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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



| |  |           |  | 
| |  | --------- |  | 
| |  | FORM 10-Q |  | 



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

For the quarterly period ended March 31, 2009

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 001-09240





TRANSCONTINENTAL REALTY
INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 94-6565852                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)

1800 Valley View Lane, Suite 300, Dallas, Texas 75234

(Address of principal executive offices)

(Zip
Code)

(469) 522-4200

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    xYes     ̈No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*

 ̈Yes      ̈No

* The registrant has not yet been phased into the interactive data requirements

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

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

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

Indicate the
number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable date.

|                             |  |                                
|---------------------------- |  | -------------------------------
|Common Stock, $.01 par value |  | 8,113,669                      
|(Class)                      |  | (Outstanding at April 30, 2009)









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##### Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

FORM 10-Q

TABLE OF CONTENTS



|           |  |                                                                                                               |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                               |  | PAGE
|PART I.    |  | FINANCIAL INFORMATION                                                                                         |  |     
|           |  |                                                                                                              
|Item 1.    |  | Financial Statements                                                                                          |  |     
|           |  | Consolidated Balance Sheets at March 31, 2009 (unaudited) and December 31, 2008                               |  | 3   
|           |  | Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008
(unaudited)          |  | 4   
|           |  | Consolidated Statement of Shareholders Equity for the three months ended March 31, 2009
(unaudited)          |  | 5   
|           |  | Consolidated Statement of Comprehensive Income for the three months ended March 31, 2009 and 2008
(unaudited) |  | 6   
|           |  | Consolidated Statements of Cash Flows the three months ended March 31, 2009 and 2008 (unaudited)              |  | 7   
|           |  | Notes to Consolidated Financial Statements                                                                    |  | 8   
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 15  
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 22  
|Item 4T.   |  | Controls and Procedures                                                                                       |  | 23  
|           |  |                                                                                                              
|PART II.   |  | OTHER INFORMATION                                                                                             |  |     
|           |  |                                                                                                              
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 24  
|Item 6.    |  | Exhibits                                                                                                      |  | 25  
|SIGNATURES |  | 26                                                                                                           



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | --------- | ---------------- | - | ---------
|                                                                                                                                                                                                                                                                                               |  | March 31,2009                                              |           | December 31,2008
|                                                                                                                                                                                                                                                                                               |  | (dollars in thousands, except share and par value amounts)
|Assets                                                                                                                                                                                                                                                                                         |  |                                                            |           |                  |   |          
|Real estate, at cost                                                                                                                                                                                                                                                                           |  | $                                                          | 1,531,183 |                  | $ | 1,526,016
|Real estate held for sale, at cost net of depreciation ($384 for 2009 and $0 for 2008)                                                                                                                                                                                                         |  |                                                            | 4,291     |                  |   | 8,018    
|Real estate subject to sales contracts, at cost net of depreciation ($12,666 for 2009 and $12,226 for 2008)                                                                                                                                                                                    |  |                                                            | 60,367    |                  |   | 60,807   
|Less accumulated depreciation                                                                                                                                                                                                                                                                  |  |                                                            | (120,553) |                  |   | (114,050)
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total real estate                                                                                                                                                                                                                                                                              |  |                                                            | 1,475,288 |                  |   | 1,480,791
|Notes and interest receivable                                                                                                                                                                                                                                                                  |  |                                                            |           |                  |   |          
|Performing (including $15,478 in 2009 and $17,323 in 2008 from affiliates and related parties)                                                                                                                                                                                                 |  |                                                            | 34,896    |                  |   | 42,413   
|Less allowance for estimated losses                                                                                                                                                                                                                                                            |  |                                                            | (988)     |                  |   | (3,293)  
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total notes and interest receivable                                                                                                                                                                                                                                                            |  |                                                            | 33,908    |                  |   | 39,120   
|Cash and cash equivalents                                                                                                                                                                                                                                                                      |  |                                                            | 2,150     |                  |   | 5,983    
|Investments in securities                                                                                                                                                                                                                                                                      |  |                                                            | -         |                  |   | 2,775    
|Investments in unconsolidated subsidiaries and investees                                                                                                                                                                                                                                       |  |                                                            | 23,446    |                  |   | 23,365   
|Other assets (including $1,901 in 2009 and $1,077 in 2008 from affiliates and related parties)                                                                                                                                                                                                 |  |                                                            | 81,684    |                  |   | 88,033   
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total assets                                                                                                                                                                                                                                                                                   |  | $                                                          | 1,616,476 |                  | $ | 1,640,067
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Liabilities and Shareholders Equity                                                                                                                                                                                                                                                           |  |                                                            |           |                  |   |          
|Liabilities:                                                                                                                                                                                                                                                                                   |  |                                                            |           |                  |   |          
|Notes and interest payable (including $9,244 in 2009 and $9,103 in 2008 to affiliates and related parties)                                                                                                                                                                                     |  | $                                                          | 1,106,715 |                  | $ | 1,100,852
|Notes related to assets held-for-sale                                                                                                                                                                                                                                                          |  |                                                            | 993       |                  |   | 4,191    
|Notes related to subject to sales contracts                                                                                                                                                                                                                                                    |  |                                                            | 62,287    |                  |   | 62,972   
|Accounts payable and other liabilities (including $64,939 in 2009 and $62,367 in 2008 to affiliates and related parties)                                                                                                                                                                       |  |                                                            | 135,535   |                  |   | 147,356  
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|                                                                                                                                                                                                                                                                                               |  |                                                            | 1,305,530 |                  |   | 1,315,371
|Commitments and contingencies:                                                                                                                                                                                                                                                                 |  |                                                            |           |                  |   |          
|Shareholders equity:                                                                                                                                                                                                                                                                          |  |                                                            |           |                  |   |          
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Preferred Stock, Series C: $.01 par value, authorized 10,000,000 shares, issued and outstanding 30,000 shares in 2009 and 2008 respectively
(liquidation preference $100 per share). Series D: $.01 par value, authorized, issued and outstanding 100,000 shares in 2009 and 2008 respectively |  |                                                            | 1         |                  |   | 1        
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Common Stock, $.01 par value, authorized 10,000,000 shares; issued and outstanding 8,113,669 for 2009 and 2008                                                                                                                                                                                 |  |                                                            | 81        |                  |   | 81       
|Paid-in capital                                                                                                                                                                                                                                                                                |  |                                                            | 262,983   |                  |   | 263,290  
|Retained earnings                                                                                                                                                                                                                                                                              |  |                                                            | 34,221    |                  |   | 44,980   
|Accumulated other comprehensive income                                                                                                                                                                                                                                                         |  |                                                            | -         |                  |   | 2,575    
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total Transcontinental Realty Investors, Inc. shareholders equity                                                                                                                                                                                                                             |  |                                                            | 297,286   |                  |   | 310,927  
|Non-controlling interest                                                                                                                                                                                                                                                                       |  |                                                            | 13,660    |                  |   | 13,769   
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total equity                                                                                                                                                                                                                                                                                   |  |                                                            | 310,946   |                  |   | 324,696  
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          
|Total liabilities and equity                                                                                                                                                                                                                                                                   |  | $                                                          | 1,616,476 |                  | $ | 1,640,067
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |                  |   |          

