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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________
Commission File Number 001-09240

TRANSCONTINENTAL REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada94-6565852
(State or Other Jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification No.)
1603 Lyndon B. Johnson Freeway, Suite 800, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
(469) 522-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockTCINYSE
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 in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ☐
Accelerated filer  ☐
Non-accelerated filer  ☒
Smaller reporting company   ☒
Emerging growth 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.
As of November 10, 2022, there were 8,639,316 shares of common stock outstanding.


TRANSCONTINENTAL REALTY INVESTORS, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE

2
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS 
(dollars in thousands, except share and par value amounts)
(Unaudited)
September 30, 2022December 31, 2021
Assets
Real estate$270,161 $296,363 
Cash and cash equivalents131,203 50,735 
Restricted cash17,950 21,986 
Short-term investments75,330 16,001 
Notes receivable (including $66,630 at September 30, 2022 and $68,991 at December 31, 2021 from related parties)
129,118 129,726 
Investment in unconsolidated joint venture306,300 52,879 
Receivables from related parties, net146,338 136,715 
Other assets (including $2,026 at September 30, 2022 and $4,223 at December 31, 2021 to related parties)
88,139 84,004 
Total assets$1,164,539 $788,409 
Liabilities and Equity
Liabilities:
Mortgages and other notes payable$154,959 $176,750 
Bonds payable127,497 189,452 
Accounts payable and other liabilities (including $602 at September 30, 2022 and $616 at December 31, 2021 to related parties)
96,882 43,602 
Accrued interest3,195 6,416 
Deferred revenue581 581 
Total liabilities383,114 416,801 
Equity
Shareholders' Equity:
Common stock, $0.01 par value, 10,000,000 shares authorized; 8,639,316 shares issued and outstanding
86 86 
Additional paid-in capital260,387 260,387 
Retained earnings500,046 90,732 
Total shareholders' equity760,519 351,205 
Noncontrolling interest20,906 20,403 
Total equity781,425 371,608 
Total liabilities and equity$1,164,539 $788,409 
The accompanying notes are an integral part of these consolidated financial statements.
3
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Rental revenues (including $223 and $312 for the three months ended September 30, 2022 and 2021, respectively, and $702 and $867 for nine months ended September 30, 2022 and 2021, respectively, from related parties)
$7,570 $9,628 $22,310 $30,183 
Other income749 406 1,566 2,474 
   Total revenue8,319 10,034 23,876 32,657 
Expenses:
Property operating expenses (including $110 and $178 for the three months ended September 30, 2022 and 2021, respectively, and $337 and $755 for nine months ended September 30, 2022 and 2021, respectively, from related parties)
4,701 5,610 12,541 16,500 
Depreciation and amortization2,193 2,935 6,840 9,473 
General and administrative (including $1,199 and $947 for the three months ended September 30, 2022 and 2021, respectively, and $3,133 and $3,195 for nine months ended September 30, 2022 and 2021, respectively, from related parties)
2,756 2,813 7,348 8,549 
Advisory fee to related party1,434 3,234 6,885 10,144 
   Total operating expenses11,084 14,592 33,614 44,666 
   Net operating loss(2,765)(4,558)(9,738)(12,009)
Interest income (including $5,194 and $4,337 for the three months ended September 30, 2022 and 2021, respectively, and $13,429 and $11,961 for the nine months ended September 30, 2022 and 2021, respectively, from related parties)
8,087 5,155 18,807 14,518 
Interest expense (including $708 and $413 for the three months ended September 30, 2022 and 2021, respectively, and $1,645 and $1,200 for the nine months ended September 30, 2022 and 2021, respectively, from related parties)
(4,700)(5,910)(14,787)(19,096)
Gain (loss) on foreign currency transactions1,533 (1,639)19,437 1,185 
Loss on early extinguishment of debt(1,166)(1,451)(2,805)(1,451)
Equity in income from unconsolidated joint venture464,085 3,627 470,428 11,535 
Gain on sale or write-down of assets, net1,539 31,312 16,580 22,970 
Income tax provision(88,037)(156)(88,105)1,037 
Net income378,576 26,380 409,817 18,689 
Net income attributable to noncontrolling interest(225)(134)(503)(544)
Net income attributable to the Company$378,351 $26,246 $409,314 $18,145 
Earnings per share - basic and diluted$43.79 $3.04 $47.38 $2.10 
Weighted average common shares used in computing earnings per share - basic and diluted8,639,316 8,639,316 8,639,316 8,639,316 
The accompanying notes are an integral part of these consolidated financial statements.

4
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF EQUITY 
(dollars in thousands)
(Unaudited)


Common StockTreasury
Stock		Additional Paid-in
Capital		Retained
Earnings		Total Shareholders' EquityNoncontrolling
Interest		Total Equity
Three Months Ended September 30, 2022
Balance, July 1, 2022$86 $— $260,387 $121,695 $382,168 $20,681 $402,849 
Net income— — — 378,351 378,351 225 378,576 
Balance, September 30, 2022$86 $— $260,387 $500,046 $760,519 $20,906 $781,425 
Three Months Ended September 30, 2021
Balance, July 1, 2021$86 $— $260,387 $73,233 $333,706 $20,134 $353,840 
Net income— — — 26,246 26,246 134 26,380 
Balance, September 30, 2021$86 $— $260,387 $99,479 $359,952 $20,268 $380,220 
Nine Months Ended September 30, 2022
Balance, January 1, 2022$86 $— $260,387 $90,732 $351,205 $20,403 $371,608 
Net income— — — 409,314 409,314 503 409,817 
Balance, September 30, 2022$86 $— $260,387 $500,046 $760,519 $20,906 $781,425 
Nine Months Ended September 30, 2021
Balance, January 1, 2021$86 $(2)$260,389 $81,334 $341,807 $19,724 $361,531 
Net income— — — 18,145 18,145 544 18,689 
Cancellation of treasury shares— 2 (2)— — — — 
Balance, September 30, 2021$86 $— $260,387 $99,479 $359,952 $20,268 $380,220 

