x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
94-6565852
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
Large accelerated filer ¨
|
Accelerated filer
|
¨
|
|
Non-accelerated filer ¨ (do not check if a smaller reporting company)
|
Smaller reporting company
|
x
|
Common Stock, $.01 par value
|
8,413,469
|
(Class)
|
(Outstanding atAugust 5, 2013)
|
PAGE
|
||
PART I. FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
Consolidated Balance Sheets at June 30, 2013 (unaudited) and December 31, 2012
|
4
|
|
Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012 (unaudited)
|
5
|
|
Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2013 (unaudited)
|
6
|
|
Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2013 and 2012 (unaudited)
|
7
|
|
Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 (unaudited)
|
8
|
|
Notes to Consolidated Financial Statements
|
9
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
24
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risks
|
35
|
Item 4.
|
Controls and Procedures
|
35
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PART II. OTHER INFORMATION
|
||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
36
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Item 6.
|
Exhibits
|
37
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SIGNATURES
|
38
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED BALANCE SHEETS
|
||||||||
(unaudited)
|
||||||||
June 30,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
(dollars in thousands, except
share and par value amounts)
|
||||||||
Assets
|
||||||||
Real estate, at cost
|
$ | 951,100 | $ | 978,781 | ||||
Real estate held for sale at cost, net of depreciation ($0 for 2013 and $4,658 for 2012)
|
- | 18,077 | ||||||
Real estate subject to sales contracts at cost, net of depreciation ($1,773 for 2013 and $16,412 for 2012)
|
29,436 | 45,706 | ||||||
Less accumulated depreciation
|
(144,281 | ) | (145,614 | ) | ||||
Total real estate
|
836,255 | 896,950 | ||||||
Notes and interest receivable
|
||||||||
Performing (including $57,683 in 2013 and $58,007 in 2012 from related parties)
|
60,655 | 60,637 | ||||||
Non-performing
|
752 | 723 | ||||||
Less allowance for estimated losses (including $2,097 in 2013 and 2012 from related parties)
|
(2,262 | ) | (2,262 | ) | ||||
Total notes and interest receivable
|
59,145 | 59,098 | ||||||
Cash and cash equivalents
|
8,994 | 16,620 | ||||||
Related party receivables
|
7,125 | - | ||||||
Investments in unconsolidated joint ventures and investees
|
5,740 | 5,439 | ||||||
Other assets
|
52,555 | 67,237 | ||||||
Total assets
|
$ | 969,814 | $ | 1,045,344 | ||||
Liabilities and Shareholders’ Equity
|
||||||||
Liabilities:
|
||||||||
Notes and interest payable
|
$ | 718,255 | $ | 730,931 | ||||
Notes related to assets held for sale
|
- | 18,915 | ||||||
Notes related to subject to sales contracts
|
21,035 | 55,976 | ||||||
Stock-secured notes payable
|
2,204 | 2,221 | ||||||
Related party payables
|
- | 10,057 | ||||||
Deferred gain (from sales to related parties)
|
53,096 | 53,096 | ||||||
Accounts payable and other liabilities (including $4,301 in 2013 and $4,282 in 2012 to related parties)
|
33,462 | 41,019 | ||||||
828,052 | 912,215 | |||||||
Shareholders’ equity:
|
||||||||
Preferred stock, Series C: $.01 par value, authorized 10,000,000 shares, issued and outstanding 30,000
shares in 2013 and 2012 respectively (liquidation preference $100 per share) Series D: $.01 par value,
authorized, issued and outstanding 100,000 shares in 2013 and 2012 respectively
|
1 | 1 | ||||||
Common stock, $.01 par value, authorized 10,000,000 shares; issued 8,413,669 shares in 2013 and 2012,
and outstanding 8,413,469 shares in 2013 and 2012
|
84 | 84 | ||||||
Treasury stock at cost; 200 shares in 2013 and 2012
|
(2 | ) | (2 | ) | ||||
Paid-in capital
|
272,277 | 272,774 | ||||||
Retained earnings
|
(147,641 | ) | (156,559 | ) | ||||
Total Transcontinental Realty Investors, Inc. shareholders' equity
|
124,719 | 116,298 | ||||||
Non-controlling interest
|
17,043 | 16,831 | ||||||
Total equity
|
141,762 | 133,129 | ||||||
Total liabilities and equity
|
$ | 969,814 | $ | 1,045,344 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
(dollars in thousands, except share and per share amounts)
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Rental and other property revenues (including $166 and $167 for the three months and $331 and
$335 for the six months ended 2013 and 2012 respectively from related parties)
|
$ | 26,340 | $ | 26,421 | $ | 52,285 | $ | 52,221 | ||||||||
Expenses:
|
||||||||||||||||
Property operating expenses (including $185 and $236 for the three months and $405 and $500 for
the six months ended 2013 and 2012 respectively from related parties)
|
11,915 | 12,717 | 24,354 | 24,932 | ||||||||||||
Depreciation and amortization
|
5,412 | 4,947 | 10,250 | 9,930 | ||||||||||||
General and administrative (including $839 and $682 for the three months and $1,544 and $1,345 for
the six months ended 2013 and 2012 respectively from related parties)
|
1,616 | 771 | 3,441 | 3,213 | ||||||||||||
Provision on impairment of notes receivable and real estate assets
|
- | - | - | - | ||||||||||||
Advisory fee to related party
|
2,071 | 2,217 | 4,209 | 4,521 | ||||||||||||
Total operating expenses
|
21,014 | 20,652 | 42,254 | 42,596 | ||||||||||||
Operating income
|
5,326 | 5,769 | 10,031 | 9,625 | ||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income (including $2,149 and $3,866 for the three months and $4,140 and $7,091 for the six
months ended 2013 and 2012 respectively from related parties)
|
