16,571 | 0 | 3,016 | 19,587 | 0 | 19,587 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 15,722 | 65,950 | 0 | 7,345 | 73,295 | 0 | 73,295 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 306,916 | $ | 122,968 | $ | 297,644 | $ | 39,189 | $ | 130,691 | $ | 329,110 | $ | 459,801 | $ | 82,418 | |||||||||||||||||||||||||||||||||||||||||||||||
SCHEDULE III
(Continued)
| 2019 | 2018 | 2017 | ||||||||||
| Reconciliation of Real Estate | ||||||||||||
| Balance at January 1, | $ | 463,732 | $ | 1,165,662 | 1,066,603 | |||||||
| Additions | ||||||||||||
| Acquisitions, improvements and construction | 92,964 | 175,996 | 129,483 | |||||||||
| Deductions | ||||||||||||
| Sale of real estate | (78,733 | ) | (877,926 | ) | (30,424 | ) | ||||||
| Balance at December 31, | $ | 477,963 | $ | 463,732 | $ | 1,165,662 | ||||||
| Reconciliation of Accumulated Depreciation | ||||||||||||
| Balance at January 1, | 79,228 | 177,546 | 165,597 | |||||||||
| Additions | ||||||||||||
| Depreciation | 13,379 | 22,761 | 25,558 | |||||||||
| Deductions | ||||||||||||
| Sale of real estate | (2,434 | ) | (121,079 | ) | (13,609 | ) | ||||||
| Balance at December 31, | $ | 90,173 | $ | 79,228 | 177,546 | |||||||
| 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) | ||||||||||||||||||||||
| Prospectus Endeavors 4, LLC | 12.00% | Jan-23 | Excess cash flow | — | 5,907 | 5,907 | — | |||||||||||||||
| Prospectus Endeavors 6, LLC | 12.00% | Oct-22 | Excess cash flow | — | 496 | 496 | — | |||||||||||||||
| Oulan-Chikh Family Trust | 8.00% | Mar-21 | Excess cash flow | — | 174 | 174 | — | |||||||||||||||
| H198, LLC | 6.00% | Sep-20 | Excess cash flow | — | 4,554 | 4,554 | — | |||||||||||||||
| McKinney Ranch Land | ||||||||||||||||||||||
| Forest Pines | 5.00% | Nov-20 | Excess cash flow | — | — | 2,868 | — | |||||||||||||||
| Spyglass Apartments of Ennis, LP | 5.00% | Nov-20 | Excess cash flow | — | 5,083 | 5,288 | — | |||||||||||||||
| Bellwether Ridge | 5.00% | May-20 | Excess cash flow | — | 3,429 | 3,765 | — | |||||||||||||||
| Parc at Windmill Farms | 5.00% | May-20 | Excess cash flow | — | 6,066 | 7,602 | — | |||||||||||||||
| RAI PFBL 2018 Purch Fee Note Weatherford | 12.00% | Dec-21 | Excess cash flow | 525 | — | |||||||||||||||||
| Unified Housing Foundation, Inc. (Echo Station) | 12.00% | Dec-32 | Excess cash flow | 9,719 | 2,794 | 1,481 | — | |||||||||||||||
| 100% Interest in UH of Temple, LLC | — | |||||||||||||||||||||
| Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC) | 12.00% | Dec-32 | Excess cash flow | 15,965 | 2,959 | 2,000 | — | |||||||||||||||
| 100% Interest in HFS of Humble, 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/UH of Vista Ridge,LLC) | 12.00% | Dec-32 | Excess cash flow | — | — | 1,953 | — | |||||||||||||||
| Unified Housing Foundation, Inc. (Limestone Ranch/UH of Vista Ridge,LLC) | 12.00% | Dec-32 | Excess cash flow | — | — | 2,000 | — | |||||||||||||||
| Unified Housing Foundation, Inc. (Limestone Ranch/UH of Vista Ridge,LLC) | 12.00% | Dec-32 | Excess cash flow | — | — | 4,000 | — | |||||||||||||||
| 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 (2015 Advisory Fee) | 12.00% | Dec-21 | Excess cash flow | — | — | 3,994 | — | |||||||||||||||
| Unified Housing Foundation, Inc (2008-2014 Advisory Fee) | 12.00% | Dec-21 | Excess cash flow | — | — | 6,407 | — | |||||||||||||||
| Unified Housing Foundation, Inc (2018 Advisory Fee) | 12.00% | Jun-20 | Excess cash flow | — | — | 5,314 | — | |||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Mar-22 | Excess cash flow | — | — | 4,782 | — | |||||||||||||||
| RAI UHF 2019 Advisory Fee Note | Excess cash flow | |||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Jul-21 | Excess cash flow | — | — | 838 | — | |||||||||||||||
| 2018 Refin Fee (Lakeshore Villas) | Excess cash flow | |||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Jul-21 | Excess cash flow | — | — | 773 | — | |||||||||||||||
| 2018 Refin Fee (Limestone Ranch) | Excess cash flow | |||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Jul-21 | Excess cash flow | — | — | 839 | — | |||||||||||||||
| 2018 Refin Fee (Marquis @ Vista Ridge) | Excess cash flow | |||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Jul-21 | Excess cash flow | — | — | 432 | — | |||||||||||||||
