Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒x Yes ☐¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒x Yes ☐¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth ~~company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”~~company in Rule 12b-2 of the Exchange ~~Act:~~

Act.

Large accelerated filer ☐

Accelerated filer

☐

Non-accelerated filer ☐☒

Smaller reporting company

☒

Emerging growth ~~company~~

Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒x No.

~~Indicate the number~~

As of May 13, 2021, there were 8,639,316 shares ~~outstanding of each of the issuer’s classes~~ of common stock ~~as of the latest practicable date.~~

outstanding.


~~Common Stock, $.01 par value~~		~~8,717,767~~
~~(Class)~~	~~(Outstanding at November 12, 2020)~~

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020	3

	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31 , 202 1 and ~~2019~~20 20	4

	Consolidated Statement of Equity for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31 , 202 1 and ~~2019~~20 20	5

	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31 , 202 1 and ~~2019~~20 20	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 19

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	25 24

Item 4.	Controls and Procedures	25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26 25

Item 3.	Defaults Upon Senior Securities	26 25

Item 4.	Mine Safety Disclosures	26 25

Item 5.	Other Information	26 25

Item 6.	Exhibits	27 26

Signatures		29 28

Table of Contents

PART I. FINANCIAL INFORMATION

~~Item 1.~~

~~Financial Statements~~

~~TRANSCONTINENTAL REALTY INVESTORS, INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(dollars in thousands, except share and par value amounts)~~

~~(Unaudited)~~

September 30, 2020 December 31, 2019
Assets
Real estate, net $ 380,715 $ 387,790
Notes receivable (including $66.287 in 2020 and $57,817 in 2019 from related parties) 123,854 112,357
Cash and cash equivalents 32,967 51,179
Restricted cash 28,030 32,082
Investment in unconsolidated joint ventures 71,171 81,780
Receivable from related parties 140,050 141,541
Other assets 68,558 59,189
Total assets $ 845,345 $ 865,918

Liabilities and Equity
Liabilities:
Mortgages and notes payable $ 242,300 $ 245,773
Bonds payable 203,192 223,265
Accounts payable and other liabilities (including $937 in 2020 and $935 in 2019 to related parties) 24,642 26,115
Accrued interest payable 3,281 7,230
Deferred revenue 9,315 9,468
Total liabilities 482,730 511,851

Equity
Shareholders' Equity:
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares at September 30, 2020 and December 31, 2019. 87 87
Treasury stock at cost, 200 shares in 2020 and 2019 (2 ) (2 )
Paid-in capital 257,853 257,853
Retained earnings 82,813 74,665
Total shareholders' equity 340,751 332,603
Non-controlling interest 21,864 21,464
Total equity 362,615 354,067
Total liabilities and equity $ 845,345 $ 865,918

ITEM 1. FINANCIAL STATEMENTS

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and par value amounts)

(Unaudited)


	March 31, 2021		December 31, 2020
Assets
Real estate, net	$	351,120	$	377,383
Notes receivable (including $68,562 at March 31, 2021 and $62,448 at December 31, 2020 from related parties)	131,145		123,556
Cash and cash equivalents	53,863		36,761
Restricted cash	21,196		50,206
Investment in unconsolidated joint ventures	47,125		51,786
Receivable from related parties	157,402		159,777
Other assets	75,651		79,613
Total assets	$	837,502	$	879,082
Liabilities and Equity
Liabilities:
Mortgages and notes payable	$	218,175	$	236,069
Bonds payable	208,021		237,888
Accounts payable and other liabilities (including $921 at March 31, 2021 and $930 at December 31, 2020 to related parties)	22,988		26,729
Accrued interest payable	3,319		7,550
Deferred revenue	581		9,315
Total liabilities	453,084		517,551

Equity
Shareholders' Equity:
Common stock, $0.01 par value, 10,000,000 shares authorized; 8,639,316 shares issued, 8,639,116 outstanding	87		87
Treasury stock at cost, 200 shares	(2)		(2)
Paid-in capital	260,388		260,388
Retained earnings	103,966		81,334
Total shareholders' equity	364,439		341,807
Non-controlling interest	19,979		19,724
Total equity	384,418		361,531
Total liabilities and equity	$	837,502	$	879,082

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Revenues:
Rental revenues (including $262 and $212 for the three months and $673 and $527 for the nine months ended 2020 and 2019, respectively, from related parties) $ 11,453 $ 11,407 $ 34,461 $ 34,352
Other income 706 1,990 3,885 7,394
Total revenues 12,159 13,397 38,346 41,746
Expenses:
Property operating expenses (including $254 and $237 for the three months ended and $750 and $741 for the nine months ended 2020 and 2019, respectively, from related parties) 6,388 5,403 18,507 18,722
Depreciation and amortization 3,526 3,416 10,338 9,964
General and administrative (including $1,017 and $935 for the three months ended and $2,783 and $3,355 for the nine months ended 2020 and 2019, respectively, from related parties) 1,643 1,929 7,063 6,468
Advisory fee to related party 2,139 2,200 6,483 6,196
Total operating expenses 13,696 12,948 42,391 41,350
Net operating (loss) income (1,537 ) 449 (4,045 ) 396

Interest income (including $3,752 and $4,618 for the three months ended and $11,255 and $13,483 for the nine months ended 2020  and 2019, respectively, from related parties) 4,348 5,232 13,102 14,668
Interest expense (including $380 and $514 for the three months ended and $1,193 and $1,517 for the nine months ended 2020 and 2019, respectively, from related parties) (6,291 ) (8,037 ) (21,999 ) (23,642 )
(Loss) gain on foreign currency transaction (1,470 ) (5,153 ) 774 (13,296 )
Loss on extinguishment of debt —   (5,219 ) —   (5,219 )
Income (losses) from unconsolidated joint ventures 365 (178 ) (740 ) (1,474 )
Gain on sales or write-down of assets 12,328 5,140 21,802 9,409
Income tax expense (50 ) —   (346 ) —
Net income (loss) 7,693 (7,766 ) 8,548 (19,158 )
Net income attributable to non-controlling interest —   (21 ) (400 ) (583 )
Net income (loss) attributable to common shares $ 7,693 $ (7,787 ) $ 8,148 $ (19,741 )

Earnings (loss)  per share - attributable to common shares
Basic and diluted $ 0.88 $ (0.89 ) $ 0.93 $ (2.26 )
Weighted-average number of common shares outstanding:
Basic and diluted 8,717,767 8,717,767 8,717,767 8,717,767


	Three Months Ended March 31,
		2021		2020
Revenues:
Rental revenues (including $242 and $221 for three months ended March 31, 2021 and 2020, respectively, from related parties)		$	10,361	$	11,442
Other income		1,467		1,311
Total revenue		11,828		12,753
Expenses:
Property operating expenses (including $382 and $242 for three months ended March 31, 2021 and 2020, respectively, from related parties)		5,832		6,309
Depreciation and amortization		3,327		3,394
General and administrative (including $1,553 and $1,055 for three months ended March 31, 2021 and 2020, respectively, from related parties)		2,646		4,015
Advisory fee to related party		2,249		2,181
Total operating expenses		14,054		15,899
Net operating loss		(2,226)		(3,146)
Interest income (including $3,826 and $3,839 for the three months ended March 31, 2021 and 2020, respectively, from related parties)		4,701		4,527
Interest expense (including $387 and $444 for the three months ended March 31, 2021 and 2020, respectively, from related parties)		(6,604)		(7,967)
Gain on foreign currency transactions		7,617		7,843

Equity in (loss) income from unconsolidated joint ventures		3,336		(377)
Gain on sale or write-down of assets, net		16,103		4,138
Income tax provision		(40)		(247)
Net income		22,887		4,771
Net income attributable to noncontrolling interest		(255)		(158)
Net income (loss) attributable to the Company		$	22,632	$	4,613
Earnings per share - basic
Basic and diluted		$	2.62	$	0.53
Weighted average common shares used in computing earnings per share
Basic and diluted		8,639,316		8,717,677

The accompanying notes are an integral part of these consolidated financial statements.

~~TRANSCONTINENTAL REALTY INVESTORS, INC.~~

~~CONSOLIDATED STATEMENT OF EQUITY~~

~~(dollars in thousands, except share amounts)~~

~~(Unaudited)~~

Common Stock Treasury Paid-in Retained Total Shareholders' Non-controlling Total
Shares Amount Stock Capital Earnings Equity Interest Equity
For the three months ended
September 30, 2020
Balance, June 30, 2020 8,717,967 $ 87 $ (2 ) $ 257,853 $ 75,120 $ 333,058 $ 21,864 $ 354,922
Net income — — — — 7,693 7,693 — 7,693
Balance, September 30, 2020 8,717,967 $ 87 $ (2 ) $ 257,853 $ 82,813 $ 340,751 $ 21,864 $ 362,615

For the three months ended
September 30, 2019
Balance, June 30, 2019 8,717,967 $ 87 $ (2 ) $ 257,938 $ 89,631 $ 347,654 $ 21,243 $ 368,897
Distribution to equity partner — — — (85 ) — (85 ) — (85 )
Net loss — — — — (7,787 ) (7,787 ) 21 (7,766 )
Balance, September 30, 2019 8,717,967 $ 87 $ (2 ) $ 257,853 $ 81,844 $ 339,670 $ 21,264 $ 361,046

For the nine months ended
September 30, 2020
Balance, December 31, 2019 8,717,967 $ 87 $ (2 ) $ 257,853 $ 74,665 $ 332,603 $ 21,464 $ 354,067
Net income — — — — 8,148 8,148 400 8,548
Balance, September 30, 2020 8,717,967 $ 87 $ (2 ) $ 257,853 $ 82,813 $ 340,751 $ 21,864 $ 362,615

For the nine months ended
September 30, 2019
Balance, December 31, 2018 8,717,967 $ 87 $ (2 ) $ 258,050 $ 101,585 $ 359,720 $ 20,681 $ 380,401
Distribution to equity partner — — — (197 ) — (197 ) — (197 )
Net loss — — — — (19,741 ) (19,741 ) 583 (19,158 )
Balance, September 30, 2019 8,717,967 $ 87 $ (2 ) $ 257,853 $ 81,844 $ 339,782 $ 21,264 $ 361,046

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF EQUITY

(dollars in thousands, except share amounts)

(Unaudited)


	Common Stock			Treasury Stock		Paid-in Capital		Retained Earnings		Total Shareholders' Equity		Noncontrolling Interest		Total Equity

Three Months Ended March 31, 2021
Balance, December 31, 2020		$	87	$	(2)	$	260,388	$	81,334	$	341,807	$	19,724	$	361,531
Net income		—		—		—		22,632		22,632		255		22,887
Balance, March 31, 2021		$	87	$	(2)	$	260,388	$	103,966	$	364,439	$	19,979	$	384,418
Three Months Ended March 31, 2020
Balance, December 31, 2019		$	87	$	(2)	$	257,853	$	74,665	$	332,603	$	21,464	$	354,067
Net income		—		—		—		4,613		4,613		158		4,771
Balance, March 31, 2020		$	87	$	(2)	$	257,853	$	79,278	$	337,216	$	21,622	$	358,838

