TRANSCONTINENTAL REALTY INVESTORS INC

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”. As of March 31, 2026, weare owned approximately 79.2% by American Realty Investors, Inc. (“ARL”), whose common stock is listed on the NYSE under the symbol “ARL”, and 8.1% by the controlling shareholder of ARL.

Our primary business is the acquisition, development and ownership of income-producing residential 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 also sell land and income-producing properties. We generate revenues by leasing apartment units to residents, and leasing office, industrial and retail space. We also generate income from the sales of income-producing properties and land.

At March 31, 2026, our real estate portfolio consisted of:

•Thirteen multifamily properties in operation, comprising 2,128 units;

•Three multifamily properties in lease-up, comprising 672 units;

•One multifamily property under development, comprising 234 units;

•Commercial properties, consisting offour office buildings with an aggregate of approximately 1,001,549 rentable square feet; and

•Approximately 1,786 acres of developed and undeveloped land.

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-related investment opportunities, asset management, property development, construction management and arranging debt and equity financing. 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”). Our multifamily properties andone of our commercial properties are managed by outside management companies. Pillar and Regis are considered to be related parties (See Note 11 – 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.

The consolidated balance sheet at December 31, 2025 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, 2025.

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.

Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board ("FASB") issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The standard requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. Our adoption of the standard on January 1, 2026 did not have a material impact on our consolidated financial statements.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The amendment in the update clarify interim reporting disclosure requirements in ASC 270 and introduces a new disclosure principal for reporting material events occurring after the most recent annual period. The update is effective for interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the potential impact of adopting ASU 2025-11 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:

4. Operating Segments

Segment information is prepared on the same basis that our chief operating decision maker ("CODM") reviews information to assess performance and make resource allocation decisions. Our CODM is our President and Chief Executive Officer. We operate intwo reportable segments: (i) the acquisition, development, ownership and management of multifamily properties ("Multifamily Segment") and (ii) the acquisition, ownership and management of commercial real estate properties ("Commercial Segment"). The services for our segments include rental of property and other tenant services, including parking and storage space rental. The key operating metric that the CODM utilizes to evaluate the segments is net operating income ("NOI"), which we defined as property revenue less direct property operating expenses. NOI excludes depreciation, interest income and expenses, general and administrative expenses, advisory fees and income taxes.

The following table presents our reportable segments for the three months ended March 31, 2026 and 2025:

The table below reflects the reconciliation of NOI from reportable segments to net income for the three months ended March 31, 2026 and 2025:

5. 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.

The following table summarizes the components of our rental revenue for the three months ended March 31, 2026 and 2025:

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 ofone-year or less:

6. Real Estate Activity

Below is a summary of our real estate as of March 31, 2026 and December 31, 2025:

We incurred depreciation expense of $3,442 and$2,721 for the three months ended March 31, 2026 and 2025, respectively.

Construction Activities

As of March 31, 2026, construction in progress includes $46,689 of land lot development costs related to Windmill Farms and $12,599 of costs related to the construction of Mountain Creek, a 234 unit multifamily property in Dallas, Texas, which we expect to complete in 2027. We have entered into a development agreement with Pillar (See Note 11 –Related Party Transactions) to developthe property, which isbeing funded in part by a construction loan (See Note 10 –Mortgages and Other Notes Payable).

Sale of assets

Gain on sale or write-down of assets, net for the three months ended March 31, 2026 and 2025 consists of the following:

(1)Includes the gain on dispositions of land from our investment in Windmill Farms and other land holdings.

(2)This represents additional costs associated with Villas at Bon Secour, a 200 unit multifamily property in Gulf Shores, Alabama, which we sold on October 10, 2025.

7. Short-term Investments

The following is a summary of our short term investment as of March 31, 2026 and December 31, 2025:

The average interest rate on the investments was 4.20% and 4.27% at March 31, 2026 and December 31, 2025, respectively.

8. Notes Receivable

The following table summarizes our notes receivable as of March 31, 2026 and December 31, 2025:

(1)The note is convertible, at our option, into a 100% ownership interest in the underlying property, and is collateralized by the underlying property.

(2)The note bears interest at prime plus 1.0%.

(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. The notes bear interest at the Secured Overnight Financing Rate ("SOFR") in effect on the last day of the preceding calendar quarter. UHF is determined to be a related party (See Note 11 - Related Party Transactions).

(4) We are working with the borrower to extend the maturity and/or exercise our conversion option.

9. Other Assets

At March 31, 2026 and December 31, 2025, our other assets are comprised of the following:

(1) Represents roads, sewer, and utility infrastructure costs in connection with our development of Windmill Farms (See Note 6 - Real Estate Activity). These costs are reimbursable through road and utility bonds issued by certain freshwater districts of Kaufman County Texas.

