AMERICAN REALTY INVESTORS INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - AMERICAN REALTY INVESTORS INC	Financial_Report.xls
EX-31.2 - AMERICAN REALTY INVESTORS INC	ari10qex312093014.htm
EX-32.1 - AMERICAN REALTY INVESTORS INC	ari10qex321093014.htm
EX-31.1 - AMERICAN REALTY INVESTORS INC	ari10qex311093014.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨	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 001-15663

AMERICAN REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Nevada	75-2847135
(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. xYes ¨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) xYes ¨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 definition 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	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨Yes xNo.

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	14,027,619
(Class)	(Outstanding at November 12, 2014)

AMERICAN REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at September 30, 2014 (unaudited) and December 31, 2013	3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)	4

	Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2014 (unaudited)	5

	Consolidated Statements of Comprehensive Income (Loss) for the nine months ended September 30, 2014 and 2013 (unaudited)	6

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	37

SIGNATURES		38

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

	September 30,			December 31,
	2014			2013
	(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost	$	745,544		$	799,698
Real estate held for sale at cost, net of depreciation ($2,066 for 2014 and $2,390 for 2013)		44,288			16,427
Real estate subject to sales contracts at cost, net of depreciation ($2,212 for 2014 and $1,949 for 2013)		19,594			27,598
Less accumulated depreciation		(125,352	)		(143,429	)
Total real estate		684,074			700,294
Notes and interest receivable
Performing (including $147,978 in 2014 and $145,754 in 2013 from related parties)		163,335			153,275
Non-performing		3,151			3,140
Less allowance for doubtful accounts (including $15,537 in 2014 and $15,809 in 2013 from related parties)		(18,279	)		(19,600	)
Total notes and interest receivable		148,207			136,815
Cash and cash equivalents		4,383			16,437
Restricted cash		28,813			32,929
Investments in unconsolidated subsidiaries and investees		4,137			3,789
Receivable from related party		22,930			14,086
Other assets		43,442			38,972
Total assets	$	935,986		$	943,322

Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable	$	597,469		$	618,930
Notes related to assets held for sale		42,883			17,100
Notes related to subject to sales contracts		18,769			23,012
Deferred revenue (including $74,303 in 2014 and 2013 from sales to related parties)		76,148			76,148
Accounts payable and other liabilities (including $10,634 in 2014 and $15,394 in 2013 to related parties)		55,917			73,271
		791,186			808,461

Shareholders’ equity:
Preferred stock, Series A: $2.00 par value, authorized 15,000,000 shares, issued and outstanding 2,461,252 shares in 2014 and 3,353,954 shares in 2013 (liquidation preference $10 per share), including 900,000 shares in 2014 and 2013 held by ARL or subsidiaries. Series K: $2.00 par value, authorized, issued and outstanding 0 shares in 2014 and 135,000 shares in 2013 (liquidation preference $22 per share)		3,126			4,908
Common stock, $0.01 par value, authorized 100,000,000 shares; issued 14,443,404 shares in 2014 and 11,941,174 shares in 2013; outstanding 14,027,619 shares in 2014 and 11,525,389 shares in 2013; including 140,000 shares held by TCI (consolidated) in 2014 and 229,214 shares held by TCI (consolidated) in 2013.		141			115
Treasury stock at cost; 415,785 shares in 2014 and 2013		(6,395	)		(6,395	)
Paid-in capital		108,844			102,974
Retained earnings		(8,046	)		(11,795	)
Total American Realty Investors, Inc. shareholders' equity		97,670			89,807
Non-controlling interest		47,130			45,054
Total equity		144,800			134,861
Total liabilities and equity	$	935,986		$	943,322

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

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(dollars in thousands, except per share amounts)
Revenues:
Rental and other property revenues (including $175 and $165 for the three months and $525 and $497 for the nine months ended 2014 and 2013, respectively, from related parties)	$	19,326		$	19,530		$	57,986		$	57,810

Expenses:
Property operating expenses (including $171 and $178 for the three months and $484 and $550 for the nine months ended 2014 and 2013, respectively, from related parties)		10,766			10,387			30,677			29,107
Depreciation and amortization		4,463			4,053			13,099			11,820
General and administrative (including $926 and $878 for the three months and $2,686 and $2,765 for the nine months ended 2014 and 2013, respectively, from related parties)		1,590			1,867			6,770			5,911
Provision on impairment of notes receivable and real estate assets		-			1,125			-			1,926
Net income fee to related party		(186	)		55			514			159
Advisory fee to related party		2,225			2,584			6,670			7,625
Total operating expenses		18,858			20,071			57,730			56,548
Operating income (loss)		468			(541	)		256			1,262

