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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, 2023
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 9, 2023, 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, 2023December 31, 2022
Assets
Real estate$502,031 $493,821 
Cash and cash equivalents47,182 113,424 
Restricted cash36,145 108,883 
Short-term investments134,185 119,787 
Notes receivable (including $66,630 at September 30, 2023 and December 31, 2022 from related parties)
135,410 129,304 
Investment in unconsolidated joint venture786 20,904 
Receivables from related parties, net132,265 147,142 
Other assets (including $3,126 at September 30, 2023 and $4,040 at December 31, 2022 from related parties)
92,410 84,900 
Total assets$1,080,414 $1,218,165 
Liabilities and Equity
Liabilities:
Mortgages and other notes payable$178,886 $184,462 
Bonds payable 129,218 
Accounts payable and other liabilities (including $1,025 at September 30, 2023 and $599 at December 31, 2022 to related parties)
48,502 58,094 
Accrued interest2,480 5,198 
Deferred revenue581 581 
Total liabilities230,449 377,553 
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 earnings567,492 558,994 
Total shareholders' equity827,965 819,467 
Noncontrolling interest22,000 21,145 
Total equity849,965 840,612 
Total liabilities and equity$1,080,414 $1,218,165 
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,
2023202220232022
Revenues:
Rental revenues (including $232 and $223 for the three months ended September 30, 2023 and 2022, respectively, and $731 and $702 for the nine months ended September 30, 2023 and 2022, respectively, from related parties)
$11,838 $7,570 $34,236 $22,310 
Other income687 749 2,216 1,566 
   Total revenue12,525 8,319 36,452 23,876 
Expenses:
Property operating expenses (including $97 and $110 for the three months ended September 30, 2023 and 2022, respectively, and $296 and $337 for the nine months ended September 30, 2023 and 2022, respectively, from related parties)
7,443 4,701 20,580 12,541 
Depreciation and amortization3,313 2,193 9,615 6,840 
General and administrative (including $796 and $1,199 for the three months ended September 30, 2023 and 2022, respectively, and $2,854 and $3,133 for the nine months ended September 30, 2023 and 2022, respectively, from related parties)
1,432 2,756 7,836 7,348 
Advisory fee to related party2,112 1,434 6,282 6,885 
   Total operating expenses14,300 11,084 44,313 33,614 
   Net operating loss(1,775)(2,765)(7,861)(9,738)
Interest income (including $5,522 and $4,486 for the three months ended September 30, 2023 and 2022, respectively, and $15,962 and $11,784 for the nine months ended September 30, 2023 and 2022, respectively, from related parties)
9,676 7,379 26,998 17,162 
Interest expense(1,902)(3,992)(7,415)(13,142)
Gain on foreign currency transactions 1,533 993 19,437 
Loss on early extinguishment of debt (1,166)(1,710)(2,805)
Equity in income from unconsolidated joint venture85 464,085 798 470,428 
Gain on sale or write-down of assets, net 1,539 188 16,580 
Income tax provision(1,322)(88,037)(2,638)(88,105)
Net income4,762 378,576 9,353 409,817 
Net income attributable to noncontrolling interest(311)(225)(855)(503)
Net income attributable to the Company$4,451 $378,351 $8,498 $409,314 
Earnings per share - basic and diluted$0.52 $43.79 $0.98 $47.38 
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 StockAdditional Paid-in
Capital
Retained
Earnings
Total Shareholders' EquityNoncontrolling
Interest
Total Equity
Three Months Ended September 30, 2023
Balance, July 1, 2023$86 $260,387 $563,041 $823,514 $21,689 $845,203 
Net income— — 4,451 4,451 311 4,762 
Balance, September 30, 2023$86 $260,387 $567,492 $827,965 $22,000 $849,965 
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 
Nine Months Ended September 30, 2023
Balance, January 1, 2023$86 $260,387 $558,994 $819,467 $21,145 $840,612 
Net income— — 8,498 8,498 855 9,353 
Balance, September 30, 2023$86 $260,387 $567,492 $827,965 $22,000 $849,965 
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 

