10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020 

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to________

Commission File Number 001-09240

TRANSCONTINENTAL REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	94-6565852
(State or Other Jurisdiction of  Incorporation or Organization)	(I.R.S. Employer  Identification No.)

1603 Lyndon B. Johnson Freeway, Suite 800, Dallas, Texas 75234

(Address of principal executive offices) (Zip Code)

(469) 522-4200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	TCI	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act: 

Large accelerated filer ☐	Accelerated filer	☐
Non-accelerated filer ☐	Smaller reporting company	☒
	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value	8,717,767
(Class)	(Outstanding at August 14, 2020)

TRANSCONTINENTAL REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets at June 30, 2020 (unaudited) and December 31, 2019	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)	4
	Consolidated Statement of Shareholders’ Equity for the three and six months ended June 30, 2020 and 2019 (unaudited)	5
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	35
Item 4.	Controls and Procedures	35
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 6.	Exhibits	37

2  

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2020			December 31, 2019
	(Unaudited)			(Audited)
	(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost	$	484,639		$	469,997
Real estate subject to sales contracts at cost		6,307			7,966
Less accumulated depreciation		(96,002	)		(90,173	)
Total real estate		394,944			387,790
Notes and interest receivable (including $68,170 in 2020 and $57,817 in 2019 from related parties)		135,664			120,986
Cash and cash equivalents		42,250			51,179
Restricted cash		30,114			32,082
Investment in VAA		52,773			59,148
Investment in other unconsolidated investees		22,638			22,632
Receivable from related parties		128,617			141,541
Other assets		57,167			50,560
Total assets	$	864,167		$	865,918
Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable	$	255,884		$	246,546
Bonds and bond interest payable		218,216			229,722
Deferred revenue (including $10,367 in 2020 and $9,468 2019 to related parties)		10,367			9,468
Accounts payable and other liabilities (including $934 in 2020 and $935 in 2019 to related parties)		24,778			26,115
Total liabilities		509,245			511,851
Shareholders’ equity:
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2020 and 2019; outstanding 8,717,767 shares in 2020 and 2019		87			87
Treasury stock at cost, 200 shares in 2020 and 2019		(2	)		(2	)
Paid-in capital		257,853			257,853
Retained earnings		75,120			74,665
Total Transcontinental Realty Investors, Inc. shareholders' equity		333,058			332,603
Non-controlling interest		21,864			21,464
Total shareholders' equity		354,922			354,067
Total liabilities and shareholders' equity	$	864,167		$	865,918

The accompanying notes are an integral part of these consolidated financial statements.

3  

TRANSCONTINENTAL REALTY INVESTORS, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended  June 30,						For the Six Months Ended  June 30,
	2020			2019			2020			2019
	(dollars in thousands, except per share amounts)
Revenues:
Rental and other property revenues (including $280 and $203 for the three months and $456 and $413 for the six months ended 2020 and 2019, respectively, from related parties)	$	11,947		$	11,840		$	23,865		$	23,769
Expenses:
Property operating expenses (including $254 and $246 for the three months ended and $496 and $504 for the six months ended 2020 and 2019, respectively, from related parties)		5,810			7,322			12,119			13,319
Depreciation and amortization		3,418			3,439			6,812			6,548
General and administrative (including $711 and $919 for the three months ended and $1,766 and $2,420 for the six months ended 2020 and 2019, respectively, from related parties)		1,405			2,211			3,926			4,539
Franchise taxes and other expenses		—			—			1,494			—
Net income fee to related party		112			90			198			190
Advisory fee to related party		2,051			2,158			4,146			3,806
Total operating expenses		12,796			15,220			28,695			28,402
Net operating (loss)		(849	)		(3,380	)		(4,830	)		(4,633	)
Other income (expenses):
Interest income (including $4,088 and $4,585 for the three months ended and $7,503 and $8,897 for the six months ended 2020 and 2019, respectively, from related parties)		4,227			4,878			8,754			9,436
Other income		1,484			688			2,319			4,580
Mortgage and loan interest (including $369 and $513 for the three months ended and $813 and $1,003 for the six months ended 2020 and 2019, respectively, from related parties)		(7,741	)		(7,646	)		(15,708	)		(15,605	)
Foreign currency transaction gain (loss)		(5,599	)		(2,325	)		2,244			(8,143	)
Equity loss from VAA		(735	)		(236	)		(1,111	)		(1,291	)
Losses from other unconsolidated investees		7			2			6			(5	)
Total other income (expenses)		(8,357	)		(4,639	)		(3,496	)		(11,028	)
Income (loss) before gain on land sales, non-controlling interest, and taxes		(9,206	)		(8,019	)		(8,326	)		(15,661	)
Loss on sale of income producing properties		—			(80	)		—			(80	)
Gain on land sales		5,339			2,133			9,477			4,349
Net income (loss) before taxes		(3,867	)		(5,966	)		1,151			(11,392	)
State income tax expense		(49	)		—			(296	)		—
Net income (loss)		(3,916	)		(5,966	)		855			(11,392	)
Net (income) attributable to non-controlling interest		(242	)		(379	)		(400	)		(562	)
Net income (loss) attributable to Transcontinental Realty Investors, Inc.		(4,158	)		(6,345	)		455			(11,954	)
Net income (loss) applicable to common shares	$	(4,158	)	$	(6,345	)	$	455		$	(11,954	)
(Loss) earnings per share - basic
Net income (loss)	$	(0.45	)	$	(0.68	)	$	0.10		$	(1.31	)
Net income (loss) applicable to common shares	$	(0.48	)	$	(0.73	)	$	0.05		$	(1.37	)
(Loss) earnings per share - diluted
Net income (loss)	$	(0.45	)	$	(0.68	)	$	0.10		$	(1.31	)
Net income (loss) applicable to common shares	$	(0.48	)	$	(0.73	)	$	0.05		$	(1.37	)
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 income (loss)	$	(3,916	)	$	(5,966	)	$	855		$	(11,392	)
Net income (loss) applicable to Transcontinental Realty, Investors, Inc.	$	(4,158	)	$	(6,345	)	$	455		$	(11,954	)

The accompanying notes are an integral part of these consolidated financial statements. 

4  

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited, dollars in thousands, except share amounts)

For the three months ended	Total			Comprehensive			Common Stock				Treasury			Paid-in			Retained			Non-controlling
June 30, 2020	Equity			Income (Loss)			Shares		Amount		Stock			Capital			Earnings			Interest
Balance, March 31, 2020	$	358,838		$	78,975			8,717,967	$	87	$	(2	)	$	257,853		$	79,278		$	21,622
Net loss		(3,916	)		(4,158	)		—		—		—			—			(4,158	)		242
Balance, June 30, 2020	$	354,922		$	74,817			8,717,967	$	87	$	(2	)	$	257,853		$	75,120		$	21,864
For the three months ended	Total			Comprehensive			Common Stock				Treasury			Paid-in			Retained			Non-controlling
June 30, 2019	Equity			Income (Loss)			Shares		Amount		Stock			Capital			Earnings			Interest
Balance, March 31, 2019	$	374,908		$	95,673			8,717,967	$	87	$	(2	)	$	257,983		$	95,976		$	20,864
Distribution to equity partner		(45	)		—			—		—		—			(45	)		—			—
Net loss		(5,966	)		(6,345	)		—		—		—			—			(6,345	)		379
Balance, June 30, 2019	$	368,897		$	89,328			8,717,967	$	87	$	(2	)	$	257,938		$	89,631		$	21,243
For the six months ended	Total			Comprehensive			Common Stock				Treasury			Paid-in			Retained			Non-controlling
June 30, 2020	Equity			Income (Loss)			Shares		Amount		Stock			Capital			Earnings			Interest
Balance, December 31, 2019	$	354,067		$	74,362			8,717,967	$	87	$	(2	)	$	257,853		$	74,665		$	21,464
Net income		855			455			—		—		—			—			455			400
Balance, June 30, 2020	$	354,922		$	74,817			8,717,967	$	87	$	(2	)	$	257,853		$	75,120		$	21,864
For the six months ended	Total			Comprehensive			Common Stock				Treasury			Paid-in			Retained			Non-controlling
June 30, 2020	Equity			Income (Loss)			Shares		Amount		Stock			Capital			Earnings			Interest
Balance, December 31, 2018	$	380,401		$	101,282			8,717,967	$	87	$	(2	)	$	258,050		$	101,585		$	20,681
Distribution to equity partner		(112	)		—			—		—		—			(112	)		—			—
Net loss		(11,392	)		(11,954	)		—		—		—			—			(11,954	)		562
Balance, June 30, 2019	$	368,897		$	89,328			8,717,967	$	87	$	(2	)	$	257,938		$	89,631		$	21,243

The accompanying notes are an integral part of these consolidated financial statements.

5  

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
	(dollars in thousands)
Net income (loss)	$	(3,916	)	$	(5,966	)	$	855		$	(11,392	)
Total comprehensive income (loss)		(3,916	)		(5,966	)		855			(11,392	)
Comprehensive (income) attributable to non-controlling interest		(242	)		(379	)		(400	)		(562	)
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc.	$	(4,158	)	$	(6,345	)	$	455		$	(11,954	)

The accompanying notes are an integral part of these consolidated financial statements.

6  

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2020			2019
	(dollars in thousands)
Cash Flow From Operating Activities:
Net income (loss)	$	855		$	(11,392	)
Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
Loss (gain) on sale of income-producing properties		—			80
Foreign currency transaction (gain) loss		(2,244	)		8,143
Distribution from VAA Joint Venture		1,441			—
Gain on sale of land		(9,477	)		(4,349	)
Depreciation and amortization		6,812			6,548
Amortization of deferred borrowing costs		425			366
Amortization of bond issuance costs		1,550			1,150
Loss from joint venture		1,111			1,291
Loses from other unconsolidated investees		(6	)		5
(Increase) decrease in assets:
Accrued interest receivable		(1,413	)		7,436
Other assets		(5,361	)		4,442
Prepaid expense		(2,345	)		4,098
Rent receivables		110			236
Related party receivables		(1,581	)		(31,857	)
Increase (decrease) in liabilities:
Accrued interest payable		1,112			(4,633	)
Other liabilities		(438	)		2,674
Net cash used in operating activities		(9,449	)		(15,762	)
Cash Flow From Investing Activities:
Proceeds from notes receivable		1,227			255
Originations or advances on notes receivable		(1,748	)		(945	)
Acquisition of land held for development		(2,664	)		(2,832	)
Distribution from equity investee		3,823			—
Proceeds from sale of income-producing properties		—			1,296
Proceeds from sale of land		12,255			15,800
Improvement of income-producing properties		(7,727	)		(4,044	)
Construction and development of new properties		(253	)		(17,434	)
Net cash provided by (used in) investing activities		4,913			(7,904	)
Cash Flow From Financing Activities:
Proceeds from notes payable		24,517			12,915
Recurring payment of principal on notes payable		(19,317	)		(3,143	)
Bond payments		(11,561	)		(10,378	)
Distributions to equity partner		—			(112	)
Net cash used in financing activities		(6,361	)		(718	)
Net decrease in cash, cash equivalents and restricted cash		(10,897	)		(24,384	)
Cash, cash equivalents and restricted cash, beginning of period		83,261			106,565
Cash, cash equivalents and restricted cash, end of period	$	72,364		$	82,181
Supplemental disclosures of cash flow information:
Cash paid for interest	$	14,710		$	12,927
Schedule of noncash investing and financing activities:
Land received in exchanged for note receivable	$	—		$	1,800
Notes payable issued on acquisition of land for development	$	3,350		$	—

The accompanying notes are an integral part of these consolidated financial statements.

7  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. 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 which was formed in 1984. The Company is headquartered in Dallas, Texas and its common stock is listed and trades on the New York Stock Exchange (“NYSE”) under the symbol “TCI”. 

TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with American Realty Investors, Inc. (“ARL”), whose common stock is traded on the NYSE under the symbol “ARL”. Subsidiaries and affiliates of ARL own in excess of 80% of the Company’s common stock. ARL and one of its subsidiaries own 78.38% and the parent of ARL owns 7.20% of the Company. Accordingly, TCI’s financial results are consolidated with those of ARL’s on Form 10-K and related Consolidated Financial Statements. ARL’s common stock is listed and trades on the New York Stock Exchange under the symbol “ARL”. 

On July 17, 2009, the Company acquired an additional 2,518,934 shares of common stock of Income Opportunity Realty Investors, Inc. (“IOR”), and in doing so, increased its ownership from approximately 25% to over 80% of the shares of common stock of IOR outstanding. Upon acquisition of the additional shares in 2009, IOR’s results of operations began to be consolidated with those of the Company for tax and financial reporting purposes. As of June 30, 2020, TCI owned 81.23% of the outstanding IOR common shares. Shares of IOR common stock are listed and traded on the NYSE American under the symbol “IOR”. 

TCI’s Board of Directors are responsible for directing the overall affairs of TCI and for setting the strategic policies that guide the Company. As of April 30, 2011, the Board of Directors delegated the day-to-day management of the Company to Pillar Income Asset Management, Inc. (“Pillar”), a Nevada corporation, under a written Advisory Agreement that is reviewed annually by TCI’s Board of Directors. The directors of TCI are also directors of ARL and four are also directors of IOR. The Chairman of the Board of Directors of TCI also serves as the Chairman of the Board of Directors of ARL and IOR. The officers of TCI also serve as officers of ARL, IOR and Pillar. 

Since April 30, 2011, Pillar, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc. (“RAI”), a Nevada corporation, the sole shareholder of which is May Realty Holdings, Inc. (“MRHI”, formerly known as Realty Advisors Management, Inc.), effective August 7, 2014), a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external contractual Advisor and Cash Manager.  Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as the contractual Advisor and Cash Manager to ARL and IOR.  As the contractual advisor, Pillar is compensated by TCI under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”.  TCI has no employees. Employees of Pillar render services to TCI in accordance with the terms of the Advisory Agreement. 

Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), manages our commercial properties and provides brokerage services. Regis receives property management fees, construction management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. Refer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. TCI engages third-party companies to lease and manage its apartment properties.

Southern Properties Capital Ltd. (“Southern” or “SPC”) is a wholly owned subsidiary of TCI that was incorporated on August 16, 2016 for the purpose of raising funds by issuing debentures (that cannot be converted into any other security) which are listed and traded on the Tel-Aviv Stock Exchange (“TASE”). Southern operates in the United States and is primarily involved in investing, developing, constructing and operating income-producing properties of multi-family residential real estate assets. Southern is included in the consolidated financial statements of TCI.

8

On January 1, 2012, the Company entered into a development agreement with Unified Housing Foundation, Inc. (“UHF”) a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.

On November 19, 2018, we executed an agreement between the Macquarie Group (“Macquarie”) and Southern and TCI to create a joint venture, Victory Abode Apartments, LLC (“VAA”) to address existing and future demand for quality multifamily residential housing through acquisition and development of sustainable Class A multifamily housing in focused secondary and tertiary markets. In connection with the formation of the joint venture, Southern and TCI contributed a portfolio of 49 income producing apartment complexes, and 3 development projects in various stages of construction and received cash consideration of $236.8 million. At the time of the transfer of the properties, the joint venture assumed all liabilities of those properties, including mortgage debt to the Department of Housing and Urban Development (“HUD”).

VAA is equally owned and controlled by Abode JVP, LLC, a wholly-owned subsidiary of Southern and Summerset Intermediate Holdings 2, LLC (“Summerset”), a wholly-owned indirect subsidiary of Macquarie. Pursuant to the Agreement, Abode JVP, LLC and Summerset each own voting and profit participation rights of 50% and 49%, respectively (“Class A Members”). The remaining 2% of the profits interest is held by Daniel J. Moos, who serves as the President and Chief Executive Officer of the Company (“Class B Member”) and Manager of the joint venture.

Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.

At June 30, 2020, our portfolio of income-producing properties consisted of:

● Seven commercial properties consisting of five office buildings and two retail properties comprising in aggregate of approximately 1.7 million square feet;

● Ten residential apartment communities owned directly by us comprising in 1,657 units, excluding apartments being developed;

● Approximately 1,891 acres of developed and undeveloped land; and

● Fifty-one residential apartment communities totaling 10,137 units owned by our 50% owned investee VAA.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities that have not yet begun construction. 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 necessary 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.

9

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 (“U.S. 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 three months ended June 30, 2020, 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, 2019 was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Certain 2019 Consolidated Financial Statement amounts have been reclassified to conform to the 2020 presentation.

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 is generally 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 and VAA 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 (“ASC 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 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.

10

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.

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:

Level 1 –	Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2 –	Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 –	Unobservable inputs that are significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

11

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement. Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years. Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date.

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 Standards

On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance in ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our election of the guidance of the Q&A has not had a significant impact on our consolidated financial statements during the six months ended June 30, 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions from ASC 740. Also, the amendments in this Update simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the impact that the adoption of ASU 2019-12 may have on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted retrospectively with early adoption permitted. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement that eliminates, adds and modifies certain disclosure requirements for fair value measurements. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. Early adoption is permitted. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial position and results of operations.

12

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard amended the existing lease accounting guidance and required lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases continued to recognize lease expense in a manner similar to previous accounting. For lessors, accounting for leases under the new guidance was substantially the same as in prior periods, but it eliminated current real estate-specific provisions and changed the treatment of initial direct costs. The Company early adopted the standard on January 1, 2019.

The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The Company adopted the standard on January 1, 2019, but since no material lease arrangements were identified where the Company was the lessee, there were no right-of-use assets or lease liabilities recorded.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provided entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases. The ASU provided a practical expedient which allowed lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient. The ASU also provided a transition option that permitted entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers. The scope of this standard specifically excludes lease contracts. The Company adopted the standard on January 1, 2019, but it did not have an impact to the financial statements as the majority of the Company’s revenue is from rental revenue generated from lease contracts.

Recent Accounting Pronouncements not yet Adopted

In March, 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which clarify or address specific stakeholder issues in a number of topics that affect the Company. The ASU is applicable to the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect of these clarifications on its financial reporting.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying to U.S. GAAP to contracts, hedging relationships and other transactions affected by rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company has mortgage loan obligations that reference LIBOR, and will be considering application of this ASU in the event any of its obligations experience a discontinuation of LIBOR.

