Subject: EARNINGS
Transcontinental Realty Investors, Inc. Reports Third Quarter 2019 Results
Transcontinental Realty Investors, Inc. (NYSE: TCI), a Dallas-based real estate investment company, today reported results of operations for the second quarter ended September 30, 2019. For the three months ended September 30, 2019, we reported net loss applicable to common shares of $7.8 million or ($0.89) per diluted loss per share compared to a net income applicable to common shares of $21.9 million or $2.52 per share for the same period ended 2018.
Though the Company reported a net income loss, this is driven by the overall strategic direction of expanding the core business. As certain new multi-family development projects are completed, which the Company has invested in, it is expected that net income should be positively impacted.
2018 and 2019 have been met with unprecedented expansion and repositioning for Pillar, TCI, SPC, and affiliated Companies. We ended 2018 with our largest and most strategic transactions, the newly created subsidiary Victory Abode Apartments, LLC ("VAA") Joint Venture and Bond Series B raised on the Tel Aviv Stock Exchange. In 2019, the company recently raised an additional $78 million bond series C on the Tel Aviv Stock Exchange. This expanded offering creates additional financial strength to our already thriving organization. With these existing and newly engaged projects and our continuously burgeoning multifamily asset base, we are committed to the continued growth and enhancing the capabilities of our staff.
The JV's primary focus is to create a business platform that will allow dramatic expansion in the multifamily arena. The intent is to increase the overall size of the portfolio over the next several years through strategic buildout of its robust development pipeline alongside opportunistic acquisitions.
All of these initiatives will further demonstrate our ability to increase shareholder value, aligning with the strategic direction we announced three years ago. Our company has been dramatically transformed to a highly viable operating company with solid development capabilities in the multifamily arena. Our main goal has always been to act in the best interest of the company and protect asset value for its investors. We continue to invest in new development projects and grow the company's asset base.
Revenues
Rental and other property revenues were $11.9 million for the three months ended September 30, 2019, compared to $33.5 million for the same period in 2018. The $21.6 million decrease is primarily due to a decrease in the amount of multifamily residential apartment buildings currently in our portfolio of nine as compared to fifty-eight multifamily residential apartment buildings for the same period a year ago as a result of the deconsolidation of forty-nine residential apartment properties that were sold into the VAA Joint Venture during the fourth quarter of 2018. As the assets are now treated as unconsolidated investments, our share of rental revenues is part of income from unconsolidated investments in the current period and are no longer treated as rental income.
Expenses
Property operating expenses decreased by $10.5 million to $5.4 million for the three months ended September 30, 2019 as compared to $15.9 million for the same period in 2018. The decrease in property operating expenses is primarily due to the deconsolidation of forty-nine residential apartment properties that were sold into the VAA Joint Venture during the fourth quarter of 2018 which resulted in a decrease in salary and related payroll expenses of $1.9 million, real estate taxes of approximately $3.7 million, management fees paid to third parties of $0.7 million, and other general property operating and maintenance expenses of $4.2 million.
Depreciation and amortization decreased by $3.5 million to $3.4 million during the three months ended September 30, 2019 as compared to $6.9 million for the three months ended September 30, 2018. This decrease is primarily due to the deconsolidation of the residential apartments in connection with our previous sale and contribution of our interests to the VAA Joint Venture.
General and administrative expense was $2.5 million for the three months ended September 30, 2019 and $1.9 million for the same period in 2018. The increase of $0.6 million in general and administrative expenses is primarily due to increases in fees paid to our Advisors of $0.6 million.
Other income (expense)
Interest income was $5.2 million for the three months ended September 30, 2019, compared to $4.0 million for the same period in 2018. The increase of $1.2 million was due to an increase of $1.2 million in interest on the receivables owed by our Advisors and related parties.
Other income was $1.5 million for the three months ended September 30, 2019, compared to $18.7 million for the same period in 2018. The decrease of $17.2 million was primarily due to the recognition of gain from deferred income of $17.6 million associated with the sale of assets during the three months ended September 30, 2018 as opposed to $1.2 million of gain recognized from deferred income related to the sale of assets during the three months ended September 30, 2019.
Mortgage and loan interest expense was $8.0 million for the three months ended September 30, 2019 as compared to $15.6 million for the same period in 2018. The decrease of $7.6 million is primarily due to the deconsolidation of residential apartment properties into the VAA Joint Venture which were encumbered by mortgage debt.
Foreign currency transaction was a loss of $5.2 million for the three months ended September 30, 2019 as compared to a loss of $1.3 million for the same period in 2018. The increase of $3.9 million is due to the unfavorable exchange rate between the Israel Shekels and the U.S. Dollar related to our Israel Shekels denominated bonds and the increase in our bonds obligations during the three months ended September 30, 2019 as compared to the same period a year ago.
Loss on debt extinguishment was $5.2 million with no comparable amount in 2018. The loss is the result of debt borrowing costs write-off of $1.4 million and prepayment penalty of approximately $3.9 million associated with the payment of $41.5 million of mortgage debt for one of our commercial buildings.
