Transcontinental Realty Investors, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise.
Business context
TCI is an externally managed real estate company focused on multifamily and commercial properties, land development, and mortgage notes receivable, primarily in the southern United States. At year-end it reported nine directly owned multifamily properties with 1,492 units, five commercial properties totaling about 1.06 million square feet, and 1,886 acres of land. Its joint venture, Victory Abode Apartments (VAA), held 52 multifamily properties with 10,281 units. TCI is controlled by American Realty Investors, and Pillar Income Asset Management manages the company.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $40.8 million | $57.0 million |
| Net operating income (loss) | $(16.2) million | $(0.03) million |
| Net income | $10.1 million | $7.5 million |
| Net income attributable to TCI | $9.4 million | $6.7 million |
| Diluted EPS | $1.09 | $0.77 |
| Net cash from operating activities | $(11.0) million | $5.6 million |
| Net cash from investing activities | $100.3 million | $0.4 million |
| Net cash from financing activities | $(103.6) million | $(2.3) million |
Revenue fell about 28%, mainly reflecting the sale of 600 Las Colinas and other properties. Multifamily segment revenue was $14.5 million, with segment profit of $6.3 million (versus $6.2 million). Commercial revenue was $23.3 million and segment profit was $10.6 million, down from $37.2 million and $21.3 million. The company reported adjusted FFO of $33.8 million, compared with $37.4 million in 2020; FFO is a non-GAAP supplemental measure, not a substitute for operating cash flow.
At December 31, cash and cash equivalents were $50.7 million, restricted cash $22.0 million, and short-term investments $16.0 million. Total assets were $788.4 million and total liabilities $416.8 million. Mortgages and other notes payable were $176.8 million and bonds payable $189.5 million, or about $366.2 million combined, down from $474.0 million a year earlier. The filing schedules substantial maturities: approximately $44.1 million of notes payable in 2022 and $46.3 million of bonds in 2022, followed by $121.6 million of bond maturities in 2023. Subsequent extensions and the Toulon sale affect the year-end picture.
Material changes and unusual items
- Sold 600 Las Colinas for $74.8 million, recognizing a $27.3 million gain and repaying its $35.9 million mortgage. Also sold Windmill Farms land for $20.2 million and Mercer Crossing land for $9.0 million, with gains of $10.3 million and $6.4 million, respectively.
- Recorded a $29.6 million loss after an arbitration decision set the VAA earn-out obligation at approximately $39.6 million. A $5.4 million VAA distribution was applied to the obligation.
- Equity income from unconsolidated joint ventures was $14.5 million, compared with a $0.5 million loss in 2020. VAA’s year-end appraised portfolio value was about $1.4 billion; TCI cautioned that appraised values may not be realized.
- Operating cash flow turned negative, which management attributed primarily to reimbursable Windmill Farms development spending. Investing cash inflow was largely supported by asset-sale proceeds; financing outflows reflected debt repayments.
- TCI spent $15.7 million on Windmill Farms development and advanced $8.6 million on development notes. It also advanced $2.3 million for Tower Bay Lofts, with an option to acquire the project at its investment cost.
Outlook, risks and contingencies
Management gave no quantified earnings or operating guidance. It said year-end cash, cash equivalents, short-term investments, and expected 2022 collections should meet cash requirements, while also planning selective asset sales, refinancing, extensions, and additional property-secured borrowing. The auditor’s report includes an emphasis on liquidity, and management acknowledged that operating cash generation may not cover all obligations as they come due.
TCI and Macquarie agreed to initiate a sale of VAA’s properties. Under the arrangement, seven properties are to be distributed to TCI and one TCI property contributed to the sale portfolio; the agreement expires August 1, 2022 if the portfolio has not been sold. Cash distributions from the subsidiary holding TCI’s VAA interest are subject to bond covenants.
Key risks include leverage and refinancing needs, property and tenant performance, interest-rate and construction-cost changes, regional concentration, COVID-19 effects, and limited real estate liquidity. The company also reported related-party balances and transactions, including $136.7 million receivable from related parties and substantial advisory and management fees paid to affiliates. A 2019 lawsuit alleging improper property transactions with IOR remained pending, with trial scheduled for November 2022. TCI reported no common-stock dividends for 2019–2021.
Important facts for investors to verify
- Review the debt maturity and covenant schedules, including the effects of post-year-end extensions, property sales, and any refinancing progress.
- Assess collectability and collateral support for the $129.7 million of notes receivable, including significant related-party and UHF exposures; these judgments were a critical audit matter.
- Track the VAA sale process, the earn-out balance and payment terms, and whether appraised values translate into realizable proceeds.
- Examine the $136.7 million related-party receivable, advisory arrangements, and potential conflicts arising from shared management and controlling ownership.
- Monitor commercial occupancy and lease expirations, development spending, and the company’s ability to generate positive operating cash flow.
- Confirm filing dates against the official SEC filing: the supplied text contains apparent date inconsistencies, including a March 28, 2021 audit/signature date despite reporting FY2021 and describing 2022 subsequent events.