NOTE 2. INVESTMENT IN VAA

The Company accounts for its investment in VAA under the equity method of accounting. Under the equity method of accounting, our net equity in the investment is reflected within the Consolidated Balance Sheets in the caption ‘Investment in VAA’, and our share of the net income or loss from the joint venture is included within the Consolidated Statements of Operations in the caption ‘Equity earnings from VAA’. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds and other agreed upon adjustments.

13

The following is a summary of the financial position and results of operations of VAA (dollars in thousands):

	For the period ended June 30,
	2020			2019
Balance Sheet
Net real estate assets	$	1,232,160		$	1,247,535
Other assets		57,160			56,474
Debt, net		(834,766	)		(812,010	)
Other liabilities		(270,647	)		(272,716	)
Total equity		(183,907	)		(219,283	)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Results of Operations
Total revenue	$	29,725		$	28,927		$	59,284		$	56,328
Total property, operating, and maintenance expenses		(15,541	)		(14,313	)		(29,282	)		(28,482	)
Interest expense		(14,193	)		(14,799	)		(29,267	)		(29,869	)
Depreciation and Amortization		(7,763	)		(15,523	)		(15,420	)		(30,756	)
Total other expense		(95	)		(327	)		(1,076	)		(1,002	)
Net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)

Below is a reconciliation of our allocation of income or loss from VAA.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
VAA net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)
Adjustments to reconcile to income (loss) from VAA
Interest expense on mezzanine loan		5,264			6,401			11,137			12,490
In-place lease intangibles - amortization expense		—			8,429			—			16,765
Depreciation basis differences		1,133			733			2,402			1,944
Net loss	$	(1,470	)	$	(472	)	$	(2,222	)	$	(2,582	)
Percentage ownership in VAA		50	%		50	%		50	%		50	%
Loss from VAA	$	(735	)	$	(236	)	$	(1,111	)	$	(1,291	)

NOTE 3. REAL ESTATE ACTIVITY

Below is a summary of the real estate owned as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	178,240		$	156,173
Apartments under construction		14,809			22,363
Commercial properties		230,365			229,424
Land held for development		61,225			62,037
Real estate subject to sales contract		6,307			7,966
Total real estate, at cost, less impairment	$	490,946		$	477,963
Less accumulated deprecation		(96,002	)		(90,173	)
Total real estate, net of depreciation	$	394,944		$	387,790

The following is a description of our significant real estate and financing transactions for the three months ended June 30, 2020:

● Sold a combined 25.9 acres of land to third parties in Farmers Branch, Texas and Forney, Texas for an aggregate sales price of $6.6 million and recognized a gain on the sale of approximately $5.3 million.

● Sold a plot of land (0.3 acres) in Farmers Brach, Texas for a sale price of $0.2 million and recognized a gain on the sale of approximately $0.06 million.

14

● Acquired a plot of land (1.3 acres) in McKinney, Texas for a purchase price of $0.5 million.

● Acquired a plot of land (0.7 acres) in Denton, Texas for a purchase price of $0.1 million.

● Purchased note receivable from related parties for a purchase price of $3.6 million. No gain or loss was recognized from the purchase of the notes receivables (refer to Note 5).

The Company continues to invest in the development of apartment projects. During the three months ended June 30, 2020, we have invested $0.3 million related to the construction or predevelopment of various apartment complexes out of which nominal amount represents capitalized interest costs.

NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION

For the six months ended June 30, 2020 and 2019, the Company paid interest expense of $14.7 million and $12.9 million, respectively.

Cash and cash equivalents, and restricted cash for the six months ended June 30, 2020 and 2019 was $72.4 million and $82.2 million, respectively. The following is a reconciliation of the Company’s cash and cash equivalents, and restricted cash to the total presented in the consolidated statement of cash flows:

	For the Period Ended June 30,
	2020		2019
Cash and cash equivalents	$	42,250	$	37,579
Restricted cash (cash held in escrow)		15,598		29,538
Restricted cash (certificate of deposits)		2,853		8,501
Restricted cash (held with Trustee)		11,663		6,563
Total cash, cash equivalents and restricted cash	$	72,364	$	82,181

Amounts included in restricted cash represent funds required to be set aside to meet contractual obligations with certain financial institutions for the payment of reserve replacement, tax and insurance escrow. In addition, restricted cash includes funds held with the Trustee for payment of bonds interest and other bond related expenses.

NOTE 5. NOTES AND INTEREST RECEIVABLE

A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and guarantees, 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.

15

Below is a summary of our notes receivable as of June 30, 2020 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate			Amount			Security
Performing loans:
Prospectus Endeavors 4, LLC	01/23		12.00	%		5,907		Secured
Prospectus Endeavors 6, LLC	10/22		12.00	%		496		Secured
Oulan-Chikh Family Trust	03/21		8.00	%		174		Secured
H198, LLC (McKinney Ranch Land)	09/20		6.00	%		4,554		Secured
Forest Pines Phase I	11/20		5.00	%		2,869		Secured
Spyglass Apartments of Ennis, LP	11/20		5.00	%		5,336		Secured
Bellwether Ridge	11/20		5.00	%		3,855		Secured
Parc at Windmill Farms	11/20		5.00	%		7,929		Secured
Autumn Breeze	10/21		5.00	%		1,638		Secured
Plum Tree	10/21		5.00	%		658		Secured
Parc at Ingleside	12/21		5.00	%		2,181		Secured
RNC Revolving Line of Credit	09/24		5.00	%		8,853		Secured
Steeple Crest	10/20		5.00	%		6,665		Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32		12.00	%		1,481		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		6,369		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		1,953		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		4,000		Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32		12.00	%		1,323		Secured
Unified Housing Foundation, Inc. (1)	12/21		12.00	%		10,401		Unsecured
Unified Housing Foundation, Inc. (1)	03/21		12.00	%		5,314		Unsecured
Unified Housing Foundation, Inc. (1)	03/22		12.00	%		4,782		Unsecured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	07/21		12.00	%		838		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	07/21		12.00	%		773		Secured
Unified Housing Foundation, Inc. (Marquis at Vista Ridge) (1)	07/21		12.00	%		839		Secured
Unified Housing Foundation, Inc. (Timbers at the Park) (1)	07/21		12.00	%		432		Secured
Unified Housing Foundation, Inc. (Bella Vista) (1)	08/21		12.00	%		212		Secured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		61		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		1,482		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		4,792		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		716		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		317		Unsecured
Unified Housing Foundation, Inc. (1)	05/23		12.00	%		3,615		Unsecured
Unified Housing Foundation, Inc. (1)	10/21		12.00	%		6,831		Unsecured
Other related party notes	Various		Various			4,078		Various secured interests
Other non-related party notes	Various		Various			11,724		Various secured interests
Accrued interest						10,041
Total Performing					$	137,489
Allowance for estimated losses						(1,825	)
Total					$	135,664

(1)  Related party notes

We invest in mortgage loans, secured by mortgages that are subordinate to one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on such loans ordinarily includes the real estate on which the loan is made, other collateral and guarantees.

At June 30, 2020, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $66.3 million and recognized interest income of $3.5 million related to these notes receivables. During the quarter just ended, the Company collected $3.2 million and purchased from a related party $10.9 million of notes receivables with an interest rate of 12% and maturity date of March 2023.

The Company has various notes receivable from Unified Housing foundation, Inc. (“UHF”). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow from operations, sale or refinancing of the underlying properties. These notes are cross collateralized to the extent that any surplus cash available from any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes. Furthermore, any surplus cash available from any of the properties UHF owns, besides the properties underlying these notes, can be used to repay outstanding interest and principal for these notes. The allowance on the notes was a purchase allowance that was netted against principal balance at the time of the acquisition.

16

NOTE 6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

Investments in unconsolidated subsidiaries, jointly owned companies and other investees in which we have a 20% to 50% ownership interest or otherwise exercise significant influence are carried at cost, adjusted for the Company’s proportionate share of their undistributed earnings or losses, via the equity method of accounting. ARL is our parent company and is an unconsolidated joint venture.

Investments accounted for via the equity method consists of the following, except for VAA which is discussed in Note 2.

Our interest in the common stock of ARL in the amount of 0.90% 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 following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

	For the Period Ended June 30,
	2020			2019
ARL
Real estate, net of accumulated depreciation	$	—		$	549
Notes receivable		31,925			42,719
Other assets		69,862			66,407
Notes payable		(6,719	)		(5,070	)
Other liabilities		(27,473	)		(33,855	)
Shareholders’ equity/partners capital		(67,595	)		(70,750	)

	For the Six Months Ended June 30,
	2020			2019
Rents, interest and other income	$	4,553		$	7,370
Operating expenses		(923	)		(1,479	)
Interest expense		(2,965	)		(3,771	)
Income from operations	$	665		$	2,120
Net  Income	$	665		$	2,120
Company’s proportionate share of loss	$	6		$	19

17

NOTE 7. NOTES AND INTEREST PAYABLE

Below is a summary of our notes and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	135,655		$	120,024
Apartments under Construction		4,505			9,017
Commercial		91,973			92,838
Land		13,293			14,806
Corporate and other notes		16,239			16,430
Total notes payable	$	261,665		$	253,115
Less: unamortized deferred borrowing costs		(6,917	)		(7,342	)
Total outstanding notes payable, net	$	254,748		$	245,773
Accrued Interest		1,136			773
Total notes payable, net and accrued interest	$	255,884		$	246,546

During the six months ended June 30, 2020, the Company drew down $7.4 million in construction loans to fund the development of various apartment projects. In addition, TCI through one of its subsidiaries issued a note payable of $3.4 million to purchase land for development in Kent, Ohio. The note has an interest rate of 10% and a maturity date of November 13, 2024.

NOTE 8. BONDS PAYABLE

Following is the outstanding balance of SPC’s bonds and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Bonds (Series A)	$	80,785		$	92,653
Bonds (Series B)		39,729			39,844
Bonds (Series B expansion)		20,860			20,920
Bonds (Series C)		79,342			79,572
Total outstanding bonds	$	220,716		$	232,989
Less: deferred bond issuance costs		(8,174	)		(9,724	)
Total outstanding bonds, net		212,542			223,265
Accrued Interest		5,674			6,457
Total oustanding bonds, net and accrued interest	$	218,216		$	229,722

The aggregate maturity of the bonds are as follows:

	June 30,		December 31,
Year	2020		2019
2020	$	11,541	$	23,148
2021		35,199		35,301
2022		35,199		35,301
2023		114,541		114,873
2024		12,118		12,153
Thereafter		12,118		12,213
	$	220,716	$	232,989

On January 31, 2020, the Company paid $11.6 million in Series A bond principal and $7.3 million in interest payments in Series A, B and C bonds, respectively.

18  

On July 22, 2020, the Company paid $11.7 million in Series A bond principal and $6.9 million in interest payments in Series A, B and C bonds, respectively.

NOTE 9. RELATED PARTY TRANSACTIONS

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 and paid are shown on the face of the Consolidated Financial Statements.

The following table provides the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of June 30, 2020 (dollars in thousands):

	June 30, 2020
	Pillar			ARL		Total
Related party receivable, beginning balance, December 31, 2019	$	—		$	141,541	$	141,541
Cash transfers		887			—		887
Advisory fees		(2,895	)		—		(2,895	)
Net income fee		(198	)		—		(198	)
Cost reimbursements		(1,749	)		—		(1,749	)
Interest income		—			3,235		3,235
Notes receivable purchased		(7,368	)		—		(7,368	)
Expenses (paid)/received by advisor		(4,511	)		—		(4,511	)
Financing (mortgage payments)		(166	)		—		(166	)
Intercompany property transfers		(159	)		—		(159	)
Related party receivable, ending balance, June 30, 2020	$	(16,159	)	$	144,776	$	128,617

NOTE 10. DEFERRED INCOME

In previous years, the Company has sold properties to related parties where we have had continuing involvement in the form of management or financial assistance associated with the sale of the properties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method is not met, and as such the Company has deferred some or all of the gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gain on these transactions have been deferred until the properties are sold to a non-related third party. As of June 30, 2020, we had deferred gain of $10.4 million.

NOTE 11. 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 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 notes receivable and corporate debt.

19  

Presented below is our reportable segments’ operating income for the three months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,863		$	4,084		$	—		$	—		$	11,947
Property operating expenses		(4,070	)		(1,930	)		(95	)		285			(5,810	)
Depreciation		(2,480	)		(938	)		—			—			(3,418	)
Mortgage and loan interest		(1,345	)		(1,177	)		(219	)		(5,000	)		(7,741	)
Interest income		—			—			—			4,227			4,227
Gain on land sales		—			—			5,339			—			5,339
Segment operating (loss) income	$	(32	)	$	39		$	5,025		$	(488	)	$	4,544
Capital expenditures	$	232		$	7,400		$	664		$	—		$	8,296
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	6,477		$	—		$	8,903
Cost of sale		—			(2,426	)		(1,138	)		—			(3,564	)
Gain on land sales	$	—		$	—		$	5,339		$	—		$	5,339

	Commercial
For the Three Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,020		$	3,818		$	—		$	2		$	11,840
Property operating expenses		(4,410	)		(2,017	)		(88	)		(807	)		(7,322	)
Depreciation		(2,732	)		(707	)		—			—			(3,439	)
Mortgage and loan interest		(1,947	)		(1,002	)		(270	)		(4,427	)		(7,646	)
Interest income		—			—			—			4,878			4,878
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			2,133			—			2,133
Segment operating (loss) income	$	(1,069	)	$	12		$	1,775		$	(354	)	$	364
Capital expenditures	$	346		$	9,596		$	353		$	—		$	10,295
Assets	$	—		$	—		$	—		$	—		$	—
Property Sales
Sales price	$	—		$	3,096		$	7,602		$	—		$	10,698
Cost of sale		—			(3,176	)		(5,469	)		—			(8,645	)
Gain on sale	$	—		$	(80	)	$	2,133		$	—		$	2,053

The table below provides the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Three Months Ended June 30,
	2020			2019
Segment operating income	$	4,544		$	364
Other non-segment items of income (expense)
General and administrative		(1,405	)		(2,211	)
Franchise taxes and other expenses		—			—
Net income fee to related party		(112	)		(90	)
Advisory fee to related party		(2,051	)		(2,158	)
Other income		1,484			688
Foreign currency translation gain (loss)		(5,599	)		(2,325	)
Loss from joint venture		(735	)		(236	)
Losses from other unconsolidated investees		7			2
State income tax expense		(49	)		—
Net income (loss) from continuing operations	$	(3,916	)	$	(5,966	)

20  

Presented below is our reportable segments’ operating income for the six months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Six Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	15,747		$	8,116		$	—		$	2		$	23,865
Property operating expenses		(8,180	)		(3,860	)		(193	)		114			(12,119	)
Depreciation		(5,002	)		(1,810	)		—			—			(6,812	)
Mortgage and loan interest		(2,717	)		(2,349	)		(425	)		(10,217	)		(15,708	)
Interest income		—			—			—			8,754			8,754
Gain on land sales		—			—			9,477			—			9,477
Segment operating (loss) income	$	(152	)	$	97		$	8,859		$	(1,347	)	$	7,457
Capital expenditures	$	941		$	14,433		$	2,664		$	—		$	18,038
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	12,189		$	—		$	14,615
Cost of sale		—			(2,426	)		(2,712	)		—			(5,138	)
Gain on land sales	$	—		$	—		$	9,477		$	—		$	9,477

	Commercial
For the Six Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	16,247		$	7,518		$	—		$	4		$	23,769
Property operating expenses		(8,346	)		(4,075	)		(45	)		(853	)		(13,319	)
Depreciation		(5,107	)		(1,441	)		—			—			(6,548	)
Mortgage and loan interest		(3,914	)		(1,936	)		(523	)		(9,232	)		(15,605	)
Interest income		—			—			—			9,436			9,436
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			4,349			—			4,349
Segment operating (loss) income	$	(1,120	)	$	(14	)	$	3,781		$	(645	)	$	2,002
Capital expenditures	$	4,045		$	17,434		$	2,832		$	—		$	24,311
Assets	$	152,852		$	153,950		$	79,699		$	—		$	386,501
Property Sales
Sales price	$	—		$	3,096		$	16,317		$	—		$	19,413
Cost of sale		—			(3,176	)		(11,968	)		—			(15,144	)
Gain on sale	$	—		$	(80	)	$	4,349		$	—		$	4,269

The following table reconciles segment information to the corresponding amounts in the Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Six Months Ended June 30,
	2020			2019
Segment operating income	$	7,457		$	2,002
Other non-segment items of income (expense)
General and administrative		(3,926	)		(4,539	)
Franchise taxes and other expenses		(1,494	)		—
Net income fee to related party		(198	)		(190	)
Advisory fee to related party		(4,146	)		(3,806	)
Other income		2,319			4,580
Foreign currency translation gain (loss)		2,244			(8,143	)
Loss from joint venture		(1,111	)		(1,291	)
Losses from other unconsolidated investees		6			(5	)
State income tax expense		(296	)		—
Net income (loss) from continuing operations	$	855		$	(11,392	)

21  

The tables below reconcile the segment information to the corresponding amounts in the Consolidated Balance Sheets:

	As of June 30,
	2020		2019
Segment assets	$	394,944	$	386,501
Investments in unconsolidated subsidiaries and investees		75,411		89,245
Notes and interest receivable		135,664		116,864
Other assets and receivables		258,148		261,277
Total assets	$	864,167	$	853,887

NOTE 12. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Liquidity.     Management believes that TCI will generate excess cash from property operations in 2020; such excess, however, might not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements.

Partnership Buyouts.    TCI is the limited partner in various partnerships related the construction of residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the nonaffiliated partners are limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements.

Litigation. The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.

Guarantees. The Company is the primary guarantor, on a $24.3 million mezzanine loan between UHF and a lender. In addition, ARL, and an officer of the Company are limited recourse guarantors of the loan. As of June 30, 2020 UHF was in compliance with the covenants to the loan agreement.

ART and ART Midwest, Inc.