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



3



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##### Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                                               |  |                                                            |           |      |   |          
|------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------- | --------- | ---- | - | ---------
|                                                                                                                               |  | For the Three Months Ended March 31,                      
|                                                                                                                               |  | 2009                                                       |           | 2008
|                                                                                                                               |  | (dollars in thousands, except share and per share amounts)
|Revenues:                                                                                                                      |  |                                                            |           |      |   |          
|Rental and other property revenues (including $838 and $603 in 2009 and 2008 respectively from affiliates and related parties) |  | $                                                          | 37,371    |      | $ | 32,647   
|                                                                                                                               |  |                                                           
|Expenses:                                                                                                                      |  |                                                            |           |      |   |          
|Property operating expenses (including $1,802 and $1,741 in 2009 and 2008 respectively from affiliates and related parties)    |  |                                                            | 24,072    |      |   | 21,938   
|Depreciation and amortization                                                                                                  |  |                                                            | 7,308     |      |   | 5,932    
|General and administrative (including $880 and $1,036 in 2009 and 2008 respectively from affiliates and related parties)       |  |                                                            | 1,563     |      |   | 2,403    
|Advisory fee to affiliate                                                                                                      |  |                                                            | 2,857     |      |   | 2,997    
|                                                                                                                               |  |                                                            |           |      |   |          
|Total operating expenses                                                                                                       |  |                                                            | 35,800    |      |   | 33,270   
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Operating income (loss)                                                                                                        |  |                                                            | 1,571     |      |   | (623)    
|                                                                                                                               |  |                                                           
|Other income (expense):                                                                                                        |  |                                                            |           |      |   |          
|Interest income (including $153 and $295 in 2009 and 2008 respectively from affiliates and related parties)                    |  |                                                            | 636       |      |   | 763      
|Other income (including $313 and $0 in 2009 and 2008 respectively from affiliates and related parties)                         |  |                                                            | 3,906     |      |   | 302      
|Mortgage and loan interest (including $651 and $285 in 2009 and 2008 respectively from affiliates and related parties)         |  |                                                            | (16,629)  |      |   | (17,734) 
|Earnings from unconsolidated subsidiaries and investees                                                                        |  |                                                            | -         |      |   | 5,112    
|Provision for allowance on notes receivable and impairment                                                                     |  |                                                            | (379)     |      |   | (7,000)  
|                                                                                                                               |  |                                                            |           |      |   |          
|Total other expenses                                                                                                           |  |                                                            | (12,466)  |      |   | (18,557) 
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Loss before gain on land sales, non-controlling interest, and tax                                                              |  |                                                            | (10,895)  |      |   | (19,180) 
|Gain (loss) on land sales                                                                                                      |  |                                                            | (251)     |      |   | 1,275    
|                                                                                                                               |  |                                                            |           |      |   |          
|Loss from continuing operations before tax                                                                                     |  |                                                            | (11,146)  |      |   | (17,905) 
|Income tax benefit (expense)                                                                                                   |  |                                                            | (110)     |      |   | 29,836   
|                                                                                                                               |  |                                                            |           |      |   |          
|Net income (loss) from continuing operations                                                                                   |  |                                                            | (11,256)  |      |   | 11,931   
|                                                                                                                               |  |                                                           
|Discontinued operations:                                                                                                       |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Income (loss) from discontinued operations                                                                                     |  |                                                            | 65        |      |   | (12,813) 
|Gain on sale of real estate from discontinued operations                                                                       |  |                                                            | 532       |      |   | 98,059   
|Income tax expense from discontinued operations                                                                                |  |                                                            | (209)     |      |   | (29,836) 
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Net income (loss)                                                                                                              |  |                                                            | (10,868)  |      |   | 67,341   
|                                                                                                                               |  |                                                           
|Less: net income attributable to non-controlling interest                                                                      |  |                                                            | 109       |      |   | -        
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Net income (loss) attributable to Transcontinental Realty Investors, Inc.                                                      |  |                                                            | (10,759)  |      |   | 67,341   
|                                                                                                                               |  |                                                           
|Preferred dividend requirement                                                                                                 |  |                                                            | (250)     |      |   | (240)    
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Net income (loss) applicable to common shares                                                                                  |  | $                                                          | (11,009)  |      | $ | 67,101   
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Earnings per share - basic                                                                                                     |  |                                                            |           |      |   |          
|Income (loss) from continuing operations                                                                                       |  | $                                                          | (1.42)    |      | $ | 1.45     
|Discontinued operations                                                                                                        |  |                                                            | 0.05      |      |   | 6.86     
|                                                                                                                               |  |                                                            |           |      |   |          
|Net income (loss) applicable to common shares                                                                                  |  | $                                                          | (1.37)    |      | $ | 8.31     
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Earnings per share - diluted                                                                                                   |  |                                                            |           |      |   |          
|Income (loss) from continuing operations                                                                                       |  | $                                                          | (1.42)    |      | $ | 1.41     
|Discontinued operations                                                                                                        |  |                                                            | 0.05      |      |   | 6.66     
|                                                                                                                               |  |                                                            |           |      |   |          
|Net income (loss) applicable to common shares                                                                                  |  | $                                                          | (1.37)    |      | $ | 8.07     
|                                                                                                                               |  |                                                            |           |      |   |          
|                                                                                                                               |  |                                                           
|Weighted average common share used in computing earnings per share                                                             |  |                                                            | 8,113,669 |      |   | 8,075,453
|Weighted average common share used in computing diluted earnings per share                                                     |  |                                                            | 8,113,669 |      |   | 8,311,693
|                                                                                                                               |  |                                                           
|Amounts attributable to Transcontinental Realty Investors, Inc.                                                                |  |                                                            |           |      |   |          
|Income (loss) from continuing operations                                                                                       |  | $                                                          | (11,147)  |      | $ | 11,931   
|Income from discontinued operations                                                                                            |  |                                                            | 388       |      |   | 55,410   
|                                                                                                                               |  |                                                            |           |      |   |          
|Net income (loss)                                                                                                              |  | $                                                          | (10,759)  |      | $ | 67,341   
|                                                                                                                               |  |                                                            |           |      |   |          

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



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

For the Three Months Ended March 31, 2009

(unaudited)

(dollars in thousands)



|                                                 |  |       |          |                   |   |                |  |              |   |                |           |                  |   |                               |  |                 |         |  |   |          |  |   |         |  |   |        | 
|------------------------------------------------ |  | ----- | -------- | ----------------- | - | -------------- |  | ------------ | - | -------------- | --------- | ---------------- | - | ----------------------------- |  | --------------- | ------- |  | - | -------- |  | - | ------- |  | - | ------ | 
|                                                 |  | Total |          | ComprehensiveLoss |   | PreferredStock |  | Common Stock |   | Paid-inCapital |           | RetainedEarnings |   | AccumulatedOtherComprehensive |  | Non-Controlling |        
|                                                 |  |       |          | Shares            |   | Amount         |  |              |   | Income (Loss)  |           | Interest         |  
|                                                 |  |       |          |                  
|Balance, December 31, 2008                       |  | $     | 324,696  |                   | $ | -              |  | $            | 1 |                | 8,113,669 |                  | $ | 81                            |  | $               | 263,290 |  | $ | 44,980   |  | $ | 2,575   |  | $ | 13,769 | 
|Unrealized loss on investment securities         |  |       | (2,575)  |                   |   | (2,575)        |  |              | - |                | -         |                  |   | -                             |  |                 | -       |  |   | -        |  |   | (2,575) |  |   | -      | 
|Series D preferred stock dividends (7% per year) |  |       | (53)     |                   |   | -              |  |              | - |                | -         |                  |   | -                             |  |                 | (53)    |  |   | -        |  |   | -       |  |   | -      | 
|Series C preferred stock dividends               |  |       | (197)    |                   |   | -              |  |              | - |                | -         |                  |   | -                             |  |                 | (197)   |  |   | -        |  |   | -       |  |   | -      | 
|Net income (loss)                                |  |       | (10,868) |                   |   | (10,868)       |  |              | - |                | -         |                  |   | -                             |  |                 | -       |  |   | (10,759) |  |   | -       |  |   | (109)  | 
|Acquisition of non-controlling interest          |  |       | (57)     |                   |   | -              |  |              | - |                | -         |                  |   | -                             |  |                 | (57)    |  |   | -        |  |   | -       |  |   | -      | 
|                                                 |  |       |          |                   |   |                |  |              |   |                |           |                  |   |                               |  |                 |         |  |   |          |  |   |         |  |   |        | 
|Comprehensive income                             |  |       |          |                   | $ | (13,443)       |  |              |   |                |           |                  |   |                               |  |                 |         |  |   |          |  |   |         |  |   |        | 
|                                                 |  |       |          |                  
|                                                 |  |       |          |                   |   |                |  |              |   |                |           |                  |   |                               |  |                 |         |  |   |          |  |   |         |  |   |        | 
|Balance, March 31, 2009                          |  | $     | 310,946  |                   |   |                |  | $            | 1 |                | 8,113,669 |                  | $ | 81                            |  | $               | 262,983 |  | $ | 34,221   |  | $ | -       |  | $ | 13,660 | 
|                                                 |  |       |          |                   |   |                |  |              |   |               

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



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

For the Three Months Ended March 31, 2009

(unaudited)



|                                                                                    |  |      |          |      |   |        
|----------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------
|                                                                                    |  | 2009 |          | 2008
|Net income (loss)                                                                   |  | $    | (10,868) |      | $ | 67,341 
|Other comprehensive income                                                          |  |      |          |      |   |        
|Unrealized gain on foreign currency translation                                     |  |      | -        |      |   | 9,685  
|Unrealized loss on investment securities                                            |  |      | (2,575)  |      |   | (6,952)
|                                                                                    |  |      |          |      |   |        
|Total other comprehensive income (loss)                                             |  |      | (2,575)  |      |   | 2,733  
|                                                                                    |  |      |          |      |   |        
|Comprehensive income (loss)                                                         |  |      | (13,443) |      |   | 70,074 
|Comprehensive loss attributable to non-controlling interest                         |  |      | 109      |      |   | -      
|                                                                                    |  |      |          |      |   |        
|Comprehensive income (loss) attributable to Transcontinental Realty Investors, Inc. |  | $    | (13,334) |      | $ | 70,074 
|                                                                                    |  |      |          |      |   |        