Other income (expenses):
Interest income (including $4,699 and $3,718 for the three months and $14,693 and $10,574 for the nine months ended 2014 and 2013, respectively, from related parties)		5,106			3,778			15,264			10,831
Other income		1,332			59			1,738			2,734
Mortgage and loan interest (including $978 and $1,168 for the three months and $2,709 and $2,849 for the nine months ended 2014 and 2013, respectively, from related parties)		(9,053	)		(9,130	)		(26,573	)		(27,152	)
Deferred borrowing costs amortization		(848	)		(247	)		(2,078	)		(2,672	)
Loan charges and prepayment penalties		(1,044	)		(49	)		(2,626	)		(4,166	)
Loss on sale of investments		-			(275	)		-			(283	)
Earnings from unconsolidated subsidiaries and investees		320			69			266			256
Litigation settlement		(86	)		(2,739	)		3,666			(2,727	)
Total other expenses		(4,273	)		(8,534	)		(10,343	)		(23,179	)
Loss before gain on land sales, non-controlling interest, and taxes		(3,805	)		(9,075	)		(10,087	)		(21,917	)
Gain on land sales		40			598			634			563
Net loss from continuing operations before taxes		(3,765	)		(8,477	)		(9,453	)		(21,354	)
Income tax benefit		786			402			5,030			8,561
Net loss from continuing operations		(2,979	)		(8,075	)		(4,423	)		(12,793	)
Discontinued operations:
Net income (loss) from discontinued operations		477			1,021			(454	)		(970	)
Gain on sale of real estate from discontinued operations		1,769			127			14,826			25,429
Income tax expense from discontinued operations		(786	)		(402	)		(5,030	)		(8,561	)
Net income from discontinued operations		1,460			746			9,342			15,898
Net income (loss)		(1,519	)		(7,329	)		4,919			3,105
Net (income) loss attributable to non-controlling interest		200			903			(1,170	)		(803	)
Net income (loss) attributable to American Realty Investors, Inc.		(1,319	)		(6,426	)		3,749			2,302
Preferred dividend requirement		(427	)		(613	)		(1,653	)		(1,839	)
Net income (loss) applicable to common shares	$	(1,746	)	$	(7,039	)	$	2,096		$	463

Earnings per share - basic
Net loss from continuing operations	$	(0.24	)	$	(0.68	)	$	(0.59	)	$	(1.34	)
Net income from discontinued operations		0.11			0.06			0.76			1.38
Net income (loss) applicable to common shares	$	(0.13	)	$	(0.62	)	$	0.17		$	0.04

Earnings per share - diluted
Net loss from continuing operations	$	(0.24	)	$	(0.68	)	$	(0.59	)	$	(1.34	)
Net income from discontinued operations		0.11			0.06			0.76			1.38
Net income (loss) applicable to common shares	$	(0.13	)	$	(0.62	)	$	0.17		$	0.04

Weighted average common shares used in computing earnings per share		13,619,647			11,525,389			12,231,146			11,525,389
Weighted average common shares used in computing diluted earnings per share		13,619,647			11,525,389			12,231,146			11,525,389


Amounts attributable to American Realty Investors, Inc.
Net loss from continuing operations	$	(2,779	)	$	(7,172	)	$	(5,593	)	$	(13,596	)
Net income from discontinued operations		1,460			746			9,342			15,898
Net income (loss) applicable to American Realty Investors, Inc.	$	(1,319	)	$	(6,426	)	$	3,749		$	2,302

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

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2014
(unaudited, dollars in thousands, except share amounts)


	Total			Comprehensive			Preferred			Common Stock				Treasury			Paid-in			Retained			Accumulated Other Comprehensive		Non-controlling
	Equity			Income (Loss)			Stock			Shares		Amount		Stock			Capital			Earnings			Income (Loss)		Interest

Balance, December 31, 2013	$	134,861		$	(93,213	)	$	4,908			11,941,174	$	115	$	(6,395	)	$	102,974		$	(11,795	)	$	-	$	45,054
Net income		4,919			4,919			-			-		-		-			-			3,749			-		1,170
Distribution to non-controlling interests		(257	)		-			-			-		-		-			(226	)		-			-		(31	)
Sale of non-controlling interests		(289	)		-			-			-		-		-			(289	)		-			-		-
Conversion of preferred stock into common stock		7,219			-			(1,782	)		2,502,230		26		-			8,038			-			-		937
Series A preferred stock dividend ($1.00 per share)		(1,653	)		-			-			-		-		-			(1,653	)		-			-		-
Balance, September 30, 2014	$	144,800		$	(88,294	)	$	3,126			14,443,404	$	141	$	(6,395	)	$	108,844		$	(8,046	)	$	-	$	47,130