While the Company and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 in litigation with Mr. David Clapper and entities related to Mr. Clapper (collectively, the “Clapper Parties”). The matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. “ART” and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgment in favor of the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurred and remanded the case back to the trial court to recalculate the damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.

The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. “EQK”, and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. In February 2018 the court determined that this legal matter should not have been filed in federal court and therefore granted motions to dismiss on jurisdictional grounds. In June 2018, the court overruled its own grant of motions to dismiss and reinstated the case. We continue to vigorously defend the case and management believes it has defenses to the claims. The case has not been set for trial.

22  

In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued the note at zero.

Dynex Capital, Inc.

On July 20, 2015, the 68^th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).

An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resulted in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgment against Dynex Commercial, Inc. on July 20, 2015.

The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic was $0.256 million in damages, plus pre-judgment interest of $0.192 million for a total amount of $0.448 million. The Judgment awarded ART was $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI was $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages were paid. Lastly, the Judgement awarded Basic, ART, and TCI was $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc.

TCI is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as pursue additional claims, if any, against Dynex Capital, Inc. Post judgment interest continues to accrue. 

Berger Litigation

On February 4, 2019, an individual claiming to be a stockholder holding 7,900 shares of Common Stock of Income Opportunity Realty Investors, Inc. (“IOR”) filed a Complaint in the United States District Court for the Northern District of Texas, Dallas Division, individually and allegedly derivatively on behalf of IOR, against Transcontinental Realty Investors, Inc. (“TCI”), American Realty Investors, Inc. (“ARL”), (TCI is a shareholder of IOR, ARL is a shareholder of TCI) Pillar Income Asset Management, Inc. (“Pillar”), ( collectively the “Companies”), certain officers and directors of the Companies (“Additional Parties”) and two other individuals. The Complaint filed alleges that the sale and/or exchange of certain tangible and intangible property between the Companies and IOR during the last ten years of business operations constitutes a breach of fiduciary duty by the one or more of Companies, the Additional Defendants and/or the directors of IOR. The case alleges other related claims. The Plaintiff seeks certification as a representative of IOR and all of its shareholders, unspecified damages, a return to IOR of various funds and an award of costs, expenses, disbursements (including Plaintiff’s attorneys’ fees) and prejudgment and post-judgment interest. The named Defendants intend to vigorously defend the action, deny all of the allegations of the Complaint, and believe the allegations to be wholly without any merit. The Defendants have filed motions to dismiss the case in its entirety in June 2019. On February 26, 2020, the Court denied IOR’s demand futility motion. The remaining Defendants’ motions were granted in part and denied in part in the first quarter of 2020. Discovery is ongoing.

23  

NOTE 13. EARNINGS PER SHARE

Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC 260 “Earnings per Share.” Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.

Prior to July 9, 2014, TCI had 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. These 30,000 shares were owned by RAI, a related party, and had accrued dividends unpaid of $0.9 million. The stock had a liquidation preference of $100.00 per share and could be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. On July 9, 2014, RAI converted all 30,000 shares into the requisite number of shares of common stock. The conversion resulted in the issuance of 304,298 new shares of common stock. The effects of the Series C Cumulative Convertible Preferred Stock are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the calculation for the prior periods if applying the if-converted method is dilutive.

As of June 30, 2020, there are no preferred stock or stock options that are required to be included in the calculation of EPS.

NOTE 14. SUBSEQUENT EVENTS

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and across our portfolio. While we did not experience significant disruptions during the three months ended June 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.

On July 16, 2020, the Company entered into purchase and sale agreement with a related party for the sale of multi-family property located in Port Arthur, Texas. The purchase price for this transaction is $13.3 million, net cash proceeds received is $5.4 million and assumption of debt is $9.1 million.

24  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and in the Company’s Form 10-K for the year ended December 31, 2019 (the “Annual Report”).

This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the captions “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

● general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);

● risks associated with the availability and terms of 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;

25  

● 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.”

The risks included here are not exhaustive. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements, include among others, the factors listed and described at Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and our property portfolio. While we did not incur significant disruptions during the three months ended June 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The pandemic is having a significant impact on the U.S. economy and on the local markets in which our properties are located. Nearly every industry has been impacted directly or indirectly, and the commercial real estate market has come under pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, and restrictions on travel and “shelter-in-place” or “stay-at-home” orders.

The following provides an overview of the impact of COVID-19 on our financial condition, results of operations and cash flows.

● We have collected approximately 97% of its second quarter rents, comprised of approximately 95% from multi-family tenants and 98% from office tenants.

● We have not granted any abatements or granted any significant deferments of contractual rents.

● Occupancy at its non-lease up properties remains stable at 87% at June 30, 2020 in comparison to 89% at June 30, 2019.

● We continue to obtain positive leasing spreads for new leases and renewals at properties.

● Our ground up development work continues unabated and thus far we have not experienced any work stoppages.

In addition, we believe that our financing activity will not be significantly impacted, given that most of our assets are HUD-backed loans with long maturity periods and it continues to able to refinance its maturities as they become due and obtain new financings for leased up properties.

The future impact of COVID-19 on our business and financial activities will depend on future developments, which at this stage are unpredictable considering the fluctuations of COVID-19 outbreaks and the resulting changes in the markets.

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time-to-time and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise as we file them with the SEC.

26  

Overview

We are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for development. Our portfolio of income-producing properties includes residential apartment communities, office buildings and other commercial properties. Our investment strategy includes acquiring existing income-producing properties, as well as developing new properties on land already owned or acquired for a specific development project.

We acquire land primarily in urban in-fill locations or high-growth suburban markets. We are an active buyer and seller of real estate.

During the six months ended June 30, 2020, we sold 44.9 acres of land to third parties in Farmers Branch, Texas and Forney, Texas for an aggregate sales price of $12.2 million and recognized a gain on the sale of $9.5 million. Furthermore, we acquired (i) 100% of the membership interest in EQK Portage, LLC, which owns approximately 49.2 acres of land in Kent, OH. We purchased the land for development at a total purchase price of $5.4 million, consisting of $2.0 million in cash and a 3.4 million note payable. The note has an interest rate of 10% and a maturity date of November 13, 2024, (ii) 100% of the membership interest in RNC Portfolio, which owns approximately 0.7 acres of commercial land in in Lewisville, TX. The Company purchased the land for development at a purchase price of approximately $0.1 million, which was paid in cash, (iii) approximately 1.3 acres of land in in McKinney, TX. The Company purchased the land for development at a purchase price of approximately $0.5 million, which was paid in cash.

In addition, we purchased notes receivables from related parties for an aggregate purchase price of $10.9 million. No gain or loss was recognized from the purchase of the notes receivables (refer to Note 5).

As of June 30, 2020, we owned 1,657 units in ten residential apartment communities, and seven commercial properties comprising of approximately 1.7 million rentable square feet. In addition, we own approximately 1,891 acres of land held for development. The Company currently owns income-producing properties and land in eight states.

We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders. We finance our development projects principally with variable interest rate construction loans that are converted to long-term, fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized. We will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of our wholly-owned properties. When we sell assets, we may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. We generate operating revenues primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants. We have no employees.

We have historically engaged in and may continue to engage in certain business transactions with related parties, including, but not limited to, asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

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 IOR.

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.

27  

Critical Accounting Policies

We present our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The FASB Accounting Standards Codification (“ASC”) is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP.

The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where 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 are included in consolidated net income. Our investment in ARL and VAA is accounted for under the equity method.

Real Estate

Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, “above-market” and “below-market” leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with ASC Topic 805 “Business Combinations”, and allocate the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings at replacement cost.

We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. Estimates of future cash flows are based on a number of factors, including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on our acquisitions to date, our allocation to customer relationship intangible assets has been immaterial.

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We cease capitalization when a building is considered substantially complete and ready for its intended use, but no later than one year from the cessation of major construction activity.

28  

Depreciation and Impairment

Real estate is stated at depreciated cost. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to the development of properties are capitalized. Capitalized development costs include interest, property taxes, insurance, and other project costs incurred during the period of development.

Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.

Investments in Unconsolidated Real Estate Ventures

Except for ownership interests in variable interest entities, we account for our investments in unconsolidated real estate ventures under the equity method of accounting because we exercise significant influence over, but do not control, these entities. These investments are recorded initially at cost, as investments in unconsolidated real estate ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated real estate ventures over the life of the related asset. Under the equity method of accounting, our net equity is reflected within the Consolidated Balance Sheets, and our share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. For ownership interests in variable interest entities, we consolidate those in which we are the primary beneficiary.

Recognition of Rental Income

Rental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. On our Consolidated Balance Sheets, we include as a receivable the excess of rental income recognized over rental payments actually received pursuant to the terms of the individual commercial lease agreements.

Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have the credit risk with respect to paying the supplier.

Rental income for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.

29  

The Company owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartments to tenants. As of June 30, 2020, our apartment leases generally have initial terms of 12 months or less and the rental revenue is recognized on an accrual basis when due from tenants in accordance with ASC 842, Leases. These leases are generally renewable at the end of the lease term subject to potential increases in rental rates. Collection of the rental payments is determined to be probable at lease commencement, so the payments are generally due and collected on a monthly basis and recognized monthly as earned, which is not materially different than on a straight-line basis, as lease terms are normally for periods of one year or less. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a monthly basis consistent with rental payment revenue recognition. Lease revenue also includes all pass-through revenue from leases and common area maintenance reimbursements. These services represent non-lease components in a contract as the Company transfers a service to the lessee other than the right to use the underlying asset. The Company has elected the practical expedient under the leasing standard to not separate lease and non-lease components as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.

Revenue Recognition on the Sale of Real Estate

Sales and the associated gains or losses of real estate are recognized in accordance with the provisions of ASC Topic 360-20, “Property, Plant and Equipment – Real Estate Sale”. The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition and account for the continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.

Non-Performing Notes Receivable

We consider a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement.

Interest Recognition on Notes Receivable

We record interest income as earned in accordance with the terms of the related loan agreements.

Allowance for Estimated Losses

We assess the collectability of notes receivable on a periodic basis, of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. See Note 4 “Notes and Interest Receivable” for details on our notes receivable.

Fair Value of Financial Instruments

We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:

Level 1 –	Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2 –	Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

30  

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.

Results of Operations

The following discussion and analysis is based on our Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019, as included in Part I, Item 1. “Financial Statements” of this report. At June 30, 2020 and 2019, we owned or had interests in a portfolio of ten and nine income-producing properties, respectively.

Comparison of the three months ended June 30, 2020 to the same period ended 2019:

For the three months ended June 30, 2020, we reported a net loss applicable to common shares of $4.2 million or $0.48 per diluted share, compared to a net loss applicable to common shares of $6.3 million or $0.73 per diluted share for the same period in 2019.

Revenues

Rental and other property revenues were $11.9 million for the three months ended June 30, 2020, compared to $11.8 million for the same period in 2019. For the quarter ended June 30, 2020, the Company generated revenues of $7.9 million and $4.0 million from its commercial and residential segments, respectively.

Expenses

Property operating expenses decreased by $1.5 million to $5.8 million for the three months ended June 30, 2020 as compared to $7.3 million for the same period in 2019. The decrease in property operating expenses was primarily attributable to reduction in property replacements cost.

Depreciation and amortization during the three months ended June 30, 2020 remained same as compared to the three months ended June 30, 2019, which was $3.4 million.

General and administrative expense was $1.4 million for the three months ended June 30, 2020, compared to $2.2 million for the same period in 2019. The decrease of $0.8 million in general and administrative expenses was primarily due to decrease in professional and legal services, and other expenses.

Other income (expense)

Interest income was $4.2 million for the three months ended June 30, 2020, compared to $4.9 million for the same period in 2019. The decrease of $0.7 million was due to decrease in interest of $0.7 million on notes receivable from other related parties.

Other income was $1.5 million for the three months ended June 30, 2020, compared to $0.7 million for the same period in 2019. The increase of $1.1 million in other income was primarily due from the collection of tax increment incentives related to infrastructure development work, and other miscellaneous income of $0.4 million. For the same period a year ago, the Company received cash proceeds of $0.2 million from the collection of tax increment incentives related to infrastructure development work, and other miscellaneous income of $0.5 million.

31  

Mortgage and loan interest expense was $7.7 million for the three months ended June 30, 2020 as compared to $7.6 million for the same period in 2019.

Foreign currency transaction was a loss of $5.6 million for the three months ended June 30, 2020 as compared to a loss of $2.3 million for the same period in 2019. The loss was the result of the strengthening of the Israel Shekels against the US Dollar due to economic uncertainties most likely as a result of the global pandemic outbreak.

Loss from unconsolidated investments was a net $0.7 million for the three months ended June 30, 2020 as compared to a net loss of $0.2 million for the three months ended June 30, 2019. The loss from unconsolidated investments during the second quarter just ended was driven primarily from our share in the losses reported by the VAA Joint Venture of $0.7 million.

Gain on land sales was $5.3 for the three months ended June 30, 2020, compared to $2.1 million for the same period in 2019. In the current period we sold approximately 25.9 acres of land for a sales price of $6.6 million which resulted in a gain of $5.3 million. For the same period in 2019, we sold approximately 41.6 acres of land for an aggregate sales price of $7.6 million and recorded a gain of $2.1 million. 

Comparison of the six months ended June 30, 2020 to the same period ended 2019:

For the six months ended June 30, 2020, we reported a net income applicable to common shares of $0.5 million or $0.05 per diluted share, compared to a net loss applicable to common shares of $11.9 million or $1.37 per diluted share for the same period in 2019.

Revenues

Rental and other property revenues were $23.9 million for the six months ended June 30, 2020, compared to $23.8 million for the same period in 2019. For the six months ended June 30, 2020, the Company generated revenues of $15.8 million and $8.1 million from its commercial and residential segments, respectively.  

Expenses

Property operating expenses decreased by $1.2 million to $12.1 million for the six months ended June 30, 2020 as compared to $13.3 million for the same period in 2019. The decrease in property operating expenses was primarily attributable to reduction in property replacements cost.

Depreciation and amortization increased by $0.3 million to $6.8 million during the six months ended June 30, 2020 as compared to $6.5 million for the same period in 2019. This increase is primarily due to increase of depreciation expense in residential segment by $0.4 million.

General and administrative expense was $3.9 million for the six months ended June 30, 2020, compared to $4.5 million for the same period in 2019. The decrease of $0.6 million in general and administrative expenses was primarily due to decrease in other expenses, partially offset by increase in in professional and legal services.

Franchise taxes and other expenses was $1.5 million for the six months ended March 31, 2020, compared to a nominal amount for the same period in 2019. The increase of $1.5 million in franchise taxes and other expenses was primarily due to increases in franchise taxes of $1.0 million.

32  

Other income (expense)

Interest income was $8.7 million for the six months ended June 30, 2020, compared to $9.4 million for the same period in 2019. The decrease of $0.7 million was due to decrease in interest of $0.7 on notes receivable from other related parties.

Other income was $2.3 million for the six months ended June 30, 2020, compared to $4.6 million for the same period in 2019, a decrease of $2.3 million. During the six months just ended, we recognized $1.1 million attributable to collection of tax increment incentives related to infrastructure development work and $1.2 million of miscellaneous income. For the same period a year ago, we recognized a gain of $3.6 million as a result of deferred income associated with the sale of land held by IOR, and received cash proceeds of $0.2 million from the collection of tax increment incentives related to infrastructure development work.

Mortgage and loan interest expense was $15.7 million for the six months ended June 30, 2020 as compared to $15.6 million for the same period in 2019.

Foreign currency transaction was a gain of $2.2 million for the six months ended June 30, 2020 as compared to a loss of $8.1 million for the same period in 2019. The unrealized gain was the result of the strengthening of the U.S. Dollar against the Israel Shekels due to perceived liquidity issues in Israel most likely as a result of the global pandemic outbreak, primarily during the first quarter of 2020.

Loss from unconsolidated investments was a net of $1.1 million for the six months ended June 30, 2020 as compared to a loss of $1.3 million for the six months ended June 30, 2019. The loss from unconsolidated investments during the first half of 2020 was driven primarily from our share in the losses of $1.1 million reported by our joint venture VAA (Refer to Note 2).

Gain on land sales was $9.5 for the six months ended June 30, 2020, compared to $4.3 million for the same period in 2019. In the current period we sold approximately 44.9 acres of land for a sales price of $12.2 million which resulted in a gain of $9.5 million. For the same period a year ago, we sold 63.9 acres of land for an aggregate sales price of $16.3 million and recorded a gain of $4.3 million.

Liquidity and Capital Resources

Our principal liquidity needs are:

● fund normal recurring expenses;

● meet debt service and principal repayment obligations including balloon payments on maturing debt;

● fund capital expenditures, including tenant improvements and leasing costs;

● fund development costs not covered under construction loans; and

● fund possible property acquisitions.

Our principal sources of cash have been and will continue to be:

● property operations;

● proceeds from land and income-producing property sales;

● collection of mortgage notes receivable;

● collection of receivables from related party companies;

● refinancing of existing debt; and

● additional borrowing, including mortgage notes, mezzanine financing and lines of credit.

We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans. Management anticipates that our available cash from property operations may not be sufficient to meet all of our cash requirements. Management intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowing secured by real estate to meet its liquidity requirements. Although the past cannot predict the future, historically, management has been successful at extending a portion of our current maturity obligations and selling assets as necessary to meet current obligations.

33  

Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows as presented in Part I, Item 1. “Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flow (dollars in thousands):

	For the Six Months Ended June 30,
	2020			2019			Incr /(Decr)
Net cash (used in) operating activities	$	(9,449	)	$	(15,762	)	$	6,313
Net cash provided by (used in) investing activities	$	4,913		$	(7,904	)	$	12,817
Net cash (used in) financing activities	$	(6,361	)	$	(718	)	$	(5,643	)

Our primary use of cash for operations is daily operating costs, general and administrative expenses, advisory fees, and land holding costs. Our primary source of cash from operating activities is from rental income on properties. In addition, we have a related party account in which excess cash is transferred to or from.