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



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                                        |  |                                      |          |      |   |          
|------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------- | ---- | - | ---------
|                                                                                                        |  | For the Three Months Ended March 31,
|                                                                                                        |  | 2009                                 |          | 2008
|                                                                                                        |  | (dollars in thousands)              
|Cash Flow From Operating Activities:                                                                    |  |                                      |          |      |   |          
|Net income applicable to common shares                                                                  |  | $                                    | (11,009) |      | $ | 67,101   
|Adjustments to reconcile net loss applicable to common shares to net cash used in operating activities: |  |                                      |          |      |   |          
|(Gain) loss on sale of land                                                                             |  |                                      | 251      |      |   | (1,275)  
|Depreciation and amortization                                                                           |  |                                      | 7,330    |      |   | 6,164    
|Provision for allowance of notes receivable and impairment                                              |  |                                      | 379      |      |   | 7,000    
|Amortization of deferred borrowing costs                                                                |  |                                      | 1,017    |      |   | 2,403    
|Earnings from unconsolidated subsidiaries and investees                                                 |  |                                      | -        |      |   | (5,112)  
|Gain on sale of income producing properties                                                             |  |                                      | (532)    |      |   | (98,059) 
|(Increase) decrease in assets:                                                                          |  |                                      |          |      |   |          
|Accrued interest receivable                                                                             |  |                                      | 425      |      |   | (329)    
|Other assets                                                                                            |  |                                      | (3,714)  |      |   | 607      
|Prepaid expense                                                                                         |  |                                      | 177      |      |   | 6        
|Escrow                                                                                                  |  |                                      | 13,728   |      |   | 1,287    
|Earnest money                                                                                           |  |                                      | (185)    |      |   | (3,918)  
|Rent receivables                                                                                        |  |                                      | (3,490)  |      |   | (951)    
|Increase (decrease) in liabilities:                                                                     |  |                                      |          |      |   |          
|Accrued interest payable                                                                                |  |                                      | (805)    |      |   | (1,101)  
|Intercompany change                                                                                     |  |                                      | (1,332)  |      |   | (7,275)  
|Other liabilities                                                                                       |  |                                      | (10,489) |      |   | 2,485    
|                                                                                                        |  |                                      |          |      |   |          
|Net cash used in operating activities                                                                   |  |                                      | (8,249)  |      |   | (30,967) 
|                                                                                                        |  |                                     
|Cash Flow From Investing Activities:                                                                    |  |                                      |          |      |   |          
|                                                                                                        |  |                                     
|Proceeds from notes receivables ($3,077 in 2009, $0 in 2008 from affiliates)                            |  |                                      | 5,212    |      |   | 2,270    
|Acquisition of land held for development                                                                |  |                                      | (650)    |      |   | (12,023) 
|Proceeds from sales of income producing properties                                                      |  |                                      | -        |      |   | 135,583  
|Proceeds from sale of land                                                                              |  |                                      | 5,893    |      |   | 2,873    
|Investment in unconsolidated real estate entities                                                       |  |                                      | (81)     |      |   | (8,272)  
|Improvement of land held for development                                                                |  |                                      | (376)    |      |   | -        
|Improvement of income producing properties                                                              |  |                                      | (469)    |      |   | (2,036)  
|Acquisition of minority interest                                                                        |  |                                      | (109)    |      |   | 762      
|Construction and development of new properties                                                          |  |                                      | (8,039)  |      |   | (32,109) 
|                                                                                                        |  |                                      |          |      |   |          
|Net cash provided by investing activities                                                               |  |                                      | 1,381    |      |   | 87,048   
|                                                                                                        |  |                                     
|Cash Flow From Financing Activities:                                                                    |  |                                      |          |      |   |          
|                                                                                                        |  |                                     
|Proceeds from notes payable                                                                             |  |                                      | 11,007   |      |   | 52,197   
|Recurring amortization of principal on notes payable                                                    |  |                                      | (4,637)  |      |   | (4,217)  
|Payments on maturing notes payable                                                                      |  |                                      | (3,585)  |      |   | (109,210)
|Deferred financing costs                                                                                |  |                                      | 250      |      |   | 1,986    
|Repurchase/sale of treasury stock                                                                       |  |                                      | -        |      |   | (65)     
|                                                                                                        |  |                                      |          |      |   |          
|Net cash provided by (used in) financing activities                                                     |  |                                      | 3,035    |      |   | (59,309) 
|                                                                                                        |  |                                      |          |      |   |          
|                                                                                                        |  |                                     
|Net decrease in cash and cash equivalents                                                               |  |                                      | (3,833)  |      |   | (3,228)  
|Cash and cash equivalents, beginning of period                                                          |  |                                      | 5,983    |      |   | 11,239   
|                                                                                                        |  |                                      |          |      |   |          
|Cash and cash equivalents, end of period                                                                |  | $                                    | 2,150    |      | $ | 8,011    
|                                                                                                        |  |                                      |          |      |   |          
|                                                                                                        |  |                                     
|Supplemental disclosures of cash flow information:                                                      |  |                                      |          |      |   |          
|Cash paid for interest                                                                                  |  | $                                    | 17,445   |      | $ | 21,838   
|Cash paid for income taxes, net of refunds                                                              |  | $                                    | 997      |      | $ | -        
|                                                                                                        |  |                                     
|Schedule of noncash investing and financing activities:                                                 |  |                                      |          |      |   |          
|Unrealized foreign currency translation gain                                                            |  | $                                    | -        |      | $ | 9,685    
|Unrealized loss on marketable securities                                                                |  | $                                    | (2,575)  |      | $ | (6,952)  
|Note receivable allowance                                                                               |  | $                                    | -        |      | $ | (1,500)  
|Notes receivable received from affiliates                                                               |  | $                                    | 2,341    |      | $ | -        

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



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Transcontinental
Realty Investors, Inc. (TCI, We, The Company, Our or Us) is a Nevada corporation and invests in real estate through direct ownership, leases and partnerships.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange under the symbol TCI. Subsidiaries of American
Realty Investors, Inc. own approximately 83.0% of the Companys common stock (NYSE: ARL). Prime Income Asset Management, LLC (Prime) is the Companys external advisor. Regis Realty I, LLC, an affiliate of Prime, manages the
Companys commercial properties. Regis Hotel I, LLC, another Prime affiliate, manages the Companys hotel investments. TCI engages four third-party companies to lease and manage its apartment properties. TCI is a C Corporation
for U.S. federal income tax purposes and files an annual consolidated income tax return with ARL. TCI does not qualify as a Real Estate Investment Trust (REIT) for federal income tax purposes primarily due to ARLs majority
ownership of the Company.

Properties

The Company
owned or had interests in a total property portfolio of 86 properties as of March 31, 2009. The properties consisted of:



| |  |  | 30 commercial buildings totaling 5.2 million leasable square feet, which consists of 18 office buildings, eight commercial warehouses, and four retail centers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 56 apartment communities totaling 11,282 units; inclusive of two development properties in the lease up phase, excluding apartments being developed; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 7,278 acres of developed and undeveloped land.
| | - |  | ----------------------------------------------

The
Company is involved in the construction of two apartment development projects as of March 31, 2009. In addition, the Company invests in several tracts of land and is at several stages of predevelopment on many of these properties. The Company
partners with various third-party developers to construct residential projects. The third-party developer typically takes a general partner interest in the development partnership while the Company takes a limited partner (and majority) interest.
The Company is required to fund the equity contributions. The third-party developer is responsible for obtaining financing, hiring a general contractor and for the overall management and delivery of the project, and is compensated with a fee equal
to a certain percentage of the construction costs.

The accompanying interim financial statements are unaudited; however, the financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the
financial statements for these periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. The year end
consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in
conjunction with the Companys financial statement and notes thereto contained in the Companys Annual Report on Form 10-K for its fiscal year ended December 31, 2008.

Newly issued accounting standards

On January 1, 2009, we adopted SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB No. 51, (SFAS No. 160). SFAS No. 160 amends Accounting Research Bulletin No. 51, Consolidated Financial Statements,
to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard defines a non-controlling interest, previously called a minority interest, as the portion of
equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS No.160 requires, among other items, that a non-controlling interest be included in the consolidated statement of financial position within equity separate from the
parents equity; consolidated net income to be reported at amounts inclusive of both the parents and non-controlling interests shares and, separately, the amounts of consolidated net income attributable to the parent and
non-controlling interest all on the consolidated statement of operations; and if a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in
net income based on such fair value. The presentation and disclosure requirements of SFAS No. 160 were applied retrospectively. Other than the change in presentation of non-controlling interests, the adoption of SFAS No. 160 had no impact
on the Financial Statements.



