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Item 1. Business

2024-03-21 compared with 2023-03-23 · 43 added, 51 removed, 87 unchanged (52% of the section changed)

9 unchanged sentences

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").

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

In addition, TCI owns approximately 82.3% of the common stock of Income Opportunity Realty Investors, Inc.

1 unchanged sentence

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”).

VAA assumed all liabilities of the VAA Portfolios.

In connection with the formation of VAA, we sold a 50% ownership interest in 51 multifamily properties.

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

In 2022, VAA sold 45 of its properties to a third party and distributed the remaining seven properties to us in a liquidating distribution (See "Recent Activity - Other Developments").

In 2022, VAA sold 45 of its properties to a third party and distributed the remaining seven properties to us in a liquidating distribution.

Controlling Stockholder

Realty Advisors, Inc.

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

(“RAI”), a Nevada corporation, and its affiliates own approximate ly 90.8% of our common stock.

As described in Part III, Item 13.

“Certain Relationships and Related Transactions, and Director Independence”, our officers and directors also serve as officers and directors of TCI.

“Certain Relationships and Related Transactions, and Director Independen ce”, our officers and directors also serve as officers and directors of TCI.

TCI has business objectives similar to ours.

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In addition, Pillar serves as the contractual "Advisor" and "Cash Manager" to TCI and IOR.

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

Pillar is compensated by us under an Advisory Agreement and a Cash Management Agreement that are more fully described in Part III, Item 10.

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

We have no employees.

Employees of Pillar render services to us in accordance with the terms of the Advisory Agreement.

We rely upon the employees of Pillar to render services to us in accordance with the terms of the Advisory Agreement and the Cash Management Agreement.

In addition, as described in Part III, Item 13.

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Recent Activity

Acquisitions and Dispositions

• On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26.8 million, resulting in gain on sale of $9.4 million.

We used the proceeds to pay off the $14.7 million mortgage note payable on the property and for general corporate purposes.

• On May 17, 2022 , we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $0.8 million , resulting in gain on sale of $0.7 million .

We used the proceeds for general corporate purposes.

• On September 16, 2022, we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge , Louisiana for $11.8 million in connection with the sale of the VAA Sale Portfolio (See "Other Developments"), resulting in gain on sale of $1.9 million.

We used the proceeds to pay off the $9.6 million mortgage note payable on the property and for general corporate purposes.

• On November 1, 2022, we acquired seven multifamily properties from VAA (See "Other Developments") with a fair value of $219.5 million .

• In 2022, we sold a total of 26.9 acres of land from our holdings in Windmill Farms for $5.1 million, resulting in gains on sale of $4.2 million.

In addition, we sold 0.9 acres of land from our holdings in Mercer Crossing for $0.7 million, resulting in a gain on sale of $0.2 million.

Financing Activities

• On January 14, 2022, the $14.7 million loan on Toulon was paid off 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 .

• On September 1, 2022 , we extended the $1.2 million loan on Athens to August 28, 2023.

• On September 16, 2022 , we paid off the $9.6 million loan on Sugar Mill Phase III in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On October 21, 2022, we paid off the $38.5 million loan on Stanford Center from the cash generated from sale of the VAA Sale Portfolio (See "Other Developments").

• On November 1, 2022, we assumed the $70.3 million mortgage notes payable on the VAA Holdback Portfolio in connection with the distribution of the underlying properties from VAA (See "Other Developments").

• On January 31, 2023 , we paid off the $66.5 million Series C bonds.

• On January 31, 2023 , we paid off our $67.5 million of Series C bonds.

• On February 28, 2023 , we extended the maturity of our loan on Windmill Farms until February 28, 2024 at a revised interest rate of 7.75%.

• On March 15, 2023 , we entered into a $33.0 million construction loan to finance the development of Lake Wales (See "Development Activities") that bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3% and matures on March 15, 2026 , with two one-year extension options.

• On May 4, 2023, we paid off the remaining $14.0 million of our Series A Bonds and $28.9 million of our Series B Bonds, which resulted in a loss on early extinguishment of debt of $1.7 million.

• On August 28, 2023, we paid off our $1.2 million loan on Athens .

• On November 6, 2023 , we entered into a $25.4 million construction loan to finance the development of Merano (See "Development Activities") that bears interest at prime plus 0.25% and matures on November 6, 2028 .

• On December 15, 2023 , we entered into a $23.5 million construction loan to finance the development of Bandera Ridge (See "Development Activities") that bears interest at SOFR plus 3% and matures on December 15, 2028 .

• 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%.

