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**FORM        10-Q**

**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**  **
**QUARTERLY        REPORT UNDER SECTION 13 OR 15(d) OF THE **

**SECURITIES        EXCHANGE ACT OF 1934 **

**FOR        THE QUARTER ENDED SEPTEMBER 30, 2005**

**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 001-15663**

**AMERICAN        REALTY INVESTORS, INC.**

**(Exact        Name of Registrant as Specified in Its Charter) **

| **Nevada**                                                                                              |                                                                                                                     | **75-2847135**                                                                |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|
| **(State                  or Other Jurisdiction of****Incorporation                  or Organization)** |                                                                                                                     | **(I.R.S.                  Employer****Identification                  No.)** |
|                                                                                                    |                                                                                                                     |                                                                          |
| **1800                  Valley View Lane, Suite 300****Dallas,                  Texas**                 |
|                                                                                                    | **(Address                  of principal executive offices)**                                                            |                                                                          |
|                                                                                                    |                                                                                                                     |                                                                          |
|                                                                                                    | **75234**                                                                                                                |                                                                          |
|                                                                                                    | **(Zip                  Code)**                                                                                          |                                                                          |
|                                                                                                    |                                                                                                                     |                                                                          |
|                                                                                                    | **(469)                  522-4200**                                                                                      |                                                                          |
|                                                                                                    | **(Former                  name, former address and former fiscal year, if changed since last                  report)** |                                                                          |

**APPLICABLE        ONLY TO CORPORATE ISSUERS: **

| **Common                  Stock, $.01 par value** | **10,149,000**                                           |
|---------------------------------------------------|----------------------------------------------------------|
| **(Class)**                                       | **(Outstanding                  at November 10, 2005)*** |

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**AMERICAN        REALTY INVESTORS, INC.**

**PART        I. FINANCIAL INFORMATION**

**ITEM        1. FINANCIAL STATEMENTS**

**AMERICAN        REALTY INVESTORS, INC. **

**CONSOLIDATED        BALANCE SHEETS **

|                                                                                                                                  |   | **September                  30,****2005**  |      | **December                  31,****2004** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|-------------------------------------------|--------|
|                                                                                                                                  |   | **(dollars                  in thousands)** |      |
|                                                                                                                                  |   |                                        |      |
| **Assets**                                                                                                                            |   |                                        |      |
| Real                  estate held for investment                                                                                      |   | $                                           | 940,969   |                                      | $      | 877,677 |   |
| Less—accumulated                  depreciation                                                                                  |   |                                        | (151,577  | )                                         |   | (157,138 | ) |
|                                                                                                                                  |   |                                        | 789,392   |                                      |   | 720,539 |   |
|                                                                                                                                  |   |                                        |      |                                      |   |   |   |
| Real                  estate held for sale, net of depreciation                                                                       |   |                                        | 162,429   |                                      |   | 192,533 |   |
| Real                  estate subject to sales contract                                                                                |   |                                        | 69,141    |                                      |   | 70,350 |   |
|                                                                                                                                  |   |                                        |      |                                      |   |   |   |
| Notes                  and interest receivable                                                                                        |   |                                        |      |                                      |   |   |   |
| Performing                  ($44,298 in 2005 and $43,605 in 2004 from affiliates)                                                     |   |                                        | 70,185    |                                      |   | 67,894 |   |
| Non-performing                                                                                                                        |   |                                        | 5,896     |                                      |   | 6,632 |   |
|                                                                                                                                  |   |                                        | 76,081    |                                      |   | 74,526 |   |
| Less—allowance                  for estimated losses                                                                            |   |                                        | (1,000    | )                                         |   | (1,865 | ) |
|                                                                                                                                  |   |                                        | 75,081    |                                      |   | 72,661 |   |
|                                                                                                                                  |   |                                        |      |                                      |   |   |   |
| Restaurant                  equipment                                                                                                 |   |                                        | 13,764    |                                      |   | 13,747 |   |
| Less—accumulated                  depreciation                                                                                  |   |                                        | (7,233    | )                                         |   | (6,608 | ) |
|                                                                                                                                  |   |                                        | 6,531     |                                      |   | 7,139 |   |
|                                                                                                                                  |   |                                        |      |                                      |   |   |   |
| Marketable                  securities, at market value                                                                               |   |                                        | 7,508     |                                      |   | 6,670 |   |
| Cash                  and cash equivalents                                                                                            |   |                                        | 16,538    |                                      |   | 22,401 |   |
| Investments                  in real estate entities                                                                                  |   |                                        | 9,289     |                                      |   | 8,212 |   |
| Goodwill,                  net of accumulated amortization ($1,763 in 2005 and 2004)                                                  |   |                                        | 11,858    |                                      |   | 11,858 |   |
| Other                  intangibles, net of accumulated amortization ($583 in 2005 and                  $871 in                  2004) |   |                                        | 1,463     |                                      |   | 1,480 |   |
| Other                  assets ($38,884 in 2005 and $27,704 in 2004 from                  affiliate)                                   |   |                                        | 107,791   |                                      |   | 77,000 |   |
|                                                                                                                                  |   | $                                           | 1,257,021 |                                      | $      | 1,190,843 |   |

----

**AMERICAN        REALTY INVESTORS, INC.**

**CONSOLIDATED        BALANCE SHEETS - Continued**

|                                                                                                                                        |   | **September                  30,****2005**  |      | **December                  31,****2004** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|-----------|-------------------------------------------|--------|
|                                                                                                                                        |   | **(dollars                  in thousands)** |      |
|                                                                                                                                        |   |                                        |      |
| **Liabilities                  and Stockholders’ Equity**                                                                             |   |                                        |      |                                      |   |
| Liabilities                                                                                                                                 |   |                                        |      |                                      |   |
| Notes                  and interest payable ($45,555 in 2005 and $36,298 in 2004 to                  affiliates)                            |   | $                                           | 758,159   |                                      | $      | 722,985 |   |
| Liabilities                  related to assets held for sale                                                                                |   |                                        | 146,121   |                                      |   | 156,959 |   |
| Liabilities                  subject to sales contract                                                                                      |   |                                        | 59,488    |                                      |   | 59,977 |   |
| Margin                  borrowings                                                                                                          |   |                                        | 22,548    |                                      |   | 18,663 |   |
| Accounts                  payable and other liabilities ($7,466 in 2005 and $2,557 in 2004                  to                  affiliates) |   |                                        | 76,787    |                                      |   | 71,357 |   |
|                                                                                                                                        |   |                                        | 1,063,103 |                                      |   | 1,029,941 |   |
|                                                                                                                                        |   |                                        |      |                                      |   |   |   |
| Commitments                  and contingencies                                                                                              |   |                                        |      |                                      |   |   |   |
|                                                                                                                                        |   |                                        |      |                                      |   |   |   |
| Minority                  interest                                                                                                          |   |                                        | 57,089    |                                      |   | 57,893 |   |
|                                                                                                                                        |   |                                        |      |                                      |   |   |   |
|                                                                                                                                        |   |                                        |      |                                      |   |   |   |
| Stockholders’                  equity                                                                                                 |   |                                        |      |                                      |   |   |   |
| Preferred                  Stock, $2.00 par value, authorized 50,000,000 shares, issued and                  outstanding                    |   |                                        |      |                                      |   |   |   |
| Series                  A, 3,469,326 shares in 2005 and 3,469,350 shares in 2004 (liquidation                  preference                   |   |                                        | 5,139     |                                      |   | 5,139 |   |
| $34,693),                  including 900,000 shares in 2005 and 2004 held by                  subsidiaries.                                 |   |                                        |      |                                      |   |   |   |
| Series                  E, 50,000 shares in 2005 and 2004 (liquidation preference                  $500)                                    |   |                                        | 100       |                                      |   | 100 |   |
| Common                  Stock, $.01 par value, authorized 100,000,000 shares; issued 11,392,272                  shares in 2005 and 2004    |   |                                        | 114       |                                      |   | 114 |   |
| Treasury                  stock, at cost, 1,243,272 shares in 2005 and 2004                                                                 |   |                                        | (15,146   | )                                         |   | (15,146 | ) |
| Paid-in                  capital                                                                                                            |   |                                        | 91,789    |                                      |   | 91,789 |   |
| Retained                  earnings                                                                                                          |   |                                        | 54,648    |                                      |   | 22,561 |   |
| Accumulated                  other comprehensive income (loss)                                                                              |   |                                        | 185       |                                      |   | (1,548 | ) |
|                                                                                                                                        |   |                                        | 136,829   |                                      |   | 103,009 |   |
|                                                                                                                                        |   | $                                           | 1,257,021 |                                      | $      | 1,190,843 |   |

----

**AMERICAN        REALTY INVESTORS, INC.**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

|                                                                                                                                                                            |   | **For                  the Three Months****Ended                  September 30,** |    | **For                  the Nine Months****Ended                  September 30,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|---------|----------------------------------------------------------------------------------|--------|
|                                                                                                                                                                            |   | **2005**                                                                          |    | **2004**                                                                         |   | **2005** |   | **2004** |   |
|                                                                                                                                                                            |   | **(dollars                  in thousands)**                                       |    |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |
| Property                  revenue:                                                                                                                                              |   |                                                                              |    |                                                                             |   |   |   |   |   |
| Rental                  and other property revenues ($545 in nine months of 2005 and $933                  in                  nine months of 2004 from affiliates)             |   | $                                                                                 | 44,704  |                                                                             | $      | 39,389 |   | $ | 124,050 |   | $ | 113,250 |   |
| Restaurant                  sales                                                                                                                                               |   |                                                                              | 9,298   |                                                                             |   | 8,667 |   |   | 27,331 |   |   | 25,659 |   |
| Total                  operating revenues                                                                                                                                       |   |                                                                              | 54,002  |                                                                             |   | 48,056 |   |   | 151,381 |   |   | 138,909 |   |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                                                                                                                       |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Property                  operating expenses ($5,997 in nine months of 2005 and $3,895 in                  nine                  months of 2004 to affiliates)                  |   |                                                                              | 29,950  |                                                                             |   | 27,529 |   |   | 85,451 |   |   | 83,061 |   |
| Restaurant                  cost of sales                                                                                                                                       |   |                                                                              | 7,014   |                                                                             |   | 6,788 |   |   | 20,908 |   |   | 19,925 |   |
| Depreciation                  and amortization                                                                                                                                  |   |                                                                              | 4,748   |                                                                             |   | 5,843 |   |   | 16,180 |   |   | 17,237 |   |
| General                  and administrative ($3,326 in nine months of 2005 and $3,290 in                  nine                  months of 2004 to affiliates)                   |   |                                                                              | 3,643   |                                                                             |   | 2,613 |   |   | 11,290 |   |   | 11,474 |   |
| Advisory                  fee to affiliate                                                                                                                                      |   |                                                                              | 3,206   |                                                                             |   | 2,934 |   |   | 8,844 |   |   | 8,162 |   |
| Total                  operating expenses                                                                                                                                       |   |                                                                              | 48,561  |                                                                             |   | 45,707 |   |   | 142,673 |   |   | 139,859 |   |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Operating                  income (loss)                                                                                                                                        |   |                                                                              | 5,441   |                                                                             |   | 2,349 |   |   | 8,708 |   |   | (950 | ) |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Other                  income (expense):                                                                                                                                        |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Interest                  income from notes receivable ($2,493 in nine months of 2005                  and $1,915                  in nine months of 2004 from affiliates) |   |                                                                              | 1,188   |                                                                             |   | 855 |   |   | 4,025 |   |   | 3,514 |   |
| Gain                  on foreign currency transaction                                                                                                                           |   |                                                                              | 37      |                                                                             |   | 543 |   |   | 265 |   |   | 1,791 |   |
| Gain                  on settlement of debt                                                                                                                                     |   |                                                                              | — |                                                                             |   | 2,268 |   |   | — |   |   | 2,268 |   |
| Other                  income (expense)                                                                                                                                         |   |                                                                              | 1,215   |                                                                             |   | 72 |   |   | 2,186 |   |   | (136 | ) |
| Mortgage                  and loan interest ($1,731 in nine months of 2005 and $1,845 in                  nine                  months of 2004 to affiliates)                   |   |                                                                              | (16,336 | )                                                                                |   | (15,121 | ) |   | (46,712 | ) |   | (44,724 | ) |
| Discount                  on sale of notes receivable                                                                                                                           |   |                                                                              | (15     | )                                                                                |   | 9 |   |   | (15 | ) |   | (389 | ) |
| Net                  income fee to affiliate                                                                                                                                    |   |                                                                              | (2,136  | )                                                                                |   | — |   |   | (2,950 | ) |   | — |   |
| Incentive                  fee to affiliate                                                                                                                                     |   |                                                                              | (904    | )                                                                                |   | — |   |   | (909 | ) |   | — |   |
| Litigation                  settlement                                                                                                                                          |   |                                                                              | (130    | )                                                                                |   | (50 | ) |   | (130 | ) |   | (50 | ) |
| Total                  other income (expense)                                                                                                                                   |   |                                                                              | (17,081 | )                                                                                |   | (11,424 | ) |   | (44,240 | ) |   | (37,726 | ) |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Loss                  before gain on land sales, minority interest, and equity in earnings                  of                  investees                                       |   |                                                                              | (11,640 | )                                                                                |   | (9,075 | ) |   | (35,532 | ) |   | (38,676 | ) |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Gain                  on land sales                                                                                                                                             |   |                                                                              | 5,435   |                                                                             |   | 827 |   |   | 34,525 |   |   | 4,579 |   |
| Minority                  interest                                                                                                                                              |   |                                                                              | 336     |                                                                             |   | 1,474 |   |   | (408 | ) |   | (155 | ) |
| Equity                  in income (loss) of investees                                                                                                                           |   |                                                                              | 71      |                                                                             |   | 56 |   |   | 283 |   |   | (144 | ) |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Loss                  from continuing operations                                                                                                                                |   |                                                                              | (5,798  | )                                                                                |   | (6,718 | ) |   | (1,132 | ) |   | (34,396 | ) |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Income                  (loss) from discontinued operations                                                                                                                     |   |                                                                              | 21,872  |                                                                             |   | (269 | ) |   | 35,168 |   |   | 19,341 |   |
|                                                                                                                                                                            |   |                                                                              |    |                                                                             |   |   |   |   |   |   |   |   |   |
| Net                  income (loss)                                                                                                                                              |   |                                                                              | 16,074  |                                                                             |   | (6,987 | ) |   | 34,036 |   |   | (15,055 | ) |
| Preferred                  dividend requirement                                                                                                                                 |   |                                                                              | (650    | )                                                                                |   | (651 | ) |   | (1,949 | ) |   | (1,951 | ) |
| Net                  income (loss) applicable to Common shares                                                                                                                  |   | $                                                                                 | 15,424  |                                                                             | $      | (7,638 | ) | $ | 32,087 |   | $ | (17,006 | ) |

