Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2014 | 5-May-14 | |
Document and Entity Information | ' | ' |
Entity Registrant Name | 'TRANSCONTINENTAL REALTY INVESTORS INC | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Jun-14 | ' |
Amendment Flag | 'false | ' |
Entity Central Index Key | '0000733590 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Common Stock, Shares Outstanding | ' | 8,413,469 |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
CONSOLIDATED_BALANCE_SHEETS_un
CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
In Thousands, unless otherwise specified | ||
Assets [Abstract] | ' | ' |
Real estate, at cost | $742,615 | $777,974 |
Real estate held for sale at cost, net of depreciation ($1,489 for 2014 and $2,390 for 2013) | 627 | 16,427 |
Real estate subject to sales contracts at cost, net of depreciation ($2,124 for 2014 and $1,949 for 2013) | 24,842 | 29,353 |
Less accumulated depreciation | -106,832 | -127,952 |
Total real estate | 661,252 | 695,802 |
Notes and interest receivable: | ' | ' |
Performing (including $67,458 in 2014 and $66,431 in 2013 from related parties) | 70,773 | 69,626 |
Non-performing | 564 | 543 |
Less allowance for doubtful accounts (including $2,098 in 2014 and $2,098 in 2013 from related parties) | -2,263 | -2,262 |
Total notes and interest receivable | 69,074 | 67,907 |
Cash and cash equivalents | 13,382 | 16,086 |
Restricted cash | 25,052 | 31,799 |
Investments in unconsolidated joint ventures and investees | 1,509 | 1,697 |
Related party receivables | 74,406 | 52,380 |
Other assets | 36,548 | 32,000 |
Total assets | 881,223 | 897,671 |
Liabilities: | ' | ' |
Notes and interest payable | 569,199 | 562,734 |
Notes related to real estate held for sale | 3,006 | 17,100 |
Notes related to real estate subject to sales contracts | 20,758 | 23,011 |
Deferred gain (from sales to related parties) | 53,096 | 53,096 |
Accounts payable and other liabilities (including $5,103 in 2014 and $4,697 in 2013 to related parties) | 37,008 | 50,160 |
Total liabilities | 683,067 | 706,101 |
Shareholders' equity: | ' | ' |
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares, issued and outstanding 30,000 shares in 2014 and 2013 (liquidation preference $100 per share). Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2013 and 2012 (liquidation preference $100 per share) | 1 | 1 |
Common stock, $0.01 par value, authorized 10,000,000 shares, issued 8,413,669 shares in 2014 and 2013 and outstanding 8,413,469 shares in 2014 and 2013 | 84 | 84 |
Treasury stock at cost, 200 shares in 2014 and 2013 | -2 | -2 |
Paid-in capital | 271,169 | 271,720 |
Retained earnings | -91,088 | -98,029 |
Total Transcontinental Realty Investors, Inc. shareholders' equity | 180,164 | 173,774 |
Non-controlling interest | 17,992 | 17,796 |
Total shareholders' equity | 198,156 | 191,570 |
Total liabilities and shareholders' equity | $881,223 | $897,671 |
CONSOLIDATED_BALANCE_SHEETS_PA
CONSOLIDATED BALANCE SHEETS PARENTHETICALS (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
In Thousands, except Share data, unless otherwise specified | ||
BALANCE SHEETS PARENTHETICALS | ' | ' |
Depreciation of Real Estate held for sale at cost | $1,489 | $2,390 |
Depreciation of Real Estate subject to sales contracts at cost | 2,124 | 1,949 |
Performing Notes and Interest Receivable from related parties | 67,458 | 66,431 |
Allowance for doubtful accounts from related parties | 2,098 | 2,098 |
Accounts payable and other liabilities from related parties | $5,103 | $4,697 |
Preferred stock Series C, par value | $0.01 | $0.01 |
Preferred stock Series C, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock Series C, shares issued | 30,000 | 30,000 |
Preferred stock Series C, shares outstanding | 30,000 | 30,000 |
Preferred stock Series C, liquidation preference per share | $100 | $100 |
Preferred stock Series D, par value | $0.01 | $0.01 |
Preferred stock Series D, shares authorized | 100,000 | 100,000 |
Preferred stock Series D, shares issued | 100,000 | 100,000 |
Preferred stock Series D, shares outstanding | 100,000 | 100,000 |
Preferred stock Series D, liquidation preference per share | $100 | $100 |
Common stock, par value | $0.01 | $0.01 |
Common stock, shares authorized | 10,000,000 | 10,000,000 |
Common stock, shares issued | 8,413,669 | 8,413,669 |
Common stock, shares outstanding | 8,413,669 | 8,413,469 |
Treasury stock, shares | 200 | 200 |
CONSOLIDATED_STATEMENTS_OF_OPE
CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts)(unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, except Share data, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Revenues [Abstract] | ' | ' | ' | ' |
Rental and other property revenues (including $175 and $166 for the three months and $350 and $331 for the six months ended 2014 and 2013, respectively, from related parties) | $19,859 | $19,560 | $39,476 | $38,950 |
Expenses: | ' | ' | ' | ' |
Property operating expenses (including $148 and $160 for the three months and $293 and $353 for the six months ended 2014 and 2013, respectively, from related parties) | 9,695 | 8,787 | 19,229 | 18,116 |
Depreciation and amortization | 4,430 | 4,298 | 8,868 | 8,026 |
General and administrative (including $656 and $792 for the three months and $1,400 and $1,439 for the six months ended 2014 and 2013, respectively, from related parties) | 2,737 | 1,615 | 4,295 | 3,237 |
Net income fee to related party | 210 | 48 | 700 | 104 |
Advisory fee to related party | 1,811 | 2,071 | 3,664 | 4,209 |
Total operating expenses | 18,883 | 16,819 | 36,756 | 33,692 |
Net operating income | 976 | 2,741 | 2,720 | 5,258 |
Other income (expense): | ' | ' | ' | ' |
Interest income (including $4,004 and $2,149 for the three months and $6,117 and $4,288 for the six months ended 2014 and 2013, respectively, from related parties) | 4,005 | 2,119 | 6,118 | 4,296 |
Other income | 244 | 144 | 401 | 180 |
Mortgage and loan interest (including $0 and $439 for the three months and $31 and $926 for the six months ended 2014 and 2013, respectively, from related parties) | -7,932 | -7,874 | -14,765 | -15,797 |
Deferred borrowing costs amortization | -334 | 46 | -1,266 | -2,371 |
Loan charges and prepayment penalties | 0 | -26 | -1,582 | -3,963 |
Loss on the sale of investments | 0 | 0 | 0 | -8 |
Losses from unconsolidated joint ventures and investees | -11 | 15 | -16 | 2 |
Litigation settlement | -86 | 57 | 3,753 | 12 |
Total other expenses | -4,114 | -5,519 | -7,357 | -17,649 |
Loss before gain on land sales, non-controlling interest, and taxes | -3,138 | -2,778 | -4,637 | -12,391 |
Gain (loss) on land sales | -159 | 0 | 594 | -48 |
Net loss from continuing operations before taxes | -3,297 | -2,778 | -4,043 | -12,439 |
Income tax benefit | 2,035 | 5,222 | 3,918 | 7,554 |
Net income (loss) from continuing operations | -1,262 | 2,444 | -125 | -4,885 |
Discontinued operations: | ' | ' | ' | ' |
Net income (loss) from discontinued operations | -1,189 | -3,154 | -1,862 | -2,682 |
Gain on sale of real estate from discontinued operations | 7,003 | 18,074 | 13,057 | 24,265 |
Income tax (expense) discontinued operations | -2,035,000 | -5,222,000 | -3,918,000 | -7,554,000 |
Net income from discontinued operations | 3,779 | 9,698 | 7,277 | 14,029 |
Net income | 2,517 | 12,142 | 7,152 | 9,144 |
Net loss attributable to non-controlling interest | -127 | -115 | -211 | -226 |
Net income attributable to Transcontinental Realty Investors, Inc. | 2,390 | 12,027 | 6,941 | 8,918 |
Preferred dividend requirement | -277 | -277 | -551 | -551 |
Net income (loss) applicable to common shares | 2,113 | 11,750 | 6,390 | 8,367 |
Earnings per share - basic | ' | ' | ' | ' |
Net income (loss) from continuing operations - basic | ($0.20) | $0.24 | ($0.11) | ($0.67) |
Net income from discontinued operations - basic | $0.45 | $1.15 | $0.86 | $1.67 |
Net income (loss) applicable to common shares - basic | $0.25 | $1.39 | $0.75 | $1 |
Earnings per share - diluted | ' | ' | ' | ' |
Net income (loss) from continuing operations - diluted | ($0.20) | $0.23 | ($0.11) | ($0.67) |
Net income from discontinued operations - diluted | $0.45 | $1.10 | $0.86 | $1.67 |
Net income applicable to common shares | $0.25 | $1.33 | $0.75 | $1 |
Weighted average common shares used in computing earnings per share | 8,413,469 | 8,413,469 | 8,413,469 | 8,413,469 |
Weighted average common shares used in computing diluted earnings per share | 8,413,469 | 8,796,699 | 8,413,469 | 8,413,469 |
Amounts attributable to Transcontinental Realty Investors, Inc. | ' | ' | ' | ' |
Net income (loss) from continuing operations | -1,389 | 2,329 | -336 | -5,111 |
Net income from discontinued operations | 3,779 | 9,698 | 7,277 | 14,029 |
Net income (loss) | $2,390 | $12,027 | $6,941 | $8,918 |
CONSOLIDATED_STATEMENTS_OF_OPE1
CONSOLIDATED STATEMENTS OF OPERATIONS PARENTHETICALS (dollars in thousands, except per share amounts)(unaudited) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Statements Of Operations Parentheticals | ' | ' | ' | ' |
Rental and other property revenues, related parties | $175 | $166 | $350 | $331 |
Property operating expenses, related parties | 148 | 160 | 293 | 353 |
General and administrative expenses, related parties | 656 | 792 | 1,400 | 1,439 |
Interest income from related parties | 4,004 | 2,149 | 6,117 | 4,288 |
Mortgage and loan interest, related parties | $0 | $439 | $31 | $926 |
CONSOLIDATED_STATEMENTS_OF_SHA
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (dollars in thousands) (USD $) | Total Equity | Comprehensive Income (Loss) | Preferred Stock | Common Stock Amount | Treasury Stock | Paid-in Capital | Retained Earnings | Non-Controlling Interest |
In Thousands, except Share data | ||||||||
Beginning Balance, Amount at Dec. 31, 2013 | $191,570 | ($99,647) | $1 | $84 | ($2) | $271,720 | ($98,029) | $17,796 |
Beginning Balance, Shares at Dec. 31, 2013 | ' | ' | ' | 8,413,669 | ' | ' | ' | ' |
Series C preferred stock dividends (7.0% per year) | -106 | ' | ' | ' | ' | -106 | ' | ' |
Series D preferred stock dividends (9.0% per year) | -445 | ' | ' | ' | ' | -445 | ' | ' |
Net-income (loss) | 7,152 | 7,152 | ' | ' | ' | ' | 6,941 | 211 |
Distributions to non controlling interests | -15 | ' | ' | ' | ' | ' | ' | -15 |
Ending Balance, Amount at Jun. 30, 2014 | $198,156 | ($92,495) | $1 | $84 | ($2) | $271,169 | ($91,088) | $17,992 |
Ending Balance, Shares at Jun. 30, 2014 | ' | ' | ' | 8,413,669 | ' | ' | ' | ' |
CONSOLIDATED_STATEMENTS_OF_COM
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands)(unaudited) (USD $) | 6 Months Ended | |
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 |
Statement of Comprehensive Income (loss) | ' | ' |
Net income (loss) | $7,152 | $9,144 |
Other comprehensive income (loss) | 0 | 0 |
Total comprehensive income (loss) | 7,152 | 9,144 |
Comprehensive income attributable to non-controlling interest | -211 | -226 |
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc. | $6,941 | $8,918 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)(unaudited) (USD $) | 6 Months Ended | |
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 |
Net Cash Provided by (Used in) Operating Activities [Abstract] | ' | ' |
Net income | $7,152 | $9,144 |
Adjustments to reconcile net income (loss) applicable to common shares to net cash flows from operating activities: | ' | ' |
Loss (gain) on sale of land | -594 | 48 |
Gain on sale of income-producing properties | -13,057 | -24,265 |
