DALLAS--(BUSINESS WIRE)--Transcontinental Realty Investors, Inc. (NYSE: TCI), a Dallas-based real estate investment company, today reported results of operations for the fourth quarter ended December 31, 2016. For the three months ended December 31, 2016, the Company reported net income applicable to common shares of $3.2 million or $0.37 per share compared to a net loss applicable to common shares of $1.5 million or ($0.17) per share for the same period ended 2015.
For the year ending December 31, 2016, we reported net loss applicable to common shares of $0.9 million or ($0.10) per diluted earnings per share compared to a net loss applicable to common shares of $8.5 million or ($0.98) per diluted earnings per share for the same period ended 2015. The current year net loss applicable to common shares of $0.9 million includes gain on sales of income-producing properties of $16.2 million and gain on land sales of $3.1 million, compared to the prior year net loss applicable to common shares of $3.2 million, which includes gain on land sales of $18.9 million, provision on the impairment of real estate assets of $5.3 million and net income from discontinued operations of $0.9 million.
The Company continues to demonstrate our unwavering commitment to fortify our portfolio and streamline operational activity, while at the same time maintaining our commitment to creating value. During the past year we made major steps toward our strategic financing goals allowing for the acquisition and/or development of several Class A Multifamily assets. We created added value by taking advantage of the strong market opportunities in the multifamily arena.
TCI’s revenue increased to over $118 million in 2016, up from $102 million in 2015. Net Operating Income for 2016 is $17 million, showing an $8 million NOI increase after all operating expenses. TCI capped off its stellar 2016 with a Net Income of $37,000 after 2015’s net income loss of $7,000. Several factors attributed to these successes. Our multifamily portfolio continues to thrive with occupancies over 95% heading into 2017, and 2016 held several other notable highlights; such as achieving HUD Major Borrower Endorsement, acquiring four multifamily assets, beginning construction on four new multifamily assets, and adding over 1600 units to our existing portfolio.
Rental and other property revenues were $118.5 million for the year ended December 31, 2016. This represents an increase of $16.3 million, as compared to the prior year revenues of $102.2 million. The change by segment is an increase in the apartment portfolio of $13.8 million and an increase in the commercial portfolio of approximately $2.5 million. The increase in the apartment and commercial portfolios is mainly due to the acquisition of new properties. Our apartment portfolio continues to excel in the current economic conditions with occupancies averaging over 92% and increasing rental rates. We have been able to surpass expectations due to the high-quality product offered, strength of our management team and our commitment to our tenants. The increase in the commercial segment is also due to an increase in rental rates. We anticipate that our commercial portfolio will continue to improve as the Company has been successful in attracting high-quality tenants and expects to continue to see the benefits of those new leases in the future.
Property operating expenses were $61.9 million for the year ended December 31, 2016. This represents an increase of $9.6 million compared to the prior year operating expenses of $52.3 million. The growth in our apartment portfolio resulted in a $6.3 million increase in property operating expenses. We added a net 2,145 apartment units during 2015 and 723 during 2016. In addition, we had an increase of $2.6 million in property operating expenses for our commercial portfolio primarily due to the acquisition of an office building in Houston, Texas late in the second quarter of 2015.
Depreciation and amortization expenses were $23.7 million for the year ended December 31, 2016. This represents an increase of $2.4 million as compared to prior year depreciation of $21.3 million. The increase is primarily due to the growth in our apartment portfolio which had an increase of $2.3 million year-over-year.
General and administrative expenses remained constant at $5.5 million for the years ended December 31, 2016 and 2015.
There was no provision for impairment of notes receivable, investment in real estate partnerships and real estate assets for the year ended December 31, 2016 as compared to the prior year provision of $5.3 million for our golf course and related assets located in the U.S. Virgin Islands. This impairment was due to the decision to sell the development parcels in the U.S. Virgin Islands which resulted in a decrease in the estimated fair value of the remaining assets.
Net income fee was $0.3 million for the year ended December 31, 2016. This represents an increase of $0.1 million compared to the prior year net income fee of $0.2 million. The net income fee paid to Pillar is calculated at 7.5% of net income.
Advisory fees were $9.5 million for the year ended December 31, 2016. This represents an increase of $1.1 million compared to the prior year advisory fees of $8.4 million. Advisory fees are computed based on a gross asset fee of 0.0625% per month (0.75% per annum) of the average of the gross asset value.
Interest income was $14.7 million for the year ended December 31, 2016 compared to $10.7 million for the year ended December 31, 2015 for an increase of $4.0 million. This increase was primarily due to an increase in amount receivable owed from our Advisor.