| 2018 Refin Fee (Timbers at the Park) | Excess cash flow | |||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Jul-21 | Excess cash flow | — | — | 913 | — | |||||||||||||||
| 2018 Refin Fee (Trails @ White Rock) | ||||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Aug-21 | Excess cash flow | — | — | 212 | — | |||||||||||||||
| 2018 Refin Fee (Bella Vista) | ||||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Oct-21 | Excess cash flow | — | — | 1,980 | — | |||||||||||||||
| 2017 Fees on Sale LSC/SR/PKCR | ||||||||||||||||||||||
| Unified Housing Foundation, Inc | 12.00% | Oct-21 | Excess cash flow | — | — | 4,851 | — | |||||||||||||||
| 2017 Fees on Profit LSC/SR/PKCR | ||||||||||||||||||||||
| Various related party notes | Various | Various | Excess cash flow | — | — | 3,553 | — | |||||||||||||||
| Various non-related party notes | Various | Various | Excess cash flow | — | — | 28,989 | — | |||||||||||||||
| $ | 114,182 | |||||||||||||||||||||
| Accrued interest | 8,629 | |||||||||||||||||||||
| Allowance for estimated losses | (1,825 | ) | ||||||||||||||||||||
| $ | 120,986 | |||||||||||||||||||||
(1) Fully reserved
| 2019 | 2018 | 2017 | ||||||||||
| (dollars in thousands) | ||||||||||||
| Balance at January 1, | $ | 83,541 | $ | 70,166 | $ | 81,133 | ||||||
| Additions | ||||||||||||
| New mortgage loans | 49,671 | 13,123 | 16,422 | |||||||||
| Increase (decrease) of interest receivable on mortgage loans | 9,576 | 6,329 | 668 | |||||||||
| Deductions | ||||||||||||
| Amounts received | (21,589 | ) | (6,077 | ) | (26,230 | ) | ||||||
| Non-cash reductions | (213 | ) | — | (1,827 | ) | |||||||
| Balance at December 31, | $ | 120,986 | $ | 83,541 | $ | 70,166 | ||||||
77
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Reconciliation of Real Estate | ||||||||||||||||||||
| Balance at January 1, | $ | 477,963 | $ | 463,732 | $ | 1,165,662 | ||||||||||||||
| Additions | 21,223 | 92,964 | 175,996 | |||||||||||||||||
| Deductions | (39,385) | (78,733) | (877,926) | |||||||||||||||||
| Balance at December 31, | $ | 459,801 | $ | 477,963 | $ | 463,732 | ||||||||||||||
| Reconciliation of Accumulated Depreciation | ||||||||||||||||||||
| Balance at January 1, | 90,173 | 79,228 | 177,546 | |||||||||||||||||
| Additions | 12,188 | 13,379 | 22,761 | |||||||||||||||||
| Deductions | (19,943) | (2,434) | (121,079) | |||||||||||||||||
| Balance at December 31, | $ | 82,418 | $ | 90,173 | $ | 79,228 | ||||||||||||||
2020.Description Interest Rate Maturity Date Periodic Payment
TermsPrior Liens Face Amount Carrying Value Convertible loans Autumn Breeze 5.00% 7/1/2022 No payments until maturity or conversion $ 0 $ 1,867 $ 1,867 Bellwether Ridge 5.00% 11/1/2021 No payments until maturity or conversion 0 3,858 3,858 Forest Pines 5.00% 11/1/2022 No payments until maturity or conversion 0 2,869 2,869 Parc at Ingleside 5.00% 12/1/2021 No payments until maturity or conversion 0 2,523 2,523 Parc at Windmill Farms 5.00% 11/1/2022 No payments until maturity or conversion 0 7,803 7,803 Plum Tree 5.00% 4/26/2026 No payments until maturity or conversion 0 857 857 Spyglass of Ennis 5.00% 11/1/2022 No payments until maturity or conversion 0 5,360 5,360 Steeple Crest 5.00% 8/1/2021 No payments until maturity or conversion 0 6,498 6,498 0 31,635 31,635 Land loans ABC Land and Development, Inc. 9.50% 6/30/2021 No payments until maturity 0 4,408 4,408 ABC Paradise, LLC 9.50% 6/30/2021 No payments until maturity 0 1,210 1,210 Lake Wales 9.50% 6/30/2021 No payments until maturity 0 3,000 3,000 Legacy Pleasant Grove 12.00% 10/23/2022 No payments until maturity 0 496 496 McKinney Ranch 6.00% 9/15/2022 No payments until maturity 0 4,554 4,554 One Realco Land Holding, Inc. 9.50% 6/30/2021 No payments until maturity 0 1,728 1,728 Riverview on the Park Land, LLC 9.50% 6/30/2021 No payments until maturity 0 1,045 1,045 RNC Portfolio, Inc. 5.00% 9/1/2024 No payments until maturity 0 8,853 8,853 Spartan Land 12.00% 1/16/2023 No payments until maturity 0 5,907 5,907 0 31,201 31,201 Subsidized housing Phillips Foundation for Better Living, Inc. 12.00% 3/31/2023 Payments from excess property cash flows 0 61 61 Unified Housing Foundation, Inc. 12.00% 7/31/2021 Payments from excess property cash flows 0 2,880 2,880 Unified Housing Foundation, Inc. 12.00% 8/30/2021 Payments from excess property cash flows 0 212 212 Unified Housing Foundation, Inc. 12.00% 10/31/2021 Payments from excess property cash flows 0 6,831 6,831 Unified Housing Foundation, Inc. 12.00% 12/31/2021 Payments from excess property cash flows 0 10,896 10,896 Unified Housing Foundation, Inc. 12.00% 3/31/2022 Payments from excess property cash flows 0 10,096 10,096 Description Interest Rate Maturity Date Periodic Payment