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

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)

	For the Nine Months Ended
	September 30,
	2014			2013
	(dollars in thousands)

Net income	$	4,919		$	3,105
Other comprehensive income (loss)		-			-
Total comprehensive income		4,919			3,105
Comprehensive income attributable to non-controlling interest		(1,170	)		(803	)
Comprehensive income attributable to American Realty Investors, Inc.	$	3,749		$	2,302

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

AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
	For the Nine Months Ended
	September 30,
	2014			2013
	(dollars in thousands)
Cash Flow From Operating Activities:
Net income	$	4,919		$	3,105
Adjustments to reconcile net income applicable to common shares to net cash flow from operating activities:
Gain on sale of land		(634	)		(563	)
Gain on sale of income-producing properties		(14,826	)		(25,429	)
Depreciation and amortization		13,763			16,120
Provision for impairment of notes receivable and real estate assets		-			1,926
Amortization of deferred borrowing costs		2,415			3,705
(Earnings) losses from unconsolidated subsidiaries and investees		54			(256	)
Decrease (increase) in assets:
Accrued interest receivable		10,727			(3,260	)
Other assets		2,002			(17	)
Prepaid expense		(2,318	)		(1,937	)
Escrow		3,556			6,074
Earnest money		(5	)		1,545
Rent receivables		(15	)		(676	)
Increase (decrease) in liabilities:
Accrued interest payable		43			(1,752	)
Payable to related parties		(8,844	)		(2,492	)
Other liabilities		(17,294	)		(9,027	)
Net cash used in operating activities		(6,457	)		(12,934	)

Cash Flow From Investing Activities:
Proceeds from notes receivable		-			2,855
Origination or advances of notes receivable		(20,798	)		(38	)
Acquisition of land held for development		(3,425	)		(7	)
Acquisition of income producing properties		(19,534	)		-
Proceeds from sale of income-producing properties		41,666			73,621
Proceeds from sale of land		6,252			3,664
Investment in unconsolidated real estate entities		(402	)		(1,911	)
Improvement of land held for development		(1,654	)		(373	)
Improvement of income-producing properties		(3,625	)		(6,396	)
Acquisition of non-controlling interest		-			(77	)
Sale of non-controlling interest		(289	)		-
Sale of controlling interest		-			50
Construction and development of new properties		(1,026	)		(327	)
Net cash provided by (used in) investing activities		(2,835	)		71,061

Cash Flow From Financing Activities:
Proceeds from notes payable		110,308			142,802
Recurring amortization of principal on notes payable		(14,540	)		(13,401	)
Payments on maturing notes payable		(97,564	)		(191,291	)
Stock-secured borrowings		(568	)		(411	)
Deferred financing costs		(5,707	)		(1,524	)
Distributions to non-controlling interests		(257	)		(179	)
Preferred stock dividends - Series A		(1,653	)		(1,839	)
Conversion of preferred stock into common stock		7,219			-
Net cash used in financing activities		(2,762	)		(65,843	)

Net decrease in cash and cash equivalents		(12,054	)		(7,716	)
Cash and cash equivalents, beginning of period		16,437			17,141
Cash and cash equivalents, end of period	$	4,383		$	9,425


Supplemental disclosures of cash flow information:
Cash paid for interest	$	28,004		$	22,659

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

As used herein, the terms “ARL”, “the Company”, “we”, “our” or “us” refer to American Realty Investors, Inc., a Nevada corporation, which was formed in November 1999. In August 2000, the Company acquired American Realty Trust, Inc. (“ART”), a Georgia corporation and National Realty, L.P. (“NRLP”), a Delaware partnership.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”). Approximately 86.8% of ARL’s stock is owned by related parties. Subsidiaries of ARL own approximately 80.9% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc. (“TCI”), a Nevada corporation, which has its common stock listed and traded on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”). ARL is a “C” corporation for U.S. federal income tax purposes and has consolidated TCI’s accounts and operations since March 2003. During the third quarter 2012, May Realty Holdings, Inc. (“MRHI”), formerly known as Realty Advisors Management, Inc., subsidiaries acquired more than 80% of ARL stock and as a result, ARL joined the MRHI consolidated group for federal income tax reporting. We have no employees.

TCI, a subsidiary of ARL, owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”). Effective July 17, 2009, IOT’s financial results were consolidated with those of ARL and TCI and their subsidiaries. Shares of IOT are traded on the NYSE MKT under the symbol (“IOT”).