The accompanying notes are an integral part of these consolidated financial statements.
5
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash Flow From Operating Activities:
Net income$409,817 $18,689 
Adjustments to reconcile net income to net cash used in operating activities:
Gain on sale or write down of assets(16,580)(22,970)
Gain on foreign currency transactions(19,437)(1,185)
Loss on early extinguishment of debt2,805 1,451 
Depreciation and amortization9,409 11,699 
Provision (recovery) of bad debts298 (1,017)
Equity in income from unconsolidated joint venture(470,428)(11,535)
Distribution of income from unconsolidated joint venture2,600 3,157 
Changes in assets and liabilities, net of dispositions:
Other assets(282)(8,009)
Related party receivables(6,523)9,343 
Interest payable(4,503)(1,928)
Accounts payable and other liabilities87,430 (4,893)
Net cash used in operating activities(5,394)(7,198)
Cash Flow From Investing Activities:
Collection of notes receivable2,726 8,822 
Originations and advances on notes receivable(2,118)(3,882)
Purchase of short-term investment(99,350)— 
Redemption of short-term investment40,250 — 
Development and renovation of real estate(11,834)(8,770)
Deferred leasing costs(1,163)(877)
Proceeds from sale of assets44,591 103,727 
Contribution to unconsolidated joint venture— (411)
Distributions from unconsolidated joint venture180,248 7,430 
Net cash provided by investing activities153,350 106,039 
Cash Flow From Financing Activities:
Proceeds from mortgages, other notes and bonds payable— 20,015 
Payments on mortgages, other notes and bonds payable(70,170)(117,193)
Debt extinguishment costs(1,354)(4,086)
Deferred financing costs— (606)
Net cash used in financing activities(71,524)(101,870)
Net increase (decrease) in cash, cash equivalents and restricted cash76,432 (3,029)
Cash, cash equivalents and restricted cash, beginning of period72,721 86,967 
Cash, cash equivalents and restricted cash, end of period$149,153 $83,938 
The accompanying notes are an integral part of these consolidated financial statements.
6
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)

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 on the New York Stock Exchange (“NYSE”) under the symbol “TCI”. We are owned approximately 78% by American Realty Investors, Inc. (“ARL”), whose common stock is listed on the NYSE under the symbol “ARL”, and 7% by the controlling shareholder of ARL.
Our primary business is the acquisition, development and ownership of income-producing multifamily and commercial 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 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 income from the sale of land.
Substantially all of our assets are held by our wholly-owned subsidiary, Southern Properties Capital Ltd. (“SPC”), which was formed for the purpose of raising funds by issuing non-convertible bonds that are listed on the Tel-Aviv Stock Exchange ("TASE").
At September 30, 2022, our portfolio of properties consisted of:
●     Four office buildings comprising in aggregate of approximately 1,056,793 square feet;
●    Seven multifamily properties, owned directly by us, comprising of 1,180 units;
●    Approximately 1,847 acres of developed and undeveloped land; and
●    Seven multifamily properties, totaling 1,148 units, owned by our joint venture.
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 our employees are Pillar employees. Three of our commercial properties are managed by Regis Realty Prime, LLC (“Regis”). Regis provides leasing, construction management and brokerage services. Our multifamily properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 13 – 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, 2021 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 our Annual Report on Form 10-K for the year ended December 31, 2021. Certain 2021 consolidated financial statement amounts have been reclassified to conform to the current presentation.

7
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share 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 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 adoption of the standard on January 1, 2022, did not have an impact on our consolidated financial statements.
3.    Earnings Per Share
Earnings per share (“EPS”) is computed by dividing net income attributable to the Company by the weighted-average number of common shares outstanding during the period.
The following table details our basic and diluted earnings per common share calculation:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income$378,576 $26,380 $409,817 $18,689 
Net income attributable to noncontrolling interest(225)(134)(503)(544)
Net income attributable to the Company$378,351 $26,246 $409,314 $18,145 
Weighted-average common shares outstanding — basic and diluted
8,639,316 8,639,316 8,639,316 8,639,316 
EPS - attributable to common shares — basic and diluted$43.79 $3.04 $47.38 $2.10 

8
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
4.    Supplemental Cash Flow Information
The following presents the schedule of interest paid and other supplemental cash flow information:
Nine Months Ended September 30,
20222021
Cash paid for interest$17,802 $23,019 
Cash - beginning of period
Cash and cash equivalents$50,735 $36,761 
Restricted cash21,986 50,206 
$72,721 $86,967 
Cash - end of period
Cash and cash equivalents$131,203 $63,848 
Restricted cash17,950 20,090 
$149,153 $83,938 
Proceeds from mortgages, notes and bonds payable
Proceeds from mortgages and notes payable$— $20,015 
Proceeds from bonds— — 
$— $20,015 
Payments on mortgages, notes and bonds payable
Payments on mortgages and notes payable$26,411 $63,535 
Payments on bond payable43,759 53,658 
$70,170 $117,193 
The following is a schedule of noncash investing and financing activities:
Nine Months Ended September 30,
20222021
Assets contributed to joint venture$— $18,608 
Liabilities assumed by joint venture$— $15,606 
Notes receivable received in exchange for related party receivable$— $9,259 
Distribution from joint venture applied to Earn Out Obligation$34,159 $5,441 
5.    Operating Segments
Our segments are based on the internal reporting that we review for operational decision-making purposes. We operate in two reportable segments: (i) the acquisition, development, ownership and management of multifamily properties and (ii) the acquisition, ownership and management of commercial 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.

