Transcontinental Realty Investors, Inc. reports Earnings for Quarter Ended December 31, 2023

Rhea-AI Summary

Transcontinental Realty Investors, Inc. (NYSE:TCI) reported a net loss of $2.6 million for the quarter ended December 31, 2023, compared to a net income of $58.9 million for the same period in 2022. Total occupancy was 77%, with positive developments in rental revenues and construction loans for multifamily properties in Texas.

Positive

• Positive financial highlights include a $1.0 million increase in rental revenues from $11.8 million in 2022 to $12.8 million in 2023, primarily driven by multifamily property acquisitions.
• Transcontinental Realty Investors secured construction loans for the Merano and Bandera Ridge multifamily properties in Texas, with expected total costs of $51.9 million and $49.6 million, respectively.
• Extension of the maturity of the loan on Windmill Farms to February 28, 2026, at an interest rate of 7.50%.
• Total occupancy was 77% at December 31, 2023, with 92% at multifamily properties and 49% at commercial properties.

Negative

• Net operating income decreased from $0.5 million in 2022 to a net operating loss of $2.1 million in 2023, primarily due to increased property operating and depreciation expenses.
• Net income attributable to the Company decreased from $58.9 million in 2022 to a net loss of $2.6 million in 2023, mainly due to a $74.7 million decrease in gain on sale or write down of assets and a $15.8 million increase in the tax provision.

Insights

Real Estate Financial Analyst

The report from Transcontinental Realty Investors, Inc. (TCI) indicates a notable shift from a substantial net income in the previous year to a net loss in the current quarter. A key factor in this reversal appears to be the significant decrease in gain on sale, remeasurement, or write down of assets. This is a common occurrence in real estate when the market valuation of properties changes, impacting the balance sheet and income statements.

While the increase in rental revenue suggests growth in operational income, it is overshadowed by the rise in property operating and depreciation expenses. This could be indicative of a strategic expansion, as seen with the acquisition of the VAA Holdback Portfolio, which although may promise future income potential, currently weighs on profitability due to associated costs.

The engagement in new construction projects, such as Merano and Bandera Ridge, reflects a forward-looking growth strategy. However, the financing terms with interest rates pegged to prime and SOFR plus a margin, combined with the current economic environment of rising interest rates, could pose a risk to future cash flows. Investors should monitor these developments closely as they could affect the company's financial health and stock performance.

Market Research Analyst

TCI's occupancy rates present a mixed picture, with a strong performance in multifamily properties but less so in commercial properties. The high occupancy in multifamily units is consistent with a broader trend where demand for residential spaces remains robust, especially in growing regions like Texas. However, the underperformance in commercial real estate could be a concern, reflecting broader market challenges such as shifts in work patterns and retail behavior.

The company's strategic decisions, such as extending the maturity of the loan on Windmill Farms, indicate an effort to manage debt obligations amidst a challenging interest rate environment. This move could be seen as a proactive approach to financial management, potentially providing more flexibility in the short term.

Investors should consider the regional focus of TCI's projects. The Texas real estate market has been experiencing growth, but it is also subject to economic cycles and regional policy changes. As such, TCI's performance is not only a reflection of company-specific actions but also of the health of the local economy and real estate market dynamics.

Tax Advisor

The reported decrease in tax provision, despite a net loss, is an interesting aspect of TCI's financial results. This could be due to the remeasurement of the VAA Holdback Portfolio acquired in 2022, which might have provided some tax benefits. Tax provisions are influenced by various factors including asset valuations, depreciation and potential tax credits or incentives. Companies often adjust these provisions in response to changes in their asset portfolio and tax legislation.

For stakeholders, understanding the tax implications of real estate transactions and revaluations is crucial. These can have a significant impact on the reported earnings and cash flows. It is also important to note that while tax provisions can offer short-term relief, they do not necessarily reflect the long-term profitability or operational efficiency of a company.

DALLAS--(BUSINESS WIRE)-- Transcontinental Realty Investors, Inc. (NYSE:TCI) is reporting its results of operations for the quarter ended December 31, 2023. For the three months ended December 31, 2023, we reported net loss attributable to common shares of $2.6 million or $0.30 per diluted share, compared to a net income of $58.9 million or $6.82 per diluted share for the same period in 2022.

Financial Highlights

• Total occupancy was 77% at December 31, 2023, which includes 92% at our multifamily properties and 49% at our commercial properties.
• On November 6, 2023, we entered into a $25.4 million construction loan to construct a 216 unit multifamily property in McKinney, Texas ("Merano") that bears interest at prime plus 0.25% and matures on November 6, 2028. Merano is expected to be completed in 2025 for a total cost of approximately $51.9 million. As of December 31, 2023, we have incurred a total of $7.2 million in development costs.
• On December 15, 2023, we entered into a $23.5 million construction loan to construct a 216 unit multifamily property in Temple, Texas ("Bandera Ridge") that bears interest at SOFR plus 3% and matures on December 15, 2028. Bandera Ridge is expected to be completed in 2025 for a total cost of approximately $49.6 million. As of December 31, 2023, we have incurred a total of $3.1 million in development costs.
• On February 8, 2024, we extended the maturity of our loan on Windmill Farms to February 28, 2026 at an interest rate of 7.50%.

