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 March 31, 2017

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 May 15, 2017)

TRANSCONTINENTAL REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2017 (unaudited) and December 31, 2016	3
	Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (unaudited)	4
	Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2017 (unaudited)	5
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016 (unaudited)	6
	Consolidated Statements of Cash Flows for the three  months ended March 31, 2017 and 2016 (unaudited)	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	27
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION
Item 5.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28
SIGNATURES		29

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2017			December 31, 2016
	(dollars in thousands, except share and par value amounts)
Assets
Real estate, at cost	$	1,015,791		$	998,498
Real estate subject to sales contracts at cost		46,360			46,956
Less accumulated depreciation		(160,269	)		(154,281	)
Total real estate		901,882			891,173
Notes and interest receivable:
Performing (including $65,289 in 2017 and $67,912 in 2016 from related parties)		78,681			81,133
Less allowance for doubtful accounts (including $1,825 in 2017 and 2016 from related parties)		(1,825	)		(1,825	)
Total notes and interest receivable		76,856			79,308
Cash and cash equivalents		55,282			17,506
Restricted cash		31,045			38,227
Investments in unconsolidated joint ventures and investees		2,438			2,446
Receivable from related party		99,714			101,649
Other assets		60,498			55,605
Total assets	$	1,227,715		$	1,185,914
Liabilities and Shareholders’ Equity
Liabilities:
Notes and interest payable	$	822,922		$	835,528
Notes related to real estate held for sale		376			376
Notes related to real estate subject to sales contracts		4,177			5,612
Bond and bond interest payable		71,975			—
Deferred revenue (including $50,699 in 2017 and $50,689 in 2016 to related parties)		71,075			71,065
Accounts payable and other liabilities (including $6,647 in 2017 and $6,487 in 2016 to related parties)		37,950			48,856
Total liabilities		1,008,475			961,437
Shareholders’ equity:
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares; issued and outstanding zero shares in 2017 and 2016. Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2017 and 2016 (liquidation preference $100 per share)		1			1
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2017 and 2016; outstanding 8,717,767 shares in 2017 and 2016		87			87
Treasury stock at cost, 200 shares in 2017 and 2016		(2	)		(2	)
Paid-in capital		269,627			269,849
Retained earnings		(69,184	)		(64,050	)
Total Transcontinental Realty Investors, Inc. shareholders’ equity		200,529			205,885
Non-controlling interest		18,711			18,592
Total shareholders’ equity		219,240			224,477
Total liabilities and shareholders’ equity	$	1,227,715		$	1,185,914

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

3

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended
	March 31,
	2017			2016
	(dollars in thousands, except share and par value amounts)
Revenues:
Rental and other property revenues (including $190 and $173 for the three months ended 2017 and 2016, respectively, from related parties)	$	31,535		$	28,903
Expenses:
Property operating expenses (including $228 and $201 for the three months ended 2017 and 2016, respectively, from related parties)		15,889			14,963
Depreciation and amortization		6,303			5,808
General and administrative (including $732 and $749 for the three months ended 2017 and 2016, respectively, from related parties)		1,780			1,609
Net income fee to related party		60			72
Advisory fee to related party		2,305			2,371
Total operating expenses		26,337			24,823
Net operating income		5,198			4,080
Other income (expenses):
Interest income (including $3,169 and $3,150 for the three months ended 2017 and 2016, respectively, from related parties)		3,421			3,847
Other income (expense)		1,442			267
Mortgage and loan interest (including $151 and $61 for the three months ended 2017 and 2016, respectively, from related parties)		(15,190	)		(13,166	)
Foreign currency translation loss		(323	)		—
Earnings (losses) from unconsolidated joint ventures and investees		(8)			(2	)
Total other expenses		(10,658	)		(9,054	)
Loss before gain on land sales, non-controlling interest, and taxes		(5,460	)		(4,974	)
Loss on sale of income producing properties		—			(244	)
Gain on land sales		445			1,652
Net loss from continuing operations before taxes		(5,015	)		(3,566	)
Income tax benefit		—			1
Net loss from continuing operations		(5,015	)		(3,565	)
Discontinued operations:
Net income (loss) from discontinued operations		—			3
Income tax benefit (expense) from discontinued operations		—			(1	)
Net income (loss) from discontinued operations		—			2
Net loss		(5,015	)		(3,563	)
Net income (loss) attributable to non-controlling interest		(119	)		23
Net loss attributable to Transcontinental Realty Investors, Inc.		(5,134	)		(3,540	)
Preferred dividend requirement		(222	)		(222	)
Net loss applicable to common shares	$	(5,356	)	$	(3,762	)
Earnings per share - basic
Net loss from continuing operations	$	(0.61	)	$	(0.43	)
Earnings per share - diluted
Net loss from continuing operations	$	(0.61	)	$	(0.43	)
Weighted average common shares used in computing earnings per share		8,717,767			8,717,767
Weighted average common shares used in computing diluted earnings per share		8,717,767			8,717,767
Amounts attributable to Transcontinental Realty Investors, Inc.
Net loss from continuing operations	$	(5,134	)	$	(3,542	)
Net income from discontinued operations		—			2
Net loss from continuing operations	$	(5,134	)	$	(3,540	)

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

4

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2017

(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, 2016	$	224,477		$	(64,852	)	$	1		8,717,967	$	87	$	(2	)	$	269,849		$	(64,050	)	$	18,592
Series D preferred stock dividends (9.0% per year)		(222	)		—			—		—		—		—			(222	)		—			—
Net loss		(5,015	)		(5,134	)		—		—		—		—			—			(5,134	)		119
Balance, March 31, 2017	$	219,240		$	(69,986	)	$	1	$	8,717,967	$	87	$	(2	)	$	269,627		$	(69,184	)	$	18,711

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 Three Months Ended
	March 31,
	2017			2016
	(dollars in thousands)
Net income (loss)	$	(5,015	)	$	(3,563	)
Other comprehensive income		—			—
Total comprehensive income (loss)		(5,015	)		(3,563	)
Comprehensive income (loss) attributable to non-controlling interest		(119	)		23
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc.	$	(5,134	)	$	(3,540	)

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 Three Months Ended March 31,
	2017			2016
	(dollars in thousands)
Cash Flow From Operating Activities:
Net loss	$	(5,015	)	$	(3,563	)
Adjustments to reconcile net loss applicable to common  shares to net cash flows from operating activities:
Gain on sale of income-producing properties		—			(1,652	)
(Gain) loss on sale of land		(445	)		244
Depreciation and amortization		6,303			5,274
Amortization of deferred borrowing costs		1,053			1,398
Amortization of bond issuance costs		141			—
Losses (earnings) from unconsolidated joint ventures and investees		8			2
(Increase) decrease in assets:
Accrued interest receivable		1,746			1,575
Other assets		(1,634	)		1,709
Prepaid expense		(1,734	)		(11,622	)
Escrow		7,280			15,698
Earnest money		(53	)		(1,454	)
Rent receivables		(1,524	)		—
Related party receivables		1,935			(5,123	)
Increase (decrease) in liabilities:
Accrued interest payable		846			(140	)
Other liabilities		(10,896	)		(8,659	)
Net cash used in operating activities		(1,989	)		(6,313	)
Cash Flow From Investing Activities:
Proceeds from notes receivable		706			1,569
Originations or advances on notes receivable		—			(1,150	)
Proceeds from insurance claim		413			—
Acquisition of land held for development		(6,400	)		—
Proceeds from sale of income-producing properties		—			1,608
Proceeds from sale of land		1,089			3,412
Investment in unconsolidated real estate entities		8			2,781
Improvement of land held for development		(1,154	)		(947	)
Improvement of income-producing properties		(1,031	)		(1,002	)
Construction and development of new properties		(8,406	)		(8,395	)
Net cash used in investing activities		(14,775	)		(2,124	)
Cash Flow From Financing Activities:
Proceeds from notes payable		47,577			43,487
Recurring amortization of principal on notes payable		(3,423	)		(2,911	)
Payments on maturing notes payable		(59,392	)		(36,204	)
Proceeds from Series A bonds		75,991			—
Bond issuance costs		(4,829	)		—
Deferred financing costs		(1,162	)		(671	)
Preferred stock dividends - Series D		(222	)		(222	)
Net cash provided by financing activities		54,540			3,479
Net increase (decrease) in cash and cash equivalents		37,776			(4,958	)
Cash and cash equivalents, beginning of period		17,506			15,171
Cash and cash equivalents, end of period	$	55,282		$	10,213
Supplemental disclosures of cash flow information:
Cash paid for interest	$	12,205		$	10,628

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 58 income-producing properties as of March 31, 2017. 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 96.09 acres

● 50 apartment communities totaling 8,226 units; excluding apartments being developed; and

● 3,517 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 March 31, 2017, we had five 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 three months ended March 31, 2017, 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, 2016, 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, 2016. Certain 2016 Consolidated Financial Statement amounts have been reclassified to conform to the 2017 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.