9
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The following table presents our reportable segments for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Multifamily Segment
Revenues$2,850 $3,703 $9,024 $11,068 
Operating expenses(1,966)(2,072)(5,395)(6,306)
Profit from segment884 1,631 3,629 4,762 
Commercial Segment
Revenues4,720 5,925 13,286 19,115 
Operating expenses(2,735)(3,538)(7,146)(10,194)
Profit from segment1,985 2,387 6,140 8,921 
Total profit from segments$2,869 $4,018 $9,769 $13,683 
The table below reflects the reconciliation of total profit from segments to net income for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Total profit from segments$2,869 $4,018 $9,769 $13,683 
Other non-segment items of income (expense)
Depreciation and amortization(2,193)(2,935)(6,840)(9,473)
General and administrative(2,756)(2,813)(7,348)(8,549)
Advisory fee to related party(1,434)(3,234)(6,885)(10,144)
Other income749 406 1,566 2,474 
Interest income8,087 5,155 18,807 14,518 
Interest expense(4,700)(5,910)(14,787)(19,096)
Gain (loss) on foreign currency transaction1,533 (1,639)19,437 1,185 
Loss on early extinguishment of debt(1,166)(1,451)(2,805)(1,451)
Income from unconsolidated joint venture464,085 3,627 470,428 11,535 
Gain on sales or write-down of assets1,539 31,312 16,580 22,970 
Income tax provision(88,037)(156)(88,105)1,037 
Net income$378,576 $26,380 $409,817 $18,689 
6.    Lease Revenue
We lease our multifamily properties and commercial properties under agreements that are classified as operating leases. Our multifamily property 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.

10
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The following table summarizes the components of our rental revenue for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Fixed component$6,977 $9,124 $20,854 $28,287 
Variable component593 504 1,456 1,896 
$7,570 $9,628 $22,310 $30,183 
The following table summarizes the future rental payments that are payable to us from non-cancelable leases. The table excludes multifamily leases, which typically have a term of one-year or less:
2022$12,927 
20238,729 
20247,985 
20257,687 
20267,632 
Thereafter21,143 
$66,103 

7.    Real Estate Activity
Below is a summary of our real estate as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
Land$64,875 $67,514 
Building and improvements184,117 219,327 
Tenant improvements25,460 21,364 
Construction in progress59,083 51,091 
   Total cost333,535 359,296 
Less accumulated depreciation(63,374)(62,933)
Total real estate$270,161 $296,363 
Construction in progress represents our investment in Windmill Farms and the cost of renovating Landing Bayou.
Gain on sale or write-down of assets, net for the three and nine months ended September 30, 2022 and 2021 consists of the following:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Land(1)$— $4,042 $4,752 $15,153 
Multifamily Properties(2)1,539 — 11,142 10,147 
Commercial Properties(3)— 27,270 890 27,270 
Other(4)— — (204)(29,600)
Total$1,539 $31,312 $16,580 $22,970 

11
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
(1)Includes the gain on the sale of lots related to our investment in Windmill Farms, Mercer Crossing and other land holdings.
(2)On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26,750, resulting in a gain on sale of $9,364. We used the proceeds to pay off the $14,740 mortgage note payable on the property and for general corporate purposes.
On September 16, 2022, in connection with a sale of properties by VAA (See Note 10 - Investment in Unconsolidated Joint Ventures), we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge, Louisiana for $11,800, resulting in a gain on sale of $1,871. We used the proceeds to pay off the $9,551 mortgage note payable on the property and for general corporate purposes.
The 2021 amount is attributed to the gain from the sale of a 50% ownership interest in Overlook at Allensville Phase II to Macquarie in 2021 (See Note 10 – Investment in Unconsolidated Joint Ventures) and the gain on sales of various multifamily properties that had previously been deferred (See Note 15 – Deferred Income).
(3)On May 17, 2022, we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $750, resulting in a gain on sale of $667. We used the proceeds for general corporate purposes.
On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $74,750, resulting in a gain on sale of $27,270. We used the proceeds to pay down the mortgage note payable on the property and for general corporate purposes.
(4)The 2021 amount represents the $29,600 loss on remeasurement of the Earn Out Obligation in connection with our investment in VAA (See Note 10 - Investment in Unconsolidated Joint Ventures).
8.    Short-term Investments
We have an investment in variable denominated floating rate notes with Toyota Motor Credit Corporation and Ford Motor Corporation. The notes do not have a stated maturity and are subject to immediate repayment at our option. The interest rate on the notes was 2.30% and 1.15% at September 30, 2022 and December 31, 2021, respectively.