Mortgage and loan interest expense was $53.1 million for the year ended December 31, 2016. This represents an increase of $6.6 million compared to the prior year expense of $46.5 million. The change by segment is an increase in the other portfolio of $6.9 million, an increase in the apartment portfolio of $1.9 million and an increase in the commercial portfolio of $0.3 million, partially offset by a decrease in the land portfolio of $2.5 million. Within the other portfolio, the increase is due to incurring two new mezzanine debt obligations during 2015. Within the apartment portfolio, the majority of the increase is due to the acquisition of new properties, partially offset by loan refinancing at lower rates.
Gain on sale of income-producing properties was $16.2 million for the year ended December 31, 2016. During 2016, we sold two apartment communities for a total sales price of $20.4 million and recorded an aggregate gain of $16.4 million from the sale of these two properties. We also sold an industrial warehouse that resulted in a loss of $0.2 million.
Gain on land sales was $3.1 million and $18.9 million for the years ended December 31, 2016 and 2015, respectively. During 2016, we sold a combined 129.7 acres of land for a total sales price of $29.1 million and recorded an aggregate gain of $3.1 million. During 2015, we sold approximately 595 acres of land for a total sales price of $107.3 million and recorded a gain of $18.9 million.
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 apartments, office buildings, 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 | |||||||||||||||
| For the Years Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2014 | |||||||||||||
| (dollars in thousands, except per share amounts) | |||||||||||||||
| Revenues: | |||||||||||||||
| Rental and other property revenues (including $708, $726 and $701 for the year ended 2016, 2015 and 2014, respectively, from related parties) | $ | 118,471 | $ | 102,220 | $ | 75,858 | |||||||||
| Expenses: | |||||||||||||||
| Property operating expenses (including $865, $740 and $606 for the year ended 2016, 2015 and 2014, respectively, from related parties) | 61,918 | 52,257 | 39,484 | ||||||||||||
| Depreciation and amortization | 23,683 | 21,299 | 17,398 | ||||||||||||
| General and administrative (including $3,574, $3,105 and $2,802 for the year ended 2016, 2015 and 2014, respectively, from related parties) | 5,476 | 5,508 | 7,163 | ||||||||||||
| Provision on impairment of real estate assets | - | 5,300 | - | ||||||||||||
| Net income fee to related party | 257 | 187 | 3,669 | ||||||||||||
| Advisory fee to related party | 9,490 | 8,368 | 7,373 | ||||||||||||
| Total operating expenses | 100,824 | 92,919 | 75,087 | ||||||||||||
| Net operating income | 17,647 | 9,301 | 771 | ||||||||||||
| Other income (expense): | |||||||||||||||
| Interest income (including $14,155, $10,071 and $11,469 for the year ended 2016, 2015 and 2014, respectively, from related parties) | 14,670 | 10,687 | 12,194 | ||||||||||||
| Other income | 1,816 | 71 | 403 | ||||||||||||
| Mortgage and loan interest (including $568, $0, and $31 for the year ended 2016, 2015 and 2014, respectively, from related parties) | (53,088 | ) | (46,541 | ) | (33,681 | ) | |||||||||
| Loss on the sale of investments | - | (1 | ) | (92 | ) | ||||||||||
| Income (loss) from unconsolidated joint ventures and investees | (26 | ) | 41 | (28 | ) | ||||||||||
| Litigation settlement | - | (352 | ) | 3,591 | |||||||||||
| Total other expenses | (36,628 | ) | (36,095 | ) | (17,613 | ) | |||||||||
| Loss before gain on sales, non-controlling interest and taxes | (18,981 | ) | (26,794 | ) | (16,842 | ) | |||||||||
| Gain on sale of income-producing properties | 16,207 | - | - | ||||||||||||
| Gain on land sales | 3,121 | 18,911 | 561 | ||||||||||||
| Net income (loss) from continuing operations before taxes | 347 | (7,883 | ) | (16,281 | ) | ||||||||||
| Income tax benefit (expense) | (24 | ) | (517 | ) | 20,390 | ||||||||||
| Net income (loss) from continuing operations | 323 | (8,400 | ) | 4,109 | |||||||||||
| Discontinued operations: | |||||||||||||||
| Net income (loss) from discontinued operations | (2 | ) | 644 | (3,621 | ) | ||||||||||
| Gain on sale of real estate from discontinued operations | - | 735 | 61,879 | ||||||||||||
| Income tax expense from discontinued operations | 1 | (483 | ) | (20,390 | ) | ||||||||||
| Net income from discontinued operations | (1 | ) | 896 | 37,868 | |||||||||||