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

For the Nine Months Ended September 30,
2020 2019
Cash Flow From Operating Activities:
Net income (loss) $ 8,548 $ (19,158 )
Adjustments to reconcile net income (loss) to used in operating activities:
(Gain) loss on foreign currency transactions (774 ) 13,296
Loss on debt extinguishment — 5,219
Gain on sales or write-down of assets (21,802 ) (9,409 )
Depreciation and amortization 13,023 12,818
Loss from unconsolidated joint ventures 740 1,474
Distribution of income from unconsolidated joint ventures 1,782 —
Changes in assets and liabilities, net of dispositions:
Other assets (14,179 ) 12,888
Related party receivables 1,491 (35,257 )
Accrued interest payable (94 ) (1,557 )
Accounts payable and other liabilities (3,745 ) 5,441
Deferred revenue (153 ) 4,957
Net cash used in operating activities (15,163 ) (9,288 )

Cash Flow From Investing Activities:
Collection of notes receivables 3,467 255
Origination and advances on notes receivable (15,718 ) (7,262 )
Acquisition of real estate (2,664 ) (3,422 )
Development and renovation of real estate (12,488 ) (31,311 )
Deferred leasing costs (96 ) —
Proceeds from sale of real estate 31,768 23,030
Distributions from unconsolidated joint ventures 8,086 1,928
Net cash provided by (used in) investing activities 12,355 (16,782 )

Cash Flow From Financing Activities:
Proceeds from mortgages and notes payable 10,234 16,934
Payments on mortgages and notes payable (7,912 ) (45,623 )
Proceeds from bonds payable — 78,125
Payments on bonds payable (21,724 ) (21,742 )
Debt extinguishment costs — (3,799 )
Deferred finance costs (54 ) (4,241 )
Distributions to equity partner — (197 )
Net cash (used in) provided by financing activities (19,456 ) 19,457
Net decrease in cash, cash equivalents and restricted cash (22,264 ) (6,613 )
Cash, cash equivalents and restricted cash, beginning of period 83,261 106,565
Cash, cash equivalents and restricted cash, end of period $ 60,997 $ 99,952

Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized $ 21,109 $ 27,470

Schedule of noncash investing and financing activities:
Land acquired in exchange for note payable $ 3,350 $ —
Note receiveable issued in exchange for property $ 1,761 $ —
Debt assumed in sale of properties $ 8,238 $ —
Land received in exhange for note receivable $ — $ 1,800


	For the Three Months Ended March 31,
	2021		2020
Cash Flow From Operating Activities:
Net income	$	22,887	$	4,771
Adjustments to reconcile net income to net cash used in operating activities:
Gain on sale or write down of assets	(16,103)		(4,138)
Gain on foreign currency transactions	(7,617)		(7,843)

Depreciation and amortization	3,953		4,325
Provision for bad debts	(1,017)		0
Equity in (income ) loss from unconsolidated joint ventures	(3,336)		377
Distribution of income from unconsolidated joint ventures	3,157		0
Changes in assets and liabilities, net of dispositions:
Other assets	2,632		(1,217)
Related party receivables	2,375		3,264
Accrued interest payable	(4,221)		(3,138)
Accounts payable and other liabilities	(3,611)		(4,162)
Net cash used in operating activities	(901)		(7,761)
Cash Flow From Investing Activities:
Collection of notes receivable	8,876		1,227
Originations and advances on notes receivable	(10,448)		(768)
Acquisition of real estate	0		(2,000)
Development and renovation of real estate	(4,978)		(7,742)
Deferred leasing costs	(755)		0
Proceeds from sale of assets	14,434		5,638
Contribution to unconsolidated joint venture	(411)		0
Distribution from unconsolidated joint venture	7,430		5,264
Net cash provided by investing activities	14,148		1,619
Cash Flow From Financing Activities:
Proceeds from mortgages, other notes and bonds payable	0		5,114
Payments on mortgages, other notes and bonds payable	(25,133)		(14,153)

Deferred financing costs	(22)		0

Net cash used in financing activities	(25,155)		(9,039)
Net decrease in cash, cash equivalents and restricted cash	(11,908)		(15,181)
Cash, cash equivalents and restricted cash, beginning of period	86,967		83,261
Cash, cash equivalents and restricted cash, end of period	$	75,059	$	68,080

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

1.	~~Organization~~

1. Organization

As used herein, the terms “the Company”, “We”, “Our”, or “Us” refer to Transcontinental Realty Investors, Inc., a Nevada corporation which was formed in 1984. Our common stock is listed and trades on the New York Stock Exchange (“NYSE”) under the symbol “TCI”.

We are ~~a “C” corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with~~owned approximately 78% by American Realty Investors, Inc. (“ARL”), whose common stock is traded on the NYSE under the symbol “ARL”~~. ARL owns 78.38%~~, and 7% by the parent of ~~ARL owns 7.20% of the Company.~~

ARL.

Our primary business is the acquisition, development and ownership of income-producing multifamily ~~apartment communities~~ and commercial ~~real estate~~ properties. In addition, we opportunistically acquire land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land.

Substantially all of our 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 ("TASE").

At ~~September 30, 2020,~~March 31, 2021, our portfolio of income-producing properties consisted of:

●

~~Six commercial properties consisting of five office buildings and one retail property comprising in aggregate of approximately 1.6 million square feet;~~

●

~~Ten multifamily apartment communities owned directly by us comprising in 1,639 units, excluding apartments being developed;~~

●

~~Approximately 1,980 acres of developed and undeveloped land; and~~

●

~~Fifty-one multifamily apartment communities totaling 10,137 units owned by our 50% owned investee Victory Abode Apartments, LLC (“VAA”).~~

● NaN commercial properties consisting of 5 office buildings and 1 retail property comprising in aggregate of approximately 1,575,685 square feet;

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

● Approximately 1,922 acres of developed and undeveloped land; and

● NaN multifamily properties totaling 10,032 units owned by our 50% owned investment in VAA.

Our day to day operations are managed by Pillar Income Asset Management, Inc. (“Pillar”). Their duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing with third party lenders and investors. All of the Companies employees are Pillar employees.

Our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and brokerage services. Our multifamily ~~apartment communities~~properties are managed by outside management companies.

2.	~~Summary of Significant Accounting Policies~~

Pillar and Regis are considered to be related parties (See Note 12 – Related Party Transactions).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.

The consolidated balance sheet at December 31, ~~2019~~2020 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Certain ~~2019~~2020 consolidated financial statement amounts have been reclassified to conform to the current presentation.

Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights.

We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.

Newly Issued Accounting Standards

In October 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The effective date of the amendments is for fiscal years, and interim periods within those years, beginning after December 15, 2019. The adoption of the standard on January 1, 2020, did not have a material impact on our financial position and results of operations.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The standard provides guidance, optional expedients and exceptions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The standard was effective upon issuance and can be applied through December 31, 2022. We have mortgage notes payable with interest rates that reference LIBOR, and therefore, we will adopt this standard when LIBOR is discontinued.

On April 10, 2020, the FASB issued a Staff Q&A (“Q&A”) related to the application of the lease guidance in ASC 842 for the accounting impact of lease concessions related to the COVID-19 pandemic. The Q&A, allows an entity to make an election to account for lease concessions related to the effects of the COVID-19 as though enforceable rights and obligations for those concessions existed. As a result of this election, an entity will not have to analyze each lease to determine whether enforceable rights and obligations for concessions exist in the lease and can elect to apply or not apply the lease modification guidance in ASC 842, as long as the concessions do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. Our adoption of the guidance of the Q&A did not have a significant impact on our consolidated financial statements during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020.

~~TRANSCONTINENTAL REALTY INVESTORS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share and square foot amounts)~~
~~(Unaudited)~~

3.	~~Earnings per Share~~

3. Earnings Per Share

Earnings per share (“EPS”) have been computed by dividing income available to common shares by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.

The following table details our basic and diluted earnings per common share calculation:

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Net income (loss) $ 7,693 $ (7,766 ) $ 8,548 $ (19,158 )
Net (income) attributable to non-controlling interest — (21 ) (400 ) (583 )
Net income (loss) attributable to common shares $ 7,693 $ (7,787 ) $ 8,148 $ (19,741 )

Weighted-average common shares outstanding — basic and diluted 8,717,767 8,717,767 8,717,767 8,717,767

EPS - attributable to common shares — basic and diluted $ 0.88 $ (0.89 ) $ 0.93 $ (2.26 )

4.	~~Supplemental Cash Flow Information~~

~~The following is a reconciliation~~


	Three Months Ended March 31,
		2021		2020
Net income		$	22,887	$	4,771
Net income attributable to non-controlling interest		(255)		(158)
Net income attributable to common shares		$	22,632	$	4,613

Weighted-average common shares outstanding — basic and diluted		8,639,316		8,717,677

EPS - attributable to common shares — basic and diluted		$	2.62	$	0.53

Table of ~~our cash and cash equivalents, and restricted cash to the total presented in the consolidated statement of cash flows:~~

For the Period Ended
September 30,
2020 2019
Beginning of period
Cash and cash equivalents $ 51,179 $ 36,358
Restricted cash 32,082 70,207
Cash, cash equivalents and restricted cash $ 83,261 $ 106,565

End of period
Cash and cash equivalents $ 32,967 $ 63,069
Restricted cash 28,030 36,883
Cash, cash equivalents and restricted cash $ 60,997 $ 99,952

Amounts included in restricted cash represent funds required to be set aside to meet contractual obligations with certain financial institutions for the payment of reserve replacement, tax and insurance escrow. In addition, restricted cash includes funds for bond principle and interest payments (See Note 11 – Bonds Payable).

Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

5.	~~Operating Segments~~

4. Supplemental Cash Flow Information

The following presents the schedule of interest paid and other supplemental cash flow information:

The following is a schedule of noncash investing and financing activities:


	Three Months Ended March 31,
	2021		2020
Property acquired in exchange for note payable	$	0	$	3,350
Assets contributed to joint venture	18,608		0
Liabilities assumed by joint venture	17,592		0

5. Operating Segments

Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in ~~two~~2 reportable segments: (i) the acquisition, development, ownership and management of multifamily apartment communities and (ii) the acquisition, ownership and management of commercial real estate properties. The services for our multifamily segment include rental of apartments and other tenant services, including parking and storage space rental. Asset information by segment is not reported because we do not use this measure to assess performance or make decisions to allocate resources. Therefore, depreciation and amortization expense is not allocated among segments. General and administrative expenses, advisory fees, interest income and interest expense are not included in segment profit as our internal reporting addresses these items on a corporate level.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

The following table presents our reportable segments for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Multifamily Segment
Revenues $ 3,683 $ 3,383 $ 10,943 $ 10,077
Operating expenses (2,412 ) (2,243 ) (6,466 ) (6,363 )
Profit from segment 1,271 1,140 4,477 3,714

Commercial Segment
Revenues 7,770 8,024 23,518 24,275
Operating expenses (3,976 ) (3,160 ) (12,041 ) (12,359 )
Profit from segment 3,794 4,864 11,477 11,916
Total profit from segments $ 5,065 $ 6,004 $ 15,954 $ 15,630

2020:

The table below reflects the reconciliation of total profit from segments to net income ~~(loss)~~ for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Total profit from segments $ 5,065 $ 6,004 $ 15,954 $ 15,630
Other non-segment items of income (expense)
Depreciation (3,526 ) (3,416 ) (10,338 ) (9,964 )
General and administrative (1,643 ) (1,930 ) (7,063 ) (6,468 )
Advisory fee to related party (2,139 ) (2,199 ) (6,483 ) (6,196 )
Interest income 4,348 5,232 13,102 14,668
Other income 706 1,990 3,885 7,394
Interest expense (6,291 ) (8,037 ) (21,999 ) (23,642 )
(Loss) gain on foreign currency transaction (1,470 ) (5,153 ) 774 (13,296 )
Loss on extinguishment of debt — (5,219 ) — (5,219 )
Income (losses) from unconsolidated joint ventures 365 (178 ) (740 ) (1,474 )
Gain on sales or write-down of assets 12,328 5,140 21,802 9,409
Income tax expense (50 ) — (346 ) —
Net income (loss) $ 7,693 $ (7,766 ) $ 8,548 $ (19,158 )

2020:

We lease our multifamily apartment communities and commercial properties under agreements that are classified as operating leases. Our multifamily leases generally include minimum rents and charges for ancillary services. Our commercial property leases generally included minimum rents and recoveries for property taxes and common area maintenance. Minimum rental revenues are recognized on a straight-line basis over the terms of the related leases.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

The following table summarizes the components of rental revenue for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Fixed component $ 11,107 $ 10,827 $ 33,111 $ 32,963
Variable component 346 580 1,350 1,389
$ 11,453 $ 11,407 $ 34,461 $ 34,352

2020:

The following table summarizes the future rental payments to us from under non-cancelable leases. The table exclude multifamily leases, which typically have a term of one-year or less:

Twelve months ended September 30, 2020 Amount
2021 $ 6,444
2022 23,155
2023 20,038
2024 14,606
2025 8,737
Thereafter 7,071
$ 80,051

7.	~~Real Estate Activity~~

7. Real Estate Activity

Below is a summary of the real estate owned as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~

September 30, December 31,
2020 2019

Land $ 50,759 $ 49,887
Building and improvements 297,068 286,280
Tenant improvements 49,423 49,431
Construction in progress 77,116 84,399
474,366 469,997
Less accumulated deprecation (97,883 ) (90,173 )
376,483 379,824
Property held for sale 4,232 7,966
Total $ 380,715 $ 387,790
2020:

The gain on sale or write-down of assets, net for the three months ended March 31, 2021 and 2020 consist of the following:

(1)Includes the sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.

(2)Includes the gain from Overlook at Allensville Phase II transaction (See Note 9 – Investment in Unconsolidated Joint Ventures) and the recognition of gains on various multifamily properties that had been previously been deferred (See Note 14 – Deferred Income).

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

The ~~gain (loss)~~following table summarizes our notes receivable as of March 31, 2021 and December 31, 2020:

(1)The note is convertible, at our option, into a 100% ownership interest in the underlying development property, and is collateralized by the underlying development property.

(2) The borrower is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.

(3) Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“UHF”) are funded from surplus cash flow from operations, sale or ~~write-down of assets, net for the three and nine months ended September 30, 2020 and 2019 consist~~refinancing of the ~~following:~~

For the Three Months Ended
September 30, For the Nine Months Ended
September 30,
2020 2019 2020 2019
Land⁽¹⁾ $ 5,774 $ 5,140 $ 15,248 $ 9,489
Residential Properties⁽²⁾ 3,704 — 3,704 (80 )
Commercial Properties⁽³⁾ 4,609 — 4,609 —
Other⁽⁴⁾ (1,759 ) — (1,759 ) —
Total $ 12,328 $ 5,140 $ 21,802 $ 9,409

~~(1)~~

~~Includes the sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.~~

~~(2)~~

On September 14, 2020, we sold Bridgeview Plaza, a 122,205 square foot retail center in La Crosse, Wisconsin for $5,250, resulting in a gain on sale of $4,744. The proceeds from the sale were used to pay off the $3,375 mortgage note payable on the property (See Note 10 – Mortgages and Notes Payable) and for general corporate purposes.

~~(3)~~

On May 1, 2020, we sold Villager Apartments, a 33 unit multifamily apartment community in Pensacola, Florida for $2,426, resulting in a gain on sale of $898. The sales price was funded by the issuance of a $1,761 note receivable and the assumption of the $665 mortgage note payable on the property (See Note 10 – Mortgages and Notes Payable). On July 16, 2020, we sold Farnham Park Apartments, a 144 unit multifamily apartment community in Port Arthur, Texas for $13,300, resulting in a gain on the sale of of $2,684. The sales price was funded by cash payment of $4,215 and the assumption of the $9,085 mortgage note payable on the property (See Note 10 – Mortgages and Notes Payable).

~~(4)~~

~~Includes the write-off of development costs.~~

underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

8.	~~Notes Receivable~~

9. Investment in Unconsolidated Joint Ventures

On November 19, 2018, we formed the VAA joint venture with the Macquarie Group (“Macquarie”). In connection with the formation of VAA, we sold a 50% ownership interest in certain multifamily properties to Macquarie for a $236.8 million cash payment, resulting in a gain on sale of assets of $154.1 million. We then immediately transferred our respective ownership interests in the multifamily projects ("VAA Portfolio") to VAA in exchange for a 50% voting interest and a 49% profit participation interest ("Class A interest") in VAA and note payable (“Mezzanine Loan”) in accordance with the terms of a contribution agreement (the “Contribution”). Upon completion of the Contribution, VAA owned and controlled 52 multifamily properties. VAA assumed all liabilities of those properties, including mortgage debt insured by the Department of Housing and Urban Development (“HUD”).

Concurrent with the Contribution, VAA issued Class B interests with a 2% profits participation interest and no voting rights to Daniel J. Moos, our former President and Chief Executive Officer (“Class B Member”). The Class B Member serves as the Manager of VAA.

Interest on the Mezzanine loan is limited to cash generated from the properties and matures concurrently with the termination of VAA. Accordingly, we account for our interest in the Mezzanine Loan as additional equity interest and includes any interest payments accrued as income from unconsolidated joint ventures.

On March 30, 2021, we sold a 50% ownership interest in the special purpose entity that owned Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie bank for $2,551 resulting in gain on sale of assets of $1,417. Concurrent with the sale, we each contributed our 50% ownership interests into VAA.

The following ~~table summarizes~~is a summary of our ~~notes receivable as~~investment in VAA:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

9.	~~Investment in Unconsolidated Joint Ventures~~

(1) We amortize the difference between the cost of our investment in unconsolidated joint ventures and the book value of our underlying equity into income on a straight-line basis consistent with the lives of the underlying assets.

The following is a summary of ~~the financial position and results~~our income (loss) from VAA:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

~~10.~~

~~Mortgages and Notes Payable~~

10. Mortgages and Other Notes Payable

The following table summarizes our mortgages and other notes payable as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~

Carrying value
Property / Entity September 30, 2020 December 31, 2019 Effective
Interest Rate Maturity Date
600 Las Colinas Building $ 35,773 $ 36,302 5.30 % 11/1/2023
770 South Post Oak Building 11,924 12,077 4.40 % 6/1/2025
Bridgeview Plaza Shopping Center⁽¹⁾ — 3,824 7.75 % 11/1/2020
Chelsea Apartments 8,627 8,749 3.40 % 12/1/2050
EQK Portage-Kent Ohio Land⁽²⁾ 3,350 — 10.00 % 11/13/2024
Estate of Robert Shaw⁽³⁾ 13,065 13,032 9.50 % 7/5/2020
Farnham Apartments⁽⁴⁾ — 9,144 3.39 % 12/1/2050
Forest Pines Phase II Apartments⁽⁵⁾ 7,057 — 3.75 % 5/5/2024
Forest Pines Phase II⁽⁵⁾ — 1,390 3.75 % 5/5/2024
Landing Apartments 15,286 15,467 3.50 % 9/1/2053
LD Athens Lindsay Ln Land 1,155 1,155 5.90 % 2/28/2021
Legacy at Pleasant Grove Apartments 13,727 13,944 3.60 % 4/1/2048
McKinney 36 Land 856 944 8.00 % 6/30/2022
Overlook at Allensville Phase II Apartments 15,666 15,798 3.80 % 5/1/2059
Parc at Denham Spring Phase II Apartments 16,168 14,785 4.10 % 2/1/2060
Stanford Center Building 39,191 39,255 6.00 % 12/26/2021
Sugar Mill Phase III Apartments — 5,908 4.50 % 2/1/2060
Sugar Mill Phase III Apartments 8,906 — 4.50 % 2/1/2060
Toulon Apartments 18,283 18,465 3.20 % 12/1/2051
Villager Apartments⁽⁶⁾ — 556 2.50 % 3/1/2043
Villas at Bon Secour Apartments 10,860 11,026 4.00 % 1/1/2022
Vista Ridge Apartments 10,015 10,122 4.00 % 8/1/2053
Windmill Farms Land 12,391 13,830 6.00 % 2/28/2021
Total $ 242,300 $ 245,773

~~(1)~~

~~On September 14, 2020, we paid off the loan in connection with the sale of the underlining property (See Note 7 – Real Estate Activity).~~

~~(2)~~

~~On March 5, 2020, we acquired 49.2 acres of land in Kent, Ohio in exchange for the note payable.~~

~~(3)~~

~~We are currently negotiating an extension of the loan with the lender.~~

~~(4)~~

~~On July 16, 2020, the loan was assumed by a third party in connection with the sale of the underlying property (See Note 7 – Real Estate Activity).~~

~~(5)~~

~~The loan bears interest at prime rate plus 0.5%.~~

~~(6)~~

~~On May 1, 2020, the loan was assumed by a third party in connection to sale of the underlying property (See Note 7 – Real Estate Activity).~~

~~11.~~

~~Bonds Payable~~

2020:

(1) On March 2, 2021, the loan was extended to August 28, 2022.

(2) The loan bears interest at prime rate plus 0.5%.

(3) On March 30, 2021, the loan was assumed by VAA in connection with our contribution of of the underlying property to the joint venture (See Note 9 – Investment in Unconsolidated Joint Ventures).

(4) On March 4, 2021, the loan was extended to February 28, 2023 at an interest of 5%.

Interest payable at March 31, 2021 and December 31, 2020, was $1,169 and $1,123, respectively. We capitalized interest of $858 and $585 during the years ended March 31, 2021 and 2020, respectively.

There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan. We are working with our existing lenders and new lenders to modify, extend the loans before they become due or refinancing the loans with terms that are similar to the existing agreement.

As of March 31, 2021, we were in compliance with all our loan covenants.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

We have issued three series of nonconvertible bonds ("Bonds") through ~~our subsidiary, Southern Properties Capital LTD,~~SPC, which are ~~listed and trade~~traded on the ~~Tel Aviv Stock Exchange. Payments of principal and interest~~TASE. The Bonds are denominated in New Israeli ~~Shekels.~~ Shekels ("NIS") and provide for semiannual principal and interest payments through maturity.