12
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
9.    Notes Receivable
The following table summarizes our notes receivable as of September 30, 2022 and December 31, 2021:
Carrying value
Property/BorrowerSeptember 30, 2022December 31, 2021Interest RateMaturity Date
ABC Land and Development, Inc.$4,408 $4,408 9.50 %6/30/26
ABC Paradise, LLC1,210 1,210 9.50 %6/30/26
Autumn Breeze(1)2,326 2,486 5.00 %7/1/25
Bellwether Ridge(1)3,973 3,967 5.00 %11/1/26
Forest Pines(1)6,472 6,472 5.00 %11/1/22
Lake Wales3,000 3,000 9.50 %6/30/26
Legacy Pleasant Grove496 496 12.00 %10/23/22
McKinney Ranch3,926 4,554 6.00 %9/15/24
One Realco Land Holding, Inc.1,728 1,728 9.50 %6/30/26
Parc at Ingleside(1)3,663 3,700 5.00 %11/1/26
Parc at Opelika Phase II(1)2,914 2,305 10.00 %1/13/23
Parc at Windmill Farms(1)7,836 7,830 5.00 %11/1/22
Phillips Foundation for Better Living, Inc.(2)182 813 12.00 %3/31/24
Plum Tree(1)1,767 1,537 5.00 %4/26/26
Riverview on the Park Land, LLC1,045 1,045 9.50 %6/30/26
Spartan Land5,907 5,907 12.00 %1/16/23
Spyglass of Ennis(1)5,319 5,319 5.00 %11/1/22
Steeple Crest(1)6,498 6,498 5.00 %8/1/26
Unified Housing Foundation(2)(3)2,881 2,881 12.00 %6/30/23
Unified Housing Foundation(2)(3)212 212 12.00 %6/30/23
Unified Housing Foundation(2)(3)6,831 6,831 12.00 %6/30/23
Unified Housing Foundation(2)(3)10,401 10,401 12.00 %6/30/23
Unified Housing Foundation(2)(3)10,096 10,096 12.00 %3/31/24
Unified Housing Foundation(2)(3)6,990 6,990 12.00 %3/31/23
Unified Housing Foundation(2)(3)3,615 3,615 12.00 %5/31/23
Unified Housing Foundation(2)(3)17,172 17,172 12.00 %12/31/32
Unified Housing Foundation(2)(3)6,521 6,521 12.00 %3/31/24
Unified Housing Foundation(2)(3)1,549 1,549 12.00 %4/30/24
Unified Housing Foundation(2)(3)180 183 12.00 %6/30/24
$129,118 $129,726 
(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 refinancing of the underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes.

13
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
10.    Investment in Unconsolidated Joint Ventures
On November 16, 2018, our SPC subsidiary formed Victory Abode Apartments, LLC ("VAA"), a joint venture with the Macquarie Group (“Macquarie”). VAA was formed as a result of a sale of the 50% ownership interest in 51 multifamily properties owned by us in exchange for a 50% voting interest / 49% profit participation interest ("Class A interest") in VAA and a note payable (“Mezzanine Loan”). 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.
In connection with the formation of VAA, ten of the initial properties were subject to an earn-out provision ("Earn Out") that provided for a remeasurement of value after a two-year period following the completion of construction. Upon the formation of VAA, we recorded an initial liability ("Earn Out Obligation") for the $10,000 advance on the Earn Out that we received from Macquarie.
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 for $2,551 resulting in gain on sale of $1,417. Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.
On July 13, 2021, we received the arbitration result of a dispute regarding the measurement of the Earn Out Obligation. Our position and claims were declined, and the position of Macquarie was fully accepted. As a result, we were required to pay approximately $39,600 to Macquarie to satisfy the Earn Out Obligation, and therefore, recorded a charge of $29,600 during the nine months ended September 30, 2022 (See Note 7 – Real Estate Activity). In accordance with the joint venture operating agreement, the Earn Out Obligation was paid from our share of subsequent distributions from VAA.
On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) held by VAA and one property held by our SPC subsidiary.
On September 15, 2022, VAA, SPC, Macquarie and Pillar entered a Distribution and Holdback Property Agreement (“Distribution Agreement”), which provides the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“Holdback Portfolio”).
On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $1,810,700, resulting in gain on sale of $738,665 to the joint venture. In connection with sale, we received an initial distribution of $182,848 from VAA, which included the payment of the remaining balance of the Earn Out Obligation.
On November 1, 2022, in connection with the sale of the VAA Sale Portfolio, we received an additional distribution from VAA (See Note 18 - Subsequent Events), which included the full operational control of the Holdback Portfolio and a cash payment of $203,936. We are in the process of assuming the mortgage notes payable on Holdback Portfolio.
We plan to use our share of the proceeds from the sale of the VAA Sale Portfolio for additional investment in income-producing real estate, to pay down our debt and for general corporate purposes. Our ownership interest in VAA is held by SPC, and is therefore subject to the bond covenants of the three series of bonds that have been issued by SPC. These provisions include restrictions on the distribution of cash from SPC (See Note 12 - Bonds Payable).
14
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The following is a summary of our investment in VAA:
September 30, 2022December 31, 2021
Condensed balance sheet of VAA
Assets
Assets held for sale$— $1,135,769 
Real estate128,530 130,954 
Other assets (1)629,736 14,144 
$758,266 $1,280,867 
Liabilities and partners' capital
Liabilities on assets held for sale$7,326 $807,382 
Mortgage notes payable69,558 70,540 
Mezzanine notes payable— 242,942 
Other liabilities17,521 16,409 
Our share of partners' capital332,039 71,800 
Outside partner's capital331,822 71,794 
$758,266 $1,280,867 
Investment in VAA
Our share of partners' capital$332,039 $71,800 
Our share of Mezzanine note payable and accrued interest— 125,306 
Basis adjustment (2)(25,739)(144,227)
  Total investment in VAA$306,300 $52,879 
(1) Includes cash and cash equivalents of $581,955 at September 30, 2022.
(2)    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 income from VAA:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue
   Rental revenue$3,342 $3,703 $11,305 $10,838 
   Other revenue249 159 627 505 
      Total revenue3,591 3,862 11,932 11,343 
Expenses
   Operating expenses3,032 3,484 16,174 8,128 
   Depreciation and amortization836 842 2,525 2,522 
   Interest5,135 5,865 16,969 17,538 
      Total expenses9,003 10,191 35,668 28,188 
Loss from continuing operations(5,412)(6,329)(23,736)(16,845)
Income from discontinued operations704,700 2,021 712,648 5,363 
Net income (loss)$699,288 $(4,308)$688,912 $(11,482)
Equity in the income in unconsolidated joint ventures$464,085 $3,627 $470,428 $11,535 