Depreciation and amortization | 9,061 | 10,761 |
Amortization of deferred borrowing costs | 1,544 | 3,383 |
Losses(earnings) from unconsolidated joint ventures and investees | 286 | -23 |
Decrease (increase) in assets: | ' | ' |
Accrued interest receivable | 7,281 | 296 |
Other assets | 574 | 0 |
Prepaid expense | -1,182 | -1,008 |
Escrow | 8,910 | 10,227 |
Earnest money | -265 | 525 |
Rent receivables | -397 | 2,924 |
Related party receivables | 0 | -7,125 |
Increase (decrease) in liabilities: | ' | ' |
Accrued interest payable | 104 | -2,186 |
Related party payables | -22,026 | -10,057 |
Other liabilities | -13,082 | -8,081 |
Net cash used in operating activities | -15,691 | -15,437 |
Cash Flow From Investing Activities: | ' | ' |
Originations or advances on notes receivable | -8,449 | -343 |
Acquisition of land held for development | -93 | -7 |
Proceeds from sale of income-producing properties | 41,428 | 75,874 |
Proceeds from sale of land | 2,221 | 2,537 |
Investment in unconsolidated real estate entities | -98 | -278 |
Improvement of land held for development | -181 | -290 |
Improvement of income-producing properties | -3,134 | -3,333 |
Sales of controlling interest | ' | 54 |
Construction and development of new properties | -620 | -179 |
Net cash provided by investing activities | 31,074 | 74,035 |
Cash Flow From Financing Activities: | ' | ' |
Proceeds from notes payable | 59,487 | 136,172 |
Recurring amortization of principal on notes payable | -10,133 | -7,504 |
Payments on maturing notes payable | -61,740 | -193,031 |
Deferred financing costs | -5,135 | -1,296 |
Distributions to non-controlling interests | -15 | -14 |
Preferred stock dividends - Series C | -106 | -105 |
Preferred stock dividends - Series D | -445 | -446 |
Net cash used in financing activities | -18,087 | -66,224 |
Net decrease in cash and cash equivalents | -2,704 | -7,626 |
Cash and cash equivalents, beginning of period | 16,086 | 16,620 |
Cash and cash equivalents, end of period | 13,382 | 8,994 |
Supplemental disclosures of cash flow information: | ' | ' |
Cash paid for interest | $15,153 | $20,125 |
1_ORGANIZATION_AND_BASIS_OF_PR
1. ORGANIZATION AND BASIS OF PRESENTATION | 6 Months Ended | ||
Jun. 30, 2014 | |||
ORGANIZATION AND BASIS OF PRESENTATION: | ' | ||
ORGANIZATION AND BASIS OF PRESENTATION | ' | ||
Organization | |||
As used herein, the terms “TCI”, “the Company”, “we”, “our” or “us” refer to Transcontinental Realty Investors, Inc., a Nevada corporation. TCI is the successor to a California business trust which was organized on September 6, 1983, and commenced operations on January 31, 1984. Effective March 31, 2003, TCI’s financial results were consolidated in American Realty Investors, Inc. (“ARL”) Form 10-K and related consolidated financial statements. | |||
The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”). Subsidiaries of ARL own approximately 83.8% of the Company’s common stock. ARL’s common stock trades on the New York Stock Exchange under the symbol (“ARL”). We have no employees. | |||
TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated tax return with ARL and its ultimate parent, Realty Advisors Management, Inc. (“RAMI”). | |||
TCI owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Effective July 17, 2009, IOT’s financial results were consolidated with those of ARL and TCI and their subsidiaries. Shares of IOT are traded on the NYSE MKT under the symbol (“IOT”). | |||
TCI invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Pillar Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board of Directors is directly responsible for managing the affairs of TCI, and for setting the policies which guide it, the day-to-day operations of TCI are performed by Pillar, as the contractual Advisor, under the supervision of the Board. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with TCI’s business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to ARL and IOT. | |||
Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services for our real estate portfolio. TCI engages third-party companies to lease and manage its apartment properties. TCI also has 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. | |||
Properties | |||
We own or had interests in a total property portfolio of 43 income-producing properties as of June 30, 2014. The properties consisted of: | |||
• | 8 commercial buildings consisting of five office buildings, one industrial warehouse and two retail centers comprising in aggregate approximately 1.8 million rentable square feet; | ||
• | 35 apartment communities totaling 5,846 units; excluding apartments being developed; and | ||
• | 4,040 acres of developed and undeveloped land. | ||
We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities but have not yet begun construction. At June 30, 2014, we had no apartment projects in development. The third-party developer typically holds a general partner, as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property while we generally take a minority limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all required equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our consolidated financial statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees. | |||
Basis of Presentation | |||
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year. | |||
The year-end Consolidated Balance Sheet at December 31, 2013, was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain 2013 financial statement amounts have been reclassified to conform to the 2014 presentation, including adjustments for discontinued operations. | |||
Principles of Consolidation | |||
The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation. | |||
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions. | |||
For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in ARL is accounted for under the equity method. | |||
Real Estate, Depreciation and Impairment | |||
Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements – 10-40 years; furniture, fixtures and equipment – 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, “Property, Plant and Equipment”. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value. | |||
Real Estate Held for Sale | |||
We periodically classify real estate assets as “held for sale”. An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated. The operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. This classification of operating results as discontinued operations applies retroactively for all periods presented. Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations. | |||
Cost Capitalization | |||
Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity. | |||
We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term. | |||
Fair Value Measurement | |||
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data. | |||
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows: | |||
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets. | |||
Level 1 – | |||
Level 2 – | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | ||
Level 3 – | Unobservable inputs that are significant to the fair value measurement. | ||
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. | |||
Related Parties | |||
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity. | |||
Newly Issued Accounting Pronouncements | |||
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our Consolidated Financial Statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operations. | |||
2_REAL_ESTATE_ACTIVITY
2. REAL ESTATE ACTIVITY | 6 Months Ended | ||||
Jun. 30, 2014 | |||||
Real Estate [Abstract] | ' | ||||
REAL ESTATE ACTIVITY | ' | ||||
Below is a summary of the real estate owned as of June 30, 2014 (dollars in thousands): | |||||
Apartments | $ | 433,243 | |||
Commercial properties | 164,764 | ||||
Land held for development | 144,608 | ||||
Real estate held for sale | 2,116 | ||||
Real estate subject to sales contract | 26,966 | ||||
Total real estate | $ | 771,697 | |||
Less accumulated depreciation | (110,445 | ) | |||
Total real estate, net of depreciation | $ | 661,252 | |||
The highlights of our significant real estate transactions for the six months ended June 30, 2014, are listed below: | |||||
On February 6, 2014, the Company sold a 232-unit apartment complex known as Pecan Pointe located in Temple, Texas for a sales price of $23.1 million to an independent third party. The buyer assumed the existing debt of $16.5 million secured by the property. A gain of $6.1 million was recorded on the sale. | |||||
On March 26, 2014, the Company sold 6.314 acres of land known as McKinney Ranch land located in McKinney, Texas to an independent third party, for a sales price of $1.7 million. We paid $1.5 million on the existing mortgage to satisfy a portion of the multi-tract collateral debt of $6.6 million, secured by various land parcels located in McKinney, Texas. A gain of $0.8 million was recorded on the land parcel sale. | |||||
On April 3, 2014, the Company sold 1010 Common, a 512,593 square foot commercial building, located in New Orleans, Louisiana, for a sales price of $16.6 million to an independent third party. A gain of $7.0 million was recorded on the sale. | |||||
As of June 30, 2014, there is one apartment complex, one commercial building and 134 acres of land that we have sold to a related party and have deferred the recognition of the sale. These are treated as “subject to sales contract” on the Consolidated Balance Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are secured by the property and many have corporate guarantees. According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis. The Company did not recognize or record the sale in accordance with ASC 360-20 due to our continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyer’s inadequate initial investment and the Company’s questionable recovery of investment cost. The Company determined that no sale had occurred for financial reporting purposes and therefore the asset remained on the books and continued to record operating expenses and depreciation as a period cost until a sale occurred that met the requirements of ASC 360-20. The buyers received no compensation for the facilitation of the bankruptcy or debt restructuring process. | |||||
We continue to invest in the development of apartment projects. During the six months ended June 30, 2014, we have expended $0.6 million related to the construction or predevelopment of various apartment complexes. |
3_NOTES_AND_INTEREST_RECEIVABL
3. NOTES AND INTEREST RECEIVABLE | 6 Months Ended | |||||||||
Jun. 30, 2014 | ||||||||||
NOTES AND INTEREST RECEIVABLE | ' | |||||||||
NOTES AND INTEREST RECEIVABLE | ' | |||||||||
A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and personal guarantees of the borrower and, unless noted otherwise, are so secured. Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity. | ||||||||||
Our mortgage notes receivable consist of first, wraparound and junior mortgage loans (dollars in thousands): | ||||||||||
Maturity | Interest | |||||||||
Borrower | Date | Rate | Amount | Security | ||||||
Performing loans: | ||||||||||
Miscellaneous related party notes (1) | Various | Various | $ 2,091 | Various secured interests | ||||||
S Breeze I-V, LLC | 14-Jun | 5.00% | 3,314 | 6% Class A and 25% Class B Limited Partner Interests | ||||||
