10-Q

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, 2016

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)

Nevada	94-6565852
(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)

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.    ☒  Yes     ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

☒  Yes     ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☐	Accelerated filer	☐
Non-accelerated filer     ☐ (do not check if a smaller reporting company)	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐  Yes    ☒ No.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value	8,717,767
(Class)	(Outstanding at November 7, 2016)

TRANSCONTINENTAL REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2016 (unaudited) and December 31, 2015	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	4
	Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2016 (unaudited)	5
	Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2016 and 2015 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	30
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 5.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32
SIGNATURES		33

2 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2016			2015
	(unaudited)
	(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost	$	1,007,055		$	935,635
Real estate subject to sales contracts at cost		47,192			47,192
Less accumulated depreciation		(154,399	)		(138,808	)
Total real estate		899,848			844,019
Notes and interest receivable:
Performing (including $70,543 in 2016 and $64,181 in 2015 from related parties)		74,529			71,376
Less allowance for doubtful accounts (including $1,825 in 2016 and 2015 from related parties)		(1,825	)		(1,825	)
Total notes and interest receivable		72,704			69,551
Cash and cash equivalents		7,339			15,171
Restricted cash		33,488			44,060
Investments in unconsolidated joint ventures and investees		2,469			5,243
Receivable from related party		91,367			90,515
Other assets		44,333			41,645
Total assets	$	1,151,548		$	1,110,204
Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable	$	817,268		$	772,636
Notes related to real estate held for sale		376			376
Notes related to real estate subject to sales contracts		5,815			6,422
Deferred revenue (including $50,669 in 2016 and $50,645 in 2015 to related parties)		71,054			71,021
Accounts payable and other liabilities (including $6,267 in 2016 and $5,845 in 2015 to related parties)		35,892			34,694
Total liabilities		930,405			885,149
Shareholders’ equity:
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares; issued and outstanding zero shares in 2016 and 2015. Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2016 and 2015 (liquidation preference $100 per share)		1			1
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2016 and 2015; outstanding 8,717,767 shares in 2016 and 2015		87			87
Treasury stock at cost, 200 shares in 2016 and 2015		(2	)		(2	)
Paid-in capital		270,076			270,749
Retained earnings		(67,515	)		(64,087	)
Total Transcontinental Realty Investors, Inc. shareholders’ equity		202,647			206,748
Non-controlling interest		18,496			18,307
Total shareholders’ equity		221,143			225,055
Total liabilities and shareholders’ equity	$	1,151,548		$	1,110,204

The accompanying notes are an integral part of these consolidated financial statements.

3 

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenues:
Rental and other property revenues (including $174 and $211 for the three months and $521 and $591 for the nine months ended 2016 and 2015, respectively, from related parties)	$	29,776		$	27,539		$	89,200		$	73,599
Expenses:
Property operating expenses  (including $221 and $192 for the three months and $644 and $522 for the nine months ended 2016 and 2015, respectively, from related parties)		15,413			14,195			45,295			35,987
Depreciation and amortization		6,014			6,555			17,665			16,305
General and administrative  (including $753 and $727 for the three months and $1,501 and $1,547 for the nine months ended 2016 and 2015, respectively, from related parties)		1,541			1,146			4,754			4,191
Net income fee to related party		67			51			193			142
Advisory fee to related party		2,394			2,666			7,096			6,561
Total operating expenses		25,429			24,613			75,003			63,186
Net operating income		4,347			2,926			14,197			10,413
Other income (expenses):
Interest income  (including $4,249 and $2,503 for the three months and $10,269 and $8,861 for the nine months ended 2016 and 2015, respectively, from related parties)		4,251			2,505			11,386			9,260
Other income		8			(77	)		1,178			4
Mortgage and loan interest  (including $212 and $0 for the three months and $437 and $31 for the nine months ended 2016 and 2015, respectively, from related parties)		(13,568	)		(13,550	)		(38,826	)		(31,953	)
Earnings (losses) from unconsolidated joint ventures and investees		—			(4	)		(2	)		39
Litigation expense		—			(85	)		—			(203	)
Total other expenses		(9,309	)		(11,211	)		(26,264	)		(22,853	)
Loss before gain on sale of income-producing properties, loss on land sales, non-controlling interest, and taxes		(4,962	)		(8,285	)		(12,067	)		(12,440	)
Gain on sale of income-producing properties		—			735			4,925			735
Gain on land sales		555			997			3,925			5,124
Net loss from continuing operations before taxes		(4,407	)		(6,553	)		(3,217	)		(6,581	)
Income tax benefit (expense)		(25	)		16			(24	)		107
Net loss from continuing operations		(4,432	)		(6,537	)		(3,241	)		(6,474	)
Discontinued operations:
Net income from discontinued operations		—			47			3			306
Income tax expense from discontinued operations		—			(16	)		(1	)		(107	)
Net income from discontinued operations		—			31			2			199
Net loss		(4,432	)		(6,506	)		(3,239	)		(6,275	)
Net income attributable to non-controlling interest		(114	)		(95	)		(189	)		(82	)
Net loss attributable to Transcontinental Realty Investors, Inc.		(4,546	)		(6,601	)		(3,428	)		(6,357	)
Preferred dividend requirement		(227	)		(227	)		(673	)		(673	)
Net loss applicable to common shares	$	(4,773	)	$	(6,828	)	$	(4,101	)	$	(7,030	)
Earnings per share - basic
Net loss from continuing operations	$	(0.79	)	$	(0.79	)	$	(0.47	)	$	(0.83	)
Net income from discontinued operations		—			—			—			0.02
Net loss applicable to common shares	$	(0.79	)	$	(0.79	)	$	(0.47	)	$	(0.81	)
Earnings per share - diluted
Net loss from continuing operations	$	(0.55	)	$	(0.79	)	$	(0.47	)	$	(0.83	)
Net income from discontinued operations		—			—			—			0.02
Net loss applicable to common shares	$	(0.55	)	$	(0.79	)	$	(0.47	)	$	(0.81	)
Weighted average common shares used in computing earnings per share		8,717,767			8,717,767			8,717,767			8,717,767
Weighted average common shares used in computing diluted earnings per share		8,717,767			8,717,767			8,717,767			8,717,767
Amounts attributable to Transcontinental Realty Investors, Inc.
Net loss from continuing operations	$	(4,546	)	$	(6,632	)	$	(3,430	)	$	(6,556	)
Net income from discontinued operations		—			31			2			199
Net loss	$	(4,546	)	$	(6,601	)	$	(3,428	)	$	(6,357	)

The accompanying notes are an integral part of these consolidated financial statements.

4 

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2016

(unaudited, dollars in thousands) 

	Total			Comprehensive			Preferred		Common Stock				Treasury			Paid-in			Retained			Non-controlling
	Equity			Income (Loss)			Stock		Shares		Amount		Stock			Capital			Earnings			Interest
Balance, December 31, 2015	$	225,055		$	(65,174	)	$	1		8,717,967	$	87	$	(2	)	$	270,749		$	(64,087	)	$	18,307
Series D preferred stock dividends (9.0% per year)		(673	)		—			—		—		—		—			(673	)		—			—
Net loss		(3,239	)		(3,239	)		—		—		—		—			—			(3,428	)		189
Balance, September 30, 2016	$	221,143		$	(68,413	)	$	1		8,717,967	$	87	$	(2	)	$	270,076		$	(67,515	)	$	18,496

The accompanying notes are an integral part of these consolidated financial statements.

5 

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	For the Nine Months Ended September 30,
	2016			2015
	(dollars in thousands)
Net loss	$	(3,239	)	$	(6,275	)
Other comprehensive income		—			—
Total comprehensive income		(3,239	)		(6,275	)
Comprehensive income attributable to non-controlling interest		(189	)		(82	)
Comprehensive income attributable to Transcontinental Realty Investors, Inc.	$	(3,428	)	$	(6,357	)

The accompanying notes are an integral part of these consolidated financial statements.

6 

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)  

	For the Nine Months Ended September 30,
	2016			2015
	(dollars in thousands)
Cash Flow From Operating Activities:
Net loss	$	(3,239	)	$	(6,275	)
Adjustments to reconcile net loss applicable to common      shares to net cash flows from operating activities:
Gain on sale of income-producing properties		(4,925	)		(735	)
Gain on sale of land		(3,925	)		(5,124	)
Depreciation and amortization		16,602			16,305
Amortization of deferred borrowing costs		3,164			1,720
Losses (earnings) from unconsolidated joint ventures and investees		2			(39	)
Decrease (increase) in assets:
Accrued interest receivable		1,224			2,125
Other assets		(895	)		2,469
Prepaid expense		(3,207	)		(12,977	)
Escrow		11,537			4,841
Earnest money		449			(1,193	)
Rent receivables		—			(1,405	)
Related party receivables		(852	)		(42,626	)
Increase (decrease) in liabilities:
Accrued interest payable		(44	)		(637	)
Other liabilities		1,233			(868	)
Net cash provided by (used in) operating activities		17,124			(44,419	)
Cash Flow From Investing Activities:
Proceeds from notes receivable		2,773			23,350
Originations or advances on notes receivable		(7,150	)		(7,655	)
Acquisition of income-producing properties		(41,750	)		(131,220	)
Proceeds from sale of income-producing properties		9,377			—
Proceeds from sale of land		7,152			11,307
Investment in unconsolidated real estate entities		2,770			(596	)
Improvement of land held for development		(2,486	)		(2,930	)
Improvement of income-producing properties		(4,030	)		(7,942	)
Construction and development of new properties		(31,844	)		(5,110	)
Net cash used in investing activities		(65,188	)		(120,796	)
Cash Flow From Financing Activities:
Proceeds from notes payable		115,031			221,450
Recurring amortization of principal on notes payable		(10,480	)		(11,630	)
Payments on maturing notes payable		(60,977	)		(35,344	)
Deferred financing costs		(2,669	)		(8,842	)
Contributions from non-controlling interests		—			11
Preferred stock dividends - Series D		(673	)		(673	)
Net cash provided by financing activities		40,232			164,972
Net increase (decrease) in cash and cash equivalents		(7,832	)		(243	)
Cash and cash equivalents, beginning of period		15,171			12,201
Cash and cash equivalents, end of period	$	7,339		$	11,958
Supplemental disclosures of cash flow information:
Cash paid for interest	$	30,957		$	16,748

The accompanying notes are an integral part of these consolidated financial statements.

7 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

As used herein, the terms “TCI”, “the Company”, “we”, “our” or “us” refer to Transcontinental Realty Investors, Inc., a Nevada corporation which was formed in 1984. The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”). Subsidiaries of American Realty Investors, Inc. (“ARL”) own approximately 80.9% of the Company’s common stock. Accordingly, TCI’s financial results are consolidated with those of ARL’s on Form 10-K and related Consolidated Financial Statements. ARL’s common stock trades on the New York Stock Exchange under the symbol (“ARL”). We have no employees.

TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated tax return with ARL and its ultimate parent, May Realty Holdings, Inc. (“MRHI”).

TCI owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Accordingly IOT’s financial results are consolidated with those of TCI and its subsidiaries. Shares of IOT are traded on the New York Stock Exchange Euronext (“NYSE MKT”) under the symbol (“IOT”).

TCI invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Pillar Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board of Directors is directly responsible for managing the affairs of TCI, and for setting the policies which guide it, the day-to-day operations of TCI are performed by Pillar, as the contractual Advisor, under the supervision of the Board. 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 for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with TCI’s business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to ARL and IOT.

Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services for our real estate portfolio. TCI engages third-party companies to lease and manage its apartment properties.

Properties

We own or had interests in a total property portfolio of 56 income-producing properties as of September 30, 2016. The properties consisted of:

● Seven commercial properties consisting of five office buildings and two retail centers comprising in aggregate approximately 1.7 million rentable square feet;

● A golf course comprising approximately 96 acres

● 49 apartment communities totaling 8,128 units; excluding apartments being developed; and

● 3,608 acres of developed and undeveloped land.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities that have not yet begun construction. At September 30, 2016, we had eight apartment projects in development. The third-party developer typically holds a general partner, as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property, while we generally take a minority limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all necessary equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our Consolidated Financial Statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees.

8

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 (“U.S. 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 results of operations for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The year-end Consolidated Balance Sheet at December 31, 2015, was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain 2015 Consolidated Financial Statement amounts have been reclassified to conform to the 2016 presentation.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary is generally the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in ARL is accounted for under the equity method.

Real Estate, Depreciation and Impairment

Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements: 10-40 years; furniture, fixtures and equipment: 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360 (“ASC 360”), “Property, Plant and Equipment”. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.

9

Real Estate Held for Sale

We periodically classify real estate assets as “held for sale.” An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated.

Prior to January 1, 2015, the operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. Effective January 1, 2015, Accounting Standards Update 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) substantially changed the criteria for determining whether a disposition qualifies for discontinued operations presentation. Since the Company adopted ASU 2014-08, effective January 1, 2015, we have had no dispositions that met the discontinued operations criteria.

Cost Capitalization

Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.

We capitalize leasing costs, which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.

Fair Value Measurement

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.

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement.  Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years.  Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date. 

10

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 its own separate interests, or affiliates of the entity.

Newly Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changed the criteria for determining whether a disposal qualifies as discontinued operations. Under the new guidance, disposals representing a strategic shift, or change in the entity’s strategy, that has, or will have, a major effect on an entity’s operations and financial results will be presented as discontinued operations. This guidance applies to a component of an entity or a group of components of an entity classified as held for sale or disposed of by sale or by means other than a sale, such as abandonment. The Company adopted ASU 2014-08 effective January 1, 2015, and as a result, had no dispositions that met the criteria for discontinued operations during the nine months ending September 30, 2016. See Note 8 below.

In May 2014, Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” was issued. This new guidance established a new single comprehensive revenue recognition model and provides for enhanced disclosures. Under the new policy, the nature, timing and amount of revenue recognized for certain transactions could differ from those recognized under existing accounting guidance. This new standard does not affect revenue recognized under lease contracts. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its financial position and results of operations, if any.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”).  ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The Company adopted ASU 2015-03 effective June 30, 2015.

In February 2016, Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases was issued. This guidance establishes a new model for accounting for leases and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position and results of operations, if any.

NOTE 2. REAL ESTATE ACTIVITY

Below is a summary of the real estate we owned as of September 30, 2016 (dollars in thousands):

Apartments	$	664,383
Apartments under construction		52,034
Commercial properties		203,507
Land held for development		87,131
Real estate subject to sales contract		47,192
Total real estate	$	1,054,247
Less accumulated depreciation		(154,399	)
Total real estate, net of depreciation	$	899,848

11

The highlights of our significant real estate transactions for the nine months ended September 30, 2016, are discussed below.

Purchases

For the nine months ended September 30, 2016, we acquired two income-producing apartment communities for a total purchase price of $40.0 million. In addition, we acquired three land parcels for future development for a total purchase price of $8.9 million, adding 31.04 acres to the development portfolio.

Sales

For the nine months ended September 30, 2016, TCI sold a combined 57.9 acres of land located in Forney, Texas and McKinney, Texas to independent third parties for a total sales price of $8.1 million. We recorded an aggregate $3.9 million gain from the land sales. In addition, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million. We recorded a gain of $5.2 million from this sale. The Company also sold an industrial warehouse consisting of approximately 177,805 square feet. The sale resulted in a loss of approximately $0.2 million.