Our primary cash outlays for investing activities are for construction and development, acquisition of land and income-producing properties, and capital improvements to existing properties. During the six months ended June 30, 2020, we advanced $1.7 million toward various notes receivable, purchased land for development for $2.7 million, and invested approximately $8.0 million for the development of new properties and improvement of income producing properties. For the six months ended June 30, 2019, we advanced $0.9 million toward various notes receivable, purchased land for development for $2.8 million, and invested approximately $21.5 million for the development of new properties and improvement of income producing properties.

Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties. During the six months ended June 30, 2020, we received aggregate sales proceeds of $12.2 million from the sale of 44.9 acres of land and recorded a gain of $9.5 million. In addition, collected $1.2 million on note receivables and received $3.8 million on distributions from one of our equity investees. For the six months ended June 30, 2019, we received aggregate sales proceeds of $15.8 million from the sale of 63.9 acres of land and recorded a gain of $4.3 million and sold a residential property for which we received cash proceeds of $1.3 million and a plot of land valued at $1.8 million.

Our primary sources of cash from financing activities are from proceeds on notes payables either through refinancing our existing loans or by obtaining new financing. Our primary cash outlays are for recurring debt payments and payments on maturing notes payable.

During the six months ended June 30, 2020, the decrease in cash flow from financing activities is primarily due to a payment on bond principal of $11.6 million, and payments on our outstanding notes of $19.3 million, partially offset by proceeds from borrowings of approximately $24.5 million. During the six months ended June 30, 2019, the decrease in cash flow from financing activities is primarily due to a payment on bond principal of $10.4 million, and payments on our outstanding notes of $3.1 million, partially offset by proceeds from notes of $12.9 million.

Environmental Matters

Under various federal, state and local environmental laws, ordinances and regulations, we may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.

Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on our business, assets or results of operations.

34  

Inflation

The effects of inflation on our operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases, market conditions and decreases in real estate costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, earnings from short-term investments, the cost of new financings and the cost of variable interest rate debt will be affected.

Tax Matters 

TCI is a member of the May Realty Holdings, Inc., (“MRHI”) consolidated group for federal income tax reporting.  There is a tax sharing and compensating agreement between American Realty Investors, Inc. (“ARL”), Income Opportunities Realty Investors, Inc. (“IOR”), and TCI.

Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses.

For the quarter ended June 30, 2020, TCI had income before income taxes of $1.2 million driven mostly by the unrealized gain in foreign currency of $2.2 million which for federal income tax purposes is not taxable and therefore produces a loss before income taxes, and as such, the Company did not recognize a tax expense.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates. 

As of June 30, 2020, our outstanding notes payable balance was 261.7 million, out of which $258.0 million were notes with fixed interest rates and $3.7 million represented a note with a variable interest rate of 9.75%. If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, would increase by $0.01 million, and would result in a decrease of $0.001 in our earnings per share.

At June 30, 2020, the Company’s weighted average borrowing rate was approximately 5.0%.  Our variable rate exposure is mitigated through the ability to secure long-term fixed rate HUD financing on the residential apartment complexes.

ITEM 4. CONTROLS AND PROCEDURES

Based on an evaluation by our management (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

35  

There has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In December 1989, the Board of Directors approved a share repurchase program, authorizing the repurchase of a total of 687,000 shares of TCI’s common stock. In June 2000, the Board increased this authorization to 1,387,000 shares. On August 10, 2010, the Board of Directors approved an increase in the share repurchase program for up to an additional 250,000 shares of common stock which results in a total authorization under the repurchase program for up to 1,637,000 shares of our common stock. This repurchase program has no termination date. There were no shares purchased under this program during the first six months ended June 30, 2020. As of June 30, 2020, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.

36  

ITEM 6. EXHIBITS

The following exhibits are filed with this report or incorporated by reference as indicated;

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).
3.1	Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996).
3.2	Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
3.3	Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).
3.4	Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, 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).
3.5	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).
3.6	Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
3.7	By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).

3.8	Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrant’s Current Report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof).
10.1	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).
31.1*	Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.

  37

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.
32.1*	Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

  38

SIGNATURE PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TRANSCONTINENTAL REALTY INVESTORS, INC.
Date: August 14, 2020	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)
Date: August 14, 2020	By:	/s/ Alla Dzyuba
		Alla Dzyuba
		Vice President and Chief Accounting Officer (Principal Financial Officer)

  39

EX-31.1

Transcontinental Realty Investors, Inc. 10-Q

Exhibit 31.1

CERTIFICATION

I, Daniel J. Moos, certify that:

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 period 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, 2020	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)

 40

EX-31.2

Transcontinental Realty Investors, Inc. 10-Q

Exhibit 31.2

CERTIFICATION

I, Alla Dzyuba, certify that:

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 period 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, 2020	By:	/s/ Alla Dzyuba
		Alla Dzyuba
		Vice President and Chief Accounting Officer (Principal Financial Officer)

 41

EX-32.1

Transcontinental Realty Investors, Inc. 10-Q

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906

Of the Sarbanes-Oxley Act of 2002

Each of the undersigned officers of Transcontinental Realty Investors, Inc., a Nevada corporation (the “Company”) hereby certifies that:

(i) The Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2020 fully complies with the requirements of Section 13(a) 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 three months ended June 30, 2020 fairly presents in all material respects, the financial condition and results of operations of the Company, at and for the period indicated.

	TRANSCONTINENTAL REALTY INVESTORS, INC.
Date: August 14, 2020	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)
Date: August 14, 2020	By:	/s/ Alla Dzyuba
		Alla Dzyuba
		Vice President and Chief Accounting Officer (Principal Financial Officer)

 42

XML

Cover - shares	6 Months Ended
	Jun. 30, 2020	Aug. 14, 2020
Cover [Abstract]
Entity Registrant Name	TRANSCONTINENTAL REALTY INVESTORS INC
Entity Central Index Key	0000733590
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity File Number	001-09240
Entity Incorporation, State or Country Code	NV
Entity Reporting Status Current	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		8,717,767
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Assets
Real estate, at cost	$ 484,639	$ 469,997
Real estate subject to sales contracts at cost	6,307	7,966
Less accumulated depreciation	(96,002)	(90,173)
Total real estate	394,944	387,790
Notes and interest receivable (including $68,170 in 2020 and $57,817 in 2019 from related parties)	135,664	120,986
Cash and cash equivalents	42,250	51,179
Restricted cash	30,114	32,082
Investment in VAA	52,773	59,148
Investment in other unconsolidated investees	22,638	22,632
Receivable from related parties	128,617	141,541
Other assets	57,167	50,560
Total assets	864,167	865,918
Liabilities:
Notes and interest payable	255,884	246,546
Bonds and bond interest payable	218,216	229,722
Deferred revenue (including $10,367 in 2020 and $9,468 2019 to related parties)	10,367	9,468
Accounts payable and other liabilities (including $934 in 2020 and $935 in 2019 to related parties)	24,778	26,115
Total liabilities	509,245	511,851
Shareholders' equity:
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2020 and 2019; outstanding 8,717,767 shares in 2020 and 2019	87	87
Treasury stock at cost, 200 shares in 2020 and 2019	(2)	(2)
Paid-in capital	257,853	257,853
Retained earnings	75,120	74,665
Total Transcontinental Realty Investors, Inc. shareholders' equity	333,058	332,603
Non-controlling interest	21,864	21,464
Total shareholders' equity	354,922	354,067
Total liabilities and shareholders' equity	$ 864,167	$ 865,918

XML

CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Notes and interest receivable	$ 135,664	$ 120,986
Deferred revenue	10,367	9,468
Accounts payable and other liabilities	$ 24,778	$ 26,115
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized	10,000,000	10,000,000
Common stock, issued	8,717,967	8,717,967
Common stock, outstanding	8,717,767	8,717,767
Treasury stock, shares	200	200
Related Party [Member]
Notes and interest receivable	$ 68,170	$ 57,817
Deferred revenue	10,367	9,468
Accounts payable and other liabilities	$ 934	$ 935

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues:
Rental and other property revenues (including $280 and $203 for the three months and $456 and $413 for the six months ended 2020 and 2019, respectively, from related parties)	$ 11,947	$ 11,840	$ 23,865	$ 23,769
Expenses:
Property operating expenses (including $254 and $246 for the three months ended and $496 and $504 for the six months ended 2020 and 2019, respectively, from related parties)	5,810	7,322	12,119	13,319
Depreciation and amortization	3,418	3,439	6,812	6,548
General and administrative (including $711 and $919 for the three months ended and $1,766 and $2,420 for the six months ended 2020 and 2019, respectively, from related parties)	1,405	2,211	3,926	4,539
Franchise taxes and other expenses			1,494
Net income fee to related party	112	90	198	190
Advisory fee to related party	2,051	2,158	4,146	3,806
Total operating expenses	12,796	15,220	28,695	28,402
Net operating (loss)	(849)	(3,380)	(4,830)	(4,633)
Other income (expenses):
Interest income (including $4,088 and $4,585 for the three months ended and $7,503 and $8,897 for the six months ended 2020 and 2019, respectively, from related parties)	4,227	4,878	8,754	9,436
Other income	1,484	688	2,319	4,580
Mortgage and loan interest (including $369 and $513 for the three months ended and $813 and $1,003 for the six months ended 2020 and 2019, respectively, from related parties)	(7,741)	(7,646)	(15,708)	(15,605)
Foreign currency transaction gain (loss)	(5,599)	(2,325)	2,244	(8,143)
Equity loss from VAA	(735)	(236)	(1,111)	(1,291)
Losses from other unconsolidated investees	7	2	6	(5)
Total other income (expenses)	(8,357)	(4,639)	(3,496)	(11,028)
Income (loss) before gain on land sales, non-controlling interest, and taxes	(9,206)	(8,019)	(8,326)	(15,661)
Loss on sale of income producing properties		(80)		(80)
Gain on land sales	5,339	2,133	9,477	4,349
Net income (loss) before taxes	(3,867)	(5,966)	1,151	(11,392)
State income tax expense	(49)		(296)
Net income (loss)	(3,916)	(5,966)	855	(11,392)
Net (income) attributable to non-controlling interest	(242)	(379)	(400)	(562)
Net income (loss) attributable to Transcontinental Realty Investors, Inc.	(4,158)	(6,345)	455	(11,954)
Net income (loss) applicable to common shares	$ (4,158)	$ (6,345)	$ 455	$ (11,954)
(Loss) earnings per share - basic
Net income (loss) (in dollars per share)	$ (0.45)	$ (0.68)	$ 0.1	$ (1.31)
Net income (loss) applicable to common shares (in dollars per share)	(0.48)	(0.73)	0.05	(1.37)
(Loss) earnings per share - diluted
Net income (loss) (in dollars per share)	(0.45)	(0.68)	0.1	(1.31)
Net income (loss) applicable to common shares (in dollars per share)	$ (0.48)	$ (0.73)	$ 0.05	$ (1.37)
Weighted average common shares used in computing earnings per share (in shares)	8,717,767	8,717,767	8,717,767	8,717,767
Weighted average common shares used in computing diluted earnings per share (in shares)	8,717,767	8,717,767	8,717,767	8,717,767
Amounts attributable to Transcontinental Realty Investors, Inc.
Net income (loss)	$ (3,916)	$ (5,966)	$ 855	$ (11,392)
Net income (loss) applicable to Transcontinental Realty, Investors, Inc.	$ (4,158)	$ (6,345)	$ 455	$ (11,954)

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Rental and other property revenues	$ 11,947	$ 11,840	$ 23,865	$ 23,769
Property operating expenses	5,810	7,322	12,119	13,319
General and administrative	1,405	2,211	3,926	4,539
Interest income	4,227	4,878	8,754	9,436
Mortgage and loan interest	7,741	7,646	15,708	15,605
Related Party [Member]
Rental and other property revenues	280	203	456	413
Property operating expenses	254	246	496	504
General and administrative	711	919	1,766	2,420
Interest income	4,088	4,585	7,503	8,897
Mortgage and loan interest	$ 369	$ 513	$ 813	$ 1,003

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Comprehensive Income (Loss) [Member]	Common Stock [Member]	Treasury Stock [Member]	Paid-in Capital [Member]	Retained Earnings [Member]	Non-controlling Interest [Member]	Total
Balance at beginning at Dec. 31, 2018	$ 101,282	$ 87	$ (2)	$ 258,050	$ 101,585	$ 20,681	$ 380,401
Balance at beginnng (in shares) at Dec. 31, 2018		8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Distribution to equity partner				(112)			(112)
Net income (loss)	(11,954)				(11,954)	562	(11,392)
Balance at ending at Jun. 30, 2019	89,328	$ 87	(2)	257,938	89,631	21,243	368,897
Balance at ending (in shares) at Jun. 30, 2019		8,717,967
Balance at beginning at Mar. 31, 2019	95,673	$ 87	(2)	257,983	95,976	20,864	374,908
Balance at beginnng (in shares) at Mar. 31, 2019		8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Distribution to equity partner				(45)			(45)
Net income (loss)	(6,345)				(6,345)	379	(5,966)
Balance at ending at Jun. 30, 2019	89,328	$ 87	(2)	257,938	89,631	21,243	368,897
Balance at ending (in shares) at Jun. 30, 2019		8,717,967
Balance at beginning at Dec. 31, 2019	74,362	$ 87	(2)	257,853	74,665	21,464	354,067
Balance at beginnng (in shares) at Dec. 31, 2019		8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	455				455	400	855
Balance at ending at Jun. 30, 2020	74,817	$ 87	(2)	257,853	75,120	21,864	354,922
Balance at ending (in shares) at Jun. 30, 2020		8,717,967
Balance at beginning at Mar. 31, 2020	78,975	$ 87	(2)	257,853	79,278	21,622	358,838
Balance at beginnng (in shares) at Mar. 31, 2020		8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(4,158)				(4,158)	242	(3,916)
Balance at ending at Jun. 30, 2020	$ 74,817	$ 87	$ (2)	$ 257,853	$ 75,120	$ 21,864	$ 354,922
Balance at ending (in shares) at Jun. 30, 2020		8,717,967

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (3,916)	$ (5,966)	$ 855	$ (11,392)
Total comprehensive income (loss)	(3,916)	(5,966)	855	(11,392)
Comprehensive (income) attributable to non-controlling interest	(242)	(379)	(400)	(562)
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc.	$ (4,158)	$ (6,345)	$ 455	$ (11,954)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash Flow From Operating Activities:
Net income (loss)	$ 855	$ (11,392)
Adjustments to reconcile net income (loss) to net cash (used in) operating activities:
Distribution from VAA Joint Venture	1,441
Loss (gain) on sale of income-producing properties		80
Foreign currency transaction (gain) loss	(2,244)	8,143
Gain on sale of land	(9,477)	(4,349)
Depreciation and amortization	6,812	6,548
Amortization of deferred borrowing costs	425	366
Amortization of bond issuance costs	1,550	1,150
Loss from joint venture	1,111	1,291
Loses from other unconsolidated investees	(6)	5
(Increase) decrease in assets:
Accrued interest receivable	(1,413)	7,436
Other assets	(5,361)	4,442
Prepaid expense	(2,345)	4,098
Rent receivables	110	236
Related party receivables	(1,581)	(31,857)
Increase (decrease) in liabilities:
Accrued interest payable	1,112	(4,633)
Other liabilities	(438)	2,674
Net cash used in operating activities	(9,449)	(15,762)
Cash Flow From Investing Activities:
Proceeds from notes receivable	1,227	255
Originations or advances on notes receivable	(1,748)	(945)
Acquisition of land held for development	(2,664)	(2,832)
Distribution from equity investee	3,823
Proceeds from sale of income-producing properties		1,296
Proceeds from sale of land	12,255	15,800
Improvement of income-producing properties	(7,727)	(4,044)
Construction and development of new properties	(253)	(17,434)
Net cash provided by (used in) investing activities	4,913	(7,904)
Cash Flow From Financing Activities:
Proceeds from notes payable	24,517	12,915
Recurring payment of principal on notes payable	(19,317)	(3,143)
Bond payments	(11,561)	(10,378)
Distributions to equity partner		(112)
Net cash used in financing activities	(6,361)	(718)
Net decrease in cash, cash equivalents and restricted cash	(10,897)	(24,384)
Cash, cash equivalents and restricted cash, beginning of period	83,261	106,565
Cash, cash equivalents and restricted cash, end of period	72,364	82,181
Supplemental disclosures of cash flow information:
Cash paid for interest	14,710	12,927
Schedule of noncash investing and financing activities:
Land received in exchanged for note receivable		$ 1,800
Notes payable issued on acquisition of land for development	$ 3,350

XML

ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1. 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 which was formed in 1984. The Company is headquartered in Dallas, Texas and its common stock is listed and trades on the New York Stock Exchange (“NYSE”) under the symbol “TCI”. 

TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with American Realty Investors, Inc. (“ARL”), whose common stock is traded on the NYSE under the symbol “ARL”. Subsidiaries and affiliates of ARL own in excess of 80% of the Company’s common stock. ARL and one of its subsidiaries own 78.38% and the parent of ARL owns 7.20% of the Company. Accordingly, TCI’s financial results are consolidated with those of ARL’s on Form 10-K and related Consolidated Financial Statements. ARL’s common stock is listed and trades on the New York Stock Exchange under the symbol “ARL”. 

On July 17, 2009, the Company acquired an additional 2,518,934 shares of common stock of Income Opportunity Realty Investors, Inc. (“IOR”), and in doing so, increased its ownership from approximately 25% to over 80% of the shares of common stock of IOR outstanding. Upon acquisition of the additional shares in 2009, IOR’s results of operations began to be consolidated with those of the Company for tax and financial reporting purposes. As of June 30, 2020, TCI owned 81.23% of the outstanding IOR common shares. Shares of IOR common stock are listed and traded on the NYSE American under the symbol “IOR”. 

TCI’s Board of Directors are responsible for directing the overall affairs of TCI and for setting the strategic policies that guide the Company. As of April 30, 2011, the Board of Directors delegated the day-to-day management of the Company to Pillar Income Asset Management, Inc. (“Pillar”), a Nevada corporation, under a written Advisory Agreement that is reviewed annually by TCI’s Board of Directors. The directors of TCI are also directors of ARL and four are also directors of IOR. The Chairman of the Board of Directors of TCI also serves as the Chairman of the Board of Directors of ARL and IOR. The officers of TCI also serve as officers of ARL, IOR and Pillar. 