Unified Housing Foundation, Inc. (Echo Station) (1) | Dec-32 | 12.00% | 1,481 | 100% Interest in Unified Housing of Temple, LLC | ||||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | Dec-32 | 12.00% | 2,000 | Unsecured | ||||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | Dec-32 | 12.00% | 6,363 | Membership interest in Housing for Seniors of Humble, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1) | Dec-32 | 12.00% | 4,663 | 100% Interest in Unified Housing of Austin, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1) | Dec-32 | 12.00% | 3,057 | 100% Interest in Unified Housing of Austin, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1) | Dec-32 | 12.00% | 6,000 | 100% Interest in Unified Housing of Vista Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1) | Dec-32 | 12.00% | 2,250 | 100% Interest in Unified Housing of Vista Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Parkside Crossing) (1) | Dec-32 | 12.00% | 1,936 | 100% Interest in Unified Housing of Parkside Crossing, LLC | ||||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1) | Dec-32 | 12.00% | 4,812 | 100% Interest in Unified Housing of Sendero Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1) | Dec-32 | 12.00% | 5,174 | 100% Interest in Unified Housing of Sendero Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Timbers of Terrell) (1) | Dec-32 | 12.00% | 1,323 | 100% Interest in Unified Housing of Terrell, LLC | ||||||
Unified Housing Foundation, Inc. (Tivoli) (1) | Dec-32 | 12.00% | 7,966 | 100% Interest in Unified Housing of Tivoli, LLC | ||||||
Unified Housing Foundation, Inc. (1) | 13-Dec | 5.00% | 6,000 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1) | 19-Mar | 12.00% | 1,810 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1) | 17-Mar | 12.00% | 1,156 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Vista Ridge) (1) | 19-Apr | 12.00% | 3,923 | Unsecured | ||||||
Accrued interest | 5,454 | |||||||||
Total Performing | $ 70,773 | |||||||||
Non-Performing loans: | ||||||||||
Miscellaneous non-related party notes | Various | Various | 507 | Various secured and unsecured interests | ||||||
Accrued interest | 57 | |||||||||
Total Non-Performing | $ 564 | |||||||||
Allowance for doubtful accounts | (2,263) | |||||||||
Total | $ 69,074 | |||||||||
(1) Related party notes | ||||||||||
At June 30, 2014, we had junior mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $65.4 million. We recognized interest income of $4.8 million related to these notes receivables. | ||||||||||
The Company has various notes receivable from Unified Housing Foundation, Inc. (“UHF”). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow of operations. Sale or refinance of any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes. These notes are cross-collateralized but to the extent cash is received from a specific UHF property, it is applied against any outstanding interest for the related-property note. The allowance on the UHF notes was a purchase allowance that was netted against the notes when acquired. | ||||||||||
On March 31, 2014, the Company invested $3.2 million of notes and accrued interest receivable from Foundation for Better Housing, Inc. for the acquisition and refinance of Preserve at Prairie Pointe. The notes accrue interest at 12% and mature at various times. | ||||||||||
On April 1, 2014, the Company invested $4.0 million of a note and accrued interest receivable from Foundation for Better Housing, Inc. for the acquisition of Vista Ridge. The note accrues interest at 12% and matures in April 2019. |
4_INVESTMENT_IN_UNCONSOLIDATED
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES | 6 Months Ended | ||||||||
Jun. 30, 2014 | |||||||||
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES | ' | ||||||||
INVESTMENT IN UNCONSOLIDATED JOINT-VENTURES AND INVESTEES | ' | ||||||||
Investments in unconsolidated joint ventures and other investees in which we have a 20% to 50% interest or otherwise exercise significant influence, are carried at cost and adjusted for the Company’s proportionate share of their undistributed earnings or losses under the equity method of accounting. ARL is our parent company (owning together with subsidiaries 82% of TCI’s Common Stock) and is considered as an unconsolidated joint venture. | |||||||||
Investments in unconsolidated joint ventures and investees consist of the following: | |||||||||
Percentage ownership as of | |||||||||
30-Jun-14 | 30-Jun-13 | ||||||||
American Realty Investors, Inc.(1) | 1.99 | % | 1.99 | % | |||||
(1) Unconsolidated investment in parent company owning 229,214 shares of ARL Common Stock | |||||||||
Our interest in the common stock of ARL in the amount of 1.99% is accounted for under the equity method because we exercise significant influence over the operations and financial activities. Accordingly, the investments are carried at cost, adjusted for the Company’s proportionate share of earnings or losses. | |||||||||
The Company acquired 135,000 shares of ARL Series K preferred stock on May 7, 2013. It was pledged as collateral on a $5.0 million promissory note relating to the Amoco Building settlement agreement. This note has been paid in full and the stock was released. The par value per share was $2 and the liquidation preference was $22 per share. It was convertible to common stock at a rate of 5 to 1. The Series K preferred stock was cancelled May 7, 2014. | |||||||||
The following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands): | |||||||||
As of June 30, | 2014 | 2013 | |||||||
Real estate, net of accumulated depreciation | $ | 15,149 | $ | 44,886 | |||||
Notes receivable | 68,940 | 44,544 | |||||||
Other assets | 128,581 | 132,221 | |||||||
Notes payable | (52,369 | ) | (61,410 | ) | |||||
Other liabilities | (100,149 | ) | (87,205 | ) | |||||
Shareholders' equity | (60,152 | ) | (73,036 | ) | |||||
For the Six Months Ended June 30, | 2014 | 2013 | |||||||
Rents and interest and other income | $ | 5,894 | $ | 6,948 | |||||
Depreciation | (138 | ) | (152 | ) | |||||
Operating expenses | (3,093 | ) | (3,694 | ) | |||||
Gain on land sales | - | 12 | |||||||
Interest expense | (3,447 | ) | (2,922 | ) | |||||
Income (loss) from continuing operations | (784 | ) | 192 | ||||||
Income from discontinued operations | - | (15 | ) | ||||||
Net Income (loss) | $ | (784 | ) | $ | 177 | ||||
Company's proportionate share of earnings (loss) (1) | $ | (16 | ) | $ | 4 | ||||
(1) Earnings (loss) represents continued and discontinued operations |
5_NOTES_PAYABLE
5. NOTES PAYABLE | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
NOTES PAYABLE. | ' | ||||||||||||
NOTES-PAYABLE | ' | ||||||||||||
Below is a summary of our notes and interest payable as of June 30, 2014 (dollars in thousands): | |||||||||||||
Notes Payable | Accrued Interest | Total Debt | |||||||||||
Apartments | $ | 397,243 | $ | 1,165 | $ | 398,408 | |||||||
Commercial | 93,630 | 439 | 94,069 | ||||||||||
Land | 70,062 | 117 | 70,179 | ||||||||||
Real estate held for sale | 2,202 | - | 2,202 | ||||||||||
Real estate subject to sales contract | 19,174 | 1,584 | 20,758 | ||||||||||
Other | 7,347 | - | 7,347 | ||||||||||
Total | $ | 589,658 | $ | 3,305 | $ | 592,963 | |||||||
The segment labeled as “Other” consists of unsecured or stock-secured notes payable. | |||||||||||||
With respect to the additional notes payable due to the acquisition of properties or refinancing of existing mortgages, a summary of some of the more significant transactions is discussed below: | |||||||||||||
On February 12, 2014, the Company exercised the first prepayment option on the settlement with the lender relating to the Amoco Building and paid $1.2 million to settle all obligations. The remaining balance of the note in the amount of $3.5 million, along with accrued interest, was forgiven. The 135,000 shares of Series K Convertible Preferred Stock of ARL that was pledged to the lender has been released to TCI. The Series K preferred stock was cancelled May 7, 2014. | |||||||||||||
On February 28, 2014, the Company refinanced the existing mortgage on Parc at Denham Springs apartments, a 224-unit complex located in Denham Springs, LA, for a new mortgage of $19.2 million. TCI paid off the existing mortgage of $19.2 million and $1.6 million in closing costs. The note accrues interest at 3.75% and payments of interest and principal are due monthly, maturing April 1, 2051. | |||||||||||||
On March 25, 2014, the Company exercised its lender granted option under the settlement agreement relating to the Galleria East Center Retail / Showcase Chevrolet land which was transferred to the existing lender on February 4, 2011. TCI paid the balance of the notes along with all accrued and unpaid interest and received a reduction in price of $0.4 million. | |||||||||||||
On March 28, 2014, the Company secured financing of $40.0 million from an independent third party. The note has a term of five years at an interest rate of 12.0%. The note is interest only for the first year with quarterly principal payments due of $500,000 starting April 1, 2015. The loan is secured by various equity interests in residential apartments and can be prepaid at a penalty rate of 4% for year 1 with the penalty declining by 1% each year thereafter. | |||||||||||||
On March 31, 2014, the Company entered into a settlement agreement relating to the Fenton Centre building which was transferred to the existing lender on June 7, 2011. The total amount of the settlement was $7.0 million, $5.0 million was paid at the time of the settlement and the remaining $2.0 million will be paid out in equal monthly installments through November 5, 2015. | |||||||||||||
On May 28, 2014, a $1.5 million principal payment was made to the existing Realty Advisors, Inc. mortgage and two additional land parcels, including 8.0 acres of Ladue land owned by TCI and 16.75 acres of Valwood land owned by ARL, were substituted as collateral under the note in exchange for a release of a $4 million deposit account. The principal balance is allocated based on the land valuation. | |||||||||||||
There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan. We are in constant contact with these lenders, working together in order to modify the terms of these loans and we anticipate a timely resolution that is similar to the existing agreement or subsequent modification. | |||||||||||||
The properties that we have sold to a related party and have deferred the recognition of the sale are treated as “subject to sales contract” on the Consolidated Balance Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are secured by the property and many have corporate guarantees. According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis. | |||||||||||||
6_RELATED_PARTY_TRANSACTIONS
6. RELATED PARTY TRANSACTIONS | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
RELATED PARTY TRANSACTIONS | ' | ||||||||||||
RELATED PARTY TRANSACTIONS | ' | ||||||||||||
The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of June 30, 2014 (dollars in thousands): | |||||||||||||
Pillar | ARL | Total | |||||||||||
Related party receivable, December 31, 2013 | $ | - | $ | 52,380 | $ | 52,380 | |||||||
Cash transfers | 31,718 | - | 31,718 | ||||||||||
Advisory fees | (3,664 | ) | - | (3,664 | ) | ||||||||
Net income fee | (700 | ) | - | (700 | ) | ||||||||
Fees and commissions | (1,066 | ) | - | (1,066 | ) | ||||||||
Cost reimbursements | (1,310 | ) | - | (1,310 | ) | ||||||||
Interest (to) from advisor | - | 1,272 | 1,272 | ||||||||||
Notes receivable purchased | (8,437 | ) | - | (8,437 | ) | ||||||||
