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Transcontinental Realty Investors, Inc. Reports Third Quarter 2014 Results

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Transcontinental Realty Investors, Inc. (NYSE:TCI) , a Dallas-based real estate investment company, today reported results of operations for the third quarter ended September 30, 2014. TCI announced today that the Company reported a net loss applicable to common shares of $2.6 million or $0.29 per diluted earnings per share, as compared to a net loss applicable to common shares of $6.2 million or $0.74 per diluted earnings per share for the same period ended 2013.

Management’s efforts to enhance the value of our overall portfolio has resulted in the continuing improvement in the Company’s results of operations. We continue to see growth in the multifamily market with increasing rents, stable operating expenses, and an occupancy rate over 93%. We are diligent in our mission to provide high-quality living opportunities to our tenants.

In our commercial portfolio, we are seeing the benefit of our efforts with new leases executed and increasing rents as first year concessions expire. We believe that we will continue to see growth in our commercial portfolio as the economic conditions improve and we capitalize on the influx of attractive prospects in the pipeline.

Our ability to take advantage of lower-interest rate mortgages available has reduced our monthly obligations and increased cash flow within our multifamily portfolio.

The positive results of operations has allowed the Company to invest in mortgage receivables in various multifamily projects not under the Company’s ownership. We will continue to invest in the multifamily market, as conditions are optimal for achieving a high return on our investment.

Rental and other property revenues were slightly lower for the three months ended September 30, 2014, as compared to the same period in the prior year. This was mainly attributable to our commercial portfolio which was lower in the current period related to some prior year larger square-foot tenants down-sizing or moving out and first year lease specials for new tenants. Rental revenue from our apartment portfolio increased in the current period as we continue to excel with high occupancy rates and increasing rental rates.

Property operating expenses were $10.1 million for the three months ended September 30, 2014, representing an increase of $0.6 million as compared to the same period in the previous year. Operating expenses have remained consistent with prior periods due to labor efficiencies and improvements in preventative maintenance across the portfolio, with only an increase in real estate taxes as a result of the increase in the value of our portfolio and some non-recurring repair projects completed in the current period.

General and administrative expenses decreased $0.4 million for the three months ended September 30, 2014, as compared to the same period in prior year. The majority of this decrease was in the land portfolio which was mainly due to a reduction in legal fees.

Interest income was $3.1 million for the three months ended September 30, 2014, representing an increase of $1.0 million as compared to the same period in the prior year. During the current quarter, we invested $17.3 million in mortgage receivables which would increase the basis for our interest income.

About Transcontinental Realty Investors, Inc.

Transcontinental Realty Investors, Inc., a Dallas-based real estate investment company, holds a diverse portfolio of equity real estate located across the U.S., including office buildings, apartments, shopping centers and developed and undeveloped land. The Company invests in real estate through direct ownership, leases and partnerships and invests in mortgage loans on real estate. For more information, visit the Company’s website at www.transconrealty-invest.com.

TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
(dollars in thousands, except per share amounts)
Revenues:
Rental and other property revenues (including $175 and $165 for the three months and $526 and $497 for the nine months ended 2014 and 2013, respectively, from related parties) $ 18,466 $ 18,663 $ 55,281 $ 55,257
Expenses:
Property operating expenses (including $161 and $169 for the three months and $454 and $522 for the nine months ended 2014 and 2013, respectively, from related parties) 10,077 9,543 28,640 27,041
Depreciation and amortization 4,415 4,024 12,967 11,737
General and administrative (including $714 and $665 for the three months and $2,114 and $2,105 for the nine months ended 2014 and 2013, respectively, from related parties) 1,131 1,468 5,417 4,696
Provision on impairment of notes receivable and real estate assets 214 214
Net income fee to related party (186 ) 55 514 159
Advisory fee to related party 1,826 2,168 5,490 6,377
Total operating expenses 17,263 17,472 53,028 50,224
Net operating income 1,203 1,191 2,253 5,033
Other income (expenses):
Interest income (including $2,718 and $2,168 for the three months and $8,835 and $6,456 for the nine months ended 2014 and 2013, respectively, from related parties) 3,064 2,131 9,181 6,427
Other income 344 72 741 242
Mortgage and loan interest (including $0 and $397 for the three months and $31 and $1,323 for the nine months ended 2014 and 2013, respectively, from related parties) (7,214 ) (7,280 ) (21,286 ) (22,380 )
Deferred borrowing costs amortization (829 ) (72 ) (2,043 ) (2,440 )
Loan charges and prepayment penalties (1,044 ) (2,626 ) (3,963 )
Loss on the sale of investments (275 ) (283 )
Earnings (losses) from unconsolidated joint ventures and investees 10 (30 ) (5 ) (28 )
Litigation settlement (86 ) (2,739 ) 3,666 (2,727 )
Total other expenses (5,755 ) (8,193 ) (12,372 ) (25,152 )
Loss before gain on land sales, non-controlling interest, and taxes (4,552 ) (7,002 ) (10,119 ) (20,119 )
Gain (loss) on land sales 40 634 (48 )
Net loss from continuing operations before taxes (4,512 ) (7,002 ) (9,485 ) (20,167 )
Income tax benefit 786 402 5,030 8,210
Net loss from continuing operations (3,726 ) (6,600 ) (4,455 ) (11,957 )
Discontinued operations:
Net gain (loss) from discontinued operations 477 1,021 (454 ) (935 )
Gain on sale of real estate from discontinued operations 1,770 127 14,826 24,392
Income tax expense from discontinued operations (786 ) (402 ) (5,030 ) (8,210 )
Net income from discontinued operations 1,461 746 9,342 15,247
Net income (loss) (2,265 ) (5,854 ) 4,887 3,290
Net income attributable to non-controlling interest (81 ) (97 ) (292 ) (323 )
Net income (loss) attributable to Transcontinental Realty Investors, Inc. (2,346 ) (5,951 ) 4,595 2,967
Preferred dividend requirement (227 ) (279 ) (778 ) (830 )
Net income (loss) applicable to common shares $ (2,573 ) $ (6,230 ) $ 3,817 $ 2,137
Earnings per share – basic
Net loss from continuing operations $ (0.46 ) $ (0.83 ) $ (0.65 ) $ (1.56 )
Net income from discontinued operations 0.17 0.09 1.10 1.81
Net income (loss) applicable to common shares $ (0.29 ) $ (0.74 ) $ 0.45 $ 0.25
Earnings per share – diluted
Net loss from continuing operations $ (0.46 ) $ (0.83 ) $ (0.65 ) $ (1.56 )
Net income from discontinued operations 0.17 0.09 1.10 1.81
Net income (loss) applicable to common shares $ (0.29 ) $ (0.74 ) $ 0.45 $ 0.25
Weighted average common shares used in computing earnings per share 8,688,018 8,413,469 8,505,991 8,413,469
Weighted average common shares used in computing diluted earnings per share 8,688,018 8,413,469 8,505,991 8,413,469
Amounts attributable to Transcontinental Realty Investors, Inc.
Net loss from continuing operations $ (3,807 ) $ (6,697 ) $ (4,747 ) $ (12,280 )
Net income from discontinued operations 1,461 746 9,342 15,247
Net income (loss) $ (2,346 ) $ (5,951 ) $ 4,595 $ 2,967
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2014 2013
(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost $ 717,575 $ 777,974
Real estate held for sale at cost, net of depreciation ($2,066 for 2014 and $2,390 for 2013) 44,289 16,427
Real estate subject to sales contracts at cost, net of depreciation ($2,212 for 2014 and $1,949 for 2013) 20,963 29,353
Less accumulated depreciation (109,004 ) (127,952 )
Total real estate 673,823 695,802
Notes and interest receivable:
Performing (including $69,854 in 2014 and $66,431 in 2013 from related parties) 82,204 69,626
Non-performing 574 543
Less allowance for doubtful accounts (including $1,825 in 2014 and $2,098 in 2013 from related parties) (1,990 ) (2,262 )
Total notes and interest receivable 80,788 67,907
Cash and cash equivalents 4,285 16,086
Restricted cash 27,811 31,799
Investments in unconsolidated joint ventures and investees 1,503 1,697
Receivable from related party 71,066 52,380
Other assets 36,714 32,000
Total assets $ 895,990 $ 897,671
Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable $ 545,338 $ 562,734
Notes related to real estate held for sale 42,883 17,100
Notes related to real estate subject to sales contracts 18,769 23,011
Deferred gain (from sales to related parties) 53,096 53,096
Accounts payable and other liabilities (including $4,327 in 2014 and $4,697 in 2013 to related parties) 39,319 50,160
Total liabilities 699,405 706,101
Shareholders’ equity:
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares; issued and outstanding zero shares in 2014 and 30,000 shares in 2013 (liquidation preference $100 per share). Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2014 and 2013 (liquidation preference $100 per share) 1 1
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 and 8,413,669 shares in 2014 and 2013, respectively; outstanding 8,717,767 and 8,413,469 shares in 2014 and 2013, respectively 87 84
Treasury stock at cost, 200 shares in 2014 and 2013 (2 ) (2 )
Paid-in capital 271,876 271,720
Retained earnings (93,434 ) (98,029 )
Total Transcontinental Realty Investors, Inc. shareholders’ equity 178,528 173,774
Non-controlling interest 18,057 17,796
Total shareholders’ equity 196,585 191,570
Total liabilities and shareholders’ equity $ 895,990 $ 897,671

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