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**AMERICAN        REALTY INVESTORS, INC.**

**CONSOLIDATED        STATEMENTS OF OPERATIONS - Continued**

|                                                                                                   |   | **For                  the Three Months****Ended                  September 30,** |       | **For                  the Nine Months****Ended                  September 30,** |   |
|--------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|--------|
|                                                                                                   |   | **2005**                                                                          |       | **2004**                                                                         |   | **2005** |   | **2004** |   |
|                                                                                                   |   | **(dollars                  in thousands)**                                       |       |
|                                                                                                   |   |                                                                              |       |
| Basic                  and diluted earnings per share:                                                 |   |                                                                              |       |                                                                             |   |   |   |   |   |
| Loss                  from continuing operations                                                       |   | $                                                                                 | (.64       | )                                                                                | $      | (.70 | ) | $ | (.30 | ) | $ | (3.43 | ) |
| Income                  (loss) from discontinued operations                                            |   |                                                                              | 2.16       |                                                                             |   | (.03 | ) |   | 3.46 |   |   | 1.83 |   |
| Net                  income (loss) applicable to Common shares                                         |   | $                                                                                 | 1.52       |                                                                             | $      | (.73 | ) | $ | 3.16 |   | $ | (1.60 | ) |
|                                                                                                   |   |                                                                              |       |                                                                             |   |   |   |   |   |   |   |   |   |
| Weighted                  average Common shares used in computing earnings per                  share: |   |                                                                              |       |                                                                             |   |   |   |   |   |   |   |   |   |
|                                                                                                   |   |                                                                              |       |                                                                             |   |   |   |   |   |   |   |   |   |
| Basic                  and diluted                                                                     |   |                                                                              | 10,149,000 |                                                                             |   | 10,532,796 |   |   | 10,149,000 |   |   | 10,596,902 |   |

----

**AMERICAN        REALTY INVESTORS, INC.**

**CONSOLIDATED        STATEMENTS OF STOCKHOLDERS’ EQUITY**

**For        the Nine Months Ended September 30, 2005**

|                                                                              |   |  **Series                  A****Preferred****Stock** |    |  **Series                  E****Preferred****Stock** |   | **Common****Stock** |   | **Treasury****Stock** |    | **Paid-in****Capital** |   | **Retained****Earnings** |   | **Accumulated****Other****Comprehensive****Income/(Loss)** |    | **Stockholders’****Equity** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------|---------|-----------------------------------------------------------|--------|---------------------|--------|-----------------------|---------|------------------------|--------|--------------------------|--------|------------------------------------------------------------|---------|-----------------------------------|--------|
|                                                                              |   |                                                      |    |
|                                                                              |   | **(dollars                  in thousands)**               |    |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |
| Balance,                  January 1, 2005                                         |   | $                                                         | 5,139   |                                                      | $      | 100                 |   | $                     | 114     |                   | $      | (15,146                  | )      | $                                                          | 91,789  |                              | $      | 22,561 |   | $ | (1,548 | ) | $ | 103,009 |   |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Comprehensive                  income                                             |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Unrealized                  gain on foreign currency                  translation |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | — |                              |   | — |   |   | 805 |   |   | 805 |   |
| Unrealized                  gain on marketable                  securities        |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | — |                              |   | — |   |   | 928 |   |   | 928 |   |
| Net                  income                                                       |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | — |                              |   | 34,036 |   |   | — |   |   | 34,036 |   |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   | 35,769 |   |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Repurchase                  of Preferred Stock                                    |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | — |                              |   | — |   |   | — |   |   | — |   |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Preferred                  dividends                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Series                  A Preferred Stock ($.75                  per share)       |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | 3⁄4  |                              |   | (1,927 | ) |   | — |   |   | (1,927 | ) |
| Series                  E Preferred Stock ($.45                  per share)       |   |                                                      | — |                                                      |   | —             |   |                  | — |                   |   | —                  |   |                                                       | 3⁄4  |                              |   | (22 | ) |   | — |   |   | (22 | ) |
|                                                                              |   |                                                      |    |                                                      |   |                |   |                  |    |                   |   |                     |   |                                                       |    |                              |   |   |   |   |   |   |   |   |   |
| Balance,                  September 30, 2005                                      |   | $                                                         | 5,139   |                                                      | $      | 100                 |   | $                     | 114     |                   | $      | (15,146                  | )      | $                                                          | 91,789  |                              | $      | 54,648 |   | $ | 185 |   | $ | 136,829 |   |

----

**AMERICAN        REALTY INVESTORS, INC.**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

|                                                                                                                      |   | **For                  the Nine Months****Ended                  September 30,** |     |
|---------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|----------|
|                                                                                                                      |   | **2005**                                                                         |     | **2004** |   |
|                                                                                                                      |   | **(dollars                  in thousands)**                                      |     |
|                                                                                                                      |   |                                                                             |     |
| Cash                  Flows From Operating Activities:                                                                    |   |                                                                             |     |   |   |
| Net                  income                                                                                               |   | $                                                                                | 34,036   |   | $ | (15,055 | ) |
| Adjustments                  to reconcile net income to net cash used in operating                  activities            |   |                                                                             |     |   |   |   |   |
| Gain                  on sale of land and real estate                                                                     |   |                                                                             | (72,196  | ) |   | (31,360 | ) |
| Depreciation                  and amortization                                                                            |   |                                                                             | 16,893   |   |   | 22,644 |   |
| Amortization                  of deferred borrowing costs                                                                 |   |                                                                             | 5,198    |   |   | 6,073 |   |
| Discount                  on sale of notes receivable                                                                     |   |                                                                             | 15       |   |   | 389 |   |
| Gain                  on settlement of debt                                                                               |   |                                                                             | 3⁄4   |   |   | (2,268 | ) |
| Litigation                  settlement                                                                                    |   |                                                                             | 3⁄4   |   |   | 50 |   |
| Provision                  for asset impairment                                                                           |   |                                                                             | 3⁄4   |   |   | 3,444 |   |
| Equity                  in (income) loss of investees                                                                     |   |                                                                             | (283     | ) |   | 144 |   |
| Gain                  on foreign currency transaction                                                                     |   |                                                                             | (265     | ) |   | (1,791 | ) |
| Decrease                  in accrued interest receivable                                                                  |   |                                                                             | 999      |   |   | 680 |   |
| (Increase)                  decrease in other assets                                                                      |   |                                                                             | (7,472   | ) |   | 6,088 |   |
| Increase                  (decrease) in accrued interest payable                                                          |   |                                                                             | (1,514   | ) |   | 1,798 |   |
| Increase                  in accounts payable and other liabilities                                                       |   |                                                                             | 5,886    |   |   | 3,481 |   |
| Decrease                  in minority interest                                                                            |   |                                                                             | (792     | ) |   | (1,125 | ) |
| Net                  cash used in operating activities                                                                    |   |                                                                             | (19,495  | ) |   | (6,808 | ) |
|                                                                                                                      |   |                                                                             |     |   |   |   |   |
| Cash                  Flows From Investing Activities:                                                                    |   |                                                                             |     |   |   |   |   |
| Collections                  on notes receivable                                                                          |   |                                                                             | 4,069    |   |   | 2,361 |   |
| Proceeds                  from sale of notes receivable                                                                   |   |                                                                             | 32,219   |   |   | 6,227 |   |
| Acquisition                  of real estate (including $498 in 2004 from affiliates and related                  parties) |   |                                                                             | (91,639  | ) |   | (26,084 | ) |
| Restaurant                  equipment purchased                                                                           |   |                                                                             | (627     | ) |   | (983 | ) |
| Proceeds                  from sale of restaurant equipment                                                               |   |                                                                             | 278      |   |   | 3⁄4 |   |
| Proceeds                  from sale of real estate                                                                        |   |                                                                             | 109,441  |   |   | 108,637 |   |
| Notes                  receivable funded                                                                                  |   |                                                                             | (3,117   | ) |   | (90 | ) |
| Earnest                  money/escrow deposits                                                                            |   |                                                                             | (5,154   | ) |   | (3,344 | ) |
| Investment                  in real estate entities                                                                       |   |                                                                             | (475     | ) |   | (2,625 | ) |
| Real                  estate improvements                                                                                 |   |                                                                             | (35,550  | ) |   | (137,501 | ) |
| Distribution                  from equity investees                                                                       |   |                                                                             | 318      |   |   | 47 |   |
| Proceeds                  from sale of marketable securities                                                              |   |                                                                             | 84       |   |   | — |   |
| Net                  cash provided by (used in) investing activities                                                      |   |                                                                             | 9,847    |   |   | (53,355 | ) |
|                                                                                                                      |   |                                                                             |     |   |   |   |   |
| Cash                  Flows From Financing Activities:                                                                    |   |                                                                             |     |   |   |   |   |
| Proceeds                  from notes payable                                                                              |   |                                                                             | 146,825  |   |   | 314,612 |   |
| Payments                  on notes payable                                                                                |   |                                                                             | (110,681 | ) |   | (237,042 | ) |
| Deferred                  borrowing costs                                                                                 |   |                                                                             | (3,274   | ) |   | (6,354 | ) |
| Net                  payments to affiliates                                                                               |   |                                                                             | (32,397  | ) |   | (6,465 | ) |
| Repurchase                  of Common Stock                                                                               |   |                                                                             | —  |   |   | (1,443 | ) |
| Margin                  borrowings (payments), net                                                                        |   |                                                                             | 3,878    |   |   | (623 | ) |
| Preferred                  dividends paid                                                                                 |   |                                                                             | (566     | ) |   | (910 | ) |
| Net                  cash provided by financing activities                                                                |   |                                                                             | 3,785    |   |   | 61,775 |   |
|                                                                                                                      |   |                                                                             |     |   |   |   |   |
| Net                  increase (decrease) in cash and cash equivalents                                                     |   |                                                                             | (5,863   | ) |   | 1,612 |   |
|                                                                                                                      |   |                                                                             |     |   |   |   |   |
| Cash                  and cash equivalents, beginning of period                                                           |   |                                                                             | 22,401   |   |   | 9,543 |   |
| Cash                  and cash equivalents, end of period                                                                 |   | $                                                                                | 16,538   |   | $ | 11,155 |   |