In connection with the ~~principal and interest payments,~~Bonds, we incurred a (loss) gain on foreign currency transactions of ~~($1,470)~~$7,617 and ~~($5,153)~~$7,843 for the three months ended ~~September 30,~~ March 31, 2021 and 2020, respectively.

The outstanding balance of our Bonds at March 31, 2021 and ~~2019, respectively,~~December 31, 2020 is as follows:

(1) The bonds are collateralized by the assets of SPC.

(2) The bonds are collateralized by a trust deed in Browning Place, a 625,297 square foot office building in Farmers Branch, Texas.

12. Related Party Transactions

We engage in certain business transactions with related parties, including but not limited to asset acquisition and ~~$744~~dispositions of real estate. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and ~~($13,296)~~may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

Pillar and Regis are wholly owned by an affiliates of the MRHI, which also owns approximately 90.8% of ARL. Pillar is compensated for advisory services in accordance with an agreement. Regis receives property management fees and leasing commissions in accordance with the terms of its property-level management agreement. In addition, Regis is entitled to receive real estate brokerage commissions in accordance with the terms of a non-exclusive brokerage agreement.

Rental income includes $242 and $221 for the ~~nine~~three months ended ~~September 30, 2020~~ March 31, 2021 and ~~2019,~~2020, respectively, for office space leased to Pillar and Regis.

Property operating expense includes $382 and $242 for the three months ended March 31, 2021 and 2020, respectively, for management fees on commercial properties payable to Regis.

General and administrative expense includes $1,553 and $1,055 for the three months ended March 31, 2021 and 2020, respectively, for employee compensation and other reimbursable costs payable to Pillar.

Advisor fees paid to Pillar were $2,249 and $2,181 for the three months ended March 31, 2021 and 2020, respectively.

Notes receivable are includes amounts held by UHF and Pillar (See Note 8 – Notes Notes Receivable). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was $3,826 and $3,839 for the three months ended March 31, 2021 and 2020, respectively.

Interest expense on notes payable to Pillar was $387 and $444 for the three months ended March 31, 2021 and 2020, respectively.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

13. Noncontrolling Interests

The ~~following table summarizes~~noncontrolling interest represents the ~~bonds payable as~~third party ownership interest in Income Opportunity Realty Investors, Inc. ("IOR"). Shares of ~~September 30, 2020~~of IOR are listed on the New York stock exchange under the symbol of IOR. We owned 18.9% in in IOR during the three months ended March 31, 2021 and ~~December 31, 2019:~~

September 30, December 31,
2020 2019 Maturity Date
Bonds (Series A) $ 69,747 $ 92,653 7/31/2023
Bonds (Series B) 61,029 60,764 7/31/2025
Bonds (Series C) 79,919 79,572 1/31/2023
Total outstanding bonds 210,695 232,989
Less: unamortized deferred bond issuance costs (7,503 ) (9,724 )
Total outstanding bonds, net $ 203,192 $ 223,265

~~12.~~

~~Deferred Income~~

2020.

In previous years, we sold properties to related parties where we have had continuing involvement in the form of management or financial assistance associated with the sale of the properties. Because of the continuing involvement associated with the sale, the sales criteria for the full accrual method is not met, and as such we deferred some or all of the gain recognition and accounted for the sale by applying the finance, deposit, installment or cost recovery methods, as appropriate, until the sales criteria is met. The gain on these transactions have been deferred until the properties are sold to a non-related third party.

On January 29, 2021, UHF sold El Dorado, a 208 unit multifamily property in McKinney, Texas; and Limestone Ranch, a 252 unit multifamily property in Lewisville, Texas; to a non-related third party. As a result, we recognized a gain of $8,730 that had been previously deferred upon our sale of these properties to UHF.

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had deferred gain of $581 and $9,315, respectively.

We are part of a tax sharing and ~~$9,468, respectively.~~

~~13.~~

~~Related Party Transactions~~

~~Rental~~compensating agreement with respect to federal income ~~includes $262 and $212 for~~taxes with ARL. In accordance with the ~~three months ended September 30,~~agreement, our expense (benefit) in each year is calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory tax rate of 21%.

The following table summarizes our income tax provision:

The 2020 and 2019 ~~respectively, and $673 and $527 for~~effective tax rate is driven primarily by the ~~nine months ended September 30, 2020 and 2019, respectively, for office space leased to Pillar, Regis and VAA.~~

Property operating expense includes $254 and $237 for the three months ended September 30, 2020 and 2019, respectively, and $750 and $741 for the nine months ended September 30, 2020 and 2019, respectively, for management fees on commercial properties payable to Regis.

General and administrative expense includes $1,017 and $935 for the three months ended September 30, 2020 and 2019, respectively, and $2,783 and $3,355 for the nine months ended September 30, 2020 and 2019, respectively, for employee compensation and other reimbursable costs payable to Pillar.

~~Advisor fees are were $2,139 and $2,200 for the three months ended September 30, 2020 and 2019, respectively, and $6,483 and $6,196 for the nine months ended September 30, 2020 and 2019, respectively.~~

Interest income on notes receivable issued by UHF and Pillar (See Note 8 – Notes Receivable) was $3,752 and $4,618 for the three months ended September 30, 2020 and 2019, respectively, and $11,255 and $13,483 for the nine months ended September 30, 2020 and 2019, respectively.

Interest expense on these notes payable to Pillar was $380 and $514 for the three months ended September 30, 2020 and 2019, respectively, and $1,193 and $1,517 for the nine months ended September 30, 2020 and 2019, respectively.

~~TRANSCONTINENTAL REALTY INVESTORS, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(dollars in thousands, except per share and square foot amounts)~~
~~(Unaudited)~~

~~Related party receivables represents amounts outstanding from advances to related parties in addition to unreimbursed fees, expenses and costs as provided above. The net amounts outstanding consist~~passing of the ~~following:~~

As of
September 30, December 31,
2020 2019
ARL $ 146,215 $ 142,117
Pillar (6,165 ) (576 )
Total $ 140,050 $ 141,541

~~14.~~

~~Commitments and Contingencies~~

Tax Cuts and Jobs Act by congress on December 22, 2017. This act reduced the statutory tax rate for corporations to 21%, starting in 2019. As a result, our tax assets were remeasured to reflect the new tax rate for future years with the impact on the 2018 provision for income taxes.

16. Comittments and Contigencies

We ~~believes~~believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due. We intend to sell income-producing assets, refinance real estate and obtain additional borrowings primarily secured by real estate to meet our liquidity requirements.

We ~~are~~were the primary guarantor, on a $24,300 mezzanine loan between UHF and a lender. ~~In addition, ARL is limited recourse guarantors~~The guarantee was removed on January 29, 2021, concurrent with the repayment of the ~~loan. As of September 30, 2020 UHF was in compliance with the covenants to the~~ loan ~~agreement.~~

by UHF.

We were the plaintiff in a lawsuit against Dynex Commercial, Inc. (“Dynex”) for failure to fulfill certain loan commitments. In January 2015, the court awarded us with a judgment of $24,800. We are pursuing all legal means to collect this award. However, due to the uncertainty of the collectability of the award, the receivable has been fully reserved.

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TRANSCONTINENTAL REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share and square foot amounts)

(Unaudited)

In February 2019, we were charged in a lawsuit brought by Paul Berger (“Berger”) that alleges that we completed improper sales and/or transfers of property with Income Opportunity Realty Investors, Inc. (“IOR”), our consolidated subsidiary. Berger requests that we pay off various related party loans to IOR and that IOR then distribute the funds to its shareholders. We intend to vigorously defend against the allegations.

~~15.~~

~~Subsequent Events~~

In connection with the formation of VAA, 10 of the properties that we contributed to the joint venture are subject to an earn-out provision that provides for a remeasurement of the value of those properties after a two-year period following the completion of construction. As of March 31, 2021, we have recorded a liability of $10,000, which we believe is the amount that will be required to settle our obligation. We have been unable to reach agreement with our joint venture partner on the remeasured value. As a result, the parties have filed for arbitration in accordance with the joint venture agreement.

17. Subsequent Events

The date to which events occurring after ~~September 30, 2020,~~March 31, 2021, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is ~~November 12, 2020,~~May 13, 2021, which is the date on which the consolidated financial statements were available to be issued.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and in our Form 10-K for the year ended December 31, ~~2019~~2020 (the “Annual Report”).

This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the captions “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

●

general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);

●

~~risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;~~

●

~~demand for apartments and commercial properties in our markets and the effect on occupancy and rental rates;~~

●

~~Our ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;~~

●

~~risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;~~

●

~~failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully~~

●

risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);

●

~~risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;~~

●

~~costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;~~

●

~~potential liability for uninsured losses and environmental contamination;~~

●

~~risks associated with our dependence on key personnel whose continued service is not guaranteed; and~~

●

~~the other risk factors identified in this Form 10-Q, including those described under the caption “Risk Factors.”~~

•general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);

•risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;

•demand for apartments and commercial properties in our markets and the effect on occupancy and rental rates;

•Our ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;

•risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;

•failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully

•risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);

•risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;

•costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;

•potential liability for uninsured losses and environmental contamination;

•risks associated with our dependence on key personnel whose continued service is not guaranteed; and

•the other risk factors identified in this Form 10-Q, including those described under the caption “Risk Factors.”

The risks included here are not exhaustive. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements, include among others, the factors listed and described at Part I, Item 1A. “Risk Factors” Annual Report on Form 10-K, which investors should review.

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We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and our property portfolio. While we did not incur significant disruptions during the three months ended ~~September 30, 2020~~March 31, 2021 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The pandemic is having a significant impact on the U.S. economy and on the local markets in which our properties are located. Nearly every industry has been impacted directly or indirectly, and the commercial real estate market has come under pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, and restrictions on travel and “shelter-in-place” or “stay-at-home” orders.

~~The following provides an overview of the impact of COVID-19 on our financial condition, results of operations and cash flows.~~

●

~~We have collected approximately 96% of our third quarter rents, comprised of approximately 95% from multi-family tenants and 97% from office tenants.~~

●

~~We have not granted any abatements or granted any significant deferments of contractual rents.~~

●

~~Occupancy remains stable at 91% at September 30, 2020 and 2019.~~

●

~~We continue to obtain positive leasing spreads for new leases and renewals at properties.~~

●

~~Our ground up development work continues unabated and thus far we have not experienced any work stoppages.~~

In addition, we believe that our financing activities will not be significantly impacted by COVID-19, as most of our mortgage notes payable are secured by HUD guarantees which have long-term maturities.

The future impact of COVID-19 on our business and financial activities will depend on future developments, which at this stage are unpredictable considering the fluctuations of COVID-19 outbreaks and the resulting changes in the markets.

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time-to-time and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise as we file them with the SEC.

~~Management~~

Management's Overview ~~and Summary~~

We are an externally advised and managed real estate investment company that owns a diverse portfolio of income-producing properties and land held for ~~development.~~development throughout the Southern United States. Our portfolio of income-producing properties includes ~~multifamily~~residential apartment communities, office buildings and other commercial properties. Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project.