In November 2015, the Company entered into a sales contract with an unrelated party. The contract was for most of the developable land owned by the Company in the Mercer Crossing Development located in Farmers Branch, Texas. In addition, IOT, ARL and Realty Advisors, Inc. (“RAI”) also sold land in this transaction. Total consideration for the sale was $75 million. The ultimate allocation of sales proceeds to the parties involved is yet to be determined and will be completed when the final use of the land, certain development commitments are completed and the note is collected. The agreement between TCI and the other parties related to this transaction provides for TCI to hold the subordinated note from the buyer in the amount of $50 million. At the closing, the note payable to related parties of $16.1 million was paid off. Due to an inadequate down payment from the buyer and the level of seller financing involved, the transaction is being accounted for under the deposit method. Under the deposit method, no revenue is recognized and the asset sold remains on the books until the criteria for full revenue recognition is met.

As of September 30, 2016, the Company has approximately 91 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions, TCI has deferred the recording of the sales in accordance with ASC 360-20.

We continue to invest in the development of apartment projects. During the nine months ended September 30, 2016, we have expended $18.7 million related to the construction or predevelopment of various apartment complexes and capitalized $0.7 million of interest costs.

12

NOTE 3. NOTES AND INTEREST RECEIVABLE

A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and guarantees, unless noted otherwise, are so secured. Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity. Below is a summary of our notes receivable as of September 30, 2016 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate	Amount		Security
Performing loans:
H198, LLC (Las Vegas Land)	01/20	12.00%		5,907	Unsecured
Oulan-Chikh Family Trust	03/21	8.00%		174	Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32	12.00%		1,481	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		2,000	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		6,368	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		4,640	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		2,653	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		6,000	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		1,953	Secured
Unified Housing Foundation, Inc. (Parkside Crossing) (1)	12/32	12.00%		1,936	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,812	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,491	Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32	12.00%		1,323	Secured
Unified Housing Foundation, Inc. (Tivoli) (1)	12/32	12.00%		7,965	Secured
Unified Housing Foundation, Inc. (1)	12/17	12.00%		1,207	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		3,994	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		6,407	Unsecured
Unified Housing Foundation, Inc. (1)	06/19	12.00%		5,400	Unsecured
Other related party notes (1)	Various	Various		1,404	Various unsecured interests
Other non-related party notes	Various	Various		796	Various secured interests
Other non-related party notes	Various	Various		283	Various unsecured interests
Accrued interest				3,335
Total Performing			$	74,529
Allowance for estimated losses				(1,825)
Total			$	72,704

(1) Related Party notes

We invest in mortgage loans, secured by mortgages that are subordinate to one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on such loans ordinarily includes the real estate on which the loan is made, other collateral and guarantees.

At September 30, 2016, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $68.7 million. During the nine months ended September 30, 2016, we recognized interest income of $6.6 million related to these notes receivables.

The Company has various notes receivable from Unified Housing Foundation, Inc. (“UHF”) and Foundation for Better Housing, Inc. (“FBH”). UHF and FBH are determined to be related parties due to our reliance upon the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow of operations of the properties. A sale or refinance of any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes for the specific borrower. These notes are cross-collateralized for the specific borrower, but to the extent cash is received from a specific UHF or FBH property, it is applied first against any outstanding interest for the related-property note. The allowance on the UHF notes was a purchase allowance that was netted against the notes when acquired.

 13

NOTE 4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

Investments in unconsolidated joint ventures and other investees in which we have a 20% to 50% interest or otherwise exercise significant influence, are carried at cost and adjusted for the Company’s proportionate share of their undistributed earnings or losses under the equity method of accounting. ARL is our parent company and is considered as an unconsolidated joint venture.

Investments in unconsolidated joint ventures and investees consist of the following:

	Percentage ownership as of
	September 30, 2016			September 30, 2015
American Realty Investors, Inc.(1)		0.90	%		1.00	%

(1) Unconsolidated investment in parent company owning 140,000 shares of ARL Common Stock

Our 0.90% interest in the common stock of ARL is accounted for under the equity method because we exercise significant influence over the operations and financial activities. Accordingly, the investments are carried at cost, adjusted for the Company’s proportionate share of earnings or losses.

The following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

As of September 30,		2016			2015
Real estate, net of accumulated depreciation	$	14,550		$	14,255
Notes receivable		46,371			49,614
Other assets		126,848			127,300
Notes payable		(10,426	)		(27,315	)
Other liabilities		(111,789	)		(94,479	)
Shareholders’ equity		(65,554	)		(69,375	)

For the Nine Months Ended September 30,	2016			2015
Rents and interest and other income	$	5,586		$	10,121
Depreciation		(113	)		(159	)
Operating expenses		(2,897	)		(3,727	)
Gain on land sales		—			2,737
Interest expense		(4,725	)		(4,502	)
Income (loss) from continuing operations		(2,149	)		4,470
Income (loss) from discontinued operations		—			1
Net income (loss)	$	(2,149	)	$	4,471
Company’s proportionate share of income (loss) (1)	$	(19	)	$	40

⁽¹⁾ Income (loss) represents continued and discontinued operations

 14

NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of September 30, 2016 (dollars in thousands):

	Notes Payable			Accrued Interest			Total Debt
Apartments	$	549,744		$	1,530		$	551,274
Commercial		109,139			499			109,638
Land		30,938			117			31,055
Real estate held for sale		376			—			376
Real estate subject to sales contract		5,345			470			5,815
Mezzanine financing		136,400			(66	)		136,334
Other		8,477			—			8,477
Total	$	840,419		$	2,550		$	842,969
Unamortized deferred borrowing costs		(19,510	)		—			(19,510	)
Total	$	820,909		$	2,550		$	823,459

The segment labeled as “Other” consists of unsecured or stock-secured notes payable.

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 in constant contact with these lenders, working together in order to modify the terms of these loans and we anticipate a timely resolution that is similar to the existing agreement or subsequent modification.

In conjunction with the development of various apartment projects and other developments, we drew down $16.5 million in construction loans during the nine months ended September 30, 2016.

The properties that we have sold to a related party and have deferred the recognition of the sale are treated as “subject to sales contract” on the Consolidated Balance Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are secured by the property and many have corporate guarantees. According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.

 15

NOTE 6.  RELATED PARTY TRANSACTIONS

The following table reflects the activity in our net receivable from related party for the nine months ended September 30, 2016 (dollars in thousands):

	Pillar			ARL			Total
Related party receivable, December 31, 2014	$	—		$	90,515		$	90,515
Cash transfers		26,928			—			26,928
Advisory fees		(7,095	)		—			(7,095	)
Net income fee		(127	)		—			(127	)
Fees and commissions		(1,729	)		—			(1,729	)
Cost reimbursements		(2,495	)		—			(2,495	)
Interest income		—			3,208			3,208
Notes receivable purchased		(5,356	)					(5,356	)
Expenses paid by advisor		(6,079	)		—			(6,079	)
Financing (mortgage payments)		8,690			—			8,690
Sales/purchases transactions		(15,093	)		—			(15,093	)
Purchase of obligations		2,356			(2,356	)		—
Related party receivable, September 30, 2015	$	—		$	91,367		$	91,367

During the ordinary course of business, we have related party transactions that include, but are not limited to, rental income, interest income, interest expense, general and administrative costs, commissions, management fees, and property expenses. In addition, we have assets and liabilities that include related party amounts. The related party amounts included in assets and liabilities, and the related party revenues and expenses received/paid are shown on the face of the Consolidated Financial Statements.

NOTE 7.  OPERATING SEGMENTS

Our segments are based on our method of internal reporting, which classifies our operations by property type. Our property types are grouped into commercial, apartments, land and other operating segments. Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative and other expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow.

Items of income that are not reflected in the segments are interest, other income, gain on debt extinguishment, gain on condemnation award, equity in partnerships, and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory fees, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued operations before gains on sale of real estate.

The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt.

 16

Presented below is our reportable segments’ operating income for the three months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Three Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,368		$	22,408		$	—		$	—		$	29,776
Property operating expenses		(4,500	)		(10,696	)		(209	)		(8	)		(15,413	)
Depreciation and amortization		(2,207	)		(3,807	)		—			—			(6,014	)
Mortgage and loan interest		(1,700	)		(6,424	)		(420	)		(5,024	)		(13,568	)
Interest income		—			—			—			4,251			4,251
Gain on sale of income producing properties					—			—			—			—
Gain  on land sales		—			—			555			—			555
Segment operating income (loss)	$	(1,039	)	$	1,481		$	(74	)	$	(781	)	$	(413	)
Balance Sheet Data as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	—		$	—		$	805		$	—		$	805
Cost of sale		—			—			(250	)					(250	)
Gain on sale	$	—		$	—		$	555		$	—		$	555
		Commercial
For the Three Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,820		$	19,672		$	—		$	47		$	27,539
Property operating expenses		(4,202	)		(9,374	)		(349	)		(270	)		(14,195	)
Depreciation and amortization		(2,326	)		(4,229	)		—			—			(6,555	)
Mortgage and loan interest		(1,865	)		(6,299	)		(1,242	)		(4,144	)		(13,550	)
Interest income		—			—			—			2,505			2,505
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			997			—			997
Segment operating income (loss)	$	(573	)	$	505		$	(594	)	$	(1,862	)	$	(2,524	)
Balance Sheet Data as of September 30, 2015
Capital expenditures	$	1,404		$	(43	)	$	1,461		$	—		$	2,822
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	2,851		$	—		$	13,980
Cost of sale		—			(10,394	)		(1,854	)		—			(12,248	)
Gain on sale	$	—		$	735		$	997		$	—		$	1,732

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,
	2016			2015
Segment operating income	$	(413	)	$	(2,524	)
Other non-segment items of income (expense)
General and administrative		(1,541	)		(1,146	)
Net income fee to related party		(67	)		(51	)
Advisory fee to related party		(2,394	)		(2,666	)
Other income		8			(77	)
Earnings from unconsolidated joint ventures and investees		—			(4	)
Litigation settlement		—			(85	)
Income tax expense		(25	)		16
Net loss from continuing operations	$	(4,432	)	$	(6,537	)

 17

Presented below is our reportable segments’ operating income for the nine months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Nine Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	23,620		$	65,578		$	—		$	2		$	89,200
Property operating expenses		(13,953	)		(30,258	)		(1,079	)		(5	)		(45,295	)
Depreciation and amortization		(6,707	)		(10,958	)		—			—			(17,665	)
Mortgage and loan interest		(5,347	)		(18,689	)		(1,335	)		(13,455	)		(38,826	)
Interest income		—			—			—			11,386			11,386
Gain on sale of income-producing properties		(243	)		5,168						—			4,925
Gain on land sales		—			—			3,925			—			3,925
Segment operating income (loss)	$	(2,630	)	$	10,841		$	1,511		$	(2,072	)	$	7,650
Balance Sheet as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	1,500		$	8,100		$	8,139		$	—		$	17,739
Cost of sale		(1,743	)		(2,932	)		(4,214	)		—			(8,889	)
Gain (loss) on sale	$	(243	)	$	5,168		$	3,925		$	—		$	8,850
		Commercial
For the Nine Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	21,284		$	52,215		$	—		$	100		$	73,599
Property operating expenses		(11,350	)		(23,725	)		(659	)		(253	)		(35,987	)
Depreciation and amortization		(6,417	)		(9,888	)		—			—			(16,305	)
Mortgage and loan interest		(5,110	)		(15,664	)		(3,439	)		(7,740	)		(31,953	)
Interest income		—			—			—			9,260			9,260
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			5,124			—			5,124
Segment operating income (loss)	$	(1,593	)	$	3,673		$	1,026		$	1,367		$	4,473
Balance Sheet as of September 30, 2015
Capital expenditures	$	7,536		$	1,712		$	2,772		$	—		$	12,020
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	11,987		$	—		$	23,116
Cost of sale		—			(10,394	)		(6,863	)		—			(17,257	)
Gain on sale	$	—		$	735		$	5,124		$	—		$	5,859

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,
	2016			2015
Segment operating income	$	7,650		$	4,473
Other non-segment items of income (expense)
General and administrative		(4,754	)		(4,191	)
Net income fee to related party		(193	)		(142	)
Advisory fee to related party		(7,096	)		(6,561	)
Other income		1,178			4
Earnings (loss) from unconsolidated joint ventures and investees		(2	)		39
Litigation settlement		—			(203	)
Income tax benefit		(24	)		107
Net loss from continuing operations	$	(3,241	)	$	(6,474	)

 18

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Balance Sheets (dollars in thousands):

	As of September 30,
	2016		2015
Segment assets	$	899,848	$	815,719
Investments in real estate partnerships		2,469		2,178
Notes and interest receivable		72,704		65,801
Other assets		176,527		192,879
Total assets	$	1,151,548	$	1,076,577

NOTE 8.  DISCONTINUED OPERATIONS

Prior to January 1, 2015, we applied the provisions of ASC 360, “Property, Plant and Equipment”, which required that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.

Effective January 1, 2015, the Company adopted the provisions of ASU 2014-08, which changed the criteria of ASC 360 related to determining which disposals qualify to be accounted for as discontinued operations and modified related reporting and disclosure requirements. Disposals representing a strategic shift in operations that have a major effect on a company’s operations and financial results will be presented as discontinued operations.

There were no sales of income-producing properties in the first nine months of 2016 that met the criteria for discontinued operations. Amounts included in discontinued operations represent the residual amounts from sales classified as discontinued operations prior to January 1, 2015. The following table summarizes revenue and expense information for the properties sold and held for sale (dollars in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Revenues:
Rental and other property revenues	$	—	$	—		$	—		$	15
		—		—			—			15
Expenses:
Property operating expenses		—		2			(3	)		(346	)
General and administrative		—		(4	)		—			99
Total operating expenses		—		(2	)		(3	)		(247	)
Other income (expense):
Other income		—		45			—			45
Mortgage and loan interest		—		—			—			(1	)
Total other expenses		—		45			—			44
Gain from discontinued operations before tax		—		47			3			306
Income tax benefit (expense)		—		(16	)		(1	)		(107	)
Income from discontinued operations	$	—	$	31		$	2		$	199

Our application of ASC 360 results in the presentation of the net operating results of these qualifying properties sold or held for sale during 2015 as income from discontinued operations. This does not have an impact on net income available to common shareholders and only impacts the presentation of these properties within the Consolidated Statements of Operations.

 19

NOTE 9. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Dynex Capital, Inc.

On July 20, 2015, the 68^th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).

An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resulted in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgment against Dynex Commercial, Inc. on July 20, 2015. 

The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic $0.256 million in damages, plus pre-judgment interest of $0.192 million for a total amount of $0.448 million. The Judgment awarded ART $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages are paid. Lastly, the Judgement awarded Basic, ART, and TCI $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc. 

The Company is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as explore possible additional claims, if any, against Dynex Capital, Inc. 

 TCI is also involved in various other lawsuits arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will have no material impact on TCI’s financial condition, results of operations or liquidity.

Liquidity. Management believes that TCI will generate excess cash from property operations in 2016; such excess, however, will not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell land and income-producing real estate, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements.