----

**AMERICAN        REALTY INVESTORS, INC. **

**CONSOLIDATED        STATEMENTS OF CASH FLOWS - Continued**

|                                                                      |   | **For                  the Nine Months****Ended                  September 30,** |    |
|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|---------|
|                                                                      |   | **2005**                                                                         |    | **2004** |   |
|                                                                      |   | **(dollars                  in thousands)**                                      |    |
|                                                                      |   |                                                                             |    |   |   |
|                                                                      |   |                                                                             |    |   |   |
| Supplemental                  Disclosures of Cash Flow Information:       |   |                                                                             |    |   |   |
| Cash                  paid for interest                                   |   | $                                                                                | 48,124  |   | $ | 52,478 |   |
| Cash                  paid for income taxes, net of refunds               |   |                                                                             | 570     |   |   | — |   |
|                                                                      |   |                                                                             |    |   |   |   |   |
| Schedule                  of non-cash investing and financing activities: |   |                                                                             |    |   |   |   |   |
| Notes                  payable assumed by buyer on sale of real estate    |   | $                                                                                | 21,963  |   | $ | 25,607 |   |
| Notes                  receivable from sale of real estate                |   |                                                                             | 34,404  |   |   | 10,448 |   |
| Acquisition                  of property in exchange for note receivable  |   |                                                                             | 5,497   |   |   | 2,585 |   |
| Issuance                  of Preferred Stock                              |   |                                                                             | — |   |   | 2,500 |   |
| Note                  payable paid by affiliate                           |   |                                                                             | 700     |   |   | 10,823 |   |
| Refinancing                  proceeds received by affiliate               |   |                                                                             | — |   |   | 20,037 |   |
| Notes                  payable assumed on purchase of real estate         |   |                                                                             | — |   |   | 5,027 |   |
| Purchase                  of subsidiary from affiliate                    |   |                                                                             | 4,101   |   |   | 3⁄4 |   |

----

*Stock-based        employee compensation.*

|                                                                                                                                                                                           |   | **Three                  Months Ended****September                  30,** |    | **Nine                  Months Ended****September                  30,** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------|--------------------------------------------------------------------------|--------|
|                                                                                                                                                                                           |   | **2005**                                                                  |    | **2004**                                                                 |   | **2005** |   | **2004** |   |
|                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |
| Net                  income (loss) applicable to Common shares, as reported                                                                                                                    |   | $                                                                         | 15,424  |                                                                     | $      | (7,638 | ) | $ | 32,087 |   | $ | (17,006 | ) |
|                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Deduct:                  Total stock-based employee compensation expense determinedunder                  fair value based methods for all awards, net of related tax                  effects |   |                                                                      | — |                                                                     |   | — |   |   | 26 |   |   | 22 |   |
|                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Pro                  forma net income (loss) applicable to Common shares                                                                                                                       |   | $                                                                         | 15,424  |                                                                     | $      | (7,638 | ) | $ | 32,061 |   | $ | (17,028 | ) |
|                                                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Earnings                  per share:                                                                                                                                                           |   |                                                                      |    |                                                                     |   |   |   |   |   |   |   |   |   |
| Basic                  and diluted, as reported                                                                                                                                                |   | $                                                                         | 1.52    |                                                                     | $      | (.73 | ) | $ | 3.16 |   | $ | (1.60 | ) |
| Basic                  and diluted, pro forma                                                                                                                                                  |   | $                                                                         | 1.52    |                                                                     | $      | (.73 | ) | $ | 3.16 |   | $ | (1.60 | ) |

----

| **Property**                                           | **Location**                        | **Units                  /****Sq.                  Ft./Acres** | **Purchase****Price** | **Net                  Cash****Paid/****(Received)** | **Debt****Incurred** | **Interest****Rate** | **Maturity****Date** |
|--------------------------------------------------------|-------------------------------------|----------------------------------------------------------------|-----------------------|------------------------------------------------------|----------------------|----------------------|----------------------|
| ***First                  Quarter***                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Land**                                               |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Katrina(1)                                             | Palm                  Desert, CA    | 23.0 Acres                                                | $4,184                | $—                                             |                 | $—             |                 | — |   | — |   |
| Keenan                  Bridge(2)                      | Farmers Branch, TX        | 7.5                  Acres                                     | 510                   | 14                                                   |                 | —              |                 | — |   | — |   |
| Mandahl                  Bay                           | US                  Virgin Islands  | 50.8                  Acres                                    | 7,000                 | 4,101                                                |                 | 3,500                |                 | 7.00 | % | 07/05 | (7) |
| Mandahl                  Bay (Gilmore)                 | US                  Virgin Islands  | 1.0                  Acres                                     | 96                    | 104                                                  |                 | —              |                 | — |   | — |   |
| Mandahl                  Bay (Chung)                   | US                  Virgin Islands  | .7                  Acres                                      | 95                    | 101                                                  |                 | —              |                 | 3⁄4 |   | — |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| ***Second                  Quarter***                  |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Apartments**                                         |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Mission                  Oaks(4)                       | San                  Antonio, TX    | 228                  Units                                     | 573                   | 573                                                  |                 | —              |                 | 5.30 |   | 09/46 |   |
| Parc                  at Metro Center(4)               | Nashville,                  TN      | 144                  Units                                     | 817                   | (378                                                 | )                    | 817                  |                 | 5.65 |   | 09/46 |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Land**                                               |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Alliance                  Airport (formerly Centurion) | Tarrant                  County, TX | 12.7                  Acres                                    | 850                   | 892                                                  |                 | —              |                 | — |   | — |   |
| Mandahl                  Bay (Marina)                  | US                  Virgin Islands  | 24.0                  Acres                                    | 2,000                 | 2,101                                                |                 | —              |                 | — |   | — |   |
| Mason                  Goodrich(1)                     | Houston,                  TX        | 13.0                  Acres                                    | 1,360                 | —                                              |                 | —              |                 | — |   | — |   |
| Southwood(5)                                           | Tallahassee,                  FL    | 12.9                  Acres                                    | 525                   | 555                                                  |                 | —              |                 | — |   | — |   |
| West                  End(6)                           | Dallas,                  TX         | .2                  Acres                                      | 49                    | 52                                                   |                 | —              |                 | — |   | — |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Office                  Buildings**                  |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Park                  West                             | Farmers                  Branch, TX | 243,416                  Sq. Ft.                               | 10,000                | 4,715                                                |                 | 6,500                |                 | 7.50 | (3) | 05/06 |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| ***Third                  Quarter***                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Apartments**                                         |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Legends                  of El Paso(4)                 | El                  Paso, TX        | 240                  Units                                     | 2,247                 | 464                                                  |                 | 1,774                |                 | 5.50 |   | 01/47 |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Land**                                               |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Luna                                                   | Farmers                  Branch, TX | 2.6                  Acres                                     | 250                   | 257                                                  |                 | —              |                 | — |   | — |   |
| Mansfield                                              | Mansfield,                  TX      | 21.9                  Acres                                    | 1,450                 | 577                                                  |                 | 943                  |                 | 7.50 | (3) | 03/07 |   |
| Senlac                                                 | Farmers                  Branch, TX | 11.9                  Acres                                    | 625                   | 643                                                  |                 | —              |                 | — |   | — |   |
| Whorton                                                | Benton                  County, AR  | 79.7                  Acres                                    | 4,332                 | 702                                                  |                 | 3,828                |                 | 6.08 |   | 01/07 |   |
| Wilmer                  88                             | Dallas,                  TX         | 87.6                  Acres                                    | 638                   | 668                                                  |                 | —              |                 | — |   | — |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Office                  Buildings**                  |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| 600                  Las Colinas                       | Las                  Colinas, TX    | 509,829                  Sq. Ft.                               | 56,000                | 17,663                                               |                 | 40,487               | (8)                  | 6.16 |   | 01/13 |   |
|                                                   |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| ***Fourth                  Quarter***                  |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| **Land**                                               |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Alliance                  8                            | Tarrant                  County, TX | 8                  Acres                                       | 657                   | 332                                                  |                 | 408                  |                 | 7.75 | % | 05/06 |   |
| Alliance                  52                           | Tarrant                  County, TX | 51.9                  Acres                                    | 2,538                 | 1,054                                                |                 | 1,610                |                 | 7.75 |   | 05/06 |   |
| Denton                                                 | Denton,                  TX         | 25.9                  Acres                                    | 2,100                 | 862                                                  |                 | 1,365                |                 | 7.75 | (3) | 04/07 |   |
| Pantaze                                                | Dallas,                  TX         | 6.0                  Acres                                     | 265                   | 276                                                  |                 | —              |                 | — |   | — |   |
| Payne(9)                                               | Las                  Colinas, TX    | 109.8                  Acres                                   | 1,000                 | 1,066                                                |                 | —              |                 | — |   | — |   |
| TuTu                                                   | US                  Virgin Islands  | 19.5                  Acres                                    | 1,350                 | 1,401                                                |                 | —              |                 | — |   | — |   |
| Woodmont-Bailey                                        | Addison,                  TX        | 1.9                  Acres                                     | 1,475                 | 381                                                  |                 | 1,180                |                 | — |   | — |   |
| Woodmont-Town                  Center                  | Addison,                  TX        | 1.2                  Acres                                     | 400                   | 102                                                  |                 | 320                  |                 | — |   | — |   |
| Woodmont-Veladi                                        | Addison,                  TX        | 2.1                  Acres                                     | 383                   | 99                                                   |                 | 306                  |                 | — |   | — |   |