Our operations are managed by Pillar Income Asset Management, Inc. (“Pillar”) in accordance with an Advisory Agreement. Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges our debt and equity financing with third party lenders and investors. We ~~acquire land primarily~~have no employees. Employees of Pillar render services to us in ~~urban in-fill locations or high-growth suburban markets~~accordance with the terms of the Advisory Agreement. Pillar is considered to be a related party due to its common ownership with American Realty Investors, Inc. (“ARL”), who is our controlling shareholder.

The following is a summary of our recent acquisition, disposition, financing and ~~are an active buyer~~development activities:

Acquisitions and ~~seller of real estate.~~

Dispositions

As of September 30, 2020, we owned (i) six commercial properties consisting of five office buildings and one retail property comprising on aggregate of 1.6 million square feet, (ii) 1,639 units in ten multifamily apartment communities, excluding apartment communities being developed, (iii) approximately 1,980 acres of developed and undeveloped land, and (iv) fifty-one multifamily apartment communities totaling 10,137 units owned by our 50% owned investee VAA. We currently own income-producing properties and land in eight states.

During the nine months ended September 30, 2020, we sold (i) a total of 62.0 acres of land from our holdings in Windmill Farms for $20.2 million, in aggregate, resulting in gains on sale of $15.2 million; (ii) Bridgeview Plaza, a retail property in La Crosse, Wisconsin for $5.3 million, resulting in a gain on sale of $4.8 million; and (iii) Farnham Park Apartments, a 144 unit multifamily apartment community in Port Arthur, Texas for $13.3 million, resulting in a gain on sale of $2.7 million.

~~During the nine months ended September 30,~~•On March 5, 2020, we acquired ~~(i)~~a 49.2 acres of 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 ~~bares~~bears interest at 10% and matures on November 13, ~~2024; (ii) 0.7 acres~~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 ~~commercial land~~$1.0 million.

•On July 16, 2020, we sold Farnham Park, a 144 unit multifamily property in ~~Lewisville,~~Port Arthur, Texas for ~~$0.1~~$13.3 million, ~~and (iii) 1.3~~resulting in a gain on sale of $2.7 million.

•On September 14, 2020, we sold Bridge View Plaza, a retail property in La Crosse, Wisconsin for $5.3 million, resulting in a gain on sale of $4.6 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 bank for $2.6 million resulting in gain on sale of assets of $1.4 million. Concurrent with the sale, we each contributed our 50% ownership interests into VAA.

•During the three months ended March 31, 2021, we sold a total of 32.2 acres of land from our holdings in ~~McKinney, Texas~~Windmill Farms for ~~$0.5 million.~~

~~We finance our acquisitions primarily through operating cash flow, proceeds from the~~$9.1 million, in aggregate, resulting in gains on sale of $3.7 million. In addition, we sold 5.7 acres of land ~~and income-producing properties and debt financing primarily~~from our holdings in Mercer Crossing during the ~~form~~three months ended March 31, 2021 for $3.3 million, resulting in a gain on sale of ~~property-specific first-lien mortgage loans~~$2.3 million.

Financing Activities

•On November 30, 2020, issued $19.7 million in additional Series A bonds (See Note 11 in our consolidated financial statements) for $18.8 million in net proceeds. We used the proceeds to fund in part our bond payments that were due on January 30, 2021.

•On December 3, 2020, we extended our $14.7 million loan from ~~commercial banks and institutional lenders. We finance~~HSW Partners to June 17, 2021.

•On March 2, 2021, we extended our ~~development projects principally with variable~~$1.2 million loan on Athens to August 28, 2022.

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•On March 4, 2021, we extended the maturity of our $8.8 million loan on Windmill Farms until February 28, 2023 at a reduced interest rate of 5%.

Development Activities

Our current developments projects at March 31, 2021, are as follow: (dollars in thousands)


Property	Location	No. of Units	Costs to Date (1)		Total Projected Costs (1)
Athens	Athens, AL	232	289		34,800
Heritage McKinney	McKinney, TX	170	318		24,650
Total		402	$	607	$	59,450

(1) Costs include construction ~~loans that are converted to long-term, fixed rate amortizing mortgages when the development project is completed~~hard costs, construction soft costs and occupancy has been stabilized. We will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of our wholly-owned properties. When we sell assets, we may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. We generate operating revenues primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants. We have no employees.

We have historically engaged in and may continue to engage in certain business transactions with related parties, including, but not limited to, asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

Our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and brokerage services. Our multifamily apartment communities are managed by outside management companies.

loan borrowing costs.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Some of these estimates and assumptions include judgments on revenue recognition, estimates for common area maintenance and real estate tax accruals, provisions for uncollectible accounts, impairment of long-lived assets, the allocation of purchase price between tangible and intangible assets, capitalization of costs and fair value measurements. Our significant accounting policies are described in more detail in Note 2—Summary of Significant Accounting Policies in our notes to the consolidated financial statements. However, the following policies are deemed to be critical.

Fair Value of Financial Instruments

We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:

~~Level 1 –~~

~~Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.~~

~~Level 2 –~~

Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

~~Level 3 –~~

~~Unobservable inputs that are significant to the fair value measurement.~~

Level 1 – Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.

Level 2 – Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Unobservable inputs that are significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Related Parties

We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing our own separate interests, or affiliates of the entity.

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Results of Operations

~~The following~~

Many of the variations in the results of operations, discussed below, occurred because of the transactions affecting our properties described above, including those related to the Lease-Up Properties and the Disposition Properties (each as defined below).

For purposes of the discussion below, we define "Same Properties" as those properties that are substantially leased-up and ~~analysis~~in operation for the entirety of both periods of the comparison. Non-Same Properties for comparison purposes include those properties that have been recently constructed or leased-up (“Lease-up Properties”) and properties that have been disposed of ("Disposition Properties"). A developed property is considered leased-up, when it achieves occupancy of 80% or more.We move a property in and out of Same Properties based on ~~our Consolidated Statements of Operations~~whether the property is substantially leased-up and in operation for the ~~three months ended September 30, 2020~~entirety of both periods of the comparison. Accordingly, the Same Properties consist of all properties, excluding the Lease-up Properties and ~~2019, as included in Part I, Item 1. “Financial Statements”~~the Disposition Properties for the periods of ~~this report. At September 30, 2020 and 2019, we owned or had interests in a portfolio of ten and nine income-producing properties, respectively.~~

~~Comparison~~comparison.

For the comparison of the three months ended ~~September 30, 2020~~March 31, 2021 to the ~~same period~~three months ended ~~2019:~~

~~We reported a net income attributable to common shares~~March 31, 2020, the Lease-up Properties are Forest Grove, Parc at Denham Springs Phase II and Sugar Mill Phase III; and the Disposition Properties are Bridge View Plaza, Farnham Park, Villager and Overlook at Allensville Phase II.

The following table shows the total number of ~~$7.7 million or $0.88 per diluted share for 2020, compared to a net loss applicable to common shares of $7.8 million or $0.89 per diluted share for 2019.~~

~~Rental revenues were $11.5 million for 2020, compared to $11.4 for 2019. For 2020, we generated revenues of $7.8 million and $3.7 million from our commercial and multifamily segments, respectively.~~

~~Property operating expenses increased by $1.0 million to $6.4 for 2020 as compared to $5.4 million for 2019.~~

~~Depreciation and amortization increased by $0.1 million to $3.5 million for 2020 as compared to $3.4 million for 2019.~~

General and administrative expense was $1.6 million for 2020, compared to $1.9 million for 2019. The decrease of $0.3 million in general and administrative expenses was primarily due to decrease in professionalincome-producing properties, and other ~~expenses.~~

~~Interest income was $4.3 million for 2020, compared to $5.2 million for 2019. The decrease~~key financial measures as of ~~$0.9 million was due to decrease in interest income~~March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020		Variance
Multifamily Segment
Revenue	$	3,836	$	3,556	$	280
Operating expenses	(2,123)		(1,945)		(178)
	1,713		1,611		102
Commercial Segment
Revenue	6,525		7,886		(1,361)
Operating expenses	(3,709)		(4,364)		655
	2,816		3,522		(706)
Segment operating income	4,529		5,133		(604)
Other non-segment items of income (expense)
Depreciation and amortization	(3,327)		(3,394)		67
General, administrative and advisory	(4,895)		(6,196)		1,301
Interest, net	(1,903)		(3,440)		1,537

Gain on foreign currency transactions	7,617		7,843		(226)
Gain sale or write down of assets	16,103		4,138		11,965
Income (loss) from joint ventures	3,336		(377)		3,713
Other income	1,427		1,064		363
Net income (loss)	$	22,887	$	4,771	$	18,116

Table of ~~$0.9 million on notes receivable from related parties.~~

~~Mortgage and loan interest expense was $6.3 million for 2020 as compared to $8.0 million for 2019.~~

Loss on foreign currency transactions was $1.5 million for 2020 as compared to a loss of $5.2 million for 2019. The decrease in loss was the result of the strengthening of the US Dollar against the Israel Shekels due to economic uncertainties most likely as a result of the global pandemic outbreak in 2020.

~~Income (loss) from unconsolidated joint ventures was $0.4 million for 2020 as compared ($0.2) million for 2019.~~

Gain sale or write-down of assets was $12.3 million for 2020, compared to $5.1 million for 2019. In 2020, we sold (i) approximately 17.1 acres of land for $8.0 million, resulting in a gain of $5.7 million, (ii) Bridgeview Plaza for a $5.3 million, resulting in a gain of $4.8 million, (iii) Farnham Park Apartments for $13.3 million, resulting in a gain of $2.7 million. For 2019, we sold 16.2 acres of land for $7.0 million, resulting in a gain of $5.1 million.

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Comparison of the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to the ~~same period~~three months ended ~~2019:~~

~~For~~March 31, 2020 ~~we reported a~~:

Our $18.1 million increase in net income ~~attributable to common shares of $8.1 million or $0.93 per diluted share, compared to a net loss applicable to common shares of $19.7 million or $2.26 per diluted share for 2019.~~

Rental revenues were $34.5 million for 2020, compared to $34.4 million for 2019. For 2020, rental revenues consisted of $23.5 million and $11.0 million from our commercial and multifamily segments, respectively.

~~Property operating expenses decreased by $0.2 million to $18.5 million for 2020 as compared to $18.7 million for 2019. The decrease in property operating expenses was~~ ~~primarily~~ ~~attributable to reduction in property replacements cost.~~

Depreciation and amortization increased by $0.4 million to $10.3 million for 2020 as compared to $9.9 million for 2019. The increase was primarily due to increase of depreciation expense in multifamily segment by $0.4 million.

General and administrative expense was $7.0 million for 2020, compared to $6.4 million for 2019. The increase of $0.6 million in general and administrative expenses was primarily due to increase in franchise taxes and legal services, partially offset by decrease in other expenses.

