Transcontinental Realty Investors Inc.
11/12/2026 | Press release | Distributed by Public on 11/12/2026 11:34
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
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, 2025 (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 multifamily 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 effectively manage 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; and
•potential liability for uninsured losses and environmental contamination.
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.
Management's Overview
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 throughout the Southern United States. Our portfolio of income-producing properties includes residential apartment communities ("multifamily properties"), office buildings and retail properties ("commercial properties"). Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for specific development projects.
Our operations are managed by Pillar Income Asset Management, Inc. ("Pillar") in accordance with an Advisory Agreement and a Cash Management 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 have no employees and rely upon the employees of Pillar to render services to us in accordance with the terms of the Advisory Agreement. Pillar is considered to be a related party due to our common ownership by May Realty Holdings, Inc. ("MRHI"), which owns all of Pillar and approximately 91.0% of ARL, which in turn owns approximately 79.2% of the Company.
The following is a summary of our recent disposition, financing and development activities:
Acquisition and Disposition Activities
•On March 25, 2025, we received $3.5 million in proceeds from the condemnation settlement that provided for the conveyance of 11.2 acres from our holdings in Windmill Farms, resulting in a gain on sale of $3.1 million.
•On October 10, 2025, we sold Villas at Bon Secour, a 200 unit multifamily property in Gulf Shores, Alabama, for $28.0 million. We used the proceeds from the sale to pay off the loan on the property (See "Financing Activities") and for general corporate purposes.
•During the year ended December 31, 2025, we sold 72 lots from our holdings in Windmill Farms for $3.3 million, resulting in a gain on sale of $2.6 million.
•During the nine months ended September 30, 2026, we sold 63 lots from our holdings in Windmill Farms for $3.1 million, resulting in a gain on sale of $2.4 million.
•On October 2, 2026, we entered into an agreement to purchase Bellwether Ridge, a 150 unit multifamily property in DeSoto, Texas; Parc at Ingleside, a 192 unit multifamily property in Ingleside, Texas; Parc at Opelika, a 168 unit multifamily property in Opelika, Alabama; and Parc at Windmill Farms, a 272 unit multifamily property in Forney, Texas (collectively referred to as the "Barton Portfolio") in exchange for the settlement of our four notes receivable and a cash payment of $12.0 million. We are currently working with lenders to obtain approval to assume the underlying HUD loan on each of the properties.
Financing Activities
•On May 30, 2025, we paid off the $10.8 million loan on 770 South Post Oak with cash on hand.
•On October 10, 2025, we paid off the $18.8 million loan on Villas at Bon Secour in connection with the sale of the underlying property (See "Acquisition and Disposition Activities").
•On April 30, 2026, we extended the loan on Alera at Hunters Glen to September 15, 2026, and was further extended on October 28, 2026 to November 5, 2027, and we have an option to further extend the loan to March 15, 2028.
Development Activities
We have agreements to develop two parcels of our land holdings in Windmill Farms. The agreements provide for the development of 125 acres of raw land into approximately 470 land lots to be used for single family homes. During the nine months ended September 30, 2026, we spent $0.4 million on reimbursable infrastructure investments.
In 2025, we completed the construction of Alera at Hunters Glen, a 240 unit multifamily property in Lake Wales, Florida; Bandera Ridge, a 216 unit multifamily property in Temple, Texas; and Merano, a 216 unit multifamily property in McKinney, Texas. We completed the lease-up of these properties in the third quarter of 2026. We are currently constructing The Wylan, a 234 unit multifamily property in Dallas, Texas; which we expected to complete by end of the year. As of September 30, 2026, we've incurred a total of $27.4 million in the construction of The Wylan and expect to expend an additional $22.6 million to complete the project, which will be funded in part by a construction loan that allows for borrowings of up to $27.5 million.
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 in the Annual Report. 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 an orderly 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.
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 850, "Related Party Disclosures", 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 its own separate interests, or affiliates of the entity.
Results of Operations
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 Development Properties, the Acquisition Properties and the Disposition Property (each as defined below).
For purposes of the discussion below, we define "Same Properties" as all of our properties with the exception of those properties that have been recently constructed or are in lease-up ("Development Properties"), properties that have recently been acquired ("Acquisition Properties") and properties that have been disposed ("Disposition Property"). A developed property is considered substantially complete or leased-up, when it achieves occupancy of 80% or more. We move a property in and out of Same Properties based on whether the property is substantially complete or in operation for the entirety of both periods of comparison.