----

**AMERICAN            REALTY INVESTORS, INC.**

| **Property**                          | **Location**                   | **Units                  /****Sq.                  Ft./Acres** | **Purchase****Price** | **Net                  Cash****Paid/****(Received)** | **Debt****Incurred** | **Interest****Rate** | **Maturity****Date** |
|---------------------------------------|--------------------------------|----------------------------------------------------------------|-----------------------|------------------------------------------------------|----------------------|----------------------|----------------------|
| **Shopping                  Centers** |                           |                                                           |                  |                                                 |                 |                 |                 |   |   |   |   |
| Willowbrook                           | Coldwater,                  MI | 117,689                  Sq. Ft.                               | 8,200                 | 2,223                                                |                 | 6,495                |                 | 7.28 |   | 02/13 |   |

| **Property**                                | **Location**                        | **Units                  /****Sq.                  Ft./Acres** | **Purchase****Price** | **Net                  Cash****Paid/****(Received)** | **Debt****Incurred** | **Interest****Rate** | **Maturity****Date** |
|---------------------------------------------|-------------------------------------|----------------------------------------------------------------|-----------------------|------------------------------------------------------|----------------------|----------------------|----------------------|
| ***First                  Quarter***        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| **Apartments**                              |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| 288                  City Park(1)           | Houston,                  TX        | 240                  Units                                     | $3,056                | $612                                                 |                 | $2,444               |                 | 5.95 | % | 04/45 |
| Blue                  Lake Villas II(1)     | Waxahachie,                  TX     | 70                  Units                                      | 729                   | (164                                                 | )                    | 729                  |                 | 5.80 |   | 04/45 |
| Bridges                  on Kinsey(1)       | Tyler,                  TX          | 232                  Units                                     | 2,291                 | 596                                                  |                 | 1,687                |                 | 5.74 |   | 08/45 |
| Dakota                  Arms(1)             | Lubbock,                  TX        | 208                  Units                                     | 2,472                 | 681                                                  |                 | 1,791                |                 | 5.85 |   | 06/45 |
| Lake                  Forest(1)             | Houston,                  TX        | 240                  Units                                     | 2,316                 | (470                                                 | )                    | 2,316                |                 | 5.60 |   | 03/45 |
| Vistas                  of Vance Jackson(1) | San                  Antonio, TX    | 240                  Units                                     | 3,550                 | 771                                                  |                 | 2,779                |                 | 5.78 |   | 06/45 |
|                                        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| **Land**                                    |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| Lubbock                  land               | Lubbock,                  TX        | 2.9                  Acres                                     | 224                   | 224                                                  |                 | 3⁄4               |                 | — |   | — |
| Meloy                  Road                 | Kent,                  OH           | 54.2                  Acres                                    | 4,900                 | 343                                                  |                 | 4,900                |                 | 5.00 | (2) | 01/06 |
| Railroad                  land              | Dallas,                  TX         | .3                  Acres                                      | 708                   | 704                                                  |                 | —              |                 | — |   | — |
|                                        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| ***Second                  Quarter***       |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| **Apartments**                              |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| Treehouse(3)                                | Irving,                  TX         | 160                  Units                                     | 8,017                 | (498                                                 | )                    | 5,027                | (4)                  | 5.00 |   | 08/13 |
| Wildflower                  Villas(1)       | Temple,                  TX         | 220                  Units                                     | 2,045                 | 79                                                   |                 | 1,966                |                 | 5.99 |   | 10/45 |
|                                        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| **Land**                                    |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| Cooks                  Lane(1)              | Ft.                  Worth, TX      | 23.2                  Acres                                    | 1,000                 | 1,034                                                |                 | —              |                 | — |   | — |
| Rogers(1)                                   | Rogers,                  AR         | 20.1                  Acres                                    | 1,390                 | 619                                                  |                 | 1,130                |                 | 10.50 |   | 04/05 |
|                                        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| ***Third                  Quarter***        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| **Land**                                    |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |
| Ladue                                       | Farmers                  Branch, TX | 8.0                  Acres                                     | 1,743                 | 659                                                  |                 | 1,207                |                 | 6.65 | (2) | 06/06 |
| Granbury                  Station           | Ft.                  Worth, TX      | 15.7                  Acres                                    | 923                   | 236                                                  |                 | 738                  |                 | 7.00 |   | 09/07 |
|                                        |                                |                                                           |                  |                                                 |                 |                 |                 |   |   |   |

----

**AMERICAN            REALTY INVESTORS, INC.**

|   **Property**                       | **Location**                     | **Units/Acres/****Sq.                  Ft.** | **Sales****Price** | **Net                  Cash****Received/****(Paid)** | **Debt****Discharged** | **Gain****on                  Sale** |   |
|------------------------------------------------|----------------------------------|----------------------------------------------|--------------------|------------------------------------------------------|------------------------|--------------------------------------|--------|
| ***First                  Quarter***           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Apartments**                                 |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| Longwood                                       | Long                  Beach, MS  | 200                  Units                   | $6,456             | $9                                                   |                   | $6,253                               |   | $56 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Land**                                       |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| Granbury                  Station              | Ft.                  Worth, TX   | 15.7                  Acres                  | 1,003              | 265                                                  |                   | 738                                  |   | 10 |   |
| Katrina                                        | Palm                  Desert, CA | 9.9                  Acres                   | 2,616              | 574                                                  |                   | —                              |   | 1,323 |   |
| Katrina                                        | Palm                  Desert, CA | 13.6                  Acres                  | 3,703              | 591                                                  |                   | —                              |   | 1,706 |   |
| Katrina                                        | Palm                  Desert, CA | 5.5                  Acres                   | 1,325              | 1,281                                                |                   | —                              |   | 619 |   |
| Katrina                                        | Palm                  Desert, CA | 6.5                  Acres                   | 1,695              | 340                                                  |                   | —                              |   | 818 |   |
| Katrina                                        | Palm                  Desert, CA | 7.4                  Acres                   | 2,028              | 455                                                  |                   | —                              |   | 1,072 |   |
| Katrina                                        | Palm                  Desert, CA | 81.2                  Acres                  | 19,878             | (814                                                 | )                      | 5,100                                |   | 9,387 |   |
| Katrina                                        | Palm                  Desert, CA | 24.8                  Acres                  | 6,402              | 1,027                                                |                   | —                              |   | 2,947 |   |
| Katy                                           | Katy,                  TX        | 130.6                  Acres                 | 12,400             | 4,981                                                |                   | 6,601                                |   | 5,630 |   |
| Nashville                                      | Nashville,                  TN   | 1.2                  Acres                   | 304                | 236                                                  |                   | —                              |   | 226 |   |
| Vista                  Ridge                   | Lewisville,                  TX  | 4.4                  Acres                   | 950                | (92                                                  | )                      | 914                                  |   | 440 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Office                  Buildings**          |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| Institute                  Place               | Chicago,                  IL     | 144,915                  Sq. Ft.             | 14,460             | 4,843                                                |                   | 7,792                                |   | 10,603 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Industrial                  Warehouses**     |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| 5700                  Tulane                   | Atlanta,                  GA     | 67,850                  Sq. Ft.              | 816                | 738                                                  |                   | —                              |   | 329 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| ***Second                  Quarter***          |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Land**                                       |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| Lemmon                  Carlisle/Alamo Springs | Dallas,                  TX      | 2.8                  Acres                   | 7,674              | 5,627                                                |                   | 1,744                                |   | 2,729 |   |
| Vista                  Ridge                   | Lewisville,                  TX  | 17.9                  Acres                  | 4,291              | (129                                                 | )                      | 4,096                                |   | 2,185 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Office                  Buildings**          |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| 9033                  Wilshire                 | Los                  Angeles, CA | 44,253                  sq. ft.              | 12,000             | 4,366                                                |                   | 6,506                                |   | 2,781 |   |
| Bay                  Plaza                     | Tampa,                  FL       | 75,780                  sq. ft.              | 4,682              | 3,253                                                |                   | 961                                  |   | 1,212 |   |
| Bay                  Plaza II                  | Tampa,                  FL       | 78,882                  sq. ft.              | 4,719              | 1,114                                                |                   | 3,284                                |   | 132 |   |
|                                           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| ***Third                  Quarter***           |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| **Apartments**                                 |                             |                                         |               |                                                 |                   |                                 |   |   |   |
| Quail                  Pointe                  | Huntsville,                  AL  | 184                  Units                   | 6,200              | 2,157                                                |                   | 3,501                                |   | 5,265 |   |
| Waters                  Edge III & IV      | Gulfport,                  MS    | 318                  Units                   | 16,350             | 6,201                                                |                   | 7,207                                |   | 7,724 |   |
| Windsor                  Tower                 | Ocala,                  FL       | 64                  Units                    | 2,845              | (85                                                  | )(2)                   | 1,937                                | (1)    | 785 |   |
| Woodhollow                                     | San                  Antonio, TX | 546                  Units                   | 12,500             | 3,429                                                |                   | 7,900                                |   | 8,290 |   |

----

|   **Property**                    | **Location**                   | **Units/Acres/****Sq.                  Ft.** | **Sales****Price** | **Net                  Cash****Received/****(Paid)** | **Debt****Discharged** | **Gain****on                  Sale** |   |
|---------------------------------------------|--------------------------------|----------------------------------------------|--------------------|------------------------------------------------------|------------------------|--------------------------------------|--------|
| **Land**                                    |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| Mason                  Goodrich             | Houston,                  TX   | 16.0                  Acres                  | 2,091              | 935                                                  |                   | —                              |   | 802 |   |
| Round                  Mountain             | Austin,                  TX    | 18.0                  Acres                  | 1,500              | 251                                                  |                   | —                              |   | 1,094 |   |
| Vineyards                                   | Grapevine,                  TX | 7.6                  Acres                   | 4,323              | 874                                                  |                   | —                              |   | 1,764 |   |
| Vineyards                  and Vineyards II | Grapevine,                  TX | 5.2                  Acres                   | 2,332              | 160                                                  |                   | 300                                  |   | 494 |   |
| West                  End                   | Dallas,                  TX    | 0.8                  Acres                   | 2,259              | 2,099                                                |                   | —                              |   | 1,259 |   |
|                                        |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| ***Fourth                  Quarter***       |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| **Apartments**                              |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| Sun                  Hollow                 | El                  Paso, TX   | 216                  Units                   | 7,700              | 2,623                                                |                   | 4,327                                |   | 5,811 |   |
| Terrace                  Hills              | El                  Paso, TX   | 310                  Units                   | 12,300             | 5,467                                                |                   | 5,890                                |   | 6,959 |   |
|                                        |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| **Land**                                    |                           |                                         |               |                                                 |                   |                                 |   |   |   |
| Nashville                                   | Nashville,                  TN | 3.0                  Acres                   | 441                | (13                                                  | )                      | 408                                  |   | 282 |   |

| **Property**                               | **Location**                       | **Units/****Acres/Sq.                  Ft.** | **Sales****Price** | **Net                  Cash****Received** | **Debt****Discharged** | **Gain****on                  Sale** |
|--------------------------------------------|------------------------------------|----------------------------------------------|--------------------|-------------------------------------------|------------------------|--------------------------------------|
| ***First                  Quarter***       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Apartments**                             |                               |                                         |               |                                      |                   |                                 |   |   |   |
| Tiberon                  Trails            | Merrillville,                  IN  | 376                  Units                   | $10,325            | $2,618                                    |                   | $6,189                               | (1) | $48 |   |
|                                       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Industrial                  Warehouses** |                               |                                         |               |                                      |                   |                                 |   |   |   |
| Kelly                  (Pinewood)          | Dallas,                  TX        | 100,000                  Sq. Ft.             | 1,650              | 65                                        |                   | 1,376                                |   | 153 |   |
| Ogden                  Industrial          | Ogden,                  UT         | 107,112                  Sq. Ft.             | 2,600              | 668                                       |                   | 1,775                                |   | 1,474 |   |
| Texstar                  Warehouse         | Arlington,                  TX     | 97,846                  Sq. Ft.              | 2,400              | —                                   |                   | 1,148                                | (1) | 1,157 | (3) |
|                                       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Land**                                   |                               |                                         |               |                                      |                   |                                 |   |   |   |
| Allen                                      | Collin                  County, TX | 492.5                  Acres                 | 19,962             | 7,956                                     |                   | 4,088                                |   | 7,915 | (2) |
| Marine                  Creek              | Ft.                  Worth, TX     | 10.7                  Acres                  | 1,488              | 1,198                                     |                   | 991                                  |   | 581 | (7) |
| Mason                  Goodrich            | Houston,                  TX       | 5.7                  Acres                   | 686                | 45                                        |                   | 588                                  |   | 379 |   |
| Mason                  Goodrich            | Houston,                  TX       | 8.0                  Acres                   | 1,045              | 248                                       |                   | 200                                  |   | 617 |   |
| Red                  Cross                 | Dallas,                  TX        | 2.9                  Acres                   | 8,500              | 2,842                                     |                   | 4,450                                |   | — |   |
|                                       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Office                  Buildings**      |                               |                                         |               |                                      |                   |                                 |   |   |   |
| Brandeis(6)                                | Omaha,                  NE         | 319,234                  Sq. Ft.             | 3⁄4             | 3⁄4                                    |                   | 3⁄4                               |   | (92 | ) |
| Countryside                  Harmon        | Sterling,                  VA      | 72,062                  Sq. Ft.              | 2,650              | 216                                       |                   | 2,200                                |   | 1,861 |   |
| Countryside                  Retail        | Sterling,                  VA      | 133,422                  Sq. Ft.             | 27,100             | 3,407                                     |                   | 22,800                               |   | 6,807 |   |
|                                       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Shopping                  Centers**      |                               |                                         |               |                                      |                   |                                 |   |   |   |
| K-Mart                                     | Cary,                  NC          | 92,033                  Sq. Ft.              | 3,200              | —                                   |                   | 1,677                                | (1) | 521 | (3) |
| Plaza                  on Bachman Creek    | Dallas,                  TX        | 80,278                  Sq. Ft.              | 7,850              | 1,808                                     |                   | 5,358                                |   | 3,682 |   |
|                                       |                               |                                         |               |                                      |                   |                                 |   |   |   |
| ***Second                  Quarter***      |                               |                                         |               |                                      |                   |                                 |   |   |   |
| **Apartments**                             |                               |                                         |               |                                      |                   |                                 |   |   |   |
| Cliffs                  of El Dorado(5)    | McKinney,                  TX      | 208                  Units                   | 13,442             | 10                                        |                   | 10,323                               | (1) | 2,542 |   |
| Park                  Avenue               | Tallahassee,                  FL   | 121                  Units                   | 6,225              | 876                                       |                   | 4,320                                | (1) | 3,922 |   |
| Sandstone                                  | Mesa,                  AZ          | 238                  Units                   | 8,650              | 2,920                                     | (4)                    | 5,531                                |   | 1,688 |   |

