What changed in this filing

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Item 1. Business

2022-03-29 compared with 2021-03-26 · 59 added, 37 removed, 87 unchanged (52% of the section changed)

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We own approximately 78.4% of Transcontinental Realty Investors, Inc.

("TCI") and substantially all of our operations are conducted through TCI, whose common stock is traded on the NYSE under the symbol “TCI”.

("TCI") and substantially all of our operations are conducted through TCI, whose common stock is traded on the New York Stock Exchange ("NYSE") under the symbol “TCI”.

Accordingly, we include TCI’s financial results in our consolidated financial statements.

Substantially all of TCI's assets are held by our wholly-owned subsidiary, Southern Properties Capital Ltd (“SPC”), which was formed to allow us to raise funds by issuing non-convertible bonds that are listed and traded on the Tel-Aviv Stock Exchange.

On November 19, 2018, we formed the Victory Abode Apartments, LLC (“VAA”) joint venture with the Macquarie Group (“Macquarie”).

Substantially all of TCI's assets are held by its wholly-owned subsidiary, Southern Properties Capital Ltd.

(“SPC”), which was formed to allow us to raise funds by issuing non-convertible bonds that are listed and traded on the Tel-Aviv Stock Exchange ("TASE").

On November 19, 2018, SPC formed the Victory Abode Apartments, LLC (“VAA”) joint venture with the Macquarie Group (“Macquarie”).

In connection with the formation of VAA, we sold a 50% ownership interest in 51 multifamily properties, (collectively referred to herein as the “VAA Portfolio”).

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We account for our investment in VAA under the equity method.

O n November 17, 2021 , we entered into a Major Decision with Macquarie to sell all the properties held by VAA (See "Recent Activity - Other Developments").

Controlling Shareholder

Realty Advisors, Inc.

(“RAI”) and its affiliates own in approximately 90.8% of our common stock.

(“RAI”) and its affiliates own approximately 90.8% of our common stock.

As described in Part III, Item 13.

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As the contractual advisor, Pillar is compensated by us under an Advisory Agreement that is more fully described in Part III, Item 10.

“Directors, Executive Officers and Corporate Governance – The Advisor”.

“Directors, Executive Officers and Corporate Governance

– The Advisor”.

We have no employees.

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Portfolio Composition

At December 31, 2020, our portfolio of income-producing properties consisted of:

• Six commercial properties consisting of five office buildings and 1 retail property comprising in aggregate of approximately 1,575,685 square feet;

• Ten multifamily properties owned directly by us comprising in 1,636 units, excluding apartments being developed;

At December 31, 2021, our property portfolio consisted of:

• Five commercial properties, consisting of four office buildings and one retail property, comprising in aggregate of approximately 1,063,515 square feet;

• Nine multifamily properties owned directly by us comprising in 1,492 units, excluding apartments being developed;

• Approximately 1,886 acres of developed and undeveloped land;

• Fifty-one multifamily properties totaling 9,888 units owned by VAA.

• Fifty-two multifamily properties totaling 10,281 units owned by VAA.

Recent Activity

The following is a description of the Company’s significant real estate and financing transactions during the year ended December 31, 2020:

The following is a description of our significant real estate and financing transactions during the year ended December 31, 2021:

Acquisitions and Dispositions

• O n March 5, 2020, we acquired a 49.2 acres land parcel in Kent, Ohio for $5.4 million that was funded by a $2.0 million cash payment and a $3.4 million note payable that bears interest at 10% and matures on November 13, 2024.

• On May 1, 2020, we sold Villager, a 33 unit multifamily property in Fort Walton, Florida for $2.4 million, resulting in a gain on sale of $1.0 million.

• On July 16, 2020, we sold Farnham Park, a 144 unit multifamily property in Port Arthur, Texas for $13.3 million, resulting in a gain on sale of $2.7 million.

• On September 14, 2020, we sold Bridge View Plaza, a 122,205 square foot retail property in La Crosse, Wisconsin for $5.3 million, resulting in a gain on sale of $4.6 million.