ARL 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 ARL, and for setting the policies which guide it, the day-to-day operations of ARL 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 ARL’s business plan and investment policy. Pillar also serves as an Advisor and Cash Manager to TCI and IOT.

Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services. ARL engages third-party companies to lease and manage its apartment properties. TCI also has a development agreement with Unified Housing Foundation, Inc. (“UHF”) a non-profit corporation that provides management services for the development of residential apartment projects in the future. This development agreement was terminated December 31, 2013.

Properties

We own or had interests in a total property portfolio of 45 income-producing properties as of September 30, 2014. The properties consisted of:

•

Eight commercial properties consisting of four office buildings, one industrial warehouse, and three retail centers comprising in aggregate approximately 2.1 million rentable square feet;

•

37 apartment communities totaling 6,382 units, excluding apartments being developed; and

•

4,130 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 but have not yet begun construction. At September 30, 2014, we had no 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 required 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, or 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, 2014 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, 2013 was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain 2013 financial statement amounts have been reclassified to conform to the 2014 presentation, including adjustments for discontinued operations.

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 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.

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 Gruppa Florentina, LLC 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, “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 Topic 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. 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. This classification of operating results as discontinued operations applies retroactively for all periods presented. Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations.

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.

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 Standards

We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our Consolidated Financial Statements, including that which we have not yet adopted. We do not believe that any such guidance will have a material effect on our financial position or results of operations.

NOTE 2. REAL ESTATE ACTIVITY

Below is a summary of the real estate owned as of September 30, 2014 (dollars in thousands):

Apartments	$	409,430
Commercial properties		178,824
Land held for development		157,290
Real estate held for sale		46,354
Real estate subject to sales contract		21,806
Total real estate	$	813,704
Less accumulated depreciation		(129,630	)
Total real estate, net of depreciation	$	684,074

The highlights of our significant real estate transactions for the nine months ended September 30, 2014 are listed below:

On February 6, 2014, TCI sold a 232-unit apartment complex known as Pecan Pointe, located in Temple, Texas, to an independent third party, for a sales price of $23.1 million. The buyer assumed the existing debt of $16.5 million secured by the property. A gain of $6.1 million was recorded on the sale.

On March 26, 2014, TCI sold 6.314 acres of land known as McKinney Ranch land, located in McKinney, Texas, to an independent third party, for a sales price of $1.7 million. TCI paid $1.5 million on the existing mortgage to satisfy a portion of the multi-tract collateral debt of $6.6 million, secured by various land parcels located in McKinney, Texas. A gain of $0.8 million was recorded on the sale.

On March 31, 2014, the Company purchased 16.87 acres of land known as Valwood Acres, located in Farmers Branch, Texas, from an independent third party, for a purchase price of $3.2 million.

On April 3, 2014, TCI sold a 512,593 square foot commercial building known as 1010 Common, located in New Orleans, Louisiana, to an independent third party, for a sales price of $16.6 million. A gain of $7.0 million was recorded on the sale.

On July 25, 2014, TCI sold 24.498 acres of land known as Stanley Tools and Kelly Lots, located in Farmers Branch, Texas, to an independent third party, for a sales price of $4.3 million. TCI paid off the existing mortgage of $1.7 million in addition to making a $0.2 million payment on an existing mortgage related to another parcel of land located in McKinney, Texas. A nominal gain was recorded on the sale.

On August 12, 2014, TCI sold a 20,715 square foot commercial building known as Sesame Square, located in Anchorage, Alaska, to an independent party, for a sales price of $2.6 million. TCI paid off the existing mortgage of $0.8 million. A gain of $1.8 million was recorded on the sale.

On September 19, 2014, TCI acquired 100% ownership of Summer Breeze I-V, LLC, from an independent third party, which resulted in the acquisition of Sunset Lodge, a 216-unit complex located in Odessa, Texas. In exchange for the acquisition, TCI forgave the existing receivable and all accrued interest in the amount of $3.5 million.

On September 23, 2014, TCI sold a 106-unit complex known as Bridgewood Ranch, located in Kaufman, Texas, to an independent third party, for a sales price of $8.0 million. TCI paid off the existing mortgage of $4.5 million and the buyer obtained a new mortgage of $6.6 million. TCI did not recognize or record the sale in accordance with ASC 360-20 due to our continuing involvement as a result of having the option to repurchase the sold property at a later date. The exercise of the option is subject to the approval of the U.S. Department of Housing and Urban Development. TCI determined a sale had not occurred for financial reporting purposes and therefore the asset remains on their books.