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.

 10

Newly Issued Accounting Pronouncements

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 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 owned as of March 31, 2017 (dollars in thousands):

Apartments	$	698,344
Apartments under construction		40,134
Commercial properties		205,751
Land held for development		71,562
Real estate subject to sales contract		46,360
Total real estate	$	1,062,151
Less accumulated depreciation		(160,269	)
Total real estate, net of depreciation	$	901,882

The highlights of our significant real estate transactions for the three months ended March 31, 2017, are listed below:

Purchases

For the three months ended March 31, 2017, we acquired two land parcels for development for a total purchase price of $6.4 million, adding 11.12 acres to the development portfolio.

Sales

For the three months ended March 31, 2017, TCI sold 2.49 acres of land located in Farmers Branch, Texas to an independent third party for a total sales price of $1.1 million. We recorded an aggregate gain of $0.4 million from the land sale.

As of March 31, 2017, 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 three months ended March 31, 2017, we have expended $8.4 million related to the construction or predevelopment of various apartment complexes and capitalized $0.2 million of interest costs.

 11

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 March 31, 2017 (dollars in thousands):

TCI NOTE 3 - NOTES AND INTEREST RECEIVABLE - March 31, 2017 

Borrower	Maturity Date		Interest Rate			Amount			Collateral
Performing loans:
H198, LLC (Las Vegas Land)		01/20		12.00	%		5,907		Secured
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	%		7,966		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			782		Various unsecured interests
Other non-related party notes		Various		Various			796		Various secured interests
Other non-related party notes		Various		Various			4,658		Various unsecured interests
Accrued interest							3,733
Total Performing						$	78,681
Allowance for estimated losses							(1,825	)
Total						$	76,856

⁽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 March 31, 2017, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $76.9 million. We recognized interest income of $2.1 million related to these notes receivables for the three months ending March 31, 2017.

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.

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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
	March 31, 2017			March 31, 2016
American Realty Investors, Inc.(1)		0.90	%		0.90	%

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

Our interest in the common stock of ARL in the amount of 0.90% 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 March 31,	2017			2016
Real estate, net of accumulated depreciation	$	14,495		$	14,619
Notes receivable		44,840			48,681
Other assets		127,106			127,357
Notes payable		(7,742	)		(24,015	)
Other liabilities		(112,388	)		(98,687	)
Shareholders’ equity		(66,311	)		(67,955	)
For the Three Months Ended March 31,		2017			2016
Rents and interest and other income	$	1,713		$	1,778
Depreciation		(45	)		(40	)
Operating expenses		(980	)		(881	)
Interest expense		(1,606	)		(1,048	)
Net loss	$	(918	)	$	(191	)
Company’s proportionate share of loss	$	(8	)	$	(2	)

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NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of March 31, 2017 (dollars in thousands):

	Notes Payable			Accrued Interest		Total Debt
Apartments	$	541,710		$	1,417	$	543,127
Apartments under Construction		20,721			—		20,721
Commercial		108,051			532		108,583
Land		25,134			229		25,363
Real estate subject to sales contract		3,707			470		4,177
Mezzanine financing		119,422					119,422
Other		24,128			—		24,128
Total	$	842,873		$	2,648	$	845,521
Unamortized deferred borrowing costs		(18,046	)		—		(18,046	)
Total	$	824,827		$	2,648	$	827,475

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. During the three months ended March 31, 2017, we refinanced two loans with a total principal balance of $35.6 million. The transactions provided for lower monthly payments over the term of the loans due to lower interest rates and the extension of maturity dates of the loans.

In conjunction with the development of various apartment projects and other developments, we drew down $7.3 million in construction loans during the three months ended March 31, 2017.

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. SERIES A BONDS PAYABLE

On February 13, 2017, Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), filed a final prospectus with the Tel Aviv Stock Exchange LTD (the “TASE”) for an offering and sale of nonconvertible Series A Bonds (the “Debentures”), to be issued by Southern, which is an indirect subsidiary of TCI. Southern, in turn, wholly owns interest in other entities, which, in turn, are the principal owners of various residential and commercial properties located in the south and southwestern portions of the United States. The Debentures are unsecured obligations of Southern. On February 14, 2017, Southern commenced the institutional tender of the Debentures and has accepted application for 276 million Israeli, new Shekels (approximately $73,651,065 USD, based on the exchange rate of 3.7474 Shekels to the U.S. Dollar effective February 14, 2017) in both institutional and public tenders, at an annual interest rate averaging approximately 7.3%.

The Series A Bonds payable have a stated interest rate of 7.3% and an effective yield of 9.09%. Interest payments are due semiannually beginning in July 2017 through July 2023 with ten semiannual principal payments due beginning July 2019 through July 2023. During the three months ended March 31, 2017, the Company recorded a net loss on foreign currency transaction of $0.3 million.

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NOTE 7. RELATED PARTY TRANSACTIONS

The following table reflects the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of March 31, 2017 (dollars in thousands):

	Pillar			ARL			Total
Related party receivable, December 31, 2016	$	(7,103	)	$	108,752		$	101,649
Cash transfers		19,562			—			19,562
Advisory fees		(2,306	)		—			(2,306	)
Net income fee		(60	)		—			(60	)
Fees and commissions		(542	)		—			(542	)
Cost reimbursements		(588	)		—			(588	)
Interest income		—			1,141			1,141
Notes receivable purchased		(447	)					(447	)
Expenses paid by advisor		(2,431	)		—			(2,431	)
Financing (mortgage payments)		(10,532	)		—			(10,532	)
Sales/Purchases transactions		(5,732	)		—			(5,732	)
Series K preferred stock acquisition		—			—			—
Income tax expense		—			—			—
Purchase of obligations		3,076			(3,076	)		—
Related party receivable, March 31, 2017	$	(7,103	)	$	106,817		$	99,714

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 8. 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.

15 

Presented below is our reportable segments’ operating income for the three months ended March 31, 2017 and 2016, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended March 31, 2017	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,872		$	22,660		$	—		$	3		$	31,535
Property operating expenses		(4,683	)		(10,745	)		(159	)		(302	)		(15,889	)
Depreciation		(2,257	)		(4,046	)		—			—			(6,303	)
Mortgage and loan interest		(1,606	)		(6,758	)		(551	)		(6,275	)		(15,190	)
Interest income		—			—			—			3,421			3,421
Gain on land sales		—			—			445			—			445
Segment operating income (loss)	$	326		$	1,111		$	(265	)	$	(3,153	)	$	(1,981	)
Capital expenditures		1,343						399						1,742
Real estate assets		148,115			635,845			117,922			—			901,882
Property Sales
Sales price	$	—		$	—		$	1,089		$	—		$	1,089
Cost of sale		—			—			(644	)		—			(644	)
Gain on sale	$	—		$	—		$	445		$	—		$	445

	Commercial
For the Three Months Ended March 31, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,588		$	21,315		$	—		$	—		$	28,903
Property operating expenses		(4,858	)		(9,394	)		(731	)		20			(14,963	)
Depreciation		(2,273	)		(3,535	)		—			—			(5,808	)
Mortgage and loan interest		(1,950	)		(6,157	)		(530	)		(4,529	)		(13,166	)
Interest income		—			—			—			3,847			3,847
Loss on sale of income producing properties		(244	)		—			—			—			(244	)
Gain on land sales		—			—			1,652			—			1,652
Segment operating income (loss)	$	(1,737	)	$	2,229		$	391		$	(662	)	$	221
Capital expenditures		976						770						1,746
Real estate assets		150,680			558,721			136,076			—			845,477
Property Sales
Sales price	$	1,500		$	—		$	4,180		$	—		$	5,680
Cost of sale		(1,744	)		—			(2,528	)		—			(4,272	)
Gain (loss) on sale	$	(244	)	$	—		$	1,652		$	—		$	1,408

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (dollars in thousands):

	For the Three Months Ended
	March 31,
	2017			2016
Segment operating income (loss)	$	(1,981	)	$	221
Other non-segment items of income (expense)
General and administrative		(1,780	)		(1,609	)
Net income fee to related party		(60	)		(72	)
Advisory fee to related party		(2,305	)		(2,371	)
Other income		1,119			267
Loss from unconsolidated joint ventures and investees		(8)			(2	)
Income tax benefit		—			1
Net loss from continuing operations	$	(5,015	)	$	(3,565	)

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

	As of March 31,
	2017		2016
Segment assets	$	901,882	$	845,477
Investments in real estate partnerships		2,438		2,460
Notes and interest receivable		76,856		67,557
Other assets		246,539		187,226
Total assets	$	1,227,715	$	1,102,720

NOTE 9. 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 three months of 2017. Amounts included in discontinued operations for the three months ended March 31, 2016, 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 March 31,
	2016
Revenues:
Rental and other property revenues	$	—
		—
Expenses:
Property operating expenses		(3	)
Total operating expenses		(3	)
Other income (expense):
Other income		—
Total other income (expenses)		—
Gain from discontinued operations before income tax expense		3
Income tax expense		(1	)
Income from discontinued operations	$	2

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NOTE 10. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Liquidity. Management believes that TCI will generate excess cash from property operations in 2017; 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.