Expenses paid by advisor | (3,257 | ) | - | (3,257 | ) | ||||||||
Financing (mortgage payments) | (2,287 | ) | - | (2,287 | ) | ||||||||
Sales/purchases transactions | 7,329 | - | 7,329 | ||||||||||
Series K preferred stock cancellation | 270 | - | 270 | ||||||||||
Purchase of obligations | (18,596 | ) | 20,754 | 2,158 | |||||||||
Related party receivable, June 30, 2014 | $ | - | $ | 74,406 | $ | 74,406 | |||||||
During the ordinary course of business, we have related party transactions that include, but are not limited to, rental income, interest income, interest expense, general and administrative costs, commissions, management fees, and property expenses. In addition, we have assets and liabilities that include related party amounts. The related party amounts included in assets and liabilities, and the related party revenues and expenses received/paid are shown on the face of the financial statements. |
7_OPERATING_SEGMENTS
7. OPERATING SEGMENTS | 6 Months Ended | ||||||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||||||
Segment Reporting [Abstract] | ' | ||||||||||||||||||||
OPERATING SEGMENTS | ' | ||||||||||||||||||||
Our segments are based on our method of internal reporting which classifies our operations by property type. Our property types are grouped into commercial, apartments, land and other operating segments. Significant differences between and among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative and other expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow. | |||||||||||||||||||||
Items of income that are not reflected in the segments are interest, other income, gain on debt extinguishment, gain on condemnation award, equity in partnerships, and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory fees, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued operations before gains on sale of real estate. | |||||||||||||||||||||
The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt. | |||||||||||||||||||||
Presented below is our reportable segments’ operating income for the six months ended June 30, 2014 and 2013, including segment assets and expenditures (dollars in thousands): | |||||||||||||||||||||
Commercial | |||||||||||||||||||||
For the Three Months Ended June 30, 2014 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 4,426 | $ | 15,419 | $ | - | $ | 14 | $ | 19,859 | |||||||||||
Property operating expenses | 2,968 | 6,522 | 205 | - | 9,695 | ||||||||||||||||
Depreciation | 1,733 | 2,697 | - | - | 4,430 | ||||||||||||||||
Mortgage and loan interest | 1,541 | 4,049 | 1,305 | 1,037 | 7,932 | ||||||||||||||||
Deferred borrowing costs amortization | 5 | 101 | 42 | 186 | 334 | ||||||||||||||||
Interest income | - | - | - | 4,005 | 4,005 | ||||||||||||||||
Gain on land sales | - | - | (159 | ) | - | (159 | ) | ||||||||||||||
Segment operating income (loss) | $ | (1,821 | ) | $ | 2,050 | $ | (1,711 | ) | $ | 2,796 | $ | 1,314 | |||||||||
Capital expenditures | 1,859 | 99 | 68 | - | 2,026 | ||||||||||||||||
Real estate assets | 129,607 | 374,022 | 157,623 | - | 661,252 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 16,600 | $ | - | $ | 717 | $ | - | $ | 17,317 | |||||||||||
Cost of sale | 9,597 | - | 876 | - | 10,473 | ||||||||||||||||
Gain (loss) on sale | $ | 7,003 | $ | - | $ | (159 | ) | $ | - | $ | 6,844 | ||||||||||
Commercial | |||||||||||||||||||||
For the Three Months Ended June 30, 2013 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 4,816 | $ | 14,740 | $ | - | $ | 4 | $ | 19,560 | |||||||||||
Property operating expenses | 2,233 | 6,302 | 219 | 33 | 8,787 | ||||||||||||||||
Depreciation | 1,643 | 2,655 | - | - | 4,298 | ||||||||||||||||
Mortgage and loan interest | 1,582 | 4,222 | 1,378 | 692 | 7,874 | ||||||||||||||||
Deferred borrowing costs amortization | 19 | (97 | ) | 31 | 1 | (46 | ) | ||||||||||||||
Loan charges and prepayment penalties | - | 26 | - | - | 26 | ||||||||||||||||
Interest income | - | - | - | 2,119 | 2,119 | ||||||||||||||||
Segment operating gain (loss) | $ | (661 | ) | $ | 1,632 | $ | (1,628 | ) | $ | 1,397 | $ | 740 | |||||||||
Capital expenditures | 2,236 | 79 | 228 | - | 2,543 | ||||||||||||||||
Real estate assets | 137,331 | 384,308 | 170,941 | - | 692,580 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 26,974 | $ | 24,822 | $ | - | $ | - | $ | 51,796 | |||||||||||
Cost of sale | 14,914 | 18,808 | - | - | 33,722 | ||||||||||||||||
Gain on sale | $ | 12,060 | $ | 6,014 | $ | - | $ | - | $ | 18,074 | |||||||||||
The table below reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations: | |||||||||||||||||||||
For the Three Months Ended | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment operating income | $ | 1,314 | $ | 740 | |||||||||||||||||
Other non-segment items of income (expense) | |||||||||||||||||||||
General and administrative | (2,737 | ) | (1,615 | ) | |||||||||||||||||
Net income fee to related party | (210 | ) | (48 | ) | |||||||||||||||||
Advisory fee to related party | (1,811 | ) | (2,071 | ) | |||||||||||||||||
Other income | 244 | 144 | |||||||||||||||||||
Earnings (loss) from unconsolidated joint ventures and investees | (11 | ) | 15 | ||||||||||||||||||
Litigation settlement | (86 | ) | 57 | ||||||||||||||||||
Income tax benefit | 2,035 | 5,222 | |||||||||||||||||||
Net income (loss) from continuing operations | $ | (1,262 | ) | $ | 2,444 | ||||||||||||||||
The table below reconciles the segment information to the corresponding amounts in the Consolidated Balance Sheets: | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment assets | $ | 661,252 | $ | 692,580 | |||||||||||||||||
Investments in real estate partnerships | 1,509 | 5,740 | |||||||||||||||||||
Notes and interest receivable | 69,074 | 59,145 | |||||||||||||||||||
Other assets | 149,388 | 212,349 | |||||||||||||||||||
Total assets | $ | 881,223 | $ | 969,814 | |||||||||||||||||
Commercial | |||||||||||||||||||||
For the Six Months Ended June 30, 2014 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 8,875 | $ | 30,579 | $ | - | $ | 22 | $ | 39,476 | |||||||||||
Property operating expenses | 5,846 | 12,985 | 393 | 5 | 19,229 | ||||||||||||||||
Depreciation | 3,524 | 5,344 | - | - | 8,868 | ||||||||||||||||
Mortgage and loan interest | 2,948 | 8,134 | 2,415 | 1,268 | 14,765 | ||||||||||||||||
Deferred borrowing costs amortization | 18 | 987 | 73 | 188 | 1,266 | ||||||||||||||||
Loan charges and prepayment penalties | 9 | 1,573 | - | - | 1,582 | ||||||||||||||||
Interest income | - | - | - | 6,118 | 6,118 | ||||||||||||||||
Gain on land sales | - | - | 594 | - | 594 | ||||||||||||||||
Segment operating income (loss) | $ | (3,470 | ) | $ | 1,556 | $ | (2,287 | ) | $ | 4,679 | $ | 478 | |||||||||
Capital expenditures | 2,989 | 99 | 151 | - | 3,239 | ||||||||||||||||
Real estate assets | 129,607 | 374,022 | 157,623 | - | 661,252 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 16,600 | $ | 23,131 | $ | 717 | $ | - | $ | 40,448 | |||||||||||
Cost of sale | 9,597 | 17,077 | 123 | - | 26,797 | ||||||||||||||||
Gain on sale | $ | 7,003 | $ | 6,054 | $ | 594 | $ | - | $ | 13,651 | |||||||||||
Commercial | |||||||||||||||||||||
For the Six Months Ended June 30, 2013 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 9,764 | $ | 29,148 | $ | 34 | $ | 4 | $ | 38,950 | |||||||||||
Property operating expenses | 5,235 | 12,351 | 521 | 9 | 18,116 | ||||||||||||||||
Depreciation | 2,726 | 5,300 | - | - | 8,026 | ||||||||||||||||
Mortgage and loan interest | 2,840 | 8,773 | 2,781 | 1,403 | 15,797 | ||||||||||||||||
Deferred borrowing costs amortization | 40 | 2,241 | 87 | 3 | 2,371 | ||||||||||||||||
Loan charges and prepayment penalties | - | 3,937 | - | 26 | 3,963 | ||||||||||||||||
Interest income | - | - | - | 4,296 | 4,296 | ||||||||||||||||
Loss on land sales | - | - | (48 | ) | - | (48 | ) | ||||||||||||||
Segment operating gain(loss) | $ | (1,077 | ) | $ | (3,454 | ) | $ | (3,403 | ) | $ | 2,859 | $ | (5,075 | ) | |||||||
Capital expenditures | 2,913 | 110 | 281 | - | 3,304 | ||||||||||||||||
Real estate assets | 137,331 | 384,308 | 170,941 | - | 692,580 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 26,974 | $ | 50,122 | $ | 2,250 | $ | - | $ | 79,346 | |||||||||||
Cost of sale | 14,914 | 37,917 | 2,298 | - | 55,129 | ||||||||||||||||
Gain (loss) on sale | $ | 12,060 | $ | 12,205 | $ | (48 | ) | $ | - | $ | 24,217 | ||||||||||
The tables below reconcile the segment information to the corresponding amounts in the Consolidated Statements of Operations: | |||||||||||||||||||||
For the Six Months Ended | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment operating income (loss) | $ | 478 | $ | (5,075 | ) | ||||||||||||||||
Other non-segment items of income (expense) | |||||||||||||||||||||
General and administrative | (4,295 | ) | (3,237 | ) | |||||||||||||||||
Net income fee to related party | (700 | ) | (104 | ) | |||||||||||||||||
Advisory fee to related party | (3,664 | ) | (4,209 | ) | |||||||||||||||||
Other income | 401 | 180 | |||||||||||||||||||
Loss on sale of investment | - | (8 | ) | ||||||||||||||||||
Earnings (loss) from unconsolidated joint ventures and investees | (16 | ) | 2 | ||||||||||||||||||
Litigation settlement | 3,753 | 12 | |||||||||||||||||||
Income tax benefit | 3,918 | 7,554 | |||||||||||||||||||
Net loss from continuing operations | $ | (125 | ) | $ | (4,885 | ) | |||||||||||||||
The table below reconciles the segment information to the corresponding amounts in the Consolidated Balance Sheets: | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment assets | $ | 661,252 | $ | 692,580 | |||||||||||||||||
Investments in real estate partnerships | 1,509 | 5,740 | |||||||||||||||||||
Notes and interest receivable | 69,074 | 59,145 | |||||||||||||||||||
Other assets | 149,388 | 212,349 | |||||||||||||||||||
Total assets | $ | 881,223 | $ | 969,814 |
8_DISCONTINUED_OPERATIONS
8. DISCONTINUED OPERATIONS | 6 Months Ended | ||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | ' | ||||||||||||||||
DISCONTINUED OPERATIONS | ' | ||||||||||||||||
We apply the provisions of ASC Topic 360 “Property, Plant and Equipment”. ASC Topic 360 requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. | |||||||||||||||||
Discontinued operations relates to properties that were either sold or held for sale as of the period ended June 30, 2014. Included in discontinued operations are a total of three and 18 properties for 2014 and 2013, respectively. Properties sold in 2014 have been reclassified to discontinued operations for current and prior year reporting periods. In 2014, we sold one apartment complex (Pecan Pointe) and one commercial property (1010 Common) and have one commercial property held for sale (Sesame Square). In 2013, we sold 11 apartment complexes (Dorado Ranch, Huntington Ridge, Laguna Vista, Legends of El Paso, Mariposa Villas, Paramount Terrace, River Oaks, Savoy of Garland, Stonebridge at City Park, Verandas at City View and Vistas of Pinnacle Park) and four commercial properties (225 Baronne, Amoco, Ergon and Eton Square). The gain on sale of the properties is also included in discontinued operations for those years. The following table summarizes revenue and expense information for the properties sold and held for sale (dollars in thousands): | |||||||||||||||||
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues: | |||||||||||||||||
Rental and other property revenues | $ | (7 | ) | $ | 8,039 | $ | 1,251 | $ | 17,103 | ||||||||
(7 | ) | 8,039 | 1,251 | 17,103 | |||||||||||||
