Item 8.01. Other Events
On July 13, 2021, Transcontinental Realty Investors, Inc. ("TCI" or the
"Company") and its subsidiary, Southern Properties Capital Ltd., a British
Virgin Islands company ("SPC"), received an arbitration result involving a
dispute between SPC and the Macquarie Group ("Macquarie") in connection with the
formation of a joint venture between Macquarie and SPC, named Victory Abode
Apartments LLC ("VAA"), concerning the settling of certain accounts under the
joint venture agreement.
VAA was formed on November 19, 2018 upon the sale and transfer from SPC to
Macquarie of a 50% ownership interest in 52 multifamily properties
(collectively, the "VAA Portfolio"), under which VAA also assumed all
liabilities of the VAA Portfolio. SPC and TCI account for the investment in VAA
under the equity method. In connection with the formation of VAA, ten out of the
52 properties are subject to an earn-out provision that provides for a
remeasurement of value after a two-year period following the completion of
construction. As of March 31, 2021, SPC recorded a liability of $10.0 million,
which it believed to be the amount that would be required to settle the
obligation ("Earn Out Obligation").
Macquarie and SPC were unable to reach agreement on the measurement of the Earn
Out Obligation and, therefore, submitted the issue to arbitration in accordance
with a provision of the joint venture agreement, Following presentation by both
parties, SPC's position and claims were declined, and the position of Macquarie
was fully accepted. As a result, SPC expects to be required to pay approximately
$39.6 million to Macquarie to satisfy the Earn Out Obligation. SPC and counsel
are reviewing the arbitration result and determining next steps.
The joint venture agreement provides that SPC may settle the Earn Out Obligation
by a continual offset (payment to Macquarie) of future distributions from VAA
which generally occur each six months to both members.
As a result, SPC expects to take approximately a $29.6 million charge for the
quarter ended June 30, 2021. SPC has issues of debentures outstanding and listed
on the Tel Aviv Stock Exchange ("TASE") and is accordingly subject to the rules
of the TASE and the Israel Securities Authority. In satisfaction of those
requirements, on July 15, 2021, SPC issued an "immediate report," a copy of the
English version of which is attached as an exhibit to this report.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
The following exhibit is furnished with this Report:
Exhibit No. Description
English version of Immediate Report, issued July 15, 2021,
99.2* by Southern Properties Capital Ltd. to The Israeli
Securities Authority and The Tel Aviv Stock Exchange Ltd.
_________________________
* Furnished herewith
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