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In April 2009, the FASB issued FSP FAS No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies (FSP FAS No. 141(R)-1). This pronouncement amends SFAS No. 141-R to clarify the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. FSP SFAS No. 141(R)-1 requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as determined in accordance
with SFAS No. 157, if the acquisition-date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be
recognized in accordance with FASB Statement No. 5, Accounting for Contingencies (SFAS No. 5), and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. FSP SFAS No. 141(R)-1 became
effective for the Registrants as of January 1, 2009. As the provisions of FSP FAS No. 141(R)-1 are applied prospectively to business combinations with an acquisition date on or after the guidance became effective, the impact on our
financials cannot be determined until the transactions occur.

In April 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS No. 157-4), which provides additional guidance for applying the provisions of SFAS
No. 157. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This FSP requires an
evaluation of whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. If there has, transactions or quoted prices may not be
indicative of fair value and a significant adjustment may need to be made to those prices to estimate fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the
transaction was orderly, the obtained price can be considered a relevant observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value. FSP FAS No. 157-4 must
be applied prospectively for interim periods ending after June 15, 2009. We are currently assessing the impact that FSP FAS No. 157-4 may have on our financial statements.

In April 2009, the FASB issued FSP FAS No. 107-1 and Accounting Principles Board (APB) No. 28-1, Interim Disclosures about Fair Value of Financial Instruments, which amends SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, (SFAS No. 107) and APB Opinion No. 28, Interim Financial Reporting, respectively, to require disclosures about fair value of financial instruments in interim
financial statements, in addition to the annual financial statements as already required by SFAS No. 107. FSP FAS No. 107-1 and APB No. 28-1 will be required for interim periods ending after June 15, 2009. As FSP FAS
No. 107-1 and APB No. 28-1 provides only disclosure requirements; the application of this standard will not have a material impact on our financial statements.

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS No. 115-2 and FAS No. 124-2), which amends
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities and SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations. This standard establishes a different
other-than-temporary impairment indicator for debt securities than previously prescribed. If it is more likely than not that an impaired security will be sold before the recovery of its cost basis, either due to the investors intent to sell or
because it will be required to sell the security, the entire impairment is recognized in earnings. Otherwise, only the portion of the impaired debt security related to estimated credit losses is recognized in earnings, while the remainder of the
impairment is recorded in other comprehensive income and recognized over the remaining life of the debt security. In addition, the standard expands the presentation and disclosure requirements for other-than-temporary-impairments for both debt and
equity securities. FSP FAS No. 115-2 and FAS No. 124-2 must be applied prospectively for interim periods ending after June 15, 2009. We are currently assessing the impact that FSP FAS No. 115-2 and FAS No. 124-2 may have on
our financial statements.

NOTE 2. REAL ESTATE ACTIVITY

The highlights of our significant real estate transactions for the three months ended March 31, 2009 are listed below:

In January, we sold
9.3 acres of land known as Woodmont Schiff-Park Forest land for a sales price of $7.7 million. We received $3.9 in cash after paying off the existing note of $3.2 million, closing costs and commissions. In addition, we booked a $2.1 million
receivable. There was no gain or loss on the sale of the property.

We continued to invest in the development of apartment projects. For the three months
ended March 31, 2009, we have expended $7.4 million on the construction of various apartment projects and capitalized $1.9 million of interest costs.



9



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NOTE 3. NOTES AND INTEREST RECEIVABLE

Our receivables as of March 31, 2009 are listed below (dollars in thousands).



|                                      |  |              |  |               |  |        |        |          |                                             
|------------------------------------- |  | ------------ |  | ------------- |  | ------ | ------ | -------- | --------------------------------------------
|Borrower                              |  | MaturityDate |  | Interest Rate |  | Amount |        | Security
|                                     
|Performing loans:                     |  |              |  |               |  |        |        |          |                                             
|3334Z APTS, LP                        |  | 04/12        |  | 6.50%         |  | $      | 1,875  |          | 100% Interest in 3334Z Apartments           
|Basic Capital Management(1)           |  | 10/11        |  | 7.00%         |  |        | 1,253  |          | Industrial building, Arlington, TX          
|Basic Capital Management(1)           |  | 10/11        |  | 7.00%         |  |        | 1,523  |          | Retail building, Cary, NC                   
|CTMGT Travis Ranch, LLC               |  | 08/14        |  | 6.00%         |  |        | 5,461  |          | Unsecured                                   
|Dallas Fund XVII LP                   |  | 10/09        |  | 9.00%         |  |        | 5,724  |          | Assignment of partnership interests         
|Garden Centura LP(1)                  |  | N/A          |  | 7.00%         |  |        | 4,130  |          | Excess cash flow from partnership           
|Miscellaneous related party notes(1)  |  | Various      |  | Various       |  |        | 1,431  |          | Various secured interest                    
|Miscellaneous non-related party notes |  | Various      |  | Various       |  |        | 380    |          | Various secured interest                    
|Pioneer Austin Development            |  | 10/13        |  | 10.00%        |  |        | 2,407  |          | 33 acres undeveloped land, Austin, TX       
|Syntek Acquisition Corp(1)            |  | 08/10        |  | Prime +1.00%  |  |        | 3,354  |          | Unsecured                                   
|Ocean Beach Partners(1)               |  | 12/09        |  | 7.00%         |  |        | 3,279  |          | Folsom Land (36 acres in Farmers Branch, TX)
|Thornwood Wrap Note, ICC Surfwood     |  | 07/09        |  | 7.50%         |  |        | 1,638  |          | Unsecured                                   
|Accrued interest                      |  |              |  |               |  |        | 2,441  |          |                                             
|Allowance for estimated losses        |  |              |  |               |  |        | (988)  |          |                                             
|                                      |  |              |  |               |  |        |        |          |                                             
|                                      |  |              |  |              
|Total                                 |  |              |  |               |  | $      | 33,908 |          |                                             
|                                      |  |              |  |               |  |        |        |          |                                             

(1)Related Party

NOTE 4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES AND INVESTEES

Investments in unconsolidated subsidiaries, jointly owned companies and other investees in which we have a 20% to 50% interest or otherwise exercise
significant influence are carried at cost, adjusted for the Companys proportionate share of their undistributed earnings or losses, via the equity method of accounting. American Realty Investors, Inc. (ARL) is our parent company.
Income Opportunity Investors, Inc. (IOT) is a related entity. Both ARL and IOT are considered unconsolidated subsidiaries.

Investments
accounted for via the equity method consists of the following:



|                                      |  |                                    |  | 
|------------------------------------- |  | ---------------------------------- |  | 
|Investee                              |  | Percent ownershipat March 31, 2009 |  | 
|American Realty Investors, Inc.(1)    |  | 3%                                 | 
|Income Opportunity Investors, Inc.(1) |  | 25%                                | 
|Garden Centura                        |  | 5%                                 | 
|                                     
|(1)Unconsolidated subsidiary          |  |                                    |  | 

Our interest in the common stock of ARL and our partnership interest in Garden Centura, LLP in the amount of 3%
and 5%, respectively are accounted for under the equity method because we exercise significant influence over the operations and financial activities. Accordingly, the investments are carried at cost, adjusted for the companies proportionate
share of earnings or losses.

The market values, other than unconsolidated subsidiaries, as of the quarter ended March 31, 2009 and 2008 were not
determinable as there were no readily traded markets for these entities.



10



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##### Table of Contents

The following is a summary of the financial position and results of operations from our unconsolidated subsidiaries and
investees for the three months ended March 31, 2009 and 2008 (dollars in thousands):