Dynex Capital, Inc.

On July 20, 2015, the 68th 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.

In April 2017, the plaintiffs filed a lawsuit against Dynex Capital, Inc. and Dynex Commercial, Inc. for $50 million alleging, among other things, fraudulent transfer and alter ego.

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.

Guarantees. The Company is the primary guarantor on a $60.4 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 March 31, 2017, UHF was in compliance with the covenants to the loan agreement.

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NOTE 11. EARNINGS PER SHARE

Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC 260 “Earnings per Share.” Basic EPS is calculated by dividing income available to common shareholders 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.

Prior to July 9, 2014, TCI had 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. These 30,000 shares were owned by RAI, a related party, and had accrued dividends unpaid of $0.9 million. The stock had a liquidation preference of $100.00 per share and could be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. On July 9, 2014, RAI converted all 30,000 shares into the requisite number of shares of common stock. The conversion resulted in the issuance of 304,298 new shares of common stock. The effects of the Series C Cumulative Convertible Preferred Stock are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the calculation for the prior periods if applying the if-converted method is dilutive.

As of March 31, 2017, there are no preferred stock or stock options that are required to be included in the calculation of EPS.

NOTE 12. SUBSEQUENT EVENTS

The date to which events occurring after March 31, 2017, the date of the most recent balance sheet, have been evaluated for possible adjustment to the Consolidated Financial Statements or disclosure is May 15, 2017, which is the date on which the Consolidated Financial Statements were available to be issued.

On May 8, 2017, Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), sold nonconvertible Series A Bonds (the “Debentures”), to be issued by Southern, which is an indirect subsidiary of Transcontinental Realty Investors, Inc. (“TCI”). Southern, in turn, wholly owns interest in other entities, which, in turn, are the principal owners of various residential and commercial properties located in the south and southwestern portions of the United States. The Debentures are unsecured obligations of Southern. On May 8, 2017, Southern commenced the institutional tender of the Debentures and has accepted application for 102 million Israeli, new Shekels (approximately $28,325,007 USD, based on the exchange rate of 3.607 Shekels to the U.S. Dollar) in both institutional and public tenders, at an annual interest rate averaging approximately 7.3%.

19 

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, 2016.

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.

20 

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 three months ended March 31, 2017, we sold 2.49 acres of land for a total sales price of $1.1 million and acquired 2 land parcels for development with a combined total of 11.12 acres and an aggregate purchase price of $6.4 million. As of March 31, 2017, we owned 8,226 units in 50 residential apartment communities, 7 commercial properties comprising approximately 1.7 million rentable square feet, and a golf course. In addition, we own 3,517 acres of land held for development. The Company currently owns income-producing properties and land in ten states as well as in the U.S. Virgin Islands.

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.

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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.

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.

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.

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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.

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.

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A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Related Parties

We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing 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 three months ending March 31, 2017.

The following discussion is based on our Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016, as included in Part I, Item 1. “Financial Statements” of this report. As of March 31, 2017 and 2016, we owned or had interests in a portfolio of 58 and 56 income-producing properties, respectively. 

Comparison of the three months ended March 31, 2017 to the same period ended 2016:

For the three months ended March 31, 2017, we reported a net loss applicable to common shares of $5.4 million or $0.61 per diluted earnings per share, compared to a net loss applicable to common shares of $3.8 million or $0.43 per diluted earnings per share for the same period ended 2016.

Revenues

Rental and other property revenues were $31.5 million for the three months ended March 31, 2017. This represents an increase of $2.6 million, compared to the prior period revenues of $28.9 million. This change, by segment, is an increase in the apartment portfolio of $1.3 million, and an increase in the commercial portfolio of $1.3 million. The increase in the apartment portfolio is primarily due to the purchase of two apartment communities on December 31, 2016. During the three months ended March 31, 2017, we recorded $1.2 million of revenue from these two properties. The increase in revenue for the commercial portfolio is primarily due to the increased occupancy in three of these properties.

Expense

Property operating expenses were $15.9 million for the three months ended March 31, 2017. This represents an increase of $0.9 million, compared to the prior period operating expenses of $15.0 million. This change, by segment, is an increase in the apartment portfolio of $1.4 million due primarily to our purchase of two new properties on December 31, 2016 and an increase in the commercial portfolio of $0.2 million, partially offset by a decrease in the land portfolio of $0.6 million.

Depreciation and amortization expenses were $6.3 million for the three months ended March 31, 2017. This represents an increase of $0.5 million as compared to prior period depreciation of $5.8 million. This change is consistent with the increase in acquired properties in the apartment and commercial portfolios.

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Other income (expense)

Mortgage and loan interest expense was $15.2 million for the three months ended March 31, 2017. This represents an increase of $2 million, as compared to the prior period expense of $13.2 million. The change by segment is an increase in the other portfolio of $1.7 million and an increase in the apartment portfolio of $0.6 million, partially offset by a decrease in the commercial portfolio of $0.3 million. Within the other portfolio, the increase is primarily due to $1.4 million of interest expense related to the Israeli Series A Bond payable which is comprised of $0.8 million interest based on the stated rate of the bond, $0.3 million interest expense related to the bond issuance costs and $0.3 million for the Medley loan that was placed in the SPC corporate financial statements. The increase within the apartment portfolio is primarily due to loan charges and prepayment penalties for the refinancing of two mortgage loans at lower rates.

Other income was $1.1 million for the three months ended March 31, 2017. This represents an increase of $0.8 million compared to prior period other income of $0.3 million. This increase is due to forgiveness of debt of $1 million during the first Q, insurance proceeds for flood damage to Parc at Denham of $0.4 million, and partially offset by $0.3 million of foreign currency translation loss due to Series A bond offering.

Gain on land sales decreased for the three months ended March 31, 2017, compared to the prior period. In the current period we sold 2.49 acres of land for a sales price of $1.1 million and recorded a gain of $0.4 million. For the same period in 2016, we sold 40.9 acres of land for a sales price of $4.2 million and recorded a gain of $1.7 million.

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, mezzanine financing 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. 

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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):

	March 31,
	2017			2016			Variance
Net cash used in operating activities	$	(1,989	)	$	(6,313	)	$	4,324
Net cash used in investing activities	$	(14,775	)	$	(2,124	)	$	(12,651	)
Net cash provided by financing activities	$	54,540		$	3,479		$	51,061

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.

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 three months ended March 31, 2017, we purchased two land properties for $6.4 million. We did not purchase any properties during the three months ended March 31, 2016.

Our primary sources of cash from investing activities are from the proceeds on the sale of land and income-producing properties. During the three months ended March 31, 2017, we received aggregate sales proceeds of $1.1 million from the sale of 2.49 acres of land with recorded total gain of $0.4 million from the sale. During the three months ended March 31, 2016, we sold approximately 40.9 acres of land for a total sales price of $4.2 million and recorded total gains of $1.7 million and one commercial property for $1.5 million and recorded a net loss of $0.2 million.

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. The increase in cash flow from financing activities is due to $76 million of proceeds received from the sale of nonconvertible Series A Bonds by Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), which is an indirect subsidiary of TCI.

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, market conditions and decreases in real estate costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, earnings from short-term investments, the cost of new financings and 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 three months of 2017, and taxable losses in 2016 and 2015; therefore, it recorded no provision for income taxes.

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At March 31, 2017, TCI had a net deferred tax asset of $57.1 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 $827.5 million in notes payable at March 31, 2017, $34.9 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 $0.35 million, and would result in a decrease of $0.03 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 5.12% at March 31, 2017.

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 purchased under this program during the first quarter of 2017. As of March 31, 2017, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.

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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.