Since April 30, 2011, Pillar, the sole shareholder of which is Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc. (“RAI”), a Nevada corporation, the sole shareholder of which is May Realty Holdings, Inc. (“MRHI”, formerly known as Realty Advisors Management, Inc.), effective August 7, 2014), a Nevada corporation, the sole shareholder of which is a trust known as the May Trust, became the Company’s external contractual Advisor and Cash Manager.  Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges, for the Company’s benefit, debt and equity financing with third party lenders and investors. Pillar also serves as the contractual Advisor and Cash Manager to ARL and IOR.  As the contractual advisor, Pillar is compensated by TCI under an Advisory Agreement that is more fully described in Part III, Item 10. “Directors, Executive Officers and Corporate Governance – The Advisor”.  TCI has no employees. Employees of Pillar render services to TCI in accordance with the terms of the Advisory Agreement. 

Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis”), manages our commercial properties and provides brokerage services. Regis receives property management fees, construction management fees and leasing commissions in accordance with the terms of its property-level management agreement. Regis is also entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement. Refer to Part III, Item 10. “Directors, Executive Officers and Corporate Governance – Property Management and Real Estate Brokerage”. TCI engages third-party companies to lease and manage its apartment properties.

Southern Properties Capital Ltd. (“Southern” or “SPC”) is a wholly owned subsidiary of TCI that was incorporated on August 16, 2016 for the purpose of raising funds by issuing debentures (that cannot be converted into any other security) which are listed and traded on the Tel-Aviv Stock Exchange (“TASE”). Southern operates in the United States and is primarily involved in investing, developing, constructing and operating income-producing properties of multi-family residential real estate assets. Southern is included in the consolidated financial statements of TCI.

On January 1, 2012, the Company entered into a development agreement with Unified Housing Foundation, Inc. (“UHF”) a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013. The Company has also invested in surplus cash notes receivables from UHF and has sold several residential apartment properties to UHF in prior years. Due to this ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, UHF has been determined to be a related party.

On November 19, 2018, we executed an agreement between the Macquarie Group (“Macquarie”) and Southern and TCI to create a joint venture, Victory Abode Apartments, LLC (“VAA”) to address existing and future demand for quality multifamily residential housing through acquisition and development of sustainable Class A multifamily housing in focused secondary and tertiary markets. In connection with the formation of the joint venture, Southern and TCI contributed a portfolio of 49 income producing apartment complexes, and 3 development projects in various stages of construction and received cash consideration of $236.8 million. At the time of the transfer of the properties, the joint venture assumed all liabilities of those properties, including mortgage debt to the Department of Housing and Urban Development (“HUD”).

VAA is equally owned and controlled by Abode JVP, LLC, a wholly-owned subsidiary of Southern and Summerset Intermediate Holdings 2, LLC (“Summerset”), a wholly-owned indirect subsidiary of Macquarie. Pursuant to the Agreement, Abode JVP, LLC and Summerset each own voting and profit participation rights of 50% and 49%, respectively (“Class A Members”). The remaining 2% of the profits interest is held by Daniel J. Moos, who serves as the President and Chief Executive Officer of the Company (“Class B Member”) and Manager of the joint venture.

Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.

At June 30, 2020, our portfolio of income-producing properties consisted of:

● Seven commercial properties consisting of five office buildings and two retail properties comprising in aggregate of approximately 1.7 million square feet;

● Ten residential apartment communities owned directly by us comprising in 1,657 units, excluding apartments being developed;

● Approximately 1,891 acres of developed and undeveloped land; and

● Fifty-one residential apartment communities totaling 10,137 units owned by our 50% owned investee VAA.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities that have not yet begun construction. 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 necessary 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 (“U.S. 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 three months ended June 30, 2020, 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, 2019 was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Certain 2019 Consolidated Financial Statement amounts have been reclassified to conform to the 2020 presentation.

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 is generally 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 and VAA 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 (“ASC 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 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.

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:

Level 1 –	Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2 –	Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 –	Unobservable inputs that are significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement. Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years. Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date.

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 Standards

On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance in ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our election of the guidance of the Q&A has not had a significant impact on our consolidated financial statements during the six months ended June 30, 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions from ASC 740. Also, the amendments in this Update simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the impact that the adoption of ASU 2019-12 may have on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted retrospectively with early adoption permitted. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement that eliminates, adds and modifies certain disclosure requirements for fair value measurements. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. Early adoption is permitted. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard amended the existing lease accounting guidance and required lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases continued to recognize lease expense in a manner similar to previous accounting. For lessors, accounting for leases under the new guidance was substantially the same as in prior periods, but it eliminated current real estate-specific provisions and changed the treatment of initial direct costs. The Company early adopted the standard on January 1, 2019.

The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The Company adopted the standard on January 1, 2019, but since no material lease arrangements were identified where the Company was the lessee, there were no right-of-use assets or lease liabilities recorded.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provided entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases. The ASU provided a practical expedient which allowed lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient. The ASU also provided a transition option that permitted entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers. The scope of this standard specifically excludes lease contracts. The Company adopted the standard on January 1, 2019, but it did not have an impact to the financial statements as the majority of the Company’s revenue is from rental revenue generated from lease contracts.

Recent Accounting Pronouncements not yet Adopted

In March, 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which clarify or address specific stakeholder issues in a number of topics that affect the Company. The ASU is applicable to the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect of these clarifications on its financial reporting.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying to U.S. GAAP to contracts, hedging relationships and other transactions affected by rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company has mortgage loan obligations that reference LIBOR, and will be considering application of this ASU in the event any of its obligations experience a discontinuation of LIBOR.

XML

INVESTMENT IN VAA

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN VAA

NOTE 2. INVESTMENT IN VAA

The Company accounts for its investment in VAA under the equity method of accounting. Under the equity method of accounting, our net equity in the investment is reflected within the Consolidated Balance Sheets in the caption ‘Investment in VAA’, and our share of the net income or loss from the joint venture is included within the Consolidated Statements of Operations in the caption ‘Equity earnings from VAA’. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds and other agreed upon adjustments.

The following is a summary of the financial position and results of operations of VAA (dollars in thousands):

	For the period ended June 30,
	2020			2019
Balance Sheet
Net real estate assets	$	1,232,160		$	1,247,535
Other assets		57,160			56,474
Debt, net		(834,766	)		(812,010	)
Other liabilities		(270,647	)		(272,716	)
Total equity		(183,907	)		(219,283	)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Results of Operations
Total revenue	$	29,725		$	28,927		$	59,284		$	56,328
Total property, operating, and maintenance expenses		(15,541	)		(14,313	)		(29,282	)		(28,482	)
Interest expense		(14,193	)		(14,799	)		(29,267	)		(29,869	)
Depreciation and Amortization		(7,763	)		(15,523	)		(15,420	)		(30,756	)
Total other expense		(95	)		(327	)		(1,076	)		(1,002	)
Net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)

Below is a reconciliation of our allocation of income or loss from VAA.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
VAA net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)
Adjustments to reconcile to income (loss) from VAA
Interest expense on mezzanine loan		5,264			6,401			11,137			12,490
In-place lease intangibles - amortization expense		—			8,429			—			16,765
Depreciation basis differences		1,133			733			2,402			1,944
Net loss	$	(1,470	)	$	(472	)	$	(2,222	)	$	(2,582	)
Percentage ownership in VAA		50	%		50	%		50	%		50	%
Loss from VAA	$	(735	)	$	(236	)	$	(1,111	)	$	(1,291	)

XML

REAL ESTATE ACTIVITY

6 Months Ended

Jun. 30, 2020

Real Estate [Abstract]

REAL ESTATE ACTIVITY

NOTE 3. REAL ESTATE ACTIVITY

Below is a summary of the real estate owned as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	178,240		$	156,173
Apartments under construction		14,809			22,363
Commercial properties		230,365			229,424
Land held for development		61,225			62,037
Real estate subject to sales contract		6,307			7,966
Total real estate, at cost, less impairment	$	490,946		$	477,963
Less accumulated deprecation		(96,002	)		(90,173	)
Total real estate, net of depreciation	$	394,944		$	387,790

The following is a description of our significant real estate and financing transactions for the three months ended June 30, 2020:

● Sold a combined 25.9 acres of land to third parties in Farmers Branch, Texas and Forney, Texas for an aggregate sales price of $6.6 million and recognized a gain on the sale of approximately $5.3 million.

● Sold a plot of land (0.3 acres) in Farmers Brach, Texas for a sale price of $0.2 million and recognized a gain on the sale of approximately $0.06 million.

● Acquired a plot of land (1.3 acres) in McKinney, Texas for a purchase price of $0.5 million.

● Acquired a plot of land (0.7 acres) in Denton, Texas for a purchase price of $0.1 million.

● Purchased note receivable from related parties for a purchase price of $3.6 million. No gain or loss was recognized from the purchase of the notes receivables (refer to Note 5).

The Company continues to invest in the development of apartment projects. During the three months ended June 30, 2020, we have invested $0.3 million related to the construction or predevelopment of various apartment complexes out of which nominal amount represents capitalized interest costs.

XML

SUPPLEMENTAL CASH FLOW INFORMATION

6 Months Ended

Jun. 30, 2020

Supplemental Cash Flow Elements [Abstract]

SUPPLEMENTAL CASH FLOW INFORMATION

NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION

For the six months ended June 30, 2020 and 2019, the Company paid interest expense of $14.7 million and $12.9 million, respectively.

Cash and cash equivalents, and restricted cash for the six months ended June 30, 2020 and 2019 was $72.4 million and $82.2 million, respectively. The following is a reconciliation of the Company’s cash and cash equivalents, and restricted cash to the total presented in the consolidated statement of cash flows:

	For the Period Ended June 30,
	2020		2019
Cash and cash equivalents	$	42,250	$	37,579
Restricted cash (cash held in escrow)		15,598		29,538
Restricted cash (certificate of deposits)		2,853		8,501
Restricted cash (held with Trustee)		11,663		6,563
Total cash, cash equivalents and restricted cash	$	72,364	$	82,181

Amounts included in restricted cash represent funds required to be set aside to meet contractual obligations with certain financial institutions for the payment of reserve replacement, tax and insurance escrow. In addition, restricted cash includes funds held with the Trustee for payment of bonds interest and other bond related expenses.

XML

NOTES AND INTEREST RECEIVABLE

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

NOTES AND INTEREST RECEIVABLE

NOTE 5. NOTES AND INTEREST RECEIVABLE

A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and guarantees, 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.

Below is a summary of our notes receivable as of June 30, 2020 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate			Amount			Security
Performing loans:
Prospectus Endeavors 4, LLC	01/23		12.00	%		5,907		Secured
Prospectus Endeavors 6, LLC	10/22		12.00	%		496		Secured
Oulan-Chikh Family Trust	03/21		8.00	%		174		Secured
H198, LLC (McKinney Ranch Land)	09/20		6.00	%		4,554		Secured
Forest Pines Phase I	11/20		5.00	%		2,869		Secured
Spyglass Apartments of Ennis, LP	11/20		5.00	%		5,336		Secured
Bellwether Ridge	11/20		5.00	%		3,855		Secured
Parc at Windmill Farms	11/20		5.00	%		7,929		Secured
Autumn Breeze	10/21		5.00	%		1,638		Secured
Plum Tree	10/21		5.00	%		658		Secured
Parc at Ingleside	12/21		5.00	%		2,181		Secured
RNC Revolving Line of Credit	09/24		5.00	%		8,853		Secured
Steeple Crest	10/20		5.00	%		6,665		Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32		12.00	%		1,481		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		6,369		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		1,953		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		4,000		Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32		12.00	%		1,323		Secured
Unified Housing Foundation, Inc. (1)	12/21		12.00	%		10,401		Unsecured
Unified Housing Foundation, Inc. (1)	03/21		12.00	%		5,314		Unsecured
Unified Housing Foundation, Inc. (1)	03/22		12.00	%		4,782		Unsecured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	07/21		12.00	%		838		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	07/21		12.00	%		773		Secured
Unified Housing Foundation, Inc. (Marquis at Vista Ridge) (1)	07/21		12.00	%		839		Secured
Unified Housing Foundation, Inc. (Timbers at the Park) (1)	07/21		12.00	%		432		Secured
Unified Housing Foundation, Inc. (Bella Vista) (1)	08/21		12.00	%		212		Secured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		61		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		1,482		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		4,792		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		716		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		317		Unsecured
Unified Housing Foundation, Inc. (1)	05/23		12.00	%		3,615		Unsecured
Unified Housing Foundation, Inc. (1)	10/21		12.00	%		6,831		Unsecured
Other related party notes	Various		Various			4,078		Various secured interests
Other non-related party notes	Various		Various			11,724		Various secured interests
Accrued interest						10,041
Total Performing					$	137,489
Allowance for estimated losses						(1,825	)
Total					$	135,664

(1)  Related party notes

We invest in mortgage loans, secured by mortgages that are subordinate to one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on such loans ordinarily includes the real estate on which the loan is made, other collateral and guarantees.

At June 30, 2020, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $66.3 million and recognized interest income of $3.5 million related to these notes receivables. During the quarter just ended, the Company collected $3.2 million and purchased from a related party $10.9 million of notes receivables with an interest rate of 12% and maturity date of March 2023.

The Company has various notes receivable from Unified Housing foundation, Inc. (“UHF”). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow from operations, sale or refinancing of the underlying properties. These notes are cross collateralized to the extent that any surplus cash available from any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes. Furthermore, any surplus cash available from any of the properties UHF owns, besides the properties underlying these notes, can be used to repay outstanding interest and principal for these notes. The allowance on the notes was a purchase allowance that was netted against principal balance at the time of the acquisition.

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

NOTE 6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

Investments in unconsolidated subsidiaries, jointly owned companies and other investees in which we have a 20% to 50% ownership interest or otherwise exercise significant influence are carried at cost, adjusted for the Company’s proportionate share of their undistributed earnings or losses, via the equity method of accounting. ARL is our parent company and is an unconsolidated joint venture.

Investments accounted for via the equity method consists of the following, except for VAA which is discussed in Note 2.

Our interest in the common stock of ARL in the amount of 0.90% 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 following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

	For the Period Ended June 30,
	2020			2019
ARL
Real estate, net of accumulated depreciation	$	—		$	549
Notes receivable		31,925			42,719
Other assets		69,862			66,407
Notes payable		(6,719	)		(5,070	)
Other liabilities		(27,473	)		(33,855	)
Shareholders’ equity/partners capital		(67,595	)		(70,750	)

	For the Six Months Ended June 30,
	2020			2019
Rents, interest and other income	$	4,553		$	7,370
Operating expenses		(923	)		(1,479	)
Interest expense		(2,965	)		(3,771	)
Income from operations	$	665		$	2,120
Net  Income	$	665		$	2,120
Company’s proportionate share of loss	$	6		$	19

XML

NOTES AND INTEREST PAYABLE

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

NOTES AND INTEREST PAYABLE

NOTE 7. NOTES AND INTEREST PAYABLE

Below is a summary of our notes and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	135,655		$	120,024
Apartments under Construction		4,505			9,017
Commercial		91,973			92,838
Land		13,293			14,806
Corporate and other notes		16,239			16,430
Total notes payable	$	261,665		$	253,115
Less: unamortized deferred borrowing costs		(6,917	)		(7,342	)
Total outstanding notes payable, net	$	254,748		$	245,773
Accrued Interest		1,136			773
Total notes payable, net and accrued interest	$	255,884		$	246,546

During the six months ended June 30, 2020, the Company drew down $7.4 million in construction loans to fund the development of various apartment projects. In addition, TCI through one of its subsidiaries issued a note payable of $3.4 million to purchase land for development in Kent, Ohio. The note has an interest rate of 10% and a maturity date of November 13, 2024.

XML

BONDS PAYABLE

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

BONDS PAYABLE

NOTE 8. BONDS PAYABLE

Following is the outstanding balance of SPC’s bonds and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Bonds (Series A)	$	80,785		$	92,653
Bonds (Series B)		39,729			39,844
Bonds (Series B expansion)		20,860			20,920
Bonds (Series C)		79,342			79,572
Total outstanding bonds	$	220,716		$	232,989
Less: deferred bond issuance costs		(8,174	)		(9,724	)
Total outstanding bonds, net		212,542			223,265
Accrued Interest		5,674			6,457
Total oustanding bonds, net and accrued interest	$	218,216		$	229,722

The aggregate maturity of the bonds are as follows:

	June 30,		December 31,
Year	2020		2019
2020	$	11,541	$	23,148
2021		35,199		35,301
2022		35,199		35,301
2023		114,541		114,873
2024		12,118		12,153
Thereafter		12,118		12,213
	$	220,716	$	232,989

On January 31, 2020, the Company paid $11.6 million in Series A bond principal and $7.3 million in interest payments in Series A, B and C bonds, respectively.

On July 22, 2020, the Company paid $11.7 million in Series A bond principal and $6.9 million in interest payments in Series A, B and C bonds, respectively.

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 9. RELATED PARTY TRANSACTIONS

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 and paid are shown on the face of the Consolidated Financial Statements.

The following table provides the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of June 30, 2020 (dollars in thousands):

	June 30, 2020
	Pillar			ARL		Total
Related party receivable, beginning balance, December 31, 2019	$	—		$	141,541	$	141,541
Cash transfers		887			—		887
Advisory fees		(2,895	)		—		(2,895	)
Net income fee		(198	)		—		(198	)
Cost reimbursements		(1,749	)		—		(1,749	)
Interest income		—			3,235		3,235
Notes receivable purchased		(7,368	)		—		(7,368	)
Expenses (paid)/received by advisor		(4,511	)		—		(4,511	)
Financing (mortgage payments)		(166	)		—		(166	)
Intercompany property transfers		(159	)		—		(159	)
Related party receivable, ending balance, June 30, 2020	$	(16,159	)	$	144,776	$	128,617

XML

DEFERRED INCOME

6 Months Ended

Jun. 30, 2020

Deferred Income

DEFERRED INCOME

NOTE 10. DEFERRED INCOME

In previous years, the Company has sold properties to related parties where we have had continuing involvement in the form of management or financial assistance associated with the sale of the properties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method is not met, and as such the Company has deferred some or all of the gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gain on these transactions have been deferred until the properties are sold to a non-related third party. As of June 30, 2020, we had deferred gain of $10.4 million.