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,
20232022
Cash Flow From Operating Activities:
Net income$9,353 $409,817 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale or write down of assets(188)(16,580)
Gain on foreign currency transactions(993)(19,437)
Loss on early extinguishment of debt1,710 2,805 
Depreciation and amortization10,518 9,409 
Provision for bad debts875 298 
Equity in income from unconsolidated joint venture(798)(470,428)
Distribution of income from unconsolidated joint venture 2,600 
Changes in assets and liabilities, net of dispositions:
Other assets(9,980)(282)
Related party receivables(5,291)(6,523)
Interest payable(1,872)(4,503)
Accounts payable and other liabilities4,512 87,430 
Net cash provided by (used in) operating activities7,846 (5,394)
Cash Flow From Investing Activities:
Collection of notes receivable394 2,726 
Originations and advances on notes receivable(6,500)(2,118)
Purchase of short-term investments(89,566)(99,350)
Redemption of short-term investments75,168 40,250 
Development and renovation of real estate(9,876)(11,834)
Deferred leasing costs(290)(1,163)
Proceeds from sale of assets188 44,591 
Distributions from unconsolidated joint venture20,916 180,248 
Net cash (used in) provided by investing activities(9,566)153,350 
Cash Flow From Financing Activities:
Payments on mortgages, other notes and bonds payable(136,809)(70,170)
Debt extinguishment costs(435)(1,354)
Deferred financing costs(16) 
Net cash used in financing activities(137,260)(71,524)
Net (decrease) increase in cash, cash equivalents and restricted cash(138,980)76,432 
Cash, cash equivalents and restricted cash, beginning of period222,307 72,721 
Cash, cash equivalents and restricted cash, end of period$83,327 $149,153 
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 residential and commercial real estate 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 also 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 sales of income-producing properties and 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 were listed on the Tel Aviv Stock Exchange ("TASE").
At September 30, 2023, our portfolio of properties consisted of:
●     Four office buildings comprising in aggregate of approximately 1,056,793 square feet;
●    Fourteen multifamily properties, owned directly by us, comprising of 2,328 units; and
●    Approximately 1,858 acres of developed and undeveloped land.
Our day to day operations are managed by Pillar Income Asset Management, Inc. (“Pillar”). Pillar's 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. We have no employees; all of our services are performed by 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 and one of our commercial properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 14 – 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.
Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no effect on the reported results of operation. An adjustment has been made to reclassify $708 and $1,645 interest expense to related parties for the three and nine months ended September 30, 2022, respectively, from interest expense to interest income on the consolidated statements of operations.

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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The consolidated balance sheet at December 31, 2022 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, 2022. Certain 2022 consolidated financial statement amounts have been reclassified to conform to the current presentation.
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.
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,
2023202220232022
Net income$4,762 $378,576 $9,353 $409,817 
Net income attributable to noncontrolling interest(311)(225)(855)(503)
Net income attributable to the Company$4,451 $378,351 $8,498 $409,314 
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$0.52 $43.79 $0.98 $47.38 

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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,
20232022
Cash paid for interest$9,273 $17,802 
Cash - beginning of period
Cash and cash equivalents$113,424 $50,735 
Restricted cash108,883 21,986 
$222,307 $72,721 
Cash - end of period
Cash and cash equivalents$47,182 $131,203 
Restricted cash36,145 17,950 
$83,327 $149,153 
Payments on mortgages, other notes and bonds payable
Payments on mortgages and other notes payable$5,633 $26,411 
Payments on bond payable131,176 43,759 
$136,809 $70,170 

The following is a schedule of noncash investing and financing activities:
Nine Months Ended September 30,
20232022
Property acquired in exchange for reduction of related party receivable$6,064 $ 
Distribution from joint venture applied to Earn Out Obligation$ $34,159 
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, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Multifamily Segment
Revenues$7,899 $2,850 $22,930 $9,024 
Operating expenses(4,811)(1,966)(12,997)(5,395)
Profit from segment3,088 884 9,933 3,629 
Commercial Segment
Revenues3,939 4,720 11,306 13,286 
Operating expenses(2,632)(2,735)(7,583)(7,146)
Profit from segment1,307 1,985 3,723 6,140 
Total profit from segments$4,395 $2,869 $13,656 $9,769 
The table below reflects the reconciliation of total profit from segments to net income for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Total profit from segments$4,395 $2,869 $13,656 $9,769 
Other non-segment items of income (expense)
Depreciation and amortization(3,313)(2,193)(9,615)(6,840)
General and administrative(1,432)(2,756)(7,836)(7,348)
Advisory fee to related party(2,112)(1,434)(6,282)(6,885)
Other income687 749 2,216 1,566 
Interest income9,676 7,379 26,998 17,162 
Interest expense(1,902)(3,992)(7,415)(13,142)
Gain on foreign currency transactions 1,533 993 19,437 
Loss on early extinguishment of debt (1,166)(1,710)(2,805)
Income from unconsolidated joint venture85 464,085 798 470,428 
Gain on sales or write-down of assets 1,539 188 16,580 
Income tax provision(1,322)(88,037)(2,638)(88,105)
Net income$4,762 $378,576 $9,353 $409,817 
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 include 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.