2,119 | 3,869 | 4,296 | 7,098 | ||||||||||||
Other income (including $0 and $1,500 for the three months and $0 and $3,000 for the six months
ended 2013 and 2012 respectively from related parties)
|
144 | 1,592 | 180 | 3,312 | ||||||||||||
Mortgage and loan interest (including $439 and $1,107 for the three months and $487 and $1,861 for
the six months ended 2013 and 2012 respectively from related parties)
|
(9,654 | ) | (11,207 | ) | (19,246 | ) | (22,398 | ) | ||||||||
Deferred borrowing costs amortization
|
(946 | ) | (1,957 | ) | (3,378 | ) | (2,852 | ) | ||||||||
Loan charges and prepayment penalties
|
(3,226 | ) | (3,769 | ) | (7,209 | ) | (6,162 | ) | ||||||||
Loss on the sale of investments
|
- | (16 | ) | - | (118 | ) | ||||||||||
Earnings from unconsolidated joint ventures and investees
|
15 | 9 | 22 | (63 | ) | |||||||||||
Total other expenses
|
(11,548 | ) | (11,479 | ) | (25,335 | ) | (21,183 | ) | ||||||||
Loss before gain on land sales, non-controlling interest, and taxes
|
(6,222 | ) | (5,710 | ) | (15,304 | ) | (11,558 | ) | ||||||||
Gain (loss) on land sales
|
- | 4,738 | (48 | ) | 5,160 | |||||||||||
Loss from continuing operations before tax
|
(6,222 | ) | (972 | ) | (15,352 | ) | (6,398 | ) | ||||||||
Income tax benefit
|
6,427 | 1,200 | 8,574 | 1,654 | ||||||||||||
Net income (loss) from continuing operations
|
205 | 228 | (6,778 | ) | (4,744 | ) | ||||||||||
Discontinued operations:
|
||||||||||||||||
Income (loss) from discontinued operations
|
290 | 1,927 | 231 | (364 | ) | |||||||||||
Gain on sale of real estate from discontinued operations
|
18,074 | 1,502 | 24,265 | 5,091 | ||||||||||||
Income tax expense from discontinued operations
|
(6,427 | ) | (1,200 | ) | (8,574 | ) | (1,654 | ) | ||||||||
Net income from discontinued operations
|
11,937 | 2,229 | 15,922 | 3,073 | ||||||||||||
Net income (loss)
|
12,142 | 2,457 | 9,144 | (1,671 | ) | |||||||||||
Net income attributable to non-controlling interest
|
(115 | ) | (175 | ) | (226 | ) | (254 | ) | ||||||||
Net income (loss) attributable to Transcontinental Realty Investors, Inc.
|
12,027 | 2,282 | 8,918 | (1,925 | ) | |||||||||||
Preferred dividend requirement
|
(277 | ) | (277 | ) | (551 | ) | (554 | ) | ||||||||
Net income (loss) applicable to common shares
|
$ | 11,750 | $ | 2,005 | $ | 8,367 | $ | (2,479 | ) | |||||||
Earnings per share - basic
|
||||||||||||||||
Loss from continuing operations
|
$ | (0.02 | ) | $ | (0.03 | ) | $ | (0.90 | ) | $ | (0.66 | ) | ||||
Income from discontinued operations
|
1.42 | 0.26 | 1.89 | 0.37 | ||||||||||||
Net income(loss) applicable to common shares
|
$ | 1.40 | $ | 0.23 | $ | 0.99 | $ | (0.29 | ) | |||||||
Earnings per share - diluted
|
||||||||||||||||
Loss from continuing operations
|
$ | (0.02 | ) | $ | (0.03 | ) | $ | (0.90 | ) | $ | (0.66 | ) | ||||
Income from discontinued operations
|
1.42 | 0.26 | 1.89 | 0.37 | ||||||||||||
Net income(loss) applicable to common shares
|
$ | 1.40 | $ | 0.23 | $ | 0.99 | $ | (0.29 | ) | |||||||
Weighted average common share used in computing earnings per share
|
8,413,469 | 8,413,469 | 8,413,469 | 8,413,469 | ||||||||||||
Weighted average common share used in computing diluted earnings per share
|
8,413,469 | 8,413,469 | 8,413,469 | 8,413,469 | ||||||||||||
Amounts attributable to Transcontinental Realty Investors, Inc.
|
||||||||||||||||
Income (loss) from continuing operations
|
$ | 90 | $ | 53 | $ | (7,004 | ) | $ | (4,998 | ) | ||||||
Income from discontinued operations
|
11,937 | 2,229 | 15,922 | 3,073 | ||||||||||||
Net income (loss)
|
$ | 12,027 | $ | 2,282 | $ | 8,918 | $ | (1,925 | ) | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, 2013
|
||||||||||||||||||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||||||||||||||||||
(dollars in thousands)
|
||||||||||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||||||||||
|
Other
|
Non- | ||||||||||||||||||||||||||||||||||||||
Total
|
Comprehensive
|
Preferred
|
Common Stock
|
Treasury
|
Paid-in
|
Retained
|
Comprehensive
|
Controlling
|
||||||||||||||||||||||||||||||||
Equity
|
Loss
|
Stock
|
Shares
|
Amount
|
Stock
|
Capital
|
Earnings
|
Income (Loss)
|
Interest
|
|||||||||||||||||||||||||||||||
Balance, December 31, 2012
|
$ | 133,129 | $ | (159,156 | ) | $ | 1 | 8,413,669 | $ | 84 | $ | (2 | ) | $ | 272,774 | $ | (156,559 | ) | $ | - | $ | 16,831 | ||||||||||||||||||
Series C preferred stock dividends (7.0% per year)
|
(105 | ) | - | - | - | - | - | (105 | ) | - | - | - | ||||||||||||||||||||||||||||
Series D preferred stock dividends (8.5% per year)
|
(446 | ) | - | - | - | - | - | (446 | ) | - | - | - | ||||||||||||||||||||||||||||
Net income
|
9,144 | 9,144 | - | - | - | - | - | 8,918 | - | 226 | ||||||||||||||||||||||||||||||
Sale of controlling interest
|
54 | - | - | - | - | - | 54 | - | - | - | ||||||||||||||||||||||||||||||
Distributions to non-controlling interests
|
(14 | ) | - | - | - | - | - | - | - | - | (14 | ) | ||||||||||||||||||||||||||||
Balance, June 30, 2013
|
$ | 141,762 | $ | (150,012 | ) | $ | 1 | 8,413,669 | $ | 84 | $ | (2 | ) | $ | 272,277 | $ | (147,641 | ) | $ | - | $ | 17,043 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
||||||||
(unaudited)
|
||||||||
For the Six Months Ended
|
||||||||
June 30,
|
||||||||
2013
|
2012
|
|||||||
(dollars in thousands)
|
||||||||
Net income (loss)
|
$ | 9,144 | $ | (1,671 | ) | |||
Other comprehensive income (loss)
|
- | - | ||||||
Total comprehensive income (loss)
|
9,144 | (1,671 | ) | |||||
Comprehensive income attributable to non-controlling interest
|
(226 | ) | (254 | ) | ||||
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc.