Development Activities

During 2022, we spent $6.0 million on our ongoing development of Windmill Farms .

Our expenditures included $1.2 million on the development of land lots for sale to single family home builders and $4.8 million on reimbursable infrastructure investments.

We have investment in nine notes receivable that were issued to fund the development of multifamily properties.

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

As of December 31, 2022, one of the projects was in construction, one was in lease-up and seven were stabilized.

In 2022, we advanced $2.1 million on these development notes.

Other Developments:

On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) held by VAA and one property held by our SPC subsidiary.

On September 15, 2022, we entered into a Distribution and Holdback Property Agreement (“Distribution Agreement”) with Macquarie, which provided the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“VAA Holdback Portfolio”).

On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $1.8 billion, resulting in gain on sale of $738.4 million to the joint venture.

As a result, we received an initial distribution of $182.8 million from VAA, which included the payment of the remaining balance of our Earn Out Obligation to Macquarie.

In connection with this transaction, we sold Sugar Mill Phase III (See "Acquisitions and Dispositions").

On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the VAA Holdback Portfolio and a cash payment of $204.0 million.

We are in the process of negotiating the assumption of the mortgage notes payable on the VAA Holdback Portfolio.

Our ownership interest in VAA is held by SPC, and is therefore our share of the proceeds from the sale of the VAA Sale Portfolio is subject to the debt covenants of the bonds issued by SPC.

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

We have agreements to develop two land parcels or " PODs " of our land holdings in Windmill Farms .

The agreements provide for the development of 125 acres of raw land into approximately 470 lands lots to used for single family homes for a total of $24.3 million.

We estimate that we will complete the development of these PODs over a two-year period starting in the third quarter of 2024.

During 2023, we spent $5.0 million on the project, which included $0.5 million on lot development and $4.5 million on reimbursable infrastructure investments.

On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida (" Lake Wales ") that is expected to be completed in 2025 for a total cost of approximately $55.3 million.

The cost of construction will be funded in part by a $33.0 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land and certain entitlement costs from a related party at an appraised value of $6.1 million.

As of December 31, 2023, we have incurred a total of $16.9 million in development costs.

On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney , Texas (" Merano ") that is expected to be completed in 2025 for a total cost of approximately $51.9 million.

The cost of construction will be funded in part by a $25.4 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

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 development agreement with Pillar to build a 216 unit multifamily property in Temple , Texas (" Bandera Ridge ") that is expected to be completed in 2025 for a total cost of approximately $49.6 million.

The cost of construction will be funded in part by a $23.5 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land from a related party at an appraised value of $2.7 million.

As of December 31, 2023, we have incurred a total of $3.1 million in development costs.

Business Plan and Investment Policy

16 unchanged sentences

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").

HUD back mortgage notes payable generally provides for lower interest rates and longer term than conventional debt.

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

HUD backed mortgage notes payable generally provide for lower interest rates and longer term than conventional debt.

However, HUD insured mortgage notes payable are subject to extensive regulations over the origination and transfers of mortgage notes payable and restrictions on the amount and timing of distribution of cash flows from the underlying real estate.

1 unchanged sentence

We may also from time to time enter into partnerships or joint ventures with various investors to acquire land or income-producing properties, or to sell interests in some of our properties.

We have increased our portfolio of multifamily properties by partnering with third-party developers (“Developers”) to construct multifamily properties on our behalf.

We work with the Developer on the location, design, construction budget and initial lease plan for a potential development project (“Development Project”).

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

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.

We believe direct involvement in construction enables us to achieve higher construction quality, greater control over construction schedules and cost savings.

We actively monitor construction progress to ensure quality workmanship to enable sale of developed lots to third-party home builders.

Historically, we have previously increased our portfolio of multifamily properties by partnering with third-party developers (“Developers”) to construct multifamily properties on our behalf.

In these instances, we worked with the Developer on the location, design, construction budget and initial lease plan for a potential development project (“Development Project”).

The construction costs included a development fee paid to the Developer.

To ensure that the Development Project was constructed

on plan, on time and on budget, we entered into a convertible loan arrangement with the Developer, whereby we advanced 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.

We have also used Pillar as the Developer for our land development projects, including Windmill Farms and have elected to use Pillar as the Developer for our current portfolio multifamily development projects.

We believe direct involvement through Pillar enables us to achieve higher construction quality, greater control over construction schedules and cost savings.

The real estate business is highly competitive and we compete with numerous companies engaged in real estate activities (including certain entities described in Part III, Item 13.

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

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

We issue Annual Reports containing audited financial statements to our common stockholders.

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