Financial Results

Rental revenues increased $1.0 million from $11.8 million for the three months ended December 31, 2022 to $12.8 million for the three months ended December 31, 2023. The increase in rental revenue is primarily due to $0.9 million increase at our multifamily properties and $0.1 million at the commercial properties. The increase in revenue from the multifamily properties is primarily due to the acquisition of the VAA Holdback Portfolio in 2022.

Net operating income decreased $2.6 million from net operating income of $0.5 million for three months ended December 31, 2022 to net operating loss of $2.1 million for the three months ended December 31, 2023. The decrease in net operating income is primarily due to an increase of $2.7 million in property operating and depreciation expenses offset in part by the $1.0 million increase in rental revenue as noted above and a decrease of $0.6 million in general administrative and advisory expenses. The increase in property and depreciation expenses is due to the acquisition of the VAA Holdback Portfolio.

Net income attributable to the Company decreased $61.5 million from net income of $58.9 million for the three months ended December 31, 2022 to net loss of $2.6 million for the three months ended December 31, 2023. The decrease in net income is primarily attributed to a $74.7 million decrease in gain on sale, remeasurement or write down of assets offset in part by a decrease of $15.8 million increase in our tax provision. The decrease in gain on our sale or write down of assets and our tax provision is due to the remeasurement of the VAA Holdback Portfolio that was acquired in 2022.

About Transcontinental Realty Investors, Inc.

Transcontinental Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including office buildings, apartments, shopping centers, and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. The Company also holds mortgage receivables.

TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
		Three Months Ended December 31,								Twelve Months Ended December 31,
			2023				2022				2023				2022
Revenues:
Rental revenues		$	12,787			$	11,770			$	47,023			$	34,080
Other income			666				1,014				2,882				2,580
Total revenue			13,453				12,784				49,905				36,660
Expenses:
Property operating expenses			7,316				5,798				27,896				18,339
Depreciation and amortization			4,031				2,846				13,646				9,686
General and administrative			1,363				2,595				9,199				9,943
Advisory fee to related party			2,874				1,089				9,156				7,974
Total operating expenses			15,584				12,328				59,897				45,942
Net operating (loss) income			(2,131	)			456				(9,992	)			(9,282	)
Interest Income			3,022				7,086				30,020				24,248
Interest expense			(1,876	)			(4,174	)			(9,291	)			(17,316	)
Gain on foreign currency transactions			-				630				993				20,067
Loss on early extinguishment of debt			-				-				(1,710	)			(2,805	)
Equity in income (loss) from unconsolidated joint venture			262				(2,342	)			1,060				468,086
Gain on sale, remeasurement or write down of assets, net			(2,079	)			72,616				(1,891	)			89,196
Income tax provision			699				(15,085	)			(1,939	)			(103,190	)
Net (loss) income			(2,103	)			59,187				7,250				469,004
Net income attributable to noncontrolling interest			(458	)			(239	)			(1,313	)			(742	)
Net (loss) income attributable to the Company		$	(2,561	)		$	58,948			$	5,937			$	468,262
Earnings per share
Basic and diluted		$	(0.30	)		$	6.82			$	0.69			$	54.20
Weighted average common shares used in computing earnings per share
Basic and diluted			8,639,316				8,639,316				8,639,316				8,639,316

 

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Transcontinental Realty Investors, Inc.

Investor Relations

Erik Johnson (469) 522-4200

investor.relations@transconrealty-invest.com

Source: Transcontinental Realty Investors, Inc.

FAQ

What was Transcontinental Realty Investors, Inc.'s (NYSE:TCI) net loss for the quarter ended December 31, 2023?

Transcontinental Realty Investors reported a net loss of $2.6 million for the quarter ended December 31, 2023.

What was the net income for the same period in 2022?

The net income for the same period in 2022 was $58.9 million.

What was the total occupancy rate as of December 31, 2023?

The total occupancy rate was 77%, with 92% at multifamily properties and 49% at commercial properties.

What were the key factors contributing to the increase in rental revenues?

The increase in rental revenues was primarily driven by a $0.9 million increase at multifamily properties and $0.1 million at commercial properties, with a total increase of $1.0 million.

What are the expected total costs for the Merano and Bandera Ridge multifamily properties?

The expected total costs for Merano and Bandera Ridge are approximately $51.9 million and $49.6 million, respectively.

What was the reason for the decrease in net operating income?

The decrease in net operating income was primarily due to an increase in property operating and depreciation expenses.

Why did the net income attributable to the Company decrease in 2023?

The decrease in net income was mainly attributed to a $74.7 million decrease in gain on sale or write down of assets and a $15.8 million increase in the tax provision.