|
$ | 8,918 | $ | (1,925 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(unaudited)
|
||||||||
For the Six Months Ended
|
||||||||
June 30,
|
||||||||
2013
|
2012
|
|||||||
(dollars in thousands)
|
||||||||
Cash Flow From Operating Activities:
|
||||||||
Net income (loss)
|
$ | 9,144 | $ | (1,671 | ) | |||
Adjustments to reconcile net loss applicable to common
shares to net cash used in operating activities:
|
||||||||
Gain (loss) on sale of land
|
48 | (5,160 | ) | |||||
Gain on sale of income-producing properties
|
(24,265 | ) | (5,091 | ) | ||||
Depreciation and amortization
|
10,761 | 11,236 | ||||||
Provision on impairment of notes receivable and real estate assets
|
- | - | ||||||
Amortization of deferred borrowing costs
|
3,383 | 2,864 | ||||||
(Earnings) losses from unconsolidated subsidiaries and investees
|
(23 | ) | 8 | |||||
(Increase) decrease in assets:
|
||||||||
Accrued interest receivable
|
296 | (6,370 | ) | |||||
Other assets
|
- | - | ||||||
Prepaid expense
|
(1,008 | ) | 5 | |||||
Escrow
|
10,227 | 3,991 | ||||||
Earnest money
|
525 | 235 | ||||||
Rent receivables
|
2,924 | (504 | ) | |||||
Related party receivables
|
(7,125 | ) | - | |||||
Increase (decrease) in liabilities:
|
||||||||
Accrued interest payable
|
(2,186 | ) | (6,790 | ) | ||||
Related party payables
|
(10,057 | ) | 18,811 | |||||
Other liabilities
|
(8,081 | ) | (22,223 | ) | ||||
Net cash used in operating activities
|
(15,437 | ) | (10,659 | ) | ||||
Cash Flow From Investing Activities:
|
||||||||
Proceeds from notes receivable
|
- | 11,993 | ||||||
Originations or advances on notes receivable
|
(343 | ) | (6,000 | ) | ||||
Acquisition of land held for development
|
(7 | ) | (18,948 | ) | ||||
Acquisition of income-producing properties
|
- | - | ||||||
Proceeds from sale of income-producing properties
|
75,874 | 37,038 | ||||||
Proceeds from sale of land
|
2,537 | 20,667 | ||||||
Proceeds from sale of investment in unconsolidated real estate entities
|
- | - | ||||||
Proceeds from sale of investments
|
- | 132 | ||||||
Investment in unconsolidated real estate entities
|
(278 | ) | 585 | |||||
Improvement of land held for development
|
(290 | ) | (164 | ) | ||||
Improvement of income-producing properties
|
(3,333 | ) | (725 | ) | ||||
Acquisition of non-controlling interest
|
- | (69 | ) | |||||
Sales of controlling interest
|
54 | 113 | ||||||
Construction and development of new properties
|
(179 | ) | (4,185 | ) | ||||
Net cash provided by investing activities
|
74,035 | 40,437 | ||||||
Cash Flow From Financing Activities:
|
||||||||
Proceeds from notes payable
|
136,172 | 138,675 | ||||||
Recurring amortization of principal on notes payable
|
(7,504 | ) | (14,381 | ) | ||||
Payments on maturing notes payable
|
(193,031 | ) | (153,164 | ) | ||||
Deferred financing costs
|
(1,296 | ) | (2,815 | ) | ||||
Contributions (distributions) to non-controlling interests
|
(14 | ) | (8 | ) | ||||
Common stock issuance
|
- | - | ||||||
Preferred stock dividends - Series C
|
(105 | ) | (106 | ) | ||||
Preferred stock dividends - Series D
|
(446 | ) | (448 | ) | ||||
Net cash used in financing activities
|
(66,224 | ) | (32,247 | ) | ||||
Net decrease in cash and cash equivalents
|
(7,626 | ) | (2,469 | ) | ||||
Cash and cash equivalents, beginning of period
|
16,620 | 19,991 | ||||||
Cash and cash equivalents, end of period
|
$ | 8,994 | $ | 17,522 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash paid for interest
|
$ | 20,125 | $ | 23,076 | ||||
Schedule of noncash investing and financing activities:
|
||||||||
Notes receivable received from related party
|
$ | - | $ | 6,000 | ||||
Related party payable/receivable for ARL cost basis sales adjustment
|
$ | - | $ | 10,445 | ||||
Acquisition of land for ARL cost basis sales adjustment
|
$ | - | $ | (10,445 | ) | |||
The accompanying notes are an integral part of these consolidated financial statements.
|
|
•
|
10 commercial buildings consisting of seven office buildings, one industrial warehouse and two retail centers comprising in aggregate approximately 2.3 million rentable square feet;
|
|
•
|
45 apartment communities totaling 8,033 units; excluding apartments being developed; and
|
|
•
|
4,105 acres of developed and undeveloped land.
|
Level 1 –
|
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
|
Level 2 –
|
Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
Level 3 –
|
Unobservable inputs that are significant to the fair value measurement.