TermsPrior Liens Face Amount Carrying Value Unified Housing Foundation, Inc. 12.00% 3/31/2023 Payments from excess property cash flows 0 6,990 6,990 Unified Housing Foundation, Inc. 12.00% 5/31/2023 Payments from excess property cash flows 0 3,615 3,615 Unified Housing Foundation, Inc. 12.00% 12/31/2032 Payments from excess property cash flows 0 19,139 19,139 0 60,720 60,720 $ 0 $ 123,556 $ 123,556 2020 2019 2018 Balance at January 1, $ 112,357 $ 83,541 $ 70,166 Additions 26,535 59,241 15,123 Deductions (15,336) (30,425) (1,748) Balance at December 31, $ 123,556 $ 112,357 $ 83,541 Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.the Company’sour internal control over financial reporting as of December 31, 2019.2020. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on management’s assessments and those criteria, management has concluded that Company’s internal control over financial reporting was effective as of December 31, 2019.the Company’sour registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by the Company’sour registered public accounting firm pursuant to temporary rules of the Securities and Exchange CommissionSEC that permit the Companyus to provide only management’s report in this annual report.20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.TCIthe Company are managed by aour Board of Directors. The Directors are elected at the annual meeting of stockholders or appointed by the incumbent Board and serve until the next annual meeting of stockholders or until a successor has been elected or approved.Itthe Board’s objective thatfor a majority of theour Board consists ofto be independent directors. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with TCI.the Company. The Board has established guidelines to assist it in determining director independence which conform to, or are more exacting than, the independence requirements in the New York Stock Exchange ("NYSE") listing rules. The independence guidelines are set forth in TCI’sour “Corporate Governance Guidelines”. The text of this document has been posted on TCI’sour internet website at (www.transconrealty-invest.com ("Investor Relations Website")and is available in print to any shareholder who requests it. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence determination.TCI haswebsite address at (www.transconrealty-invest.com).Investor Relations Website. We will post any amendments to the code of conduct, as well as any waivers that are required to be disclosed by the rules of the SECSecurity Exchange Commission (the "SEC") or the New York Stock ExchangeNYSE on our website.the website address at (www.transconrealty-invest.com). our Investor Relations Website. You may also obtain a printed copy of the materials referred to by contacting us at the following address: TCIthe Company or any of its subsidiaries other than their director’s compensation (other than in their capacity as a member of the Audit Committee, the Board of Directors, or any other committee of the Board), and (ii) no member of the Audit Committee may be an “affiliated person” of TCIthe Company or any of its subsidiaries, as defined by the Securities and Exchange Commission.TheSEC. of TCI are listed below, together with their ages, terms of service, all positions and offices with TCIus and itsour current advisor, Pillar, their principal occupations, business experience and directorships with other companies during the last five years or more. The designation “affiliated”, when used below with respect to a director, means that the director is an officer, director or employee of Pillar, an officer of the Company, or an officer or director of a related party of the Company. The designation “independent”, when used below with respect to a Director, means that the Director is neither an officer of the Company nor a director, officer or employee of Pillar (but may be a director of the Company, although the Company may have certain business or professional relationships with such Director as discussed in Item 13. Certain Relationships and Related Transactions, and Director Independence.