Partnership Buyouts. TCI is the limited partner in various partnerships related to the construction of residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the non-affiliated partners are limited to development fees earned by the non-affiliated partners and are outlined in the respective partnership agreements.

Litigation. The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.

The Company is involved in and vigorously defending against, a number of deficiency claims with respect to assets that have been foreclosed by various lenders. Such claims are generally against a consolidated subsidiary as the borrower or the Company as a guarantor of indebtedness or performance. Some of these proceedings may ultimately result in an unfavorable determination for the Company and/or one of its consolidated subsidiaries. While we cannot predict the final result of such proceedings, management believes that the maximum exposure to the Company and its consolidated subsidiaries, if any, will not exceed approximately $20.0 million in the aggregate and will occur, if at all, in future years.

20

Guarantees. The Company is the primary guarantor on a $60.35 million mezzanine loan between UHF and a lender. In addition, ARI and an officer of the Company are limited recourse guarantors of the loan. As of September 30, 2016, UHF was in compliance with the covenants to the loan agreement.

NOTE 10. EARNINGS PER SHARE

Earnings per Share (“EPS”) have been computed pursuant to the provisions of ASC Topic 260 “Earnings per Share”. The computation of basic EPS is calculated by dividing income available to common shareholders from continuing operations, adjusted for preferred dividends, by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.

In November 2006, TCI issued 100,000 shares of Series D Preferred Stock with a liquidation preference of $100 per share. The preferred stock is not convertible into any other security and requires dividends payable from the initial rate of 7% annually to the current rate of 9%. The shares can be redeemed at any point after September 30, 2011. Of the 100,000 shares, 89,500 shares are owned by RAI, a related party, and 10,500 shares are owned by Pillar, a related party. RAI’s 89,500 shares have accrued dividends unpaid of approximately $4.6 million. Pillar’s 10,500 shares have accrued dividends unpaid of approximately $0.5 million.

NOTE 11. SUBSEQUENT EVENTS

The date to which events occurring after September 30, 2016, the date of the most recent balance sheet, have been evaluated for possible adjustment to the Consolidated Financial Statements or disclosure is November 14, 2016, which is the date on which the Consolidated Financial Statements were available to be issued.

The Company has determined that there are no subsequent events to be reported.

21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this 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 the Company’s markets and the effect on occupancy and rental rates;

● the Company’s 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” in the Company’s Annual Report on Form 10-K, which investors should review. There have been no changes from the risk factors previously described in the Company’s Form 10-K for the fiscal year ended December 31, 2015.

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time-to-time and it is not possible for management to predict all such matters; nor can we assess the impact of all such matters on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise as we file them with the SEC.

22

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. Our portfolio of income-producing properties includes residential apartment communities, office buildings and other 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. We acquire land primarily in urban in-fill locations or high-growth suburban markets. We are an active buyer and seller of real estate. During the nine months ended September 30, 2016, we acquired three land parcels for a total of 31.04 acres and an aggregate purchase price of $8.9 million and we sold a combined 57.9 acres of land for a total sales price of $8.1 million. As of September 30, 2016, we owned 8,128 units in 49 residential apartment communities, seven commercial properties comprising approximately 1.7 million rentable square feet and a golf course comprising approximately 96 acres. In addition, we owned 3,608 acres of land held for development.

We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties and debt financing primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders. We finance our development projects principally with variable interest rate construction loans that are converted to long-term, fixed rate amortizing mortgages when the development project is completed and occupancy has been stabilized. We will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell interests in certain of our wholly-owned properties. When we sell assets, we may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. We generate operating revenues primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants. We have no employees.

We have historically engaged in and may continue to engage in certain business transactions with related parties, including, but not limited to, asset acquisition and dispositions. 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 Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board of Directors is directly responsible for managing the affairs of TCI, and for setting the policies which guide it, the day-to-day operations of TCI are performed by Pillar, as the contractual Advisor, under the supervision of the Board.  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 for the Company with third party lenders and investors.  Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with TCI’s business plan and investment policy.  Pillar also serves as an Advisor and Cash Manager to ARL and IOT.

Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services for our real estate portfolio. TCI engages third-party companies to lease and manage its apartment properties.

Critical Accounting Policies

We present our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The FASB Accounting Standards Codification (“ASC”) is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP.

The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

23

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities are included in consolidated net income. Our investment in ARL is accounted for under the equity method.

Real Estate

Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, “above-market” and “below-market” leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with ASC Topic 805 “Business Combinations”, and allocate the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings at replacement cost.

We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as available market information. Estimates of future cash flows are based on a number of factors, including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on our acquisitions to date, our allocation to customer relationship intangible assets has been immaterial.

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our capitalization policy on development properties is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We cease capitalization when a building is considered substantially complete and ready for its intended use, but no later than one year from the cessation of major construction activity.

Prior to January 1, 2015, the operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. Effective January 1, 2015, ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” substantially changed the criteria for determining whether a disposition qualifies for discontinued operations presentation. The Company adopted ASU 2014-08 effective January 1, 2015, and as a result, had no dispositions that met the criteria for discontinued operations during the nine months ending September 30, 2016.

Depreciation and Impairment

Real estate is stated at depreciated cost. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to the development of properties are capitalized. Capitalized development costs include interest, property taxes, insurance, and other project costs incurred during the period of development.

24

Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.

Investments in Unconsolidated Real Estate Ventures

Except for ownership interests in variable interest entities, we account for our investments in unconsolidated real estate ventures under the equity method of accounting because we exercise significant influence over, but do not control, these entities. These investments are recorded initially at cost, as investments in unconsolidated real estate ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated real estate ventures over the life of the related asset. Under the equity method of accounting, our net equity is reflected within the Consolidated Balance Sheets, and our share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. For ownership interests in variable interest entities, we consolidate those in which we are the primary beneficiary.

Recognition of Rental Income

Rental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. On our Consolidated Balance Sheets, we include as a receivable the excess of rental income recognized over rental payments actually received pursuant to the terms of the individual commercial lease agreements.

Reimbursements of operating costs, as allowed under most of our commercial tenant leases, consist of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, and are recognized as revenue in the period in which the recoverable expenses are incurred. We record these reimbursements on a “gross” basis, since we generally are the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have the credit risk with respect to paying the supplier.

Rental income for residential property leases is recorded when due from residents and is recognized monthly as earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.

Revenue Recognition on the Sale of Real Estate

Sales and the associated gains or losses of real estate are recognized in accordance with the provisions of ASC Topic 360-20, “Property, Plant and Equipment – Real Estate Sale”. The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition and account for the continued operations of the property by applying the finance, leasing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.

Non-Performing Notes Receivable

We consider a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments in accordance with the terms of the agreement.

Interest Recognition on Notes Receivable

We record interest income as earned in accordance with the terms of the related loan agreements.

25

Allowance for Estimated Losses

We assess the collectability of notes receivable on a periodic basis, of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. See Note 3 “Notes and Interest Receivable” for details on our notes receivable.

 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 its own separate interests, or affiliates of the entity.

Results of Operations

The discussion of our results of operations is based on management’s review of operations, which is based on our segments. Our segments consist of apartments, commercial properties, land and other. For discussion purposes, we break these segments down into the following sub-categories; same property portfolio, acquired properties and developed properties in the lease-up phase. The same property portfolio consists of properties that were held by us for the entire period for both years being compared. The acquired property portfolio consists of properties that we acquired but have not been held for the entire period for both periods being compared. Developed properties in the lease-up phase consist of completed projects that are being leased-up. As we complete each phase of the project, we lease-up that phase and include those revenues in our continued operations. Once a developed property becomes leased-up and is held the entire period for both periods under comparison, it is considered to be included in the same property portfolio.

Prior to January 1, 2015, the operating results of real estate assets held for sale and sold were reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. The Company adopted ASU 2014-08, effective January 1, 2015, which substantially changed the criteria for determining whether a disposition qualifies for discontinued operations presentation. As a result, we had no dispositions that met the criteria for discontinued operations during the nine months ending September 30, 2016.

26

The following discussion is based on our Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, as included in Part I, Item 1. “Financial Statements” of this report. At September 30, 2016 and 2015, we owned or had interests in a portfolio of 56 and 52 income-producing properties, respectively.

Comparison of the three months ended September 30, 2016 to the same period ended 2015:

For the each of the three months ended September 30, 2016, we reported a net loss applicable to common shares of $6.8 million or $0.79 loss per diluted share.

Revenues

Rental and other property revenues were $29.8 million for the three months ended September 30, 2016. This represents an increase of $2.2 million compared to the prior period revenues of $27.5 million. The change by segment is an increase in the apartment portfolio of approximately $2.7 million and a decrease in the commercial portfolio of $0.5 million. During the three months ended September 30, 2016, we recorded $2.1 million rental revenue for five apartment communities purchased since September 30, 2015 and had a decrease in rental revenue of $0.4 million for one apartment community sold since September 30, 2015, for a net increase of $1.7 million. The $0.5 million decrease in revenues for the commercial portfolio was primarily due to a decrease of $0.4 million in revenues for the Mahogany Run Golf Course in the third quarter of 2016 as compared to the third quarter of 2015.

Expense

Property operating expenses were $15.4 million for the three months ended September 30, 2016, an increase of $1.2 million compared to the prior period expense of $14.2 million. Property operating expenses increased $1.3 million for our apartment portfolio and $0.3 million for the commercial portfolio. The primary reason for the increase in property operating expenses for the Company’s apartment portfolio was the purchase of five communities with a total of 777 units, net of one community sold with a total of 160 units since September 30, 2015, for a net increase of 617 units.

Depreciation and amortization expense was $6.0 million for the three months ended September 30, 2016 for a decrease of $0.6 million as compared to the prior period expense of $6.6 million. This decrease was primarily due to the assets of Whispering Pines Apartments being fully depreciated in the third quarter of 2015.

Other income (expense)

Mortgage and loan interest expense was $13.6 million for each of the three months ended September 30, 2016 and 2015. There were increases of $0.9 million and $0.1 million for the other and apartment segments, respectively, with decreases of $0.8 million and $0.2 million in our land and commercial properties segments, respectively. The $0.9 million increase in the other segment was due primarily to securing a new mezzanine debt obligation in the third quarter of 2016. The decrease in the land portfolio of $0.8 million was due to the transfer of mortgage obligations related to land sold.

Gain on land sales was $0.6 million for the three months ended September 30, 2016 compared to $1.0 million for the three months ended September 30, 2015. In the current period we sold 4.8 acres of land for a total sales price of $0.8 million and recorded a gain of $0.6 million. In 2015, we sold 154.6 acres of land for a total sales price of $2.9 million and recorded a gain of $1.0 million.

Comparison of the nine months ended September 30, 2016 to the same period ended 2015:

For the nine months ended September 30, 2016, we reported a net loss applicable to common shares of $4.1 million or $0.47 loss per diluted share compared to a net loss applicable to common shares of $7.0 million or $0.81 loss per diluted share for the same period in 2015.

Revenues

Rental and other property revenues were $89.2 million for the nine months ended September 30, 2016. This represents an increase of approximately $15.6 million compared to the prior period revenues of $73.6 million. The change by segment is an increase in the apartment portfolio of $13.4 million and an increase in the commercial portfolio of approximately $2.3 million. During the nine months ended September 30, 2016, we recorded $4.8 million rental revenue for six apartment communities purchased since September 30, 2015 and had a decrease in rental revenue of approximately $0.4 million for two apartment communities sold since September 30, 2015, for a net increase of $4.4 million. In addition, we purchased nine apartment communities in the second and third quarters of 2015, which produced rental revenue of $12.2 million and $4.0 million during the nine months ended September 30, 2016 and 2015, respectively, for a net increase of $8.2 million. The $2.3 million increase in revenues for the commercial portfolio was primarily due to the acquisition of a commercial building in Houston, Texas late in the second quarter of 2015.

27

Expense

Property operating expenses were $45.3 million for the nine months ended September 30, 2016. This represents an increase of $9.3 million compared to the prior period operating expenses of $36.0 million. The growth in our apartment portfolio resulted in a $6.5 million increase in property operating expenses. The Company added a net 617 units since September 30, 2015 and acquired a net 1,473 units during the second and third quarters of 2015. Property operating expenses for our commercial portfolio increased $2.6 million due to the acquisition of an office building in Houston, Texas late in the second quarter of 2015. In addition, we had an increase in property operating expenses for our land portfolio of $0.4 million.

Depreciation and amortization expense was $17.7 million for the nine months ended September 30, 2016. This represents an increase of $1.4 million compared to the prior period expense of $16.3 million. The increase is primarily due to the growth in our apartment portfolio over the past 18 months and the purchase of an office building late in the second quarter of 2015. The increase by segment consisted of a $1.1 million increase in the apartment portfolio and a $0.3 million increase in the commercial portfolio.

Other income (expense)

Mortgage and loan interest expense was $38.8 million for the nine months ended September 30, 2016. This represents an increase of $6.8 million compared to the prior period expense of $32.0 million. The change by segment is an increase in the other portfolio of $5.7 million primarily due to securing two new mezzanine debt obligations, one in June 2015 and one in August 2016, an increase in the apartment portfolio of $3.0 million due primarily to acquisitions and an increase in the commercial portfolio of $0.2 million. These increases were partially offset by a decrease in the land portfolio of approximately $2.1 million due to the transfer of mortgage obligations related to land sold.

Gain on sale of income-producing properties was $4.9 million for the nine months ended September 30, 2016 compared to a gain of $0.7 million for the same period of 2015. During 2016, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million which resulted in a gain of $5.2 million. We also sold an industrial warehouse in 2016 consisting of approximately 177,805 square feet. This sale resulted in a loss of approximately $0.2 million.

Gain on land sales was $3.9 million for the nine months ended September 30, 2016 compared to $5.1 million for the comparable period in 2015. During 2016, we sold a combined 57.8 acres of land located in Texas to independent third parties for a total sales price of $8.1 million and recorded total gain of $3.9 million. In the prior period, we sold a combined 198.29 acres of land for a total sales price of $12.0 million and recorded a total gain of $5.1 million.

28

Liquidity and Capital Resources

Our principal liquidity needs are:

● 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.

Our principal sources of cash have been and will continue to be:

● property operations;

● proceeds from land and income-producing property sales;

● collection of mortgage notes receivable;

● collection of receivables from related party companies;

● refinancing of existing debt; and

● additional borrowing, including mortgage notes payable and lines of credit.

We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans. Management anticipates that our available cash from property operations may not be sufficient to meet all of our cash requirements. Management intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowing secured by real estate to meet its liquidity requirements. Although the past cannot predict the future, historically, management has been successful at extending a portion of our current maturity obligations and selling assets as necessary to meet current obligations.  

Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows as presented in Part I, Item 1. “Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flow (dollars in thousands):

	September 30,
	2016			2015			Variance
Net cash used in operating activities	$	17,124		$	(44,419	)	$	61,543
Net cash provided by (used in) investing activities	$	(65,188	)	$	(120,796	)	$	55,608
Net cash provided by (used in) financing activities	$	40,232		$	164,972		$	(124,740	)

Our primary use of cash for operations is daily operating costs, general and administrative expenses, advisory fees, and land holding costs. Our primary source of cash from operating activities is from rental income on properties. In addition, we have a related party account in which excess cash is transferred to or from. The primary reason for the increase in cash flow from operating activities was the change in our related party receivables.