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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: May 15, 2017	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer (Principal Executive Officer)
Date: May 15, 2017	By:	/s/ Gene S. Bertcher
		Gene S. Bertcher
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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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: May 15, 2017	/s/ Daniel J. Moos
	Daniel J. Moos
	President and Chief Executive Officer (Principal Executive Officer)

30 

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: May 15, 2017	/s/ Gene S. Bertcher
	Gene S. Bertcher
	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

31 

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 three months ended March 31, 2017, 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 three months ended March 31, 2017, 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: May 15, 2017	By:	/s/ Daniel J. Moos
		Daniel J. Moos
		President and Chief Executive Officer  (Principal Executive Officer)
Date: May 15, 2017	By:	/s/ Gene S. Bertcher
		Gene S. Bertcher
		Executive Vice President and Chief Financial Officer  (Principal Financial Officer)

 32

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 15, 2017
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	Mar. 31, 2017
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	Q1
Document Fiscal Year Focus	2017

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Assets
Real estate, at cost	$ 1,015,791	$ 998,498
Real estate subject to sales contracts at cost	46,360	46,956
Less accumulated depreciation	(160,269)	(154,281)
Total real estate	901,882	891,173
Notes and interest receivable:
Performing (including $65,289 in 2017 and $67,912 in 2016 from related parties)	78,681	81,133
Less allowance for doubtful accounts (including $1,825 in 2017 and 2016 from related parties)	(1,825)	(1,825)
Total notes and interest receivable	76,856	79,308
Cash and cash equivalents	55,282	17,506
Restricted cash	31,045	38,227
Investments in unconsolidated joint ventures and investees	2,438	2,446
Receivable from related party	99,714	101,649
Other assets	60,498	55,605
Total assets	1,227,715	1,185,914
Liabilities:
Notes and interest payable	822,922	835,528
Notes related to real estate held for sale	376	376
Notes related to real estate subject to sales contracts	4,177	5,612
Bond and bond interest payable	71,975
Deferred revenue (including $50,699 in 2017 and $50,689 in 2016 to related parties)	71,075	71,065
Accounts payable and other liabilities (including $6,647 in 2017 and $6,487 in 2016 to related parties)	37,950	48,856
Total liabilities	1,008,475	961,437
Shareholders' equity:
Preferred stock, Series C: $0.01 par value, authorized 10,000,000 shares; issued and outstanding zero shares in 2017 and 2016. Series D: $0.01 par value, authorized, issued and outstanding 100,000 shares in 2017 and 2016 (liquidation preference $100 per share)	1	1
Common stock, $0.01 par value, authorized 10,000,000 shares; issued 8,717,967 shares in 2017 and 2016; outstanding 8,717,767 shares in 2017 and 2016	87	87
Treasury stock at cost, 200 shares in 2017 and 2016	(2)	(2)
Paid-in capital	269,627	269,849
Retained earnings	(69,184)	(64,050)
Total Transcontinental Realty Investors, Inc. shareholders' equity	200,529	205,885
Non-controlling interest	18,711	18,592
Total shareholders' equity	219,240	224,477
Total liabilities and shareholders' equity	$ 1,227,715	$ 1,185,914

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Performing	$ 78,681	$ 81,133
Allowance for doubtful accounts (in dollars)	1,825	1,825
Deferred revenue from related parties	$ 71,075	$ 71,065
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	$ 65,289	$ 67,912
Allowance for doubtful accounts (in dollars)	1,825	1,825
Deferred revenue from related parties	50,699	50,689
Accounts payable and other liabilities to related parties (in dollars)	$ 6,647	$ 6,487
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
	Mar. 31, 2017	Mar. 31, 2016
Revenues:
Rental and other property revenues (including $190 and $173 for the three months ended 2017 and 2016, respectively, from related parties)	$ 31,535	$ 28,903
Expenses:
Property operating expenses (including $228 and $201 for the three months ended 2017 and 2016, respectively, from related parties)	15,889	14,963
Depreciation and amortization	6,303	5,808
General and administrative (including $732 and $749 for the three months ended 2017 and 2016, respectively, from related parties)	1,780	1,609
Net income fee to related party	60	72
Advisory fee to related party	2,305	2,371
Total operating expenses	26,337	24,823
Net operating income	5,198	4,080
Other income (expenses):
Interest income (including $3,169 and $3,150 for the three months ended 2017 and 2016, respectively, from related parties)	3,421	3,847
Other income (expense)	1,442	267
Mortgage and loan interest (including $151 and $61 for the three months ended 2017 and 2016, respectively, from related parties)	(15,190)	(13,166)
Foreign currency translation loss	(323)
Earnings (losses) from unconsolidated joint ventures and investees	(8)	(2)
Total other expenses	(10,658)	(9,054)
Loss before gain on land sales, non-controlling interest, and taxes	(5,460)	(4,974)
Loss on sale of income producing properties		(244)
Gain on land sales	445	1,652
Net loss from continuing operations before taxes	(5,015)	(3,566)
Income tax benefit		1
Net loss from continuing operations	(5,015)	(3,565)
Discontinued operations:
Net income (loss) from discontinued operations		3
Income tax benefit (expense) from discontinued operations		(1)
Net income (loss) from discontinued operations		2
Net loss	(5,015)	(3,563)
Net income (loss) attributable to non-controlling interest	(119)	23
Net loss attributable to Transcontinental Realty Investors, Inc.	(5,134)	(3,540)
Preferred dividend requirement	(222)	(222)
Net loss applicable to common shares	$ (5,356)	$ (3,762)
Earnings per share - basic
Net loss from continuing operations (in dollars per share)	$ (0.61)	$ (0.43)
Earnings per share - diluted
Net loss from continuing operations (in dollars per share)	$ (0.61)	$ (0.43)
Weighted average common shares used in computing earnings per share (in shares)	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
Amounts attributable to Transcontinental Realty Investors, Inc.
Net loss from continuing operations	$ (5,134)	$ (3,542)
Net income from discontinued operations		(2)
Net loss from continuing operations	$ (5,134)	$ (3,540)

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Rental and other property revenues	$ 31,535	$ 28,903
Property operating expenses	15,889	14,963
General and administrative	1,780	1,609
Interest income	3,421	3,847
Mortgage and loan interest	15,190	13,166
Related Parties [Member]
Rental and other property revenues	190	173
Property operating expenses	228	201
General and administrative	732	749
Interest income	3,169	3,150
Mortgage and loan interest	$ 151	$ 61

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (unaudited) - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands	Total	Comprehensive Income (Loss) [Member]	Preferred Stock [Member]	Common Stock [Member]	Treasury Stock [Member]	Paid-in Capital [Member]	Retained Earnings [Member]	Non-controlling Interest [Member]
Balance, at beginning at Dec. 31, 2016	$ 224,477	$ (64,852)	$ 1	$ 87	$ (2)	$ 269,849	$ (64,050)	$ 18,592
Balance, at beginning (in shares) at Dec. 31, 2016				8,717,967
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Series D preferred stock dividends	(222)					(222)
Net loss	(5,015)	(5,134)					(5,134)	119
Balance, at the end at Mar. 31, 2017	$ 219,240	$ (69,986)	$ 1	$ 87	$ (2)	$ 269,627	$ (69,184)	$ 18,711
Balance, at the end (in shares) at Mar. 31, 2017				8,717,967

XML

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Parenthetical)	3 Months Ended
	Mar. 31, 2017
Series D Preferred Stock [Member]
Preferred stock dividend (in percent)	9.00%

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (5,015)	$ (3,563)
Total comprehensive income (loss)	(5,015)	(3,563)
Comprehensive income (loss) attributable to non-controlling interest	(119)	23
Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc.	$ (5,134)	$ (3,540)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash Flow From Operating Activities:
Net loss	$ (5,015)	$ (3,563)
Adjustments to reconcile net loss applicable to common shares to net cash flows from operating activities:
Gain on sale of income-producing properties		(1,652)
(Gain) loss on sale of land	(445)	244
Depreciation and amortization	6,303	5,274
Amortization of deferred borrowing costs	1,053	1,398
Amortization of bond issuance costs	123
Losses (earnings) from unconsolidated joint ventures and investees	8	2
(Increase) decrease in assets:
Accrued interest receivable	1,746	1,575
Other assets	(1,634)	1,709
Prepaid expense	(1,736)	(11,622)
Escrow	7,279	15,698
Earnest money	(54)	(1,454)
Rent receivables	(1,524)
Related party receivables	1,935	(5,123)
Increase (decrease) in liabilities:
Accrued interest payable	840	(140)
Other liabilities	(10,896)	(8,659)
Net cash used in operating activities	(2,017)	(6,313)
Cash Flow From Investing Activities:
Proceeds from notes receivable	706	1,569
Originations or advances on notes receivable		(1,150)
Proceeds from insurance claim	413
Acquisition of land held for development	(6,400)
Proceeds from sale of income-producing properties		1,608
Proceeds from sale of land	1,089	3,412
Investment in unconsolidated real estate entities	8	2,781
Improvement of land held for development	(1,154)	(947)
Improvement of income-producing properties	(1,031)	(1,002)
Construction and development of new properties	(8,379)	(8,395)
Net cash used in investing activities	(14,748)	(2,124)
Cash Flow From Financing Activities:
Proceeds from notes payable	47,577	43,487
Recurring amortization of principal on notes payable	(3,423)	(2,911)
Payments on maturing notes payable	(59,392)	(36,204)
Proceeds from Series A bonds	75,991
Bond issuance costs	(4,828)
Deferred financing costs	(1,162)	(671)
Preferred stock dividends - Series D	(222)	(222)
Net cash provided by financing activities	54,541	3,479
Net increase (decrease) in cash and cash equivalents	37,776	(4,958)
Cash and cash equivalents, beginning of period	17,506	15,171
Cash and cash equivalents, end of period	55,282	10,213
Supplemental disclosures of cash flow information:
Cash paid for interest	$ 12,322	$ 10,628

XML

ORGANIZATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2017

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 58 income-producing properties as of March 31, 2017. 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 96.09 acres

• 50 apartment communities totaling 8,226 units; excluding apartments being developed; and

• 3,517 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 March 31, 2017, we had five 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 three months ended March 31, 2017, 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, 2016, 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, 2016. Certain 2016 Consolidated Financial Statement amounts have been reclassified to conform to the 2017 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.