HENRY A. BUTLER, age 69,70, Director, Affiliated, since November 2005 and Chairman of the Board since May 2009
Director | Audit Committee | Governance and Nominating Committee | Compensation Committee | ||||||||||||||
| Henry A. Butler | |||||||||||||||||
| William J. Hogan | X | X | X | ||||||||||||||
| Robert A. Jakuszewski | X | Chair | X | ||||||||||||||
| Ted R. Munselle | Chair | X | X | ||||||||||||||
| Bradford A. Phillips | |||||||||||||||||
| Raymond D. Roberts, Sr. | X | X | Chair | ||||||||||||||
Governance and Nominating Committee.Committee. The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of TCI’sour Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance self-evaluation. The Charter of the Governance and Nominating Committee was adopted on March 17, 2004 and is available on the Company’sour Investor Relations website (www.transconrealty-invest.com). The current members of the Committee are Messrs. Munselle and Jakuszewski (Chairman) and Roberts.Website. The Governance and Nominating Committee met twicetwo during 2019.
2020. 2020. 2021. Website.Committee.Committee. The Compensation Committee is responsible for overseeing the policies of the Company relating to compensation to be paid by the Company to the Company’sour principal executive officer and any other officers designated by the Board and make recommendations to the Board with respect to such policies, produce necessary reports and executive compensation for inclusion in the Company’sour Proxy Statement in accordance with applicable rules and regulations and to monitor the development and implementation of succession plans for the principal executive officers and other key executives and make recommendations to the Board with respect to such plans. The charter of theour Compensation Committee was adopted on March 17, 2004, and is available on the Company’sour Investor Relations website (www.transconrealty-invest.com). The current members of the Compensation Committee are Messrs. Roberts (Chairman) and Jakuszewski and Munselle.Website. All of the members of the Compensation Committee are independent within the meaning of the listing standards of the NYSE American and the Company’sour Corporate Governance Guidelines. The Compensation Committee is to be comprised of at least two directors who are independent of Management and the Company. The Compensation Committee met twicetwo during 2019.The members of the Board of Directors on the date of this Report and the Committees of the Board on which they serve are identified below:DirectorAudit CommitteeGovernance and NominatingCommitteeCompensation CommitteeRobert A. JakuszewskiXChairXTed R. MunselleChairXXRaymond D. Roberts. SrXXChairHenry A. ButlerWilliam J. HoganIn March 2004, the Board created a new position whose primary responsibility is to preside over periodic executive sessions of the Board in which Management directors and other members of Management do not participate. The presiding director also advises the Chairman of the Board and, as appropriate, Committee Chairs with respect to agendas and information needs relating to Board and Committee meetings, provides advice with respect to the selection of Committee Chairs and performs other duties that the Board may from time to time delegate to assist the Board in fulfillment of its responsibilities.11, 201916, 2020 representing all stockholders of record dated November 1, 2019,2, 2020, the full Board met and re-appointed Ted R. Munselle as Presiding Director, to serve in such position until the Company’s next annual meeting of stockholders to be held subsequently in 2020. In February 2004, the Board adopted itsGuidelines. The Guidelines adopted by the Board("Guideines") meet or exceed the new listing standards adopted during that year by the New York Stock Exchange.NYSE. The full text of the Guidelinesour Guideines can be found on the Company’sour Investor Relations website (www.transcontrealty-invest.com).Guidelines,Guideines, the Board undertook its annual review of director independence in March, 2019February 2020 and during this review, the Board considered transactions and relationships between each director or any member of his or her immediate family and TCIthe Company and its subsidiaries and related parties, including those reported under Certain Relationships and Related Transactions below. The Board also examined transactions and relationship between directors or their related parties and members of TCI’sour senior management or their related parties. As provided in the Guidelines,Guideines, the purpose of such review was to determine whether such relationshipsrelationships or transactions were inconsistent with the determination that the director is independent. Prior to this election as director, on January 28, 2020, the Board undertook a similar review with respect to Mr. Hogan.