|
Apartments
|
$ | 587,977 | ||
Commercial properties
|
209,440 | |||
Land held for development
|
153,683 | |||
Real estate held for sale
|
- | |||
Real estate subject to sales contract
|
31,209 | |||
Total real estate
|
982,309 | |||
Less accumulated depreciation
|
(146,054 | ) | ||
Total real estate, net of depreciation
|
$ | 836,255 |
Maturity
|
Interest
|
|||||||
Borrower
|
Date
|
Rate
|
Amount
|
Security
|
||||
Performing loans:
|
||||||||
Miscellaneous related party notes (1)
|
Various
|
Various
|
$ 665
|
Various secured interest
|
||||
Summer Breeze I-V, LLC
|
09/13
|
5.00%
|
2,933
|
6% Class A and 25% Class B Limited Partner Interests
|
||||
Unified Housing Foundation, Inc. (Echo Station) (1)
|
12/32
|
12.00%
|
1,481
|
100% Membership Interest in Unified Housing of Temple, LLC
|
||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
|
12/32
|
12.00%
|
2,000
|
Unsecured
|
||||
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
|
12/32
|
12.00%
|
6,363
|
Membership interest in Housing for Seniors of Humble, LLC
|
||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1)
|
12/32
|
12.00%
|
4,663
|
100% Membership Interest in Unified Housing of Austin, LLC
|
||||
Unified Housing Foundation, Inc. (Limestone Canyon) (1)
|
12/32
|
12.00%
|
3,057
|
100% Membership Interest in Unified Housing of Austin, LLC
|
||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1)
|
12/32
|
12.00%
|
6,000
|
100% Membership Interest in Unified Housing of Vista Ridge, LLC
|
||||
Unified Housing Foundation, Inc. (Limestone Ranch) (1)
|
12/32
|
12.00%
|
2,250
|
100% Membership Interest in Unified Housing of Vista Ridge, LLC
|
||||
Unified Housing Foundation, Inc. (Parkside Crossing) (1)
|
12/32
|
12.00%
|
1,936
|
100% Membership Interest in Unified Housing of Parkside Crossing, LLC
|
||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1)
|
12/32
|
12.00%
|
4,812
|
100% Membership Interest in Unified Housing of Sendero Ridge, LLC
|
||||
Unified Housing Foundation, Inc. (Sendero Ridge) (1)
|
12/32
|
12.00%
|
5,174
|
100% Membership Interest in Unified Housing of Sendero Ridge, LLC
|
||||
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)
|
12/32
|
12.00%
|
1,323
|
100% Membership Interest in Unified Housing of Terrell, LLC
|
||||
Unified Housing Foundation, Inc. (Tivoli) (1)
|
12/32
|
12.00%
|
7,965
|
100% Membership Interest in Unified Housing of Tivoli, LLC
|
||||
Unified Housing Foundation, Inc. (1)
|
12/13
|
5.00%
|
6,000
|
Unsecured
|
||||
Accrued interest
|
4,033
|
|||||||
Total Performing
|
$ 60,655
|
|||||||
Non-Performing loans:
|
||||||||
Miscellaneous non-related party notes
|
Various
|
Various
|
640
|
Various secured and unsecured interest
|
||||
Accrued interest
|
112
|
|||||||
$ 752
|
||||||||
|
Allowance for estimated losses
|
(2,262)
|
||||||
Total
|
$ 59,145
|
|||||||
(1) Related party notes
|
Percentage ownership as of
|
||||||||||||
June 30, 2013
|
June 30, 2012
|
|||||||||||
American Realty Investors, Inc.1
|
1.99 | % | 2.03 | % |
1
|
Unconsolidated Investment in Parent Company
|
As of June 30,
|
2013
|
2012
|
||||||
Real estate, net of accumulated depreciation
|
$ | 44,886 | $ | 45,829 | ||||
Notes receivable
|
44,544 | 23,486 | ||||||
Other assets
|
132,221 | 150,771 | ||||||
Notes payable
|
(61,410 | ) | (60,055 | ) | ||||
Other liabilities
|
(87,474 | ) | (84,593 | ) | ||||
Shareholders' equity/partners' capital
|
(72,767 | ) | (75,438 | ) | ||||
For the Six Months Ended June 30,
|
2013 | 2012 | ||||||
Revenue
|
$ | 6,948 | $ | 3,706 | ||||
Depreciation
|
(152 | ) | (126 | ) | ||||
Operating expenses
|
(3,776 | ) | (2,423 | ) | ||||
Gain (loss) on land sales
|
12 | (1,444 | ) | |||||
Loss on sale of investment
|
- | (361 | ) | |||||
Interest expense
|
(2,922 | ) | (2,472 | ) | ||||
Income (loss) from continuing operations
|
110 | (3,120 | ) | |||||
Income (loss) from discontinued operations
|
(15 | ) | 2,731 | |||||
Net Income (loss)
|
$ | 95 | $ | (389 | ) | |||
|
||||||||
Company's proportionate share of earnings
|
$ | 2 | $ | (8 | ) |
Notes
Payable
|
Stock
Loans
|
Accrued
Interest
|
Total
Debt
|
|||||||||||||
Apartments
|
$ | 494,184 | $ | - | $ | 1,441 | $ | 495,625 | ||||||||
Commercial
|
106,491 | - | 257 | 106,748 | ||||||||||||
Land
|
98,658 | - | 2,044 | 100,702 | ||||||||||||
Real estate held for sale
|
604 | - | - | 604 | ||||||||||||
Real estate subject to sales contract
|
18,680 | - | 2,355 | 21,035 | ||||||||||||
Other
|
14,395 | 2,204 | 181 | 16,780 | ||||||||||||
Total
|
$ | 733,012 | $ | 2,204 | $ | 6,278 | $ | 741,494 |
Pillar
|
ARL
|
Total
|
||||||||||
Related party payable, December 31, 2012
|
$ | - | $ | (10,057 | ) | $ | (10,057 | ) | ||||
Cash transfers
|
5,535 | - | 5,535 | |||||||||
Advisory fees
|
(4,209 | ) | - | (4,209 | ) | |||||||
Net income fee
|
(104 | ) | - | (104 | ) | |||||||
Fees and commissions
|
(2,569 | ) | - | (2,569 | ) | |||||||
Cost reimbursements
|
(1,350 | ) | - | (1,350 | ) | |||||||
Interest expense
|