Expenses: | |||||||||||||||||
Property operating expenses | 221 | 3,375 | 1,208 | 7,891 | |||||||||||||
Depreciation | 21 | 1,297 | 193 | 2,735 | |||||||||||||
General and administrative | 140 | 256 | 305 | 525 | |||||||||||||
Total operating expenses | 382 | 4,928 | 1,706 | 11,151 | |||||||||||||
Other income (expense): | |||||||||||||||||
Other income | (528 | ) | 20 | (491 | ) | 20 | |||||||||||
Mortgage and loan interest | (70 | ) | (2,047 | ) | (388 | ) | (4,327 | ) | |||||||||
Deferred borrowing costs amortization | 3 | (993 | ) | (278 | ) | (1,012 | ) | ||||||||||
Loan charges and prepayment penalties | - | (3,200 | ) | - | (3,245 | ) | |||||||||||
Earnings from unconsolidated subsidiaries and investees | - | - | - | 20 | |||||||||||||
Litigation settlement | (205 | ) | (45 | ) | (250 | ) | (90 | ) | |||||||||
Total other expenses | (800 | ) | (6,265 | ) | (1,407 | ) | (8,634 | ) | |||||||||
Loss from discontinued operations before gain on sale of real estate and tax | (1,189 | ) | (3,154 | ) | (1,862 | ) | (2,682 | ) | |||||||||
Gain on sale of real estate from discontinued operations | 7,003 | 18,074 | 13,057 | 24,265 | |||||||||||||
Income tax expense | (2,035 | ) | (5,222 | ) | (3,918 | ) | (7,554 | ) | |||||||||
Income from discontinued operations | $ | 3,779 | $ | 9,698 | $ | 7,277 | $ | 14,029 | |||||||||
Our application of ASC Topic 360 results in the presentation of the net operating results of these qualifying properties sold or held for sale during 2012 as income from discontinued operations. This does not have an impact on net income available to common shareholders and only impacts the presentation of these properties within the Consolidated Statements of Operations. |
9_COMMITMENTS_AND_CONTINGENCIE
9. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY | 6 Months Ended |
Jun. 30, 2014 | |
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY | ' |
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY | ' |
Dynex Commercial, Inc. and Dynex Capital, Inc. | |
On February 13, 2013, the Court of Appeals, Fifth District of Texas at Dallas (the “Fifth Court of Appeals”) rendered an opinion involving Transcontinental Realty Investors, Inc. (the “Issuer” or “TCI”) in Case No. 05-04-01358-CV 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. and Dynex Capital, Inc. The case was on appeal from the 68th Judicial District Court of Dallas County, Texas, had previously been appealed to the Fifth Court of Appeals and further appealed to the Supreme Court of the State of Texas which had remanded the instant case back to the Fifth Court of Appeals to address certain issues. The case 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, $160,000,000 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 to a jury resulted in the jury awarding significant damages to Basic for “lost opportunity,” awarding damages in “increased costs” and “lost opportunity” damages to American Realty Trust, Inc. (“ART”) and damages of $960,646.28 in “increased costs” and $11,161,520 for “lost opportunity” damages in favor of TCI and its subsidiaries (a total of $12,122,166.28). The original Trial Court ignored the jury’s findings and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in Dynex’s favor; the Fifth Court of Appeals has now ruled that the JNOV was improper because there was sufficient evidence to support the jury’s findings. As a result, the Fifth Court of Appeals ordered the Trial Court to enter a new judgment consistent with the jury’s original findings. | |
The Fifth Court of Appeals also determined that TCI was entitled to damages for “lost opportunities” relating to tenant improvements and awarded TCI an additional $252,577. Issues relating to attorney’s fees were also addressed with the Fifth Court of Appeals ordering the Trial Court to “re-try” the issue of attorney’s fees to determine the amount of fees to which TCI would be entitled on a “breach of commitment” claim. In addition, as a result of the changes in amounts awarded and passage of time, the Fifth Court of Appeals also ordered the Trial Court to recalculate the correct amounts of pre and post-judgment interest owed to Appellants. | |
While the fifteen year old controversy is not yet fully resolved, the Fifth Court of Appeals opinion is favorable to TCI, but TCI expects continued challenges by Dynex to the Fifth Court of Appeals opinion and any ultimate award of damages by the Trial Court. | |
Liquidity. Management believes that TCI will generate excess cash from property operations in 2014; such excess, however, will not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell land and income-producing real estate, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements. | |
Partnership Buyouts. TCI is the limited partner in various partnerships related to 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 non-affiliated partners are limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements. | |
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. | |
The Company is involved in and vigorously defending against, a number of deficiency claims with respect to assets that have been foreclosed by various lenders. Such claims are generally against a consolidated subsidiary as the borrower or the Company as a guarantor of indebtedness or performance. Some of these proceedings may ultimately result in an unfavorable determination for the Company and/or one of its consolidated subsidiaries. While we cannot predict the final result of such proceedings, management believes that the maximum exposure to the Company and its consolidated subsidiaries, if any, will not exceed approximately $20.0 million in the aggregate and will occur, if at all, in future years. |
10_EARNINGS_PER_SHARE
10. EARNINGS PER SHARE | 6 Months Ended |
Jun. 30, 2014 | |
Earnings Per Share [Abstract] | ' |
EARNINGS PER SHARE | ' |
Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC Topic 260 “Earnings Per Share”. The computation of basic EPS is calculated by dividing income available to common shareholders from continuing operations, adjusted for preferred dividends, 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. | |
We have 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. The stock has a liquidation preference of $100.00 per share. After September 30, 2006, the stock may be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. The effects of the Series C Cumulative Convertible Preferred Stock are included in the dilutive earnings per share if applying the if-converted method is dilutive. The 30,000 shares are owned by Realty Advisors, Inc. (“RAI”), a related party, and have accrued dividends unpaid of $0.9 million. On July 9, 2014, RAI requested that all 30,000 shares be converted into the requisite number of common stocks. The conversion resulted in 304,298 new shares of common stock. | |
As of June 30, 2014, we have 5,000 shares of stock options outstanding, which will expire on January 1, 2015 if not exercised. These options are considered in the computation of diluted earnings per share if the effect of applying the “treasury stock” method is dilutive. | |
As of June 30, 2014, the preferred stock and the stock options were anti-dilutive and thus not included in the EPS calculation. |
11_SUBSEQUENT_EVENTS
11. SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2014 | |
Subsequent Events [Abstract] | ' |
SUBSEQUENT EVENTS | ' |
On July 1, 2014, the Company invested $5.9 million and $6.1 million in notes receivable from HGH Residential, LLC relating to the acquisition of an apartment complex known as Park West I and II in Pueblo, CO and the development of an apartment complex known as Tradewinds in Midland, TX. | |
On July 9, 2014, RAI requested that all 30,000 shares of TCI Series C Convertible Preferred Stock be converted into the requisite number of TCI Common Stock. The conversion resulted in the issuance of 304,298 shares of TCI Common Stock. | |
On July 25, 2014, the Company sold 24.498 acres of land known as Stanley Tools and Kelly Lots located in Farmers Branch, Texas to an independent third party. TCI paid off the existing mortgage of $1.7 million in addition to making a $0.2 million payment on another existing mortgage related to another parcel of land located in McKinney, Texas. There was no gain or loss on the land parcel sale. | |
On July 31, 2014, the Company refinanced the existing mortgage on Desoto Ranch apartments, a 248-unit complex located in Desoto, Texas, for a new mortgage of $15.7 million. TCI paid off the existing mortgage of $15.7 million and $0.5 million in closing costs. The note accrues interest at 3.5% and payments of interest and principal are due monthly, maturing June 1, 2050. | |
1_ORGANIZATION_AND_BASIS_OF_PR1
1. ORGANIZATION AND BASIS OF PRESENTATION (Policies) | 6 Months Ended | ||
Jun. 30, 2014 | |||
ORGANIZATION AND BASIS OF PRESENTATION (Policies) | ' | ||
Organization | ' | ||
As used herein, the terms “TCI”, “the Company”, “we”, “our” or “us” refer to Transcontinental Realty Investors, Inc., a Nevada corporation. TCI is the successor to a California business trust which was organized on September 6, 1983, and commenced operations on January 31, 1984. Effective March 31, 2003, TCI’s financial results were consolidated in American Realty Investors, Inc. (“ARL”) Form 10-K and related consolidated financial statements. | |||
The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”). Subsidiaries of ARL own approximately 83.8% of the Company’s common stock. ARL’s common stock trades on the New York Stock Exchange under the symbol (“ARL”). We have no employees. | |||
TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated tax return with ARL and its ultimate parent, Realty Advisors Management, Inc. (“RAMI”). | |||
TCI owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Effective July 17, 2009, IOT’s financial results were consolidated with those of ARL and TCI and their subsidiaries. Shares of IOT are traded on the NYSE MKT under the symbol (“IOT”). | |||
TCI invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Pillar Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board of Directors is directly responsible for managing the affairs of TCI, and for setting the policies which guide it, the day-to-day operations of TCI are performed by Pillar, as the contractual Advisor, under the supervision of the Board. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with TCI’s business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to ARL and IOT. | |||
Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services for our real estate portfolio. TCI engages third-party companies to lease and manage its apartment properties. TCI also has 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. | |||
Properties | ' | ||
We own or had interests in a total property portfolio of 43 income-producing properties as of June 30, 2014. The properties consisted of: | |||
• | 8 commercial buildings consisting of five office buildings, one industrial warehouse and two retail centers comprising in aggregate approximately 1.8 million rentable square feet; | ||
• | 35 apartment communities totaling 5,846 units; excluding apartments being developed; and | ||
• | 4,040 acres of developed and undeveloped land. | ||