~~Interest income was $13.1 million for 2020, compared to $14.7 million for 2019. The decrease of $1.6 million was due to decrease in interest of $1.6 on notes receivable from other related parties.~~

~~Mortgage and loan interest expense was $22.0 million for 2020 as compared to $23.6 million for 2019.~~

~~Gain (loss) on foreign currency transactions was $0.8 million for 2020 as compared to ($13.3) million for 2019. The change in gain (loss) on foreign currency transactions~~during the three months ended March 31, 2021 is primarily attributed to the ~~strengthening~~following:

•The $0.1 million increase in operating profits in our multifamily segment is primarily due a $0.4 million increase at our Lease-Up Properties offset in part by a $0.3 million decrease at our Disposition Properties.

•The $0.7 million increase in operating profits in our commercial segment is primarily due to a $0.9 million decrease in revenue at at Browning Place due to a decline in occupancy. On December 31, 2020, we terminated our lease with a tenant that occupied approximately 25% of the ~~U.S. Dollar against~~building. Our replacement tenant, which will take possession of this space in the ~~Israel Shekels~~second quarter of 2021.

•The $1.3 million decrease in general, administrative and advisory expenses is primarily due to ~~perceived liquidity issues~~a decrease in ~~Israel as~~legal and consulting costs in 2021.

•The $12.0 million increase in gain on sale of assets is due to the $10.1 million gain on sale of multifamily properties in 2021 and a ~~result~~$1.8 million increase in gain on sales of land. The gain on sale of multifamily properties is due to the $1.4 million gain sale of Overlook at Allensville Phase II (See "Acquisitions and Dispositions" in Management's Overview);and the $8.7 million gain on properties that had been previously been deferred (See Note 7 - Real Estate Activity of our consolidated financial statements).

•The $3.7 million decrease in loss from joint ventures is due to the increased in occupancy of the ~~global pandemic outbreak in 2020.~~

~~Loss from unconsolidated joint ventures was a net of $0.7 million for 2020 as compared to a loss of $1.5 million for 2019.~~

various lease-up properties at VAA.

Gain on sale or write-down of assets was $21.8 million for 2020, compared to $9.4 million for 2019. In 2020, we sold (i) approximately 62.0 acres of land for $20.2 million, resulting in a gain of $15.2 million, (ii) Bridgeview Plaza for $5.3 million, resulting in a gain of $4.8 million, and (iii) Farnham Park Apartments for $13.3 million, resulting in a gain of $2.7 million. In 2019, we sold 80.1 acres of land for $23.3 million, resulting in a gain of $9.4 million.

Liquidity and Capital Resources

~~Our principal liquidity needs are:~~

●

~~fund normal recurring expenses;~~

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~~meet debt service and principal repayment obligations including balloon payments on maturing debt;~~

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~~fund capital expenditures, including tenant improvements and leasing costs;~~

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~~fund development costs not covered under construction loans; and~~

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~~fund possible property acquisitions.~~

Our principal sources of cash have been, and will continue to ~~be:~~

●

~~property operations;~~

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~~proceeds from land and income-producing property sales;~~

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~~collection of mortgage notes receivable;~~

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~~collection of receivables from related party companies;~~

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~~refinancing of existing debt; and~~

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~~additional borrowing, including mortgage notes, mezzanine financing and lines of credit.~~

~~We draw on multiple financing sources~~be, property operations; proceeds from land and income-producing property sales; collection of mortgage notes receivable; collections of receivables from related companies; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage notes and bonds payable, and lines of credit.

Our principal liquidity needs are to fund ~~our long-term~~normal recurring expenses; meet debt service and principal repayment obligations including balloon payments on maturing debt; fund capital ~~needs.~~ expenditures, including tenant improvements and leasing costs; fund development costs not covered under construction loans; and fund possible property acquisitions.

We ~~generally fund our development projects with construction loans. Management anticipates~~anticipate that our ~~available~~ cash and cash equivalents as of March 31, 2021, along with cash that will be generated in the remainder of 2021 from ~~property operations may not~~notes and interest receivables, will be sufficient to meet all of our cash requirements. ~~Management intends~~We intend to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional ~~borrowing~~borrowings secured by real estate to meet our liquidity requirements. Although ~~the past~~history cannot predict the future, historically, ~~management has~~we have been successful at refinancing and extending a portion of our current maturity ~~obligations and selling assets as necessary to meet current~~ obligations.

~~Cash Flow Summary~~

The following summary discussion of our cash flows is based on the consolidated statements of cash flows ~~as presented~~ in Part I,II, Item ~~1. “Financial Statements”~~8. “Consolidated Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash ~~flow:~~

For the Nine Months Ended September 30,
2020 2019 Incr /(Decr)
Net cash (used in) operating activities $ (15,163 ) $ (9,288 ) $ (5,875 )
Net cash provided by (used in) investing activities $ 12,355 $ (16,782 ) $ 29,137
Net cash (used in) provided by financing activities $ (19,456 ) $ 19,457 $ (38,913 )

~~Our primary use of cash~~flows for ~~operations is daily operating costs, general and administrative expenses, advisory fees, and land holding costs. Our primary source of~~the periods presented below (dollars in thousands):


	Three Months Ended March 31,
	2021		2020		Incr /(Decr)
Net cash provided by (used in) operating activities	$	(901)	$	(7,761)	$	6,860
Net cash provided by (used in) investing activities	$	14,148	$	1,619	$	12,529
Net cash (used in) provided by financing activities	$	(25,155)	$	(9,039)	$	(16,116)

The increase in cash from operating activities is primarily due to the $3.8 million increase in cash provided by change in other assets and $3.2 million from ~~rental~~distributions of income ~~on properties. In addition, we have a related party account~~from VAA in ~~which excess~~2021.

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The increase in cash ~~is transferred to or from.~~

~~Our primary cash outlays for~~provided by investing activities ~~are for construction and development, acquisition~~is primarily due to a $8.8 million increase in proceeds from sale of ~~land and income-producing properties, and capital improvements to existing properties. During the nine months ended September 30, 2020, we advanced $15.7~~assets, a decrease of $2.8 million ~~on various notes receivable, purchased real estate for development for $2.7 million, and invested approximately $12.5 million for the~~from development and renovation of real ~~estate. For~~estate, an increase of 2,166 from the ~~nine months ended September 30, 2019, we advanced $7.3~~the distributions from VAA and an increase of $7.6 million ~~on various~~from collection of notes receivable ~~purchased real estate for development for $3.4~~offset in part by a $9.7 million increase in originations and ~~invested approximately $31.3 million for the development and renovation of real estate.~~

~~Our primary sources of~~advances on notes receivable. The increase in cash ~~from investing activities are from the~~ proceeds on sale of assets is due to an increase in the sale of land at Windmill Farms and income-producing properties. During the nine months ended September 30, 2020, we received sales proceeds of $31.8 million from the sale of real estate and recorded a gain of $21.8 million. In addition, collected $3.5 million on note receivables and received $8.0 million on distributions from one of our unconsolidated joint ventures. For the nine months ended September 30, 2019, we received aggregate sales proceeds of $23.0 million from the sale of real estate and recorded a gain of $9.4 million. In addition, collected $0.3 million on note receivables and received $1.9 million on distributions from one of our unconsolidated joint ventures.

Our primary sources of cash from financing activities are from proceeds on notes payables either through refinancing our existing loans or by obtaining new financing. Our primary cash outlays are for recurring debt payments and payments on maturing notes payable.

~~During the nine months ended September 30, 2020, the decrease~~Mercer Crossing in ~~cash flow from~~2021.

Cash used in financing activities is primarily due to a ~~payment on bond principal~~$11.0 million increase in payments of ~~$21.7~~mortgages, notes and bonds payable and $5.1 million ~~and payments on our outstanding notes of $7.9 million, partially offset by~~in proceeds from ~~borrowings~~mortgages, notes and bonds payable received in 2020.

Funds From Operations ("FFO")

We use FFO in addition to net income to report our operating and financial results and considers FFO and FFO-diluted as supplemental measures for the real estate industry and a supplement to GAAP measures. The National Association of ~~approximately $10.2 million. During~~Real Estate Investment Trusts ("Nareit") defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of properties, plus real estate related depreciation and amortization, impairment write-downs of real estate and write-downs of investments in an affiliate where the ~~nine~~write-downs have been driven by a decrease in the value of real estate held by the affiliate and after adjustments for unconsolidated joint ventures. Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis. We also present FFO excluding the impact of the effects of foreign currency translation.

FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods. This is especially true since FFO excludes real estate depreciation and amortization, as we believe real estate values fluctuate based on market conditions rather than depreciating in value ratably on a straight-line basis over time. We believe that such a presentation also provides investors with a meaningful measure of our operating results in comparison to the operating results of other real estate companies. In addition, we believe that FFO excluding gain (loss) from foreign currency transactions provide useful supplemental information regarding our performance as they show a more meaningful and consistent comparison of our operating performance and allows investors to more easily compare our results.

We believe that FFO does not represent cash flow from operations as defined by GAAP, should not be considered as an alternative to net income as defined by GAAP, and is not indicative of cash available to fund all cash flow needs. We also caution that FFO, as presented, may not be comparable to similarly titled measures reported by other real estate companies.

We compensate for the limitations of FFO by providing investors with financial statements prepared according to GAAP, along with this detailed discussion of FFO and a reconciliation of net income to FFO and FFO-diluted. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.

The following reconciles our net income attributable to FFO and FFO-basic and diluted, excluding gain from foreign currency transactions for the three months ended ~~September 30, 2019, we received $78.1 million from the sale of nonconvertible Series C Bonds by Southern~~March 31, 2021 and ~~from borrowings of approximately $10.2 million, which were partially offset by payments on bond principal of $21.7 million~~2020 (dollars and ~~mortgage debt of $45.6 million.~~

~~Environmental Matters~~

Under various federal, state and local environmental laws, ordinances and regulations, we may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.

~~Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on our business, assets or results of operations.~~

~~Inflation~~

~~The effects of inflation on our operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases, market conditions and decreases~~shares in real estate costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, earnings from short-term investments, the cost of new financings and the cost of variable interest rate debt will be affected.

~~Tax Matters~~

We are a member of the May Realty Holdings, Inc., (“MRHI”) consolidated group for federal income tax reporting. There is a tax sharing and compensating agreement between American Realty Investors, Inc. (“ARL”), Income Opportunities Realty Investors, Inc. (“IOR”), and the Company.

Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses.

~~For the quarter ended September 30, 2020, we had income before income taxes of $8.9 million driven mostly by the gains from sale of assets of $21.8 million.~~

thousands):


	Three Months Ended March 31,
	2021		2020
Net income attributable to the Company	$	22,632	$	4,613
Depreciation and amortization on consolidated assets	3,327		3,394
Gain on sale or write down of assets	(16,103)		(4,138)
Gain on sale of land	5,957		4,138
Depreciation and amortization on unconsolidated joint ventures at pro rata share	(1,870)		375
FFO-Basic and Diluted	13,943		8,382

Gain on foreign currency transaction	(7,617)		(7,843)
FFO-adjusted	$	6,326	$	539

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS~~

~~We may be exposed to interest rate changes primarily as a result~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Optional and not included.

Table of long-term debt used to acquire properties and make loans and other permitted investments. Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates.