15
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
11.    Mortgages and Other Notes Payable
The following table summarizes our mortgages and other notes payable as of September 30, 2022 and December 31, 2021:
Carrying value
Property / EntitySeptember 30, 2022December 31, 2021Effective
Interest Rate		Maturity Date
770 South Post Oak11,484 11,635 4.40 %6/1/2025
Athens1,155 1,155 4.00 %8/28/2023
Chelsea7,916 8,037 3.40 %12/1/2050
EQK Portage3,350 3,350 10.00 %11/13/2024
Forest Grove7,163 7,263 3.75 %5/5/2024
Landing Bayou14,224 14,407 3.50 %9/1/2053
Legacy at Pleasant Grove13,119 13,352 3.60 %4/1/2048
Parc at Denham Springs Phase II15,833 15,962 4.10 %2/1/2060
RCM HC Enterprises5,086 1,986 5.00 %12/31/2022
Stanford Center(1)38,567 38,979 6.00 %2/26/2023
Sugar Mill Phase III(2)— 9,216 4.50 %2/1/2060
Toulon(3)— 13,697 3.20 %12/1/2051
Villas at Bon Secour19,504 19,492 3.08 %9/1/2031
Vista Ridge9,714 9,830 4.00 %8/1/2053
Windmill Farms7,844 8,389 5.00 %2/28/2023
$154,959 $176,750 
(1)     On March 3, 2022, the loan was extended to February 26, 2023 and was subsequently paid off on October 21, 2022.
(2)    On September 16, 2022, the loan was paid off in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).
(3)    On January 14, 2022, the loan was paid off in connection with the sale of the underlying property (See Note 7 - Real Estate Activity).
Interest payable at September 30, 2022 and December 31, 2021, was $1,930 and $1,373, respectively. We capitalized interest of $1,048 and $3,112 during the three months ended September 30, 2022 and 2021, respectively, and $2,651 and $7,263 during the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, we were in compliance with all of our loan covenants except for the minimum debt service coverage ratio (“DSCR”) for the loan on 770 South Post Oak. As a result, the lender requires us to lock the surplus cash flow of the property into a designated deposit account controlled by them, until we are in compliance with the DSCR for a period of two consecutive quarters.
All of the above mortgages and other notes payable are collateralized by the underlying property. In addition, we have guaranteed the loans on Athens, Forest Grove and Villas at Bon Secour.
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.
16
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
12.    Bonds Payable
We have issued three series of nonconvertible bonds ("Bonds") through SPC, which are traded on the TASE. The Bonds are denominated in New Israeli Shekels ("NIS") and provide for semiannual principal and interest payments through maturity. The Bonds are subject to a number of covenants, which include restrictions on the distribution of cash from SPC.
In connection with the Bonds, we incurred a gain (loss) on foreign currency transactions of $1,533 and $(1,639) during the three months ended September 30, 2022 and 2021, respectively, and $19,437 and $1,185 for the nine months ended September 30, 2022 and 2021, respectively.
The outstanding balance of our Bonds at September 30, 2022 and December 31, 2021 is as follows:
Bond IssuanceSeptember 30, 2022December 31, 2021Interest RateMaturity
Series A Bonds(1)$28,776 $65,563 7.30 %7/31/23
Series B Bonds(1)35,563 54,019 6.80 %7/31/25
Series C Bonds(2)66,095 75,298 4.65 %1/31/23
130,434 194,880 
Less unamortized deferred issuance costs(2,937)(5,428)
$127,497 $189,452 
(1)    The bonds are collateralized by the assets of SPC.
(2)    The bonds are collateralized by a trust deed on Browning Place, a 625,297 square foot office building in Farmers Branch, Texas.
13.    Related Party Transactions
We engage in certain business transactions with related parties, including but not limited to asset acquisition and 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 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 May Realty Holdings, Inc., 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 $223 and $312 for the three months ended September 30, 2022 and 2021, respectively, and $702 and $867 for the nine months ended September 30, 2022 and 2021, respectively, for office space leased to Pillar and Regis.
Property operating expense includes $110 and $178 for the three months ended September 30, 2022 and 2021, respectively, and $337 and $755 for the nine months ended September 30, 2022 and 2021, respectively, for management fees on commercial properties payable to Regis.
General and administrative expense includes $1,199 and $947 for the three months ended September 30, 2022 and 2021, respectively, and $3,133 and $3,195 for the nine months ended September 30, 2022 and 2021, respectively, for employee compensation and other reimbursable costs payable to Pillar.
Advisor fees paid to Pillar were $1,434 and $3,234 for the three months ended September 30, 2022 and 2021, respectively, and $6,885 and $10,144 for the nine months ended September 30, 2022 and 2021, respectively.

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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
Notes receivable include amounts held by UHF and Pillar (See Note 9 – Notes Receivable). UHF is deemed to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. In addition, we have receivables from related parties. Interest income on these notes and related party receivables was $5,194 and $4,337 for the three months ended September 30, 2022 and 2021, respectively, and $13,429 and $11,961 for the nine months ended September 30, 2022 and 2021, respectively.
Interest expense on payable to Pillar was $708 and $413 for the three months ended September 30, 2022 and 2021, respectively, and $1,645 and $1,200 for the nine months ended September 30, 2022 and 2021, respectively.
Related party receivables, net represents the net amounts outstanding from Pillar for loans and advances, net of unreimbursed fees, expenses and costs as provided above.
14. Noncontrolling Interests
The noncontrolling interest represents the third party ownership interest in Income Opportunity Realty Investors, Inc. ("IOR"). Shares of IOR are listed on the NYSE American stock exchange under the symbol of IOR. We owned 81.1% in IOR during the three and nine months ended September 30, 2022 and 2021.
15.    Deferred Income
In previous years, we sold properties to related parties at a gain, and therefore the sales criteria for the full accrual method was not met, and as such, we deferred the gain recognition and accounted for the sales by applying the finance, deposit, installment or cost recovery methods, as appropriate. The gain on these transactions is 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 of the sale, we recognized a gain of $8,730 during the nine months ended September 30, 2022 that had previously been deferred (See Note 7 – Real Estate Activity).
As of September 30, 2022 and December 31, 2021, we had deferred gain of $581.
16. Income Taxes
We are part of a tax sharing and compensating agreement with respect to federal income taxes with ARL. In accordance with the 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:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Current$88,037 $156 $88,105 $(1,037)
Deferred— — — — 
$88,037 $156 $88,105 $(1,037)