We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities but have not yet begun construction. At June 30, 2014, we had no apartment projects in development. The third-party developer typically holds a general partner, as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property while we generally take a minority limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all required equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our consolidated financial statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees. | |||
Basis of presentation | ' | ||
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2014, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year. | |||
The year-end Consolidated Balance Sheet at December 31, 2013, was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain 2013 financial statement amounts have been reclassified to conform to the 2014 presentation, including adjustments for discontinued operations. | |||
Principles of Consolidation | ' | ||
The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation. | |||
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions. | |||
For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in ARL is accounted for under the equity method. | |||
Real estate, depreciation, and impairment | ' | ||
Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements – 10-40 years; furniture, fixtures and equipment – 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, “Property, Plant and Equipment”. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value. | |||
Real-estate held for sales | ' | ||
We periodically classify real estate assets as “held for sale”. An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated. The operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. This classification of operating results as discontinued operations applies retroactively for all periods presented. Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations. | |||
Cost Capitalization | ' | ||
Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity. | |||
We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term. | |||
Fair value measurement | ' | ||
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data. | |||
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows: | |||
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets. | |||
Level 1 – | |||
Level 2 – | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | ||
Level 3 – | Unobservable inputs that are significant to the fair value measurement. | ||
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. | |||
Related parties | ' | ||
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity. | |||
Newly Issued Accounting Pronouncements | ' | ||
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our Consolidated Financial Statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operations. |
2_REAL_ESTATE_Tables
2. REAL ESTATE (Tables) | 6 Months Ended | ||||
Jun. 30, 2014 | |||||
REAL ESTATE (Tables) | ' | ||||
Real estate owned | ' | ||||
Apartments | $ | 433,243 | |||
Commercial properties | 164,764 | ||||
Land held for development | 144,608 | ||||
Real estate held for sale | 2,116 | ||||
Real estate subject to sales contract | 26,966 | ||||
Total real estate | $ | 771,697 | |||
Less accumulated depreciation | (110,445 | ) | |||
Total real estate, net of depreciation | $ | 661,252 |
3_NOTES_AND_INTEREST_RECEIVABL1
3. NOTES AND INTEREST RECEIVABLE (Tables) | 6 Months Ended | |||||||||
Jun. 30, 2014 | ||||||||||
NOTES AND INTEREST RECEIVABLE (Tables) | ' | |||||||||
Mortgage notes receivable consist of first, wraparound and junior mortgage loans | ' | |||||||||
Maturity | Interest | |||||||||
Borrower | Date | Rate | Amount | Security | ||||||
Performing loans: | ||||||||||
Miscellaneous related party notes (1) | Various | Various | $ 2,091 | Various secured interests | ||||||
S Breeze I-V, LLC | 14-Jun | 5.00% | 3,314 | 6% Class A and 25% Class B Limited Partner Interests | ||||||
Unified Housing Foundation, Inc. (Echo Station) (1) | Dec-32 | 12.00% | 1,481 | 100% Interest in Unified Housing of Temple, LLC | ||||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | Dec-32 | 12.00% | 2,000 | Unsecured | ||||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | Dec-32 | 12.00% | 6,363 | Membership interest in Housing for Seniors of Humble, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1) | Dec-32 | 12.00% | 4,663 | 100% Interest in Unified Housing of Austin, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1) | Dec-32 | 12.00% | 3,057 | 100% Interest in Unified Housing of Austin, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1) | Dec-32 | 12.00% | 6,000 | 100% Interest in Unified Housing of Vista Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1) | Dec-32 | 12.00% | 2,250 | 100% Interest in Unified Housing of Vista Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Parkside Crossing) (1) | Dec-32 | 12.00% | 1,936 | 100% Interest in Unified Housing of Parkside Crossing, LLC | ||||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1) | Dec-32 | 12.00% | 4,812 | 100% Interest in Unified Housing of Sendero Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1) | Dec-32 | 12.00% | 5,174 | 100% Interest in Unified Housing of Sendero Ridge, LLC | ||||||
Unified Housing Foundation, Inc. (Timbers of Terrell) (1) | Dec-32 | 12.00% | 1,323 | 100% Interest in Unified Housing of Terrell, LLC | ||||||
Unified Housing Foundation, Inc. (Tivoli) (1) | Dec-32 | 12.00% | 7,966 | 100% Interest in Unified Housing of Tivoli, LLC | ||||||
Unified Housing Foundation, Inc. (1) | 13-Dec | 5.00% | 6,000 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1) | 19-Mar | 12.00% | 1,810 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1) | 17-Mar | 12.00% | 1,156 | Unsecured | ||||||
Foundation for Better Housing, Inc. (Vista Ridge) (1) | 19-Apr | 12.00% | 3,923 | Unsecured | ||||||
Accrued interest | 5,454 | |||||||||
Total Performing | $ 70,773 | |||||||||
Non-Performing loans: | ||||||||||
Miscellaneous non-related party notes | Various | Various | 507 | Various secured and unsecured interests | ||||||
Accrued interest | 57 | |||||||||
Total Non-Performing | $ 564 | |||||||||
Allowance for doubtful accounts | (2,263) | |||||||||
Total | $ 69,074 | |||||||||
(1) Related party notes |
4_INVESTMENT_IN_UNCONSOLIDATED1
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2014 | |||||||||
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Tables) | ' | ||||||||
Investments accounted for via the equity method | ' | ||||||||
Percentage ownership as of | |||||||||
30-Jun-14 | 30-Jun-13 | ||||||||
American Realty Investors, Inc.(1) | 1.99 | % | 1.99 | % | |||||
(1) Unconsolidated investment in parent company owning 229,214 shares of ARL Common Stock | |||||||||
Summary of the financial position and results of operations from unconsolidated joint ventures and other investees | ' | ||||||||
As of June 30, | 2014 | 2013 | |||||||
Real estate, net of accumulated depreciation | $ | 15,149 | $ | 44,886 | |||||
Notes receivable | 68,940 | 44,544 | |||||||
Other assets | 128,581 | 132,221 | |||||||
Notes payable | (52,369 | ) | (61,410 | ) | |||||
Other liabilities | (100,149 | ) | (87,205 | ) | |||||
Shareholders' equity | (60,152 | ) | (73,036 | ) | |||||
For the Six Months Ended June 30, | 2014 | 2013 | |||||||
Rents and interest and other income | $ | 5,894 | $ | 6,948 | |||||
Depreciation | (138 | ) | (152 | ) | |||||
Operating expenses | (3,093 | ) | (3,694 | ) | |||||
Gain on land sales | - | 12 | |||||||
Interest expense | (3,447 | ) | (2,922 | ) | |||||
Income (loss) from continuing operations | (784 | ) | 192 | ||||||
Income from discontinued operations | - | (15 | ) | ||||||
Net Income (loss) | $ | (784 | ) | $ | 177 | ||||
Company's proportionate share of earnings (loss) (1) | $ | (16 | ) | $ | 4 | ||||
(1) Earnings (loss) represents continued and discontinued operations | |||||||||
5_NOTES_PAYABLE_Tables
5. NOTES PAYABLE (Tables) | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
Scheduled principal payments of notes payable | ' | ||||||||||||
Scheduled principal payments of notes payables | ' | ||||||||||||
Notes Payable | Accrued Interest | Total Debt | |||||||||||
Apartments | $ | 397,243 | $ | 1,165 | $ | 398,408 | |||||||
Commercial | 93,630 | 439 | 94,069 | ||||||||||
Land | 70,062 | 117 | 70,179 | ||||||||||
Real estate held for sale | 2,202 | - | 2,202 | ||||||||||
Real estate subject to sales contract | 19,174 | 1,584 | 20,758 | ||||||||||
Other | 7,347 | - | 7,347 | ||||||||||
Total | $ | 589,658 | $ | 3,305 | $ | 592,963 |
6_RELATED_PARTY_TRANSACTIONS_T
6. RELATED PARTY TRANSACTIONS (Tables) | 6 Months Ended | ||||||||||||
Jun. 30, 2014 | |||||||||||||
RELATED PARTY TRANSACTIONS (Tables) | ' | ||||||||||||
Description of the related party transactions and fees | ' | ||||||||||||
Pillar | ARL | Total | |||||||||||
Related party receivable, December 31, 2013 | $ | - | $ | 52,380 | $ | 52,380 | |||||||
Cash transfers | 31,718 | - | 31,718 | ||||||||||
Advisory fees | (3,664 | ) | - | (3,664 | ) | ||||||||
Net income fee | (700 | ) | - | (700 | ) | ||||||||
Fees and commissions | (1,066 | ) | - | (1,066 | ) | ||||||||
Cost reimbursements | (1,310 | ) | - | (1,310 | ) | ||||||||
Interest (to) from advisor | - | 1,272 | 1,272 | ||||||||||
Notes receivable purchased | (8,437 | ) | - | (8,437 | ) | ||||||||
Expenses paid by advisor | (3,257 | ) | - | (3,257 | ) | ||||||||
Financing (mortgage payments) | (2,287 | ) | - | (2,287 | ) | ||||||||
Sales/purchases transactions | 7,329 | - | 7,329 | ||||||||||
Series K preferred stock cancellation | 270 | - | 270 | ||||||||||
Purchase of obligations | (18,596 | ) | 20,754 | 2,158 | |||||||||
Related party receivable, June 30, 2014 | $ | - | $ | 74,406 | $ | 74,406 |
7_OPERATING_SEGMENTS_Tables
7. OPERATING SEGMENTS (Tables) | 6 Months Ended | ||||||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||||||
OPERATING SEGMENTS (Tables) | ' | ||||||||||||||||||||
Segments operating income including segment assets and expenditures | ' | ||||||||||||||||||||
Commercial | |||||||||||||||||||||
For the Three Months Ended June 30, 2014 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 4,426 | $ | 15,419 | $ | - | $ | 14 | $ | 19,859 | |||||||||||
Property operating expenses | 2,968 | 6,522 | 205 | - | 9,695 | ||||||||||||||||
Depreciation | 1,733 | 2,697 | - | - | 4,430 | ||||||||||||||||
Mortgage and loan interest | 1,541 | 4,049 | 1,305 | 1,037 | 7,932 | ||||||||||||||||
Deferred borrowing costs amortization | 5 | 101 | 42 | 186 | 334 | ||||||||||||||||
Interest income | - | - | - | 4,005 | 4,005 | ||||||||||||||||
Gain on land sales | - | - | (159 | ) | - | (159 | ) | ||||||||||||||
Segment operating income (loss) | $ | (1,821 | ) | $ | 2,050 | $ | (1,711 | ) | $ | 2,796 | $ | 1,314 | |||||||||
Capital expenditures | 1,859 | 99 | 68 | - | 2,026 | ||||||||||||||||
Real estate assets | 129,607 | 374,022 | 157,623 | - | 661,252 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 16,600 | $ | - | $ | 717 | $ | - | $ | 17,317 | |||||||||||
Cost of sale | 9,597 | - | 876 | - | 10,473 | ||||||||||||||||
Gain (loss) on sale | $ | 7,003 | $ | - | $ | (159 | ) | $ | - | $ | 6,844 | ||||||||||
Commercial | |||||||||||||||||||||
For the Three Months Ended June 30, 2013 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 4,816 | $ | 14,740 | $ | - | $ | 4 | $ | 19,560 | |||||||||||
Property operating expenses | 2,233 | 6,302 | 219 | 33 | 8,787 | ||||||||||||||||
Depreciation | 1,643 | 2,655 | - | - | 4,298 | ||||||||||||||||
Mortgage and loan interest | 1,582 | 4,222 | 1,378 | 692 | 7,874 | ||||||||||||||||