As of September 30, 2020, our outstanding notes payable balance was $242.3 million, out of which $235.2 million were notes with fixed interest rates and $7.1 million represented a note with a variable interest rate of 3.75%. If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, would increase by $0.02 million, and would result in a decrease of $0.003 in our earnings per share.

At September 30, 2020, our weighted average borrowing rate was approximately 5.35%. Our variable rate exposure is mitigated through the ability to secure long-term fixed rate HUD financing on the multifamily apartment communities.

Contents

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Based on an evaluation by our management (with the participation of our Principal Executive ~~Officer~~ and ~~Principal~~ Financial Officer), as of the end of the period covered by this report, our Principal Executive ~~Officer~~ and ~~Principal~~ Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive ~~Officer~~ and ~~Principal~~ Financial Officer, to allow timely decisions regarding required disclosures.

There has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although we are involved in various items of litigation incidental to and in the ordinary course of its business, we believe the outcome of such litigation will not have a material adverse impact upon our financial condition, results of operation or liquidity

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes from the risk factors previously disclosed in the ~~2019~~2020 10-K. For a discussion on these risk factors, please see “Item 1A. Risk Factors” contained in the ~~2019~~2020 10-K.

Risks Related to COVID-19 Pandemic

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and our property portfolio. While we did not incur significant disruptions during the three months ended ~~September 30, 2020~~March 31, 2021 from the COVID-19 pandemic, we are unable to predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. ~~The pandemic is having a significant impact on the U.S. economy and on the local markets in which our properties are located.~~ Nearly every industry has been impacted directly or indirectly, and the commercial real estate market has come under pressure due to numerous factors, including preventative measures taken by local, state and federal authorities to alleviate the public health crisis such as mandatory business closures, quarantines, and restrictions on travel and “shelter-in-place” or “stay-at-home” orders.

~~The following provides an overview of the impact of COVID-19 on our financial condition, results of operations and cash flows.~~

●

~~We have collected approximately 96% of our third quarter rents, comprised of approximately 95% from multi-family tenants and 97% from office tenants.~~

●

~~We have not granted any abatements or granted any significant deferments of contractual rents.~~

●

~~Occupancy remains stable at 91% at September 30, 2020 and 2019.~~

●

~~We continue to obtain positive leasing spreads for new leases and renewals at properties.~~

●

~~Our ground up development work continues unabated and thus far we have not experienced any work stoppages.~~

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~In December 1989, the Board of Directors approved~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We have a ~~share repurchase~~ program authorizing the repurchase of a total of 687,000 shares of our common stock. In September 2000, the Board increased this authorization to 1,387,000 shares. On August 10, 2010, the Board of Directors approved an increase in the share repurchase programthat allows for ~~up to an additional 250,000 shares of common stock which results in a total authorization under~~ the repurchase program ~~for~~of up to 1,637,000 shares of our common stock. This repurchase program has no termination date. There were no shares purchased under this program during the ~~first nine~~three months ended ~~September 30, 2020.~~March 31, 2021. As of ~~September 30, 2020,~~March 31, 2021, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

~~ITEM 5.~~

ITEM 5. OTHER INFORMATION

~~None~~

None

Table of Contents

~~ITEM 6.~~

~~EXHIBITS~~

ITEM 6. EXHIBITS

The following exhibits are filed with this report or incorporated by reference as indicated;

~~Exhibit~~ ~~Number~~	~~Description~~
Exhibit Number		Description
~~3.0~~
3.0		Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).

3.1		Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996).

3.2		Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).

3.3		Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).

3.4		Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, References, Limitations, Restriction and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).

3.5		Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of Series C Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).

3.6		Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).

3.7		By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991).

~~3.8~~
3.8						Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrant’s Current Report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof).

10.1						Advisory Agreement dated as of April 30, 2011, between Transcontinental Realty Investors, Inc., and Pillar Income Asset Management, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K for event occurring May 2, 2011).

31.1*						Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.


32.1*						Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.INS~~
101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

Table of Contents



101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

Table of Contents

SIGNATURE PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	TRANSCONTINENTAL REALTY INVESTORS, INC.

Date: ~~November 12, 2020~~May 13, 2021	By:	/s/ Erik L. Johnson
		Erik L. Johnson
		Executive Vice President and Chief Financial Officer (Principal Executive and Financial Officer)



2021	$	17,909
2022	21,363
2023	16,003
2024	10,889
2025	6,938
Thereafter	25,566
	$	98,668


	March 31, 2021		December 31, 2020
Land	$	48,357	$	50,759
Building and improvements	281,115		297,644
Tenant improvements	30,935		30,935
Construction in progress	73,656		77,891
Total cost	434,063		457,229
Less accumulated deprecation	(84,603)		(82,418)
Total real estate, net	349,460		374,811
Property held for sale	1,660		2,572
Total real estate	$	351,120	$	377,383


	Carrying value
Property/Borrower	March 31, 2021		December 31, 2020		Interest Rate		Maturity Date
ABC Land and Development, Inc.	$	4,408	$	4,408	9.50	%	6/30/21
ABC Paradise, LLC	1,210		1,210		9.50	%	6/30/21
Autumn Breeze(1)	2,102		1,867		5.00	%	7/1/22
Bellwether Ridge(1)	3,971		3,858		5.00	%	11/1/21
Forest Pines(1)	2,872		2,869		5.00	%	11/1/22
Lake Wales	3,000		3,000		9.50	%	6/30/21
Legacy Pleasant Grove	496		496		12.00	%	10/23/22
McKinney Ranch	4,554		4,554		6.00	%	9/15/22
One Realco Land Holding, Inc.	1,728		1,728		9.50	%	6/30/21
Parc at Ingleside(1)	2,670		2,523		5.00	%	12/1/21
Parc at Opelika(1)	1,698		0		10.00	%	1/13/23
Parc at Windmill Farms(1)	7,937		7,803		5.00	%	11/1/22
Phillips Foundation for Better Living, Inc.(2)	0		61		12.00	%	3/31/23
Phillips Foundation for Better Living, Inc.(2)	1,009		0		12.00	%	3/31/24
Plum Tree(1)	1,102		857		5.00	%	4/26/26
Riverview on the Park Land, LLC	1,045		1,045		9.50	%	6/30/21
RNC Portfolio, Inc.	8,853		8,853		5.00	%	9/1/24
Spartan Land	5,907		5,907		12.00	%	1/16/23
Spyglass of Ennis(1)	5,362		5,360		5.00	%	11/1/22
Steeple Crest(1)	6,498		6,498		5.00	%	8/1/21
Unified Housing Foundation, Inc. (2)(3)	2,880		2,880		12.00	%	7/31/21
Unified Housing Foundation, Inc. (2)(3)	212		212		12.00	%	8/30/21
Unified Housing Foundation, Inc. (2)(3)	6,831		6,831		12.00	%	10/31/21
Unified Housing Foundation, Inc. (2)(3)	10,401		10,896		12.00	%	12/31/21
Unified Housing Foundation, Inc. (2)(3)	10,096		10,096		12.00	%	3/31/22
Unified Housing Foundation, Inc. (2)(3)	6,990		6,990		12.00	%	3/31/23
Unified Housing Foundation, Inc. (2)(3)	3,615		3,615		12.00	%	5/31/23
Unified Housing Foundation, Inc. (2)(3)	17,173		19,139		12.00	%	12/31/32
Unified Housing Foundation, Inc. (2)(3)	6,525		0		12.00	%	3/31/24
	$	131,145	$	123,556


	March 31, 2021		December 31, 2020
Condensed Balance Sheets of VAA
Assets
Real estate	$	1,230,671	$	1,217,725
Other assets	50,228		61,472
Total assets	$	1,280,899	$	1,279,197
Liabilities and Partners Capital
Mortgage notes payable	$	860,864	$	830,721
Mezzanine notes payable	245,356		239,878
Other liabilities	19,171		35,632
Our share of partners' capital	77,757		84,983
Outside partner's capital	77,751		87,983
Total liabilities and partners' capital	$	1,280,899	$	1,279,197
Investment in unconsolidated joint ventures
Our share of partners' capital	$	77,757	$	84,983
Our share of Mezzanine note payable	122,678		119,939
Basis adjustment (1)	(153,310)		(153,136)
Total investment in unconsolidated joint ventures	47,125		51,786

	Carrying value
Property/Borrower	September 30, 2020		December 31, 2019		Interest Rate			Maturity Date
ABC Land and Development, Inc.	$	7,408	$	7,408		9.50	%		06/21
ABC Paradise, LLC		1,210		1,210		9.50	%		06/21
Autumn Breeze⁽¹⁾		1,807		1,302		5.00	%		10/21
Bellwether Ridge⁽¹⁾		3,559		3,765		5.00	%		11/20
Big River NV LLC		344		—		—			07/20
Forest Pines Phase I⁽¹⁾		2,869		2,868		5.00	%		11/20
JEM Holdings, Inc.		300		300		6.00	%		07/16
One Realco Land Holding, Inc.		1,728		1,728		9.50	%		06/21
Oulad-Chikh Family Trust		174		174		8.00	%		03/21
Parc at Ingleside⁽¹⁾		2,294		1,531		5.00	%		12/21
Parc at Windmill Farms⁽¹⁾		7,949		7,602		5.00	%		11/20
Phillips Foundation for Better Living, Inc.		—		314		12.00	%		03/22
Plum Tree⁽¹⁾		792		413		5.00	%		10/21
Prospectus Endeavors 4, LLC		5,907		5,907		12.00	%		01/23
Prospectus Endeavors 6, LLC		496		496		12.00	%		10/22
Riverview on the Park Land, LLC		1,045		1,045		9.50	%		06/21
RNC Revolving Line of Credit		8,853		8,802		5.00	%		09/24
Spyglass of Ennis⁽¹⁾		5,359		5,288		5.00	%		11/20
Steeple Crest⁽¹⁾		6,498		6,665		5.00	%		08/21
TPS Income, Inc.		4,554		4,554		6.00	%		09/20
Unified Housing Foundation, Inc. ⁽²⁾		10,401		10,401		12.00	%		12/21
Unified Housing Foundation, Inc. ⁽²⁾		10,096		10,096		12.00	%		03/22
Unified Housing Foundation, Inc. ⁽²⁾		2,882		3,795		12.00	%		07/21
Unified Housing Foundation, Inc. ⁽²⁾		212		212		12.00	%		08/21
Unified Housing Foundation, Inc. ⁽²⁾		7,051		6,831		12.00	%		03/23
Unified Housing Foundation, Inc. ⁽²⁾		3,615		—		12.00	%		05/23
Unified Housing Foundation, Inc. ⁽²⁾		6,831		—		12.00	%		10/21
Unified Housing Foundation, Inc. ⁽²⁾		495		525		12.00	%		12/21
Unified Housing Foundation, Inc. ⁽²⁾		19,125		19,125		12.00	%		12/32
Total	$	123,854	$	112,357

	☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	☐
¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	TCI	NYSE