----

| **Property**                               | **Location**                     | **Units/****Acres/Sq.                  Ft.** | **Sales****Price** | **Net                  Cash****Received** | **Debt****Discharged** | **Gain****on                  Sale** |
|--------------------------------------------|----------------------------------|----------------------------------------------|--------------------|-------------------------------------------|------------------------|--------------------------------------|
| **Office                  Buildings**      |                             |                                         |               |                                      |                   |                                 |   |   |   |
| 4135                  Beltline             | Addison,                  TX     | 90,000                  Sq. Ft.              | 4,900              | 2,472                                     |                   | 2,009                                |   | 337 |   |
| Atrium                                     | Palm                  Beach, FL  | 74,603                  Sq. Ft.              | 5,775              | 1,842                                     |                   | 3,772                                |   | 708 |   |
|                                       |                             |                                         |               |                                      |                   |                                 |   |   |   |
| ***Third                  Quarter***       |                             |                                         |               |                                      |                   |                                 |   |   |   |
| **Apartments**                             |                             |                                         |               |                                      |                   |                                 |   |   |   |
| Falcon                  House              | Fort                  Walton, FL | 82                  Units                    | 3,330              | 1,178                                     |                   | 1,950                                | (1) | 1,209 |   |
|                                       |                             |                                         |               |                                      |                   |                                 |   |   |   |
| **Industrial                  Warehouses** |                             |                                         |               |                                      |                   |                                 |   |   |   |
| Kelly                  (Cash Road)         | Dallas,                  TX      | 97,150                  Sq. Ft.              | 1,500              | 1,077                                     |                   | 422                                  |   | 454 |   |
|                                       |                             |                                         |               |                                      |                   |                                 |   |   |   |
| **Land**                                   |                             |                                         |               |                                      |                   |                                 |   |   |   |
| Rasor                                      | Plano,                  TX       | 24.5                  Acres                  | 2,600              | 2,600                                     |                   | 3⁄4                               |   | 220 | (8) |
| Vista                  Ridge               | Lewisville,                  TX  | 1.3                  Acres                   | 310                | 259                                       |                   | 3⁄4                               |   | 131 |   |
|                                       |                             |                                         |               |                                      |                   |                                 |   |   |   |
| **Shopping                  Centers**      |                             |                                         |               |                                      |                   |                                 |   |   |   |
| Collection                                 | Denver,                  CO      | 267,812                  Sq. Ft.             | 21,200             | 6,703                                     |                   | 13,153                               |   | 3,314 |   |
|                                       |                             |                                         |               |                                      |                   |                                 |   |   |   |

| **Property**                          | **Location**                        | **Units**                  | **Amount****Expended** | **Additional****Amount****to                  Expend** | **Construction****Loan****Funding** |
|---------------------------------------|-------------------------------------|----------------------------|------------------------|--------------------------------------------------------|-------------------------------------|
|                                  |                                |                       |                   |                                                   |                                |
| Laguna                  Vista         | Farmers                  Branch, TX | 206                  Units | $5,688                 | $15,417                                                | $17,741                             |
| Legends                  of El Paso   | El                  Paso, TX        | 240                  Units | 2,723                  | 15,361                                                 | 16,040                              |
| Mission                  Oaks         | San                  Antonio, TX    | 228                  Units | 811                    | 16,658                                                 | 15,636                              |
| Parc                  at Maumelle     | Maumelle,                  AR       | 240                  Units | 6,543                  | 12,156                                                 | 16,829                              |
| Parc                  at Metro Center | Nashville,                  TN      | 144                  Units | 2,522                  | 10,093                                                 | 11,141                              |

----

----

*Related        Parties. *

----

| **Investee**                          |   | **Percentage                  of ARI’s****Ownership                  at****September                  30, 2005** |   | **Carrying                  Value of****Investment                  at****September                  30, 2005** |   | **Market                  Value****of                  Investment at****September                  30, 2005** |   |
|---------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|
| IORI                                  |   |                                                                                                                   | 20.4   | %                                                                                                               | $      | 6,048                                                                                                         |   | $ | 7,520 |   |
| Garden                  Centura, L.P. |   |                                                                                                                   | 5.0    | %                                                                                                               |   | 1,925                                                                                                         |   |   | 3⁄4 |   |
| Other                                 |   |                                                                                                                   |   |                                                                                                            |   | 1,316                                                                                                         |   |   |   |   |
|                                  |   |                                                                                                                   |   |                                                                                                            | $      | 9,289                                                                                                         |   |   |   |   |

|                                                       |   | **2005** |    |
|------------------------------------------------------------|--------|----------|---------|
| Revenues                                                   |   | $        | 7,767   |   |
| Equity                  in loss of partnership             |   |     | (45     | ) |
| Property                  operating expenses               |   |     | (3,563  | ) |
| Depreciation                                               |   |     | (539    | ) |
| Interest                                                   |   |     | (2,487  | ) |
| Income                  before gain on sale of real estate |   |     | 1,133   |   |
| Gain                  on sale of real estate               |   |     | — |   |
| Net                  income                                |   | $        | 1,133   |   |

----

| **Property**                                      | **Location**                          | **Sq.                    Ft./Rooms/****Units/Acres** | **Debt****Incurred** | **Debt****Discharged** | **Net                    Cash****Received** | **Interest****Rate** | **Maturity****Date** |
|---------------------------------------------------|---------------------------------------|------------------------------------------------------|----------------------|------------------------|---------------------------------------------|----------------------|----------------------|
| ***First                    Quarter***            |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Land**                                          |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| Nashville                                         | Nashville,                    TN      | 109.6                    Acres                       | $7,000               | $—               | $6,341                                      | 7.50                 | %                    | 02/07 |
|                                              |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Shopping                    Centers**           |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| Bridgeview                    Plaza               | LaCrosse,                    WI       | 116,008                    Sq. Ft.                   | 7,197                | 6,304                  | 649                                         | 7.25                 | (1)                  | 03/10 |
| Dunes                    Plaza                    | Michigan                    City, IN  | 223,869                    Sq. Ft.                   | 3,750                | 2,685                  | 658                                         | 7.50                 | (1)                  | 01/10 |
|                                              |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| ***Second                    Quarter***           |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Apartments**                                    |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| Autumn                    Chase                   | Midland,                    TX        | 64                    Units                          | 1,166                | 797                    | 317                                         | 5.88                 | (1)                  | 05/35 |
| Courtyard                                         | Midland,                    TX        | 133                    Units                         | 1,342                | 966                    | 266                                         | 5.88                 | (1)                  | 05/35 |
| Southgate                                         | Odessa,                    TX         | 180                    Units                         | 1,879                | 1,712                  | 61                                          | 5.88                 | (1)                  | 05/35 |
|                                              |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Hotels**                                        |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| The                    Majestic                   | Chicago,                    IL        | 55                    Rooms                          | 3,225                | 3⁄4                 | 3,066                                       | 6.40                 |                 | 06/10 |
|                                              |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| ***Third                    Quarter***            |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Hotels**                                        |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| Williamsburg                    Hospitality House | Williamsburg,                    VA   | 296                    Rooms                         | 11,000               | 10,540                 | 147                                         | 6.19                 | (1)                  | 09/10 |
|                                              |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| **Land**                                          |                                  |                                                 |                 |                   |                                        |                 |                 |   |
| Alliance                    Airport(2)            | Tarrant                    County, TX | 12.7                    Acres                        | 553                  | 3⁄4                 | 540                                         | 7.25                 | (1)                  | 01/07 |
| Centura(3)                                        | Farmers                    Branch, TX | 8.8                    Acres                         | 6,727                | 3⁄4                 | 6,727                                       | 8.50                 | (1)                  | 08/07 |
| DeSoto                    Ranch(2)                | DeSoto,                    TX         | 21.9                    Acres                        | 1,635                | 1,271                  | 336                                         | 7.25                 | (1)                  | 01/07 |
| Elm                    Fork                       | Denton                    County, TX  | 105.4                    Acres                       | 7,740                | 3⁄4                 | 7,540                                       | 7.00                 | (1)                  | 07/06 |
| Sheffield                    Village(2)           | Grand                    Prairie, TX  | 13.9                    Acres                        | 975                  | 975                    | 94                                          | 7.75                 |                 | 03/07 |
| West                    End(2)                    | Dallas,                    TX         | 6.3                    Acres                         | 2,000                | 3⁄4                 | 1,951                                       | 7.25                 | (1)                  | 01/07 |