Deferred borrowing costs amortization | 19 | (97 | ) | 31 | 1 | (46 | ) | ||||||||||||||
Loan charges and prepayment penalties | - | 26 | - | - | 26 | ||||||||||||||||
Interest income | - | - | - | 2,119 | 2,119 | ||||||||||||||||
Segment operating gain (loss) | $ | (661 | ) | $ | 1,632 | $ | (1,628 | ) | $ | 1,397 | $ | 740 | |||||||||
Capital expenditures | 2,236 | 79 | 228 | - | 2,543 | ||||||||||||||||
Real estate assets | 137,331 | 384,308 | 170,941 | - | 692,580 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 26,974 | $ | 24,822 | $ | - | $ | - | $ | 51,796 | |||||||||||
Cost of sale | 14,914 | 18,808 | - | - | 33,722 | ||||||||||||||||
Gain on sale | $ | 12,060 | $ | 6,014 | $ | - | $ | - | $ | 18,074 | |||||||||||
Segment information to the corresponding amounts in Statements of Operations | ' | ||||||||||||||||||||
For the Six Months Ended | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment operating income (loss) | $ | 478 | $ | (5,075 | ) | ||||||||||||||||
Other non-segment items of income (expense) | |||||||||||||||||||||
General and administrative | (4,295 | ) | (3,237 | ) | |||||||||||||||||
Net income fee to related party | (700 | ) | (104 | ) | |||||||||||||||||
Advisory fee to related party | (3,664 | ) | (4,209 | ) | |||||||||||||||||
Other income | 401 | 180 | |||||||||||||||||||
Loss on sale of investment | - | (8 | ) | ||||||||||||||||||
Earnings (loss) from unconsolidated joint ventures and investees | (16 | ) | 2 | ||||||||||||||||||
Litigation settlement | 3,753 | 12 | |||||||||||||||||||
Income tax benefit | 3,918 | 7,554 | |||||||||||||||||||
Net loss from continuing operations | $ | (125 | ) | $ | (4,885 | ) | |||||||||||||||
For the Three Months Ended | |||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment operating income | $ | 1,314 | $ | 740 | |||||||||||||||||
Other non-segment items of income (expense) | |||||||||||||||||||||
General and administrative | (2,737 | ) | (1,615 | ) | |||||||||||||||||
Net income fee to related party | (210 | ) | (48 | ) | |||||||||||||||||
Advisory fee to related party | (1,811 | ) | (2,071 | ) | |||||||||||||||||
Other income | 244 | 144 | |||||||||||||||||||
Earnings (loss) from unconsolidated joint ventures and investees | (11 | ) | 15 | ||||||||||||||||||
Litigation settlement | (86 | ) | 57 | ||||||||||||||||||
Income tax benefit | 2,035 | 5,222 | |||||||||||||||||||
Net income (loss) from continuing operations | $ | (1,262 | ) | $ | 2,444 | ||||||||||||||||
Segment information to amounts in the Balance Sheets | ' | ||||||||||||||||||||
June 30, | |||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||
Segment assets | $ | 661,252 | $ | 692,580 | |||||||||||||||||
Investments in real estate partnerships | 1,509 | 5,740 | |||||||||||||||||||
Notes and interest receivable | 69,074 | 59,145 | |||||||||||||||||||
Other assets | 149,388 | 212,349 | |||||||||||||||||||
Total assets | $ | 881,223 | $ | 969,814 | |||||||||||||||||
Commercial | |||||||||||||||||||||
For the Six Months Ended June 30, 2014 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 8,875 | $ | 30,579 | $ | - | $ | 22 | $ | 39,476 | |||||||||||
Property operating expenses | 5,846 | 12,985 | 393 | 5 | 19,229 | ||||||||||||||||
Depreciation | 3,524 | 5,344 | - | - | 8,868 | ||||||||||||||||
Mortgage and loan interest | 2,948 | 8,134 | 2,415 | 1,268 | 14,765 | ||||||||||||||||
Deferred borrowing costs amortization | 18 | 987 | 73 | 188 | 1,266 | ||||||||||||||||
Loan charges and prepayment penalties | 9 | 1,573 | - | - | 1,582 | ||||||||||||||||
Interest income | - | - | - | 6,118 | 6,118 | ||||||||||||||||
Gain on land sales | - | - | 594 | - | 594 | ||||||||||||||||
Segment operating income (loss) | $ | (3,470 | ) | $ | 1,556 | $ | (2,287 | ) | $ | 4,679 | $ | 478 | |||||||||
Capital expenditures | 2,989 | 99 | 151 | - | 3,239 | ||||||||||||||||
Real estate assets | 129,607 | 374,022 | 157,623 | - | 661,252 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 16,600 | $ | 23,131 | $ | 717 | $ | - | $ | 40,448 | |||||||||||
Cost of sale | 9,597 | 17,077 | 123 | - | 26,797 | ||||||||||||||||
Gain on sale | $ | 7,003 | $ | 6,054 | $ | 594 | $ | - | $ | 13,651 | |||||||||||
Commercial | |||||||||||||||||||||
For the Six Months Ended June 30, 2013 | Properties | Apartments | Land | Other | Total | ||||||||||||||||
Rental and other property revenues | $ | 9,764 | $ | 29,148 | $ | 34 | $ | 4 | $ | 38,950 | |||||||||||
Property operating expenses | 5,235 | 12,351 | 521 | 9 | 18,116 | ||||||||||||||||
Depreciation | 2,726 | 5,300 | - | - | 8,026 | ||||||||||||||||
Mortgage and loan interest | 2,840 | 8,773 | 2,781 | 1,403 | 15,797 | ||||||||||||||||
Deferred borrowing costs amortization | 40 | 2,241 | 87 | 3 | 2,371 | ||||||||||||||||
Loan charges and prepayment penalties | - | 3,937 | - | 26 | 3,963 | ||||||||||||||||
Interest income | - | - | - | 4,296 | 4,296 | ||||||||||||||||
Loss on land sales | - | - | (48 | ) | - | (48 | ) | ||||||||||||||
Segment operating gain(loss) | $ | (1,077 | ) | $ | (3,454 | ) | $ | (3,403 | ) | $ | 2,859 | $ | (5,075 | ) | |||||||
Capital expenditures | 2,913 | 110 | 281 | - | 3,304 | ||||||||||||||||
Real estate assets | 137,331 | 384,308 | 170,941 | - | 692,580 | ||||||||||||||||
Property Sales | |||||||||||||||||||||
Sales price | $ | 26,974 | $ | 50,122 | $ | 2,250 | $ | - | $ | 79,346 | |||||||||||
Cost of sale | 14,914 | 37,917 | 2,298 | - | 55,129 | ||||||||||||||||
Gain (loss) on sale | $ | 12,060 | $ | 12,205 | $ | (48 | ) | $ | - | $ | 24,217 |
8_DISCONTINUED_OPERATIONS_Tabl
8. DISCONTINUED OPERATIONS (Tables) | 6 Months Ended | ||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||
DISCONTINUED OPERATIONS (Tables) | ' | ||||||||||||||||
Summary of revenue and expense information for the properties sold and held for sale | ' | ||||||||||||||||
For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues: | |||||||||||||||||
Rental and other property revenues | $ | (7 | ) | $ | 8,039 | $ | 1,251 | $ | 17,103 | ||||||||
(7 | ) | 8,039 | 1,251 | 17,103 | |||||||||||||
Expenses: | |||||||||||||||||
Property operating expenses | 221 | 3,375 | 1,208 | 7,891 | |||||||||||||
Depreciation | 21 | 1,297 | 193 | 2,735 | |||||||||||||
General and administrative | 140 | 256 | 305 | 525 | |||||||||||||
Total operating expenses | 382 | 4,928 | 1,706 | 11,151 | |||||||||||||
Other income (expense): | |||||||||||||||||
Other income | (528 | ) | 20 | (491 | ) | 20 | |||||||||||
Mortgage and loan interest | (70 | ) | (2,047 | ) | (388 | ) | (4,327 | ) | |||||||||
Deferred borrowing costs amortization | 3 | (993 | ) | (278 | ) | (1,012 | ) | ||||||||||
Loan charges and prepayment penalties | - | (3,200 | ) | - | (3,245 | ) | |||||||||||
Earnings from unconsolidated subsidiaries and investees | - | - | - | 20 | |||||||||||||
Litigation settlement | (205 | ) | (45 | ) | (250 | ) | (90 | ) | |||||||||
Total other expenses | (800 | ) | (6,265 | ) | (1,407 | ) | (8,634 | ) | |||||||||
Loss from discontinued operations before gain on sale of real estate and tax | (1,189 | ) | (3,154 | ) | (1,862 | ) | (2,682 | ) | |||||||||
Gain on sale of real estate from discontinued operations | 7,003 | 18,074 | 13,057 | 24,265 | |||||||||||||
Income tax expense | (2,035 | ) | (5,222 | ) | (3,918 | ) | (7,554 | ) | |||||||||
Income from discontinued operations | $ | 3,779 | $ | 9,698 | $ | 7,277 | $ | 14,029 |
2_REAL_ESTATE_ACTIVITY_Details
2. REAL ESTATE ACTIVITY (Details) (USD $) | Jun. 30, 2014 |
In Thousands, unless otherwise specified | |
Summary of real estate owned as of the end of the year is listed: | ' |
Apartments | $433,243 |
Commercial properties | 164,764 |
Land held for development | 144,608 |
Real estate held for sale | 2,116 |
Real estate subject to sales contract | 26,966 |
Total real estate | 771,697 |
Less accumulated depreciation | -110,445 |
Total real estate, net of depreciation | $661,252 |
3_NOTES_AND_INTEREST_RECEIVABL2
3. NOTES AND INTEREST RECEIVABLE CONSISTS OF THE FOLLOWING (Details) (USD $) | Jun. 30, 2014 |
In Thousands, unless otherwise specified | |
Performing loans: | ' |
Miscellaneous related party notes (1) | $2,091 |
S Breeze I-V, LLC | 3,314 |
Unified Housing Foundation, Inc. (Echo Station) (1) | 1,481 |
Unified Housing Foundation, Inc. (Lakeshore Villas) (1) | 2,000 |
Unified Housing Foundation, Inc.. (Lakeshore Villas) (1) | 6,363 |
Unified Housing Foundation, Inc. (Limestone Canyon) (1) | 4,663 |
Unified Housing Foundation, Inc.. (Limestone Canyon) (1) | 3,057 |
Unified Housing Foundation, Inc. (Limestone Ranch) (1) | 6,000 |
Unified Housing Foundation, Inc.. (Limestone Ranch) (1) | 2,250 |
Unified Housing Foundation, Inc. (Parkside Crossing) (1) | 1,936 |
Unified Housing Foundation, Inc. (Sendero Ridge) (1) | 4,812 |
Unified Housing Foundation, Inc.. (Sendero Ridge) (1) | 5,174 |
Unified Housing Foundation, Inc. (Timbers of Terrell) (1) | 1,323 |
Unified Housing Foundation, Inc. (Tivoli) (1) | 7,966 |
Unified Housing Foundation, Inc.. (Tivoli) (1) | 6,000 |
Foundation for Better Housing, Inc. (Preserve at Pecan Points) (1) | 1,810 |
Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1) | 1,156 |
Foundation for Better Housing, Inc. (Vista Ridge) (1) | 3,923 |
Accrued interest performing | 5,454 |
Total performing | 70,773 |
Miscellaneous non-related party notes | 507 |
Accrued interest non performing | 57 |
Total Non-Performing | 564 |
Allowances for doubtful accounts | -2,263 |
Total Financing Notes Receivable | $69,074 |
4_INVESTMENT_IN_UNCONSOLIDATED2
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details) | Jun. 30, 2014 | Jun. 30, 2013 |
Investments in unconsolidated joint ventures Details | ' | ' |
American Realty Investors, Inc.(1) | 1.99% | 1.99% |
4_INVESTMENT_IN_UNCONSOLIDATED3
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details 1) (USD $) | Jun. 30, 2014 | Jun. 30, 2013 |
In Thousands, unless otherwise specified | ||
Financial position Results details | ' | ' |
Real estate, net of accumulated depreciation | $15,149 | $44,886 |
Notes receivable | 68,940 | 44,544 |
Other assets | 128,581 | 132,221 |
Notes payable | -52,369 | -61,410 |
Other liabilities | -100,149 | -87,205 |
Shareholders' equity | ($60,152) | ($73,036) |
4_INVESTMENT_IN_UNCONSOLIDATED4
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details 2) (USD $) | 6 Months Ended | |
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 |
Investment In Unconsolidated Joint Ventures And Investees Details 2 | ' | ' |
Rents and interest and other income | $5,894 | $6,948 |
Depreciation | -138 | -152 |
Operating expenses | -3,093 | -3,694 |
Gain on land sales | ' | 12 |
Interest expense | -3,447 | -2,922 |
Income (loss) from continuing operations | -784 | 192 |
Income from discontinued operations | ' | -15 |
Net Income (loss) | -784 | 177 |
Company's proportionate share of earnings (loss)B (1) | ($16) | $4 |
5_NOTES_PAYABLE_Details
5. NOTES PAYABLE (Details) (USD $) | Jun. 30, 2014 |
In Thousands, unless otherwise specified | |
Notes payable | ' |
Apartments | $397,243 |
Commercial | 93,630 |
Land | 70,062 |
Real estate held for sale | 2,202 |
Real estate subject to sales contract | 19,174 |
Other | 7,347 |
Total | 589,658 |
Accured Interest | ' |
Apartments | 1,165 |
Commercial | 439 |
Land | 117 |
Real estate held for sale | 0 |
Real estate subject to sales contract | 1,584 |
Other | 0 |
Total | 3,305 |
Total Debt | ' |
Apartments | 398,408 |
Commercial | 94,069 |
Land | 70,179 |
Real estate held for sale | 2,202 |