Our primary cash outlays for investing activities are for construction and development, acquisition of land and income-producing properties, and capital improvements to existing properties. During the nine months ended September 30, 2016, we purchased one apartment community for $33.9 million and during the same period in 2015 we purchased nine apartment communities and an office building for a total of $115.5 million.

Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties. During the nine months ended September 30, 2016, we received aggregate sales proceeds of $15.9 million from the sale of an apartment community, an industrial warehouse and a combined 57.8 acres of land. During the nine months ended September 30, 2015, we received aggregate sales proceeds of $8.3 million from the sale of a combined 43.1 acres of land.

Our primary sources of cash from financing activities are from proceeds on notes payables either through refinancing our existing loans or by obtaining new financing. Our primary cash outlays are for recurring debt payments and payments on maturing notes payable.

 29

Environmental Matters

Under various federal, state and local environmental laws, ordinances and regulations, we may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.

Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on our business, assets or results of operations.

Inflation

The effects of inflation on our operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in real estate costs. Fluctuations in the rate of inflation also affect the sales values of properties and the ultimate gains to be realized from property sales. To the extent that inflation affects interest rates, earnings from short-term investments and the cost of new financings as well as the cost of variable interest rate debt will be affected.

Tax Matters

TCI is a member of the May Realty Holdings, Inc. consolidated group for federal income tax reporting. There is a tax sharing and compensating agreement between American Realty Investors, Inc., Income Opportunities Realty Investors, Inc. and TCI.

Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses. TCI had a net operating loss for federal income tax purposes in the first nine months of 2016, a net operating loss in 2015 and a net operating loss in 2014; therefore, it recorded no provision for income taxes.

At September 30, 2016, TCI had a net deferred tax asset of $33.1 million due to tax deductions available to the Company in future years. However, as management cannot determine that it is more likely than not that TCI will realize the benefit of the deferred tax assets, a 100% valuation allowance has been established.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire properties and make loans and other permitted investments.  Our management’s objectives, with regard to interest rate risks, are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs.  To achieve these objectives, we will borrow primarily at fixed rates or variable rates with the lowest margins available and in some cases, with the ability to convert variable rates to fixed rates.  Of our $823.5 million in notes payable at September 30, 2016, $37.8 million represented debt subject to variable interest rates. If our variable interest rates increased 100 basis points, we estimate that total annual interest cost, including interest expensed and interest capitalized, would increase by $0.4 million, and would result in a decrease of $0.04 in our earnings per share.

Our variable rate exposure is mitigated through the ability to secure long-term fixed rate HUD financing on the residential apartment complexes with a weighted average borrowing rate of 3.83% at September 30, 2016.

 30

ITEM 4. CONTROLS AND PROCEDURES

Based on an evaluation by our management (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered by this report, our Principal Executive Officer and Principal 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 Officer and Principal 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 5. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In December 1989, the Board of Directors approved a share repurchase program, authorizing the repurchase of a total of 687,000 shares of TCI’s common stock. In June 2000, the Board increased this authorization to 1,387,000 shares. On August 10, 2010, the Board of Directors approved an increase in the share repurchase program for up to an additional 250,000 shares of common stock which results in a total authorization under the repurchase program for up to 1,637,000 shares of our common stock. This repurchase program has no termination date. There were no shares repurchased under this program during the third quarter of 2016. As of September 30, 2016, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.

 31

ITEM 6. EXHIBITS

The following exhibits are filed with this report or incorporated by reference as indicated;

Exhibit Number	Description
3.0	Articles 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).
3.1	Certificate 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).
3.2	Certificate 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).
3.3	Articles 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).
3.4	Certificate 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).
3.5	Certificate 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).
3.6	Articles 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).
3.7	By-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).
3.8	Certificate 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).
10.1	Advisory 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).
31.1*	Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
31.2*	Certification by the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
32.1*	Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

 32

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 14, 2016	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)
Date: November 14, 2016	By:	/s/ Gene S. Bertcher
		Gene S. Bertcher
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 33

EX-31.1

Transcontinental Realty Investors, Inc. - 10-Q

Exhibit 31.1

CERTIFICATION

I, Daniel J. Moos, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcontinental Realty Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

(d) Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2016	/s/ Daniel J. Moos
	Daniel J. Moos
	President and Chief Executive Officer (Principal Executive Officer)

34

EX-31.2

Transcontinental Realty Investors, Inc. - 10-Q 

Exhibit 31.2

CERTIFICATION

I, Gene S. Bertcher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Transcontinental Realty Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

(d) Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2016	/s/ Gene S. Bertcher
	Gene S. Bertcher
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

35

EX-32.1

Transcontinental Realty Investors, Inc. - 10-Q 

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned officers of Transcontinental Realty Investors, Inc., a Nevada corporation (the “Company”) hereby certifies pursuant to 18 U.S.C. Section 1350 that:

(i) The Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and

(ii) The information contained in the Company’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2016, fairly presents in all material respects, the financial condition and results of operations of the Company, at and for the periods indicated.

	TRANSCONTINENTAL REALTY INVESTORS, INC.
Date: November 14, 2016	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)
Date: November 14, 2016	By:	/s/ Gene S. Bertcher
		Gene S. Bertcher
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

36

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 07, 2016
Document And Entity Information
Entity Registrant Name	TRANSCONTINENTAL REALTY INVESTORS INC
Entity Central Index Key	0000733590
Document Type	10-Q
Trading Symbol	TCI
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity a Well-known Seasoned Issuer	No
Entity a Voluntary Filer	No
Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		8,717,767
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Real estate, at cost	$ 1,007,055	$ 935,635
Real estate subject to sales contracts at cost, net of depreciation	47,192	47,192
Less accumulated depreciation	(154,399)	(138,808)
Total real estate	899,848	844,019
Notes and interest receivable:
Performing (including $70,543 in 2016 and $64,181 in 2015 from related parties)	74,529	71,376
Less allowance for doubtful accounts (including $1,825 in 2016 and 2015 from related parties)	(1,825)	(1,825)
Total notes and interest receivable	72,704	69,551
Cash and cash equivalents	7,339	15,171
Restricted cash	33,488	44,060
Investments in unconsolidated joint ventures and investees	2,469	5,243
Receivable from related party	91,367	90,515
Other assets	44,333	41,645
Total assets	1,151,548	1,110,204
Liabilities:
Notes and interest payable	817,268	772,636
Notes related to real estate held for sale	376	376
Notes related to real estate subject to sales contracts	5,815	6,422
Deferred revenue (including $50,669 in 2016 and $50,645 in 2015 to related parties)	71,054	71,021
Accounts payable and other liabilities (including $6,267 in 2016 and $5,845 in 2015 to related parties)	35,892	34,694
Total liabilities	930,405	885,149
Shareholders' equity:
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares; issued and outstanding zero shares in 2016 and 2015. Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2016 and 2015 (liquidation preference $100 per share)	1	1
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2016 and 2015; outstanding 8,717,767 shares in 2016 and 2015	87	87
Treasury stock at cost, 200 shares in 2016 and 2015	(2)	(2)
Paid-in capital	270,076	270,749
Retained earnings	(67,515)	(64,087)
Total Transcontinental Realty Investors, Inc. shareholders' equity	202,647	206,748
Non-controlling interest	18,496	18,307
Total shareholders' equity	221,143	225,055
Total liabilities and shareholders' equity	$ 1,151,548	$ 1,110,204

XML

CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Performing	$ 74,529	$ 71,376
Deferred revenue from related parties	71,054	71,021
Allowance for doubtful accounts (in dollars)	$ 1,825	$ 1,825
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized	10,000,000	10,000,000
Common stock, issued	8,717,967	8,717,967
Common stock, outstanding	8,717,767	8,717,767
Treasury stock, shares	200	200
Related Parties [Member]
Performing	$ 70,543	$ 64,181
Deferred revenue from related parties	50,669	50,645
Allowance for doubtful accounts (in dollars)	1,825	1,825
Accounts payable and other liabilities to related parties (in dollars)	$ 6,267	$ 5,845
Series C Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized	10,000,000	10,000,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Series D Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, authorized	100,000	100,000
Preferred stock, issued	100,000	100,000
Preferred stock, outstanding	100,000	100,000
Preferred stock, liquidation preference per share (in dollars per share)	$ 100	$ 100

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Rental and other property revenues (including $174 and $211 for the three months and $521 and $591 for the nine months ended 2016 and 2015, respectively, from related parties)	$ 29,776	$ 27,539	$ 89,200	$ 73,599
Expenses:
Property operating expenses (including $221 and $192 for the three months and $644 and $522 for the nine months ended 2016 and 2015, respectively, from related parties)	15,413	14,195	45,295	35,987
Depreciation and amortization	6,014	6,555	17,665	16,305
General and administrative (including $753 and $727 for the three months and $1,501 and $1,547 for the nine months ended 2016 and 2015, respectively, from related parties)	1,541	1,146	4,754	4,191
Net income fee to related party	67	51	193	142
Advisory fee to related party	2,394	2,666	7,096	6,561
Total operating expenses	25,429	24,613	75,003	63,186
Net operating income	4,347	2,926	14,197	10,413
Other income (expenses):
Interest income (including $4,249 and $2,503 for the three months and $10,269 and $8,861 for the nine months ended 2016 and 2015, respectively, from related parties)	4,251	2,505	11,386	9,260
Other income	8	(77)	1,178	4
Mortgage and loan interest (including $212 and $0 for the three months and $437 and $31 for the nine months ended 2016 and 2015, respectively, from related parties)	(13,568)	(13,550)	(38,826)	(31,953)
Earnings (losses) from unconsolidated joint ventures and investees		(4)	(2)	39
Litigation expense		(85)		(203)
Total other expenses	(9,309)	(11,211)	(26,264)	(22,853)
Loss before gain on sale of income-producing properties, loss on land sales, non-controlling interest, and taxes	(4,962)	(8,285)	(12,067)	(12,440)
Gain on sale of income-producing properties		735	4,925	735
Gain on land sales	555	997	3,925	5,124
Net loss from continuing operations before taxes	(4,407)	(6,553)	(3,217)	(6,581)
Income tax benefit (expense)	(25)	16	(24)	107
Net loss from continuing operations	(4,432)	(6,537)	(3,241)	(6,474)
Discontinued operations:
Net income from discontinued operations		47	3	306
Income tax expense from discontinued operations		(16)	(1)	(107)
Net income from discontinued operations		31	2	199
Net loss	(4,432)	(6,506)	(3,239)	(6,275)
Net income attributable to non-controlling interest	(114)	(95)	(189)	(82)
Net loss attributable to Transcontinental Realty Investors, Inc.	(4,546)	(6,601)	(3,428)	(6,357)
Preferred dividend requirement	(227)	(227)	(673)	(673)
Net loss applicable to common shares	$ (4,773)	$ (6,828)	$ (4,101)	$ (7,030)
Earnings per share - basic
Net loss from continuing operations (in dollars per share)	$ (0.79)	$ (0.79)	$ (0.47)	$ (0.83)
Net income from discontinued operations (in dollars per share)				0.02
Net loss applicable to common shares (in dollars per share)	(0.79)	(0.79)	(0.47)	(0.81)
Earnings per share - diluted
Net loss from continuing operations (in dollars per share)	(0.55)	(0.79)	(0.47)	(0.83)
Net income from discontinued operations (in dollars per share)				0.02
Net loss applicable to common shares (in dollars per share)	$ (0.55)	$ (0.79)	$ (0.47)	$ (0.81)
Weighted average common shares used in computing earnings per share (in shares)	8,717,767	8,717,767	8,717,767	8,717,767
Weighted average common shares used in computing diluted earnings per share (in shares)	8,717,767	8,717,767	8,717,767	8,717,767
Amounts attributable to Transcontinental Realty Investors, Inc.
Net loss from continuing operations	$ (4,546)	$ (6,632)	$ (3,430)	$ (6,556)
Net income from discontinued operations		31	2	199
Net loss	$ (4,546)	$ (6,601)	$ (3,428)	$ (6,357)

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Rental and other property revenues	$ 29,776	$ 27,539	$ 89,200	$ 73,599
Property operating expenses	15,413	14,195	45,295	35,987
General and administrative	1,541	1,146	4,754	4,191
Interest income	4,251	2,505	11,386	9,260
Mortgage and loan interest	13,568	13,550	38,826	31,953
Related Parties [Member]
Rental and other property revenues	174	211	521	591
Property operating expenses	221	192	644	522
General and administrative	753	727	1,501	1,547
Interest income	4,249	2,503	10,269	8,861
Mortgage and loan interest	$ 212	$ 0	$ 437	$ 31

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited) - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Total	Comprehensive Income (Loss) [Member]	Preferred Stock [Member]	Common Stock [Member]	Treasury Stock [Member]	Paid-in Capital [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]
Balance, at beginning at Dec. 31, 2015	$ 225,055	$ (65,174)	$ 1	$ 87	$ (2)	$ 270,749	$ (64,087)	$ 18,307
Balance, at beginning (in shares) at Dec. 31, 2015				8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Series D preferred stock dividends	(673)					(673)
Net income	(3,239)	(3,239)					(3,428)	189
Balance, at the end at Sep. 30, 2016	$ 221,143	$ (68,413)	$ 1	$ 87	$ (2)	$ 270,076	$ (67,515)	$ 18,496
Balance, at the end (in shares) at Sep. 30, 2016				8,717,967

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited) (Parenthetical)	9 Months Ended
	Sep. 30, 2016
Statement of Stockholders' Equity [Abstract]
Preferred stock dividend (in percent)	9.00%

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net loss	$ (3,239)	$ (6,275)
Total comprehensive income	(3,239)	(6,275)
Comprehensive (income) loss attributable to non-controlling interest	(189)	(82)
Comprehensive income attributable to Transcontinental Realty Investors, Inc.	$ (3,428)	$ (6,357)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash Flow From Operating Activities:
Net income	$ (3,239)	$ (6,275)
Adjustments to reconcile net income applicable to common shares to net cash flows from operating activities:
Gain on sale of income-producing properties	(4,925)	(735)
Gain on sale of land	(3,925)	(5,124)
Depreciation and amortization	16,602	16,305
Amortization of deferred borrowing costs	3,164	1,720
Losses (earnings) from unconsolidated joint ventures and investees	2	(39)
Decrease (increase) in assets:
Accrued interest receivable	1,224	2,125
Other assets	(895)	2,469
Prepaid expense	(3,207)	(12,977)
Escrow	11,537	4,841
Earnest money	449	(1,193)
Rent receivables		(1,405)
Related party receivables	(852)	(42,626)
Increase (decrease) in liabilities:
Accrued interest payable	(44)	(637)
Other liabilities	1,233	(868)
Net cash provided by (used in) operating activities	17,124	(44,419)
Cash Flow From Investing Activities:
Proceeds from notes receivable	2,773	23,350
Originations or advances on notes receivable	(7,150)	(7,655)
Acquisition of income-producing properties	(41,750)	(131,220)
Proceeds from sale of income-producing properties	9,377
Proceeds from sale of land	7,152	11,307
Investment in unconsolidated real estate entities	2,770	(596)
Improvement of land held for development	(2,486)	(2,930)
Improvement of income-producing properties	(4,030)	(7,942)
Construction and development of new properties	(31,844)	(5,110)
Net cash used in investing activities	(65,188)	(120,796)
Cash Flow From Financing Activities:
Proceeds from notes payable	115,031	221,450
Recurring amortization of principal on notes payable	(10,480)	(11,630)
Payments on maturing notes payable	(60,977)	(35,344)
Deferred financing costs	(2,669)	(8,842)
Contributions from non-controlling interests		11
Preferred stock dividends - Series D	(673)	(673)
Net cash provided by financing activities	40,232	164,972
Net increase (decrease) in cash and cash equivalents	(7,832)	(243)
Cash and cash equivalents, beginning of period	15,171	12,201
Cash and cash equivalents, end of period	7,339	11,958
Supplemental disclosures of cash flow information:
Cash paid for interest	$ 30,957	$ 16,748

XML

ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

As used herein, the terms “TCI”, “the Company”, “we”, “our” or “us” refer to Transcontinental Realty Investors, Inc., a Nevada corporation which was formed in 1984. The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”). Subsidiaries of American Realty Investors, Inc. (“ARL”) own approximately 80.9% of the Company’s common stock. Accordingly, TCI’s financial results are consolidated with those of ARL’s on Form 10-K and related Consolidated Financial Statements. ARL’s common stock trades on the New York Stock Exchange under the symbol (“ARL”). We have no employees.