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 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 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.

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REAL ESTATE ACTIVITY

3 Months Ended

Mar. 31, 2017

Real Estate [Abstract]

REAL ESTATE ACTIVITY

NOTE 2. REAL ESTATE ACTIVITY

Below is a summary of the real estate owned as of March 31, 2017 (dollars in thousands):

Apartments	$	698,344
Apartments under construction		40,134
Commercial properties		205,751
Land held for development		71,562
Real estate subject to sales contract		46,360
Total real estate	$	1,062,151
Less accumulated depreciation		(160,269	)
Total real estate, net of depreciation	$	901,882

The highlights of our significant real estate transactions for the three months ended March 31, 2017, are listed below:

Purchases

For the three months ended March 31, 2017, we acquired two land parcels for development for a total purchase price of $6.4 million, adding 11.12 acres to the development portfolio.

Sales

For the three months ended March 31, 2017, TCI sold 2.49 acres of land located in Farmers Branch, Texas to an independent third party for a total sales price of $1.1 million. We recorded an aggregate gain of $0.4 million from the land sale.

As of March 31, 2017, 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 three months ended March 31, 2017, we have expended $8.4 million related to the construction or predevelopment of various apartment complexes and capitalized $0.2 million of interest costs.

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NOTES AND INTEREST RECEIVABLE

3 Months Ended

Mar. 31, 2017

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 March 31, 2017 (dollars in thousands):

TCI NOTE 3 - NOTES AND INTEREST RECEIVABLE - March 31, 2017 

Borrower	Maturity Date		Interest Rate			Amount			Collateral
Performing loans:
H198, LLC (Las Vegas Land)		01/20		12.00	%		5,907		Secured
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	%		7,966		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			782		Various unsecured interests
Other non-related party notes		Various		Various			796		Various secured interests
Other non-related party notes		Various		Various			4,658		Various unsecured interests
Accrued interest							3,733
Total Performing						$	78,681
Allowance for estimated losses							(1,825	)
Total						$	76,856

⁽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 March 31, 2017, we had mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $76.9 million. We recognized interest income of $2.1 million related to these notes receivables for the three months ending March 31, 2017.

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.

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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES

3 Months Ended

Mar. 31, 2017

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
	March 31, 2017			March 31, 2016
American Realty Investors, Inc.(1)		0.90	%		0.90	%

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

 Our interest in the common stock of ARL in the amount of 0.90% 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 March 31,	2017			2016
Real estate, net of accumulated depreciation	$	14,495		$	14,619
Notes receivable		44,840			48,681
Other assets		127,106			127,357
Notes payable		(7,742	)		(24,015	)
Other liabilities		(112,388	)		(98,687	)
Shareholders’ equity		(66,311	)		(67,955	)
For the Three Months Ended March 31,		2017			2016
Rents and interest and other income	$	1,713		$	1,778
Depreciation		(45	)		(40	)
Operating expenses		(980	)		(881	)
Interest expense		(1,606	)		(1,048	)
Net loss	$	(918	)	$	(191	)
Company’s proportionate share of loss	$	(8	)	$	(2	)

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NOTES PAYABLE

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of March 31, 2017 (dollars in thousands):

	Notes Payable			Accrued Interest		Total Debt
Apartments	$	541,710		$	1,417	$	543,127
Apartments under Construction		20,721			—		20,721
Commercial		108,051			532		108,583
Land		25,134			229		25,363
Real estate subject to sales contract		3,707			470		4,177
Mezzanine financing		119,422					119,422
Other		24,128			—		24,128
Total	$	842,873		$	2,648	$	845,521
Unamortized deferred borrowing costs		(18,046	)		—		(18,046	)
Total	$	824,827		$	2,648	$	827,475

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. During the three months ended March 31, 2017, we refinanced two loans with a total principal balance of $35.6 million. The transactions provided for lower monthly payments over the term of the loans due to lower interest rates and the extension of maturity dates of the loans.

In conjunction with the development of various apartment projects and other developments, we drew down $7.3 million in construction loans during the three months ended March 31, 2017.

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.

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SERIES A BONDS PAYABLE

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

SERIES A BONDS PAYABLE

NOTE 6. SERIES A BONDS PAYABLE

On February 13, 2017, Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), filed a final prospectus with the Tel Aviv Stock Exchange LTD (the “TASE”) for an offering and sale of nonconvertible Series A Bonds (the “Debentures”), to be issued by Southern, which is an indirect subsidiary of TCI. Southern, in turn, wholly owns interest in other entities, which, in turn, are the principal owners of various residential and commercial properties located in the south and southwestern portions of the United States. The Debentures are unsecured obligations of Southern. On February 14, 2017, Southern commenced the institutional tender of the Debentures and has accepted application for 276 million Israeli, new Shekels (approximately $73,651,065 USD, based on the exchange rate of 3.7474 Shekels to the U.S. Dollar effective February 14, 2017) in both institutional and public tenders, at an annual interest rate averaging approximately 7.3%.

The Series A Bonds payable have a stated interest rate of 7.3% and an effective yield of 9.09%. Interest payments are due semiannually beginning in July 2017 through July 2023 with ten semiannual principal payments due beginning July 2019 through July 2023. During the three months ended March 31, 2017, the Company recorded a net loss on foreign currency transaction of $0.3 million.

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 7. RELATED PARTY TRANSACTIONS

The following table reflects the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of March 31, 2017 (dollars in thousands):

	Pillar			ARL			Total
Related party receivable, December 31, 2016	$	(7,103	)	$	108,752		$	101,649
Cash transfers		19,562			—			19,562
Advisory fees		(2,306	)		—			(2,306	)
Net income fee		(60	)		—			(60	)
Fees and commissions		(542	)		—			(542	)
Cost reimbursements		(588	)		—			(588	)
Interest income		—			1,141			1,141
Notes receivable purchased		(447	)					(447	)
Expenses paid by advisor		(2,431	)		—			(2,431	)
Financing (mortgage payments)		(10,532	)		—			(10,532	)
Sales/Purchases transactions		(5,732	)		—			(5,732	)
Series K preferred stock acquisition		—			—			—
Income tax expense		—			—			—
Purchase of obligations		3,076			(3,076	)		—
Related party receivable, March 31, 2017	$	(7,103	)	$	106,817		$	99,714

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.