As a result of these reviews, the Board affirmatively determined of the then directors, Messrs. Munselle, Hogan, Jakuszewski and Roberts are each independent of the Company and its Management under the standards set forth in the Corporate Governance Guidelines.
DANIEL J. MOOS, 69
CPA.
73
44
TCI has
SEC.
MRHI. The May Trust is a Trust, the beneficiaries of whichthe MRHI are the children of the late Gene E. Phillips.
officers, and for which Mr. Moos previously served as an executive officer.
TCI entered intoservices.
consent.
| Erik L. Johnson | Chief Financial Officer | |||||||
| Gina H. Kay | Executive Vice President and Chief Accounting Officer | |||||||
| Louis J. Corna | Executive Vice President and Secretary | |||||||
Since January 1, 2011,
TCI engages
86
us.TCI haspayspay no compensation to itsour executive officers. TheOur executive officers of TCI, who are also officers orand employees of Pillar, TCI’s advisor,our Advisor, and are compensated by Pillar. Such executive officers perform a variety of services for Pillar and the amount of their compensation is determined solely by Pillar. Pillar does not allocate the cash compensation of its officers among the various entities for which it serves as advisor. Refer to Item 10. “Directors, Executive Officers and Corporate Governance” for a more detailed discussion of the compensation payable to Pillar by TCI.TCIus is to theour directors who are not officers or employees of Pillar or its related companies. The Independent Directors (1) review theour business plan of TCI to determine that it is in the best interest of TCI’sour stockholders, (2) review the advisory contract, (3) supervise the performance of the advisor and review the reasonableness of the compensation paid to the advisor in terms of the nature and quality of services performed, (4) review the reasonableness of theour total fees and expenses of TCI and (5) select, when necessary, a qualified independent real estate appraiser to appraise properties acquired.Effective February, 2011, each2019, $40,3882020, $54,300 was paid to non-employee Directors in total Directors’ fees. The fees paid to the directors are as follows: Henry A. Butler $5,800; William J. Hogan, $12,000;Robert A. Jakuszewski, $12,000; Ted R. Munselle, $12,500; Henry A. Butler $3,888;$12,500 and Raymond D. Roberts, Sr., $12,000.Director’s Stock Option PlanTCI established a Director’s Stock Option Plan (“Director’s Plan”) for the purpose of attracting and retaining Directors who are not officers or employees of TCI or Pillar. The Director’s Plan provides for the grant of options that are exercisable at fair market value of TCI’s Common stock on the date of grant. The Director’s Plan was approved by stockholders at their annual meeting on October 10, 2000, following which each then-serving Independent Director was granted options to purchase 5,000 shares of Common stock of TCI. On January 1 of each year, each Independent Director receives options to purchase 5,000 shares of Common stock. The options are immediately exercisable and expire on the earlier of the first anniversary of the date on which a Director ceases to be a Director or 10 years from the date of grant. The Director’s Plan was terminated by the Board of Directors on December 15, 2005. As of December 31, 2015, there were 5,000 shares of stock options outstanding which were exercisable at $14.25 per share. These options expired unexercised January 1, 2016.87ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTTCI’s Commonour common stock, both beneficially and of record, both individually and in the aggregate, for those persons or entities known to be beneficial owners of more than 5.0% of the outstanding shares of Commonour common stock as of the close of business on March 30, 2020. Amount and Nature of Beneficial Ownership* Approximate Percent of Class** American Realty Investors, Inc.(1)(2) 5,383,192 62.31 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 Transcontinental Realty Acquisition Corporation(2) 1,383,226 16.01 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 Realty Advisors, LLC (3) 608,984 7.05 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 Amount and
Nature of
Beneficial
Ownership*Approximate Percent
of Class**6,771,718 78.4 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 1,383,226 16.0 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 621,728 7.2 % 1603 LBJ Freeway, Suite 800 Dallas, Texas 75234 *“Beneficial Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination thereof.**Percentage is based upon 8,639,516 shares of Common stock outstanding at March 25, 2020.(1)Includes 5,383,192 shares (62.31%) directly owned by American Realty Investors, Inc. “ARL” directly, over which the directors al ARL may be deemed to be beneficial owners by virtue of their positions as directors of ARL. The directors of ARL disclaim beneficial ownership of such shares.(2)Includes 1,383,226 shares owned by Transcontinental Realty Acquisition Corporation (“TRAC”), which is a wholly owned subsidiary of ARL, over which each of the directors of TRAC, Daniel J. Moos and Alla Dzyuba may be deemed to be beneficial owners by virtue of their positions as directors of TRAC. The directors of TRAC disclaim beneficial ownership of such shares.(3)Includes 336,000 shares owned by RAI and 272,984 shares owned by AEI, over which the executive officers of RAI may be deemed to be the beneficial owners by virtue of their positions. The executive officers of RAI disclaim beneficial ownership of such shares.