TCI is a “C” corporation for U.S. federal income tax purposes and files an annual consolidated tax return with ARL and its ultimate parent, May Realty Holdings, Inc. (“MRHI”).

TCI owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Accordingly IOT’s financial results are consolidated with those of TCI and its subsidiaries. Shares of IOT are traded on the New York Stock Exchange Euronext (“NYSE MKT”) under the symbol (“IOT”).

TCI invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate. Pillar Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager. Although the Board of Directors is directly responsible for managing the affairs of TCI, and for setting the policies which guide it, the day-to-day operations of TCI are performed by Pillar, as the contractual Advisor, under the supervision of the Board. 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 for the Company with third party lenders and investors. Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with TCI’s business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to ARL and IOT.

Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services for our real estate portfolio. TCI engages third-party companies to lease and manage its apartment properties.

Properties

We own or had interests in a total property portfolio of 56 income-producing properties as of September 30, 2016. The properties consisted of:

● Seven commercial properties consisting of five office buildings and two retail centers comprising in aggregate approximately 1.7 million rentable square feet;

● A golf course comprising approximately 96 acres

● 49 apartment communities totaling 8,128 units; excluding apartments being developed; and

● 3,608 acres of developed and undeveloped land.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities that have not yet begun construction. At September 30, 2016, we had eight apartment projects in development. The third-party developer typically holds a general partner, as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property, while we generally take a minority limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all necessary equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our Consolidated Financial Statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees.

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 (“U.S. 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 results of operations for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The year-end Consolidated Balance Sheet at December 31, 2015, was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain 2015 Consolidated Financial Statement amounts have been reclassified to conform to the 2016 presentation.

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary is generally the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in ARL is accounted for under the equity method.

Real Estate, Depreciation and Impairment

Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements: 10-40 years; furniture, fixtures and equipment: 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360 (“ASC 360”), “Property, Plant and Equipment”. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.

Real Estate Held for Sale

We periodically classify real estate assets as “held for sale.” An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated.

Prior to January 1, 2015, the operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. Effective January 1, 2015, Accounting Standards Update 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) substantially changed the criteria for determining whether a disposition qualifies for discontinued operations presentation. Since the Company adopted ASU 2014-08, effective January 1, 2015, we have had no dispositions that met the discontinued operations criteria.

Cost Capitalization

Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.

We capitalize leasing costs, which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.

Fair Value Measurement

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.

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement.  Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years.  Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date. 

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 its own separate interests, or affiliates of the entity.

Newly Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changed the criteria for determining whether a disposal qualifies as discontinued operations. Under the new guidance, disposals representing a strategic shift, or change in the entity’s strategy, that has, or will have, a major effect on an entity’s operations and financial results will be presented as discontinued operations. This guidance applies to a component of an entity or a group of components of an entity classified as held for sale or disposed of by sale or by means other than a sale, such as abandonment. The Company adopted ASU 2014-08 effective January 1, 2015, and as a result, had no dispositions that met the criteria for discontinued operations during the nine months ending September 30, 2016. See Note 8 below.

In May 2014, Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” was issued. This new guidance established a new single comprehensive revenue recognition model and provides for enhanced disclosures. Under the new policy, the nature, timing and amount of revenue recognized for certain transactions could differ from those recognized under existing accounting guidance. This new standard does not affect revenue recognized under lease contracts. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its financial position and results of operations, if any.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”).  ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The Company adopted ASU 2015-03 effective June 30, 2015.

In February 2016, Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases was issued. This guidance establishes a new model for accounting for leases and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position and results of operations, if any.

XML

REAL ESTATE ACTIVITY

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

REAL ESTATE ACTIVITY

NOTE 2. REAL ESTATE ACTIVITY

Below is a summary of the real estate we owned as of September 30, 2016 (dollars in thousands):

Apartments	$	664,383
Apartments under construction		52,034
Commercial properties		203,507
Land held for development		87,131
Real estate subject to sales contract		47,192
Total real estate	$	1,054,247
Less accumulated depreciation		(154,399	)
Total real estate, net of depreciation	$	899,848

The highlights of our significant real estate transactions for the nine months ended September 30, 2016, are discussed below.

Purchases

For the nine months ended September 30, 2016, we acquired two income-producing apartment communities for a total purchase price of $40.0 million. In addition, we acquired three land parcels for future development for a total purchase price of $8.9 million, adding 31.04 acres to the development portfolio.

Sales

For the nine months ended September 30, 2016, TCI sold a combined 57.9 acres of land located in Forney, Texas and McKinney, Texas to independent third parties for a total sales price of $8.1 million. We recorded an aggregate $3.9 million gain from the land sales. In addition, the Company sold one apartment community located in Irving, Texas to an independent third party for a total sales price of $8.1 million. We recorded a gain of $5.2 million from this sale. The Company also sold an industrial warehouse consisting of approximately 177,805 square feet. The sale resulted in a loss of approximately $0.2 million.

In November 2015, the Company entered into a sales contract with an unrelated party. The contract was for most of the developable land owned by the Company in the Mercer Crossing Development located in Farmers Branch, Texas. In addition, IOT, ARL and Realty Advisors, Inc. (“RAI”) also sold land in this transaction. Total consideration for the sale was $75 million. The ultimate allocation of sales proceeds to the parties involved is yet to be determined and will be completed when the final use of the land, certain development commitments are completed and the note is collected. The agreement between TCI and the other parties related to this transaction provides for TCI to hold the subordinated note from the buyer in the amount of $50 million. At the closing, the note payable to related parties of $16.1 million was paid off. Due to an inadequate down payment from the buyer and the level of seller financing involved, the transaction is being accounted for under the deposit method. Under the deposit method, no revenue is recognized and the asset sold remains on the books until the criteria for full revenue recognition is met.

As of September 30, 2016, the Company has approximately 91 acres of land, at various locations that were sold to related parties in multiple transactions. These transactions are treated as “subject to sales contract” on the Consolidated Balance Sheets. Due to the related party nature of the transactions, TCI has deferred the recording of the sales in accordance with ASC 360-20.

We continue to invest in the development of apartment projects. During the nine months ended September 30, 2016, we have expended $18.7 million related to the construction or predevelopment of various apartment complexes and capitalized $0.7 million of interest costs.

XML

NOTES AND INTEREST RECEIVABLE

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

NOTES AND INTEREST RECEIVABLE

NOTE 3. NOTES AND INTEREST RECEIVABLE

A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and guarantees, unless noted otherwise, are so secured. Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity. Below is a summary of our notes receivable as of September 30, 2016 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate	Amount		Security
Performing loans:
H198, LLC (Las Vegas Land)	01/20	12.00%		5,907	Unsecured
Oulan-Chikh Family Trust	03/21	8.00%		174	Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32	12.00%		1,481	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		2,000	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		6,368	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		4,640	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		2,653	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		6,000	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		1,953	Secured
Unified Housing Foundation, Inc. (Parkside Crossing) (1)	12/32	12.00%		1,936	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,812	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,491	Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32	12.00%		1,323	Secured
Unified Housing Foundation, Inc. (Tivoli) (1)	12/32	12.00%		7,965	Secured
Unified Housing Foundation, Inc. (1)	12/17	12.00%		1,207	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		3,994	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		6,407	Unsecured
Unified Housing Foundation, Inc. (1)	06/19	12.00%		5,400	Unsecured
Other related party notes (1)	Various	Various		1,404	Various unsecured interests
Other non-related party notes	Various	Various		796	Various secured interests
Other non-related party notes	Various	Various		283	Various unsecured interests
Accrued interest				3,335
Total Performing			$	74,529
Allowance for estimated losses				(1,825)
Total			$	72,704

(1) Related Party notes

We invest in mortgage loans, secured by mortgages that are subordinate to one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on such loans ordinarily includes the real estate on which the loan is made, other collateral and guarantees.

At September 30, 2016, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $68.7 million. During the nine months ended September 30, 2016, we recognized interest income of $6.6 million related to these notes receivables.

The Company has various notes receivable from Unified Housing Foundation, Inc. (“UHF”) and Foundation for Better Housing, Inc. (“FBH”). UHF and FBH are determined to be related parties due to our reliance upon the performance of the collateral secured under the notes receivable. Payments are due from surplus cash flow of operations of the properties. A sale or refinance of any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes for the specific borrower. These notes are cross-collateralized for the specific borrower, but to the extent cash is received from a specific UHF or FBH property, it is applied first against any outstanding interest for the related-property note. The allowance on the UHF notes was a purchase allowance that was netted against the notes when acquired.

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

9 Months Ended

Sep. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

NOTE 4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

Investments in unconsolidated joint ventures and other investees in which we have a 20% to 50% interest or otherwise exercise significant influence, are carried at cost and adjusted for the Company’s proportionate share of their undistributed earnings or losses under the equity method of accounting. ARL is our parent company and is considered as an unconsolidated joint venture.

Investments in unconsolidated joint ventures and investees consist of the following:

	Percentage ownership as of
	September 30, 2016			September 30, 2015
American Realty Investors, Inc.(1)		0.90	%		1.00	%

(1) Unconsolidated investment in parent company owning 140,000 shares of ARL Common Stock

Our 0.90% interest in the common stock of ARL is accounted for under the equity method because we exercise significant influence over the operations and financial activities. Accordingly, the investments are carried at cost, adjusted for the Company’s proportionate share of earnings or losses.

The following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

As of September 30,		2016			2015
Real estate, net of accumulated depreciation	$	14,550		$	14,255
Notes receivable		46,371			49,614
Other assets		126,848			127,300
Notes payable		(10,426	)		(27,315	)
Other liabilities		(111,789	)		(94,479	)
Shareholders’ equity		(65,554	)		(69,375	)

For the Nine Months Ended September 30,	2016			2015
Rents and interest and other income	$	5,586		$	10,121
Depreciation		(113	)		(159	)
Operating expenses		(2,897	)		(3,727	)
Gain on land sales		—			2,737
Interest expense		(4,725	)		(4,502	)
Income (loss) from continuing operations		(2,149	)		4,470
Income (loss) from discontinued operations		—			1
Net income (loss)	$	(2,149	)	$	4,471
Company’s proportionate share of income (loss) (1)	$	(19	)	$	40

⁽¹⁾ Income (loss) represents continued and discontinued operations

XML

NOTES PAYABLE

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of September 30, 2016 (dollars in thousands):

	Notes Payable			Accrued Interest			Total Debt
Apartments	$	549,744		$	1,530		$	551,274
Commercial		109,139			499			109,638
Land		30,938			117			31,055
Real estate held for sale		376			—			376
Real estate subject to sales contract		5,345			470			5,815
Mezzanine financing		136,400			(66	)		136,334
Other		8,477			—			8,477
Total	$	840,419		$	2,550		$	842,969
Unamortized deferred borrowing costs		(19,510	)		—			(19,510	)
Total	$	820,909		$	2,550		$	823,459

The segment labeled as “Other” consists of unsecured or stock-secured notes payable.

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 in constant contact with these lenders, working together in order to modify the terms of these loans and we anticipate a timely resolution that is similar to the existing agreement or subsequent modification.

In conjunction with the development of various apartment projects and other developments, we drew down $16.5 million in construction loans during the nine months ended September 30, 2016.

The properties that we have sold to a related party and have deferred the recognition of the sale are treated as “subject to sales contract” on the Consolidated Balance Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are secured by the property and many have corporate guarantees. According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.

XML

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 6.  RELATED PARTY TRANSACTIONS

The following table reflects the activity in our net receivable from related party for the nine months ended September 30, 2016 (dollars in thousands):

	Pillar			ARL			Total
Related party receivable, December 31, 2014	$	—		$	90,515		$	90,515
Cash transfers		26,928			—			26,928
Advisory fees		(7,095	)		—			(7,095	)
Net income fee		(127	)		—			(127	)
Fees and commissions		(1,729	)		—			(1,729	)
Cost reimbursements		(2,495	)		—			(2,495	)
Interest income		—			3,208			3,208
Notes receivable purchased		(5,356	)					(5,356	)
Expenses paid by advisor		(6,079	)		—			(6,079	)
Financing (mortgage payments)		8,690			—			8,690
Sales/purchases transactions		(15,093	)		—			(15,093	)
Purchase of obligations		2,356			(2,356	)		—
Related party receivable, September 30, 2015	$	—		$	91,367		$	91,367

During the ordinary course of business, we have related party transactions that include, but are not limited to, rental income, interest income, interest expense, general and administrative costs, commissions, management fees, and property expenses. In addition, we have assets and liabilities that include related party amounts. The related party amounts included in assets and liabilities, and the related party revenues and expenses received/paid are shown on the face of the Consolidated Financial Statements.

XML

OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

OPERATING SEGMENTS

NOTE 7.  OPERATING SEGMENTS

Our segments are based on our method of internal reporting, which classifies our operations by property type. Our property types are grouped into commercial, apartments, land and other operating segments. Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative and other expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow.

Items of income that are not reflected in the segments are interest, other income, gain on debt extinguishment, gain on condemnation award, equity in partnerships, and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory fees, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued operations before gains on sale of real estate.

The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt.