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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
17.    Commitments and Contingencies
We 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.
In February 2019, Paul Berger ("Berger") filed suit against us and others that alleged that our subsidiary IOR completed improper sales and/or transfers of property. Berger sought to proceed derivatively and directly, requested a payoff of various related party loans to IOR and that IOR then distribute the funds to its stockholders. After discovery and motions to dismiss substantial portions of the complaint, on June 28, 2022, Plaintiff Berger sought to voluntarily dismiss the action for reasons stated in the motion. The parties have not entered into any settlement, and neither Berger nor their counsel has received any consideration for the voluntary dismissal. The parties, through counsel, have stipulated to the dismissal with prejudice. On June 29, 2022, the United States District Court ordered that notice of the dismissal be provided to IOR shareholders. A copy of the required notice was filed as an exhibit to a Form 8-K of IOR for event occurring June 29, 2022 (the date of the Court’s order), and on July 7, 2022, a copy of the required notice was posted on IOR’s website. If no action is taken by one or more other stockholders of IOR prior to August 19, 2022, the Court may enter an order dismissing the Berger case with prejudice.
18.    Subsequent Events
The date to which events occurring after September 30, 2022, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is November 10, 2022, which is the date on which the consolidated financial statements were available to be issued.
On October 21, 2022, we paid off the mortgage loan payable on Stanford Center (See Note 11 - Mortgages and Other Notes Payable) with a portion of the cash distributions from our investment in VAA (See Note 10 - Investment in Unconsolidated Joint Ventures).
On November 1, 2022, in connection with the sale of the VAA Sale Portfolio, we received an additional distribution from VAA (See Note 10 - Investment in Unconsolidated Joint Ventures), which included the full operational control of the Holdback Portfolio and a cash payment of $203,936. We are in the process of assuming the mortgage notes payable on Holdback Portfolio.
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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, 2021 (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.”
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 nine months ended September 30, 2022 from the COVID-19 pandemic, our commercial properties have experienced a decline in occupancy. We believe this decline to be temporary and do not expect a significant decrease in rental revenue.
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 continues to have an 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.
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 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 have no employees. Employees of Pillar render services to us in 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 development activities:
Dispositions
•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 for $2.6 million resulting in gain on sale of $1.4 million. Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.
•On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $74.8 million, resulting in gain on sale of $27.3 million. We used the proceeds to pay off the mortgage note payable on the property (See "Financing Activities") and for general corporate purposes.
•During the year ended December 31, 2021, we sold a total of 134.7 acres of land from our holdings in Windmill Farms for $20.2 million, in aggregate, resulting in gains on sale of $10.3 million. In addition, we sold 14.1 acres of land from our holdings in Mercer Crossing for $9.0 million, resulting in a gain on sale of $6.4 million.
•On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26.8 million, resulting in gain on sale of $9.4 million. We used the proceeds to pay off the $14.7 million mortgage note payable on the property and for general corporate purposes.
•On May 17, 2022, we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $0.8 million, resulting in gain on sale of $0.7 million. We used the proceeds for general corporate purposes.
•On September 16, 2022, in connection with a sale of properties by VAA (See "Other Developments"), we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge, Louisiana for $11.8 million, resulting in gain on sale of $1.9 million. We used the proceeds to pay off the $9.6 million mortgage note payable on the property and for general corporate purposes.
•During the nine months ended September 30, 2022, we sold a total of 26.9 acres of land from our holdings in Windmill Farms for $5.1 million in aggregate, resulting in gains on sale of $4.2 million.
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Financing Activities
•On March 2, 2021, we extended our $1.2 million loan on Athens to August 28, 2022.
•On March 4, 2021, we extended the maturity of our loan on Windmill Farms until February 28, 2023 at a reduced interest rate of 5%.
•On August 25, 2021, we replaced the existing loan on Villas at Bon Secour with a new $20.0 million loan that bears interest at 3.08% and matures on September 1, 2031.
•On August 26, 2021, we paid off the $35.9 million loan on 600 Las Colinas in connection with the sale of the underlying property (See "Dispositions").
•On January 14, 2022, the $14.7 million loan on Toulon was paid off in connection with the sale of the underlying property (See "Dispositions").
•On March 3, 2022, the loan on Stanford Center was extended to February 26, 2023 and was subsequently paid off on October 21, 2022.
•On September 1, 2022, we extended our $1.2 million loan on Athens to August 28, 2023.
•On September 16, 2022, the $9.6 million loan on Sugar Mill Phase III was paid off in connection with the sale of the underlying property (See "Dispositions").
Development Activities
During 2021, we spent $15.7 million on our ongoing development of Windmill Farms. Our expenditure includes $2.8 million on the development of land lots for sale to single family home developers and $13.0 million on reimbursable infrastructure investments. During the nine months ended September 30, 2022, we spent $3.7 million on our ongoing development of Windmill Farms. Our expenditure includes $1.2 million on the development of land lots for sale to single family home developers and $2.5 million on reimbursable infrastructure investments.
In 2021, Landing Bayou, a 240 unit multifamily property in Houma, Louisiana suffered extensive damage from Hurricane IDA. As a result, the property required extensive renovation. In 2022, we incurred $5.0 million in capital expenditures, which were funded by insurance proceeds. We expect to complete the renovation by the end of this year.
We have investment in nine notes receivable that were issued to fund the development of multifamily properties. As of September 30, 2022, one of the projects was in construction, one was in lease-up and seven were stabilized. In 2022, we advanced $2.1 million on these development notes. Each of these notes are convertible, at our option, into a 100% ownership interest in the underlying property.
Other Developments:
During 2021, we recorded a loss of $29.6 million on the remeasurements of certain assets ("Earn Out Obligation") that were sold in connection with our investment in VAA.
On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) held by VAA and one property held by our SPC subsidiary.
On September 15, 2022, VAA, SPC, Macquarie and Pillar entered a Distribution and Holdback Property Agreement (“Distribution Agreement”), which provides the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“Holdback Portfolio”).
On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $1.8 billion, resulting in gain on sale of $738.7 million. In connection with sale, we received $182.8 million, which consisted of a payoff of our $113.0 million Mezzanine Loan, $2.6 million of accrued interest on the Mezzanine Loan and $84.2 million of contributed capital offset in part by the $17.0 million remaining balance on our Earn Out Obligation.
On November 1, 2022, in connection with the sale of the VAA Sale Portfolio, we received an additional distribution from VAA, which included the full operational control of the Holdback Portfolio and a cash payment of $203.9 million. We are in the process of assuming the mortgage notes payable on Holdback Portfolio.
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We plan to use our share of the proceeds from the sale of the VAA Sale Portfolio for additional investment in income-producing real estate, pay down debt and for general corporate purposes. Our ownership interest in VAA is held by SPC, and is therefore subject to the bond covenants of the three series of bonds that have been issued by SPC. These provisions include restrictions on the distribution of cash from SPC (See Note 12 - Bonds Payable in our consolidated financial statements).
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 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.
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.
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 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 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 whether the property is substantially leased-up and in operation for the
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entirety of both periods of the comparison. Accordingly, the Same Properties consist of all properties, excluding the Lease-up Properties and the Disposition Properties for the periods of comparison.
For the comparison of the three and nine months ended September 30, 2022 to the three and nine months ended September 30, 2021, the Disposition Properties are Overlook at Allensville Phase II, 600 Las Colinas, Toulon and Sugar Mill Phase III.
The following table summarizes our results of operations for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
20222021Variance20222021Variance
Multifamily Segment
   Revenue$2,850 $3,703 $(853)$9,024 $11,068 $(2,044)
   Operating expenses(1,966)(2,072)106 (5,395)(6,306)911 
884 1,631 (747)3,629 4,762 (1,133)
Commercial Segment
   Revenue4,720 5,925 (1,205)13,286 19,115 (5,829)
   Operating expenses(2,735)(3,538)803 (7,146)(10,194)3,048 
1,985 2,387 (402)6,140 8,921 (2,781)
Segment operating income2,869 4,018 (1,149)9,769 13,683 (3,914)
Other non-segment items of income (expense)
   Depreciation and amortization(2,193)(2,935)742 (6,840)(9,473)2,633 
   General, administrative and advisory(4,190)(6,047)1,857 (14,233)(18,693)4,460 
   Interest income (expense), net3,387 (755)4,142 4,020 (4,578)8,598 
   Loss on early extinguishment of debt(1,166)(1,451)285 (2,805)(1,451)(1,354)
   Gain (loss) on foreign currency transactions1,533 (1,639)3,172 19,437 1,185 18,252 
   Gain on sale or write down of assets1,539 31,312 (29,773)16,580 22,970 (6,390)
   Income from joint venture464,085 3,627 460,458 470,428 11,535 458,893 
   Other (expense) income(87,288)250 (87,538)(86,539)3,511 (90,050)
Net income$378,576 $26,380 $352,196 $409,817 $18,689 $391,128 
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021:
Our $352.2 million increase in net income during the three months ended September 30, 2022 is primarily attributed to the following:
•The decrease in profit from the multifamily and commercial segments is due to the Disposition Properties.
•The change in interest income (expense), net is primarily due to a decrease in interest from mortgage notes payables from the Disposition Properties.
•The increase in gain on foreign currency transactions is due to favorable changes in the U.S. Dollar and the New Israeli Shekel conversion rate.
•The decrease in gain on sale or write down of assets is primarily due to the $27.3 million gain on sale of 600 Las Colinas (See "Dispositions" in Management's Overview).
•The increase in income from joint ventures is primarily due our share of the gain on the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).
•The change in other (expense) income is primarily due to the $87.9 million increase in our tax provision as a result of the sale of the VAA Sale Portfolio in 2022.