----

| **Property**                                                         | **Location**                          | **Sq.                    Ft./Rooms/****Units/Acres** | **Debt****Incurred** | **Debt****Discharged** | **Net                    Cash****Received/****(Paid)** | **Interest****Rate** | **Maturity****Date** |
|----------------------------------------------------------------------|---------------------------------------|------------------------------------------------------|----------------------|------------------------|--------------------------------------------------------|----------------------|----------------------|
| ***First                    Quarter***                               |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Hotels**                                                           |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Williamsburg                    Hospitality                    House | Williamsburg,                    VA   | 296                    Rooms                         | $11,500              |                   | $12,332                                                |                 | $(13,689             | )(2) | 7.00 | %(1) | 03/05 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Land**                                                             |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Centura                                                              | Farmers                    Branch, TX | 8.8                    Acres                         | 4,485                |                   | 4,000                                                  |                 | (183                 | ) | 7.00 | (1) | 02/05 |
| Dominion/Hollywood                                                   | Farmers                    Branch, TX | 66.1                    Acres                        | 6,985                |                   | 6,222                                                  |                 | (67                  | ) | 7.00 | (1) | 02/05 |
| Katy                                                                 | Harris                    County, TX  | 130.6                    Acres                       | 7,500                |                   | —                                                |                 | (75                  | )(3) | 6.00 |   | 02/07 |
| Marine                    Creek                                      | Ft.                    Worth, TX      | 54.0                    Acres                        | 1,286                |                   | 991                                                    |                 | 192                  |   | 5.75 |   | 06/05 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Office                    Buildings**                              |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Centura                    Tower                                     | Farmers                    Branch, TX | 410,901                    Sq. Ft.                   | 34,000               |                   | 36,889                                                 |                 | (4,588               | ) | 5.50 | (1) | 04/06 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| ***Second                    Quarter***                              |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Apartments**                                                       |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Paramount                    Terrace                                 | Amarillo,                    TX       | 181                    Units                         | 3,176                |                   | 2,663                                                  |                 | 323                  |   | 5.15 |   | 06/37 |
| Treehouse                                                            | Irving,                    TX         | 160                    Units                         | 5,780                |                   | 5,027                                                  |                 | 138                  |   | 5.06 |   | 07/34 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Land**                                                             |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Lacy                    Longhorn                                     | Farmers                    Branch, TX | 17.1                    Acres                        | 1,965                |                   | 1,800                                                  |                 | 78                   |   | 4.03 | (1) | 07/07 |
| Marine                    Creek                                      | Fort                    Worth, TX     | 28.4                    Acres                        | 1,785                |                   | 0                                                      |                 | 1,746                |   | 4.03 | (1) | 07/07 |
| Mason/Goodrich                                                       | Houston,                    TX        | 39.4                    Acres                        | 2,133                |                   | 714                                                    |                 | 1,345                |   | 6.00 | (1) | 08/05 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Office                    Buildings**                              |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| 1010                    Common                                       | New                    Orleans, LA    | 494,579                    Sq. Ft.                   | 16,250               |                   | 8,000                                                  |                 | 7,829                |   | 4.03 | (1) | 07/07 |
| Two                    Hickory Centre                                | Farmers                    Branch, TX | 96,127                    Sq. Ft.                    | 7,500                |                   | 7,500                                                  |                 | (164                 | ) | 3.60 | (1) | 05/06 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| ***Third                    Quarter***                               |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Apartments**                                                       |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Villager                                                             | Fort                    Walton, FL    | 33                    Units                          | 804                  |                   | 507                                                    |                 | 129                  |   | 5.15 |   | 06/34 |
| Waters                    Edge III                                   | Gulfport,                    MS       | 238                    Units                         | 3,250                |                   | 3⁄4                                                 |                 | 3⁄4               | (4) | 12.50 |   | 12/04 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Hotels**                                                           |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| City                    Suites                                       | Chicago,                    IL        | 45                    Rooms                          | 3,640                |                   | 3⁄4                                                 |                 | 3,548                |   | 6.75 | (1) | 09/09 |
| Willows                                                              | Chicago,                    IL        | 52                    Rooms                          | 3,500                |                   | 3⁄4                                                 |                 | 3,411                |   | 6.75 | (1) | 09/09 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Land**                                                             |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Bonneau                                                              | Dallas                    County, TX  | 8.4                    Acres                         | 9,661                | (5)                    | 10,283                                                 | (6)                  | 76                   |   | 6.75 | (1) | 09/05 |
| Chase                    Oaks                                        | Plano,                    TX          | 5.8                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| Dalho                                                                | Farmers                    Branch, TX | 2.9                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| HSM                                                                  | Farmers                    Branch, TX | 6.2                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| JHL                    Connell                                       | Carrollton,                    TX     | 7.6                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| Las                    Colinas                                       | Las                    Colinas, TX    | 1.5                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| Stagliano                                                            | Farmers                    Branch, TX | 3.2                    Acres                         | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
| Vista                    Ridge                                       | Lewisville,                    TX     | 64.9                    Acres                        | 3⁄4               | (5)                    | 3⁄4                                                 |                 | 3⁄4               |   | 3⁄4 |   | 3⁄4 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Office                    Buildings**                              |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Centura                    Tower                                     | Farmers                    Branch, TX | 410,901                    Sq. Ft.                   | 50,000               |                   | 37,594                                                 |                 | 2,989                |   | 4.94 |   | 10/09 |
| Cooley                                                               | Farmers                    Branch, TX | 27,000                    Sq. Ft.                    | 2,600                |                   | 1,726                                                  |                 | 811                  |   | 5.50 | (1) | 09/06 |
|                                                                 |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| **Warehouses**                                                       |                                  |                                                 |                 |                   |                                                   |                 |                 |   |   |   |   |
| Addison                    Hangers I & II                        | Addison,                    TX        | 52,650                    Sq. Ft.                    | 4,500                |                   | 2,592                                                  |                 | 1,635                |   | 10.00 |   | 09/14 |

----

*Sunset          Management LLC.*
*Sunset          Management LLC, derivatively on behalf of Transcontinental Realty Investors,          Inc. v. American Realty Investors, Inc., et al.*
*In          Re: ART Williamsburg, Inc.*
*American          Realty Trust, Inc., et al. v. Sunset Management LLC*
*In          Re: ART Williamsburg, Inc.*

*Other          Security Loans.*

----

|                                                            |   | **PRIME** |    | **IORI** |   |
|-----------------------------------------------------------------|--------|-----------|---------|----------|--------|
| Balance,                    December 31, 2004                   |   | $         | 13,579  |     | $      | (260 | ) |
| Cash                    transfers to affiliates                 |   |      | 122,670 |     |   | 260 |   |
| Cash                    transfers from affiliates               |   |      | (91,377 | )        |   | — |   |
| Payments                    by affiliates on ARI’s behalf |   |      | (700    | )        |   | 3⁄4 |   |
| Repayments                    through property transfers        |   |      | (4,388  | )        |   | 3⁄4 |   |
| Construction                    fees payable to affiliate       |   |      | (934    | )        |   | — |   |
| Payables                    clearing through Prime              |   |      | (2,254  | )        |   | — |   |
| Balance,                    September 30, 2005                  |   | $         | 36,596  |     | $      | 3⁄4 |   |

----

| **Three                    Months Ended****September                    30, 2005** |   | **Commercial****Properties** |    | **Apartments** |   | **Hotels** |   | **Land** |    | **Restaurants** |   | **Receivables/****Other** |   | **Total** |    |
|------------------------------------------------------------------------------------|--------|------------------------------|---------|----------------|--------|------------|--------|----------|---------|-----------------|--------|---------------------------|--------|-----------|---------|
| Operating                    revenue                                               |   | $                            | 12,820  |           | $      | 20,981     |   | $        | 10,761  |            | $      | 135                       |   | $         | 9,298   |   | $ | 7 |   | $ | 54,002 |   |
| Operating                    expenses                                              |   |                         | 7,594   |           |   | 13,943     |   |     | 6,715   |            |   | 1,503                     |   |      | 7,014   |   |   | 195 |   |   | 36,964 |   |
| Depreciation                                                                       |   |                         | 1,159   |           |   | 2,304      |   |     | 967     |            |   | —                   |   |      | 314     |   |   | 4 |   |   | 4,748 |   |
| Mortgage                    and loan interest                                      |   |                         | 3,399   |           |   | 7,697      |   |     | 1,227   |            |   | 2,677                     |   |      | 336     |   |   | 1,000 |   |   | 16,336 |   |
| Interest                    income                                                 |   |                         | — |           |   | —    |   |     | — |            |   | —                   |   |      | — |   |   | 1,188 |   |   | 1,188 |   |
| Gain                    on land sales                                              |   |                         | — |           |   | —    |   |     | — |            |   | 5,435                     |   |      | — |   |   | — |   |   | 5,435 |   |
| Segment                    operating income (loss)                                 |   | $                            | 668     |           | $      | (2,963     | )      | $        | 1,852   |            | $      | 1,390                     |   | $         | 1,634   |   | $ | (4 | ) | $ | 2,577 |   |
|                                                                               |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| Capital                    expenditures                                            |   | $                            | 833     |           | $      | 5,800      |   | $        | 344     |            | $      | 89                        |   | $         | 151     |   | $ | 16 |   | $ | 7,233 |   |
| Assets                                                                             |   |                         | 230,238 |           |   | 503,220    |   |     | 81,856  |            |   | 205,633                   |   |      | 19,900  |   |   | 75,096 |   |   | 1,115,943 |   |

| **Property                    Sales:**       |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|
| Sales                    price                    |   | $      | — |   | $      | 37,895 |   | $      | — |   | $      | 12,506  |   | $      | — |   | $ | — |   | $ | 50,401 |   |
| Cost                    of sale                   |   |   | — |   |   | 15,830 |   |   | — |   |   | 7,071   |   |   | — |   |   | — |   |   | 22,901 |   |
| Recognized                    prior deferred gain |   |   | — |   |   | 494    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 494 |   |
| Gain                    on sale                   |   | $      | — |   | $      | 22,559 |   | $      | — |   | $      | 5,435   |   | $      | — |   | $ | — |   | $ | 27,994 |   |

----

| **Three                    Months Ended****September                    30, 2004** |   | **Commercial****Properties** |    | **Apartments** |   | **Hotels** |   | **Land** |    | **Restaurants** |   | **Receivables/****Other** |   | **Total** |    |
|------------------------------------------------------------------------------------|--------|------------------------------|---------|----------------|--------|------------|--------|----------|---------|-----------------|--------|---------------------------|--------|-----------|---------|
| Operating                    revenue                                               |   | $                            | 11,825  |           | $      | 16,847     |   | $        | 10,489  |            | $      | 221                       |   | $         | 8,667   |   | $ | 7 |   | $ | 48,056 |   |
| Operating                    expenses                                              |   |                         | 8,276   |           |   | 10,888     |   |     | 7,455   |            |   | 910                       |   |      | 6,788   |   |   | — |   |   | 34,317 |   |
| Depreciation                                                                       |   |                         | 2,858   |           |   | 1,682      |   |     | 950     |            |   | —                   |   |      | 337     |   |   | 16 |   |   | 5,843 |   |
| Mortgage                    and loan interest                                      |   |                         | 3,169   |           |   | 5,769      |   |     | 1,317   |            |   | 3,186                     |   |      | 368     |   |   | 1,312 |   |   | 15,121 |   |
| Interest                    income                                                 |   |                         | — |           |   | —    |   |     | — |            |   | —                   |   |      | — |   |   | 855 |   |   | 855 |   |
| Gain                    on land sales                                              |   |                         | — |           |   | —    |   |     | — |            |   | 827                       |   |      | — |   |   | — |   |   | 827 |   |
| Segment                    operating income (loss)                                 |   | $                            | (2,478  | )              | $      | (1,492     | )      | $        | 767     |            | $      | (3,048                    | )      | $         | 1,174   |   | $ | (466 | ) | $ | (5,543 | ) |
|                                                                               |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| Capital                    expenditures                                            |   | $                            | 2,654   |           | $      | 28,572     |   | $        | 610     |            | $      | 1,426                     |   | $         | 258     |   | $ | — |   | $ | 33,520 |   |
| Assets                                                                             |   |                         | 261,466 |           |   | 491,409    |   |     | 86,974  |            |   | 217,728                   |   |      | 20,797  |   |   | 75,487 |   |   | 1,153,861 |   |

| **Property                    Sales:**       |   |   |    |   |   |   |   |   |    |   |   |   |   |   |    |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|---------|
| Sales                    price                    |   | $      | 22,700  |   | $      | 3,330  |   | $      | — |   | $      | 2,910  |   | $      | — |   | $ | — |   | $ | 28,940 |   |
| Cost                    of sale                   |   |   | 18,932  |   |   | 2,121  |   |   | — |   |   | 2,610  |   |   | — |   |   | — |   |   | 23,663 |   |
| Deferred                    current gain          |   |   | — |   |   | 3⁄4 |   |   | — |   |   | 220    |   |   | — |   |   | — |   |   | 220 |   |
| Recognized                    prior deferred gain |   |   | 329     |   |   | 3⁄4 |   |   | 3⁄4  |   |   | 747    |   |   | 3⁄4  |   |   | 3⁄4 |   |   | 1,076 |   |
| Gain                    on sale                   |   | $      | 4,097   |   | $      | 1,209  |   | $      | — |   | $      | 827    |   | $      | — |   | $ | — |   | $ | 6,133 |   |