For the comparison of three and nine months ended September 30, 2026 to the three and nine months ended September 30, 2025, the Development Properties were Alera at Hunters Glen, Bandera Ridge and Merano (See "Development Activities" in Management's Overview); and the Disposition Property was Villas at Bon Secour. There were no Acquisition Properties.
Total occupancy for Same Properties was 82% at September 30, 2026, which includes 95% at our multifamily properties and 57% at our commercial properties. Occupancy for our Alera at Hunters Glen, Bandera Ridge and Merano at September 30, 2026 was 96%, 99% and 95%, respectively.
The following table (dollars in thousands) summarizes our results of operations for the three and nine months ended September 30, 2026 and 2025:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2026 | 2025 | Variance | 2026 | 2025 | Variance | ||||||||||||||||||||||||||||||
| Multifamily Segment | |||||||||||||||||||||||||||||||||||
| Revenue | $ | 10,016 | $ | 8,528 | $ | 1,488 | $ | 27,399 | $ | 25,785 | $ | 1,614 | |||||||||||||||||||||||
| Operating expenses | (6,329) | (5,109) | (1,220) | (17,840) | (13,680) | (4,160) | |||||||||||||||||||||||||||||
| 3,687 | 3,419 | 268 | 9,559 | 12,105 | (2,546) | ||||||||||||||||||||||||||||||
| Commercial Segment | |||||||||||||||||||||||||||||||||||
| Revenue | 3,890 | 4,307 | (417) | 11,714 | 11,218 | 496 | |||||||||||||||||||||||||||||
| Operating expenses | (2,598) | (2,441) | (157) | (6,596) | (6,382) | (214) | |||||||||||||||||||||||||||||
| 1,292 | 1,866 | (574) | 5,118 | 4,836 | 282 | ||||||||||||||||||||||||||||||
| Segment operating income ("NOI") | 4,979 | 5,285 | (306) | 14,677 | 16,941 | (2,264) | |||||||||||||||||||||||||||||
| Other non-segment items of income (expense) | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | (3,726) | (2,936) | (790) | (11,053) | (8,881) | (2,172) | |||||||||||||||||||||||||||||
| General, administrative and advisory | (3,612) | (3,745) | 133 | (10,289) | (10,916) | 627 | |||||||||||||||||||||||||||||
| Interest income, net | 1,702 | 3,097 | (1,395) | 3,555 | 8,188 | (4,633) | |||||||||||||||||||||||||||||
| Gain on sale or write-down of assets, net | 822 | 755 | 67 | 2,021 | 5,593 | (3,572) | |||||||||||||||||||||||||||||
| Income tax (provision) benefit | (176) | (1,572) | 1,396 | 382 | (4,936) | 5,318 | |||||||||||||||||||||||||||||
| Net (loss) income | $ | (11) | $ | 884 | $ | (895) | $ | (707) | $ | 5,989 | $ | (6,696) | |||||||||||||||||||||||
Comparison of the three months ended September 30, 2026 to the three months ended September 30, 2025:
Our $0.9 million decrease in net income is primarily attributed to the following:
•The $0.3 million increase in multifamily NOI is due to an increase of $1.0 million from the Development Properties offset in part by decreases of $0.5 million from the Same Properties and $0.2 million from the Disposition Property. The decrease in NOI from the Same Properties is due to a decrease in occupancy in certain markets due to increased competition from newly constructed properties. The increase in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2026 (See "Development Activities" in Management's Overview).
•The $0.6 million decrease in NOI from our commercial segment is primarily due to a decrease in revenue at Stanford Center.
•The $1.4 million decrease in our interest income, net is due to a $0.7 million decrease in interest income and a $0.7 million increase in interest expense. The decrease in interest income was primarily due to a decrease in interest rates. The increase in interest expense is primarily due to an increase in borrowings and interest rates of debt on the Development Properties (See "Development Activities" in Management's Overview).
•The decrease in other expense is primarily attributed to the decrease in the tax provision.
Comparison of the nine months ended September 30, 2026 to the nine months ended September 30, 2025:
Our $6.7 million decrease in net income is primarily attributed to the following:
•Our multifamily segment had a $2.5 million decrease in NOI, which was attributed to decreases of $1.6 million from the Same Properties, $0.5 million from the Disposition Property and $0.4 million from the Development Properties. The decrease in NOI from the Same Properties is primarily due to an increase in repairs and maintenance costs. The
decrease in NOI from the Development Properties is primarily due to the lease-up of newly constructed properties in 2026 (See "Development Activities" in Management's Overview).
