Transcontinental Realty Investors, Inc. (TCI): Weathering the Storm and Positioning for Growth

Published on March 16, 2025 | Ticker: TCI

Transcontinental Realty Investors, Inc. (TCI) is a diversified real estate investment company that has navigated the challenges of recent years with resilience and foresight. With a focus on multifamily and commercial properties, TCI has demonstrated its ability to adapt to changing market conditions and capitalize on emerging opportunities.

Business Overview and History

Transcontinental Realty Investors, Inc. was formed in 1984 as a real estate investment company focused on income-producing properties and land held for development throughout the Southern United States. In the early 2000s, TCI experienced a period of rapid expansion, acquiring numerous properties across the Southeast. However, this growth presented challenges in effectively managing and integrating the expanding portfolio.

The 2008 financial crisis significantly impacted TCI, leading to a downturn in the real estate market and putting pressure on the company's occupancy rates and rental revenues. In response, TCI underwent a strategic restructuring, streamlining its operations and focusing on improving the performance of its existing properties. This involved divesting non-core assets, reducing debt, and strengthening its balance sheet. The company also enhanced its property management capabilities and tenant relationships, which helped improve occupancy levels and stabilize cash flows.

Throughout its history, TCI has demonstrated resilience and adaptability in the face of changing market conditions. The company has leveraged its expertise in real estate development, management, and investment to grow its portfolio and generate consistent returns for its shareholders. Today, TCI owns a mix of residential, commercial, and land assets, with a focus on acquiring and developing properties in high-growth markets across the Southern United States.

TCI's portfolio currently consists of four office buildings comprising approximately 1.06 million square feet, fourteen multifamily properties with 2,330 units, and approximately 1,840 acres of developed and undeveloped land. The company's day-to-day operations are managed by Pillar Income Asset Management, Inc., a related party that provides advisory, asset management, property development, and financing services.

Financial Performance and Resilience

Despite the challenges posed by the pandemic and other market disruptions, TCI has demonstrated its financial resilience.

Financials

For the fiscal year ended December 31, 2023, TCI reported annual revenue of $47.02 million, annual net income of $5.94 million, annual operating cash flow of -$31.07 million, and annual free cash flow of -$31.07 million.

In the most recent quarter ended September 30, 2024, TCI reported quarterly revenue of $11.61 million, a decrease of 7.3% year-over-year, primarily due to a decline in occupancy at Browning Place and Stanford Center commercial properties. The company also reported quarterly net income of $1.71 million, quarterly operating cash flow of $17.06 million, and quarterly free cash flow of -$27.08 million.

Liquidity

As of September 30, 2024, TCI's liquidity position remained strong. The company had $39.51 million in cash and cash equivalents and $29.59 million in restricted cash. TCI's debt-to-equity ratio was 0.22, indicating a relatively low level of leverage. The company's current ratio and quick ratio were both 18.01, suggesting a strong ability to meet short-term obligations.

To further support its liquidity and growth initiatives, TCI has secured several credit facilities:

A $33 million construction loan for the Alera development, maturing on March 15, 2026
A $25.41 million construction loan for the Merano development, maturing on November 6, 2028
A $23.50 million construction loan for the Bandera Ridge development, maturing on December 15, 2028
A $27.50 million construction loan for the Mountain Creek development, maturing on October 20, 2026

These credit facilities provide TCI with the necessary capital to fund its ongoing development projects and position the company for future growth.

Business Segments

TCI operates in two reportable business segments: the Multifamily Segment and the Commercial Segment.

Multifamily Segment

The Multifamily Segment focuses on the acquisition, development, ownership, and management of multifamily properties. This segment generates revenue primarily through the rental of apartment units to residents. For the three months ended September 30, 2024, the Multifamily Segment reported revenue of $7.97 million, up from $7.90 million in the prior year period. Segment profit was $3.33 million, an increase from $3.09 million in the same quarter of 2023.

For the nine months ended September 30, 2024, the Multifamily Segment generated revenue of $23.95 million and a profit of $10.59 million, compared to revenue of $22.93 million and profit of $9.93 million in the first nine months of 2023. The improved performance was primarily due to the lease-up of the Landing on Bayou Cane property, which was undergoing redevelopment in the prior year period.

Commercial Segment

The Commercial Segment focuses on the acquisition, ownership, and management of commercial properties, including office buildings, industrial, and retail spaces. This segment's revenue is generated from leasing office, industrial, and retail space to various for-profit businesses as well as certain government agencies.

For the three months ended September 30, 2024, the Commercial Segment reported revenue of $3.11 million and a profit of $760,000, compared to revenue of $3.94 million and profit of $1.31 million in the same period of 2023. The nine-month period ended September 30, 2024 saw the Commercial Segment generate revenue of $9.59 million and a profit of $2.71 million, down from revenue of $11.31 million and profit of $3.72 million in the first nine months of 2023. The decrease in revenue and profit was primarily attributable to a decline in occupancy at the Browning Place and Stanford Center properties.

Navigating Challenges and Investing in Growth

TCI has not been immune to the effects of the pandemic and other market disruptions. The company's occupancy rates have fluctuated, with total occupancy at 79% as of September 30, 2024, including 95% at its multifamily properties and 48% at its commercial properties.

To address these challenges, TCI has taken proactive measures to strengthen its financial position and position the company for future growth. The company has selectively sold land and income-producing assets, refinanced or extended real estate debt, and sought additional borrowings secured by real estate to meet its liquidity requirements.

Furthermore, TCI has continued to invest in development projects, such as the construction of multifamily properties in Lake Wales, Florida (Alera), McKinney, Texas (Merano), and Temple, Texas (Bandera Ridge). These projects, with a combined projected cost of over $150 million, are expected to be completed in 2025 and contribute to the company's long-term growth.

Risks and Outlook

While TCI has demonstrated its ability to navigate challenging market conditions, the company faces several risks, including the availability and terms of construction and mortgage financing, competition from other developers and owners, and the timing and amount of property sales and the resulting gains or losses.

Despite these risks, TCI remains cautiously optimistic about its future prospects. The company's focus on multifamily and commercial properties, coupled with its strategic investments in development projects, position it well to capitalize on the ongoing demand for rental housing and commercial space.

Conclusion

Transcontinental Realty Investors, Inc. has proven its resilience and adaptability in the face of recent market disruptions. By leveraging its diversified portfolio, strategic investments, and financial management acumen, TCI is well-positioned to continue weathering the storm and drive long-term growth for its shareholders. The company's strong liquidity position, ongoing development projects, and focus on high-growth markets in the Southern United States provide a solid foundation for future success. However, TCI will need to address the challenges in its Commercial Segment, particularly the declining occupancy rates at certain properties, to ensure balanced growth across its portfolio.

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