|                                             |  |                            |           |                |   |          |  |   |          
|-------------------------------------------- |  | -------------------------- | --------- | -------------- | - | -------- |  | - | ---------
|For the three months ended March 31, 2009    |  | UnconsolidatedSubsidiaries |           | OtherInvestees |   | Total   
|Real estate, net of accumulated depreciation |  | $                          | 271,942   |                | $ | 79,059   |  | $ | 351,001  
|Notes receivable                             |  |                            | 79,356    |                |   | -        |  |   | 79,356   
|Other assets                                 |  |                            | 224,439   |                |   | 5,950    |  |   | 230,389  
|Notes payable                                |  |                            | (269,821) |                |   | (50,096) |  |   | (319,917)
|Other liabilities                            |  |                            | (119,745) |                |   | (1,759)  |  |   | (121,504)
|Shareholders equity/partners capital         |  | $                          | (186,171) |                | $ | (33,154) |  | $ | (219,325)
|                                             |  |                            |           |                |   |          |  |   |          
|                                             |  |                            |          
|Rents and interest and other income          |  | $                          | 13,095    |                | $ | 2,509    |  | $ | 15,604   
|Depreciation                                 |  |                            | (551)     |                |   | (716)    |  |   | (1,267)  
|Operating expenses                           |  |                            | (11,561)  |                |   | (1,103)  |  |   | (12,664) 
|Gain on land sales                           |  |                            | 420       |                |   | -        |  |   | 420      
|Interest expense                             |  |                            | (5,114)   |                |   | (648)    |  |   | (5,762)  
|                                             |  |                            |           |                |   |          |  |   |          
|Income from continuing operations            |  |                            | (3,711)   |                |   | 42       |  |   | (3,669)  
|Income from discontinued operations          |  |                            | 4,256     |                |   | -        |  |   | 4,256    
|                                             |  |                            |           |                |   |          |  |   |          
|Net income                                   |  | $                          | 545       |                | $ | 42       |  | $ | 587      
|                                             |  |                            |           |                |   |          |  |   |          
|                                             |  |                            |          
|                                             |  |                            |           |                |   |          |  |   |          
|Companys proportionate share of earnings     |  | $                          | (69)      |                | $ | 2        |  | $ | (67)     
|                                             |  |                            |           |                |   |          |  |   |          
|                                             |  |                            |          
|For the three months ended March 31, 2008    |  | UnconsolidatedSubsidiaries |           | OtherInvestees |   | Total   
|Real estate, net of accumulated depreciation |  | $                          | 250,866   |                | $ | 80,803   |  | $ | 331,669  
|Notes receivable                             |  |                            | 76,582    |                |   | -        |  |   | 76,582   
|Other assets                                 |  |                            | 253,249   |                |   | 5,941    |  |   | 259,190  
|Notes payable                                |  |                            | (274,637) |                |   | (52,058) |  |   | (326,695)
|Other liabilities                            |  |                            | (117,518) |                |   | (1,554)  |  |   | (119,072)
|Shareholders equity/partners capital         |  | $                          | (188,542) |                | $ | (33,132) |  | $ | (221,674)
|                                             |  |                            |           |                |   |          |  |   |          
|                                             |  |                            |          
|Rents and interest and other income          |  | $                          | 7,387     |                | $ | 2,998    |  | $ | 10,385   
|Depreciation                                 |  |                            | (271)     |                |   | (737)    |  |   | (1,008)  
|Operating expenses                           |  |                            | (11,544)  |                |   | (1,040)  |  |   | (12,584) 
|Gain on land sales                           |  |                            | 39,864    |                |   | -        |  |   | 39,864   
|Interest expense                             |  |                            | (4,717)   |                |   | (696)    |  |   | (5,413)  
|                                             |  |                            |           |                |   |          |  |   |          
|Income from continuing operations            |  |                            | 30,719    |                |   | 525      |  |   | 31,244   
|Income from discontinued operations          |  |                            | (5,582)   |                |   | -        |  |   | (5,582)  
|                                             |  |                            |           |                |   |          |  |   |          
|Net income                                   |  | $                          | 25,137    |                | $ | 525      |  | $ | 25,662   
|                                             |  |                            |           |                |   |          |  |   |          
|                                             |  |                            |          
|                                             |  |                            |           |                |   |          |  |   |          
|Companys proportionate share of earnings     |  | $                          | 5,112     |                | $ | 26       |  | $ | 5,138    
|                                             |  |                            |           |                |   |          |  |   |          

NOTE 5. INVESTMENTS IN SECURITIES

Our investments in securities which consisted of our investment in Realty Korea CR-REIT, Ltd were completely disposed of in the current period.



11



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##### Table of Contents

NOTE 6. RELATED PARTY TRANSACTIONS

The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to affiliates as of March 31, 2009. (dollars in thousands)



|                                           |  |   |         
|------------------------------------------ |  | - | --------
|Balance, December 31, 2008                 |  | $ | (62,367)
|Cash transfers                             |  |   | 22,318  
|Cash repayments                            |  |   | (15,687)
|Fees and commissions payable to affiliates |  |   | (4,870) 
|Advances due to financing proceeds         |  |   | (3,485) 
|Payables through Prime                     |  |   | 392     
|                                           |  |   |         
|Balance, March 31, 2009                    |  | $ | (63,699)
|                                           |  |   |         

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

NOTE 7. NOTES PAYABLE

In conjunction with the development of various apartment projects and other developments, we drew down $7.4 million in construction loans during the
three months ended March 31, 2009.

NOTE 8. OPERATING SEGMENTS

Our segments are based on managements method of internal reporting which classifies its operations by property type. The segments are commercial, apartments, hotels and land. Significant differences between and
among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. The Company evaluates the performance of each of the
operating segments and allocates resources to them based on their operating income and cash flow.

Presented below is the Companys reportable
segments operating income for the three months ended March 31, 2009 and 2008, including segment assets and expenditures: (dollars in thousands)



|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|----------------------------------------- |  | -------------------- | ------- | ---------- | - | ------- |  | ---- | ------ | ----- | - | ------- |  | - | ----- |  | - | ---------
|For the Three Months ended March 31, 2009 |  | CommercialProperties |         | Apartments |   | Hotels  |  | Land |        | Other |   | Total  
|Operating revenue                         |  | $                    | 15,347  |            | $ | 21,879  |  | $    | -      |       | $ | 145     |  | $ | -     |  | $ | 37,371   
|Operating expenses                        |  |                      | 8,052   |            |   | 15,486  |  |      | -      |       |   | 442     |  |   | 92    |  |   | 24,072   
|Depreciation and amortization             |  |                      | 3,013   |            |   | 4,295   |  |      | -      |       |   | -       |  |   | -     |  |   | 7,308    
|Mortgage and loan interest                |  |                      | 3,981   |            |   | 8,847   |  |      | -      |       |   | 3,094   |  |   | 707   |  |   | 16,629   
|Interest income                           |  |                      | -       |            |   | -       |  |      | -      |       |   | -       |  |   | 636   |  |   | 636      
|Loss on land sales                        |  |                      | -       |            |   | -       |  |      | -      |       |   | (251)   |  |   | -     |  |   | (251)    
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Segment operating gain (loss)             |  | $                    | 301     |            | $ | (6,749) |  | $    | -      |       | $ | (3,642) |  | $ | (163) |  | $ | (10,253) 
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Capital expenditures                      |  |                      | 373     |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | 373      
|Assets                                    |  |                      | 270,663 |            |   | 726,779 |  |      | -      |       |   | 413,189 |  |   | -     |  |   | 1,410,631
|                                          |  |                      |         |            |   |        
|Property Sales                            |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Sales price                               |  | $                    | -       |            | $ | -       |  | $    | -      |       | $ | 511     |  | $ | -     |  | $ | 511      
|Cost of sale                              |  |                      | -       |            |   | -       |  |      | -      |       |   | 762     |  |   | -     |  |   | 762      
|Deferred current gain                     |  |                      | 532     |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | 532      
|Recognized prior deferred gain            |  |                      | -       |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | -        
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Gain (loss) on sale                       |  | $                    | 532     |            | $ | -       |  | $    | -      |       | $ | (251)   |  | $ | -     |  | $ | 281      
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|                                          |  |                      |         |            |   |        
|For the Three Months ended March 31, 2008 |  | CommercialProperties |         | Apartments |   | Hotels  |  | Land |        | Other |   | Total  
|Operating revenue                         |  | $                    | 12,886  |            | $ | 19,107  |  | $    | -      |       | $ | 627     |  | $ | 27    |  | $ | 32,647   
|Operating expenses                        |  |                      | 8,865   |            |   | 11,582  |  |      | -      |       |   | 1,570   |  |   | (79)  |  |   | 21,938   
|Depreciation and amortization             |  |                      | 2,613   |            |   | 3,318   |  |      | -      |       |   | 1       |  |   | -     |  |   | 5,932    
|Mortgage and loan interest                |  |                      | 4,379   |            |   | 9,269   |  |      | -      |       |   | 3,102   |  |   | 984   |  |   | 17,734   
|Interest income                           |  |                      | -       |            |   | -       |  |      | -      |       |   | -       |  |   | 763   |  |   | 763      
|Gain on land sales                        |  |                      | -       |            |   | -       |  |      | -      |       |   | 1,275   |  |   | -     |  |   | 1,275    
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Segment operating loss                    |  | $                    | (2,971) |            | $ | (5,062) |  | $    | -      |       | $ | (2,771) |  | $ | (115) |  | $ | (10,919) 
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Capital expenditures                      |  |                      | 1,291   |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | 1,291    
|Assets                                    |  |                      | 296,561 |            |   | 588,631 |  |      | -      |       |   | 364,005 |  |   | -     |  |   | 1,249,197
|                                          |  |                      |         |            |   |        
|Property Sales                            |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Sales price                               |  | $                    | 5,797   |            | $ | 100,227 |  | $    | 41,749 |       | $ | 2,873   |  | $ | -     |  | $ | 150,646  
|Cost of sale                              |  |                      | 5,372   |            |   | 28,742  |  |      | 15,600 |       |   | 1,598   |  |   | -     |  |   | 51,312   
|Deferred current gain                     |  |                      | -       |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | -        
|Recognized prior deferred gain            |  |                      | -       |            |   | -       |  |      | -      |       |   | -       |  |   | -     |  |   | -        
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          
|Gain on sale                              |  | $                    | 425     |            | $ | 71,485  |  | $    | 26,149 |       | $ | 1,275   |  | $ | -     |  | $ | 99,334   
|                                          |  |                      |         |            |   |         |  |      |        |       |   |         |  |   |       |  |   |          