| **Nine                    Months Ended****September                    30, 2005** |   | **Commercial****Properties** |    | **Apartments** |   | **Hotels** |   | **Land** |    | **Restaurants** |   | **Receivables/****Other** |   | **Total** |    |
|-----------------------------------------------------------------------------------|--------|------------------------------|---------|----------------|--------|------------|--------|----------|---------|-----------------|--------|---------------------------|--------|-----------|---------|
| Operating                    revenue                                              |   | $                            | 34,618  |           | $      | 60,256     |   | $        | 28,644  |            | $      | 491                       |   | $         | 27,331  |   | $ | 41 |   | $ | 151,381 |   |
| Operating                    expenses                                             |   |                         | 21,909  |           |   | 38,473     |   |     | 20,104  |            |   | 4,757                     |   |      | 20,908  |   |   | 208 |   |   | 106,359 |   |
| Depreciation                                                                      |   |                         | 6,297   |           |   | 6,587      |   |     | 2,356   |            |   | —                   |   |      | 934     |   |   | 6 |   |   | 16,180 |   |
| Mortgage                    and loan interest                                     |   |                         | 8,846   |           |   | 21,971     |   |     | 3,873   |            |   | 7,858                     |   |      | 1,026   |   |   | 3,138 |   |   | 46,712 |   |
| Interest                    income                                                |   |                         | — |           |   | —    |   |     | — |            |   | —                   |   |      | — |   |   | 4,025 |   |   | 4,025 |   |
| Gain                    on land sales                                             |   |                         | — |           |   | —    |   |     | — |            |   | 34,525                    |   |      | — |   |   | — |   |   | 34,525 |   |
| Segment                    operating income (loss)                                |   | $                            | (2,434  | )              | $      | (6,775     | )      | $        | 2,311   |            | $      | 22,401                    |   | $         | 4,463   |   | $ | 714 |   | $ | 20,680 |   |
|                                                                              |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| Capital                    expenditures                                           |   | $                            | 3,743   |           | $      | 29,562     |   | $        | 610     |            | $      | 1,619                     |   | $         | 627     |   | $ | 16 |   | $ | 36,177 |   |
| Assets                                                                            |   |                         | 230,238 |           |   | 503,220    |   |     | 81,856  |            |   | 205,633                   |   |      | 19,900  |   |   | 75,096 |   |   | 1,115,943 |   |

| **Property                    Sales:**            |   |   |    |   |   |   |   |   |    |   |   |    |   |   |    |
|---------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|
| Sales                    price                    |   | $      | 36,677  |   | $      | 44,102 |   | $      | — |   | $      | 76,776  |   | $      | — |   | $ | — |   | $ | 157,555 |   |
| Cost                    of sale                   |   |   | 21,621  |   |   | 21,981 |   |   | — |   |   | 42,251  |   |   | — |   |   | — |   |   | 85,853 |   |
| Recognized                    prior deferred gain |   |   | — |   |   | 494    |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 494 |   |
| Gain                    on sale                   |   | $      | 15,056  |   | $      | 22,615 |   | $      | — |   | $      | 34,525  |   | $      | — |   | $ | — |   | $ | 72,196 |   |

| **Nine                    Months Ended****September                    30, 2004** |   | **Commercial****Properties** |    | **Apartments** |   | **Hotels** |   | **Land** |    | **Restaurants** |   | **Receivables/****Other** |   | **Total** |    |
|-----------------------------------------------------------------------------------|--------|------------------------------|---------|----------------|--------|------------|--------|----------|---------|-----------------|--------|---------------------------|--------|-----------|---------|
| Operating                    revenue                                              |   | $                            | 34,908  |           | $      | 48,760     |   | $        | 28,636  |            | $      | 569                       |   | $         | 25,659  |   | $ | 377 |   | $ | 138,909 |   |
| Operating                    expenses                                             |   |                         | 26,000  |           |   | 31,588     |   |     | 21,417  |            |   | 3,711                     |   |      | 19,925  |   |   | 345 |   |   | 102,986 |   |
| Depreciation                                                                      |   |                         | 8,260   |           |   | 5,090      |   |     | 2,845   |            |   | —                   |   |      | 1,001   |   |   | 41 |   |   | 17,237 |   |
| Mortgage                    and loan interest                                     |   |                         | 9,456   |           |   | 16,792     |   |     | 4,059   |            |   | 9,398                     |   |      | 1,129   |   |   | 3,890 |   |   | 44,724 |   |
| Interest                    income                                                |   |                         | — |           |   | —    |   |     | — |            |   | —                   |   |      | — |   |   | 3,514 |   |   | 3,514 |   |
| Gain                    on land sales                                             |   |                         | — |           |   | —    |   |     | — |            |   | 4,579                     |   |      | — |   |   | — |   |   | 4,579 |   |
| Segment                    operating income (loss)                                |   | $                            | (8,808  | )              | $      | (4,710     | )      | $        | 315     |            | $      | (7,961                    | )      | $         | 3,604   |   | $ | (385 | ) | $ | (17,945 | ) |
|                                                                              |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| Capital                    expenditures                                           |   | $                            | 5,509   |           | $      | 127,392    |   | $        | 988     |            | $      | 3,612                     |   | $         | 983     |   | $ | — |   | $ | 138,484 |   |
| Assets                                                                            |   |                         | 261,466 |           |   | 491,409    |   |     | 86,974  |            |   | 217,728                   |   |      | 20,797  |   |   | 75,487 |   |   | 1,153,861 |   |
|                                                                              |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| **Property                    Sales:**                                            |   |                         |    |           |   |       |   |     |    |            |   |                      |   |      |    |   |   |   |   |   |   |   |
| Sales                    price                                                    |   | $                            | 80,825  |           | $      | 46,972     |   | $        | — |            | $      | 34,592                    |   | $         | — |   | $ | — |   | $ | 162,389 |   |
| Cost                    of sale                                                   |   |                         | 60,449  |           |   | 37,067     |   |     | — |            |   | 24,801                    |   |      | — |   |   | — |   |   | 122,317 |   |
| Deferred                    current gain                                          |   |                         | 1,678   |           |   | 3,037      |   |     | — |            |   | 5,212                     |   |      | — |   |   | — |   |   | 9,927 |   |
| Recognized                    prior deferred gain                                 |   |                         | 329     |           |   | —    |   |     | — |            |   | —                   |   |      | — |   |   | — |   |   | 329 |   |
| Gain                    on sale                                                   |   | $                            | 19,027  |           | $      | 6,868      |   | $        | — |            | $      | 4,579                     |   | $         | — |   | $ | — |   | $ | 30,474 |   |

----

|                                                              |   | **Three                      Months Ended**    |    | **Nine                      Months Ended**     |    |
|-------------------------------------------------------------------|--------|------------------------------------------------|---------|------------------------------------------------|---------|
|                                                              |   | **September                      30,****2005** |    | **September                      30,****2004** |    | **September                      30,****2005** |   | **September                      30,****2004** |   |
|                                                              |   |                                           |    |                                           |    |   |   |   |   |
| Other                      non-segment items of income/(expense): |   |                                           |    |                                           |    |   |   |   |   |
| General                      and administrative                   |   |  $                                        | (3,643  | )                                              |  $ | (2,613 | ) |  $ | (11,290 | ) |  $ | (11,474 | ) |
| Advisory                      fee                                 |   |                                           | (3,206  | )                                              |    | (2,934 | ) |   | (8,844 | ) |   | (8,162 | ) |
| Gain/(loss)                      on foreign currency transaction  |   |                                           | 37      |                                           |    | 543 |   |   | 265 |   |   | 1,791 |   |
| Other                      income/(expense)                       |   |                                           | 1,215   |                                           |    | 72 |   |   | 2,186 |   |   | (136 | ) |
| Gain                      on settlement of debt                   |   |                                           | — |                                           |    | 2,268 |   |   | — |   |   | 2,268 |   |
| Discount                      on sale of notes receivable         |   |                                           | (15     | )                                              |    | 9 |   |   | (15 | ) |   | (389 | ) |
| Net                      income fee                               |   |                                           | (2,136  | )                                              |    | — |   |   | (2,950 | ) |   | — |   |
| Incentive                      Fee                                |   |                                           | (904    | )                                              |    | — |   |   | (909 | ) |   | — |   |
| Litigation                      settlement                        |   |                                           | (130    | )                                              |    | (50 | ) |   | (130 | ) |   | (50 | ) |
| Equity                      in income (loss) of investees         |   |                                           | 71      |                                           |    | 56 |   |   | 283 |   |   | (144 | ) |
| Minority                      interest                            |   |                                           | 336     |                                           |    | 1,474 |   |   | (408 | ) |   | (155 | ) |
| Loss                      from continuing operations              |   | $                                              | (5,798  | )                                              | $       | (6,718 | ) | $ | (1,132 | ) | $ | (34,396 | ) |

|                                                                           |   | **For                      the Three Months****Ended                      September 30,** |    | **For                      the Nine Months****Ended                      September 30,** |   |
|--------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|---------|------------------------------------------------------------------------------------------|--------|
|                                                                           |   | **2005**                                                                                  |    | **2004**                                                                                 |   | **2005** |   | **2004** |   |
|                                                                           |   | **(dollars                      in thousands)**                                           |    |
|                                                                           |   |                                                                                      |    |                                                                                     |   |   |   |   |   |
| Revenue:                                                                       |   |                                                                                      |    |                                                                                     |   |   |   |   |   |
| Rental                                                                         |   | $                                                                                         | 4,428   |                                                                                     | $      | 11,362 |   | $ | 15,031 |   | $ | 37,907 |   |
| Property                      operations                                       |   |                                                                                      | 3,455   |                                                                                     |   | 7,695 |   |   | 11,245 |   |   | 23,191 |   |
|                                                                           |   |                                                                                      | 973     |                                                                                     |   | 3,667 |   |   | 3,786 |   |   | 14,716 |   |
|                                                                           |   |                                                                                      |    |                                                                                     |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                      |   |                                                                                      |    |                                                                                     |   |   |   |   |   |   |   |   |   |
| Interest                                                                       |   |                                                                                      | 1,486   |                                                                                     |   | 4,197 |   |   | 5,577 |   |   | 13,305 |   |
| Depreciation                                                                   |   |                                                                                      | 174     |                                                                                     |   | 1,592 |   |   | 712 |   |   | 5,407 |   |
|                                                                           |   |                                                                                      | 1,660   |                                                                                     |   | 5,789 |   |   | 6,289 |   |   | 18,712 |   |
|                                                                           |   |                                                                                      |    |                                                                                     |   |   |   |   |   |   |   |   |   |
| Loss                      from discontinued operations                         |   |                                                                                      | (687    | )                                                                                        |   | (2,122 | ) |   | (2,503 | ) |   | (3,996 | ) |
|                                                                           |   |                                                                                      |    |                                                                                     |   |   |   |   |   |   |   |   |   |
| Gain                      on sale of real estate                               |   |                                                                                      | 22,559  |                                                                                     |   | 5,306 |   |   | 37,671 |   |   | 25,895 |   |
| Write-down                      of assets held-for-sale                        |   |                                                                                      | — |                                                                                     |   | (3,444 | ) |   | — |   |   | (3,444 | ) |
| Equity                      in gain on sale of real estate by equity investees |   |                                                                                      | — |                                                                                     |   | (9 | ) |   | — |   |   | 886 |   |
|                                                                           |   |                                                                                      |    |                                                                                     |   |   |   |   |   |   |   |   |   |
| Income                      (loss) from discontinued operations                |   | $                                                                                         | 21,872  |                                                                                     | $      | (269 | ) | $ | 35,168 |   | $ | 19,341 |   |

----

*Partnership          Obligations*

*Liquidity.          *
* *

*Commitments.          *

*Litigation.          *

----

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

 

----

 