•The $0.3 million increase in NOI from our commercial segment is primarily due to an increase in occupancy at Browning Place and Stanford Center.
•The $4.6 million decrease in interest income, net is due to a $1.8 million decrease in interest income and a $2.9 million increase in interest expense. The decrease in interest income was primarily due to a decrease in funds available for investments and a decline in interest rates. The increase in interest expense is primarily due to an increase in borrowings and interest rates of debt on the Development Properties (See "Development Activities" in Management's Overview).
•The $3.6 million decrease in gain on sale or write down of assets, net is primarily due to the gain on condemnation of land at Windmill Farms in 2025 (See "Acquisition and Disposition Activities" in Management's Overview).
•The $5.3 million change in other income (expense) is primarily attributed to the decrease in the tax provision, which was due to the gain on real estate transactions in 2025.
Liquidity and Capital Resources
Our principal sources of cash have been, and will continue to be, property operations; proceeds from land and income-producing property sales; collection of notes receivable; redemption of short-term investments; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage and other notes payable.
Our principal liquidity needs are to fund normal recurring expenses; meet debt service and principal repayment obligations including balloon payments on maturing debt; fund capital expenditures, including tenant improvements and leasing costs; fund development costs not covered under construction loans; and fund possible property acquisitions.
We anticipate that our cash and cash equivalents as of September 30, 2026, along with cash that will be generated from notes, related party receivables and investment in short-term investments, will be sufficient to meet all of our cash requirements. We may selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements. Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of our current maturity obligations.
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in our consolidated financial statements, and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands):
| Nine Months Ended September 30, | |||||||||||||||||
| 2026 | 2025 | Variance | |||||||||||||||
| Net cash provided by (used in) operating activities | $ | 2,882 | $ | (2,175) | $ | 5,057 | |||||||||||
| Net cash used in investing activities | $ | (19,208) | $ | (49,203) | $ | 29,995 | |||||||||||
| Net cash provided by financing activities | $ | 6,800 | $ | 40,546 | $ | (33,746) | |||||||||||
The $5.1 million increase in cash from operating activities is primarily due to a smaller increase in other assets.
The $30.0 million decrease in cash used in investing activities is primarily due to the $42.8 million decrease in development and renovation of real estate offset in part by the $12.0 million decrease in net redemption of short-term investments. The decrease in development and renovation of real estate is primarily due to the completion of Alera at Hunters Glen, Bandera Ridge and Merano in 2025 (See "Development Activities" in Management's Overview). The decrease in net redemption of short-term investments was due to the decrease in development costs and the repayment of the mortgage on 770 South Post Oak in 2025.
The $33.7 million decrease in cash provided by financing activities was primarily due to a $44.4 million decrease in proceeds from mortgages and other notes payable offset in part by a $10.1 million decrease in payments of mortgages and other notes payable. The decrease in proceeds from mortgages and other notes payable is due to the completion of Alera at Hunters Glen, Bandera Ridge and Merano in 2025 (See "Development Activities" in Management's Overview), which resulted in a decrease in borrowings on the corresponding construction loans in 2026. The decrease in payments of mortgages and other notes payable is due to the repayment of the mortgage on 770 South Post Oak in 2025.
Funds From Operations ("FFO")
We use FFO in addition to net income to report our operating and financial results and consider FFO as a supplemental measure for the real estate industry and a supplement to GAAP measures. The National Association of 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 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.
FFO is 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.
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. 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 table reconciles net income attributable to the Company to FFO for the three and nine months ended September 30, 2026 and 2025 (dollars in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||
| Net (loss) income attributable to the Company | $ | (141) | $ | 724 | $ | (1,100) | $ | 5,511 | ||||||||||||||||||
| Depreciation and amortization | 3,726 | 2,936 | 11,053 | 8,881 | ||||||||||||||||||||||
| Gain on sale or write down of assets, net | (822) | (755) | (2,021) | (5,593) | ||||||||||||||||||||||
| Gain on sale of land | 822 | 755 | 2,234 | 4,847 | ||||||||||||||||||||||
| FFO | $ | 3,585 | $ | 3,660 | $ | 10,166 | $ | 13,646 | ||||||||||||||||||
Transcontinental Realty Investors Inc. published this content on November 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 12, 2026 at 17:34 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]