As of September 30, 2014, there is one apartment complex, one commercial building and 110 acres of land that TCI has sold to a related party and has deferred the recognition of the sale. These 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. TCI has reviewed each asset and taken impairment to the extent it feels the value of the property was less than its current basis. TCI did not recognize or record the sale in accordance with ASC 360-20 due to our continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyer’s inadequate initial investment and TCI’s questionable recovery of investment cost. TCI determined that no sale had occurred for financial reporting purposes and therefore the asset remained on the books and continued to record operating expenses and depreciation as a period cost until a sale occurred that met the requirements of ASC 360-20. The buyers received no compensation for the facilitation of the bankruptcy or debt restructuring process.

We continue to invest in the development of apartment projects. During the nine months ended September 30, 2014, we have expended $1.0 million related to the construction or predevelopment of various apartment complexes.

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 personal guarantees of the borrower and, 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. Our mortgage notes receivable consist of first, wraparound and junior mortgage loans (dollars in thousands):

Maturity

Interest

Borrower

Date

Rate

Amount

Security

Performing loans:

Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1)

03/19

12.00%

$ 1,810

Secured

Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1)

03/17

12.00%

1,156

Secured

Foundation for Better Housing, Inc. (Vista Ridge) (1)

04/19

12.00%

3,923

Secured

Foundation for Better Housing, Inc. (Vista Ridge) (1)

06/17

12.00%

1,492

Secured

HGH Residential, Inc. (Park West I Apts)

07/19

12.00%

1,102

Secured

HGH Residential, Inc. (Park West II Apts)

07/19

12.00%

4,771

Secured

HGH Residential, Inc. (Tradewinds Dev)

07/19

12.00%

6,131

Secured

One Realco Corporation (1) (2)

01/17

3.00%

7,000

Unsecured

Realty Advisors Management, Inc. (1)

12/16

2.20%

20,387

Unsecured

Unified Housing Foundation, Inc. (Cliffs of El Dorado) (1)

12/32

12.00%

2,097

100% Membership Interest in Unified Housing of McKinney, LLC

Unified Housing Foundation, Inc. (Echo Station) (1)

12/32

12.00%

1,481

100% Membership Interest in Unified Housing of Temple, LLC

Unified Housing Foundation, Inc. (Inwood on the Park) (1)

12/32

12.00%

5,059

100% Membership Interest in Unified Housing Inwood, LLC

Unified Housing Foundation, Inc. (Kensington Park) (1)

12/32

12.00%

3,936

100% Membership Interest in Unified Housing Kensington, LLC

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%

9,096

Membership interest in Housing for Seniors of Humble, LLC

Unified Housing Foundation, Inc. (Limestone Canyon) (1)

12/32

12.00%

3,057

100% Membership Interest in Unified Housing of Austin, LLC

Unified Housing Foundation, Inc. (Limestone Canyon) (1)

12/32

12.00%

4,663

100% Membership Interest in Unified Housing of Austin, LLC

Unified Housing Foundation, Inc. (Limestone Ranch) (1)

12/32

12.00%

2,250

100% Membership Interest in Unified Housing of Vista Ridge, LLC

Unified Housing Foundation, Inc. (Limestone Ranch) (1)

12/32

12.00%

6,000

100% Membership Interest in Unified Housing of Vista Ridge, LLC

Unified Housing Foundation, Inc. (Parkside Crossing) (1)

12/32

12.00%

2,272

100% Membership Interest in Unified Housing of Parkside Crossing, LLC

Unified Housing Foundation, Inc. (Sendero Ridge) (1)

12/32

12.00%

5,174

100% Membership Interest in Unified Housing of Sendero Ridge, LLC

Unified Housing Foundation, Inc. (Sendero Ridge) (1)

12/32

12.00%

4,812

100% Membership Interest in Unified Housing of Sendero Ridge, LLC

Unified Housing Foundation, Inc. (Timbers at the Park) (1)

12/32

12.00%

1,323

100% Membership Interest in Unified Housing of Terrell, LLC

Unified Housing Foundation, Inc. (Tivoli) (1)

12/32

12.00%

7,966

100% Membership Interest in Unified Housing of Tivoli, LLC

Unified Housing Foundation, Inc. (Reserve at White Rock Phase I) (1)

12/32

12.00%

2,485

100% Membership Interest in Unified Housing of Harvest Hill I, LLC

Unified Housing Foundation, Inc. (Reserve at White Rock Phase II) (1)

12/32

12.00%

2,555

100% Membership Interest in Unified Housing of Harvest Hill, LLC

Unified Housing Foundation, Inc. (Trails at White Rock) (1)

12/32

12.00%

3,815

100% Membership Interest in Unified Housing of Harvest Hill III, LLC

Unified Housing Foundation, Inc. (1)