• During the year ended December 31, 2020, we sold a total of 58.8 acres of land from our holdings in Windmill Farms for a total of $12.9 million , resulting in a total gain on sale of $11.1 million .

In addition, we sold a total of 26.8 acres of land from our holdings in Mercer Crossing during the year ended December 31, 2020 for a total of $15.8 million , resulting in a total gain on sale of $10.3 million .

• On March 30, 2021, we sold a 50% ownership interest in Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie for $2.6 million, resulting in gain on sale of $1.4 million.

Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.

• On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $74.8 million, resulting in gain on sale of $27.3 million.

We used the proceeds to pay down the mortgage note payable on the property (See "Financing Activities") and for general corporate purposes.

• During the year ended December 31, 2021, we sold a total of 134.7 acres of land from our holdings in Windmill Farms for $20.2 million, in aggregate, resulting in gains on sale of $10.3 million.

In addition, we sold 14.09 acres of land from our holdings in Mercer Crossing for $9.0 million, resulting in a gain on sale of $6.4 million.

• On January 14, 2022, we sold Toulon, a 240 unit multifamily property property in Gautier, Mississippi, for $26.8 million.

The proceeds were used to pay off the mortgage note payable on the property and for general corporate purposes.

Financing Activities

• On November 30, 2020, we issued $19.7 million in additional Series A bonds (See Note 11 in our consolidated financial statements) for $18.8 million in net proceeds.

• On December 3, 2020 , we extended our $14.7 million HSW Partners loan to June 17, 2021 .

• On March 2, 2021 , we extended our $1.2 million loan on Athens to August 28, 2022.

• On March 4, 2021 , we received a commitment from our lender to extend the maturity of our $10.4 million loan on Windmill Farms until February 28, 2023 and a the reduced interest rate of 5%.

• On March 2, 2021 , we e xtended our $1.2 million loan on Athens to August 28, 2022.

• On March 4, 2021, we extended the maturity of our $8.4 million loan on Windmill Farms to February 28, 2023 at a reduced interest rate of 5%.

• On August 25, 2021, we replaced the existing loan on Villas at Bon Secour with a new $20.0 million loan that bears interest at 3.08% and matures on September 1, 2031.

• On August 26, 2021, we paid off the $35.9 million loan on 600 Las Colinas in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On March 3, 2022, the loan on Stanford Center was extended to February 26, 2023.

Development Activities

During the year ended December 31, 2020, we completed the construction of Parc at Denham Springs Phase II and Sugar Mill Phase III for a total cost of $17.2 million and $14.2 million, respectively.

At December 31, 2020, our apartment projects in development included (dollars in thousands):

Property Location No.

of Units Costs to Date (1) Total Projected Costs (1)

Athens Athens, AL 232 270 34,800

Heritage McKinney McKinney, TX 170 231 24,650

Total 402 $ 501 $ 59,450

(1) Costs include construction hard costs, construction soft costs and loan borrowing costs.

During 2021, we spent $15.7 million on our ongoing development of Windmill Farms .

Our expenditure included $2.8 million on the development of land lots for sale to single family home builders and $13.0 million on reimbursable infrastructure investments.

We have investment in nine notes receivable that were issued to fund the development of multifamily properties (See Item 2 - Properties).

As of December 31, 2021, one of the projects was in construction, two were in lease-up and six were stabilized.

In 2021, we made advanced $8.6 million on these development notes.

Each of these notes are convertible, at our option, into a 100% ownership interest in the underlying property.

During 2021, we advanced $2.3 million on the development of Tower Bay Lofts , which is owned by a third party.

We have an agreement that allows us to acquire this project, at our option, for the price of our investment.

Other Developments:

During the year ended December 31, 2021, we recorded a loss of $29.6 million on the remeasurements of certain assets ("Earn Out Obligation") that were sold in connection with our investment in VAA.

On November 17, 2021 , we entered into a Major Decision with Macquarie to engage a broker and initiate a sale of all the properties held by VAA, which are listed in Item 2.