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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, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Fixed component$11,338 $6,977 $32,968 $20,854 
Variable component500 593 1,268 1,456 
$11,838 $7,570 $34,236 $22,310 
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:
2023$9,747 
202410,823 
202510,358 
202610,056 
20279,787 
Thereafter22,444 
$73,215 

7.    Real Estate Activity
Below is a summary of our real estate as of September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
Land$108,993 $108,933 
Building and improvements371,973 359,904 
Tenant improvements17,463 25,611 
Construction in progress68,512 65,427 
   Total cost566,941 559,875 
Less accumulated depreciation(64,910)(66,054)
Total real estate$502,031 $493,821 
On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida that is expected to be completed in 2025 for a total cost of approximately $55,330. The cost of construction will be funded in part by a $33,000 construction loan (See Note 12 - Mortgages and Other Notes Payable). The development agreement provides for a $1,637 fee that will be paid to Pillar over the construction period. As of September 30, 2023, we have incurred a total of $12,337 in development costs, including $334 in development fees.

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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
Gain on sale or write-down of assets, net for the three and nine months ended September 30, 2023 and 2022 consists of the following:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Land (1)$ $ $188 $4,752 
Multifamily Properties (2) 1,539  11,142 
Commercial Properties (3)   890 
Other   (204)
Total$ $1,539 $188 $16,580 
(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.
(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.
8.    Short-term Investments
We have investments in variable denominated floating rate notes and short-term commercial paper with maturities of less than nine months. The average interest rate on the investments was 5.29% and 4.67% at September 30, 2023 and December 31, 2022, respectively.



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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, 2023 and December 31, 2022:
Carrying value
Property/BorrowerSeptember 30, 2023December 31, 2022Interest 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)2,157 2,326 5.00 %7/1/25
Bellwether Ridge(1)3,798 3,798 5.00 %11/1/26
Dominion at Mercer Crossing(2)6,354  9.25 %6/7/28
Forest Pines(1)6,472 6,472 5.00 %5/1/24
Legacy Pleasant Grove496 496 12.00 %10/23/24
McKinney Ranch3,926 3,926 6.00 %9/15/24
One Realco Land Holding, Inc.1,728 1,728 9.50 %6/30/26
Parc at Ingleside(1)3,759 3,759 5.00 %11/1/26
Parc at Opelika Phase II(1)(3)3,190 3,190 10.00 %1/13/23
Parc at Windmill Farms(1)(3)7,886 7,886 5.00 %11/1/22
Phillips Foundation for Better Living, Inc.(4)182 182 12.00 %3/31/24
Plum Tree(1)1,767 1,767 5.00 %4/26/26
Polk County Land3,000 3,000 9.50 %6/30/26
Riverview on the Park Land, LLC1,045 1,045 9.50 %6/30/26
Spartan Land5,907 5,907 12.00 %1/16/25
Spyglass of Ennis(1)5,179 5,258 5.00 %11/1/24
Steeple Crest(1)6,498 6,498 5.00 %8/1/26
Unified Housing Foundation(4)(5)20,325 20,325 12.00 %6/30/28
Unified Housing Foundation(4)(5)10,096 10,096 12.00 %3/31/24
Unified Housing Foundation(4)(5)6,990 6,990 12.00 %3/31/25
Unified Housing Foundation(4)(5)3,615 3,615 12.00 %5/31/28
Unified Housing Foundation(4)(5)17,172 17,172 12.00 %12/31/32
Unified Housing Foundation(4)(5)6,521 6,521 12.00 %3/31/24
Unified Housing Foundation(4)(5)1,549 1,549 12.00 %4/30/24
Unified Housing Foundation(4)(5)180 180 12.00 %6/30/24
$135,410 $129,304 
(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 note has an interest rate of prime plus 1.00%.
(3)We are working with the borrower to extend the maturity and/or exercise our conversion option.
(4)     The borrower is deemed to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable.
(5) 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.