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OPERATING SEGMENTS

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

OPERATING SEGMENTS

NOTE 8. 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 March 31, 2017 and 2016, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended March 31, 2017	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,872		$	22,660		$	—		$	3		$	31,535
Property operating expenses		(4,683	)		(10,745	)		(159	)		(302	)		(15,889	)
Depreciation		(2,257	)		(4,046	)		—			—			(6,303	)
Mortgage and loan interest		(1,606	)		(6,759	)		(551	)		(6,251	)		(15,167	)
Interest income		—			—			—			3,421			3,421
Gain on land sales		—			—			445			—			445
Segment operating income (loss)	$	326		$	1,110		$	(265	)	$	(3,129	)	$	(1,958	)
Capital expenditures		1,343						399						1,742
Real estate assets		148,115			635,845			117,922			—			901,882
Property Sales
Sales price	$	—		$	—		$	1,089		$	—		$	1,089
Cost of sale		—			—			(644	)		—			(644	)
Gain on sale	$	—		$	—		$	445		$	—		$	445

	Commercial
For the Three Months Ended March 31, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,588		$	21,315		$	—		$	—		$	28,903
Property operating expenses		(4,858	)		(9,394	)		(731	)		20			(14,963	)
Depreciation		(2,273	)		(3,535	)		—			—			(5,808	)
Mortgage and loan interest		(1,950	)		(6,157	)		(530	)		(4,529	)		(13,166	)
Interest income		—			—			—			3,847			3,847
Loss on sale of income producing properties		(244	)		—			—			—			(244	)
Gain on land sales		—			—			1,652			—			1,652
Segment operating income (loss)	$	(1,737	)	$	2,229		$	391		$	(662	)	$	221
Capital expenditures		976						770						1,746
Real estate assets		150,680			558,721			136,076			—			845,477
Property Sales
Sales price	$	1,500		$	—		$	4,180		$	—		$	5,680
Cost of sale		(1,744	)		—			(2,528	)		—			(4,272	)
Gain (loss) on sale	$	(244	)	$	—		$	1,652		$	—		$	1,408

The table below reflects the reconciliation of segment information to the corresponding amounts in the Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (dollars in thousands):

	For the Three Months Ended
	March 31,
	2017			2016
Segment operating income (loss)	$	(1,958	)	$	221
Other non-segment items of income (expense)
General and administrative		(1,780	)		(1,609	)
Net income fee to related party		(60	)		(72	)
Advisory fee to related party		(2,805	)		(2,371	)
Other income		1,068			267
Loss from unconsolidated joint ventures and investees		(8)			(2	)
Income tax benefit		—			1
Net loss from continuing operations	$	(5,543	)	$	(3,565	)

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

	As of March 31,
	2017		2016
Segment assets	$	901,882	$	845,477
Investments in real estate partnerships		2,438		2,460
Notes and interest receivable		76,856		67,557
Other assets		246,487		187,226
Total assets	$	1,227,663	$	1,102,720

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DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2017

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

NOTE 9. 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 three months of 2017. Amounts included in discontinued operations for the three months ended March 31, 2016, 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 March 31,
	2016
Revenues:
Rental and other property revenues	$	—
		—
Expenses:
Property operating expenses		(3	)
Total operating expenses		(3	)
Other income (expense):
Other income		—
Total other income (expenses)		—
Gain from discontinued operations before income tax expense		3
Income tax expense		(1	)
Income from discontinued operations	$	2

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COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

NOTE 10. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Liquidity. Management believes that TCI will generate excess cash from property operations in 2017; 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.

Dynex Capital, Inc.

On July 20, 2015, the 68th 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.

In April 2017, the plaintiffs filed a lawsuit against Dynex Capital, Inc. and Dynex Commercial, Inc. for $50 million alleging, among other things, fraudulent transfer and alter ego.

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.

Guarantees. The Company is the primary guarantor on a $60.4 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 March 31, 2017, UHF was in compliance with the covenants to the loan agreement.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 11. EARNINGS PER SHARE

Earnings per share (“EPS”) have been computed pursuant to the provisions of ASC 260 “Earnings per Share.” Basic EPS is calculated by dividing income available to common shareholders 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.

Prior to July 9, 2014, TCI had 30,000 shares of Series C cumulative convertible preferred stock issued and outstanding. These 30,000 shares were owned by RAI, a related party, and had accrued dividends unpaid of $0.9 million. The stock had a liquidation preference of $100.00 per share and could be converted into common stock at 90% of the daily average closing price of the common stock for the prior five trading days. On July 9, 2014, RAI converted all 30,000 shares into the requisite number of shares of common stock. The conversion resulted in the issuance of 304,298 new shares of common stock. The effects of the Series C Cumulative Convertible Preferred Stock are no longer included in the dilutive earnings per share calculation for the current period, but are considered in the calculation for the prior periods if applying the if-converted method is dilutive.

As of March 31, 2017, there are no preferred stock or stock options that are required to be included in the calculation of EPS.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2017

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 12. SUBSEQUENT EVENTS

The date to which events occurring after March 31, 2017, the date of the most recent balance sheet, have been evaluated for possible adjustment to the Consolidated Financial Statements or disclosure is May 15, 2017, which is the date on which the Consolidated Financial Statements were available to be issued.

On May 8, 2017, Southern Properties Capital LTD, a British Virgin Islands corporation (“Southern”), sold nonconvertible Series A Bonds (the “Debentures”), to be issued by Southern, which is an indirect subsidiary of Transcontinental Realty Investors, Inc. (“TCI”). Southern, in turn, wholly owns interest in other entities, which, in turn, are the principal owners of various residential and commercial properties located in the south and southwestern portions of the United States. The Debentures are unsecured obligations of Southern. On May 8, 2017, Southern commenced the institutional tender of the Debentures and has accepted application for 102 million Israeli, new Shekels (approximately $28,325,007 USD, based on the exchange rate of 3.607 Shekels to the U.S. Dollar) in both institutional and public tenders, at an annual interest rate averaging approximately 7.3%.

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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 three months ended March 31, 2017, 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, 2016, 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, 2016. Certain 2016 Consolidated Financial Statement amounts have been reclassified to conform to the 2017 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 Impairmentt

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.

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 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 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.

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REAL ESTATE ACTIVITY (Tables)

3 Months Ended

Mar. 31, 2017

Real Estate [Abstract]

Schedule of the real estate owned

Below is a summary of the real estate owned as of March 31, 2017 (dollars in thousands):

Apartments	$	698,344
Apartments under construction		40,134
Commercial properties		205,751
Land held for development		71,562
Real estate subject to sales contract		46,360
Total real estate	$	1,062,151
Less accumulated depreciation		(160,269	)
Total real estate, net of depreciation	$	901,882

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NOTES AND INTEREST RECEIVABLE (Tables)

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

Schedule of notes receivable

TCI NOTE 3 - NOTES AND INTEREST RECEIVABLE - March 31, 2017 

Borrower	Maturity Date		Interest Rate			Amount			Collateral
Performing loans:
H198, LLC (Las Vegas Land)		01/20		12.00	%		5,907		Secured
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	%		7,966		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			782		Various unsecured interests
Other non-related party notes		Various		Various			796		Various secured interests
Other non-related party notes		Various		Various			4,658		Various unsecured interests
Accrued interest							3,733
Total Performing						$	78,681
Allowance for estimated losses							(1,825	)
Total						$	76,856

(1) Related party notes

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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Tables)

3 Months Ended

Mar. 31, 2017

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
	March 31, 2017			March 31, 2016
American Realty Investors, Inc.(1)		0.90	%		0.90	%

(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 March 31,	2017			2016
Real estate, net of accumulated depreciation	$	14,495		$	14,619
Notes receivable		44,840			48,681
Other assets		127,106			127,357
Notes payable		(7,742	)		(24,015	)
Other liabilities		(112,388	)		(98,687	)
Shareholders’ equity		(66,311	)		(67,955	)
For the Three Months Ended March 31,		2017			2016
Rents and interest and other income	$	1,713		$	1,778
Depreciation		(45	)		(40	)
Operating expenses		(980	)		(881	)
Interest expense		(1,606	)		(1,048	)
Net loss	$	(918	)	$	(191	)
Company’s proportionate share of loss	$	(8	)	$	(2	)

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NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Schedule of notes and interest payable

Below is a summary of our notes and interest payable as of March 31, 2017 (dollars in thousands):

	Notes Payable			Accrued Interest		Total Debt
Apartments	$	541,710		$	1,417	$	543,127
Apartments under Construction		20,721			—		20,721
Commercial		108,051			532		108,583
Land		25,134			229		25,363
Real estate subject to sales contract		3,707			470		4,177
Mezzanine financing		119,422					119,422
Other		24,128			—		24,128
Total	$	842,873		$	2,648	$	845,521
Unamortized deferred borrowing costs		(18,046	)		—		(18,046	)
Total	$	824,827		$	2,648	$	827,475

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RELATED PARTY TRANSACTIONS AND FEES (Tables)

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

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

The following table reflects the reconciliation of the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of March 31, 2017 (dollars in thousands): [to be updated]

	Pillar			ARL			Total
Related party receivable, December 31, 2016	$	(7,103	)	$	108,752		$	101,649
Cash transfers		19,562			—			19,562
Advisory fees		(2,306	)		—			(2,306	)
Net income fee		(60	)		—			(60	)
Fees and commissions		(542	)		—			(542	)
Cost reimbursements		(588	)		—			(588	)
Interest income		—			1,141			1,141
Notes receivable purchased		(447	)					(447	)
Expenses paid by advisor		(2,431	)		—			(2,431	)
Financing (mortgage payments)		(10,532	)		—			(10,532	)
Sales/Purchases transactions		(5,732	)		—			(5,732	)
Series K preferred stock acquisition		—			—			—
Income tax expense		—			—			—
Purchase of obligations		3,076			(3,076	)		—
Related party receivable, March 31, 2017	$	(7,103	)	$	106,817		$	99,714