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Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021:
Our $391.1 million increase in net income during the nine months ended September 30, 2022 is primarily attributed to the following:
•The decrease in profit the multifamily and commercial segments is due to the Disposition Properties.
•The decrease in general, administrative and advisory expenses is primarily due to the decrease legal costs from the arbitration settlement in 2021 (See "Other Developments" in Management's Overview).
•The change in interest income (expense) is primarily due a decrease in the amount of bonds outstanding in 2021.
•The increase in gain on foreign currency transactions is due to a favorable change in the U.S. Dollar and the New Israeli Shekel conversion rate.
•The decrease in gain on sale or write down of assets is primarily due to the $27.3 million gain on the sale of 600 Las Colinas in 2021 (See "Dispositions" in Management's Overview) and a $10.4 million decrease in gain on sales of land parcels, offset in part by the $29.6 million loss on remeasurement of the Earn Out Obligation in 2021 (See "Other Developments" in Management's Overview).
•The increase in income from joint ventures is primarily due our share of the gain on the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).
•The change in other (expense) income is primarily due to the $89.1 million increase in the tax provision as a result of the sale of the VAA Sale Portfolio in 2022.
Liquidity and Capital Resources
Our principal sources of cash have been, and will continue to be, property operations; proceeds from land and income-producing property sales; collection of notes receivable; refinancing of existing mortgage notes payable; and additional borrowings, including mortgage notes and bonds payable, and lines of credit.
Our principal liquidity needs are to fund normal recurring expenses; meet debt service and principal repayment obligations including balloon payments on maturing debt; fund capital expenditures, including tenant improvements and leasing costs; fund development costs not covered under construction loans; and fund possible property acquisitions.
We anticipate that our cash and cash equivalents as of September 30, 2022, along with cash that will be generated from notes and interest receivables, will be sufficient to meet all of our cash requirements. We may selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements. Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of our current maturity obligations.
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in our consolidated financial statements, and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (dollars in thousands):
Nine Months Ended September 30, 
20222021Variance
Net cash used in operating activities$(5,394)$(7,198)$1,804 
Net cash provided by investing activities$153,350 $106,039 $47,311 
Net cash used in financing activities$(71,524)$(101,870)$30,346 

