Transcontinental Realty Investors, Inc. Reports Second Quarter 2017 Results

Transcontinental Realty Investors, Inc. Reports Second Quarter 2017 Results

Transcontinental Realty Investors, Inc. (NYSE: TCI), a Dallas-based real estate investment company, today reported results of operations for the second quarter ended June 30, 2017. The reported results are directly related to the strategic initiative we embraced at the onset of the year to grow our multi-family apartment base through Abode Properties, our wholly owned subsidiary.

The growth in revenue and corresponding improvement in Net Operating Income for the six months ended June 30, 2017 demonstrates the viability of our business strategy. Management will continue its plan for growth from its operating properties and expects to reinvest in areas that will complement this growth; further, management will maintain strong attention to all details of its operations including appropriate expense controls.

During the six months ended June 30, 2017 a subsidiary of the Company sold bonds on the Tel Aviv, Israel stock exchange. The bonds will over time be repaid in Israeli shekels; however, upon sale the cash received was converted into approximately $102 million US dollars. The cash has been and will be used to pay off more expensive debt, purchase existing assets, and develop new multifamily housing projects. The company believes that this new source of cash will have a substantial positive impact on the ability of the company to grow as well as pay off relative expensive shorter term debt that will more than offset the additional net interest expense.

The bonds will be repaid in Israeli Shekels as the bonds mature at a rate of 20% each year from 2019 through 2023. Until such actual payments are made, there will not be any significant need to convert US dollars to Israeli shekels. The Company records unrealized gains or losses each quarter based upon the relative exchange values of the US dollar and the Israeli shekel; however, no gain or loss will be realized until a conversion from US dollars to Israeli shekels actually occurs in the future. The recorded unrealized gain or loss is reflected as a separate line item to highlight the fact that it is a non-cash transaction until such time as actual payment of principal and interest on the bonds is made.

For the three months ended June 30, 2017, we reported a net loss applicable to common shares of $10.6 million or ($1.22) per diluted loss per share compared to a net income applicable to common shares of $4.4 million or $0.51 per diluted income per share for the same period ended 2016. This is directly related to the increased borrowing and we remain highly certain that dramatic additions to the number of apartments within the portfolio during this strategic growth period will ultimately enhance shareholder values, even beyond the recent improvements we have experienced since we announced this approach in Q4 2016.

The reported financial results are as follows.

Revenues

Rental and other property revenues were $31.3 million for the three months ended June 30, 2017. This represents an increase of $0.8 million compared to the prior period revenues of $30.5 million. The change by segment is an increase in the apartment portfolio of approximately $1.2 million, partially offset by a decrease in the commercial portfolio of $0.4 million. We purchased four and sold two multifamily properties over the prior year which resulted in a net increase of 203 units and was the primary reason for the increase in our apartment portfolio revenues.

Expense

Property operating expenses were $15.2 million for the three months ended June 30, 2017. This represents an increase of $0.3 million compared to the prior period operating expenses of $14.9 million. The change by segment was an increase in the other portfolio of $0.2 million and an increase in the commercial portfolio of $0.1 million.

Depreciation and amortization expense was $6.3 million for the three months ended June 30, 2017 for an increase of $0.5 million as compared to the prior period expense of $5.8 million. The change is attributable to the depreciation on acquired apartments.

Other income (expense)

Mortgage and loan interest expense was $15.8 million for the three months ended June 30, 2017. This represents an increase of $3.7 million compared to the prior period expense of $12.1 million. Interest expense for our corporate loans increased $4.5 million, primarily due to interest expense related to the Israeli Series A Bonds payable of $2.3 million, interest of $1.4 million on two corporate loans that closed in 2016 and an increase of $0.7 million in loan fee expense due to prepayment of a corporate loan during 2017. We also had an increase in our commercial portfolio of $0.4 million. These increases were partially offset by a decrease of $1.1 million in interest expense on our apartment portfolio due to loan prepayment penalties paid during the first three months of 2016 that exceeded the increase in interest expense that resulted from the growth in our apartment portfolio.

A subsidiary of the Company issued $104.5 million in bonds during 2017 that will be repaid in Israeli Shekels as the bonds mature. During the three months ended June 30, 2017, the Company recorded an unrealized foreign currency transaction loss of $3.4 million based upon the relative exchange values of the US dollar and the Israeli shekel as applied to the bond principal and accrued interest at quarter-end. We did not have any unrealized foreign currency transaction gain or loss during the three months ended June 30, 2016.

Gain on sale of income-producing properties was $5.2 million for the three months ended June 30, 2016. The Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million which resulted in a gain of $5.2 million. There were no sales of income-producing properties during the three months ended June 30, 2017.

During the second quarter of 2017, we recorded a loss on land sales of $0.5 million from the sale of two parcels totaling 8.3 acres for an aggregate sales price of $0.5 million. During the same period of 2016, we recorded a gain on land sales of $1.7 million for the sale of 12.2 acres of land for a total sales price of $3.1 million.

About Transcontinental Realty Investors, Inc.

Transcontinental Realty Investors (www.transconrealty-invest.com) maintains a strong emphasis on creating greater shareholder value through acquisition, financing, operation, developing and the selective sale of real estate across selective geographic regions in the United States. A New York Stock Exchange company, Transcontinental is traded under the symbol “TCI”. Transcontinental produces revenue through the professional management of apartments, office buildings and select parcels of land that can be readily developed in the near term. Value is added under Transcontinental ownership, and the properties are repositioned into higher classifications through physical improvements and improved management. Transcontinental also develops new properties, such as luxury apartment homes principally on land it owns or acquires.

Transcontinental Realty Investors, Inc.
Investor Relations
Gene Bertcher, 800-400-6407
investor.relations@transconrealty-invest.com

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