- | (110 | ) | (110 | ) | |||||||
POA fees
|
(50 | ) | - | (50 | ) | |||||||
Expenses paid by advisor
|
(1,183 | ) | - | (1,183 | ) | |||||||
Financing (mortgage payments)
|
48 | - | 48 | |||||||||
Sales/Purchases transactions
|
10,973 | - | 10,973 | |||||||||
Series K preferred stock acquisition
|
- | (270 | ) | (270 | ) | |||||||
Intercompany property transfers
|
10,471 | - | 10,471 | |||||||||
Purchase of obligations
|
(17,562 | ) | 17,562 | - | ||||||||
Related party receivable, June 30, 2013
|
$ | - | $ | 7,125 | $ | 7,125 |
Commercial
|
||||||||||||||||||||
For the Three Months Ended June 30, 2013
|
Properties
|
Apartments
|
Land
|
Other
|
Total
|
|||||||||||||||
Rental and other property revenues
|
$ | 5,892 | $ | 20,444 | $ | - | $ | 4 | $ | 26,340 | ||||||||||
Property operating expenses
|
2,967 | 8,697 | 219 | 32 | 11,915 | |||||||||||||||
Depreciation and amortization
|
1,825 | 3,587 | - | - | 5,412 | |||||||||||||||
Mortgage and loan interest
|
1,725 | 5,860 | 1,378 | 691 | 9,654 | |||||||||||||||
Deferred borrowing costs
|
19 | 894 | 32 | 1 | 946 | |||||||||||||||
Loan charges and prepayment penalties
|
- | 3,200 | - | 26 | 3,226 | |||||||||||||||
Interest income
|
- | - | - | 2,119 | 2,119 | |||||||||||||||
Gain (loss) on land sales
|
- | - | - | - | - | |||||||||||||||
Segment operating income (loss)
|
$ | (644 | ) | $ | (1,794 | ) | $ | (1,629 | ) | $ | 1,373 | $ | (2,694 | ) | ||||||
Capital expenditures
|
2,250 | 110 | - | - | 2,360 | |||||||||||||||
Real estate assets
|
150,234 | 515,080 | 170,941 | - | 836,255 | |||||||||||||||
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 | ||||||||||
Commercial
|
||||||||||||||||||||
For the Three Months Ended June 30, 2012
|
Properties
|
Apartments
|
Land
|
Other
|
Total
|
|||||||||||||||
Rental and other property revenues
|
$ | 7,142 | $ | 19,277 | $ | - | $ | 2 | $ | 26,421 | ||||||||||
Property operating expenses
|
4,095 | 8,394 | 260 | (32 | ) | 12,717 | ||||||||||||||
Depreciation and amortization
|
1,416 | 3,531 | - | - | 4,947 | |||||||||||||||
Mortgage and loan interest
|
1,462 | 6,928 | 1,409 | 1,408 | 11,207 | |||||||||||||||
Deferred borrowing costs
|
22 | 1,900 | 35 | - | 1,957 | |||||||||||||||
Loan charges and prepayment penalties
|
- | 3,730 | 39 | - | 3,769 | |||||||||||||||
Interest income
|
- | - | - | 3,869 | 3,869 | |||||||||||||||
Gain on land sales
|
- | - | 4,738 | - | 4,738 | |||||||||||||||
Segment operating income (loss)
|
$ | 147 | $ | (5,206 | ) | $ | 2,995 | $ | 2,495 | $ | 431 | |||||||||
Capital expenditures
|
293 | 37 | - | - | 330 | |||||||||||||||
Real estate assets
|
169,990 | 564,506 | 191,015 | - | 925,511 | |||||||||||||||
Property Sales
|
||||||||||||||||||||
Sales price
|
$ | 6,825 | $ | 25,985 | $ | 12,650 | $ | - | $ | 45,460 | ||||||||||
Cost of sale
|
7,362 | 23,946 | 7,912 | - | 39,220 | |||||||||||||||
Gain (loss) on sale
|
$ | (537 | ) | $ | 2,039 | $ | 4,738 | $ | - | $ | 6,240 |
For the Three Months Ended
|
||||||||
June 30,
|
||||||||
2013
|
2012
|
|||||||
Segment operating income (loss)
|
$ | (2,694 | ) | $ | 431 | |||
Other non-segment items of income (expense)
|
||||||||
General and administrative
|
(1,616 | ) | (771 | ) | ||||
Advisory fees
|
(2,071 | ) | (2,217 | ) | ||||
Other income
|
144 | 1,592 | ||||||
Earnings from unconsolidated joint ventures and investees
|
15 | 9 | ||||||
Loss on sale of investment
|
- | (16 | ) | |||||
Income tax benefit
|
6,427 | 1,200 | ||||||
Net Income from continuing operations
|
$ | 205 | $ | 228 |
June 30,
|
||||||||
2013
|
2012
|
|||||||
Segment assets
|
$ | 836,255 | $ | 925,511 | ||||
Investments in real estate partnerships
|
5,470 | 5,637 | ||||||
Notes and interest receivable
|
59,145 | 77,748 | ||||||
Other assets
|
68,944 | 82,007 | ||||||
Assets held for sale
|
- | 2,879 | ||||||
Total assets
|
$ | 969,814 | $ | 1,093,782 |
Commercial
|
||||||||||||||||||||
For the Six Months Ended June 30, 2013
|
Properties
|
Apartments
|
Land
|
Other
|
Total
|
|||||||||||||||
Rental and other property revenues
|
$ | 11,833 | $ | 40,414 | $ | 34 | $ | 4 | $ | 52,285 | ||||||||||
Property operating expenses
|
6,743 | 17,082 | 520 | 9 | 24,354 | |||||||||||||||
Depreciation and amortization
|
3,096 | 7,154 | - | - | 10,250 | |||||||||||||||
Mortgage and loan interest
|
3,134 | 11,930 | 2,779 | 1,403 | 19,246 | |||||||||||||||
Deferred borrowing costs
|
40 | 3,248 | 87 | 3 | 3,378 | |||||||||||||||
Loan charges and prepayment penalties
|
- | 7,183 | - | 26 | 7,209 | |||||||||||||||
Interest income
|
- | - | - | 4,296 | 4,296 | |||||||||||||||
Loss on land sales
|
- | - | (48 | ) | - | (48 | ) | |||||||||||||
Segment operating income (loss)
|
$ | (1,180 | ) | $ | (6,183 | ) | $ | (3,400 | ) | $ | 2,859 | $ | (7,904 | ) | ||||||
Capital expenditures
|
3,053 | 246 | 63,218 | - | 66,517 | |||||||||||||||
Real estate assets
|
150,234 | 515,080 | 170,941 | - | 836,255 | |||||||||||||||
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 | |||||||||