Presented below is our reportable segments’ operating income for the three months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Three Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,368		$	22,408		$	—		$	—		$	29,776
Property operating expenses		(4,500	)		(10,696	)		(209	)		(8	)		(15,413	)
Depreciation and amortization		(2,207	)		(3,807	)		—			—			(6,014	)
Mortgage and loan interest		(1,700	)		(6,424	)		(420	)		(5,024	)		(13,568	)
Interest income		—			—			—			4,251			4,251
Gain on sale of income producing properties					—			—			—			—
Gain  on land sales		—			—			555			—			555
Segment operating income (loss)	$	(1,039	)	$	1,481		$	(74	)	$	(781	)	$	(413	)
Balance Sheet Data as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	—		$	—		$	805		$	—		$	805
Cost of sale		—			—			(250	)					(250	)
Gain on sale	$	—		$	—		$	555		$	—		$	555
		Commercial
For the Three Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,820		$	19,672		$	—		$	47		$	27,539
Property operating expenses		(4,202	)		(9,374	)		(349	)		(270	)		(14,195	)
Depreciation and amortization		(2,326	)		(4,229	)		—			—			(6,555	)
Mortgage and loan interest		(1,865	)		(6,299	)		(1,242	)		(4,144	)		(13,550	)
Interest income		—			—			—			2,505			2,505
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			997			—			997
Segment operating income (loss)	$	(573	)	$	505		$	(594	)	$	(1,862	)	$	(2,524	)
Balance Sheet Data as of September 30, 2015
Capital expenditures	$	1,404		$	(43	)	$	1,461		$	—		$	2,822
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	2,851		$	—		$	13,980
Cost of sale		—			(10,394	)		(1,854	)		—			(12,248	)
Gain on sale	$	—		$	735		$	997		$	—		$	1,732

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,
	2016			2015
Segment operating income	$	(413	)	$	(2,524	)
Other non-segment items of income (expense)
General and administrative		(1,541	)		(1,146	)
Net income fee to related party		(67	)		(51	)
Advisory fee to related party		(2,394	)		(2,666	)
Other income		8			(77	)
Earnings from unconsolidated joint ventures and investees		—			(4	)
Litigation settlement		—			(85	)
Income tax expense		(25	)		16
Net loss from continuing operations	$	(4,432	)	$	(6,537	)

Presented below is our reportable segments’ operating income for the nine months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Nine Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	23,620		$	65,578		$	—		$	2		$	89,200
Property operating expenses		(13,953	)		(30,258	)		(1,079	)		(5	)		(45,295	)
Depreciation and amortization		(6,707	)		(10,958	)		—			—			(17,665	)
Mortgage and loan interest		(5,347	)		(18,689	)		(1,335	)		(13,455	)		(38,826	)
Interest income		—			—			—			11,386			11,386
Gain on sale of income-producing properties		(243	)		5,168						—			4,925
Gain on land sales		—			—			3,925			—			3,925
Segment operating income (loss)	$	(2,630	)	$	10,841		$	1,511		$	(2,072	)	$	7,650
Balance Sheet as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	1,500		$	8,100		$	8,139		$	—		$	17,739
Cost of sale		(1,743	)		(2,932	)		(4,214	)		—			(8,889	)
Gain (loss) on sale	$	(243	)	$	5,168		$	3,925		$	—		$	8,850
		Commercial
For the Nine Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	21,284		$	52,215		$	—		$	100		$	73,599
Property operating expenses		(11,350	)		(23,725	)		(659	)		(253	)		(35,987	)
Depreciation and amortization		(6,417	)		(9,888	)		—			—			(16,305	)
Mortgage and loan interest		(5,110	)		(15,664	)		(3,439	)		(7,740	)		(31,953	)
Interest income		—			—			—			9,260			9,260
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			5,124			—			5,124
Segment operating income (loss)	$	(1,593	)	$	3,673		$	1,026		$	1,367		$	4,473
Balance Sheet as of September 30, 2015
Capital expenditures	$	7,536		$	1,712		$	2,772		$	—		$	12,020
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	11,987		$	—		$	23,116
Cost of sale		—			(10,394	)		(6,863	)		—			(17,257	)
Gain on sale	$	—		$	735		$	5,124		$	—		$	5,859

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,
	2016			2015
Segment operating income	$	7,650		$	4,473
Other non-segment items of income (expense)
General and administrative		(4,754	)		(4,191	)
Net income fee to related party		(193	)		(142	)
Advisory fee to related party		(7,096	)		(6,561	)
Other income		1,178			4
Earnings (loss) from unconsolidated joint ventures and investees		(2	)		39
Litigation settlement		—			(203	)
Income tax benefit		(24	)		107
Net loss from continuing operations	$	(3,241	)	$	(6,474	)

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Balance Sheets (dollars in thousands):

	As of September 30,
	2016		2015
Segment assets	$	899,848	$	815,719
Investments in real estate partnerships		2,469		2,178
Notes and interest receivable		72,704		65,801
Other assets		176,527		192,879
Total assets	$	1,151,548	$	1,076,577

XML

DISCONTINUED OPERATIONS

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

NOTE 8.  DISCONTINUED OPERATIONS

Prior to January 1, 2015, we applied the provisions of ASC 360, “Property, Plant and Equipment”, which required that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.

Effective January 1, 2015, the Company adopted the provisions of ASU 2014-08, which changed the criteria of ASC 360 related to determining which disposals qualify to be accounted for as discontinued operations and modified related reporting and disclosure requirements. Disposals representing a strategic shift in operations that have a major effect on a company’s operations and financial results will be presented as discontinued operations.

There were no sales of income-producing properties in the first nine months of 2016 that met the criteria for discontinued operations. Amounts included in discontinued operations represent the residual amounts from sales classified as discontinued operations prior to January 1, 2015. The following table summarizes revenue and expense information for the properties sold and held for sale (dollars in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Revenues:
Rental and other property revenues	$	—	$	—		$	—		$	15
		—		—			—			15
Expenses:
Property operating expenses		—		2			(3	)		(346	)
General and administrative		—		(4	)		—			99
Total operating expenses		—		(2	)		(3	)		(247	)
Other income (expense):
Other income		—		45			—			45
Mortgage and loan interest		—		—			—			(1	)
Total other expenses		—		45			—			44
Gain from discontinued operations before tax		—		47			3			306
Income tax benefit (expense)		—		(16	)		(1	)		(107	)
Income from discontinued operations	$	—	$	31		$	2		$	199

Our application of ASC 360 results in the presentation of the net operating results of these qualifying properties sold or held for sale during 2015 as income from discontinued operations. This does not have an impact on net income available to common shareholders and only impacts the presentation of these properties within the Consolidated Statements of Operations.

XML

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

NOTE 9. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Dynex Capital, Inc.

On July 20, 2015, the 68^th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc. The case, which was litigated for more than a decade, had its origin with Dynex Commercial making loans to Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. (subsidiaries of Continental Mortgage & Equity Trust (“CMET”), an entity which merged into TCI in 1999 after the original suit was filed). Under the original loan commitment, $160 million in loans were to be made to the entities. The loans were conditioned on the execution of a commitment between Dynex Commercial and Basic Capital Management, Inc. (“Basic”).

An original trial in 2004, which also included Dynex Capital, Inc. as a defendant, resulted in a jury awarding damages in favor of Basic for “lost opportunity,” as well as damages in favor of ART and in favor of TCI and its subsidiaries for “increased costs” and “lost opportunity.” The original Trial Court judge ignored the jury’s findings, however, and entered a “Judgment Notwithstanding the Verdict” (“JNOV”) in favor of the Dynex entities (the judge held the Plaintiffs were not entitled to any damages from the Dynex entities). After numerous appeals by all parties, Dynex Capital, Inc. was ultimately dismissed from the case and the remaining claims against Dynex Commercial were remanded to the Trial Court for a new judgment consistent with the jury’s findings. The Court entered the new Final Judgment against Dynex Commercial, Inc. on July 20, 2015. 

The Final Judgment entered against Dynex Commercial, Inc. on July 20, 2015 awarded Basic $0.256 million in damages, plus pre-judgment interest of $0.192 million for a total amount of $0.448 million. The Judgment awarded ART $14.2 million in damages, plus pre-judgment interest of $10.6 million for a total amount of $24.8 million. The Judgment awarded TCI $11.1 million, plus pre-judgment interest of $8.4 million for a total amount of $19.5 million. The Judgment also awarded Basic, ART, and TCI post-judgment interest at the rate of 5% per annum from April 25, 2014 until the date their respective damages are paid. Lastly, the Judgement awarded Basic, ART, and TCI $1.6 million collectively in attorneys’ fees from Dynex Commercial, Inc. 

The Company is working with counsel to identify assets and collect on the Final Judgment against Dynex Commercial, Inc., as well as explore possible additional claims, if any, against Dynex Capital, Inc. 

 TCI is also involved in various other lawsuits arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will have no material impact on TCI’s financial condition, results of operations or liquidity.

Liquidity. Management believes that TCI will generate excess cash from property operations in 2016; such excess, however, will not be sufficient to discharge all of TCI’s obligations as they become due. Management intends to sell land and income-producing real estate, refinance real estate and obtain additional borrowings primarily secured by real estate to meet its liquidity requirements.

Partnership Buyouts. TCI is the limited partner in various partnerships related to the construction of residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the non-affiliated partners are limited to development fees earned by the non-affiliated partners and are outlined in the respective partnership agreements.

Litigation. The ownership of property and provision of services to the public as tenants entails an inherent risk of liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of management, the outcome of such litigation will not have a material adverse impact upon the Company’s financial condition, results of operation or liquidity.

The Company is involved in and vigorously defending against, a number of deficiency claims with respect to assets that have been foreclosed by various lenders. Such claims are generally against a consolidated subsidiary as the borrower or the Company as a guarantor of indebtedness or performance. Some of these proceedings may ultimately result in an unfavorable determination for the Company and/or one of its consolidated subsidiaries. While we cannot predict the final result of such proceedings, management believes that the maximum exposure to the Company and its consolidated subsidiaries, if any, will not exceed approximately $20.0 million in the aggregate and will occur, if at all, in future years.

Guarantees. The Company is the primary guarantor on a $60.35 million mezzanine loan between UHF and a lender. In addition, ARI and an officer of the Company are limited recourse guarantors of the loan. As of September 30, 2016, UHF was in compliance with the covenants to the loan agreement.

XML

EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 10. EARNINGS PER SHARE

Earnings per Share (“EPS”) have been computed pursuant to the provisions of ASC Topic 260 “Earnings per Share”. The computation of basic EPS is calculated by dividing income available to common shareholders from continuing operations, adjusted for preferred dividends, by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be weighted for the portion of the period that they were outstanding.

In November 2006, TCI issued 100,000 shares of Series D Preferred Stock with a liquidation preference of $100 per share. The preferred stock is not convertible into any other security and requires dividends payable from the initial rate of 7% annually to the current rate of 9%. The shares can be redeemed at any point after September 30, 2011. Of the 100,000 shares, 89,500 shares are owned by RAI, a related party, and 10,500 shares are owned by Pillar, a related party. RAI’s 89,500 shares have accrued dividends unpaid of approximately $4.6 million. Pillar’s 10,500 shares have accrued dividends unpaid of approximately $0.5 million.

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 11. SUBSEQUENT EVENTS

The date to which events occurring after September 30, 2016, the date of the most recent balance sheet, have been evaluated for possible adjustment to the Consolidated Financial Statements or disclosure is November 14, 2016, which is the date on which the Consolidated Financial Statements were available to be issued.

The Company has determined that there are no subsequent events to be reported.

XML

ORGANIZATION AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Properties

Properties

We own or had interests in a total property portfolio of 56 income-producing properties as of September 30, 2016. The properties consisted of:

● Seven commercial properties consisting of five office buildings and two retail centers comprising in aggregate approximately 1.7 million rentable square feet;

● A golf course comprising approximately 96 acres

● 49 apartment communities totaling 8,128 units; excluding apartments being developed; and

● 3,608 acres of developed and undeveloped land.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities that have not yet begun construction. At September 30, 2016, we had eight apartment projects in development. The third-party developer typically holds a general partner, as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property, while we generally take a minority limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute the necessary funds to the partnership to acquire the land. We are required to fund all necessary equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our Consolidated Financial Statements. The third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developer’s partnership interests in exchange for any remaining unpaid developer fees.

Basis of Presentation

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 (“U.S. 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 results of operations for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.

The year-end Consolidated Balance Sheet at December 31, 2015, was derived from the audited Consolidated Financial Statements at that date, but does not include all of the information and disclosures required by U.S. GAAP for complete financial statements. For further information, refer to the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain 2015 Consolidated Financial Statement amounts have been reclassified to conform to the 2016 presentation.

Principles of Consolidation

Principles of Consolidation

The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810 “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary is generally the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results. All significant intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. Our investment in ARL is accounted for under the equity method.

Real estate, depreciation, and impairment

Real Estate, Depreciation and Impairment

Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements: 10-40 years; furniture, fixtures and equipment: 5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360 (“ASC 360”), “Property, Plant and Equipment”. Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Under ASC 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.

Real estate held for sale

Real Estate Held for Sale

We periodically classify real estate assets as “held for sale.” An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable. One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its estimated fair value, less costs to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the accompanying Consolidated Balance Sheets. Upon a decision that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated.

Prior to January 1, 2015, the operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. Effective January 1, 2015, Accounting Standards Update 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”) substantially changed the criteria for determining whether a disposition qualifies for discontinued operations presentation. Since the Company adopted ASU 2014-08, effective January 1, 2015, we have had no dispositions that met the discontinued operations criteria.

Cost capitalization

Cost Capitalization

Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.

We capitalize leasing costs, which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.

Fair value measurement

Fair Value Measurement

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.

Deferred Costs

Deferred Costs

Costs relating to the financing of properties are deferred and amortized over the life of the related financing agreement.  Amortization is reflected as interest expense in the Consolidated Statements of Operations, with remaining terms ranging from 6 months to 40 years.  Unamortized financing costs are written off when the financing agreement is extinguished before the maturity date.

Related parties

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 its own separate interests, or affiliates of the entity.

Newly Issued Accounting Pronouncements

Newly Issued Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which changed the criteria for determining whether a disposal qualifies as discontinued operations. Under the new guidance, disposals representing a strategic shift, or change in the entity’s strategy, that has, or will have, a major effect on an entity’s operations and financial results will be presented as discontinued operations. This guidance applies to a component of an entity or a group of components of an entity classified as held for sale or disposed of by sale or by means other than a sale, such as abandonment. The Company adopted ASU 2014-08 effective January 1, 2015, and as a result, had no dispositions that met the criteria for discontinued operations during the nine months ending September 30, 2016. See Note 8 below.

In May 2014, Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers,” was issued. This new guidance established a new single comprehensive revenue recognition model and provides for enhanced disclosures. Under the new policy, the nature, timing and amount of revenue recognized for certain transactions could differ from those recognized under existing accounting guidance. This new standard does not affect revenue recognized under lease contracts. ASU 2014-09 is effective for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its financial position and results of operations, if any.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”).  ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The Company adopted ASU 2015-03 effective June 30, 2015.

In February 2016, Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases was issued. This guidance establishes a new model for accounting for leases and provides for enhanced disclosures. ASU 2016-02 is effective for reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its financial position and results of operations, if any.