Loss from unconsolidated investments was a net of $0.2 million for the three months ended September 30, 2019 as compared to a loss of $0.004 million for the three months ended September 30, 2018. The loss from unconsolidated investments during the third quarter just ended was driven primarily from our share in the losses reported by our VAA Joint Venture of $0.2 million.
Gain on land sales was $5.1 for the three months ended September 30, 2019 as compared to a gain of $12.2 million for the same period in 2018. During the three months ended September 30, 2019, we sold 16.2 acres of land for an aggregate sales price of $7.0 million and recognized a gain of $5.1 million. For the same period a year ago, we sold approximately 50 acres of land for an aggregate sales price of $35.5 million and recognized a gain of $12.2 million.
About Transcontinental Realty Investors, Inc.
Transcontinental Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including apartments, office buildings, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. For more information, visit the Company's website at www.transconrealty-invest.com.
TRANSCONTINENTAL REALTY INVESTORS, INC. |
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CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||||||||||
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|||||
| (dollars in thousands, except per share amounts) | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Rental and other property revenues (including $212 and $207 for the three months and $527 and $623 for the nine months ended 2019 and 2018, respectively, from related parties) | $ |
11,883 |
|
$ |
33,505 |
|
$ |
35,652 |
|
$ |
96,194 |
|
||||
| Expenses: | ||||||||||||||||
| Property operating expenses (including $237 and $231 for the three months ended and $741 and $689 for the nine months ended 2019 and 2018, respectively, from related parties) |
|
5,403 |
|
|
15,867 |
|
|
18,722 |
|
|
45,814 |
|
||||
| Depreciation and amortization |
|
3,416 |
|
|
6,891 |
|
|
9,964 |
|
|
19,859 |
|
||||
| General and administrative (including $935 and $1,119 for the three months ended and $3,355 and $3,399 for the nine months ended 2019 and 2018, respectively, from related parties) |
|
2,491 |
|
|
1,858 |
|
|
8,153 |
|
|
6,223 |
|
||||
| Net income fee to related party |
|
83 |
|
|
383 |
|
|
273 |
|
|
489 |
|
||||
| Advisory fee to related party |
|
1,555 |
|
|
2,735 |
|
|
4,238 |
|
|
8,209 |
|
||||
| Total operating expenses |
|
12,948 |
|
|
27,734 |
|
|
41,350 |
|
|
80,594 |
|
||||
| Net operating (loss) income |
|
(1,065 |
) |
|
5,771 |
|
|
(5,698 |
) |
|
15,600 |
|
||||
| Other income (expenses): | ||||||||||||||||
| Interest income (including $4,618 and $3,303 for the three months ended and $13,483 and $9,380 for the nine months ended 2019 and 2018, respectively, from related parties) |
|
5,232 |
|
|
4,021 |
|
|
14,668 |
|
|
11,441 |
|
||||
| Other income |
|
1,514 |
|
|
18,722 |
|
|
6,094 |
|
|
28,030 |
|
||||
| Mortgage and loan interest (including $514 and $364 for the three months ended and $1,517 and $1,009 for the nine months ended 2019 and 2018, respectively, from related parties) |
|
(8,037 |
) |
|
(15,555 |
) |
|
(23,642 |
) |
|
(43,823 |
) |
||||
| Foreign currency transaction (loss) gain |
|
(5,153 |
) |
|
(1,288 |
) |
|
(13,296 |
) |
|
6,357 |
|
||||
| Loss on debt extinguishment |
|
(5,219 |
) |
|
- |
|
|
(5,219 |
) |
|
- |
|
||||
| Equity loss from VAA |
|
(189 |
) |
|
- |
|
|
(1,480 |
) |
|
- |
|
||||
| Earnings (losses) from other unconsolidated investees |
|
11 |
|
|
(4 |
) |
|
6 |
|
|
(2 |
) |
||||
| Total other (expenses) income |
|
(11,841 |
) |
|
5,896 |
|
|
(22,869 |
) |
|
2,003 |
|
||||
| (Loss) income before gain on land sales, non-controlling interest, and taxes |
|
(12,906 |
) |
|
11,667 |
|
|
(28,567 |
) |
|
17,603 |
|
||||
| Loss on sale of income producing properties |
|
- |
|
|
- |
|
|
(80 |
) |
|
- |
|
||||
| Gain on land sales |
|
5,140 |
|
|
12,243 |
|
|
9,489 |
|
|
13,578 |
|
||||
| Net (loss) income from continuing operations before taxes |
|
(7,766 |
) |
|
23,910 |
|
|
(19,158 |
) |
|
31,181 |
|
||||
| Income tax (expense) |
|
- |
|
|
(792 |
) |
|
- |
|
|
(792 |
) |
||||