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OPERATING SEGMENTS (Tables)

3 Months Ended

Mar. 31, 2017

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 March 31, 2017 and 2016, including segment assets and expenditures (dollars in thousands):

	Commercial
For the Three Months Ended March 31, 2017	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	8,872		$	22,660		$	—		$	3		$	31,535
Property operating expenses		(4,683	)		(10,745	)		(159	)		(302	)		(15,889	)
Depreciation		(2,257	)		(4,046	)		—			—			(6,303	)
Mortgage and loan interest		(1,606	)		(6,759	)		(551	)		(6,251	)		(15,167	)
Interest income		—			—			—			3,421			3,421
Gain on land sales		—			—			445			—			445
Segment operating income (loss)	$	326		$	1,110		$	(265	)	$	(3,129	)	$	(1,958	)
Capital expenditures		1,343						399						1,742
Real estate assets		148,115			635,845			117,922			—			901,882
Property Sales
Sales price	$	—		$	—		$	1,089		$	—		$	1,089
Cost of sale		—			—			(644	)		—			(644	)
Gain on sale	$	—		$	—		$	445		$	—		$	445

	Commercial
For the Three Months Ended March 31, 2016	Properties			Apartments			Land			Other			Total
Rental and other property revenues	$	7,588		$	21,315		$	—		$	—		$	28,903
Property operating expenses		(4,858	)		(9,394	)		(731	)		20			(14,963	)
Depreciation		(2,273	)		(3,535	)		—			—			(5,808	)
Mortgage and loan interest		(1,950	)		(6,157	)		(530	)		(4,529	)		(13,166	)
Interest income		—			—			—			3,847			3,847
Loss on sale of income producing properties		(244	)		—			—			—			(244	)
Gain on land sales		—			—			1,652			—			1,652
Segment operating income (loss)	$	(1,737	)	$	2,229		$	391		$	(662	)	$	221
Capital expenditures		976						770						1,746
Real estate assets		150,680			558,721			136,076			—			845,477
Property Sales
Sales price	$	1,500		$	—		$	4,180		$	—		$	5,680
Cost of sale		(1,744	)		—			(2,528	)		—			(4,272	)
Gain (loss) on sale	$	(244	)	$	—		$	1,652		$	—		$	1,408

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 March 31, 2017 and 2016 (dollars in thousands):

	For the Three Months Ended
	March 31,
	2017			2016
Segment operating income (loss)	$	(1,958	)	$	221
Other non-segment items of income (expense)
General and administrative		(1,780	)		(1,609	)
Net income fee to related party		(60	)		(72	)
Advisory fee to related party		(2,805	)		(2,371	)
Other income		1,068			267
Loss from unconsolidated joint ventures and investees		(8)			(2	)
Income tax benefit		—			1
Net loss from continuing operations	$	(5,543	)	$	(3,565	)

Schedule of reconciliaton segment information to consolidated balance sheets

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

	As of March 31,
	2017		2016
Segment assets	$	901,882	$	845,477
Investments in real estate partnerships		2,438		2,460
Notes and interest receivable		76,856		67,557
Other assets		246,487		187,226
Total assets	$	1,227,663	$	1,102,720

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DISCONTINUED OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2017

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 March 31,
	2016
Revenues:
Rental and other property revenues	$	—
		—
Expenses:
Property operating expenses		(3	)
Total operating expenses		(3	)
Other income (expense):
Other income		—
Total other income (expenses)		—
Gain from discontinued operations before income tax expense		3
Income tax expense		(1	)
Income from discontinued operations	$	2

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ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative)	3 Months Ended
	Mar. 31, 2017 ft² a Number
Number of apartment units	8,226
Number of apartment communities	50
Number of properties	58
Rentable square feet | ft²	1,700,000
Acres of land | ft²	3,517
Area of land comprising golf course | a	96.09
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	5
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
Income Opportunities Realty Investors, Inc. [Member]
Percentage of ownership	81.10%
American Realty Investors, Inc [Member]
Percentage of ownership	0.90%

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REAL ESTATE ACTIVITY (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Real Estate [Abstract]
Apartments	$ 698,344
Apartments under construction	40,134
Commercial properties	205,751
Land held for development	71,562
Real estate subject to sales contract	46,360
Total real estate	1,062,151
Less accumulated depreciation	(160,269)
Total real estate	$ 901,882	$ 891,173

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REAL ESTATE ACTIVITY (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) ft² a Number	Mar. 31, 2016 USD ($)
Number of properties | Number	58
Acres of land | ft²	3,517
Gain on land sales	$ 445	$ 1,652
Payment for construction or predevelopment of various apartment complexes	8,400
Capitalized interest costs	$ 200
Related Parties [Member]
Area of land sold | a	91
Apartment Community Acquired [Member]
Number of properties | Number	2
Land Parcel Acquired [Member]
Acquisition of income-producing properties	$ 6,400
Acres of land | a	11.12
Land [Member] | TEXAS
Area of land sold | a	2.49
Land sales - total consideration	$ 1,100
Gain on land sales	$ 400

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NOTES AND INTEREST RECEIVABLE (Details) - Performing Loans [Member]
$ in Thousands

3 Months Ended

Mar. 31, 2017

USD ($)

Performing loans, total

$ 78,681

Accrued interest

3,733

Allowance for estimated losses

(1,825)

Total notes and interest receivable

$ 76,856

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

Secured

Oulan-Chikh Family Trust [Member]

Maturity Date

Mar. 31, 2021

Interest Rate

8.00%

Performing loans, total

$ 174

Description of Security

Secured

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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

$ 7,966

^[1]

Description of Security

Secured

^[1]

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]

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]

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]

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]

Other Related Party Notes [Member]

Description of maturity date

Various

Description of Interest Rate

Various

^[1]

Performing loans, total

$ 782

^[1]

Description of Security

Various unsecured interests

^[1]

Other Non-Related Party Notes [Member]

Description of maturity date

Various

Description of Interest Rate

Various

Performing loans, total

$ 796

Description of Security

Various secured interests

Other Non-Related Party Notes [Member]

Description of maturity date

Various

Description of Interest Rate

Various

Performing loans, total

$ 4,658

Description of Security

Various unsecured interests

[1] Related party notes

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NOTES AND INTEREST RECEIVABLE (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($)
Interest income	$ 1,141
Mortgage Loans [Member] | Related Parties [Member]
Total notes and interest receivable	76,900
Interest income	$ 2,100

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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details)		Mar. 31, 2017	Mar. 31, 2016
American Realty Investors, Inc. [Member]
Percentage of ownership	[1]	0.90%	0.90%

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

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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Real estate, net of accumulated depreciation	$ 901,882		$ 891,173
Other assets	60,498		55,605
Notes payable	822,922		835,528
Shareholders' equity	(200,529)		$ (205,885)
Rents and interest and other income	31,535	$ 28,903
Depreciation	(6,303)	(5,808)
Operating expenses	26,337	24,823
Net loss	(5,015)	(3,563)
Company's proportionate share of loss	(8)	(2)
American Realty Investors, Inc. [Member]
Real estate, net of accumulated depreciation	14,495	14,619
Notes receivable	44,840	48,681
Other assets	127,106	127,357
Notes payable	7,742	24,015
Other liabilities	(112,388)	(98,687)
Shareholders' equity	(66,311)	(67,955)
Rents and interest and other income	1,713	1,778
Depreciation	(45)	(40)
Operating expenses	(980)	(881)
Interest expense	(1,606)	(1,048)
Net loss	(918)	(191)
Company's proportionate share of loss	$ (8)	$ (2)

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INVESTMENT IN UNCONSOLIDATED JOINT VENTURES AND INVESTEES (Details Narrative)	Mar. 31, 2017 shares
American Realty Investors, Inc [Member]
Percentage of ownership	0.90%
Ownership of parent company shares	140,000
Minimum [Member]
Percentage of ownership	20.00%
Maximum [Member]
Percentage of ownership	50.00%

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NOTES PAYABLE (Details) $ in Thousands	Mar. 31, 2017 USD ($)
Notes Payable	$ 824,827
Accrued Interest	2,648
Total Debt	827,475
Unamortized deferred borrowing costs	(18,046)
Apartments [Member]
Notes Payable	541,710
Accrued Interest	1,417
Total Debt	543,127
Apartments Under Construction [Member]
Notes Payable	20,721
Total Debt	20,721
Commercial [Member]
Notes Payable	108,051
Accrued Interest	532
Total Debt	108,583
Land [Member]
Notes Payable	25,134
Accrued Interest	229
Total Debt	25,363
Real Estate Subject To Sales Contract [Member]
Notes Payable	3,707
Accrued Interest	470
Total Debt	4,177
Mezzanine Financing [Member]
Notes Payable	119,422
Total Debt	119,422
Other [Member]
Notes Payable	24,128
Total Debt	24,128
Total Notes Payable [Member]
Notes Payable	842,873
Accrued Interest	2,648
Total Debt	845,521
Unamortized deferred borrowing costs	$ (18,046)

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NOTES PAYABLE (Details Narrative) - Construction Loans [Member] $ in Thousands	3 Months Ended
	Mar. 31, 2017 USD ($) Number
Number of loans refinanced or modified | Number	5
Notes payable	$ 35,600
Proceeds from draw on loan facility	$ 7,300

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SERIES A BONDS PAYABLE (Details Narrative)

3 Months Ended

Feb. 14, 2017

USD ($)

Mar. 31, 2017

USD ($)

Feb. 14, 2017

ILS (₪)

Net loss on foreign currency transaction

$ 300,000

Nonconvertible Series A Bonds [Member]

Debentures offering amount

$ 73,651,065

Interest rate

7.30%

7.30%

Effective yield

9.09%

9.09%

Description of payment terms

Interest payments are due semiannually beginning in July 2017 through July 2023 with ten semiannual principal payments due beginning July 2019 through July 2023.