03/17

5.00%

6,000

Unsecured

Unified Housing Foundation, Inc. (1)

06/17

12.00%

1,261

Unsecured

Unified Housing Foundation, Inc. (1)

12/15

12.00%

17,928

Unsecured

Unified Housing Foundation, Inc. (1)

12/16

12.00%

3,657

Unsecured

Other non-related party notes

Various

3,007

Various secured interests

Other related party notes (1)

Various

2,117

Various secured interests

Other related party notes (1)

Various

3,568

Various unsecured interests

Accrued interest

7,984

Total Performing

$ 163,335

Non-Performing loans:

Leman Development, Ltd (2)

07/11

7.00%

$ 1,500

Unsecured

Tracy Suttles (2)

12/11

0.00%

1,077

Unsecured

Other non-related party notes

Various

507

Secured

Accrued interest

Total Non-Performing

$ 3,151

Allowance for doubtful accounts

$ ( 18,279 )

Total

$ 148,207

(1) Related party notes

(2) An allowance was taken for estimated losses at full value of note

At September 30, 2014, we had junior mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $132.4 million. We recognized interest income of $12.1 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 significant investment in 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.

In the 1st quarter of 2014, TCI obtained $3.2 million in notes and accrued interest receivable from Realty Advisors Inc. (“RAI”), a related party. These notes are due from FBH, a related party. The notes accrue interest at 12% and mature at various times.

In the 2nd quarter of 2014, TCI obtained $4.0 million in a note receivable from RAI. This note is due from FBH. The note accrues interest at 12% and matures in April, 2019.

In the 3rd quarter of 2014, TCI obtained $3.4 million in notes receivable from RAI. $2.8 million of the notes are due from UHF and $0.6 million are due from FBH, both are related parties. These notes accrue interest at 12% and have various maturity dates in 2017.

In the 3rd quarter of 2014, TCI obtained $1.5 million in a note receivable from Regis, a related party. This note is due from FBH. The note accrues interest at 12% and matures in June, 2017.

In the 3rd quarter of 2014, TCI obtained $0.5 million in a note and accrued interest receivable from Basic Capital Management, Inc. (“Basic”), a related party. The note is due from UHF, The note accrues interest at 5.25% until August, 2015 then at 12% until maturity in December, 2027.

NOTE 4. INVESTMENT IN UNCONSOLIDATED INVESTEES

Investments in unconsolidated 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.

Investments in unconsolidated investees consist of the following:

	Percentage ownership as of
	September 30, 2014			September 30, 2013
Gruppa Florentina, LLC		20.00	%		20.00	%

Gruppa Florentina, LLC is the sole member of Milano Restaurants International Corporation, (“Milano”) which operates 35 pizza parlors under the trade name “Me-N-Ed’s Pizza Parlors” located primarily in Central and Northern California. Milano has a 100% ownership interest in SienaCorp, which operates two grills under the trade names “Me-N-Ed’s Victory Grill” and “Me-N-Ed’s Coney Island Grill”. Milano has a 100% ownership interest in Piazza del Pane, Inc., which operates two restaurants located in Central California. Milano also has 23 franchised locations, including two operating, under the trade name Angelo & Vito’s Pizzerias.

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

As of September 30,	2014			2013
Real estate, net of accumulated depreciation	$	11,014		$	11,006
Notes receivable		7,122			6,321
Other assets		30,398			31,683
Notes payable		(10,521	)		(11,735	)
Other liabilities		(6,386	)		(7,473	)
Shareholders' equity		(31,627	)		(29,802	)

For the Nine Months Ended September 30,		2014			2013
Revenue	$	36,197		$	34,286
Depreciation		(863	)		(879	)
Operating expenses		(33,438	)		(31,385	)
Interest expense		(661	)		(787	)
Income from continuing operations		1,235			1,235
Income from discontinued operations		-			-
Net income	$	1,235		$	1,235

Company's proportionate share of earnings (1)	$	247		$	247

(1) Earnings represents continued and discontinued operations

NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of September 30, 2014 (dollars in thousands):

	Notes Payable		Accrued Interest		Total Debt
Apartments	$	384,445	$	1,051	$	385,496
Commercial		100,329		437		100,766
Land		87,526		117		87,643
Real estate held for sale		42,783		100		42,883
Real estate subject to sales contract		17,164		1,605		18,769
Other		23,412		152		23,564

Total	$	655,659	$	3,462	$	659,121

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

With respect to the additional notes payable due to the acquisition of properties or refinancing of existing mortgages, a summary of some of the more significant transactions is discussed below:

On February 10, 2014, a subsidiary of the Company paid off an existing margin loan and entered into a $4 million promissory note with a third party, secured by TCI stock. The note matures on February 10, 2016 and has an interest rate of 6%.