XML

OPERATING SEGMENTS

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

OPERATING SEGMENTS

NOTE 11. 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 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 notes receivable and corporate debt.

Presented below is our reportable segments’ operating income for the three months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,863		$	4,084		$	—		$	—		$	11,947
Property operating expenses		(4,070	)		(1,930	)		(95	)		285			(5,810	)
Depreciation		(2,480	)		(938	)		—			—			(3,418	)
Mortgage and loan interest		(1,345	)		(1,177	)		(219	)		(5,000	)		(7,741	)
Interest income		—			—			—			4,227			4,227
Gain on land sales		—			—			5,339			—			5,339
Segment operating (loss) income	$	(32	)	$	39		$	5,025		$	(488	)	$	4,544
Capital expenditures	$	232		$	7,400		$	664		$	—		$	8,296
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	6,477		$	—		$	8,903
Cost of sale		—			(2,426	)		(1,138	)		—			(3,564	)
Gain on land sales	$	—		$	—		$	5,339		$	—		$	5,339

	Commercial
For the Three Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,020		$	3,818		$	—		$	2		$	11,840
Property operating expenses		(4,410	)		(2,017	)		(88	)		(807	)		(7,322	)
Depreciation		(2,732	)		(707	)		—			—			(3,439	)
Mortgage and loan interest		(1,947	)		(1,002	)		(270	)		(4,427	)		(7,646	)
Interest income		—			—			—			4,878			4,878
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			2,133			—			2,133
Segment operating (loss) income	$	(1,069	)	$	12		$	1,775		$	(354	)	$	364
Capital expenditures	$	346		$	9,596		$	353		$	—		$	10,295
Assets	$	—		$	—		$	—		$	—		$	—
Property Sales
Sales price	$	—		$	3,096		$	7,602		$	—		$	10,698
Cost of sale		—			(3,176	)		(5,469	)		—			(8,645	)
Gain on sale	$	—		$	(80	)	$	2,133		$	—		$	2,053

The table below provides the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Three Months Ended June 30,
	2020			2019
Segment operating income	$	4,544		$	364
Other non-segment items of income (expense)
General and administrative		(1,405	)		(2,211	)
Franchise taxes and other expenses		—			—
Net income fee to related party		(112	)		(90	)
Advisory fee to related party		(2,051	)		(2,158	)
Other income		1,484			688
Foreign currency translation gain (loss)		(5,599	)		(2,325	)
Loss from joint venture		(735	)		(236	)
Losses from other unconsolidated investees		7			2
State income tax expense		(49	)		—
Net income (loss) from continuing operations	$	(3,916	)	$	(5,966	)

Presented below is our reportable segments’ operating income for the six months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Six Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	15,747		$	8,116		$	—		$	2		$	23,865
Property operating expenses		(8,180	)		(3,860	)		(193	)		114			(12,119	)
Depreciation		(5,002	)		(1,810	)		—			—			(6,812	)
Mortgage and loan interest		(2,717	)		(2,349	)		(425	)		(10,217	)		(15,708	)
Interest income		—			—			—			8,754			8,754
Gain on land sales		—			—			9,477			—			9,477
Segment operating (loss) income	$	(152	)	$	97		$	8,859		$	(1,347	)	$	7,457
Capital expenditures	$	941		$	14,433		$	2,664		$	—		$	18,038
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	12,189		$	—		$	14,615
Cost of sale		—			(2,426	)		(2,712	)		—			(5,138	)
Gain on land sales	$	—		$	—		$	9,477		$	—		$	9,477

	Commercial
For the Six Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	16,247		$	7,518		$	—		$	4		$	23,769
Property operating expenses		(8,346	)		(4,075	)		(45	)		(853	)		(13,319	)
Depreciation		(5,107	)		(1,441	)		—			—			(6,548	)
Mortgage and loan interest		(3,914	)		(1,936	)		(523	)		(9,232	)		(15,605	)
Interest income		—			—			—			9,436			9,436
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			4,349			—			4,349
Segment operating (loss) income	$	(1,120	)	$	(14	)	$	3,781		$	(645	)	$	2,002
Capital expenditures	$	4,045		$	17,434		$	2,832		$	—		$	24,311
Assets	$	152,852		$	153,950		$	79,699		$	—		$	386,501
Property Sales
Sales price	$	—		$	3,096		$	16,317		$	—		$	19,413
Cost of sale		—			(3,176	)		(11,968	)		—			(15,144	)
Gain on sale	$	—		$	(80	)	$	4,349		$	—		$	4,269

The following table reconciles segment information to the corresponding amounts in the Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Six Months Ended June 30,
	2020			2019
Segment operating income	$	7,457		$	2,002
Other non-segment items of income (expense)
General and administrative		(3,926	)		(4,539	)
Franchise taxes and other expenses		(1,494	)		—
Net income fee to related party		(198	)		(190	)
Advisory fee to related party		(4,146	)		(3,806	)
Other income		2,319			4,580
Foreign currency translation gain (loss)		2,244			(8,143	)
Loss from joint venture		(1,111	)		(1,291	)
Losses from other unconsolidated investees		6			(5	)
State income tax expense		(296	)		—
Net income (loss) from continuing operations	$	855		$	(11,392	)

The tables below reconcile the segment information to the corresponding amounts in the Consolidated Balance Sheets:

	As of June 30,
	2020		2019
Segment assets	$	394,944	$	386,501
Investments in unconsolidated subsidiaries and investees		75,411		89,245
Notes and interest receivable		135,664		116,864
Other assets and receivables		258,148		261,277
Total assets	$	864,167	$	853,887

XML

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

NOTE 12. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Liquidity.     Management believes that TCI will generate excess cash from property operations in 2020; such excess, however, might not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements.

Partnership Buyouts.    TCI is the limited partner in various partnerships related the construction of residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the nonaffiliated partners are limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements.

Litigation. The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.

Guarantees. The Company is the primary guarantor, on a $24.3 million mezzanine loan between UHF and a lender. In addition, ARL, and an officer of the Company are limited recourse guarantors of the loan. As of June 30, 2020 UHF was in compliance with the covenants to the loan agreement.

ART and ART Midwest, Inc.

While the Company and all entities in which the Company has a direct or indirect equity interest are not parties to or obligated in any way for the outcome, a formerly owned entity (American Realty Trust, Inc.) and its former subsidiary (ART Midwest, Inc.) have been engaged since 1999 in litigation with Mr. David Clapper and entities related to Mr. Clapper (collectively, the “Clapper Parties”). The matter originally involved a transaction in 1998 in which ART Midwest, Inc. was to acquire eight residential apartment complexes from the Clapper Parties. Through the years, a number of rulings, both for and against American Realty Trust, Inc. “ART” and ART Midwest, Inc., were issued. In October 2011, a ruling was issued under which the Clapper Parties received a judgment for approximately $74 million, including $26 million in actual damages and $48 million interest. The ruling was against ART and ART Midwest, Inc., but no other entity. During February 2014, the Court of Appeals affirmed a portion of the judgment in favor of the Clapper Parties, but also ruled that a double counting of a significant portion of the damages had occurred and remanded the case back to the trial court to recalculate the damage award, as well as pre- and post-judgment interest thereon. Subsequently, the trial court recalculated the damage award, reducing it to approximately $59 million, inclusive of actual damages and then current interest. ART was also a significant owner of a partnership interest in the partnership that was awarded the initial damages in this matter.

The Clapper Parties subsequently filed a new lawsuit against ARI, its subsidiary EQK Holdings, Inc. “EQK”, and ART. The Clapper Parties seek damages from ARL for payment by ART to ARL of ART’s stock in EQK in exchange for a release of the Antecedent Debt owed by ART to ARI. In February 2018 the court determined that this legal matter should not have been filed in federal court and therefore granted motions to dismiss on jurisdictional grounds. In June 2018, the court overruled its own grant of motions to dismiss and reinstated the case. We continue to vigorously defend the case and management believes it has defenses to the claims. The case has not been set for trial.

In January 2012, the Company sold all of the issued and outstanding stock of ART to an unrelated party for a promissory note in the amount of $10 million. At December 31, 2012, the Company fully reserved and valued the note at zero.

Dynex Capital, Inc.

On July 20, 2015, the 68^th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).

An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resulted in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgment against Dynex Commercial, Inc. on July 20, 2015.

The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic was $0.256 million in damages, plus pre-judgment interest of $0.192 million for a total amount of $0.448 million. The Judgment awarded ART was $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI was $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages were paid. Lastly, the Judgement awarded Basic, ART, and TCI was $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc.

TCI is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as pursue additional claims, if any, against Dynex Capital, Inc. Post judgment interest continues to accrue. 

Berger Litigation

On February 4, 2019, an individual claiming to be a stockholder holding 7,900 shares of Common Stock of Income Opportunity Realty Investors, Inc. (“IOR”) filed a Complaint in the United States District Court for the Northern District of Texas, Dallas Division, individually and allegedly derivatively on behalf of IOR, against Transcontinental Realty Investors, Inc. (“TCI”), American Realty Investors, Inc. (“ARL”), (TCI is a shareholder of IOR, ARL is a shareholder of TCI) Pillar Income Asset Management, Inc. (“Pillar”), ( collectively the “Companies”), certain officers and directors of the Companies (“Additional Parties”) and two other individuals. The Complaint filed alleges that the sale and/or exchange of certain tangible and intangible property between the Companies and IOR during the last ten years of business operations constitutes a breach of fiduciary duty by the one or more of Companies, the Additional Defendants and/or the directors of IOR. The case alleges other related claims. The Plaintiff seeks certification as a representative of IOR and all of its shareholders, unspecified damages, a return to IOR of various funds and an award of costs, expenses, disbursements (including Plaintiff’s attorneys’ fees) and prejudgment and post-judgment interest. The named Defendants intend to vigorously defend the action, deny all of the allegations of the Complaint, and believe the allegations to be wholly without any merit. The Defendants have filed motions to dismiss the case in its entirety in June 2019. On February 26, 2020, the Court denied IOR’s demand futility motion. The remaining Defendants’ motions were granted in part and denied in part in the first quarter of 2020. Discovery is ongoing.

XML

EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 13. EARNINGS PER SHARE

Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC 260 “Earnings per Share.” Basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.

Prior to July 9, 2014, TCI had 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. These 30,000 shares were owned by RAI, a related party, and had accrued dividends unpaid of $0.9 million. The stock had a liquidation preference of $100.00 per share and could be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. On July 9, 2014, RAI converted all 30,000 shares into the requisite number of shares of common stock. The conversion resulted in the issuance of 304,298 new shares of common stock. The effects of the Series C Cumulative Convertible Preferred Stock are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the calculation for the prior periods if applying the if-converted method is dilutive.

As of June 30, 2020, there are no preferred stock or stock options that are required to be included in the calculation of EPS.

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 14. SUBSEQUENT EVENTS

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and across our portfolio. While we did not experience significant disruptions during the three months ended June 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.

On July 16, 2020, the Company entered into purchase and sale agreement with a related party for the sale of multi-family property located in Port Arthur, Texas. The purchase price for this transaction is $13.3 million, net cash proceeds received is $5.4 million and assumption of debt is $9.1 million.

XML

ORGANIZATION AND BASIS OF PRESENTATION (Policies)

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

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 (“U.S. 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 three months ended June 30, 2020, 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, 2019 was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Certain 2019 Consolidated Financial Statement amounts have been reclassified to conform to the 2020 presentation.

Principles of Consolidation

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 is generally 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 and VAA is accounted for under the equity method.

Real Estate, Depreciation and Impairment

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 (“ASC 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 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

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.

Cost Capitalization

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

Fair Value Measurement

We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:

Level 1 –	Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2 –	Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 –	Unobservable inputs that are significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Deferred Costs

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement. Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years. Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date.

Related Parties

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 Standards

Newly Issued Accounting Standards

On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance in ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our election of the guidance of the Q&A has not had a significant impact on our consolidated financial statements during the six months ended June 30, 2020.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions from ASC 740. Also, the amendments in this Update simplify the accounting for income taxes by requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax, requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination, and other targeted changes. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company is currently evaluating the impact that the adoption of ASU 2019-12 may have on its consolidated financial statements.

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The new standard must be adopted retrospectively with early adoption permitted. The adoption of ASU 2018-17 did not have a material impact on the Company’s financial position and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement that eliminates, adds and modifies certain disclosure requirements for fair value measurements. The effective date of the standard is for fiscal periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. Early adoption is permitted. The adoption of ASU 2018-13 did not have a material impact on the Company’s financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard amended the existing lease accounting guidance and required lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases continued to recognize lease expense in a manner similar to previous accounting. For lessors, accounting for leases under the new guidance was substantially the same as in prior periods, but it eliminated current real estate-specific provisions and changed the treatment of initial direct costs. The Company early adopted the standard on January 1, 2019.

The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. The Company adopted the standard on January 1, 2019, but since no material lease arrangements were identified where the Company was the lessee, there were no right-of-use assets or lease liabilities recorded.

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements, which provided entities with relief from the costs of implementing certain aspects of ASU 2016-02, Leases. The ASU provided a practical expedient which allowed lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient. The ASU also provided a transition option that permitted entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers. The scope of this standard specifically excludes lease contracts. The Company adopted the standard on January 1, 2019, but it did not have an impact to the financial statements as the majority of the Company’s revenue is from rental revenue generated from lease contracts.

Recent Accounting Pronouncements not yet Adopted

In March, 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments, which clarify or address specific stakeholder issues in a number of topics that affect the Company. The ASU is applicable to the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect of these clarifications on its financial reporting.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying to U.S. GAAP to contracts, hedging relationships and other transactions affected by rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022. The Company has mortgage loan obligations that reference LIBOR, and will be considering application of this ASU in the event any of its obligations experience a discontinuation of LIBOR.

XML

INVESTMENT IN VAA (Tables)

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Schedule of the financial position and results of operations of VAA

The following is a summary of the financial position and results of operations of VAA (dollars in thousands):

	For the period ended June 30,
	2020			2019
Balance Sheet
Net real estate assets	$	1,232,160		$	1,247,535
Other assets		57,160			56,474
Debt, net		(834,766	)		(812,010	)
Other liabilities		(270,647	)		(272,716	)
Total equity		(183,907	)		(219,283	)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Results of Operations
Total revenue	$	29,725		$	28,927		$	59,284		$	56,328
Total property, operating, and maintenance expenses		(15,541	)		(14,313	)		(29,282	)		(28,482	)
Interest expense		(14,193	)		(14,799	)		(29,267	)		(29,869	)
Depreciation and Amortization		(7,763	)		(15,523	)		(15,420	)		(30,756	)
Total other expense		(95	)		(327	)		(1,076	)		(1,002	)
Net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)

Below is a reconciliation of our allocation of income or loss from VAA.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
VAA net loss	$	(7,867	)	$	(16,035	)	$	(15,761	)	$	(33,781	)
Adjustments to reconcile to income (loss) from VAA
Interest expense on mezzanine loan		5,264			6,401			11,137			12,490
In-place lease intangibles - amortization expense		—			8,429			—			16,765
Depreciation basis differences		1,133			733			2,402			1,944
Net loss	$	(1,470	)	$	(472	)	$	(2,222	)	$	(2,582	)
Percentage ownership in VAA		50	%		50	%		50	%		50	%
Loss from VAA	$	(735	)	$	(236	)	$	(1,111	)	$	(1,291	)

XML

REAL ESTATE ACTIVITY (Tables)

6 Months Ended

Jun. 30, 2020

Real Estate [Abstract]

Schedule of the real estate owned

Below is a summary of the real estate owned as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	178,240		$	156,173
Apartments under construction		14,809			22,363
Commercial properties		230,365			229,424
Land held for development		61,225			62,037
Real estate subject to sales contract		6,307			7,966
Total real estate, at cost, less impairment	$	490,946		$	477,963
Less accumulated deprecation		(96,002	)		(90,173	)
Total real estate, net of depreciation	$	394,944		$	387,790

XML

SUPPLEMENTAL CASH FLOW INFORMATION (Tables)

6 Months Ended

Jun. 30, 2020

Supplemental Cash Flow Elements [Abstract]

Schedule of reconciliation of cash and cash equivalents and restricted cash

The following is a reconciliation of the Company’s cash and cash equivalents, and restricted cash to the total presented in the consolidated statement of cash flows:

	For the Period Ended June 30,
	2020		2019
Cash and cash equivalents	$	42,250	$	37,579
Restricted cash (cash held in escrow)		15,598		29,538
Restricted cash (certificate of deposits)		2,853		8,501
Restricted cash (held with Trustee)		11,663		6,563
Total cash, cash equivalents and restricted cash	$	72,364	$	82,181

XML

NOTES AND INTEREST RECEIVABLE (Tables)

6 Months Ended

Jun. 30, 2020

Receivables [Abstract]