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The tables below reconcile the segment information to the corresponding amounts in the Consolidated Statements of
Operations:



|                                            |  |                                      |          |      |   |         
|------------------------------------------- |  | ------------------------------------ | -------- | ---- | - | --------
|                                            |  | For the Three Months Ended March 31,
|                                            |  | 2009                                 |          | 2008
|Segment operating loss                      |  | $                                    | (10,253) |      | $ | (10,919)
|Other non-segment items of income (expense) |  |                                      |          |      |   |         
|General and administrative                  |  |                                      | (1,563)  |      |   | (2,403) 
|Advisory fees                               |  |                                      | (2,857)  |      |   | (2,997) 
|Bad debt and allowance                      |  |                                      | (379)    |      |   | (7,000) 
|Other income                                |  |                                      | 3,906    |      |   | 302     
|Equity in earnings of investees             |  |                                      | -        |      |   | 5,112   
|Deferred tax                                |  |                                      | (110)    |      |   | 29,836  
|                                            |  |                                      |          |      |   |         
|Income (loss) from continuing operations    |  | $                                    | (11,256) |      | $ | 11,931  
|                                            |  |                                      |          |      |   |         

SEGMENT ASSET RECONCILIATION TO TOTAL ASSETS



|                                        |  |                                      |           |      |   |          
|--------------------------------------- |  | ------------------------------------ | --------- | ---- | - | ---------
|                                        |  | For the Three Months Ended March 31,
|                                        |  | 2009                                 |           | 2008
|Segment assets                          |  | $                                    | 1,410,631 |      | $ | 1,249,197
|Investments in real estate partnerships |  |                                      | 23,446    |      |   | 32,502   
|Other assets                            |  |                                      | 117,741   |      |   | 120,614  
|Assets held for sale                    |  |                                      | 64,658    |      |   | 97,833   
|                                        |  |                                      |           |      |   |          
|Total assets                            |  | $                                    | 1,616,476 |      | $ | 1,500,146
|                                        |  |                                      |           |      |   |          

NOTE 9. DISCONTINUED OPERATIONS

The Company applies the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale
be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued
operations to include more disposal transactions.

Income from discontinued operations for 2009 relates to the sale of the Cullman Shopping Center which
was sold subsequent to the quarter ended March 31, 2009. Discontinued operations for 2008 relates to 26 income producing properties consisting of 18 apartments, three commercial buildings and four hotels that were sold in 2008, and one
commercial property sold subsequent to the quarter end March 31, 2009. (dollars in thousands)



|                                                                                   |  |                                      |       |      |   |         
|---------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ---- | - | --------
|                                                                                   |  | For the Three Months Ended March 31,
|                                                                                   |  | 2009                                 |       | 2008
|Revenue                                                                            |  |                                      |       |      |   |         
|Rental                                                                             |  | $                                    | 89    |      | $ | 3,658   
|Property operations                                                                |  |                                      | (14)  |      |   | 1,648   
|                                                                                   |  |                                      |       |      |   |         
|                                                                                   |  |                                      | 103   |      |   | 2,010   
|Expenses                                                                           |  |                                      |       |      |   |         
|Interest                                                                           |  |                                      | (12)  |      |   | (5,205) 
|General and administration                                                         |  |                                      | (4)   |      |   | (49)    
|Depreciation                                                                       |  |                                      | (22)  |      |   | (232)   
|                                                                                   |  |                                      |       |      |   |         
|                                                                                   |  |                                      | (38)  |      |   | (5,486) 
|                                                                                   |  |                                      |       |      |   |         
|Net income (loss) from discontinued operations before gains on sale of real estate |  |                                      | 65    |      |   | (3,476) 
|Gain on sale of discontinued operations                                            |  |                                      | 532   |      |   | 98,059  
|Net income fee to affiliate                                                        |  |                                      | -     |      |   | (9,337) 
|                                                                                   |  |                                      |       |      |   |         
|Income from discontinued operations                                                |  |                                      | 597   |      |   | 85,246  
|Tax expense                                                                        |  |                                      | (209) |      |   | (29,836)
|                                                                                   |  |                                      |       |      |   |         
|Net income from discontinued operations                                            |  | $                                    | 388   |      | $ | 55,410  
|                                                                                   |  |                                      |       |      |   |         



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The Companys application of SFAS No. 144 results in the presentation of the net operating results of these
qualifying properties sold or held for sale during 2009 as income from discontinued operations. The application of SFAS No. 144 does not have an impact on net income available to common shareholders. SFAS No. 144 only impacts the
presentation of these properties within the Consolidated Statements of Operations.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Partnership Obligations. TCI is the limited partner in partnerships that are currently constructing residential properties. As permitted in the
respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buy out the nonaffiliated partners are
limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements.

Guarantees. We are a
joint guarantor with Income Opportunity Realty Investors, Inc., an affiliated entity, on a loan with an outstanding balance of $36.5 million as of March 31, 2009. We have $8.5 million of this amount included in the notes and interest payable
section on our balance sheet. As a joint guarantor of the loan, we have joint and several liability of the obligations and liabilities of the loan in its entirety, which include but are not limited to payment of all unpaid and accrued interest and
principal for the entire outstanding loan balance.

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

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

NOTE 11. SUBSEQUENT EVENTS

In April 2009, we sold the Cullman Shopping Center, a 92,500 square foot facility located in Cullman, Alabama
for a sales price of $4.0 million. We recorded a deferred gain on sale of $1.9 million after paying off the existing debt of $0.9 million and closing costs.

NOTE 12. EARNINGS PER SHARE

Earnings per share (EPS) have been computed pursuant to the provisions of SFAS No. 128
Earnings Per Share. The computation of basic EPS is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Shares issued during the period shall be
weighted for the portion of the period that they were outstanding. We have issued and outstanding 25,000 shares of stock options. These are considered in the computation of diluted earnings per share if the effect of applying the treasury stock
method is dilutive. We have 30,000 shares of Series C Cumulative Convertible Preferred Stock issued and outstanding. The stock has a liquidation preference of $100.00 per share. After September 30, 2006, the stock may be converted into Common
Stock at 90% of the daily average closing price of the Common Stock for the prior five trading days. The effects of the Series C Cumulative Convertible Preferred Stock are included in the dilutive earnings per share if applying the if-converted
method is dilutive. For the three months ended March 31, 2009, the preferred stock and the stock options were anti-dilutive and thus not included in the EPS calculation. The net income used for calculating the basic and diluted shares did not
change. The reconciliation of the weighted average shares outstanding from the basic to the diluted shares is shown below:



|                                            |  |           |  |          
|------------------------------------------- |  | --------- |  | ---------
|                                            |  | March 31,
|                                            |  | 2009      |  | 2008     
|Weighted average shares outstanding         |  | 8,113,669 |  | 8,075,453
|Dilutive shares:                            |  |           |  |          
|Options                                     |  | -         |  | -        
|Convertible preferred stock                 |  | -         |  | 236,240  
|                                            |  |           |  |          
|                                            |  |          
|Diluted weighted average shares outstanding |  | 8,113,669 |  | 8,311,693
|                                            |  |           |  |          



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report.

This Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the captions Business, Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of Operations. We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are
based on managements beliefs and on assumptions made by, and information currently available to, management. When used, the words anticipate, believe, expect, intend, may,
might, plan, estimate, project, should, will, result and similar expressions which do not relate solely to historical matters are intended to identify
forward-looking statements. These statements are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors, that are beyond our
control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you that, while forward-looking
statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our
forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made,
to anticipate future results or trends.

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ
materially from those expressed or implied by forward-looking statements include, among others, the following:



| |  |  | general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants financial
condition, and competition from other developers, owners and operators of real estate);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks associated with the availability and terms of construction and mortgage financing and the use of debt to fund acquisitions and developments;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | demand for apartments and commercial properties in the Companys markets and the effect on occupancy and rental rates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the Companys ability to obtain financing, enter into joint venture arrangements in relation to or self-fund the development or acquisition of properties;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks associated with the timing and amount of property sales and the resulting gains/losses associated with such sales;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain
necessary permits and public opposition to such activities);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs of compliance with the Americans with Disabilities Act and other similar laws and regulations;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | potential liability for uninsured losses and environmental contamination;
| | - |  | -------------------------------------------------------------------------



| |  |  | risks associated with our dependence on key personnel whose continued service is not guaranteed; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the other risk factors identified in this Form 10-Q, including those described under the caption Risk Factors.
| | - |  | ----------------------------------------------------------------------------------------------------------------

The risks included here are not exhaustive. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from
those expressed or implied by forward-looking statements, include among others, the factors listed and described at Item 1A Risk Factors in the Companys Annual Report on Form 10-K, which investors should review. There have
been no changes from the risk factors previously described in the Companys Form 10-K for the fiscal year ended December 31, 2008 (the Form 10-K).