----

Related          Party Transactions

|       |   | **Three                    Months Ended****September                    30,** |   | **Nine                    Months Ended****September                    30,** |   |
|------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|       |   | **2005**                                                                      |   | **2004**                                                                     |   | **2005** |   | **2004** |   |
|       |   |                                                                          |   |                                                                         |   |   |   |   |   |
| Commercial |   | $                                                                             | 12,820 |                                                                         | $      | 11,825 |   | $ | 34,618 |   | $ | 34,908 |   |
| Apartments |   |                                                                          | 20,981 |                                                                         |   | 16,847 |   |   | 60,256 |   |   | 48,760 |   |
| Hotels     |   |                                                                          | 10,761 |                                                                         |   | 10,489 |   |   | 28,644 |   |   | 28,636 |   |
| Land       |   |                                                                          | 135    |                                                                         |   | 221 |   |   | 491 |   |   | 569 |   |
| Other      |   |                                                                          | 7      |                                                                         |   | 7 |   |   | 41 |   |   | 377 |   |
|       |   | $                                                                             | 44,704 |                                                                         | $      | 39,389 |   | $ | 124,050 |   | $ | 113,250 |   |

 

----

Property          Operations Expenses (dollars in thousands)

|       |   | **Three                    Months Ended****September                    30,** |   | **Nine                    Months Ended****September                    30,** |   |
|------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|       |   | **2005**                                                                      |   | **2004**                                                                     |   | **2005** |   | **2004** |   |
|       |   |                                                                          |   |                                                                         |   |   |   |   |   |
| Commercial |   | $                                                                             | 7,594  |                                                                         | $      | 8,276 |   | $ | 21,909 |   |   | 26,000 |   |
| Apartments |   |                                                                          | 13,943 |                                                                         |   | 10,888 |   |   | 38,473 |   |   | 31,588 |   |
| Hotels     |   |                                                                          | 6,715  |                                                                         |   | 7,455 |   |   | 20,104 |   |   | 21,417 |   |
| Land       |   |                                                                          | 1,503  |                                                                         |   | 910 |   |   | 4,757 |   |   | 3,711 |   |
| Other      |   |                                                                          | 195    |                                                                         |   | — |   |   | 208 |   |   | 345 |   |
|       |   | $                                                                             | 29,950 |                                                                         | $      | 27,529 |   | $ | 85,451 |   | $ | 83,061 |   |
|       |   |                                                                          |   |                                                                         |   |   |   |   |   |   |   |   |   |

|        |   | **Three                    Months Ended****September                    30,** |   | **Nine                    Months Ended****September                    30,** |   |
|-------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|        |   | **2005**                                                                      |   | **2004**                                                                     |   | **2005** |   | **2004** |   |
|        |   |                                                                          |   |                                                                         |   |   |   |   |   |
| Commercial  |   | $                                                                             | 1,159  |                                                                         | $      | 2,858 |   | $ | 6,297 |   | $ | 8,260 |   |
| Apartments  |   |                                                                          | 2,304  |                                                                         |   | 1,682 |   |   | 6,587 |   |   | 5,090 |   |
| Hotels      |   |                                                                          | 967    |                                                                         |   | 950 |   |   | 2,356 |   |   | 2,845 |   |
| Restaurants |   |                                                                          | 314    |                                                                         |   | 337 |   |   | 934 |   |   | 1,001 |   |
| Other       |   |                                                                          | 4      |                                                                         |   | 16 |   |   | 6 |   |   | 41 |   |
|        |   | $                                                                             | 4,748  |                                                                         | $      | 5,843 |   | $ | 16,180 |   | $ | 17,237 |   |

 

----

Mortgage          and Loan Interest Expense (dollars in thousands)

|        |   | **Three                    Months Ended****September                    30,** |   | **Nine                    Months Ended****September                    30,** |   |
|-------------|--------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|        |   | **2005**                                                                      |   | **2004**                                                                     |   | **2005** |   | **2004** |   |
|        |   |                                                                          |   |                                                                         |   |   |   |   |   |
| Commercial  |   | $                                                                             | 3,399  |                                                                         | $      | 3,169 |   | $ | 8,846 |   | $ | 9,456 |   |
| Apartments  |   |                                                                          | 7,697  |                                                                         |   | 5,769 |   |   | 21,971 |   |   | 16,792 |   |
| Hotels      |   |                                                                          | 1,227  |                                                                         |   | 1,317 |   |   | 3,873 |   |   | 4,059 |   |
| Land        |   |                                                                          | 2,677  |                                                                         |   | 3,186 |   |   | 7,858 |   |   | 9,398 |   |
| Restaurants |   |                                                                          | 336    |                                                                         |   | 368 |   |   | 1,026 |   |   | 1,129 |   |
| Other       |   |                                                                          | 1,000  |                                                                         |   | 1,312 |   |   | 3,138 |   |   | 3,890 |   |
|        |   | $                                                                             | 16,336 |                                                                         | $      | 15,121 |   | $ | 46,712 |   | $ | 44,724 |   |

|                                                                         |   | **For                    the Three Months****Ended                    September 30,** |    | **For                    the Nine Months****Ended                    September 30,** |   |
|------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|---------|--------------------------------------------------------------------------------------|--------|
|                                                                         |   | **2005**                                                                              |    | **2004**                                                                             |   | **2005** |   | **2004** |   |
| Revenue:                                                                     |   |                                                                                  |    |                                                                                 |   |   |   |   |   |
| Rental                                                                       |   | $                                                                                     | 4,428   |                                                                                 | $      | 11,362 |   | $ | 15,031 |   | $ | 37,907 |   |
| Property                    operations                                       |   |                                                                                  | 3,455   |                                                                                 |   | 7,695 |   |   | 11,245 |   |   | 23,191 |   |
|                                                                         |   |                                                                                  | 973     |                                                                                 |   | 3,667 |   |   | 3,786 |   |   | 14,716 |   |
| Expenses:                                                                    |   |                                                                                  |    |                                                                                 |   |   |   |   |   |   |   |   |   |
| Interest                                                                     |   |                                                                                  | 1,486   |                                                                                 |   | 4,197 |   |   | 5,577 |   |   | 13,305 |   |
| Depreciation                                                                 |   |                                                                                  | 174     |                                                                                 |   | 1,592 |   |   | 712 |   |   | 5,407 |   |
|                                                                         |   |                                                                                  | 1,660   |                                                                                 |   | 5,789 |   |   | 6,289 |   |   | 18,712 |   |
|                                                                         |   |                                                                                  |    |                                                                                 |   |   |   |   |   |   |   |   |   |
| Loss                    from discontinued operations                         |   |                                                                                  | (687    | )                                                                                    |   | (2,122 | ) |   | (2,503 | ) |   | (3,996 | ) |
|                                                                         |   |                                                                                  |    |                                                                                 |   |   |   |   |   |   |   |   |   |
| Gain                    on sale of real estate                               |   |                                                                                  | 22,559  |                                                                                 |   | 5,306 |   |   | 37,671 |   |   | 25,895 |   |
| Write-down                    of assets held-for-sale                        |   |                                                                                  | — |                                                                                 |   | (3,444 | ) |   | — |   |   | (3,444 | ) |
| Equity                    in gain on sale of real estate by equity investees |   |                                                                                  | — |                                                                                 |   | (9 | ) |   | — |   |   | 886 |   |
|                                                                         |   |                                                                                  |    |                                                                                 |   |   |   |   |   |   |   |   |   |
| Income                    (loss) from discontinued operations                |   | $                                                                                     | 21,872  |                                                                                 | $      | (269 | ) | $ | 35,168 |   | $ | 19,341 |   |

 

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Tax          Matters

**ITEM 3.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET          RISKS**

|                                                                 | **Balance** | **Weighted****Average****Interest                      Rate** | **Effect                      of 1%****Increase                      In****Base                      Rates** |
|----------------------------------------------------------------------|-------------|---------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
| Notes                      payable:                                  |        |                                                          |                                                                                                         |
| Variable                      rate                                   | $192,601    | 7.416%                                                        | $1,926                                                                                                       |
| Total                      decrease in ARI’s annual net income |        |                                                          | $1,926                                                                                                       |
| Per                      share                                       |        |                                                          | $.19                                                                                                         |

**ITEM 4.            CONTROLS AND PROCEDURES**

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**PART      II. OTHER INFORMATION**

**ITEM      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**

| **Period**                    | **Total                Number of****Shares Purchased** | **Average                Price****Paid                per Share** | **Total                Number of****Shares                Purchased****as                Part of Publicly****Announced                Program** | **Maximum                Number of****Shares                that May****Yet                be Purchased****Under                the Program****(1)** |
|-------------------------------|--------------------------------------------------------|-------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| July                2005      | ―                                                | $―                                                          | ―                                                                                                                                         | 129,493                                                                                                                                              |
| August                2005    | ―                                                | ―                                                           | ―                                                                                                                                         | 129,493                                                                                                                                              |
| September                2005 | ―                                                | ―                                                           | ―                                                                                                                                         | 129,493                                                                                                                                              |
| Total                         | ―                                                | $―                                                          | ―                                                                                                                                         |                                                                                                                                                 |

 

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**ITEM 6.      EXHIBITS**

 

The      following exhibits are filed herewith or incorporated by reference as indicated      below:

 

| **ExhibitNumber** | **Description                of Exhibit**                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |
| 3.0               | Certificate                of Restatement of Articles of Incorporation of American Realty Investors,                Inc. dated August 3, 2000 (incorporated by reference to Exhibit 3.0                to the                Registrant’s Quarterly Report on Form 10-Q for the quarter ended September                30, 2000).                                                                                                                                                                 |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.1               | Certificate                of Correction of Restated Articles of Incorporation of American Realty                Investors, Inc. dated August 29, 2000 (incorporated by reference                to                Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q dated September                30, 2000).                                                                                                                                                                            |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.2               | Articles                of Amendment to the Restated Articles of Incorporation of American                Realty                Investors, Inc. decreasing the number of authorized shares of and                eliminating Series B Cumulative Convertible Preferred Stock dated                August                23, 2003 (incorporated by reference to Exhibit 3.3 to Registrant’s                Quarterly Report on Form 10-Q for the quarter ended September 30,                2003). |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.3               | Articles                of Amendment to the Restated Articles of Incorporation of American                Realty                Investors, Inc., decreasing the number of authorized shares of and                eliminating Series I Cumulative Preferred Stock dated October 1,                2003                (incorporated by reference to Exhibit 3.4 to Registrant’s Quarterly Report                on Form 10-Q for the quarter ended September 30, 2003).                           |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.4               | Bylaws                of American Realty Investors, Inc. (incorporated by reference to                Exhibit                3.2 to Registrant’s Registration Statement on Form S-4 filed December 30,                1999).                                                                                                                                                                                                                                                                      |
|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 31.1*             | Certification                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.                                                                                                                                                                                                                                                                                                                                                                                                                                                |

                                                     

 

*Filed      herewith

 

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**SIGNATURE      PAGE**

|   |  AMERICAN                REALTY INVESTORS, INC. |
|--------|------------------------------------------------------|
|   |                                                 |   |   |
| Date:  | November                14, 2005                     | By: | /s/                Steven A. Abney     |
|   |                                                 |   | Steven                A. Abney |
|   |                                                 |   | Executive                Vice President and Chief Financial Officer |
|   |                                                 |   | (Principal                Financial and Accounting Officer and |
|   |                                                 |   | Acting                Principal Executive Officer) |
|   |                                                 |   |   |

 

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**AMERICAN      REALTY INVESTORS, INC.**

**EXHIBITS      TO **

**QUARTERLY      REPORT ON FORM 10-Q **

**For      the Quarter Ended September 30, 2005 **

| **Exhibit****Number** | **Description                of Exhibits**                                                                                                           |
|-----------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                                                 |
| 31.1*                 | Certification                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.                                                                                             |
|                  |                                                                                                                                                 |