Transcontinental Realty Investors, Inc. — Q1 2024 Form 10-Q
Business and period: The company owns and develops multifamily and commercial real estate and land, primarily in the Southern United States. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Financial amounts below are in millions of dollars unless otherwise stated.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Total revenue | $11.9 | $11.7 |
| Net operating loss | $(1.3) | $(2.6) |
| Net income | $2.8 | $3.7 |
| Net income attributable to the Company | $2.5; $0.30 per share | $3.5; $0.41 per share |
| Operating cash flow | $3.9 | $1.5 |
| Cash, cash equivalents and restricted cash | $93.0 | $110.5 |
| Short-term investments | $76.2 | $90.4 at Dec. 31, 2023 |
| Mortgages and other notes payable | $178.3 | $179.1 at Dec. 31, 2023 |
| Total assets / total equity | $1,042.3 / $849.1 | $1,043.0 / $847.0 at Dec. 31, 2023 |
Rental revenue rose 2.5% to $11.3 million. Multifamily segment revenue was $8.1 million and segment profit was $3.8 million; commercial revenue was $3.2 million and segment profit was $0.8 million. Segment profit margin was approximately 47.6% for multifamily and 25.1% for commercial, compared with 49.7% and 34.1%, respectively, in Q1 2023. The company reported a $1.3 million net operating loss despite positive net income, primarily because of interest income and joint venture income. FFO was $5.7 million versus $6.6 million; adjusted FFO was $5.7 million versus $5.6 million.
Investing activities provided $11.6 million, mainly reflecting net redemptions of short-term investments. Financing activities used $1.5 million, versus $89.1 million in Q1 2023, when the company repaid bonds. Cash paid for interest fell to $1.5 million from $6.4 million. Cash and restricted cash at quarter-end totaled $93.0 million, of which $38.4 million was restricted.
Material changes and notable items
- Net income attributable to the Company declined $1.0 million. Commercial segment profit fell $0.4 million, primarily due to lower occupancy at Browning Place. Multifamily segment profit increased $0.2 million.
- Interest income declined $2.7 million, partly offset by a $1.2 million reduction in interest expense. The interest-income decline chiefly reflects amended rates on UHF notes and the Pillar receivable; lower interest expense reflects bond repayments in 2023.
- General, administrative and advisory expenses decreased $1.6 million, primarily because of lower legal, auditing and other administrative costs associated with bonds repaid in 2023. Q1 2024 general and administrative expense included $0.9 million payable to related-party Pillar; advisory fees to Pillar were $2.2 million.
- There was no foreign-currency gain in Q1 2024, compared with a $1.0 million gain in Q1 2023.
- The company reported $137.2 million due from related parties and $63.0 million of related-party notes receivable. These balances and related-party service arrangements are material to the company’s financial relationships.
Outlook, risks and contingencies
- Management expects cash, cash generated from notes and related-party receivables, and investments to meet cash requirements, but cautions that excess cash from property operations over the next 12 months might not be sufficient to discharge all obligations as due. It may sell assets, refinance or extend debt, or seek additional real-estate-secured borrowings.
- Three multifamily developments are expected to be completed in 2025: Lake Wales (240 units; estimated total cost $55.3 million), Merano (216 units; $51.9 million), and Bandera Ridge (216 units; $49.6 million). Related construction loans total up to $81.9 million; none had been drawn as of March 31, 2024. Windmill Farms land-lot development is estimated at $24.3 million, with work expected to begin in Q3 2024.
- Debt was $178.3 million. The filing lists loans maturing in 2024 and 2025, including EQK Portage, RCM HC Enterprises, Forest Grove, and 770 South Post Oak. The company was in compliance with loan covenants except for the minimum DSCR covenant on 770 South Post Oak; the lender controls the property’s surplus cash in a designated account until compliance is achieved for two consecutive quarters.
- Construction, financing and refinancing availability, interest rates, occupancy and rental demand, development costs and timing, property sales, and economic conditions are among the stated risks. Management said risk factors were not materially changed from the 2023 Form 10-K. No legal proceedings or defaults upon senior securities were reported.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing does not provide specific earnings or revenue guidance.
Important facts for investors to verify
- Timing and available funding for 2024–2025 debt maturities, including the 770 South Post Oak DSCR shortfall and restricted surplus cash.
- Collectability, terms and interest-rate sensitivity of related-party receivables and notes, including the $137.2 million Pillar receivable and UHF notes.
- Development budgets, construction-loan draw conditions, completion schedules and remaining funding needs for the three 2025 multifamily projects.
- Whether commercial occupancy, particularly at Browning Place, stabilizes and whether multifamily operating-cost growth moderates.
- Management’s liquidity statement against its caution that operating cash may not cover all obligations, and the company’s reliance on asset sales, refinancing or additional borrowing.