Commercial
|
||||||||||||||||||||
For the Six Months Ended June 30, 2012
|
Properties
|
Apartments
|
Land
|
Other
|
Total
|
|||||||||||||||
Rental and other property revenues
|
$ | 14,313 | $ | 37,865 | $ | - | $ | 43 | $ | 52,221 | ||||||||||
Property operating expenses
|
8,153 | 15,984 | 516 | 279 | 24,932 | |||||||||||||||
Depreciation and amortization
|
2,832 | 7,098 | - | - | 9,930 | |||||||||||||||
Mortgage and loan interest
|
2,991 | 13,926 | 2,982 | 2,499 | 22,398 | |||||||||||||||
Deferred borrowing costs
|
43 | 2,758 | 51 | - | 2,852 | |||||||||||||||
Loan charges and prepayment penalties
|
- | 6,118 | 44 | - | 6,162 | |||||||||||||||
Interest income
|
- | - | - | 7,098 | 7,098 | |||||||||||||||
Gain on land sales
|
- | - | 5,160 | - | 5,160 | |||||||||||||||
Segment operating income (loss)
|
$ | 294 | $ | (8,019 | ) | $ | 1,567 | $ | 4,363 | $ | (1,795 | ) | ||||||||
Capital expenditures
|
793 | 899 | 285 | - | 1,977 | |||||||||||||||
Real estate assets
|
169,990 | 564,506 | 191,015 | - | 925,511 | |||||||||||||||
Property Sales
|
||||||||||||||||||||
Sales price
|
$ | 6,825 | $ | 47,131 | $ | 18,980 | $ | - | $ | 72,936 | ||||||||||
Cost of sale
|
7,362 | 41,503 | 13,820 | - | 62,685 | |||||||||||||||
Deferred current gain
|
- | - | - | - | - | |||||||||||||||
Recognized prior deferred gain
|
- | - | - | - | - | |||||||||||||||
Gain (loss) on sale
|
$ | (537 | ) | $ | 5,628 | $ | 5,160 | $ | - | $ | 10,251 |
For the Six Months Ended
|
||||||||
June 30,
|
||||||||
2013
|
2012
|
|||||||
Segment operating loss
|
$ | (7,904 | ) | $ | (1,795 | ) | ||
Other non-segment items of income (expense)
|
||||||||
General and administrative
|
(3,441 | ) | (3,213 | ) | ||||
Advisory fees
|
(4,209 | ) | (4,521 | ) | ||||
Other income
|
180 | 3,312 | ||||||
Earnings from unconsolidated joint ventures and investees
|
22 | (63 | ) | |||||
Loss on sale of investment
|
- | (118 | ) | |||||
Income tax benefit
|
8,574 | 1,654 | ||||||
Loss from continuing operations
|
$ | (6,778 | ) | $ | (4,744 | ) |
June 30,
|
||||||||
2013
|
2012
|
|||||||
Segment assets
|
$ | 836,255 | $ | 925,511 | ||||
Investments in real estate partnerships
|
5,470 | 5,637 | ||||||
Notes and interest receivable
|
59,145 | 77,748 | ||||||
Other assets
|
68,944 | 82,007 | ||||||
Assets held for sale
|
- | 2,879 | ||||||
Total assets
|
$ | 969,814 | $ | 1,093,782 |
For the Three Months Ended
|
For the Six Months Ended
|
|||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenue
|
||||||||||||||||
Rental and other property revenues
|
$ | 1,258 | $ | 3,456 | $ | 3,768 | $ | 7,850 | ||||||||
Other income
|
20 | 943 | 20 | 939 | ||||||||||||
1,278 | 4,399 | 3,788 | 8,789 | |||||||||||||
Expenses
|
||||||||||||||||
Property operating expense
|
247 | 2,095 | 1,652 | 4,812 | ||||||||||||
Interest expense
|
265 | (290 | ) | 878 | 1,904 | |||||||||||
Loan cost amortization
|
2 | 9 | 4 | 12 | ||||||||||||
Loan fee expense
|
- | - | - | 849 | ||||||||||||
General and administrative
|
291 | 160 | 511 | 324 | ||||||||||||
Depreciation and amortization
|
183 | 554 | 512 | 1,308 | ||||||||||||
Earnings from unconsolidated joint ventures and investees
|
- | (56 | ) | - | (56 | ) | ||||||||||
$ | 988 | $ | 2,472 | $ | 3,557 | $ | 9,153 | |||||||||
Income (loss) from discontinued operations before gains on
sale of real estate, taxes, and fees
|
290 | 1,927 | 231 | (364 | ) | |||||||||||
Gain on sale of discontinued operations
|
18,074 | 1,502 | 24,265 | 5,091 | ||||||||||||
Income from discontinued operations
|
$ | 18,364 | $ | 3,429 | $ | 24,496 | $ | 4,727 | ||||||||
Income tax expense
|
(6,427 | ) | (1,200 | ) | (8,574 | ) | (1,654 | ) | ||||||||
Net income from discontinued operations
|
$ | 11,937 | $ | 2,229 | $ | 15,922 | $ | 3,073 |
|
•
|
general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);
|
|
•
|
risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;
|
|
•
|
demand for apartments and commercial properties in the Company’s markets and the effect on occupancy and rental rates;
|
|
•
|
the Company’s ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;
|
|
•
|
risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;
|
|
•
|
failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;
|
|
•
|
risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);
|
|
•
|
risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;
|
|
•
|
costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;
|
|
•
|
potential liability for uninsured losses and environmental contamination;
|
|
•
|
risks associated with our dependence on key personnel whose continued service is not guaranteed; and
|
|
•
|
the other risk factors identified in this Form 10-Q, including those described under the caption “Risk Factors.”
|
Level 1 –
|
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
|
Level 2 –
|
Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
Level 3 –
|
Unobservable inputs that are significant to the fair value measurement.