(2) Includes $525 and $1,259 at March 31, 2026 and December 31, 2025, respectively, related to notes receivable from UHF (See Note 8 - Notes Receivable and Note 11 - Related Party Transactions).

10. Mortgages and Other Notes Payable

The following table summarizes our mortgages and other notes payable as of March 31, 2026 and December 31, 2025:

(1) The construction loan allows borrowings up to $33,000 to finance the development of Alera, bears interest at SOFR plus 3% and was to mature on March 15, 2026. The loan has been extended to September 15, 2026, withtwo one-year extension options.

(2) The construction loan allows borrowings up to $23,500 construction loan to finance the development of Bandera Ridge, bears interest at SOFR plus 3% and matures on December 15, 2028.

(3) The loan is insured by the U.S. Department of Housing and Urban Development under the Federal Housing Administration program.

(4) The loan that bears interest at SOFR plus 2.15% and matures on August 1, 2031.

(5) The construction loan allows borrowings up to $25,407 to finance the development of Merano, bears interest at prime plus 0.25% and matures on November 6, 2028.

We have a construction loan to build Mountain Creek (See Note 6 - Real Estate Activity) that allows for borrowings of up to $27,500, bears interest at SOFR plus 3.45% and matures on March 15, 2029. As of March 31, 2026, we have not borrowed on the loan.

As of March 31, 2026, we were in compliance with all of our loan covenants.

All of the above mortgages and other notes payable are collateralized by the underlying property. In addition, we have guaranteed the loans on Alera, Bandera Ridge, Merano, and Mountain Creek.

11. 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. ("MRHI"), which also owns appro ximately 90.8% of ARL, which in turn owns approximately 79.2% of the Company. Pillar is compensated for advisory services in accordance with an advisory agreement and is compensated for development services in accordance with project specific agreements. Regis receives property management fees 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 $193 and $145 for thethree months ended March 31, 2026 and 2025, respectively, for office space leased to Pillar and Regis.

Property operating expense includes $98 and $86 for thethree months ended March 31, 2026 and 2025, respectively, for management fees on commercial properties payable to Regis.

General and administrative expense includes $972 and $971 for thethree months ended March 31, 2026 and 2025, respectively, for employee compensation and other reimbursable costs payable to Pillar.

Advisory fees paid to Pillar were $2,013 and $2,431 for the three months ended March 31, 2026 and 2025, respectively. Development fees paid to Pillar were $108 and $730 for the three months ended March 31, 2026 and 2025, respectively.

Notes receivable include amounts held by UHF (See Note 8 – 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 a related party receivable ("Pillar Receivable"), which represents amounts advanced to Pillar net of unreimbursed fees, expenses and costs as provided above. The Pillar Receivable bears interest at SOFR as of the last day of the preceding quarter. Interest income on the UHF notes and the Pillar Receivable was $2,449 and $2,517 for the three months ended March 31, 2026 and 2025, respectively. Accrued interest on the UHF notes receivable was$525 and $1,259 at March 31, 2026 and December 31, 2025, respectively(See Note 9 –Other Assets).

12. 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.

On January 29, 2025, we acquired 21,678 shares of IOR through a tender offer for a total cost of $454. In addition, we purchased 32,845 common shares of IOR in the open market in 2025 for a total cost of $583. During thethree months ended March 31, 2026, we purchased an additional 93 shares of IOR on the open market.

We owned approximately 84.6% of IOR at March 31, 2026 and December 31, 2025.

13. 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 March 31, 2026 and December 31, 2025, we had deferred gain of $581.

14. Income Taxes

We are part of a tax sharing and compensating agreement with respect to federal income taxes with MRHI, ARL and IOR. In accordance with the agreement, our expense 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 (benefit) provision:

15. 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.

We are defendants in litigation related to a property sale that was completed in 2008, which was tried to a jury in March 2023. On March 18, 2023, the jury in the case returned a verdict in our favor. The trial court granted the Plaintiffs ("Nixdorf") a new trial, which we challenged by mandamus. On January 14, 2026, the Dallas Court of Appeals granted our petition and ordered the trial court to (1) vacate its new-trial order and (2) enter judgment in our favor on the jury’s verdict. On March 11, 2026, Nixdorf filed a writ of mandamus with the Texas Supreme Court, which has ordered a response from us by May 27, 2026.

We are a defendant in litigation with BT Cole Two regarding their exercise of an option to purchase 200 developed lots in Windmill Farms. The dispute relates to alleged contract breaches arising from alleged development delays and associated purchase pricing amount for the lots. The matter is currently in the discovery phase, with mediation anticipated before trial currently scheduled for October 2026. We intend to continue to vigorously defend against the allegations. While the ultimate outcome of the dispute is not determinable at this time, a loss is possible but the range of which, if any, cannot be reasonably estimated at this time.

16. Subsequent Events

The date to which events occurring after March 31, 2026, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is May 7, 2026, which is the date on which the consolidated financial statements were available to be issued.