Real estate subject to sales contract | 20,758 |
Other | 7,347 |
Total | $592,963 |
6_RELATED_PARTY_TRANSACTIONS_D
6. RELATED PARTY TRANSACTIONS (Details) (USD $) | 6 Months Ended |
In Thousands, unless otherwise specified | Jun. 30, 2014 |
Related party payable, balance | $52,380 |
Cash transfers | 31,718 |
Advisory fees | -3,664 |
Net income fee | -700 |
Fees and commissions | -1,066 |
Cost reimbursements | -1,310 |
Interest (to) from advisor | 1,272 |
Notes receivable purchased | -8,437 |
Expenses paid by advisor | -3,257 |
Financing (mortgage payments) | -2,287 |
Sales/Purchases transactions | 7,329 |
Series K preferred stock cancellation | 270 |
Purchase of obligations | 2,158 |
Related party receivable, balance | 74,406 |
Pillar | ' |
Related party payable, balance | 0 |
Cash transfers | 31,718 |
Advisory fees | -3,664 |
Net income fee | -700 |
Fees and commissions | -1,066 |
Cost reimbursements | -1,310 |
Interest (to) from advisor | 0 |
Notes receivable purchased | -8,437 |
Expenses paid by advisor | -3,257 |
Financing (mortgage payments) | -2,287 |
Sales/Purchases transactions | 7,329 |
Series K preferred stock cancellation | 270 |
Purchase of obligations | -18,596 |
Related party receivable, balance | 0 |
ARI | ' |
Related party payable, balance | 52,380 |
Cash transfers | 0 |
Advisory fees | 0 |
Net income fee | 0 |
Fees and commissions | 0 |
Cost reimbursements | 0 |
Interest (to) from advisor | 1,272 |
Notes receivable purchased | 0 |
Expenses paid by advisor | 0 |
Financing (mortgage payments) | 0 |
Sales/Purchases transactions | 0 |
Series K preferred stock cancellation | 0 |
Purchase of obligations | 20,754 |
Related party receivable, balance | $74,406 |
7_OPERATING_SEGMENTS_Details
7. OPERATING SEGMENTS (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Rental and other property revenues | $19,859 | $19,560 | $39,476 | $38,950 |
Property operating expenses | 9,695 | 8,787 | 19,229 | 18,116 |
Depreciation | 4,430 | 4,298 | 8,868 | 8,026 |
Mortgage and loan interest | 7,932 | 7,874 | 14,765 | 15,797 |
Deferred borrowing costs amortization | 334 | -46 | 1,266 | 2,371 |
Loan charges and prepayment penalties | 0 | 0 | 1,582 | 3,963 |
Interest income | 4,005 | 26 | 6,118 | 4,296 |
Gain on land sales | -159 | 2,119 | 594 | -48 |
Segment operating income (loss) | 1,314 | 740 | 478 | -5,075 |
Capital expenditures | 2,026 | 2,543 | 3,239 | 3,304 |
Real estate assets | 661,252 | 692,580 | 661,252 | 692,580 |
Property Sales | ' | ' | ' | ' |
Sales price | 17,317 | 51,796 | 40,448 | 79,346 |
Cost of sale | 10,473 | 33,722 | 26,797 | 55,129 |
Gain (loss) on sale | 6,844 | 18,074 | 13,651 | 24,217 |
Commercial Properties | ' | ' | ' | ' |
Rental and other property revenues | 4,426 | 4,816 | 8,875 | 9,764 |
Property operating expenses | 2,968 | 2,233 | 5,846 | 5,235 |
Depreciation | 1,733 | 1,643 | 3,524 | 2,726 |
Mortgage and loan interest | 1,541 | 1,582 | 2,948 | 2,840 |
Deferred borrowing costs amortization | 5 | 19 | 18 | 40 |
Loan charges and prepayment penalties | 0 | 0 | 9 | 0 |
Interest income | 0 | 0 | 0 | 0 |
Gain on land sales | 0 | 0 | 0 | 0 |
Segment operating income (loss) | -1,821 | -661 | -3,470 | -1,077 |
Capital expenditures | 1,859 | 2,236 | 2,989 | 2,913 |
Real estate assets | 129,607 | 137,331 | 129,607 | 137,331 |
Property Sales | ' | ' | ' | ' |
Sales price | 16,600 | 26,974 | 16,600 | 26,974 |
Cost of sale | 9,597 | 14,914 | 9,597 | 14,914 |
Gain (loss) on sale | 7,003 | 12,060 | 7,003 | 12,060 |
Apartments | ' | ' | ' | ' |
Rental and other property revenues | 15,419 | 14,740 | 30,579 | 29,148 |
Property operating expenses | 6,522 | 6,302 | 12,985 | 12,351 |
Depreciation | 2,697 | 2,655 | 5,344 | 5,300 |
Mortgage and loan interest | 4,049 | 4,222 | 8,134 | 8,773 |
Deferred borrowing costs amortization | 101 | -97 | 987 | 2,241 |
Loan charges and prepayment penalties | 0 | 0 | 1,573 | 3,937 |
Interest income | 0 | 26 | 0 | 0 |
Gain on land sales | 0 | 0 | 0 | 0 |
Segment operating income (loss) | 2,050 | 1,632 | 1,556 | -3,454 |
Capital expenditures | 99 | 79 | 99 | 110 |
Real estate assets | 374,022 | 384,308 | 374,022 | 384,308 |
Property Sales | ' | ' | ' | ' |
Sales price | 0 | 24,822 | 23,131 | 50,122 |
Cost of sale | 0 | 18,808 | 17,077 | 37,917 |
Gain (loss) on sale | 0 | 6,014 | 6,054 | 12,205 |
Land | ' | ' | ' | ' |
Rental and other property revenues | 0 | 0 | 0 | 34 |
Property operating expenses | 205 | 219 | 393 | 521 |
Depreciation | 0 | 0 | 0 | 0 |
Mortgage and loan interest | 1,305 | 1,378 | 2,415 | 2,781 |
Deferred borrowing costs amortization | 42 | 31 | 73 | 87 |
Loan charges and prepayment penalties | 0 | 0 | 0 | 0 |
Interest income | 0 | 0 | 0 | 0 |
Gain on land sales | -159 | 0 | 594 | -48 |
Segment operating income (loss) | -1,711 | -1,628 | -2,287 | -3,403 |
Capital expenditures | 68 | 228 | 151 | 281 |
Real estate assets | 157,623 | 170,941 | 157,623 | 170,941 |
Property Sales | ' | ' | ' | ' |
Sales price | 717 | 0 | 717 | 2,250 |
Cost of sale | 876 | 0 | 123 | 2,298 |
Gain (loss) on sale | -159 | 0 | 594 | -48 |
Other | ' | ' | ' | ' |
Rental and other property revenues | 14 | 4 | 22 | 4 |
Property operating expenses | 0 | 33 | 5 | 9 |
Depreciation | 0 | 0 | 0 | 0 |
Mortgage and loan interest | 1,037 | 692 | 1,268 | 1,403 |
Deferred borrowing costs amortization | 186 | 1 | 188 | 3 |
Loan charges and prepayment penalties | 0 | 0 | 0 | 26 |
Interest income | 4,005 | 0 | 6,118 | 4,296 |
Gain on land sales | 0 | 2,119 | 0 | 0 |
Segment operating income (loss) | 2,796 | 1,397 | 4,679 | 2,859 |
Capital expenditures | 0 | 0 | 0 | 0 |
Real estate assets | 0 | 0 | 0 | 0 |
Property Sales | ' | ' | ' | ' |
Sales price | 0 | 0 | 0 | 0 |
Cost of sale | 0 | 0 | 0 | 0 |
Gain (loss) on sale | $0 | $0 | $0 | $0 |
7_OPERATING_SEGMENTS_Details_1
7. OPERATING SEGMENTS (Details 1) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Operating Segments Reconciles information to the Consolidated Balance Sheets (Details) | ' | ' | ' | ' |
Segment operating income | $1,314 | $740 | $478 | ($5,075) |
Other non-segment items of income (expense) | ' | ' | ' | ' |
General and administrative | -2,737 | -1,615 | -4,295 | -3,237 |
Net income fee to related party | 210 | 48 | 700 | 104 |
Advisory fee to related party | -1,811 | -2,071 | -3,664 | -4,209 |
Other income | 244 | 144 | 401 | 180 |
Loss on sale of investment | 0 | 0 | 0 | -8 |
Earnings (loss) from unconsolidated joint ventures and investees | -11 | 15 | -16 | 2 |
Litigation settlement | -86 | 57 | 3,753 | 12 |
Income tax benefit | 2,035 | 5,222 | 3,918 | 7,554 |
Net income (loss) from continuing operations | ($1,262) | $2,444 | ($125) | ($4,885) |
7_OPERATING_SEGMENTS_Details_2
7. OPERATING SEGMENTS (Details 2) (USD $) | Jun. 30, 2014 | Jun. 30, 2013 |
In Thousands, unless otherwise specified | ||
Operating Segments Details 2 | ' | ' |
Segment assets | $661,252 | $692,580 |
Investments in real estate partnerships | 1,509 | 5,740 |
Notes and interest receivable | 69,074 | 59,145 |
Other assets | 149,388 | 212,349 |
Total assets | $881,223 | $969,814 |
8_DISCONTINUED_OPERATIONS_Deta
8. DISCONTINUED OPERATIONS (Details) (USD $) | 3 Months Ended | 6 Months Ended | ||
In Thousands, unless otherwise specified | Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 |
Revenue from discontinued operations | ' | ' | ' | ' |
Rental and other property revenues discontinued operations | ($7) | $8,039 | $1,251 | $17,103 |
Total revenue discontinued operations | -7 | 8,039 | 1,251 | 17,103 |
Property operating expenses discontinued operations | 221 | 3,375 | 1,208 | 7,891 |
Depreciation discontinued operations | 21 | 1,297 | 193 | 2,735 |
General and administrative discontinued operations | 140 | 256 | 305 | 525 |
Total operating expenses discontinued operations | 382 | 4,928 | 1,706 | 11,151 |
Other income discontinued operations | -528 | 20 | -491 | 20 |
Mortgage and loan interest discontinued operations | -70 | -2,047 | -388 | -4,327 |
Deferred borrowing costs amortization discontinued operations | 3 | -993 | -278 | -1,012 |
Loan charges and prepayment penalties discontinued operations | 0 | -3,200 | 0 | -3,245 |
Earnings from unconsolidated subsidiaries and investees discontinued operations | 0 | 0 | 0 | 20 |
Litigation settlement discontinued operations | -205 | -45 | -250 | -90 |
Total other expenses discontinued operations | -800 | -6,265 | -1,407 | -8,634 |
Loss from discontinued operations before gains on sale of real estate, taxes discontinued operations | -1,189 | -3,154 | -1,862 | -2,682 |
Gain on sale of real estate from discontinued operations discontinued operations | 7,003 | 18,074 | 13,057 | 24,265 |
Income tax (expense) discontinued operations | -2,035,000 | -5,222,000 | -3,918,000 | -7,554,000 |
Net income (loss) from discontinued operations discontinued operations | $3,779 | $9,698 | $7,277 | $14,029 |
9_COMMITMENTS_AND_CONTINGENCIE1
9. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY (Details Narrative) (USD $) | Feb. 13, 2013 |
Commitments And Contingencies And Liquidity Details Narrative | ' |
Awarding significant damages to American Realty Trust, Inc | $960,646 |
Increased costs damages in favor of TCI and its subsidairies | 11,161,520 |
Lost opportunity damages in favor of TCI and its subsidairies | 12,122,166 |
Loans to be made under the original loan commitment | 160,000,000 |
Additional lost opportunity damanges in favor of TCI and subsidiaries | 252,577 |
Deficiency claims maximum exposure to the Company will not exceed | $20,000,000 |
10_EARNINGS_PER_SHARE_Details_
10. EARNINGS PER SHARE (Details Narrative) (USD $) | Jun. 30, 2014 | Sep. 30, 2006 |
Earnings Per Share Details Narrative | ' | ' |
Series C Cumulative Convertible Preferred Stock issued and outstanding shares | ' | 30,000 |
The stock has a liquidation preference per share | ' | $100 |
The stock may be converted into common stock at a percentage of daily average closing price of the common stock for the prior five trading days | ' | 90.00% |
Stock Options outstanding | 5,000 | ' |
11_SUBSEQUENT_EVENTS_Details
11. SUBSEQUENT EVENTS (Details) | 1 Months Ended |
Jul. 31, 2014 | |
Subsequent Events Details | ' |
TCI invested | 'On July 1, 2014, the Company invested $5.9 million and $6.1 million in notes receivable from HGH Residential, LLC relating to the acquisition of an apartment complex known as Park West I and II in Pueblo, CO and the development of an apartment complex known as Tradewinds in Midland, TX. |
Equity transaction | 'On July 9, 2014, RAI requested that all 30,000 shares of TCI Series C Convertible Preferred Stock be converted into the requisite number of TCI Common Stock. The conversion resulted in the issuance of 304,298 shares of TCI Common Stock. |
Sale of land | 'On July 25, 2014, the Company sold 24.498 acres of land known as Stanley Tools and Kelly Lots located in Farmers Branch, Texas to an independent third party. TCI paid off the existing mortgage of $1.7 million in addition to making a $0.2 million payment on another existing mortgage related to another parcel of land located in McKinney, Texas. There was no gain or loss on the land parcel sale. |
Morgage refinance | 'On July 31, 2014, the Company refinanced the existing mortgage on Desoto Ranch apartments, a 248-unit complex located in Desoto, Texas, for a new mortgage of $15.7 million. TCI paid off the existing mortgage of $15.7 million and $0.5 million in closing costs. The note accrues interest at 3.5% and payments of interest and principal are due monthly, maturing June 1, 2050. |