Security Ownership of Management.
The following table sets forth the ownership of TCI’s Common stock, both beneficially and of record, both individually and in the aggregate, for the directors and executive officers of TCI as of the close of business on March 30, 2020.
| Name of Beneficial Owner | Amount and Nature of Beneficial Ownership* | Approximate Percent of Class** | ||||||
| Alla Dzyuba | 5,992,176 | (1)(3) | 69.36 | % | ||||
| Henry A. Butler | 5,383,192 | (1) | 62.31 | % | ||||
| Louis J. Corna | 5,992,176 | (1)(3) | 69.36 | % | ||||
| Robert A. Jakuszewski | 5,383,192 | (1) | 62.31 | % | ||||
| Daniel J. Moos | 7,875,402 | (1)(2)(3) | 85.37 | % | ||||
| Ted R. Munselle | 5,383,192 | (1) | 62.31 | % | ||||
| Raymond D. Roberts, Sr. | 5,383,192 | (1) | 62.31 | % | ||||
| All Directors and Executive Officers as a group (7 individuals) | 7,375,402 | (1)(2)(3) | 85.37 | % | ||||
* “Beneficial Ownership” means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any combination thereof.
| Name of Beneficial Owner | Amount and Nature of Beneficial Ownership* | Approximate Percent of Class** | |||||||||||||||
| Henry A. Butler | — | — | % | ||||||||||||||
| Louis J. Corna | — | — | % | ||||||||||||||
| Alla Dzyuba | — | — | % | ||||||||||||||
| William J. Hogan | — | — | % | ||||||||||||||
| Erik L. Johnson | — | — | % | ||||||||||||||
| Robert A. Jakuszewski | — | — | % | ||||||||||||||
| Ted R. Munselle | — | — | % | ||||||||||||||
| Bradford A. Phillips | — | — | % | ||||||||||||||
| Raymond D. Roberts, Sr. | — | — | % | ||||||||||||||
| All Directors and Executive Officers as a group (7 individuals) | — | — | % | ||||||||||||||
(1) Includes 5,383,192 shares owned by ARL and 1,383,226 shares owned by TRAC, over which the executive officers and members of the Board of Directors of ARL may be deemed to be the beneficial owners by virtue of their positions as executive officers and members of the Board of Directors of ARL. The executive officers and current members of the Board of Directors of ARL disclaim beneficial ownership of such shares.
(2) Daniel J. Moos owns 295,000 shares of Common Stock and is the President and Chief Executive Officer of ARL, the Company, RAI and MRHI.
(3) Includes 336,000 shares owned by RAI and 272,984 shares owned by AEI, over which the executive officers of RAI may be deemed to be the beneficial owners by virtue of their positions. The executive officers of RAI disclaim beneficial ownership of such shares.
24, 2021.
TCI’s
TCI
TCI does
the Company.
Pillar is a Nevada corporation, the sole shareholder of which isowned by Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is owned by RAI, a Nevada corporation, MRHI, a Nevada corporation, the sole shareholder of which is a trust known asowned by MRHI, which is owned by the May Trust.
The Company is
The Company has
The Company
During 2019, the Company received $19.4 million cash distribution from VAA as a result of the annual surplus cash computation from its HUD collaterized residential properties and other amounts owed to the Company as agreed to in the joint venture operating agreement.