| Net (loss) income from continuing operations |
|
(7,766 |
) |
|
23,118 |
|
|
(19,158 |
) |
|
30,389 |
|
||||
| Net (loss) income |
|
(7,766 |
) |
|
23,118 |
|
|
(19,158 |
) |
|
30,389 |
|
||||
| Net (income) attributable to non-controlling interest |
|
(21 |
) |
|
(915 |
) |
|
(583 |
) |
|
(1,173 |
) |
||||
| Net (loss) income attributable to Transcontinental Realty Investors, Inc. |
|
(7,787 |
) |
|
22,203 |
|
|
(19,741 |
) |
|
29,216 |
|
||||
| Preferred dividend requirement |
|
- |
|
|
(227 |
) |
|
- |
|
|
(673 |
) |
||||
| Net (loss) income applicable to common shares | $ |
(7,787 |
) |
$ |
21,976 |
|
$ |
(19,741 |
) |
$ |
28,543 |
|
||||
| (Loss) earnings per share - basic | ||||||||||||||||
| Net (loss) income from continuing operations | $ |
(0.89 |
) |
$ |
2.65 |
|
$ |
(2.20 |
) |
$ |
3.49 |
|
||||
| Net (loss) income applicable to common shares | $ |
(0.89 |
) |
$ |
2.52 |
|
$ |
(2.26 |
) |
$ |
3.27 |
|
||||
| (Loss) earnings per share - diluted | ||||||||||||||||
| Net (loss) income from continuing operations | $ |
(0.89 |
) |
$ |
2.65 |
|
$ |
(2.20 |
) |
$ |
3.49 |
|
||||
| Net (loss) income applicable to common shares | $ |
(0.89 |
) |
$ |
2.52 |
|
$ |
(2.26 |
) |
$ |
3.27 |
|
||||
| Weighted average common shares used in computing earnings per share |
|
8,717,767 |
|
|
8,717,767 |
|
|
8,717,767 |
|
|
8,717,767 |
|
||||
| Weighted average common shares used in computing diluted earnings per share |
|
8,717,767 |
|
|
8,717,767 |
|
|
8,717,767 |
|
|
8,717,767 |
|
||||
| Amounts attributable to Transcontinental Realty Investors, Inc. | ||||||||||||||||
| Net (loss) income from continuing operations | $ |
(7,766 |
) |
$ |
23,118 |
|
$ |
(19,158 |
) |
$ |
30,389 |
|
||||
| Net (loss) income applicable to Transcontinental Realty, Investors, Inc. | $ |
(7,787 |
) |
$ |
22,203 |
|
$ |
(19,741 |
) |
$ |
29,216 |
|
||||
| TRANSCONTINENTAL REALTY INVESTORS, INC. | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
September 30, |
December 31, |
|||||||
|
2019 |
|
|
2018 |
|
|||
(unaudited) |
(audited) |
|||||||
(dollars in thousands, except share and par value amounts) |
||||||||
Assets |
||||||||
| Real estate, at cost | $ |
469,209 |
|
$ |
461,718 |
|
||
| Real estate subject to sales contracts at cost |
|
1,626 |
|
|
2,014 |
|
||
| Less accumulated depreciation |
|
(87,218 |
) |
|
(79,228 |
) |
||
| Total real estate |
|
383,617 |
|
|
384,504 |
|
||
| Notes and interest receivable (including $66,606 in 2019 and $51,945 in 2018 from related parties) |
|
118,638 |
|
|
83,541 |
|
||
| Cash and cash equivalents |
|
63,069 |
|
|
36,358 |
|
||
| Restricted cash |
|
36,883 |
|
|
70,207 |
|
||
| Investment in VAA |
|
64,962 |
|
|
68,399 |
|
||
| Investment in other unconsolidated investees |
|
22,177 |
|
|
22,172 |
|
||
| Receivable from related parties |
|
135,228 |
|
|
133,642 |
|
||
| Other assets |
|
48,295 |
|
|
63,557 |
|
||
| Total assets | $ |
872,869 |
|
$ |
862,380 |
|
||
Liabilities and Shareholders' Equity |
||||||||
| Liabilities: | ||||||||
| Notes and interest payable | $ |
241,439 |
|
$ |
277,237 |
|
||
| Bonds and bond interest payable |
|
223,433 |
|
|
158,574 |
|
||
| Deferred revenue (including $12,565 in 2019 and $17,522 in 2018 to related parties) |
|
12,565 |
|
|
17,522 |
|
||
| Deferred tax liability |
|
2,000 |
|
|
2,000 |
|
||
| Accounts payable and other liabilities (including $932 in 2019 and $3 in 2018 to related parties) |
|
32,386 |
|
|
26,646 |
|
||
| Total liabilities |
|
511,823 |
|
|
481,979 |
|
||
| Shareholders' equity: | ||||||||
| Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2019 and 2018; outstanding 8,717,767 shares in 2019 and 2018 |
|
87 |
|
|
87 |
|
||
| Treasury stock at cost, 200 shares in 2019 and 2018 |
|
(2 |
) |
|
(2 |
) |
||
| Paid-in capital |
|
257,853 |
|
|
258,050 |
|
||
| Retained earnings |
|
81,844 |
|
|
101,585 |
|
||
| Total Transcontinental Realty Investors, Inc. shareholders' equity |
|
339,782 |
|
|
359,720 |
|
||
| Non-controlling interest |
|
21,264 |
|
|
20,681 |
|
||
| Total shareholders' equity |
|
361,046 |
|
|
380,401 |
|
||
| Total liabilities and shareholders' equity | $ |
872,869 |
|
$ |
862,380 |
|
||
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