Other sections of this report may also include suggested factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New
risks emerge from time-to-time and it is not possible for management to predict all such matters: nor can we assess the impact of all such matter on our business or the extent to which any factor, or combination of factors, may cause actual results
to differ materially from



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those contained in any forward-looking statements. Given these uncertainties, investors should not place undue reliance on forward-looking statements as
prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise as we file them with the SEC.

Overview

We are an externally advised and managed
real estate investment company that owns a diverse portfolio of income producing properties and land held for development. Our portfolio of income-producing properties includes residential apartment communities, office buildings, and other
commercial properties. Our portfolio of land held for development consists of land primarily located in central Texas. In addition, we have land in Louisiana, Arkansas, Florida, and Mississippi. Our investment strategy includes acquiring existing
income-producing properties as well as developing new properties on land already owned or acquired for a specific development project. We acquire land primarily in urban in-fill locations or high-growth suburban markets. We generate revenues from
rents and lease income on apartments and commercial properties. We receive mineral royalties on certain land holdings. In addition, we receive interest income from affiliated receivables and certain mortgages that we have financed or obtained. In
addition, we generate cash flows through the sale of our assets. We are an active buyer and seller of income producing properties and land. During the three months ended March 31, 2009, we acquired $1.0 million and sold $9.7 million of land.

The current state of the economy, including rising unemployment, constrained capital and the dramatic deleveraging of the financial system, has had a
significant impact on the fundamentals of our business, including but not limited to: overall market occupancy, leasing rates, leasing renewals, purchases and dispositions of assets. The continuing loss of market liquidity is affecting all classes
of debt securities, and has translated into a decline of funding availability and increased borrowing costs. Historically, we have been well positioned to reduce our exposure to down turns in the economy. Although historical results cannot be relied
upon to project future results, we anticipate the diversity within our asset portfolio, the continued development of our apartment projects, and continued efforts to obtain non-traditional financing will allow us to proactively manage our assets.

As of March 31, 2009, the Company owned approximately 11,282 units in 56 residential apartment communities inclusive of two developed properties in
the lease up phase and 30 commercial properties of approximately 5.2 million rentable square feet. In addition, we own 7,278 acres of land held for development and two projects under construction.

We finance our acquisitions primarily through proceeds from the sale of land and income-producing properties and debt financing primarily in the form of
property-specific first-lien mortgage loans from commercial banks and institutional lenders. We financed our development projects principally with short-term, variable interest rate construction loans that are converted to long-term, fixed rate
amortizing mortgages when the development project is completed and occupancy has been stabilized. The Company will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land and to sell
interests in certain of its wholly owned properties. When the Company sells assets, it may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. The Company generates operating
revenues primarily by leasing apartment units to residents; leasing office, retail and industrial space to commercial tenants.

Critical Accounting
Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP,
requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the
circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting
periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our
financial statements. From time to time, we evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information.
Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.

Real Estate

Upon acquisitions of real estate, TCI assesses the fair
value of acquired tangible and intangible assets, including land, buildings, tenant improvements, above-market and below-market leases, origination costs, acquired in-place leases, other identified intangible assets and
assumed liabilities in accordance with Statement of Financial Accounting Standards, SFAS No. 141, Business Combinations. and allocates the purchase price to the acquired assets and assumed liabilities, including land at appraised
value and buildings at replacement cost.



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

We record acquired above-market and below-market leases
at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) managements
estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for
below-market leases.

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

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

SFAS No. 144 requires that qualifying
assets and liabilities and the results of operations that have been sold, or otherwise qualify as held for sale, be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated
and the Company will not have significant continuing involvement following the sale. The components of the propertys net income that is reflected as discontinued operations include the net gain (or loss) upon the disposition of the property
held for sale, operating results, depreciation and interest expense (if the property is subject to a secured loan). We generally consider assets to be held for sale when the transaction has been approved by our Board of Directors, or a
committee thereof, and there are no known significant contingencies relating to the sale, such that the property sale within one year is considered probable. Following the classification of a property as held for sale, no further
depreciation is recorded on the assets.

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is
made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. Our
capitalization policy on development properties is guided by SFAS No. 34 Capitalization of Interest Cost, and SFAS No. 67 Accounting for Costs and the Initial Rental Operations of Real Estate Properties. The costs
of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate
taxes, salaries and related costs and other costs incurred during the period of development. We consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later
than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the
portion under construction.

Impairment

Management
reviews the carrying values of our properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the
future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. For notes receivable, impairment is considered to exist if it is probable that all amounts due under the terms of the note will
not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings to the extent that the investment in the note exceeds managements estimate of the fair value of the collateral securing such note.



17



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##### Table of Contents

The mortgage note receivable review includes an evaluation of the collateral property securing each note. The property review generally includes:
(1) selective property inspections, (2) a review of the propertys current rents compared to market rents, (3) a review of the propertys expenses, (4) a review of maintenance requirements, (5) a review of the
propertys cash flow, (6) discussions with the manager of the property, and (7) a review of properties in the surrounding area.

Investments in Unconsolidated Real Estate Ventures

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

Recognition of Rental Income

Rental income for commercial property leases is recognized on a straight-line basis over the respective lease terms. In accordance with SFAS No. 141, we recognize
rental revenue of acquired in-place above-market and below-market leases at their fair values over the terms of the respective leases. On our Consolidated Balance Sheets, we include as a receivable the excess of rental income
recognized over rental payments actually received pursuant to the terms of the individual commercial lease agreements.

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

Rental income for residential property leases is recorded when due from residents and is recognized monthly as
earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less.

Revenues for hotel
properties for room sales and guest services are recognized as rooms are occupied and services are rendered.

An allowance for doubtful accounts is
recorded for all past due rents and operating expense reimbursements considered to be uncollectible.

Revenue Recognition on the Sale of Real Estate

Sales of real estate are recognized when and to the extent permitted by Statement of Financial Accounting Standards No. 66, Accounting for
Sales of Real Estate. (SFAS No. 66), as amended by SFAS No. 144. Until the requirements of SFAS No. 66 for full profit recognition have been met, transactions are accounted for using the deposit, installment, cost
recovery or financing method, whichever is appropriate. When TCI provides seller financing, gain is not recognized at the time of sale unless the buyers initial investment and continuing investment are deemed to be adequate as determined by
SFAS No. 66 guidelines.

Interest Recognition on Notes Receivable

Interest income is accrued when due, except for cash flow notes. On cash flow notes accrued but unpaid interest income is only recognized to the extent that cash is received.

Related Party Transactions

The Company has historically engaged in
and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. Transactions involving related parties cannot be presumed to



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be carried out on an arms length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated
entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in the best interest of our company.

Allowance for Estimated Losses

A valuation allowance is provided
for estimated losses on notes receivable considered to be impaired. Impairment is considered to exist when it is probable that all amounts due under the terms of the note will not be collected. Valuation allowances are provided for estimated losses
on notes receivable to the extent that the investment in the note exceeds managements estimate of fair value of the collateral securing such note.

Fair Value of Financial Instruments

The following assumptions were used in estimating the fair value of TCIs notes receivable,
marketable equity securities and notes payable. For performing notes receivable, the fair value was estimated by discounting future cash flows using current interest rates for similar loans. For non-performing notes receivable, the estimated fair
value of TCIs interest in the collateral property was used. For marketable equity securities, fair value was based on the year-end closing market price of each security. For notes payable, the fair value was estimated using current rates for
mortgages with similar terms and maturities.

Liquidity and Capital Resources

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



| |  |  | property operations;
| | - |  | --------------------



| |  |  | proceeds from land and income-producing property sales;
| | - |  | -------------------------------------------------------



| |  |  | collection of mortgage notes receivable;
| | - |  | ----------------------------------------



| |  |  | collection of receivables from affiliated companies;
| | - |  | ----------------------------------------------------



| |  |  | refinancing of existing mortgage notes payable; and
| | - |  | ---------------------------------------------------



| |  |  | additional borrowing, including mortgage notes payable and lines of credit.
| | - |  | ---------------------------------------------------------------------------

Our principal liquidity needs over the next twelve months include:



| |  |  | funding of normal recurring expenses and obligations;
| | - |  | -----------------------------------------------------



| |  |  | funding current development costs not covered by construction loans;
| | - |  | --------------------------------------------------------------------



| |  |  | meeting debt service requirements including loan maturities;
| | - |  | ------------------------------------------------------------



| |  |  | funding capital expenditures; and
| | - |  | ---------------------------------



| |  |  | funding acquisition costs for land and income-producing properties not covered by acquisition financing.
| | - |  | --------------------------------------------------------------------------------------------------------

We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans.