Nonconvertible Series A Bonds [Member] | Israel Shekel [Member]

Debentures offering amount | ₪

₪ 276,000,000

Exchange rate

3.607

3.607

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RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Due from Related Parties [RollForward]
Related party receivable, beginning	$ 101,649
Cash transfers	19,562
Advisory fees	(2,305)	$ (2,371)
Net income fee	(60)	$ (72)
Fees and commissions	(542)
Cost reimbursements	(588)
Interest income	1,141
Notes receivable purchased	(447)
Expenses paid by Advisor	(2,431)
Financing (mortgage payments)	(10,532)
Sales/purchases transactions	(5,732)
Related party receivable, ending	99,714
Pillar Income Asset Management, Inc [Member]
Due from Related Parties [RollForward]
Related party receivable, beginning	(7,103)
Cash transfers	19,562
Advisory fees	(2,306)
Net income fee	(60)
Fees and commissions	(542)
Cost reimbursements	(588)
Notes receivable purchased	(447)
Expenses paid by Advisor	(2,431)
Financing (mortgage payments)	(10,532)
Sales/purchases transactions	(5,732)
Purchase of obligations	3,076
Related party receivable, ending	(7,103)
American Realty Investors, Inc [Member]
Due from Related Parties [RollForward]
Related party receivable, beginning	108,752
Interest income	1,141
Purchase of obligations	(3,076)
Related party receivable, ending	$ 106,817

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OPERATING SEGMENTS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Segment Reporting Information [Line Items]
Rental and other property revenues	$ 31,535	$ 28,903
Property operating expenses	(15,889)	(14,963)
Depreciation	(6,303)	(5,808)
Loss on sale of income producing properties		(244)
Gain on land sales	445	1,652
Segment operating income (loss)	5,198	4,080
Total real estate	901,882
Property Sales
Gain on sale		1,652
Commercial Properties [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	8,872	7,588
Property operating expenses	(4,683)	(4,858)
Depreciation	(2,257)	(2,273)
Mortgage and loan interest	(1,606)	(1,950)
Loss on sale of income producing properties		(244)
Segment operating income (loss)	326	(1,737)
Capital expenditures	1,343	976
Total real estate	148,115	150,680
Property Sales
Sales price		1,500
Cost of sale		(1,744)
Gain on sale		(244)
Apartments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	22,660	21,315
Property operating expenses	(10,745)	(9,394)
Depreciation	(4,046)	(3,535)
Mortgage and loan interest	(6,759)	(6,157)
Segment operating income (loss)	1,110	2,229
Total real estate	635,845	558,721
Land [Member]
Segment Reporting Information [Line Items]
Property operating expenses	(159)	(731)
Mortgage and loan interest	(551)	(530)
Gain on land sales	445	1,652
Segment operating income (loss)	(265)	391
Capital expenditures	399	770
Total real estate	117,922	136,076
Property Sales
Sales price	1,089	4,180
Cost of sale	(644)	(2,528)
Gain on sale	445	1,652
Other [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	3
Property operating expenses	(302)	20
Mortgage and loan interest	(6,251)	(4,529)
Interest income	3,421	3,847
Segment operating income (loss)	(3,129)	(662)
Total Segments [Member]
Segment Reporting Information [Line Items]
Rental and other property revenues	31,535	28,903
Property operating expenses	(15,889)	(14,963)
Depreciation	(6,303)	(5,808)
Mortgage and loan interest	(15,167)	(13,166)
Interest income	3,421	3,847
Loss on sale of income producing properties		(244)
Gain on land sales	445	1,652
Segment operating income (loss)	(1,958)	221
Capital expenditures	1,742	1,746
Total real estate	901,882	845,477
Property Sales
Sales price	1,089	5,680
Cost of sale	(644)	(4,272)
Gain on sale	$ 445	$ 1,408

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OPERATING SEGMENTS (Details 1) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Segment operating income (loss)	$ 5,198	$ 4,080
Other non-segment items of income (expense)
General and administrative	(1,780)	(1,609)
Net income fee to related party	(60)	(72)
Advisory fee to related party	(2,305)	(2,371)
Other income	1,442	267
Loss from unconsolidated joint ventures and investees	(8)	(2)
Income tax benefit		1
Net loss from continuing operations	(5,015)	(3,565)
Total Segments [Member]
Segment operating income (loss)	(1,958)	221
Other non-segment items of income (expense)
General and administrative	(1,780)	(1,609)
Net income fee to related party	(60)	(72)
Advisory fee to related party	(2,805)	(2,371)
Other income	1,068	267
Loss from unconsolidated joint ventures and investees	(8)	(2)
Income tax benefit		1
Net loss from continuing operations	$ (5,543)	$ (3,565)

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OPERATING SEGMENTS (Details 2) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Segment assets	$ 901,882	$ 891,173
Investments in real estate partnerships	2,438	2,446
Other assets	60,498	55,605
Total assets	1,227,715	$ 1,185,914
Total Segments [Member]
Segment assets	901,882		$ 845,477
Investments in real estate partnerships	2,438		2,460
Notes and interest receivable	76,856		67,557
Other assets	246,487		187,226
Total assets	$ 1,227,663		$ 1,102,720

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DISCONTINUED OPERATIONS (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Revenues:
Rental and other property revenues
Expenses:
Property operating expenses	(3)
Total operating expenses	(3)
Other income (expense):
Other income
Total other income (expenses)
Gain from discontinued operations before income tax expense	3
Income tax expense	(1)
Income from discontinued operations	$ (2)

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

Jul. 20, 2015

Mar. 31, 2017

Related Party [Member] | Mezzanine Financing [Member]

Guarantor - notes payable

$ 60,400

Dynex Capital, Inc. [Member]

Description of plaintiff

ART and TCI

Description of defendant

Dynex Capital Inc.

Description of action taken by court

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.

Damages - awarded amount

$ 256

Damages - pre-judgement interest

192

Damages - total

448

Awarded attorney fees

$ 1,600

Post-judgment interest rate

5.00%

Unfunded loan commitment

$ 160,000

Dynex Capital, Inc. [Member] | Southern Properties Capital LTD [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

Actions by plantiff

In April 2017, the plaintiffs filed a lawsuit against Dynex Capital, Inc. and Dynex Commercial, Inc. for $50 million alleging, among other things, fraudulent transfer and alter ego.

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EARNINGS PER SHARE (Details Narrative) - RAI [Member] $ / shares in Units, $ in Thousands	Jul. 09, 2014 USD ($) $ / shares shares
Shares issued upon conversion	304,298
Series C Cumulative Convertible Preferred Stock [Member]
Preferred stock, shares issued	30,000
Preferred stock, shares outstanding	30,000
Shares issued upon conversion	30,000
Accrued Dividends | $	$ 900
Preferred stock, liquidation preference per share | $ / shares	$ 100.00

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SUBSEQUENT EVENTS (Details Narrative) - Nonconvertible Series A Bonds [Member] ₪ in Thousands, $ in Thousands	May 08, 2017 USD ($)	May 08, 2017 ILS (₪)	Feb. 14, 2017
Interest rate			7.30%
Israel Shekel [Member]
Exchange rate			3.607
Subsequent Event [Member]
Debentures offering amount | $	$ 28,325,007
Interest rate	7.30%	7.30%
Subsequent Event [Member] | Israel Shekel [Member]
Debentures offering amount | ₪		₪ 102,000,000
Exchange rate	3.607	3.607