|
June 30,
|
||||||||
2013
|
2012
|
|||||||
Continuing operations
|
55 | 55 | ||||||
Held for sale/subsequent sales
|
- | 6 | ||||||
Total property portfolio
|
55 | 61 |
For the Three Months
Ended June 30,
|
||||||||
2013
|
2012
|
|||||||
Revenue
|
||||||||
Rental and other property revenues
|
$ | 1,258 | $ | 3,456 | ||||
Other income
|
20 | 943 | ||||||
1,278 | 4,399 | |||||||
Expenses
|
||||||||
Property operating expense
|
247 | 2,095 | ||||||
Interest expense
|
265 | (290 | ) | |||||
Loan cost amortization
|
2 | 9 | ||||||
Loan fee expense
|
- | - | ||||||
General and administrative
|
291 | 160 | ||||||
Depreciation and amortization
|
183 | 554 | ||||||
Earnings from unconsolidated joint ventures and investees
|
- | (56 | ) | |||||
$ | 988 | $ | 2,472 | |||||
Income from discontinued operations before gains on sale of
real estate, taxes, and fees
|
290 | 1,927 | ||||||
Gain on sale of discontinued operations
|
18,074 | 1,502 | ||||||
Income from discontinued operations
|
$ | 18,364 | $ | 3,429 | ||||
Income tax expense
|
(6,427 | ) | (1,200 | ) | ||||
Net income from discontinued operations
|
$ | 11,937 | $ | 2,229 |
For the Six Months
Ended June 30,
|
||||||||
2013
|
2012
|
|||||||
Revenue
|
||||||||
Rental and other property revenues
|
$ | 3,768 | $ | 7,850 | ||||
Other income
|
20 | 939 | ||||||
3,788 | 8,789 | |||||||
Expenses
|
||||||||
Property operating expense
|
1,652 | 4,812 | ||||||
Interest expense
|
878 | 1,904 | ||||||
Loan cost amortization
|
4 | 12 | ||||||
Loan fee expense
|
- | 849 | ||||||
General and administrative
|
511 | 324 | ||||||
Depreciation and amortization
|
512 | 1,308 | ||||||
Earnings from unconsolidated joint ventures and investees
|
- | (56 | ) | |||||
$ | 3,557 | $ | 9,153 | |||||
Income (loss) from discontinued operations before gains on sale of
real estate, taxes, and fees
|
231 | (364 | ) | |||||
Gain on sale of discontinued operations
|
24,265 | 5,091 | ||||||
Income from discontinued operations
|
$ | 24,496 | $ | 4,727 | ||||
Income tax expense
|
(8,574 | ) | (1,654 | ) | ||||
Net income from discontinued operations
|
$ | 15,922 | $ | 3,073 |
|
•
|
fund normal recurring expenses;
|
|
•
|
meet debt service and principal repayment obligations including balloon payments on maturing debt;
|
|
•
|
fund capital expenditures, including tenant improvements and leasing costs;
|
|
•
|
fund development costs not covered under construction loans; and
|
|
•
|
fund possible property acquisitions.
|
|
•
|
property operations;
|
|
•
|
proceeds from land and income-producing property sales;
|
|
•
|
collection of mortgage notes receivable;
|
|
•
|
collection of receivables from related party companies;
|
|
•
|
refinancing of existing debt; and
|
|
•
|
additional borrowing, including mortgage notes payable and lines of credit.
|
June 30,
|
||||||||||||
2013
|
2012
|
Variance
|
||||||||||
Net cash used in operating activities
|
$ | (15,707 | ) | $ | (10,659 | ) | $ | (5,048 | ) | |||
Net cash provided by investing activities
|
$ | 74,305 | $ | 40,437 | $ | 33,868 | ||||||
Net cash used in financing activities
|
$ | (66,224 | ) | $ | (32,247 | ) | $ | (33,977 | ) |
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
Weighted
|
Effect of 1%
|
|||||||||||
Average
|
Increase In
|
|||||||||||
Balance
|
Interest Rate
|
Base Rates
|
||||||||||
Notes payable:
|
||||||||||||
Variable rate
|
$ | 114,721 | 4.33% | $ | 1,147 | |||||||
Total decrease in TCI’s annual net income
|
1,147 | |||||||||||
Per share
|
$ | 0.14 |
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Total Number of
|
Maximum Number of
|
|||||||||||||||
Shares Purchased
|
Shares that May
|
|||||||||||||||
Total Number of
|
Average Price
|
as Part of Publicly
|
Yet be Purchased
|
|||||||||||||
Period
|
Shares Purchased
|
Paid per share
|
Announced Program
|
Under the Program
|
||||||||||||
Balance at March 31, 2013
|
1,230,535 | 406,465 | ||||||||||||||
April 30, 2013
|
- | $ | - | 1,230,535 | 406,465 | |||||||||||
May 31, 2013
|
- | $ | - | 1,230,535 | 406,465 | |||||||||||
June 30, 2013
|
- | $ | - | 1,230,535 | 406,465 | |||||||||||
Total
|
- |
ITEM 6.
|
EXHIBITS
|
Exhibit
Number
|
Description
|
3.0
|
Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).
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3.1
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Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996).
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3.2
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Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
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3.3
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Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
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3.4
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Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, References, Limitations, Restriction and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
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3.5
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Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of Series C Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
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3.6
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Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
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3.7
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By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).
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3.8
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Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrant’s Current Report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof).
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10.1
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Advisory Agreement dated as of April 30, 2011, between Transcontinental Realty Investors, Inc., and Pillar Income Asset Management, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K for event occurring May 2, 2011).
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31.1*
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Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
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31.2*
|
Certification by the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
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32.1*
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Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
*
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Filed herewith.
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TRANSCONTINENTAL REALTY INVESTORS, INC.
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||
Date: August 14, 2013
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By:
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/s/ Daniel J. Moos
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Daniel J. Moos
|
||
President and Chief Executive Officer
(Principal Executive Officer)
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||
Date: August 14, 2013
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By:
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/s/ Gene S. Bertcher
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Gene S. Bertcher
|
||
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Transcontinental Realty Investors, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
|
|
(d)
|
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 14, 2013
|
/s/ Daniel J. Moos
|
Daniel J. Moos
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Transcontinental Realty Investors, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and
|
|
(d)
|
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officers(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 14, 2013
|
/s/ Gene S. Bertcher
|
Gene S. Bertcher
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
(i)
|
The Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2013, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
|
|
(ii)
|
The information contained in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2013, fairly presents in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated.
|
TRANSCONTINENTAL REALTY INVESTORS, INC.
|
||
Date: August 14, 2013
|
By:
|
/s/ Daniel J. Moos
|
Daniel J. Moos
|
||
President and Chief Executive Officer
(Principal Executive Officer)
|
||
Date: August 14, 2013
|
By:
|
/s/ Gene S. Bertcher
|
Gene S. Bertcher
|
||
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
|
6 Months Ended |
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Jun. 30, 2013
|
|
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY | |
COMMITMENTS AND CONTINGENCIES AND LIQUIDITY | NOTE 9. 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 jurys findings and entered a Judgment Notwithstanding the Verdict (JNOV) in Dynexs favor; the Fifth Court of Appeals has now ruled that the JNOV was improper because there was sufficient evidence to support the jurys findings. As a result, the Fifth Court of Appeals ordered the Trial Court to enter a new judgment consistent with the jurys 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 attorneys fees were also addressed with the Fifth Court of Appeals ordering the Trial Court to re-try the issue of attorneys 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 2013; such excess, however, will not be sufficient to discharge all of TCIs 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 Companys 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 million in the aggregate and will occur, if at all, in future years. |
REAL ESTATE ACTIVITY
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||
REAL ESTATE ACTIVITY [Abstract] | |||||||||||||||||||||||||||||||||||||||||
REAL ESTATE ACTIVITY | NOTE 2. REAL ESTATE ACTIVITY
Below is a summary of the real estate owned as of June 30, 2013 (dollars in thousands):
The highlights of our significant real estate transactions for the six months ended June 30, 2013 are listed below:
On January 8, 2013, the Company sold 14.52 acres of land known as Southwood located in Tallahassee, Florida at a foreclosure auction to an independent third party for $0.5 million. This land parcel was previously sold, on December 31, 2012, to One Realco Corporation, a related party, for a sales price of $0.6 million. The Company did not recognize or record the sale in accordance with ASC 360-20 due to TCIs continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyers inadequate initial investment and the Companys 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. A sale to an independent third party, that met the requirements of ASC 360-20, took place on January 8, 2013, when the property was sold to a third party and sales proceeds were credited against the outstanding debt. There was no gain or loss on the land parcel sale.