Schedule of notes receivable

Below is a summary of our notes receivable as of June 30, 2020 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate			Amount			Security
Performing loans:
Prospectus Endeavors 4, LLC	01/23		12.00	%		5,907		Secured
Prospectus Endeavors 6, LLC	10/22		12.00	%		496		Secured
Oulan-Chikh Family Trust	03/21		8.00	%		174		Secured
H198, LLC (McKinney Ranch Land)	09/20		6.00	%		4,554		Secured
Forest Pines Phase I	11/20		5.00	%		2,869		Secured
Spyglass Apartments of Ennis, LP	11/20		5.00	%		5,336		Secured
Bellwether Ridge	11/20		5.00	%		3,855		Secured
Parc at Windmill Farms	11/20		5.00	%		7,929		Secured
Autumn Breeze	10/21		5.00	%		1,638		Secured
Plum Tree	10/21		5.00	%		658		Secured
Parc at Ingleside	12/21		5.00	%		2,181		Secured
RNC Revolving Line of Credit	09/24		5.00	%		8,853		Secured
Steeple Crest	10/20		5.00	%		6,665		Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32		12.00	%		1,481		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32		12.00	%		6,369		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		1,953		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		2,000		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32		12.00	%		4,000		Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32		12.00	%		1,323		Secured
Unified Housing Foundation, Inc. (1)	12/21		12.00	%		10,401		Unsecured
Unified Housing Foundation, Inc. (1)	03/21		12.00	%		5,314		Unsecured
Unified Housing Foundation, Inc. (1)	03/22		12.00	%		4,782		Unsecured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	07/21		12.00	%		838		Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	07/21		12.00	%		773		Secured
Unified Housing Foundation, Inc. (Marquis at Vista Ridge) (1)	07/21		12.00	%		839		Secured
Unified Housing Foundation, Inc. (Timbers at the Park) (1)	07/21		12.00	%		432		Secured
Unified Housing Foundation, Inc. (Bella Vista) (1)	08/21		12.00	%		212		Secured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		61		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		1,482		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		4,792		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		716		Unsecured
Unified Housing Foundation, Inc. (1)	03/23		12.00	%		317		Unsecured
Unified Housing Foundation, Inc. (1)	05/23		12.00	%		3,615		Unsecured
Unified Housing Foundation, Inc. (1)	10/21		12.00	%		6,831		Unsecured
Other related party notes	Various		Various			4,078		Various secured interests
Other non-related party notes	Various		Various			11,724		Various secured interests
Accrued interest						10,041
Total Performing					$	137,489
Allowance for estimated losses						(1,825	)
Total					$	135,664

(1)  Related party notes

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Tables)

6 Months Ended

Jun. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Schedule of the financial position and results of operations - unconsolidated parent

The following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

	For the Period Ended June 30,
	2020			2019
ARL
Real estate, net of accumulated depreciation	$	—		$	549
Notes receivable		31,925			42,719
Other assets		69,862			66,407
Notes payable		(6,719	)		(5,070	)
Other liabilities		(27,473	)		(33,855	)
Shareholders’ equity/partners capital		(67,595	)		(70,750	)

	For the Six Months Ended June 30,
	2020			2019
Rents, interest and other income	$	4,553		$	7,370
Operating expenses		(923	)		(1,479	)
Interest expense		(2,965	)		(3,771	)
Income from operations	$	665		$	2,120
Net  Income	$	665		$	2,120
Company’s proportionate share of loss	$	6		$	19

XML

NOTES AND INTEREST PAYABLE (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of notes and interest payable

Below is a summary of our notes and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Apartments	$	135,655		$	120,024
Apartments under Construction		4,505			9,017
Commercial		91,973			92,838
Land		13,293			14,806
Corporate and other notes		16,239			16,430
Total notes payable	$	261,665		$	253,115
Less: unamortized deferred borrowing costs		(6,917	)		(7,342	)
Total outstanding notes payable, net	$	254,748		$	245,773
Accrued Interest		1,136			773
Total notes payable, net and accrued interest	$	255,884		$	246,546

XML

BONDS PAYABLE (Tables)

6 Months Ended

Jun. 30, 2020

Notes to Financial Statements

Schedule of bonds and interest payable

Following is the outstanding balance of SPC’s bonds and interest payable as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	June 30,			December 31,
	2020			2019
Bonds (Series A)	$	80,785		$	92,653
Bonds (Series B)		39,729			39,844
Bonds (Series B expansion)		20,860			20,920
Bonds (Series C)		79,342			79,572
Total outstanding bonds	$	220,716		$	232,989
Less: deferred bond issuance costs		(8,174	)		(9,724	)
Total outstanding bonds, net		212,542			223,265
Accrued Interest		5,674			6,457
Total oustanding bonds, net and accrued interest	$	218,216		$	229,722

Schedule of principal payments on the bonds payable

The aggregate maturity of the bonds are as follows:

	June 30,		December 31,
Year	2020		2019
2020	$	11,541	$	23,148
2021		35,199		35,301
2022		35,199		35,301
2023		114,541		114,873
2024		12,118		12,153
Thereafter		12,118		12,213
	$	220,716	$	232,989

XML

RELATED PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Schedule of accounts receivable from and (accounts payable) to related parties

The following table provides the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of June 30, 2020 (dollars in thousands):

	June 30, 2020
	Pillar			ARL		Total
Related party receivable, beginning balance, December 31, 2019	$	—		$	141,541	$	141,541
Cash transfers		887			—		887
Advisory fees		(2,895	)		—		(2,895	)
Net income fee		(198	)		—		(198	)
Cost reimbursements		(1,749	)		—		(1,749	)
Interest income		—			3,235		3,235
Notes receivable purchased		(7,368	)		—		(7,368	)
Expenses (paid)/received by advisor		(4,511	)		—		(4,511	)
Financing (mortgage payments)		(166	)		—		(166	)
Intercompany property transfers		(159	)		—		(159	)
Related party receivable, ending balance, June 30, 2020	$	(16,159	)	$	144,776	$	128,617

XML

OPERATING SEGMENTS (Tables)

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Schedule of operating segment, including segment assets and expenditures

Presented below is our reportable segments’ operating income for the three months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,863		$	4,084		$	—		$	—		$	11,947
Property operating expenses		(4,070	)		(1,930	)		(95	)		285			(5,810	)
Depreciation		(2,480	)		(938	)		—			—			(3,418	)
Mortgage and loan interest		(1,345	)		(1,177	)		(219	)		(5,000	)		(7,741	)
Interest income		—			—			—			4,227			4,227
Gain on land sales		—			—			5,339			—			5,339
Segment operating (loss) income	$	(32	)	$	39		$	5,025		$	(488	)	$	4,544
Capital expenditures	$	232		$	7,400		$	664		$	—		$	8,296
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	6,477		$	—		$	8,903
Cost of sale		—			(2,426	)		(1,138	)		—			(3,564	)
Gain on land sales	$	—		$	—		$	5,339		$	—		$	5,339

	Commercial
For the Three Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,020		$	3,818		$	—		$	2		$	11,840
Property operating expenses		(4,410	)		(2,017	)		(88	)		(807	)		(7,322	)
Depreciation		(2,732	)		(707	)		—			—			(3,439	)
Mortgage and loan interest		(1,947	)		(1,002	)		(270	)		(4,427	)		(7,646	)
Interest income		—			—			—			4,878			4,878
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			2,133			—			2,133
Segment operating (loss) income	$	(1,069	)	$	12		$	1,775		$	(354	)	$	364
Capital expenditures	$	346		$	9,596		$	353		$	—		$	10,295
Assets	$	—		$	—		$	—		$	—		$	—
Property Sales
Sales price	$	—		$	3,096		$	7,602		$	—		$	10,698
Cost of sale		—			(3,176	)		(5,469	)		—			(8,645	)
Gain on sale	$	—		$	(80	)	$	2,133		$	—		$	2,053

Presented below is our reportable segments’ operating income for the six months ended June 30, 2020 and 2019, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Six Months Ended June 30, 2020	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	15,747		$	8,116		$	—		$	2		$	23,865
Property operating expenses		(8,180	)		(3,860	)		(193	)		114			(12,119	)
Depreciation		(5,002	)		(1,810	)		—			—			(6,812	)
Mortgage and loan interest		(2,717	)		(2,349	)		(425	)		(10,217	)		(15,708	)
Interest income		—			—			—			8,754			8,754
Gain on land sales		—			—			9,477			—			9,477
Segment operating (loss) income	$	(152	)	$	97		$	8,859		$	(1,347	)	$	7,457
Capital expenditures	$	941		$	14,433		$	2,664		$	—		$	18,038
Assets	$	146,576		$	180,835		$	67,533		$	—		$	394,944
Property Sales
Sales price	$	—		$	2,426		$	12,189		$	—		$	14,615
Cost of sale		—			(2,426	)		(2,712	)		—			(5,138	)
Gain on land sales	$	—		$	—		$	9,477		$	—		$	9,477

	Commercial
For the Six Months Ended June 30, 2019	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	16,247		$	7,518		$	—		$	4		$	23,769
Property operating expenses		(8,346	)		(4,075	)		(45	)		(853	)		(13,319	)
Depreciation		(5,107	)		(1,441	)		—			—			(6,548	)
Mortgage and loan interest		(3,914	)		(1,936	)		(523	)		(9,232	)		(15,605	)
Interest income		—			—			—			9,436			9,436
Loss on sale of income producing property		—			(80	)		—			—			(80	)
Gain on land sales		—			—			4,349			—			4,349
Segment operating (loss) income	$	(1,120	)	$	(14	)	$	3,781		$	(645	)	$	2,002
Capital expenditures	$	4,045		$	17,434		$	2,832		$	—		$	24,311
Assets	$	152,852		$	153,950		$	79,699		$	—		$	386,501
Property Sales
Sales price	$	—		$	3,096		$	16,317		$	—		$	19,413
Cost of sale		—			(3,176	)		(11,968	)		—			(15,144	)
Gain on sale	$	—		$	(80	)	$	4,349		$	—		$	4,269

Schedule of reconciliaton of segment information to consolidated statements of operations

The table below provides the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Three Months Ended June 30,
	2020			2019
Segment operating income	$	4,544		$	364
Other non-segment items of income (expense)
General and administrative		(1,405	)		(2,211	)
Franchise taxes and other expenses		—			—
Net income fee to related party		(112	)		(90	)
Advisory fee to related party		(2,051	)		(2,158	)
Other income		1,484			688
Foreign currency translation gain (loss)		(5,599	)		(2,325	)
Loss from joint venture		(735	)		(236	)
Losses from other unconsolidated investees		7			2
State income tax expense		(49	)		—
Net income (loss) from continuing operations	$	(3,916	)	$	(5,966	)

The following table reconciles segment information to the corresponding amounts in the Consolidated Statements of Operations for the six months ended June 30, 2020 and 2019 (dollars in thousands):

	For the Six Months Ended June 30,
	2020			2019
Segment operating income	$	7,457		$	2,002
Other non-segment items of income (expense)
General and administrative		(3,926	)		(4,539	)
Franchise taxes and other expenses		(1,494	)		—
Net income fee to related party		(198	)		(190	)
Advisory fee to related party		(4,146	)		(3,806	)
Other income		2,319			4,580
Foreign currency translation gain (loss)		2,244			(8,143	)
Loss from joint venture		(1,111	)		(1,291	)
Losses from other unconsolidated investees		6			(5	)
State income tax expense		(296	)		—
Net income (loss) from continuing operations	$	855		$	(11,392	)

Schedule of reconciliaton segment information to consolidated balance sheets

The tables below reconcile the segment information to the corresponding amounts in the Consolidated Balance Sheets:

	As of June 30,
	2020		2019
Segment assets	$	394,944	$	386,501
Investments in unconsolidated subsidiaries and investees		75,411		89,245
Notes and interest receivable		135,664		116,864
Other assets and receivables		258,148		261,277
Total assets	$	864,167	$	853,887

XML

ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) $ in Thousands		6 Months Ended
	Nov. 19, 2018 USD ($) Number	Jun. 30, 2020 a ft² Number	Jul. 17, 2009 shares	Jul. 16, 2009
Acres of land | a		1,891
Commercial Properties [Member]
Number of income-producing properties		7
Rentable square feet | ft²		1,700,000
Office Buildings [Member]
Number of income-producing properties		5
Retail Properties [Member]
Number of income-producing properties		2
Apartment Buildings [Member]
Number of apartment units		1,657
Number of income-producing properties		10
Income Opportunities Realty Investors, Inc. [Member]
Percentage of ownership		81.23%
Income Opportunities Realty Investors, Inc. [Member]
Percentage of ownership				25.00%
Number of additional shares acquired | shares			2,518,934
Minimum [Member]
Percentage of ownership		20.00%
Amortization life of financing properties		6 months
Minimum [Member] | Buildings and Improvements [Member]
Useful life of property, plant and equipment		10 years
Minimum [Member] | Furniture, Fixtures And Equipment [Member]
Useful life of property, plant and equipment		5 years
Minimum [Member] | Income Opportunities Realty Investors, Inc. [Member]
Percentage of ownership			80.00%
Maximum [Member]
Percentage of ownership		50.00%
Amortization life of financing properties		40 years
Maximum [Member] | Buildings and Improvements [Member]
Useful life of property, plant and equipment		40 years
Maximum [Member] | Furniture, Fixtures And Equipment [Member]
Useful life of property, plant and equipment		10 years
Victory Abode Apartment, LLC [Member] | Common Class B [Member] | Daniel J. Moos ARL's President and Chief Executive Officer [Member]
Profit participation rights percentage		2.00%
Subsidiaries and affiliates of ARL [Member] | TCI [Member] | Minimum [Member]
Percentage of ownership by parent		80.00%
American Realty Investors, Inc [Member] | TCI [Member]
Percentage of ownership by parent		78.38%
Parent of ARL [Member] | TCI [Member]
Percentage of ownership by non-controlling owners		7.20%
Victory Abode Apartment, LLC [Member]
Percentage of ownership		50.00%
Number of apartment units		10,137
Number of income-producing properties	49	51
Cash consideration | $	$ 236,800
Number of development project	3
Abode JVP, LLC [Member] | Victory Abode Apartment, LLC [Member] | Common Class A [Member]
Voting interest in joint venture		50.00%
Profit participation rights percentage		49.00%
Summerset Intermediate Holdings 2 LLC [Member] | Victory Abode Apartment, LLC [Member] | Common Class A [Member]
Voting interest in joint venture		50.00%
Profit participation rights percentage		49.00%

XML

INVESTMENT IN VAA (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Balance Sheet
Net real estate assets	$ 394,944		$ 394,944		$ 387,790
Other assets	57,167		57,167		50,560
Total equity	(333,058)		(333,058)		$ (332,603)
Results of Operations
Total revenue	11,947	$ 11,840	23,865	$ 23,769
Depreciation and Amortization	(3,418)	(3,439)	(6,812)	(6,548)
Net loss	7	2	6	(5)
Adjustments to reconcile to income (loss) from VAA
Loss from VAA	(735)	(236)	(1,111)	(1,291)
Victory Abode Apartment, LLC [Member]
Balance Sheet
Net real estate assets	1,232,160	1,247,535	1,232,160	1,247,535
Other assets	57,160	56,474	57,160	56,474
Debt, net	(834,766)	(812,010)	(834,766)	(812,010)
Other liabilities	(270,647)	(272,716)	(270,647)	(272,716)
Total equity	(183,907)	(219,283)	(183,907)	(219,283)
Results of Operations
Total revenue	29,725	28,927	59,284	56,328
Total property, operating, and maintenance expenses	(15,541)	(14,313)	(29,282)	(28,482)
Interest expense	(14,193)	(14,799)	(29,267)	(29,869)
Depreciation and Amortization	(7,763)	(15,523)	(15,420)	(30,756)
Total other expense	(95)	(327)	(1,076)	(1,002)
Net loss	(7,867)	(16,035)	(15,761)	(33,781)
Adjustments to reconcile to income (loss) from VAA
Interest expense on mezzanine loan	5,264	6,401	11,137	12,490
In-place lease intangibles - amortization expense		8,429		16,765
Depreciation basis differences	1,133	733	2,402	1,944
Net loss	$ (1,470)	$ (472)	$ (2,222)	$ (2,582)
Percentage ownership in VAA	50.00%	50.00%	50.00%	50.00%
Loss from VAA	$ (735)	$ (236)	$ (1,111)	$ (1,291)

XML

REAL ESTATE ACTIVITY (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Real Estate [Abstract]
Apartments	$ 178,240	$ 156,173
Apartments under construction	14,809	22,363
Commercial properties	230,365	229,424
Land held for development	61,225	62,037
Real estate subject to sales contract	6,307	7,966
Total real estate, at cost, less impairment	490,946	477,963
Less accumulated depreciation	(96,002)	(90,173)
Total real estate, net of depreciation	$ 394,944	$ 387,790

XML

REAL ESTATE ACTIVITY (Details Narrative) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020 USD ($) a	Jun. 30, 2019 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2019 USD ($)
Gain on sale of land	$ 5,339	$ 2,133	$ 9,477	$ 4,349
Purchase of note receivable			$ 1,748	$ 945
Payment for construction or predevelopment of various apartment complexes	300
Related Party [Member]
Purchase of note receivable	$ 3,600
Farmers Branch and Forney, Texas [Member]
Area of land sold | a	25.9
Proceeds from sale of land	$ 6,600
Gain on sale of land	$ 5,300
Farmers Branch, Texas [Member]
Area of land sold | a	0.3
Proceeds from sale of land	$ 200
Gain on sale of land	$ 60
McKinney, Texas [Member]
Area of land purchased | a	1.3
Purchase price of properties	$ 500
Denton, Texas [Member]
Area of land purchased | a	0.7
Purchase price of properties	$ 100

XML

SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019	Dec. 31, 2018
Cash and cash equivalents	$ 42,250	$ 51,179	$ 37,579
Restricted cash	30,114	32,082
Cash and cash equivalents, and restricted cash	72,364	$ 83,261	82,181	$ 106,565
Held In Escrow [Member]
Restricted cash	15,598		29,538
Certificates of Deposit [Member]
Restricted cash	2,853		8,501
Held with Trustee [Member]
Restricted cash	$ 11,663		$ 6,563

XML

SUPPLEMENTAL CASH FLOW INFORMATION (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	Dec. 31, 2018
Supplemental Cash Flow Elements [Abstract]
Interest expense paid	$ 14,710	$ 12,927
Cash and cash equivalents, and restricted cash	$ 72,364	$ 82,181	$ 83,261	$ 106,565