XML

REAL ESTATE ACTIVITY (Tables)

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

Schedule of the real estate owned

Below is a summary of the real estate we owned as of September 30, 2016 (dollars in thousands):

Apartments	$	664,383
Apartments under construction		52,034
Commercial properties		203,507
Land held for development		87,131
Real estate subject to sales contract		47,192
Total real estate	$	1,054,247
Less accumulated depreciation		(154,399	)
Total real estate, net of depreciation	$	899,848

XML

NOTES AND INTEREST RECEIVABLE (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Schedule of notes receivable

A majority of the notes receivable provide for principal to be paid at maturity. Below is a summary of our notes receivable as of September 30, 2016 (dollars in thousands):

	Maturity	Interest
Borrower	Date	Rate	Amount		Security
Performing loans:
H198, LLC (Las Vegas Land)	01/20	12.00%		5,907	Unsecured
Oulan-Chikh Family Trust	03/21	8.00%		174	Secured
Unified Housing Foundation, Inc. (Echo Station) (1)	12/32	12.00%		1,481	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		2,000	Secured
Unified Housing Foundation, Inc. (Lakeshore Villas) (1)	12/32	12.00%		6,368	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		4,640	Secured
Unified Housing Foundation, Inc. (Limestone Canyon) (1)	12/32	12.00%		2,653	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		6,000	Secured
Unified Housing Foundation, Inc. (Limestone Ranch) (1)	12/32	12.00%		1,953	Secured
Unified Housing Foundation, Inc. (Parkside Crossing) (1)	12/32	12.00%		1,936	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,812	Secured
Unified Housing Foundation, Inc. (Sendero Ridge) (1)	12/32	12.00%		4,491	Secured
Unified Housing Foundation, Inc. (Timbers of Terrell) (1)	12/32	12.00%		1,323	Secured
Unified Housing Foundation, Inc. (Tivoli) (1)	12/32	12.00%		7,965	Secured
Unified Housing Foundation, Inc. (1)	12/17	12.00%		1,207	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		3,994	Unsecured
Unified Housing Foundation, Inc. (1)	12/18	12.00%		6,407	Unsecured
Unified Housing Foundation, Inc. (1)	06/19	12.00%		5,400	Unsecured
Other related party notes (1)	Various	Various		1,404	Various unsecured interests
Other non-related party notes	Various	Various		796	Various secured interests
Other non-related party notes	Various	Various		283	Various unsecured interests
Accrued interest				3,335
Total Performing			$	74,529
Allowance for estimated losses				(1,825)
Total			$	72,704

(1) Related Party notes

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Tables)

9 Months Ended

Sep. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Schedule of investments in unconsolidated joint ventures

Investments in unconsolidated joint ventures and investees consist of the following:

	Percentage ownership as of
	September 30, 2016			September 30, 2015
American Realty Investors, Inc.(1)		0.90	%		1.00	%

(1) Unconsolidated investment in parent company owning 140,000 shares of ARL Common Stock

Schedule of the financial position and results of operations - unconsolidated parent

The following is a summary of the financial position and results of operations from our unconsolidated parent (dollars in thousands):

As of September 30,		2016			2015
Real estate, net of accumulated depreciation	$	14,550		$	14,255
Notes receivable		46,371			49,614
Other assets		126,848			127,300
Notes payable		(10,426	)		(27,315	)
Other liabilities		(111,789	)		(94,479	)
Shareholders’ equity		(65,554	)		(69,375	)

For the Nine Months Ended September 30,	2016			2015
Rents and interest and other income	$	5,586		$	10,121
Depreciation		(113	)		(159	)
Operating expenses		(2,897	)		(3,727	)
Gain on land sales		—			2,737
Interest expense		(4,725	)		(4,502	)
Income (loss) from continuing operations		(2,149	)		4,470
Income (loss) from discontinued operations		—			1
Net income (loss)	$	(2,149	)	$	4,471
Company’s proportionate share of income (loss) (1)	$	(19	)	$	40

⁽¹⁾ Income (loss) represents continued and discontinued operations

XML

NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of notes and interest payable

Below is a summary of our notes and interest payable as of September 30, 2016 (dollars in thousands):

	Notes Payable			Accrued Interest			Total Debt
Apartments	$	549,744		$	1,530		$	551,274
Commercial		109,139			499			109,638
Land		30,938			117			31,055
Real estate held for sale		376			—			376
Real estate subject to sales contract		5,345			470			5,815
Mezzanine financing		136,400			(66	)		136,334
Other		8,477			—			8,477
Total	$	840,419		$	2,550		$	842,969
Unamortized deferred borrowing costs		(19,510	)		—			(19,510	)
Total	$	820,909		$	2,550		$	823,459

XML

RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

Schedule of accounts receivable from and (accounts payable) to related parties

The following table reflects the activity in our net receivable from related party for the nine months ended September 30, 2016 (dollars in thousands):

	Pillar			ARL			Total
Related party receivable, December 31, 2014	$	—		$	90,515		$	90,515
Cash transfers		26,928			—			26,928
Advisory fees		(7,095	)		—			(7,095	)
Net income fee		(127	)		—			(127	)
Fees and commissions		(1,729	)		—			(1,729	)
Cost reimbursements		(2,495	)		—			(2,495	)
Interest income		—			3,208			3,208
Notes receivable purchased		(5,356	)					(5,356	)
Expenses paid by advisor		(6,079	)		—			(6,079	)
Financing (mortgage payments)		8,690			—			8,690
Sales/purchases transactions		(15,093	)		—			(15,093	)
Purchase of obligations		2,356			(2,356	)		—
Related party receivable, September 30, 2015	$	—		$	91,367		$	91,367

XML

OPERATING SEGMENTS (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Schedule of operating segment, including segment assets and expenditures

Presented below is our reportable segments’ operating income for the three months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Three Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,368		$	22,408		$	—		$	—		$	29,776
Property operating expenses		(4,500	)		(10,696	)		(209	)		(8	)		(15,413	)
Depreciation and amortization		(2,207	)		(3,807	)		—			—			(6,014	)
Mortgage and loan interest		(1,700	)		(6,424	)		(420	)		(5,024	)		(13,568	)
Interest income		—			—			—			4,251			4,251
Gain on sale of income producing properties					—			—			—			—
Gain  on land sales		—			—			555			—			555
Segment operating income (loss)	$	(1,039	)	$	1,481		$	(74	)	$	(781	)	$	(413	)
Balance Sheet Data as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	—		$	—		$	805		$	—		$	805
Cost of sale		—			—			(250	)					(250	)
Gain on sale	$	—		$	—		$	555		$	—		$	555
		Commercial
For the Three Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,820		$	19,672		$	—		$	47		$	27,539
Property operating expenses		(4,202	)		(9,374	)		(349	)		(270	)		(14,195	)
Depreciation and amortization		(2,326	)		(4,229	)		—			—			(6,555	)
Mortgage and loan interest		(1,865	)		(6,299	)		(1,242	)		(4,144	)		(13,550	)
Interest income		—			—			—			2,505			2,505
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			997			—			997
Segment operating income (loss)	$	(573	)	$	505		$	(594	)	$	(1,862	)	$	(2,524	)
Balance Sheet Data as of September 30, 2015
Capital expenditures	$	1,404		$	(43	)	$	1,461		$	—		$	2,822
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	2,851		$	—		$	13,980
Cost of sale		—			(10,394	)		(1,854	)		—			(12,248	)
Gain on sale	$	—		$	735		$	997		$	—		$	1,732

Presented below is our reportable segments’ operating income for the nine months ended September 30, 2016 and 2015, including capital expenditures and segment assets (dollars in thousands):

	Commercial
For the Nine Months Ended September 30, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	23,620		$	65,578		$	—		$	2		$	89,200
Property operating expenses		(13,953	)		(30,258	)		(1,079	)		(5	)		(45,295	)
Depreciation and amortization		(6,707	)		(10,958	)		—			—			(17,665	)
Mortgage and loan interest		(5,347	)		(18,689	)		(1,335	)		(13,455	)		(38,826	)
Interest income		—			—			—			11,386			11,386
Gain on sale of income-producing properties		(243	)		5,168						—			4,925
Gain on land sales		—			—			3,925			—			3,925
Segment operating income (loss)	$	(2,630	)	$	10,841		$	1,511		$	(2,072	)	$	7,650
Balance Sheet as of September 30, 2016
Capital expenditures	$	3,700		$	(146	)	$	1,873		$	—		$	5,427
Real estate assets	$	149,705		$	615,822		$	134,321		$	—		$	899,848
Property Sales
Sales price	$	1,500		$	8,100		$	8,139		$	—		$	17,739
Cost of sale		(1,743	)		(2,932	)		(4,214	)		—			(8,889	)
Gain (loss) on sale	$	(243	)	$	5,168		$	3,925		$	—		$	8,850
		Commercial
For the Nine Months Ended September 30, 2015		Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	21,284		$	52,215		$	—		$	100		$	73,599
Property operating expenses		(11,350	)		(23,725	)		(659	)		(253	)		(35,987	)
Depreciation and amortization		(6,417	)		(9,888	)		—			—			(16,305	)
Mortgage and loan interest		(5,110	)		(15,664	)		(3,439	)		(7,740	)		(31,953	)
Interest income		—			—			—			9,260			9,260
Gain on sale of income producing properties		—			735			—			—			735
Gain on land sales		—			—			5,124			—			5,124
Segment operating income (loss)	$	(1,593	)	$	3,673		$	1,026		$	1,367		$	4,473
Balance Sheet as of September 30, 2015
Capital expenditures	$	7,536		$	1,712		$	2,772		$	—		$	12,020
Real estate assets	$	159,976		$	501,932		$	153,811		$	—		$	815,719
Property Sales
Sales price	$	—		$	11,129		$	11,987		$	—		$	23,116
Cost of sale		—			(10,394	)		(6,863	)		—			(17,257	)
Gain on sale	$	—		$	735		$	5,124		$	—		$	5,859

Schedule of reconciliaton of segment information to consolidated statements of operations

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,
	2016			2015
Segment operating income	$	(413	)	$	(2,524	)
Other non-segment items of income (expense)
General and administrative		(1,541	)		(1,146	)
Net income fee to related party		(67	)		(51	)
Advisory fee to related party		(2,394	)		(2,666	)
Other income		8			(77	)
Earnings from unconsolidated joint ventures and investees		—			(4	)
Litigation settlement		—			(85	)
Income tax expense		(25	)		16
Net loss from continuing operations	$	(4,432	)	$	(6,537	)

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,
	2016			2015
Segment operating income	$	7,650		$	4,473
Other non-segment items of income (expense)
General and administrative		(4,754	)		(4,191	)
Net income fee to related party		(193	)		(142	)
Advisory fee to related party		(7,096	)		(6,561	)
Other income		1,178			4
Earnings (loss) from unconsolidated joint ventures and investees		(2	)		39
Litigation settlement		—			(203	)
Income tax benefit		(24	)		107
Net loss from continuing operations	$	(3,241	)	$	(6,474	)

Schedule of reconciliaton segment information to consolidated balance sheets

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Balance Sheets (dollars in thousands):

	As of September 30,
	2016		2015
Segment assets	$	899,848	$	815,719
Investments in real estate partnerships		2,469		2,178
Notes and interest receivable		72,704		65,801
Other assets		176,527		192,879
Total assets	$	1,151,548	$	1,076,577

XML

DISCONTINUED OPERATIONS (Tables)

9 Months Ended

Sep. 30, 2016

Discontinued Operations and Disposal Groups [Abstract]

Schedule of summarizes revenue and expense information for the properties sold and held for sale

The following table summarizes revenue and expense information for the properties sold and held for sale (dollars in thousands):

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Revenues:
Rental and other property revenues	$	—	$	—		$	—		$	15
		—		—			—			15
Expenses:
Property operating expenses		—		2			(3	)		(346	)
General and administrative		—		(4	)		—			99
Total operating expenses		—		(2	)		(3	)		(247	)
Other income (expense):
Other income		—		45			—			45
Mortgage and loan interest		—		—			—			(1	)
Total other expenses		—		45			—			44
Gain from discontinued operations before tax		—		47			3			306
Income tax benefit (expense)		—		(16	)		(1	)		(107	)
Income from discontinued operations	$	—	$	31		$	2		$	199

XML

ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative)	9 Months Ended
	Sep. 30, 2016 ft² a Number	Dec. 31, 2015
Number of apartment units	8,128
Number of apartment communities	49
Number of properties	56
Rentable square feet | ft²	1,700,000
Acres of land | a	3,608
Area of land comprising golf course | a	96
Minimum [Member]
Percentage of ownership		20.00%
Period of amortization financing costs	6 months
Maximum [Member]
Percentage of ownership		50.00%
Period of amortization financing costs	40 years
Commercial Properties [Member]
Number of properties	7
Office Buildings [Member]
Number of properties	5
Retail Centers [Member]
Number of properties	2
Apartment Projects in Development [Member]
Number of properties	8
Buildings and Improvements [Member] | Minimum [Member]
Useful life of property, plant and equipment	10 years
Buildings and Improvements [Member] | Maximum [Member]
Useful life of property, plant and equipment	40 years
Fixtures and Equipment [Member] | Minimum [Member]
Useful life of property, plant and equipment	5 years
Fixtures and Equipment [Member] | Maximum [Member]
Useful life of property, plant and equipment	10 years
ARI Subsidiaries [Member]
Percentage of ownership	80.90%
Income Opportunities Realty Investors, Inc. [Member]
Percentage of ownership	81.10%

XML

REAL ESTATE ACTIVITY (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Real Estate [Abstract]
Apartments	$ 664,383
Apartments under construction	52,034
Commercial properties	203,507
Land held for development	87,131
Real estate subject to sales contract	47,192
Total real estate	1,054,247
Less accumulated depreciation	(154,399)
Total real estate	$ 899,848	$ 844,019

XML

REAL ESTATE ACTIVITY (Details Narrative) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended
	Nov. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) ft² a Number	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) ft² a Number	Sep. 30, 2015 USD ($)
Number of properties | Number		56		56
Acquisition of income-producing properties				$ 41,750	$ 131,220
Acres of land | a		3,608		3,608
Gain on land sales		$ 555	$ 997	$ 3,925	$ 5,124
Proceeds from sales of income-producing properties				9,377
Payment for construction or predevelopment of various apartment complexes				18,700
Capitalized interest costs		$ 700		$ 700
Related Parties [Member]
Area of land sold | a		91		91
Apartment Community Acquired [Member]
Number of properties | Number		2		2
Acquisition of income-producing properties				$ 40,000
Land Parcel Acquired [Member]
Number of properties | Number		3		3
Acquisition of income-producing properties				$ 8,900
Acres of land | a		31.04		31.04
Land [Member] | TEXAS
Area of land sold | a		57.9		57.9
Land sales - total consideration	$ 75,000			$ 8,100
Gain on land sales				$ 3,900
Notes receivable - land sales	50,000
Payment for note payable related party	$ 16,100
Apartment Community Sold [Member]
Number of properties | Number		1		1
Gain (loss) on sale of real estate				$ 5,200
Proceeds from sales of income-producing properties				$ 8,100
Industrial Warehouse [Member]
Area of real estate property sold | ft²		177,805		177,805
Gain (loss) on sale of real estate				$ (200)

XML

NOTES AND INTEREST RECEIVABLE (Details)
$ in Thousands

9 Months Ended

Sep. 30, 2016

USD ($)

Allowance for estimated losses

$ (1,825)

Performing Loans [Member]

Performing loans, total

74,529

Accrued interest

3,335

Total notes and interest receivable

$ 72,704

Performing Loans [Member] | H198, LLC (Las Vegas Land) [Member]

Maturity Date

Jan. 31, 2020

Description of property

Las Vegas Land

Interest Rate

12.00%

Performing loans, total

$ 5,907

Description of Security

Unsecured

Performing Loans [Member] | Oulan-Chikh Family Trust [Member]