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Revenues:
Rental revenues (including $262 and $212 for the three months and $673 and $527 for the nine months ended 2020 and 2019, respectively, from related parties)	$	11,453		$	11,407		$	34,461		$	34,352
Other income		706			1,990			3,885			7,394
Total revenues		12,159			13,397			38,346			41,746
Expenses:
Property operating expenses (including $254 and $237 for the three months ended and $750 and $741 for the nine months ended 2020 and 2019, respectively, from related parties)		6,388			5,403			18,507			18,722
Depreciation and amortization		3,526			3,416			10,338			9,964
General and administrative (including $1,017 and $935 for the three months ended and $2,783 and $3,355 for the nine months ended 2020 and 2019, respectively, from related parties)		1,643			1,929			7,063			6,468
Advisory fee to related party		2,139			2,200			6,483			6,196
Total operating expenses		13,696			12,948			42,391			41,350
Net operating (loss) income		(1,537	)		449			(4,045	)		396

Interest income (including $3,752 and $4,618 for the three months ended and $11,255 and $13,483 for the nine months ended 2020 and 2019, respectively, from related parties)		4,348			5,232			13,102			14,668
Interest expense (including $380 and $514 for the three months ended and $1,193 and $1,517 for the nine months ended 2020 and 2019, respectively, from related parties)		(6,291	)		(8,037	)		(21,999	)		(23,642	)
(Loss) gain on foreign currency transaction		(1,470	)		(5,153	)		774			(13,296	)
Loss on extinguishment of debt		—			(5,219	)		—			(5,219	)
Income (losses) from unconsolidated joint ventures		365			(178	)		(740	)		(1,474	)
Gain on sales or write-down of assets		12,328			5,140			21,802			9,409
Income tax expense		(50	)		—			(346	)		—
Net income (loss)		7,693			(7,766	)		8,548			(19,158	)
Net income attributable to non-controlling interest		—			(21	)		(400	)		(583	)
Net income (loss) attributable to common shares	$	7,693		$	(7,787	)	$	8,148		$	(19,741	)

Earnings (loss) per share - attributable to common shares
Basic and diluted	$	0.88		$	(0.89	)	$	0.93		$	(2.26	)
Weighted-average number of common shares outstanding:
Basic and diluted		8,717,767			8,717,767			8,717,767			8,717,767

	Common Stock				Treasury			Paid-in			Retained			Total Shareholders'			Non-controlling		Total
	Shares		Amount		Stock			Capital			Earnings			Equity			Interest		Equity
For the three months ended September 30, 2020
Balance, June 30, 2020		8,717,967	$	87	$	(2	)	$	257,853		$	75,120		$	333,058		$	21,864	$	354,922
Net income		—		—		—			—			7,693			7,693			—		7,693
Balance, September 30, 2020		8,717,967	$	87	$	(2	)	$	257,853		$	82,813		$	340,751		$	21,864	$	362,615

For the three months ended September 30, 2019
Balance, June 30, 2019		8,717,967	$	87	$	(2	)	$	257,938		$	89,631		$	347,654		$	21,243	$	368,897
Distribution to equity partner		—		—		—			(85	)		—			(85	)		—		(85	)
Net loss		—		—		—			—			(7,787	)		(7,787	)		21		(7,766	)
Balance, September 30, 2019		8,717,967	$	87	$	(2	)	$	257,853		$	81,844		$	339,670		$	21,264	$	361,046


For the nine months ended September 30, 2020
Balance, December 31, 2019		8,717,967	$	87	$	(2	)	$	257,853		$	74,665		$	332,603		$	21,464	$	354,067
Net income		—		—		—			—			8,148			8,148			400		8,548
Balance, September 30, 2020		8,717,967	$	87	$	(2	)	$	257,853		$	82,813		$	340,751		$	21,864	$	362,615

For the nine months ended September 30, 2019
Balance, December 31, 2018		8,717,967	$	87	$	(2	)	$	258,050		$	101,585		$	359,720		$	20,681	$	380,401
Distribution to equity partner		—		—		—			(197	)		—			(197	)		—		(197	)
Net loss		—		—		—			—			(19,741	)		(19,741	)		583		(19,158	)
Balance, September 30, 2019		8,717,967	$	87	$	(2	)	$	257,853		$	81,844		$	339,782		$	21,264	$	361,046

	For the Nine Months Ended September 30,
	2020			2019
Cash Flow From Operating Activities:
Net income (loss)	$	8,548		$	(19,158	)
Adjustments to reconcile net income (loss) to used in operating activities:
(Gain) loss on foreign currency transactions		(774	)		13,296
Loss on debt extinguishment		—			5,219
Gain on sales or write-down of assets		(21,802	)		(9,409	)
Depreciation and amortization		13,023			12,818
Loss from unconsolidated joint ventures		740			1,474
Distribution of income from unconsolidated joint ventures		1,782			—
Changes in assets and liabilities, net of dispositions:
Other assets		(14,179	)		12,888
Related party receivables		1,491			(35,257	)
Accrued interest payable		(94	)		(1,557	)
Accounts payable and other liabilities		(3,745	)		5,441
Deferred revenue		(153	)		4,957
Net cash used in operating activities		(15,163	)		(9,288	)

Cash Flow From Investing Activities:
Collection of notes receivables		3,467			255
Origination and advances on notes receivable		(15,718	)		(7,262	)
Acquisition of real estate		(2,664	)		(3,422	)
Development and renovation of real estate		(12,488	)		(31,311	)
Deferred leasing costs		(96	)		—
Proceeds from sale of real estate		31,768			23,030
Distributions from unconsolidated joint ventures		8,086			1,928
Net cash provided by (used in) investing activities		12,355			(16,782	)

Cash Flow From Financing Activities:
Proceeds from mortgages and notes payable		10,234			16,934
Payments on mortgages and notes payable		(7,912	)		(45,623	)
Proceeds from bonds payable		—			78,125
Payments on bonds payable		(21,724	)		(21,742	)
Debt extinguishment costs		—			(3,799	)
Deferred finance costs		(54	)		(4,241	)
Distributions to equity partner		—			(197	)
Net cash (used in) provided by financing activities		(19,456	)		19,457
Net decrease in cash, cash equivalents and restricted cash		(22,264	)		(6,613	)
Cash, cash equivalents and restricted cash, beginning of period		83,261			106,565
Cash, cash equivalents and restricted cash, end of period	$	60,997		$	99,952

Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	21,109		$	27,470

Schedule of noncash investing and financing activities:
Land acquired in exchange for note payable	$	3,350		$	—
Note receiveable issued in exchange for property	$	1,761		$	—
Debt assumed in sale of properties	$	8,238		$	—
Land received in exhange for note receivable	$	—		$	1,800

	For the Period Ended September 30,
	2020		2019
Beginning of period
Cash and cash equivalents	$	51,179	$	36,358
Restricted cash		32,082		70,207
Cash, cash equivalents and restricted cash	$	83,261	$	106,565

End of period
Cash and cash equivalents	$	32,967	$	63,069
Restricted cash		28,030		36,883
Cash, cash equivalents and restricted cash	$	60,997	$	99,952

Twelve months ended September 30, 2020	Amount
2021	$	6,444
2022		23,155
2023		20,038
2024		14,606
2025		8,737
Thereafter		7,071
	$	80,051

	September 30,			December 31,
	2020			2019

Land	$	50,759		$	49,887
Building and improvements		297,068			286,280
Tenant improvements		49,423			49,431
Construction in progress		77,116			84,399
		474,366			469,997
Less accumulated deprecation		(97,883	)		(90,173	)
		376,483			379,824
Property held for sale		4,232			7,966
Total	$	380,715		$	387,790

	For the Three Months Ended September 30,
	2020									2019
	VAA			ARL			Total			VAA			ARL			Total
Revenue
Rents	$	29,998		$	—		$	29,998		$	27,347		$	60		$	27,407
Other		1,593			3,000			4,593			2,310			114			2,424
Interest		1			1,075			1,076			56			1,622			1,678
Total revenue		31,592			4,075			35,667			29,713			1,796			31,509
Expenses
Operating		16,172			(470	)		15,702			14,138			860			14,998
Depreciation and amortization		7,832			—			7,832			16,036			—			16,036
Interest		13,839			1,331			15,170			15,424			2,383			17,807
Other expenses (income)		(556	)		—			(556	)		699			—			699
Total expenses		37,287			861			38,148			46,297			3,243			49,540
Net (loss) income	$	(5,695	)	$	3,214		$	(2,481	)	$	(16,584	)	$	(1,447	)	$	(18,031	)
Company's equity in net (loss) income	$	336		$	29		$	365		$	(165	)	$	(13	)	$	(178	)

	Carrying value
Property / Entity	September 30, 2020		December 31, 2019		Effective Interest Rate			Maturity Date
600 Las Colinas Building	$	35,773	$	36,302		5.30	%	11/1/2023
770 South Post Oak Building		11,924		12,077		4.40	%	6/1/2025
Bridgeview Plaza Shopping Center⁽¹⁾		—		3,824		7.75	%	11/1/2020
Chelsea Apartments		8,627		8,749		3.40	%	12/1/2050
EQK Portage-Kent Ohio Land⁽²⁾		3,350		—		10.00	%	11/13/2024
Estate of Robert Shaw⁽³⁾		13,065		13,032		9.50	%	7/5/2020
Farnham Apartments⁽⁴⁾		—		9,144		3.39	%	12/1/2050
Forest Pines Phase II Apartments⁽⁵⁾		7,057		—		3.75	%	5/5/2024
Forest Pines Phase II⁽⁵⁾		—		1,390		3.75	%	5/5/2024
Landing Apartments		15,286		15,467		3.50	%	9/1/2053
LD Athens Lindsay Ln Land		1,155		1,155		5.90	%	2/28/2021
Legacy at Pleasant Grove Apartments		13,727		13,944		3.60	%	4/1/2048
McKinney 36 Land		856		944		8.00	%	6/30/2022
Overlook at Allensville Phase II Apartments		15,666		15,798		3.80	%	5/1/2059
Parc at Denham Spring Phase II Apartments		16,168		14,785		4.10	%	2/1/2060
Stanford Center Building		39,191		39,255		6.00	%	12/26/2021
Sugar Mill Phase III Apartments		—		5,908		4.50	%	2/1/2060
Sugar Mill Phase III Apartments		8,906		—		4.50	%	2/1/2060
Toulon Apartments		18,283		18,465		3.20	%	12/1/2051
Villager Apartments⁽⁶⁾		—		556		2.50	%	3/1/2043
Villas at Bon Secour Apartments		10,860		11,026		4.00	%	1/1/2022
Vista Ridge Apartments		10,015		10,122		4.00	%	8/1/2053
Windmill Farms Land		12,391		13,830		6.00	%	2/28/2021
Total	$	242,300	$	245,773


Bond Issuance	March 31, 2021		December 31, 2020		Interest Rate		Maturity
Series A Bonds(1)	$	76,448	$	95,133	7.30	%	7/31/23
Series B Bonds(2)	56,688		65,318		6.80	%	7/31/25
Series C Bonds(1)	82,484		85,537		4.65	%	1/31/23
	215,620		245,988
Less unamortized deferred issuance costs	(7,599)		(8,100)
	$	208,021	$	237,888

	As of
	September 30,			December 31,
	2020			2019
ARL	$	146,215		$	142,117
Pillar		(6,165	)		(576	)
Total	$	140,050		$	141,541