XML

NOTES AND INTEREST RECEIVABLE (Details) - USD ($) $ in Thousands		6 Months Ended
		Jun. 30, 2020	Dec. 31, 2019
Total		$ 135,664	$ 120,986
Performing Loans [Member]
Total Performing		137,489
Accrued interest		10,041
Allowance for estimated losses		(1,825)
Total		$ 135,664
Performing Loans [Member] | H198, LLC (Las Vegas Land) [Member]
Maturity Date		Jan. 31, 2023
Description of property		Prospectus Endeavors 4, LLC
Interest Rate		12.00%
Total Performing		$ 5,907
Description of Security		Secured
Performing Loans [Member] | H198, LLC (Legacy at Pleasant Grove Land) [Member]
Maturity Date		Oct. 31, 2022
Description of property		Prospectus Endeavors 6, LLC
Interest Rate		12.00%
Total Performing		$ 496
Description of Security		Secured
Performing Loans [Member] | Oulan-Chikh Family Trust [Member]
Maturity Date		Mar. 31, 2021
Description of property		Oulan-Chikh Family Trust
Interest Rate		8.00%
Total Performing		$ 174
Description of Security		Secured
Performing Loans [Member] | H198, LLC (McKinney Ranch Land) [Member]
Maturity Date		Sep. 30, 2020
Description of property		H198, LLC (McKinney Ranch Land)
Interest Rate		6.00%
Total Performing		$ 4,554
Description of Security		Secured
Performing Loans [Member] | Forest Pines [Member]
Maturity Date		Nov. 30, 2020
Description of property		Forest Pines Phase I
Interest Rate		5.00%
Total Performing		$ 2,869
Description of Security		Secured
Performing Loans [Member] | Spyglass Apartments of Ennis [Member]
Maturity Date		Nov. 30, 2020
Description of property		Spyglass Apartments of Ennis, LP
Interest Rate		5.00%
Total Performing		$ 5,336
Description of Security		Secured
Performing Loans [Member] | Bellwether Ridge [Member]
Maturity Date		Nov. 30, 2020
Description of property		Bellwether Ridge
Interest Rate		5.00%
Total Performing		$ 3,855
Description of Security		Secured
Performing Loans [Member] | Parc at Windmill Farms [Member]
Maturity Date		Nov. 30, 2020
Description of property		Parc at Windmill Farms
Interest Rate		5.00%
Total Performing		$ 7,929
Description of Security		Secured
Performing Loans [Member] | Autumn Breeze [Member]
Maturity Date		Oct. 31, 2021
Description of property		Autumn Breeze
Interest Rate		5.00%
Total Performing		$ 1,638
Description of Security		Secured
Performing Loans [Member] | Plum Tree [Member]
Maturity Date		Oct. 31, 2021
Description of property		Plum Tree
Interest Rate		5.00%
Total Performing		$ 658
Description of Security		Secured
Performing Loans [Member] | Parc At Ingleside [Member]
Maturity Date		Dec. 31, 2021
Description of property		Parc at Ingleside
Interest Rate		5.00%
Total Performing		$ 2,181
Description of Security		Secured
Performing Loans [Member] | RNC Revolving Line Of Credit [Member]
Maturity Date		Sep. 30, 2024
Description of property		RNC Revolving Line of Credit
Interest Rate		5.00%
Total Performing		$ 8,853
Description of Security		Secured
Performing Loans [Member] | Steeple Crest [Member]
Maturity Date		Oct. 31, 2020
Description of property		Steeple Crest
Interest Rate		5.00%
Total Performing		$ 6,665
Description of Security		Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. (Echo Station) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Echo Station)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 1,481
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. (Lakeshore Villas) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Lakeshore Villas)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 2,000
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing FoundationInc (Lakeshore Villas One) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Lakeshore Villas)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 6,369
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. (Limestone Ranch) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Limestone Ranch)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 1,953
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation Inc (Limestone Ranch One) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Limestone Ranch)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 2,000
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation Inc (Limestone Ranch Two) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Limestone Ranch)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 4,000
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation Inc (Timbers of Terrell) [Member]
Maturity Date	[1]	Dec. 31, 2032
Description of property	[1]	Unified Housing Foundation, Inc. (Timbers of Terrell)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 1,323
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. [Member]
Maturity Date	[1]	Dec. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 10,401
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc. [Member]
Maturity Date	[1]	Mar. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 5,314
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc. [Member]
Maturity Date	[1]	Mar. 31, 2022
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 4,782
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.(Lakeshore Villas) [Member]
Maturity Date	[1]	Jul. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc. (Lakeshore Villas)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 838
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation Inc (Limestone Ranch) [Member]
Maturity Date	[1]	Jul. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc. (Limestone Ranch)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 773
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation Inc (Marquis at Vista Ridge) [Member]
Maturity Date	[1]	Jul. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc. (Marquis at Vista Ridge)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 839
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. (Timbers at the Park) [Member]
Maturity Date	[1]	Jul. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc. (Timbers at the Park)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 432
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. (Bella Vista) [Member]
Maturity Date	[1]	Aug. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc. (Bella Vista)
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 212
Description of Security	[1]	Secured
Performing Loans [Member] | Unified Housing Foundation, Inc. [Member]
Maturity Date	[1]	Mar. 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 61
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	Mar. 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 1,482
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	Mar. 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 4,792
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	Mar. 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 716
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	Mar. 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 317
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	May 31, 2023
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 3,615
Description of Security	[1]	Unsecured
Performing Loans [Member] | Unified Housing Foundation, Inc.[Member]
Maturity Date	[1]	Oct. 31, 2021
Description of property	[1]	Unified Housing Foundation, Inc.
Interest Rate	[1]	12.00%
Total Performing	[1]	$ 6,831
Description of Security	[1]	Unsecured
Performing Loans [Member] | Other Related Party Notes [Member]
Description of maturity date		Various
Description of property		Other related party notes
Description of Interest Rate		Various
Total Performing		$ 4,078
Description of Security		Various secured interests
Performing Loans [Member] | Other Non-Related Party Notes [Member]
Description of maturity date		Various
Description of property		Other non-related party notes
Description of Interest Rate		Various
Total Performing		$ 11,724
Description of Security		Various secured interests

[1] Related party notes

XML

NOTES AND INTEREST RECEIVABLE (Details Narrative) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Notes and interest receivable	$ 135,664	$ 135,664		$ 120,986
Collection of notes receivable		1,227	$ 255
Purchase of notes receivable		1,748	$ 945
Related Party [Member]
Notes and interest receivable	68,170	68,170		$ 57,817
Purchase of notes receivable	3,600
Related Party [Member] | Notes Receivable [Member]
Notes and interest receivable	66,300	66,300
Accrued interest	3,500	$ 3,500
Collection of notes receivable	3,200
Purchase of notes receivable	$ 10,900
Interest rate	12.00%
Maturity date	Mar. 31, 2023

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Real estate, net of accumulated depreciation	$ 394,944		$ 394,944		$ 387,790
Other assets	57,167		57,167		50,560
Notes payable	(255,884)		(255,884)		(246,546)
Shareholders' equity/partners capital	(333,058)		(333,058)		$ (332,603)
Total revenue	11,947	$ 11,840	23,865	$ 23,769
Loss from continuing operations	(3,916)	(5,966)	855	(11,392)
Net loss	(4,158)	(6,345)	455	(11,954)
Company's proportionate share of loss	7	2	6	(5)
American Realty Investors, Inc. [Member]
Real estate, net of accumulated depreciation		549		549
Notes receivable	31,925	42,719	31,925	42,719
Other assets	69,862	66,407	69,862	66,407
Notes payable	(6,719)	(5,070)	(6,719)	(5,070)
Other liabilities	(27,473)	(33,855)	(27,473)	(33,855)
Shareholders' equity/partners capital	$ (67,595)	$ (70,750)	(67,595)	(70,750)
Total revenue			4,553	7,370
Operating expenses			(923)	(1,479)
Interest expense			(2,965)	(3,771)
Loss from continuing operations			665	2,120
Net loss			665	2,120
Company's proportionate share of loss			$ 6	$ 19

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details Narrative)	Jun. 30, 2020
Minimum [Member]
Percentage of ownership	20.00%
Maximum [Member]
Percentage of ownership	50.00%
American Realty Investors, Inc. [Member]
Percentage of ownership	0.90%

XML

NOTES AND INTEREST PAYABLE (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Total notes payable	$ 261,665	$ 253,115
Less: unamortized deferred borrowing costs	(6,917)	(7,342)
Total outstanding notes payable, net	254,748	245,773
Accrued Interest	1,136	773
Total notes payable, net and accrued interest	255,884	246,546
Apartments [Member]
Total notes payable	135,655	120,024
Apartments Under Construction [Member]
Total notes payable	4,505	9,017
Commercial [Member]
Total notes payable	91,973	92,838
Land [Member]
Total notes payable	13,293	14,806
Corporate and Other Notes [Member]
Total notes payable	$ 16,239	$ 16,430

XML

NOTES AND INTEREST PAYABLE (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Construction loan	$ 7,400
Notes payable	255,884	$ 246,546
Land [Member]
Notes payable	$ 3,400
Interest rate	10.00%
Maturity date	Nov. 13, 2024

XML

BONDS PAYABLE (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Less: deferred issuance expense, net	$ (6,917)	$ (7,342)
Accrued Interest	1,136	773
Bonds (Series A) [Member]
Bonds	80,785	92,653
Bonds (Series B) [Member]
Bonds	39,729	39,844
Bonds (Series B expansion) [Member]
Bonds	20,860	20,920
Bonds (Series C) [Member]
Bonds	79,342	79,572
Bonds [Member]
Bonds	220,716	232,989
Less: deferred issuance expense, net	(8,174)	(9,724)
Total outstanding bonds, net	212,542	223,265
Accrued Interest	5,674	6,457
Total oustanding bonds, net and accrued interest	$ 218,216	$ 229,722

XML

BONDS PAYABLE (Details 1) - Bonds [Member] - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Year ended December 31,
2020	$ 11,541	$ 23,148
2021	35,199	35,301
2022	35,199	35,301
2023	114,541	114,873
2024	12,118	12,153
Thereafter	12,118	12,213
Total	$ 220,716	$ 232,989

XML

BONDS PAYABLE (Details Narrative) - USD ($) $ in Thousands	Jul. 22, 2020	Jan. 31, 2020
Series A Bonds [Member]
Payment of bond principal		$ 11,600
Payment of interest		7,300
Series A Bonds [Member] | Subsequent Event [Member]
Payment of bond principal	$ 11,700
Payment of interest	6,900
Bonds (Series B) [Member]
Payment of interest		7,300
Bonds (Series B) [Member] | Subsequent Event [Member]
Payment of interest	6,900
Series C Bonds [Member]
Payment of interest		$ 7,300
Series C Bonds [Member] | Subsequent Event [Member]
Payment of interest	$ 6,900

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Due from Related Parties [RollForward]
Related party receivable, beginning balance, December 31, 2019			$ 141,541
Cash transfers			887
Advisory fees	$ (2,051)	$ (2,158)	(4,146)	$ (3,806)
Net income fee	(112)	$ (90)	(198)	$ (190)
Cost reimbursements			(1,749)
Interest income			3,235
Notes receivable purchased			(7,368)
Expenses (paid)/received by advisor			(4,511)
Financing (mortgage payments)			(166)
Intercompany property transfers			(159)
Related party receivable, ending balance, June 30, 2020	128,617		128,617
Pillar Income Asset Management, Inc [Member]
Due from Related Parties [RollForward]
Cash transfers			887
Advisory fees			(2,895)
Net income fee			(198)
Cost reimbursements			(1,749)
Notes receivable purchased			(7,368)
Expenses (paid)/received by advisor			(4,511)
Financing (mortgage payments)			(166)
Intercompany property transfers			(159)
Related party receivable, ending balance, June 30, 2020	(16,159)		(16,159)
American Realty Investors, Inc [Member]
Due from Related Parties [RollForward]
Related party receivable, beginning balance, December 31, 2019			141,541
Interest income			3,235
Related party receivable, ending balance, June 30, 2020	$ 144,776		$ 144,776

XML

DEFERRED INCOME (Details Narrative) $ in Thousands	Jun. 30, 2020 USD ($)
Deferred Income
Deferred gain	$ 10,400

XML

OPERATING SEGMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Segment Reporting Information [Line Items]
Rental and other property revenues	$ 11,947	$ 11,840	$ 23,865	$ 23,769
Property operating expenses	(5,810)	(7,322)	(12,119)	(13,319)
Depreciation	(3,418)	(3,439)	(6,812)	(6,548)
Segment operating (loss) income	(849)	(3,380)	(4,830)	(4,633)
Assets	394,944		394,944
Operating Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	11,947	11,840	23,865	23,769
Property operating expenses	(5,810)	(7,322)	(12,119)	(13,319)
Depreciation	(3,418)	(3,439)	(6,812)	(6,548)
Mortgage and loan interest	(7,741)	(7,646)	(15,708)	(15,605)
Interest income	4,227	4,878	8,754	9,436
Loss on sale of income producing property		(80)		(80)
Gain on land sales	5,339	2,133	9,477	4,349
Segment operating (loss) income	4,544	364	7,457	2,002
Capital expenditures	8,296	10,295	18,038	24,311
Assets	394,944	386,501	394,944	386,501
Property Sales
Sales price	8,903	10,698	14,615	19,413
Cost of sale	(3,564)	(8,645)	(5,138)	(15,144)
Gain on sale	5,339	2,053	9,477	4,269
Commercial Properties [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	7,863	8,020	15,747	16,247
Property operating expenses	(4,070)	(4,410)	(8,180)	(8,346)
Depreciation	(2,480)	(2,732)	(5,002)	(5,107)
Mortgage and loan interest	(1,345)	(1,947)	(2,717)	(3,914)
Segment operating (loss) income	(32)	(1,069)	(152)	(1,120)
Capital expenditures	232	346	941	4,045
Assets	146,576	152,852	146,576	152,852
Apartments [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	4,084	3,818	8,116	7,518
Property operating expenses	(1,930)	(2,017)	(3,860)	(4,075)
Depreciation	(938)	(707)	(1,810)	(1,441)
Mortgage and loan interest	(1,177)	(1,002)	(2,349)	(1,936)
Loss on sale of income producing property		(80)		(80)
Segment operating (loss) income	39	12	97	(14)
Capital expenditures	7,400	9,596	14,433	17,434
Assets	180,835	153,950	180,835	153,950
Property Sales
Sales price	2,426	3,096	2,426	3,096
Cost of sale	(2,426)	(3,176)	(2,426)	(3,176)
Gain on sale		(80)		(80)
Land [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Property operating expenses	(95)	(88)	(193)	(45)
Mortgage and loan interest	(219)	(270)	(425)	(523)
Gain on land sales	5,339	2,133	9,477	4,349
Segment operating (loss) income	5,025	1,775	8,859	3,781
Capital expenditures	664	353	2,664	2,832
Assets	67,533	79,699	67,533	79,699
Property Sales
Sales price	6,477	7,602	12,189	16,317
Cost of sale	(1,138)	(5,469)	(2,712)	(11,968)
Gain on sale	5,339	2,133	9,477	4,349
Other [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues		2	2	4
Property operating expenses	285	(807)	114	(853)
Mortgage and loan interest	(5,000)	(4,427)	(10,217)	(9,232)
Interest income	4,227	4,878	8,754	9,436
Segment operating (loss) income	$ (488)	$ (354)	$ (1,347)	$ (645)

XML

OPERATING SEGMENTS (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Segment Reporting [Abstract]
Segment operating income	$ 4,544	$ 364	$ 7,457	$ 2,002
Other non-segment items of income (expense)
General and administrative	(1,405)	(2,211)	(3,926)	(4,539)
Franchise taxes and other expenses			(1,494)
Net income fee to related party	(112)	(90)	(198)	(190)
Advisory fee to related party	(2,051)	(2,158)	(4,146)	(3,806)
Other income	1,484	688	2,319	4,580
Foreign currency translation gain (loss)	(5,599)	(2,325)	2,244	(8,143)
Loss from joint venture	(735)	(236)	(1,111)	(1,291)
Losses from other unconsolidated investees	7	2	6	(5)
State income tax expense	(49)		(296)
Net income (loss) from continuing operations	$ (3,916)	$ (5,966)	$ 855	$ (11,392)

XML

OPERATING SEGMENTS (Details 2) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019	Jun. 30, 2019
Segment assets	$ 394,944	$ 387,790
Investments in unconsolidated subsidiaries and investees	22,638	22,632
Total assets	864,167	$ 865,918
Segment Reconciling Items [Member]
Segment assets	394,944		$ 386,501
Investments in unconsolidated subsidiaries and investees	75,411		89,245
Notes and interest receivable	135,664		116,864
Other assets and receivables	258,148		261,277
Total assets	$ 864,167		$ 853,887

XML

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY (Details Narrative) - USD ($) $ in Thousands		1 Months Ended
	Jul. 20, 2015	Jan. 31, 2012	Oct. 31, 2011	Jun. 30, 2020	Dec. 31, 2019	Feb. 04, 2019	Dec. 31, 2012
Notes receivable				$ 135,664	$ 120,986
Common stock held by shareholder of lawsuit						7,900
Dynex Litigation [Member]
Unfunded loan commitment	$ 160,000
Awarded attorney fees	$ 1,600
Post-judgment interest rate	5.00%
Dynex Litigation [Member] | Transcontinental Realty Investors, Inc. [Member]
Damages awarded value	$ 19,500
Actual damages awarded value	11,100
Interest damages awarded value	8,400
Dynex Litigation [Member] | American Realty Trust, Inc. [Member]
Damages awarded value	24,800
Actual damages awarded value	14,200
Interest damages awarded value	10,600
Dynex Litigation [Member] | Basic Capital Management, Inc. [Member]
Damages awarded value	448
Actual damages awarded value	256
Interest damages awarded value	$ 192
ART and ART Midwest, Inc. Litigation [Member]
Damages awarded value		$ 59,000	$ 74,000
Actual damages awarded value			26,000
Interest damages awarded value			$ 48,000
Notes receivable		$ 10,000					$ 0
UHF Debt Guarantee [Member]
Loan guarantee amount				$ 24,300

XML

EARNINGS PER SHARE (Details Narrative) $ / shares in Units, $ in Thousands	Jul. 09, 2014 USD ($) $ / shares shares
Common shares issued upon conversion	304,298
Series C Cumulative Convertible Preferred Stock [Member]
Preferred stock, shares issued	30,000
Preferred stock, shares outstanding	30,000
Accrued Dividends | $	$ 900
Preferred stock, liquidation preference per share | $ / shares	$ 100.00
Percentage of the average daily closing price of common stock	90.00%
Number of trading days	5 days
Shares converted	30,000

XML

SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] $ in Thousands	Jul. 16, 2020 USD ($)
Transaction price	$ 13,300
Cash proceeds received	5,400
Assumption of debt	$ 9,100