Maturity Date

Mar. 31, 2021

Interest Rate

8.00%

Performing loans, total

$ 174

Description of Security

Secured

Performing Loans [Member] | Unified Housing Foundation, Inc. (Echo Station) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Echo Station

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 1,481

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Lakeshore Villas) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Lakeshore Villas

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 2,000

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Lakeshore Villas) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Lakeshore Villas

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 6,368

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Limestone Canyon) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Limestone Canyon

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 4,640

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Limestone Canyon) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Limestone Canyon

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 2,653

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Limestone Ranch) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Limestone Ranch

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 6,000

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Limestone Ranch) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Limestone Ranch

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 1,953

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Parkside Crossing) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Parkside Crossing

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 1,936

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Sendero Ridge) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Sendero Ridge

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 4,812

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Sendero Ridge) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Sendero Ridge

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 4,491

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Timbers of Terrell) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Timbers of Terrell

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 1,323

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. (Tivoli) [Member]

Maturity Date

Dec. 31, 2032

^[1]

Description of property

Tivoli

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 7,965

^[1]

Description of Security

Secured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. [Member]

Maturity Date

Dec. 31, 2017

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 1,207

^[1]

Description of Security

Unsecured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. #2 [Member]

Maturity Date

Dec. 31, 2018

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 3,994

^[1]

Description of Security

Unsecured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. #3 [Member]

Maturity Date

Dec. 31, 2018

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 6,407

^[1]

Description of Security

Unsecured

^[1]

Performing Loans [Member] | Unified Housing Foundation, Inc. #4 [Member]

Maturity Date

Jun. 30, 2019

^[1]

Interest Rate

12.00%

^[1]

Performing loans, total

$ 5,400

^[1]

Description of Security

Unsecured

^[1]

Performing Loans [Member] | Other Related Party Notes [Member]

Description of Interest Rate

Various

^[1]

Performing loans, total

$ 1,404

^[1]

Description of Security

Various unsecured interests

^[1]

Performing Loans [Member] | Other Non-Related Party Notes [Member]

Description of Interest Rate

Various

Performing loans, total

$ 796

Description of Security

Various secured interests

Performing Loans [Member] | Other Non-Related Party Notes [Member]

Description of Interest Rate

Various

Performing loans, total

$ 283

Description of Security

Various unsecured interests

[1] Related Party notes

XML

NOTES AND INTEREST RECEIVABLE (Details Narrative) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Interest income	$ 3,208
Mortgage Loans [Member] | Related Parties [Member]
Total notes and interest receivable	68,700
Interest income	$ 6,600

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details)		Sep. 30, 2016	Sep. 30, 2015
American Realty Investors, Inc. [Member]
Percentage of ownership	[1]	0.90%	1.00%

[1] Unconsolidated investment in parent company owning 140,000 shares of ARL Common Stock

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details 1) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Financial Position
Real estate, net of accumulated depreciation		$ 899,848		$ 899,848		$ 844,019
Other assets		44,333		44,333		41,645
Notes payable		(817,268)		(817,268)		(772,636)
Shareholders' equity		(202,647)		(202,647)		$ (206,748)
Results of Operations
Rents and interest and other income		29,776	$ 27,539	89,200	$ 73,599
Depreciation		(6,014)	(6,555)	(17,665)	(16,305)
Operating expenses		25,429	24,613	75,003	63,186
Income (loss) from discontinued operations			31	2	199
Net income (loss)		(4,432)	(6,506)	(3,239)	(6,275)
Company's proportionate share of income (loss)			(4)	(2)	39
American Realty Investors, Inc. [Member]
Financial Position
Real estate, net of accumulated depreciation		14,550	14,255	14,550	14,255
Notes receivable		46,371	49,614	46,371	49,614
Other assets		126,848	127,300	126,848	127,300
Notes payable		(10,426)	(27,315)	(10,426)	(27,315)
Other liabilities		(111,789)	(94,479)	(111,789)	(94,479)
Shareholders' equity		$ (65,554)	$ (69,375)	(65,554)	(69,375)
Results of Operations
Rents and interest and other income				5,586	10,121
Depreciation				(113)	(159)
Operating expenses				(2,897)	(3,727)
Gain on land sales					2,737
Interest expense				(4,725)	(4,502)
Income (loss) from continuing operations				(2,149)	4,470
Income (loss) from discontinued operations					1
Net income (loss)				(2,149)	4,471
Company's proportionate share of income (loss)	[1]			$ (19)	$ 40

[1] Income (loss) represents continued and discontinued operations

XML

INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details Narrative) - shares	Sep. 30, 2016	Dec. 31, 2015
American Realty Investors, Inc [Member]
Ownership of parent company shares	140,000
Minimum [Member]
Percentage of ownership		20.00%
Maximum [Member]
Percentage of ownership		50.00%

XML

NOTES PAYABLE (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Notes Payable	$ 820,909
Accrued Interest	2,550
Total Debt	823,459
Unamortized deferred borrowing costs	(19,510)
Apartments [Member]
Notes Payable	549,744
Accrued Interest	1,530
Total Debt	551,274
Commercial [Member]
Notes Payable	109,139
Accrued Interest	499
Total Debt	109,638
Land [Member]
Notes Payable	30,938
Accrued Interest	117
Total Debt	31,055
Real Estate Held for Sale [Member]
Notes Payable	376
Total Debt	376
Real Estate Subject To Sales Contract [Member]
Notes Payable	5,345
Accrued Interest	470
Total Debt	5,815
Mezzanine Financing [Member]
Notes Payable	136,400
Accrued Interest	(66)
Total Debt	136,334
Other [Member]
Notes Payable	8,477
Total Debt	8,477
Total Notes Payable [Member]
Notes Payable	840,419
Accrued Interest	2,550
Total Debt	842,969
Unamortized deferred borrowing costs	$ (19,510)

XML

NOTES PAYABLE (Details Narrative) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Construction Loans [Member]
Proceeds from draw on loan facility	$ 16,500

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Related party receivable			$ 90,515
Cash transfers			26,928
Advisory fees	$ (2,394)	$ (2,666)	(7,096)	$ (6,561)
Net income fee	(67)	$ (51)	(193)	$ (142)
Fees and commissions			(1,729)
Cost reimbursements			(2,495)
Interest income			3,208
Notes receivable purchased			(5,356)
Expenses paid by Advisor			(6,079)
Financing (mortgage payments)			8,690
Sales/purchases transactions			(15,093)
Related party receivable	91,367		91,367
Pillar Income Asset Management, Inc [Member]
Cash transfers			26,928
Advisory fees			(7,095)
Net income fee			(127)
Fees and commissions			(1,729)
Cost reimbursements			(2,495)
Notes receivable purchased			(5,356)
Expenses paid by Advisor			(6,079)
Financing (mortgage payments)			8,690
Sales/purchases transactions			(15,093)
Purchase of obligations			2,356
American Realty Investors, Inc [Member]
Related party receivable			90,515
Interest income			3,208
Purchase of obligations			(2,356)
Related party receivable	$ 91,367		$ 91,367

XML

OPERATING SEGMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Segment Reporting Information [Line Items]
Rental and other property revenues	$ 29,776	$ 27,539	$ 89,200	$ 73,599
Property operating expenses	(15,413)	(14,195)	(45,295)	(35,987)
Depreciation and amortization	(6,014)	(6,555)	(17,665)	(16,305)
Gain on the sale of income producing properties		735	4,925	735
Gain on land sales	555	997	3,925	5,124
Segment operating income (loss)	4,347	2,926	14,197	10,413
Real estate assets	899,848		899,848
Commercial Properties [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	7,368	7,820	23,620	21,284
Property operating expenses	(4,500)	(4,202)	(13,953)	(11,350)
Depreciation and amortization	(2,207)	(2,326)	(6,707)	(6,417)
Mortgage and loan interest	(1,700)	(1,865)	(5,347)	(5,110)
Gain on the sale of income producing properties			(243)
Segment operating income (loss)	(1,039)	(573)	(2,630)	(1,593)
Capital expenditures	3,700	1,404	3,700	7,536
Real estate assets	149,705	159,976	149,705	159,976
Property Sales
Sales price			1,500
Cost of sale			(1,743)
Gain (loss) on sale			(243)
Apartments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	22,408	19,672	65,578	52,215
Property operating expenses	(10,696)	(9,374)	(30,258)	(23,725)
Depreciation and amortization	(3,807)	(4,229)	(10,958)	(9,888)
Mortgage and loan interest	(6,424)	(6,299)	(18,689)	(15,664)
Gain on the sale of income producing properties		735	5,168	735
Segment operating income (loss)	1,481	505	10,841	3,673
Capital expenditures	(146)	(43)	(146)	1,712
Real estate assets	615,822	501,932	615,822	501,932
Property Sales
Sales price		11,129	8,100	11,129
Cost of sale		(10,394)	(2,932)	(10,394)
Gain (loss) on sale		735	5,168	735
Land [Member]
Segment Reporting Information [Line Items]
Property operating expenses	(209)	(349)	(1,079)	(659)
Mortgage and loan interest	(420)	(1,242)	(1,335)	(3,439)
Gain on land sales	555	997	3,925	5,124
Segment operating income (loss)	(74)	(594)	1,511	1,026
Capital expenditures	1,873	1,461	1,873	2,772
Real estate assets	134,321	153,811	134,321	153,811
Property Sales
Sales price	805	2,851	8,139	11,987
Cost of sale	(250)	(1,854)	(4,214)	(6,863)
Gain (loss) on sale	555	997	3,925	5,124
Other [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues		47	2	100
Property operating expenses	(8)	(270)	(5)	(253)
Mortgage and loan interest	(5,024)	(4,144)	(13,455)	(7,740)
Interest income	4,251	2,505	11,386	9,260
Segment operating income (loss)	(781)	(1,862)	(2,072)	1,367
Total Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	29,776	27,539	89,200	73,599
Property operating expenses	(15,413)	(14,195)	(45,295)	(35,987)
Depreciation and amortization	(6,014)	(6,555)	(17,665)	(16,305)
Mortgage and loan interest	(13,568)	(13,550)	(38,826)	(31,953)
Interest income	4,251	2,505	11,386	9,260
Gain on the sale of income producing properties		735	4,925	735
Gain on land sales	555	997	3,925	5,124
Segment operating income (loss)	(413)	(2,524)	7,650	4,473
Capital expenditures	5,427	2,822	5,427	12,020
Real estate assets	899,848	815,719	899,848	815,719
Property Sales
Sales price	805	13,980	17,739	23,116
Cost of sale	(250)	(12,248)	(8,889)	(17,257)
Gain (loss) on sale	$ 555	$ 1,732	$ 8,850	$ 5,859

XML

OPERATING SEGMENTS (Details 1) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Segment operating income	$ 4,347	$ 2,926	$ 14,197	$ 10,413
Other non-segment items of income (expense)
General and administrative	(1,541)	(1,146)	(4,754)	(4,191)
Net income fee to related party	(67)	(51)	(193)	(142)
Advisory fee to related party	(2,394)	(2,666)	(7,096)	(6,561)
Other income	8	(77)	1,178	4
Earnings (loss) from unconsolidated joint ventures and investees		(4)	(2)	39
Income tax (expense) benefit	(25)	16	(24)	107
Net loss from continuing operations	(4,432)	(6,537)	(3,241)	(6,474)
Total Segments [Member]
Segment operating income	(413)	(2,524)	7,650	4,473
Other non-segment items of income (expense)
General and administrative	(1,541)	(1,146)	(4,754)	(4,191)
Net income fee to related party	(67)	(51)	(193)	(142)
Advisory fee to related party	(2,394)	(2,666)	(7,096)	(6,561)
Other income	8	(77)	1,178	4
Earnings (loss) from unconsolidated joint ventures and investees		(4)	(2)	39
Litigation settlement		(85)		(203)
Income tax (expense) benefit	(25)	16	(24)	107
Net loss from continuing operations	$ (4,432)	$ (6,537)	$ (3,241)	$ (6,474)

XML

OPERATING SEGMENTS (Details 2) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015
Segment assets	$ 899,848	$ 844,019
Investments in real estate partnerships	2,469	5,243
Other assets	44,333	41,645
Total assets	1,151,548	$ 1,110,204
Total Segments [Member]
Segment assets	899,848		$ 815,719
Investments in real estate partnerships	2,469		2,178
Notes and interest receivable	72,704		65,801
Other assets	176,527		192,879
Total assets	$ 1,151,548		$ 1,076,577

XML

DISCONTINUED OPERATIONS (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Rental and other property revenues			$ 15
Revenues			15
Expenses:
Property operating expenses	$ 2	$ (3)	(346)
General and administrative	(4)		99
Total operating expenses	(2)	(3)	(247)
Other income (expense):
Other income	45		45
Mortgage and loan interest			(1)
Total other expenses	45		44
Gain from discontinued operations before tax	47	3	306
Income tax benefit (expense)	(16)	(1)	(107)
Income from discontinued operations	$ 31	$ 2	$ 199

XML

COMMITMENTS, CONTINGENCIES, AND LIQUIDITY (Details Narrative) - USD ($)
$ in Thousands

1 Months Ended

9 Months Ended

Jul. 20, 2015

Sep. 30, 2016

Related Parties [Member] | Mezzanine Financing [Member]

Guarantor - notes payable

$ 60,350

Dynex Capital, Inc. [Member]

Description of plaintiff

ART and TCI

Description of defendant

Dynex Capital Inc.

Description of action taken by court

On July 20, 2015, the 68^th Judicial District Court in Dallas County, Texas issued its Final Judgment in Cause No. DC-03-00675, styled Basic Capital Management, Inc., American Realty Trust, Inc., Transcontinental Realty Investors, Inc., Continental Poydras Corp., Continental Common, Inc. and Continental Baronne, Inc. v. Dynex Commercial, Inc.

Damages - awarded amount

$ 256

Damages - pre-judgement interest

192

Damages - total

448

Awarded attorney fees

$ 1,600

Post-judgment interest rate

5.00%

Dynex Capital, Inc. [Member] | Transcontinential Realty Investors [Member]

Damages - awarded amount

$ 11,100

Damages - pre-judgement interest

8,400

Damages - total

19,500

Dynex Capital, Inc. [Member] | American Reality Trust, Inc. [Member]

Damages - awarded amount

14,200

Damages - pre-judgement interest

10,600

Damages - total

$ 24,800

Pending Litigation [Member]

Description of allegation

The Company is involved in and vigorously defending against, a number of deficiency claims with respect to assets that have been foreclosed by various lenders.

Maximum loss exposure

$ 20,000

XML

EARNINGS PER SHARE (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Nov. 30, 2006	Sep. 30, 2016	Dec. 31, 2015
Dividend rate		9.00%
Series D Preferred Stock [Member]
Stock issued	100,000
Dividend rate	7.00%	9.00%
Preferred stock, liquidation preference per share	$ 100	$ 100	$ 100
Series D Preferred Stock [Member] | RAI [Member]
Accrued dividends unpaid	$ 4,600
Stock held by related parties (shares)	89,500
Series D Preferred Stock [Member] | Pillar Income Asset Management, Inc [Member]
Accrued dividends unpaid	$ 500
Stock held by related parties (shares)	10,500