The increase in cash provided by investing activities is primarily due the $172.8 million increase in distribution from joint venture and the $40.3 million redemption of short term investments in 2022 offset in part by the $99.4 million purchase of short term investments in 2022, the $59.1 million decrease in proceeds from the sale of real estate and the $6.1 million decrease in collection of notes receivable. The increase in distribution from joint venture is due to the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).
The decrease in cash used in financing activities is primarily due to the $47.0 million decrease in payments of mortgages, notes and bonds payable offset in part by the $20.0 million in proceeds on the mortgage notes payable in 2021.
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Funds From Operations ("FFO")
We use FFO in addition to net income to report our operating and financial results and consider FFO and FFO-diluted as supplemental measures 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. We also present FFO excluding the impact of the effects of foreign currency transactions.
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 table reconciles net income attributable to the Company to FFO and FFO adjusted for the three and nine months ended September 30, 2022 and 2021 (dollars and shares in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net income attributable to the Company$378,351 $26,246 $409,314 $18,145 
Depreciation and amortization2,193 2,935 6,840 9,473 
Gain on sale or write down of assets, net(1,539)(31,312)(16,580)(22,970)
Gain on sale of land— 4,042 4,752 15,153 
Gain on sale of assets from unconsolidated joint ventures at our pro rata share(392,051)— (392,051)— 
Depreciation and amortization on unconsolidated joint ventures at our pro rata share4,509 2,984 8,229 7,016 
FFO-Basic and Diluted(8,537)4,895 20,504 26,817 
Loss on early extinguishment of debt1,166 1,451 2,805 1,451 
Loss on early extinguishment of debt from unconsolidated joint venture at our pro rata share15,254 — 15,254 — 
(Gain) loss on foreign currency transaction(1,533)1,639 (19,437)(1,185)
FFO-adjusted$6,350 $7,985 $19,126 $27,083 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Optional and not included.
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ITEM 4.    CONTROLS AND PROCEDURES
Based on an evaluation by our management (with the participation of our Principal Executive and Financial Officer), as of the end of the period covered by this report, our Principal Executive and 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 and 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
In February 2019, Paul Berger ("Berger") filed suit against us and others that alleged that our subsidiary IOR completed improper sales and/or transfers of property. Berger sought to proceed derivatively and directly, requested a payoff of various related party loans to IOR and that IOR then distribute the funds to its stockholders. After discovery and motions to dismiss substantial portions of the complaint, on June 28, 2022, Plaintiff Berger sought to voluntarily dismiss the action for reasons stated in the motion. The parties have not entered into any settlement, and neither Berger nor their counsel has received any consideration for the voluntary dismissal. The parties, through counsel, have stipulated to the dismissal with prejudice. On June 29, 2022, the United States District Court ordered that notice of the dismissal be provided to IOR shareholders. A copy of the required notice was filed as an exhibit to a Form 8-K of IOR for event occurring June 29, 2022 (the date of the Court’s order), and on July 7, 2022, a copy of the required notice was posted on IOR’s website. If no action is taken by one or more other stockholders of IOR prior to August 19, 2022, the Court may enter an order dismissing the Berger case with prejudice.
ITEM 1A.    RISK FACTORS
Except as set forth below, there have been no material changes from the risk factors previously disclosed in the 2021 10-K. For a discussion on these risk factors, please see “Item 1A. Risk Factors” contained in the 2021 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 nine months ended September 30, 2022 from the COVID-19 pandemic, our commercial properties have experienced a decline in occupancy. 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. 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 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.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We have a program that allows for the repurchase 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 nine months ended September 30, 2022. As of September 30, 2022, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable
ITEM 5.    OTHER INFORMATION
None
28
ITEM 6.    EXHIBITS
The following exhibits are filed with this report or incorporated by reference as indicated;
Exhibit
Number		Description
3.0Articles 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).
3.1Certificate 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).
3.2Certificate 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).
3.3Articles 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).
3.4Certificate 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).
3.5Certificate 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).
3.6Articles 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).
3.7By-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).
3.8Certificate 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).
10.1Advisory 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).
Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
Certification of the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
29
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
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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 10, 2022By:/s/ ERIK L. JOHNSON
Erik L. Johnson
Executive Vice President and Chief Financial Officer

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