On February 12, 2014, TCI exercised the first prepayment option on the settlement relating to the Amoco Building and paid $1.2 million to settle all obligations. The remaining balance of the note in the amount of $3.5 million, along with accrued interest, was forgiven. The 135,000 shares of Series K Convertible Preferred Stock of ARL that was pledged to the lender has been released to TCI. The Series K preferred stock was cancelled May 7, 2014.

On February 14, 2014, the Company entered into a settlement and loan modification agreement with the lender regarding EQK Portage land. The new loan is for $1.6 million, matures on February 6, 2017, and has an interest rate of one-month LIBOR plus 5%. The Company paid $200,000 at close which was used to adjust the current outstanding loan balance to the newly stated loan balance and the remainder was used to pay down interest that had been accruing under the prior agreement. The rest of the unpaid interest that accrued under the prior agreement was waived. Per the agreement, the Company was also required to pay off the property tax note of $257,000.

On February 28, 2014, TCI refinanced the existing mortgage on Parc at Denham Springs apartments, a 224-unit complex located in Denham Springs, Louisiana, for a new mortgage of $19.2 million. TCI paid off the existing mortgage of $19.2 million and $1.6 million in closing costs. The note accrues interest at 3.75% and payments of interest and principal are due monthly, maturing April 1, 2051.

On March 25, 2014, TCI exercised its lender granted option under the settlement agreement relating to the Galleria East Center Retail / Showcase Chevrolet land which was transferred to the existing lender on February 4, 2011. TCI paid the balance of the notes along with all accrued and unpaid interest and received a reduction in price of $0.4 million.

On March 28, 2014, TCI secured financing of $40.0 million from an independent third party. The note has a term of five years at an interest rate of 12.0%. The note is interest only for the first year with quarterly principal payments due of $500,000 starting April 1, 2015. The loan is secured by various equity interests in residential apartments and can be prepaid at a penalty rate of 4% for year 1 with the penalty declining by 1% each year thereafter.

On March 31, 2014, TCI entered into a settlement agreement relating to the Fenton Centre building which was transferred to the existing lender on June 7, 2011. The total amount of the settlement was $7.0 million, $5.0 million was paid at the time of the settlement and the remaining $2.0 million will be paid out in equal monthly installments through November 5, 2015.

On May 28, 2014, a $1.5 million principal payment was made to the existing Realty Advisors, Inc. mortgage and two additional land parcels, including 8.0 acres of Ladue land owned by TCI and 16.75 acres of Valwood land owned by ARL, were substituted as collateral under the note in exchange for a release of a $4 million deposit account. The principal balance is allocated based on the land valuation.

On July 31, 2014, TCI refinanced the existing mortgage on Desoto Ranch apartments, a 248-unit complex located in Desoto, Texas, for a new mortgage of $15.7 million. TCI paid off the existing mortgage of $15.7 million and $0.5 million in closing costs. The note accrues interest at 3.50% and payments of interest and principal are due monthly, maturing June 1, 2050.

On August 28, 2014, TCI refinanced the existing mortgage on Treehouse apartments, a 160-unit complex located in Irving, Texas, for a new mortgage of $5.8 million. TCI paid off the existing mortgage of $4.7 million and $1.1 million in closing costs and escrows. The note accrues interest at 3.55% and payments of interest and principal are due monthly, maturing September 1, 2044.

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.

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.

NOTE 6. RELATED PARTY TRANSACTIONS

The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of September 30, 2014 (dollars in thousands):

	Pillar
Related party receivable, December 31, 2013	$	14,086
Cash transfers		39,452
Advisory fees		(6,670	)
Fees and commissions		(1,699	)
Cost reimbursements		(2,550	)
Interest (to) from advisor		801
Notes receivable purchased		(19,915	)
Net income fee		(514	)
Expenses paid by Advisor		(1,789	)
Financing (mortgage payments)		1,378
Sales/purchases transactions		350
Related party receivable, September 30, 2014	$	22,930