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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 the 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 a portfolio of multifamily properties owned by us in exchange for a 50% voting interest in VAA and a note payable.
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") of $10,000 for the advance on the Earn Out that we received from Macquarie. Upon remeasurement, the Earn Out Obligation was determined to be approximately $39,600. In accordance with the joint venture operating agreement, the Earn Out Obligation was paid from our share of distributions from VAA in 2022.
On September 16, 2022, VAA sold 45 of its properties (“VAA Sale Portfolio”) for $1,810,700, resulting in a gain on sale of $738,444 to the joint venture. In connection with the 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, we received an additional distribution from VAA, which included the full operational control of the remaining seven properties of VAA (“VAA Holdback Portfolio”) (See Note 11 - Acquisitions) and a cash payment of $204,036.
On March 23, 2023, we received $17,976 from VAA, which represented the remaining distribution of the proceeds from the sale of the VAA Sale Portfolio.
We used our share of the proceeds from the sale of the VAA Sale Portfolio to invest in short-term investments and real estate, pay down our debt and for general corporate purposes.
The following is a summary of our investment in VAA:
September 30, 2023December 31, 2022
Assets
Cash, cash equivalents and restricted cash$1,447 $50,058 
Other assets 2,346 
$1,447 $52,404 
Liabilities and partners' capital
Liabilities from discontinued operations$ $8,824 
Other liabilities93 1,988 
Our share of partners' capital786 20,904 
Outside partner's capital568 20,688 
$1,447 $52,404 


14

TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The following is a summary of income from VAA:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Revenue
   Rental revenue$ $3,342 $ $11,305 
   Other revenue 249  627 
      Total revenue 3,591  11,932 
Expenses
   Operating (income) expenses(237)3,032 (529)16,174 
   Depreciation and amortization 836  2,525 
   Interest (income) expense(10)5,135 (320)16,969 
      Total expenses(247)9,003 (849)35,668 
Income (loss) from continuing operations247 (5,412)849 (23,736)
(Loss) income from discontinued operations(78)704,700 743 712,648 
Net income$169 $699,288 $1,592 $688,912 
Equity in income from unconsolidated joint venture$85 $464,085 $798 $470,428 

11. Acquisitions
On November 1, 2022, we acquired the remaining 50% ownership interest in the VAA Holdback Portfolio that we did not previously own through a distribution from VAA (See Note 10 – Investment in Unconsolidated Joint Ventures). Prior to the acquisition, we had accounted for the VAA Holdback Portfolio under the equity method of accounting as part of our investment in VAA. The acquisition was completed in order to obtain 100% ownership and control over this well positioned portfolio of multifamily residential properties in southern United States.
The VAA Holdback Portfolio consisted of the following properties:
PropertyLocationUnits
Blue Lake VillasWaxahachie, TX186 
Blue Lake Villas Phase IIWaxahachie, TX70 
Northside on TravisSherman, TX200 
Parc at Denham SpringsDenham Spring, LA224 
Residences at Holland LakeWeatherford, TX208 
Villas of Park West IPueblo, CO148 
Villas of Park West IIPueblo, CO112 
1,148 

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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
The following is a summary of the preliminary allocation of the fair value of the VAA Holdback Portfolio:
Real estate$219,500 
Other assets4,843 
   Total assets acquired224,343 
Mortgage notes payable70,330 
Accounts payable and other liabilities1,624 
Accrued interest190 
   Total liabilities assumed72,144 
   Fair value of acquired net assets (100% ownership)
$152,199 
We have determined that the purchase price represented the fair value of the additional ownership interest in the VAA Holdback Portfolio that was acquired.
Fair value of existing ownership interest (at 50% ownership)
$219,500 
Carrying value of investment146,313 
Gain on remeasurement of assets$73,187 
From November 1, 2022, we have included the VAA Holdback Portfolio in our consolidated financial statements.
16

TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
12.    Mortgages and Other Notes Payable
The following table summarizes our mortgages and other notes payable as of September 30, 2023 and December 31, 2022:
Carrying ValueInterest
Rate
Maturity
Date
Property/ EntitySeptember 30, 2023December 31, 2022
770 South Post Oak$11,248 $11,406 4.40 %6/1/2025
Athens(1) 1,155 4.00 %8/28/2023
Blue Lake Villas(2)9,546 9,673 3.15 %11/1/2055
Blue Lake Villas Phase II(2)3,368 3,424 2.85 %6/1/2052
Chelsea7,749 7,875 3.40 %12/1/2050
EQK Portage3,350 3,350 10.00 %11/13/2024
Forest Grove7,023 7,128 3.75 %5/5/2024
Landing Bayou13,971 14,161 3.50 %9/1/2053
Legacy at Pleasant Grove12,798 13,039 3.60 %4/1/2048
Northside on Travis(2)11,460 11,656 2.50 %2/1/2053
Parc at Denham Springs(2)16,484 16,737 3.75 %4/1/2051
Parc at Denham Springs Phase II15,654 15,789 4.05 %2/1/2060
RCM HC Enterprises5,086 5,086 5.00 %12/31/2024
Residences at Holland Lake(3)10,474 10,622 3.60 %3/1/2053
Villas at Bon Secour19,119 19,410 3.08 %9/1/2031
Villas of Park West I(2)9,230 9,373 3.04 %3/1/2053
Villas of Park West II(2)8,377 8,504 3.18 %3/1/2053
Vista Ridge9,553 9,674 4.00 %8/1/2053
Windmill Farms(4)4,396 6,400 7.75 %2/28/2024
$178,886 $184,462 
(1)    On August 28, 2023, we paid off the loan.
(2)    On November 1, 2022, we agreed to assume the mortgage note payable from our joint venture in connection with the acquisition of the underlying property (See Note 11 - Acquisitions) and are in the process of obtaining lender approval of the assumption.
(3)    On October 16, 2023, we received approval from the lender to assume the loan on the property that we acquired from our joint venture (See Note 11 - Acquisitions).
(4)    On February 28, 2023, we extended the maturity of the loan to February 28, 2024 and an interest rate of 7.75%.
Interest payable at September 30, 2023 and December 31, 2022, was $2,480 and $2,004, respectively. We capitalized interest of $0 and $1,048 for the three months ended September 30, 2023 and 2022, respectively, and $642 and $2,651 during the nine months ended September 30, 2023 and 2022, respectively.
On March 15, 2023, we entered into a $33,000 construction loan to finance the development of Lake Wales (See Note 7 - Real Estate Activity) that bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3% and matures on March 15, 2026, with two one-year extension options. As of September 30, 2023, no advances have been drawn on the loan.
As of September 30, 2023, 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 Forest Grove and Villas at Bon Secour.
17

TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
13.    Bonds Payable
We issued nonconvertible bonds ("Bonds") through SPC, which were traded on the TASE. The Bonds were denominated in New Israeli Shekels ("NIS") and provided semiannual principal and interest payments through maturity. The Bonds were subject to a number of covenants, which included restrictions on the distribution of cash from SPC.
In connection with the Bonds, we incurred a gain on foreign currency transactions of $0 and $1,533 for the three months ended September 30, 2023 and 2022, respectively, and $993 and $19,437 for the nine months ended September 30, 2023 and 2022, respectively.
The outstanding balance of our Bonds at December 31, 2022 was as follows:
Bond IssuanceDecember 31, 2022Interest RateMaturity
Series A Bonds(1)$28,971 7.30 %7/31/23
Series B Bonds(1)35,806 6.80 %7/31/25
Series C Bonds(2)66,546 4.65 %1/31/23
131,323 
Less unamortized deferred issuance costs(2,105)
$129,218 
(1)    The bonds were collateralized by the assets of SPC.
(2)    The bonds were collateralized by a trust deed on Browning Place, a 625,297 square foot office building in Dallas, Texas.
On January 31, 2023, we completed our scheduled bond payment, which included the full repayment of the Series C bonds. On May 4, 2023, we paid off the remaining balances of the Series A and Series B Bonds and withdrew from the TASE.
14.    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 a subsidiary of May Realty Holdings, Inc., which owns approximately 90.8% of ARL. Pillar is compensated for advisory services in accordance with an advisory agreement and development services in accordance with a project specific 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 $232 and $223 for the three months ended September 30, 2023 and 2022, respectively, and $731 and $702 for the nine months ended September 30, 2023 and 2022, respectively, for office space leased to Pillar and Regis.
Property operating expense includes $97 and $110 for the three months ended September 30, 2023 and 2022, respectively, and $296 and $337 for the nine months ended September 30, 2023 and 2022, respectively, for management fees on commercial properties payable to Regis.
General and administrative expense includes $796 and $1,199 for the three months ended September 30, 2023 and 2022, respectively, and $2,854 and $3,133 for the nine months ended September 30, 2023 and 2022, respectively, for employee compensation and other reimbursable costs payable to Pillar.
Advisory fees paid to Pillar were $2,112 and $1,434 for the three months ended September 30, 2023 and 2022, respectively, and $6,282 and $6,885 for the nine months ended September 30, 2023 and 2022, respectively.
18

TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
Notes receivable include amounts held by UHF (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 Pillar and other related parties. 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. Interest income on these notes and related party receivables was $5,522 and $4,486 for the three months ended September 30, 2023 and 2022, respectively, and $15,962 and $11,784 for the nine months ended September 30, 2023 and 2022, respectively.
15. 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, 2023 and 2022.
16.    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.
As of September 30, 2023 and December 31, 2022, we had deferred gain of $581.
17. 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,
2023202220232022
Current$5,422 $88,037 $6,738 $88,105 
Deferred(4,100) (4,100) 
$1,322 $88,037 $2,638 $88,105 

18.    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.
19.    Subsequent Events
The date to which events occurring after September 30, 2023, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is November 9, 2023, which is the date on which the consolidated financial statements were available to be issued.
On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney, Texas that is expected to be completed in 2025 for a total cost of approximately $51.3 million. The cost of construction will be funded in part by a $25.4 million construction loan. The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.
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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, 2022 (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; and
risks associated with our dependence on key personnel whose continued service is not guaranteed.
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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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:
Acquisitions and Dispositions
On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26.8 million, resulting in a 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 a gain on sale of $0.7 million. We used the proceeds for general corporate purposes.
On September 16, 2022, we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge, Louisiana for $11.8 million in connection with a sale of properties by VAA (See "Other Developments"), resulting in a 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.
On November 1, 2022, we acquired seven multifamily properties from VAA (See "Other Developments") with a fair value of $219.5 million.
During the year ended December 31, 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. In addition, we sold 0.9 acres of land from our holdings in Mercer Crossing for $0.7 million, resulting in a gain on sale of $0.2 million.
Financing Activities
On January 14, 2022, we paid off the $14.7 million loan on Toulon in connection with the sale of the underlying property (See "Acquisitions and Dispositions").
On March 3, 2022, we extended our loan on Stanford Center to February 26, 2023.
On September 1, 2022, we extended our 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 "Acquisitions and Dispositions").
On October 21, 2022, we paid off the $38.5 million loan on Stanford Center from the cash generated from sale of the VAA Sale Portfolio.
On November 1, 2022, we agreed to assume the $70.3 million mortgage notes payable on the VAA Holdback Portfolio in connection with the distribution of the underlying properties from VAA (See "Other Developments").
On January 31, 2023, we paid off our $67.5 million of Series C bonds.
On February 28, 2023, we extended the maturity of our loan on Windmill Farms until February 28, 2024 at a revised interest rate of 7.75%.
On March 15, 2023, we entered into a $33.0 million construction loan to finance the development of Lake Wales (See "Development Activities") that bears interest at the Secured Overnight Financing Rate ("SOFR") plus 3% and matures on March 15, 2026, with two one-year extension options.
On May 4, 2023, we paid off $14.0 million of our Series A Bonds and $28.9 million of our Series B Bonds, which results in a loss on early extinguishment of debt of $1.7 million.
On August 28, 2023, we paid off our $1.2 million loan on Athens.
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Development Activities
On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida that is expected to be completed in 2025 for a total cost of approximately $55.3 million. The cost of construction will be funded in part by a $33.0 million construction loan. The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period. As of September 30, 2023, we have incurred a total of $12.3 million in development costs.
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. As of September 30, 2023, we completed the restoration and lease-up of the property for a total cost of $10.4 million, which was primarily funded by insurance proceeds.
During 2023, we spent $5.0 million on our ongoing development of Windmill Farms. Our expenditure includes $0.5 million on the development of land lots for sale to single family home developers and $4.5 million on reimbursable infrastructure investments.
Other Developments
On September 16, 2022, VAA sold 45 properties (“VAA Sale Portfolio”) for $1.8 billion, resulting in a gain on sale of $738.4 million to the joint venture. In connection with the sale, we received an initial distribution of $182.8 million from VAA.
On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the remaining seven properties of VAA (“VAA Holdback Portfolio”) and a cash payment of $204.0 million. We are in the process of negotiating the assumption of the mortgage notes payable on the VAA Holdback Portfolio with the lenders.
On March 23, 2023, we received $18.0 million from VAA, which represented the remaining distribution of the proceeds from the sale of the VAA Sale Portfolio.
We used our share of the proceeds from the sale of the VAA Sale Portfolio to invest in short-term investments and real estate, pay down our debt and for general corporate purposes.
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.
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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 Redevelopment Property, the Acquisition Properties and the Disposition Properties (each as defined below).
For purposes of the discussion below, we define "Same Properties" as all of our properties with the exception of those properties that have been recently constructed or leased-up (“Redevelopment Property”), properties that have recently been acquired ("Acquisition Properties") and properties that have been disposed ("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 entirety of both periods of the comparison.
For the comparison of the three and nine months ended September 30, 2023 to the three and nine months ended September 30, 2022, the Redevelopment Property is Landing Bayou (See "Development Activities" in Management's Overview). The change in revenues and expenses of the Redevelopment Property from 2022 to 2023 is primarily due to the lease-up of the property in 2023 as the restored units were placed in service. The Acquisition Properties are the VAA Holdback Portfolio (See "Other Developments" in Management's Overview), which include Blue Lake Villas, Blue Lake Villas Phase II, Northside on Travis, Parc at Denham Springs, Residences at Holland Lake, Villas of Park West I and Villas of Park West II. The Disposition Properties are Fruitland Park, Sugar Mill Phase III and Toulon.

