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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**                                                                                    |                                                                      |
|                                                                                                | **(Registrant’s                telephone number, including area code)**                                        |                                                                      |
|                                                                                                |                                                                                                                 |                                                                      |
|                                                                                                | **(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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**AMENDMENT      NO. 1 TO**

**QUARTERLY      REPORT ON FORM 10-Q FOR**

**AMERICAN      REALTY INVESTORS, INC.**

**FOR      THE QUARTER ENDED SEPTEMBER 30, 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 |   |

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**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       |   |                                      | 114       |                                    |   | 114 |   |
| 2004                                                                                                                                  |   |                                      |      |                                    |   |   |   |
| 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 |   |

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**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 | ) |

----

**AMERICAN            REALTY INVESTORS, INC.**

**NOTES            TO CONSOLIDATED FINANCIAL STATEMENTS**

| **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                  |                 | — |   | — |   |

----

| **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 |   |

(9)        Dissolved 50% Tenant-in-Common interest in the Payne land, resulting in ARI’s        ownership of 149.7 gross acres, plus purchasing an additional 30.4 acres        for        $1.0 million.  Resulting  total net average of 180.1        acres. 

 

| **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 |
|                                      |                              |                                                       |                  |                                               |                 |                 |                 |   |   |   |

----

(1)        Initial construction loan funding to purchase land and begin apartment        construction.  Does not represent actual units purchased.

|   **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 |   |
|                                     |                           |                                       |               |                                    |                   |                               |   |   |   |

| (1)   | Debt              assumed by purchaser. |
|-----------------|-----------------------------------------|

(3)        Sold        to Basic Capital Management, Inc. (“BCM”), a related party, for assumption of        debt and a note receivable.  Gain deferred until sale to unrelated        party.  Failure to notify and receive approval from the lender for        this        transaction may constitute an event of default under the terms of the        debt.

(4) Includes        a $1,971 deposit received in February 2004.

| **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 |

                                       <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office"        />

----

*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** |   |
| Segment                operating income (loss)              |   | $                                        | 2,577   |                                     | $      | (5,543 | ) | $ | 20,680 |   | $ | (17,945 | ) |
| 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.      *

----

**PART      II. OTHER INFORMATION**

**ITEM 6.      EXHIBITS**

| **Exhibit****Number** | **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.                                                                                                                                                                                                                                                                                                                                                                                                                                                |

----

**SIGNATURE      PAGE**

|   |  AMERICAN                REALTY INVESTORS, INC. |
|--------|------------------------------------------------------|
|   |                                                 |   |   |
| Date:  | November                18, 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) |
|   |                                                 |   |   |

----

**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.                                                                                             |
|                  |                                                                                                                                                 |

----