During the ordinary course of business, we have related party transactions that include, but are not limited to, rent 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 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, hotels, 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, 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 and nine months ended September 30, 2014 and 2013, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended September 30, 2014	Properties			Apartments			Hotels		Land			Other			Total
Rental and other property revenues	$	4,609		$	14,704		$	-	$	-		$	13		$	19,326
Property operating expenses		2,890			7,284			-		585			7			10,766
Depreciation		1,944			2,537			-		-			(18	)		4,463
Mortgage and loan interest		1,310			3,768			-		1,058			2,917			9,053
Deferred borrowing costs amortization		15			540			-		106			187			848
Loan charges and prepayment penalties		-			1,026			-		18			-			1,044
Interest income		-			-			-		-			5,106			5,106
Gain on land sales		-			-			-		40			-			40
Segment operating income (loss)	$	(1,550	)	$	(451	)	$	-	$	(1,727	)	$	2,026		$	(1,702	)
Capital expenditures		486			38			-		1,435			-			1,959
Real estate assets		129,361			345,281			-		165,144			-			639,786

Property Sales
Sales price	$	2,582		$	-		$	-	$	4,269		$	-		$	6,851
Cost of sale		813			-			-		4,229			-			5,042
Gain on sale	$	1,769		$	-		$	-	$	40		$	-		$	1,809


	Commercial
For the Three Months Ended September 30, 2013	Properties			Apartments			Hotels		Land			Other			Total
Rental and other property revenues	$	5,162		$	14,226		$	-	$	45		$	97		$	19,530
Property operating expenses		3,067			6,784			-		514			22			10,387
Depreciation		1,541			2,551			-		-			(39	)		4,053
Mortgage and loan interest		1,330			3,958			-		1,653			2,189			9,130
Deferred borrowing costs amortizaion		17			(10	)		-		34			206			247
Loan charges and prepayment penalties		-			-			-		-			49			49
Interest income		-			-			-		-			3,778			3,778
Gain on land sales		-			-			-		598			-			598
Segment operating income (loss)	$	(793	)	$	943		$	-	$	(1,558	)	$	1,448		$	40
Capital expenditures		2,955			37			-		83			-			3,075
Real estate assets		140,616			355,251			-		209,788			-			705,655

Property Sales
Sales price	$	-		$	-		$	-	$	1,187		$	-		$	1,187
Cost of sale		-			(127	)		-		589			-			462
Gain on sale	$	-		$	127		$	-	$	598		$	-		$	725

The table below reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations:

	For the Three Months Ended
	September 30,
	2014			2013
Segment operating income (loss)	$	(1,702	)	$	40
Other non-segment items of income (expense)
General and administrative		(1,590	)		(1,867	)
Net income fee to related party		186			(55	)
Advisory fee to related party		(2,225	)		(2,584	)
Other income		1,332			59
Loss on sale of investments		-			(275	)
Provision on impairment of notes receivable and real estate assets		-			(1,125	)
Earnings from unconsolidated investees		320			69
Litigation settlement		(86	)		(2,739	)
Income tax benefit		786			402
Net loss from continuing operations	$	(2,979	)	$	(8,075	)

The table below reconciles the segment information to the corresponding amounts in the Consolidated Balance Sheets:

	September 30,
	2014		2013
Segment assets	$	639,786	$	705,655
Investments in unconsolidated investees		4,137		10,337
Notes and interest receivable		148,207		105,139
Other assets		143,856		244,245
Total assets	$	935,986	$	1,065,376

	Commercial
For the Nine Months Ended September 30, 2014	Properties			Apartments		Hotels		Land			Other			Total
Rental and other property revenues	$	14,166		$	43,779	$	-	$	-		$	41		$	57,986
Property operating expenses		9,206			20,284		-		1,175			12			30,677
Depreciation		5,515			7,656		-		-			(72	)		13,099
Mortgage and loan interest		4,424			11,433		-		3,520			7,196			26,573
Deferred borrowing costs amortization		36			1,480		-		187			375			2,078
Loan charges and prepayment penalties		9			2,599		-		18			-			2,626
Interest income		-			-		-		-			15,264			15,264
Gain on land sales		-			-		-		634			-			634
Segment operating income (loss)	$	(5,024	)	$	327	$	-	$	(4,266	)	$	7,794		$	(1,169	)
Capital expenditures		3,476			137		-		1,586			-			5,199
Real estate assets		129,361			345,281		-		165,144			-			639,786

Property Sales
Sales price	$	19,182		$	23,131	$	-	$	4,986		$	-		$	47,299
Cost of sale		10,410			17,077		-		4,352			-			31,839
Gain on sale	$	8,772		$	6,054	$	-	$	634		$	-		$	15,460


	Commercial
For the Nine Months Ended September 30, 2013	Properties			Apartments		Hotels		Land			Other			Total
Rental and other property revenues	$	15,545		$	42,053	$	-	$	101		$	111		$	57,810
Property operating expenses		8,660			19,176		-		1,240			31			29,107
Depreciation		4,318			7,639

AMERICAN REALTY INVESTORS INC - FORM 10-Q - November 13, 2014

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