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The following table summarizes our results of operations for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
20232022Variance20232022Variance
Multifamily Segment
   Revenue$7,899 $2,850 $5,049 $22,930 $9,024 $13,906 
   Operating expenses(4,811)(1,966)(2,845)(12,997)(5,395)(7,602)
3,088 884 2,204 9,933 3,629 6,304 
Commercial Segment
   Revenue3,939 4,720 (781)11,306 13,286 (1,980)
   Operating expenses(2,632)(2,735)103 (7,583)(7,146)(437)
1,307 1,985 (678)3,723 6,140 (2,417)
Segment operating income4,395 2,869 1,526 13,656 9,769 3,887 
Other non-segment items of income (expense)
   Depreciation and amortization(3,313)(2,193)(1,120)(9,615)(6,840)(2,775)
   General, administrative and advisory(3,544)(4,190)646 (14,118)(14,233)115 
   Interest income, net7,774 3,387 4,387 19,583 4,020 15,563 
   Loss on early extinguishment of debt— (1,166)1,166 (1,710)(2,805)1,095 
   Gain on foreign currency transactions— 1,533 (1,533)993 19,437 (18,444)
   Gain on sale or write down of assets— 1,539 (1,539)188 16,580 (16,392)
   Income from joint venture85 464,085 (464,000)798 470,428 (469,630)
   Other expense(635)(87,288)86,653 (422)(86,539)86,117 
Net income$4,762 $378,576 $(373,814)$9,353 $409,817 $(400,464)
Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022:
Our $373.8 million decrease in net income is primarily attributed to the following:
The increase in profit from the multifamily segment is primarily due to an increase of $2.0 million from the Acquisition Properties and $0.3 million from the Same Properties offset in part by a decrease of $0.1 million from the Disposition Properties.
The decrease in profit from the commercial segment is primarily due to a decrease in revenue as a result of decline in occupancy at Stanford Center and an increase in insurance cost.
The increase in interest income, net is due to a $2.3 million increase in interest income and a $2.1 million decrease in interest expense. The increase in interest income is primarily due to our investment of cash distributions received from VAA in 2022 (See "Other Developments" in Management's Overview). The decrease in interest expense is primarily due to the repayment of the bonds payable in 2023 and the repayment of mortgage notes payable on properties sold in 2022 (See "Acquisitions and Dispositions" in Management's Overview).
The loss on early extinguishment of debt in 2022 is due to the early repayment of the mortgage note payable on Sugar Mill Phase III (See Financing Activities" in Management's Overview).
The decrease in gain on foreign currency transactions is due to the repayment of our bonds payable in 2023.
The decrease in gain on sale or write down of assets is primarily due to the sale of Sugar Mill Phase III in 2022 (See "Acquisitions and Dispositions" in Management's Overview).
The decrease in income from joint venture is primarily due to our share of the gain on the sale of the VAA Sale Portfolio (See "Other Developments" in Management's Overview) in 2022.
The decrease in other expense is primarily due to the $80.4 million decrease in our tax provision as a result of the sale of the VAA Sale Portfolio in 2022.