In accordance with the provisions of the VAA Joint Venture Agreement dated November 19, 2018, Southern and TCI are expected to receive approximately $14 million ($6 million and $8 million, respectively) for the cash balances remaining in the transferred properties as of the date of the transaction. The cash balance was determined and agreed upon by the partners in the joint venture, and based on the estimated bank balances on the day of closing. Additionally, VAA did not purchase the accounts receivable or the utilities’ and other deposits. These items as well as the reconciliation of the expense pro-rations will result in additional adjustments being required, subject to the consent of both parties. On February 6, 2019, Abode JVP, LLC, a fully owned subsidiary of SPC, received $7.4 million related to the cash credit and transferred it to TCI. On May 15, 2019, Members of the Joint Venture agreed to record approximately $1.1 million of pro-ration adjustments and on July 25,2019, the remaining outstanding balance has been paid in full.
The Company isWe were the primary guarantor, on a $25.0$24.3 million mezzanine loan between UHF and a lender. In addition, TCI, ARL, and an officerThe guarantee was remove on January 29, 2021, concurrent with the repayment of the Company are limited recourse guarantors of the loan. As of December 31, 2019 UHF was in compliance with the covenants to the loan agreement.
Operating Relationships
The Companyby UHF.
Advances and Loans
Regis.
The following table sets for
| 2019 | 2018 | |||||||||||||||
| Farmer, Fuqua & Huff, L.P. | Swalm & Associates, P.C. (*) | Farmer, Fuqua & Huff, L.P. | Swalm & Associates, P.C. (*) | |||||||||||||
| Audit Fees | $ | 227,755 | $ | 53,024 | $ | 551,996 | $ | 72,210 | ||||||||
| Tax Fees | 12,377 | — | 38,304 | — | ||||||||||||
| Total | $ | 240,132 | $ | 53,024 | $ | 590,300 | $ | 72,210 | ||||||||
(*) Fees related to IOT
The audit fees for 2019 and 2018 were for professional services rendered$227,755 for the auditsyears ended December 31, 2020 and reviews of the consolidated financial statements of TCI and its subsidiaries. Tax fees for 2019, and 2018 were for services related to federal and state tax compliance and advice.
All services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either the Board of Directors or the Audit Committee, as required by law. The fees paid to the principal auditors for the services described in the above table fall under the categories listed below:
Audit Fees.respectively. These are fees for professional services performed by the principal auditor for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s 10-Q filings and services that are normally provided in connection with statutory and regulatory filing or engagement.
Under the Sarbanes-Oxley Act of 2002 (the “SOX Act”), and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee of the Board of Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. The purpose of the provisions of the SOX Act and the SEC rules for the Audit Committee role in retaining the independent auditor is two-fold. First, the authority and responsibility for the appointment, compensation and oversight of the auditors should be with directors who are independent of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that any non-audit services performed by the auditor do not impair the independence of the independent auditor. To implement the provisions of the SOX Act, the SEC issued rules specifying the types of services that an independent may not provide to its audit client, and governing the Audit Committee’s administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditor’s independence. Accordingly, the
92
2020, 2019, and 2018 Real Estate(a) are filed as part of this Report:1.Financial StatementsReports of Independent Registered Public Accounting FirmsConsolidated Balance Sheets—December 31, 2019 and 2018Consolidated Statements of Operations—Years Ended December 31, 2019, 2018, and 2017Consolidated Statements of Stockholders’ Equity—Years Ended December 31, 2019, 2018, and 2017Consolidated Statements of Cash Flows—Years Ended December 31, 2019, 2018, and 2017Statements of Consolidated Comprehensive Income (Loss) – Years Ended December 31, 2019, 2018, and 2017Notes to Financial Statements2.Financial Statement SchedulesSchedule III—Real Estate and Accumulated DepreciationSchedule IV—Mortgage Loan Receivables on Real EstateAll other schedules are omitted because they are not applicable or because the required information is shown in the Consolidated filed as part of this Report: or the Notes thereto.3.Incorporated Financial StatementsFinancialBalance Sheets as of December 31, 2020 and 2019Income Opportunity Realty Investors, Inc. (incorporated by reference to Item 8 of Income Opportunity Realty Investors, Inc.’s Annual Report on Form 10-KOperations for the year endedYears Ended December 31, 2019. of American Realty Investors, Inc. (incorporated by reference to Item 8 of American Realty Investors, Inc.’s Annual ReportForm 10-K for the year ended December 31, 2019). (b)ExhibitsExhibitNumberDescription3.0Exhibit