On January 28, 2013, the Company sold a 314unit apartment complex known as Verandas at City View located in Fort Worth, Texas for a sales price of $25.3 million to an independent third party. The buyer assumed the existing debt of $18.2 million secured by the property. TCI recorded a gain of $6.2 million on the sale.
On March 14, 2013, the Company sold 13.90 acres of land known as Sheffield located in Grand Prairie, Texas to an independent third party for a sales price of $2.3 million. The proceeds from the sale were used to pay off the multi-tract collateral debt, secured by the property. TCI recorded a nominal loss on the sale of the property.
On April 8, 2013, the Company recorded the transfer of ownership of Eton Square, a 225,566 square foot commercial building, located in Tulsa, Oklahoma to the existing lender for satisfaction of the current mortgage note. There was a negotiated deficiency between the value of the property and the outstanding mortgage, resulting in a promissory note for $2.0 million provided by the seller. The promissory note is reduced by $1.0 million if timely payments are made in accordance with the note. The investment in the entity that owns this commercial building was previously sold, on May 18, 2010, to TX Highland RS Corp, a related party, for a sales price of $13.7 million. The Company did not recognize or record the sale in accordance with ASC 360-20 due to TCIs continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyers inadequate initial investment and the Companys 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. A sale to an independent third party, that met the requirements of ASC 360-20, took place on April 8, 2013, when the property was transferred to the existing lender and sales proceeds were credited against the outstanding debt. We recorded a nominal gain on the sale.
On April 12, 2013, the Company was granted full title to 0.2341 acres of land known as Minivest, located in Dallas, Texas by an order of judgment. TCI paid real estate taxes and has been maintaining the property for the years 1993-2007.
On February 2, 2012, the Company and its subsidiary, 1340 Poydras, LLC, executed a guarantor settlement and consent agreement with the lender for the Amoco building, Petra CRE CDO 2007-1, Ltd (Petra) to transfer ownership of the Amoco building to a new entity, 1340 Owner, LLC, which is affiliated with the existing lender, Petra. Petra and its affiliate are independent third parties. TCI deferred the recognition of the sale in accordance with ASC 360-20 due to TCIs continuing involvement related to the obligations under the note and guaranty agreements and the re-acquisition option. As of May 7, 2013, TCI and Petra settled the obligations set forth under the note and guaranty and terminated the re-acquisition option. TCI recorded the sale to the independent third party and recognized a gain of $11.9 million. In connection with the settlement of certain litigation which had been pending in the U. S. District Court, Eastern District of Louisiana, among Petra, TCI, and a subsidiary, on May 7, 2013, TCI issued a $5.0 million Promissory Note payable to the lender which is secured by an unrecorded confession of judgment and a collateral pledge to such lender of 135,000 shares of Series K Convertible Preferred Stock of ARL issued on the same date to TCI. Such Promissory Note requires regular monthly payments, is pre-payable, and matures on March 5, 2015. The issuance of the $5.0 million Promissory Note and collateral to the Lender resolved all claims of the Lender against TCI including deficiency claims under a mortgage covering certain real property located in New Orleans, Louisiana. The note has prepayment provisions whereby if it is paid off by March 1, 2014, the balance of $3.5 million is forgiven and if paid off after March 1, 2014 but before March 1, 2015, $2.5 million will be forgiven and collateral returned to the Company and the judgment released.
On May 9, 2013, the Company sold 225 Baronne, a 422,037 square foot building, located in New Orleans, Louisiana for a sales price of $1.5 million to an independent third party. Proceeds of sale were used to pay down a related party payable. TCI recorded a nominal gain on the sale.
On June 7, 2013, the Company sold a 206-unit apartment complex known as Laguna Vista, located in Farmers Branch, Texas, for a sale price of $24.8 million to an independent third party. TCI recorded a gain on sale of $6.1 million.
As of July 22, 2013, several subsidiaries of the Company entered into a Twenty-Second Amendment to the Agreement for Purchase and Sale for the sale of nine residential apartment complexes. According to the terms of the Agreement, the purchaser will assume the existing loans, secured by the property and the purchaser is in the process of obtaining approval from HUD for this transfer. According to this Amendment, the deposits received by the Company and the title company are now only refundable if HUD does not approve the transfer of assets. The original contract was dated December 5, 2012 and due to the restrictions on the consummation of the sale, the Company has decided that the purchase commitment is not firm and has not met the requirements to be considered held-for-sale. Upon the approval from HUD, TCI will reclassify the assets as held-for-sale. The properties included in this proposed transaction are Dorado Ranch, Huntington Ridge, Legends of El Paso, Mariposa Villas, Paramount Terrace, River Oaks, Savoy of Garland, Stonebridge at City Park, and Vistas at Pinnacle Park.
In December 2010, various commercial and land holdings were sold to FRE Real Estate, Inc., a related party. During the first three months of 2011, many of these transactions were rescinded as of the original transaction date and were subsequently sold to related parties under the same ownership as FRE Real Estate, Inc. As of June 30, 2013, one commercial building, Thermalloy, remains in FRE Real Estate, Inc. The Company did not recognize or record the sale in accordance with ASC 360-20 due to TCIs continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyers inadequate initial investment and the Companys 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 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.
As of June 30, 2013, there remains one apartment complex, one commercial building and 212 acres of land 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. 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 buyers inadequate initial investment and the Companys 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, 2013, we have expended $0.2 million related to the construction or predevelopment of various apartment complexes. |
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