Properties as Joint Venture properties.

In connection with the sale, VAA will distribute seven of its existing properties to us (referred to herein as the "Holdback Properties") and we in turn, will contribute one of our properties ("Contributed Property") into the portfolio offered for sale to third-parties.

The sales price for the Holdback Properties and Contributed Property will be the estimated value of these properties as stated in the agreement, multiplied by the ratio of the actual sales price of the portion of the VAA Portfolio sold to a third party to the estimated value of the those properties that were provided in the agreement.

Each of the properties in the VAA Portfolio is appraised on an annual basis as part of our filing requirement with the TASE.

As of December 31, 2021, the fair value of the VAA Portfolio, based on these appraisals was approximately $1.4 billion.

The appraised value reflect an aggregate of individual property appraised value and does not reflect a premium that is sometimes offered in a portfolio sale.

These values reflects a compression of cap rates for multifamily properties during the last year.

However, there can be no assurances that these values will be realized.

The Major Decision agreement will expire on August 1, 2022, if the VAA Portfolio has not been sold.

Our ownership interest in VAA is held by SPC, and is therefore subject to the bond covenants of the three series of bonds that have been issued by SPC.

These provisions include restrictions on the distribution of cash from SPC.

(See Note 12 - Bonds Payable in our consolidated financial statements).

Business Plan and Investment Policy

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Our income producing real estate is managed by external management companies.

Our multifamily properties are managed by various third-party companies and our commercial properties are managed by Regis Realty Prime, LLC, dba Regis Property Management, LLC (“Regis"), collectively the "management companies".

Our multifamily properties and one of our commercial properties are managed by various third-party companies and four of our commercial properties are managed by Regis Realty Prime, LLC (“Regis"), collectively the "management companies".

The management companies conduct all of the administrative functions associated with our property operations (including billing, collections, and response to resident inquiries).

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These investments have included notes receivables from Unified Housing Foundation, Inc.

("UHF") Due to our ongoing relationship and the significant investment in the performance of the collateral secured under the notes receivable, we consider UHF to be a related party.

We finance our acquisitions 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.

("UHF") Due to our ongoing relationship

and our significant investment in the performance of the collateral secured under the notes receivable, we consider UHF to be a related party.

We finance our acquisitions through operating cash flow, proceeds from the sale of land and income-producing properties, and debt, which is financing primarily in the form of property-specific, first-lien mortgage loans from commercial banks and institutional lenders.

Most of the mortgage notes payable on our multifamily properties are insured with Department of Housing and Urban Development ("HUD").

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The construction plan includes a development fee to be paid to the Developer.

rate of interest with an option to convert the loan into a 100% ownership interest in the entity that holds the Development Project for a price equal to development cost.

To ensure that the Development Project is constructed on plan, on time and on budget, we generally enter into a convertible loan arrangement with the Developer, whereby we advance the out-of-pocket capital to the developer at nominal rate of interest with an option to convert the loan into a 100% ownership interest in the entity that holds the Development Project for a price equal to development cost.

For our land development projects, including Windmill Farms, we have acted as our own general contractor and construction manager.

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Government Regulations

Our properties are subject to various covenants, laws, ordinances and regulations, including regulations relating to common areas, fire and safety requirements, various environmental laws, HUD, the ADA and rent control laws.

We operate two business segments:

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which are primarily office properties.

The services for our office segment include primarily rental of office space and other tenant services, including parking and storage space rental.

The services for our multifamily segment include primarily rental of apartments and other tenant services, including parking and storage space rental.

The services for our commercial segment include primarily rental of office space and other tenant services, including parking and storage space rental.

The services for our multifamily segment include primarily rental of apartments and other tenant

services, including parking and storage space rental.

See Note 15 to our consolidated financial statements in Item 8 of this Report for more information regarding our segments.

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We will also provide a copy of these documents free of charge to stockholders upon written request.

The Company issues Annual Reports containing audited financial statements to its common shareholders.

We issue Annual Reports containing audited financial statements to its common shareholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business