NumberDescription 3.0 Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991). 3.1 Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996). 3.2 Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 3.3 Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998). 3.4 Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restriction and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporation by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 3.5 Certificate of Designation of Transcontinental Realty Investors, Inc., Setting for the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of Series C Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). 3.6 Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc. Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001). 3.7 By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991). 3.8 Certificate of designation of Transcontinental Realty Investors, Inc. setting forth the Voting Powers, Designations, Preferences Limitations, Restrictions and Relative rights of Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrants current report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof. 94ExhibitNumberDescription10.0 Advisory Agreement dated as of April 30, 2011, between Transcontinental Realty Investors, Inc. and Pillar Income Asset Management LLC (incorporated by reference to Exhibit 10.0 to the Registrant’s Current Report on Form 8-K for event occurring April 30, 2011). 10.1 Leman Development Ltd. and Kaufman Land Partners, Ltd. (incorporated by reference to Registrant’s current report in Form 8-K dated November 21, 2006 at Exhibit 10.1 thereof. 14.0 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004). Subsidiaries of the Registrant. Certification Pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934 as amended of Principal Executive and Financial Officer. 31.2*Certification Pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934 as amended of Principal Financial and Accounting Officer.32.1*Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith.
/s/ Erik L. Johnson /s/ ROBERT A. JAKUSZEWSKI /s/ /s/ ALLA DZYUBAOptional and not included herein.
Not applicableTranscontinental Realty Investors, Inc.Dated: March 30, 202024, 2021By: ALLA DZYUBA Alla Dzyuba Executive Vice President and Chief AccountingFinancial Officer(Principal Executive and Financial Officer) SignatureTitleDateSignature Title Date /s/ HENRY A. BUTLER Chairman of the Board and Director March 30, 202024, 2021Henry A. Butler /s/ WILLIAM J. HOGAN Director March 30, 202024, 2021William J. Hogan Director March 24, 2021 Robert A. Jakuszewski /s/ TED R. MUNSELLE Director March 24, 2021 Ted R. Munselle /s/ BRADFORD A. PHILLIPS Director March 24, 2021 Bradford A. Phillips /s/ RAYMOND D. ROBERTS, SR. Director March 30, 202024, 2021Raymond D. Roberts, Sr. ROBERT A. JAKUSZEWSKIDirectorMarch 30, 2020Robert A. Jakuszewski/s/ TED R. MUNSELLE DirectorMarch 30, 2020Ted R. Munselle/s/ DANIEL J. MOOS Executive Vice President and Chief ExecutiveFinancial Officer (Principal Executive Officer)March 30, 202024, 2021Erik L. Johnson (Principal Executive and Financial Officer) Daniel J. Moos Vice President and Chief Accounting Officer (Principal Financial Officer)March 30, 202024, 2021Alla Dzyuba Alla Dzyuba ANNUAL REPORT ON FORM 10-K EXHIBIT INDEX For the Year Ended December 31, 2019ExhibitNumberDescription3.0Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).3.1Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996).3.2Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).3.3Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).3.4Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restriction and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporation by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).3.5Certificate of Designation of Transcontinental Realty Investors, Inc., Setting for the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of Series C Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).3.6Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc. Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).3.7By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).3.8Certificate of designation of Transcontinental Realty Investors, Inc. setting forth the Voting Powers, Designations, Preferences Limitations, Restrictions and Relative rights of Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrants current report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof.)10.0Advisory Agreement dated as of April 30, 2011, between Transcontinental Realty Investors, Inc. and Pillar Income Asset Management LLC (incorporated by reference to Exhibit 10.0 to the Registrant’s Current Report on Form 8-K for event occurring April 30, 2011).10.1Leman Development Ltd. and Kaufman Land Partners, Ltd. (incorporated by reference to Registrant’s current report in Form 8-K dated November 21, 2006 at Exhibit 10.1 thereof.14.0Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004).21.1*Subsidiaries of the Registrant.31.1*Certification Pursuant to Rule 13a-14(a) and 15d-14 under the Securities Exchange Act of 1934, as amended of Principal Executive Officer.31.2*Certification Pursuant to Rule 13a-14(a) and 15d-14 under the Securities Exchange Act of 1934, as amended of Principal Financial and Accounting Officer32.1*Certification pursuant to 18 U.S.C. Section 1350.101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith.97