| Net income (loss) | 322 | (7,504 | ) | 41,977 | |||||||||||
| Net income attributable to non-controlling interest | (285 | ) | (132 | ) | (399 | ) | |||||||||
| Net income (loss) attributable to Transcontinental Realty Investors, Inc. | 37 | (7,636 | ) | 41,578 | |||||||||||
| Preferred dividend requirement | (900 | ) | (900 | ) | (1,005 | ) | |||||||||
| Net income (loss) applicable to common shares | $ | (863 | ) | $ | (8,536 | ) | $ | 40,573 | |||||||
| Earnings per share - basic | |||||||||||||||
| Net income (loss) from continuing operations | $ | (0.10 | ) | $ | (1.08 | ) | $ | 0.32 | |||||||
| Net income from discontinued operations | - | 0.10 | 4.42 | ||||||||||||
| Net income (loss) applicable to common shares | $ | (0.10 | ) | $ | (0.98 | ) | $ | 4.74 | |||||||
| Earnings per share - diluted | |||||||||||||||
| Net income (loss) from continuing operations | $ | (0.10 | ) | $ | (1.08 | ) | $ | 0.32 | |||||||
| Net income from discontinued operations | - | 0.10 | 4.42 | ||||||||||||
| Net income (loss) applicable to common shares | $ | (0.10 | ) | $ | (0.98 | ) | $ | 4.74 | |||||||
| Weighted average common shares used in computing earnings per share | 8,717,767 | 8,717,767 | 8,559,370 | ||||||||||||
| Weighted average common shares used in computing diluted earnings per share | 8,717,767 | 8,717,767 | 8,559,370 | ||||||||||||
| Amounts attributable to Transcontinental Realty Investors, Inc. | |||||||||||||||
| Net income (loss) from continuing operations | $ | 38 | $ | (8,532 | ) | $ | 3,710 | ||||||||
| Net income (loss) from discontinued operations | (1 | ) | 896 | 37,868 | |||||||||||
| Net income (loss) | $ | 37 | $ | (7,636 | ) | $ | 41,578 | ||||||||
| TRANSCONTINENTAL REALTY INVESTORS, INC. | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| December 31, | December 31, | |||||||||
| 2016 | 2015 | |||||||||
| (dollars in thousands, except share and par value amounts) | ||||||||||
| Assets | ||||||||||
| Real estate, at cost | $ | 998,498 | $ | 935,635 | ||||||
| Real estate subject to sales contracts at cost, net of depreciation ($0 in 2016 and $0 in 2015) | 46,956 | 47,192 | ||||||||
| Less accumulated depreciation | (154,281 | ) | (138,808 | ) | ||||||
| Total real estate | 891,173 | 844,019 | ||||||||
| Notes and interest receivable | ||||||||||
| Performing (including $67,912 in 2016 and $64,181 in 2015 from related parties) | 81,133 | 71,376 | ||||||||
| Less allowance for estimated losses (including $1,825 in 2016 and $1,825 in 2015 from related parties) | (1,825 | ) | (1,825 | ) | ||||||
| Total notes and interest receivable | 79,308 | 69,551 | ||||||||
| Cash and cash equivalents | 17,506 | 15,171 | ||||||||
| Restricted cash | 38,227 | 44,060 | ||||||||
| Investments in unconsolidated subsidiaries and investees | 2,446 | 5,243 | ||||||||
| Receivable from related party | 101,649 | 90,515 | ||||||||
| Other assets | 55,605 | 41,645 | ||||||||
| Total assets | $ | 1,185,914 | $ | 1,110,204 | ||||||
| Liabilities and Shareholders’ Equity | ||||||||||
| Liabilities: | ||||||||||
| Notes and interest payable | $ | 835,528 | $ | 772,636 | ||||||
| Notes related to assets held for sale | 376 | 376 | ||||||||
| Notes related to subject to sales contracts | 5,612 | 6,422 | ||||||||
| Deferred revenue (including $50,689 in 2016 and $50,645 in 2015 from related parties) | 71,065 | 71,021 | ||||||||
| Accounts payable and other liabilities (including $6,487 in 2016 and $3,060 in 2015 from related parties) | 48,856 | 34,694 | ||||||||
| 961,437 | 885,149 | |||||||||
| Shareholders’ equity: | ||||||||||
| Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares, issued and outstanding zero shares in 2016 and 2015 (liquidation preference $100 per share). Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2016 and 2015 (liquidation preference $100 per share) | 1 | 1 | ||||||||
| Common Stock, $0.01 par value, authorized 10,000,000 shares, issued 8,717,967 shares in 2016 and 2015 and outstanding 8,717,767 in 2016 and 2015 | 87 | 87 | ||||||||
| Treasury stock at cost, 200 shares in 2016 and 2015 | (2 | ) | (2 | ) | ||||||
| Paid-in capital | 269,849 | 270,749 | ||||||||
| Retained earnings | (64,050 | ) | (64,087 | ) | ||||||
| Total Transcontinental Realty Investors, Inc. shareholders' equity | 205,885 | 206,748 | ||||||||
| Non-controlling interest | 18,592 | 18,307 | ||||||||
| Total shareholders' equity | 224,477 | 225,055 | ||||||||
| Total liabilities and shareholders' equity | $ | 1,185,914 | $ | 1,110,204 | ||||||