Management anticipates that our available cash from property operations may not be sufficient to meet all of our cash requirements. Management intends to selectively
sell land and income producing assets, refinance or extend real estate debt and seek additional borrowing secured by real estate to meet its liquidity requirements. Historically, management has been successful at extending a portion of the
Companys current maturity obligations. Management also anticipates funding ongoing real estate development projects and the acquisition of new real estate from cash generated by sales of land and income-producing properties, debt refinancings
or extensions and additional borrowings.

Cash flow summary

The following summary discussion of our cash flows is based on the statements of cash flows as presented in Item 1 and is not meant to be an all-inclusive discussion of the changes in our cash flow (dollars in thousands).



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|                                                    |  |           |         |      |   |          |  |   |         
|--------------------------------------------------- |  | --------- | ------- | ---- | - | -------- |  | - | --------
|                                                    |  | March 31, |         |     
|                                                    |  | 2009      |         | 2008 |   | Variance
|Net cash used in operating activities               |  | $         | (8,249) |      | $ | (30,967) |  | $ | 22,718  
|Net cash provided by investing activities           |  | $         | 1,381   |      | $ | 87,048   |  | $ | (85,667)
|Net cash provided by (used in) financing activities |  | $         | 3,035   |      | $ | (59,309) |  | $ | 62,344  

The primary use of cash for operations is daily operating costs, general and administrative expenses, advisory
fees, and land holding costs. Our primary source of cash from operating activities is from rental income on properties. In addition, we have an affiliated account in which excess cash is transferred to or from. The overall use of operating cash
during the current period is due to our receivables increasing while paying down our liabilities.

Our cash from investing activities decreased $85.7
million as compared to the prior period. The decrease in proceeds is primarily attributable to the decrease in sales of land and income producing properties. There were no sales of income producing properties in the current period. In the prior
period, we sold 15 apartment complexes, one commercial building, and three hotels. In the current period, we also used less cash on investing activities. We expended $24.0 million less on construction and development, and $11.4 million less on
acquisitions of land as compared to the prior period.

Our cash provided by financing activities for the period ended 2009 consists of proceeds from
construction draws for apartments and other developments in progress. In addition, we received proceeds from new debt. This was offset by payments on recurring debt obligations and maturing notes payable. For the same period ended 2008, the primary
use of cash was to pay off the debt on the mortgages for the properties sold, and the primary source of cash was from proceeds on notes payable to acquire properties and proceeds on construction draws.

Commitments and Contingencies

TCI has contractual obligations and
commitments primarily concerning payment of mortgages.

Results of Operations

The following discussion is based on our Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008 as included in Part 1, Item 1 Financial Statements of
this report. The total property portfolio represents all income producing properties held as of March 31 for the period presented. Sales subsequent to quarter ended represent properties in the total property portfolio that have been
repositioned to discontinued operations. Continuing operations consists of the total property portfolio less any sales subsequent to the quarter end. We had a total property portfolio of 86 and 68 as of the three months ended March 31, 2009,
and 2008, respectively as shown below;



|                         |  |      |  |     
|------------------------ |  | ---- |  | ----
|                         |  | 2009 |  | 2008
|Continued operations     |  | 85   |  | 63  
|Subsequent sales         |  | 1    |  | 5   
|                         |  |      |  |     
|Total property portfolio |  | 86   |  | 68  
|                         |  |      |  |     

The discussion of our results of operations is based on managements review of operations, which is based on
our segments. Our segments consist of apartments, commercial buildings, hotels, land and other. For discussion purposes, we break these segments down into the following sub-categories; same property portfolio, newly acquired properties, and
developed properties in the lease up phase. The same property portfolio consists of properties that were held by us for the entire period for both years being compared. The newly acquired property portfolio consists of properties that we acquired
but have not held for the entire period for both periods being compared. Developed properties in the lease up phase are properties that are in the being developed. As we complete each phase of the project, we lease up that phase and include those
operations in our income. Once a developed property becomes leased up and is held the entire period for both periods under comparison, it is reclassified to the same property portfolio. Income producing properties that we have sold or are held for
sale get reclassified to discontinuing operations.

Results of operations for the three months ended March 31, 2009 as compared to the same
period ended 2008

For the three months ended March 31, 2009, we reported a net loss applicable to common shares of ($11.0 million) or ($1.37)
per diluted earnings per share, as compared to a net income of $67.1 million or $8.07 per diluted earnings per share for the same period ended 2008.

Revenues

Rental and other property revenues increased by $4.7 million as compared to the prior period which by segment is an



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increase in the apartment portfolio of $2.7 million, the commercial portfolio of $2.5 million, offset by a decrease in the land and other portfolio of $0.5
million. Within the apartment portfolio, the increase was due to the developed properties being leased up which was offset by a slight decrease in the same property portfolio. There appears to be a continued demand for newly developed properties.
Within the commercial portfolio, the same property portfolio increased by $0.8 million and the acquired properties increased by $1.7 million, primarily due to our purchase of Stanford Center in July of 2008.

Expenses

Property operating expenses increased by $2.1 million as
compared to the prior period which by segment is an increase in the apartment portfolio of $3.9 million and an increase in the other portfolio of $0.1 million, offset by decreases in the commercial and land portfolio of $0.8 million and $1.1
million, respectively. Within the apartment portfolio increases came from the same properties which increased by $2.7 million and the developed properties which increased by $1.2 million. Within the commercial portfolio, the same properties
decreased by $0.5 million and the acquired properties decreased by $0.3 million.

Depreciation and amortization increased by $1.4 million as compared to
the prior period which by segment is an increase in the apartment portfolio of $1.0 million, and an increase in the commercial portfolio of $0.4 million. Within the apartment portfolio, the same properties increased by $0.2 million and the develop
properties increased by $0.8 million. Within the commercial properties, the same properties increased by $0.1 million and the acquired properties increased by $0.3 million.

Other Income (Expense)

Other income increased by $3.6 million as compared to the prior period. The increase is due
to $2.3 million for gains on the disposition of our investment in the Korean REIT. In addition, we received $0.8 million in litigation settlements and $0.5 million in other non-recurring income.

Mortgage and loan interest expense decreased by $1.1 million as compared to the prior period which by segment is a decrease in the apartment portfolio of $0.4 million, a
decrease in the commercial portfolio of $0.4 million, and a decrease in the other portfolio of $0.3 million. Within the apartment portfolio the same properties decreased by $1.6 million, which was offset by an increase in the developed properties of
$1.2 million. Within the commercial portfolio, the same properties decreased by $0.2 million and the acquired properties decreased by $0.2 million.

Earnings from unconsolidated subsidiaries and investees decreased by $5.1 million. There were no material amounts of equity pickup from investees in the current period.

Provision for allowance on notes receivables and impairment decreased by $6.6 million. The majority of the prior period amount was due to setting up an allowance for various investments within our portfolio.

Gain on land sales decreased by $1.5 million as compared to the prior period. The decrease was due to recording a loss of $0.3 million on the sale of 0.3
acres of land known as West End land in the current period. In addition, we sold 9.2 acres of land known as Woodmont Schiff-Park Forest land at break even. There were no other land sales during the quarter. In the prior quarter, we sold 14 acres of
land for a gain of $1.3 million.

The 2009 discontinued operations consist of the Cullman Shopping Center that was sold subsequent to the quarter ended
March 31, 2009. In addition, we recognized the deferred gain on the sale of the Hartford building sold in 2002 in accordance with the requirements per FAS No. 66. Discontinued operations for 2008 relates to 26 income producing properties
of which 25 were sold in 2008 consisting of 18 apartments, three commercial buildings and four hotels. The gain on sale, taxes and net income fee to affiliates that are associated with the properties sold during the period presented are also
included in discontinued operations as shown below (dollars in thousands).



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|                                                                                   |  |                                     |      |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | ----------------------------------- | ---- | - | ---- | - | ------- | -
|                                                                                   |  | For the Three Months EndedMarch 31, |     
|                                                                                   |  | 2009                                |      |   | 2008 |  
|Revenue                                                                            |  |                                     |      |   |      |   |         |  
|Rental                                                                             |  | $                                   | 89   |   |      | $ | 3,658   |  
|Property operations                                                                |  |                                     | (14  | ) |      |   | 1,648   |  
|                                                                                   |  |                                     |      |   |      |   |         |  
|                                                                                   |  |                                     | 103  |   |      |   | 2,010   |  
|Expenses                                                                           |  |                                     |      |   |      |   |         |  
|Interest                                                                           |  |                                     | (12  | ) |      |   | (5,205  | )
|General and administration                                                         |  |                                     | (4   | ) |      |   | (49     | )
|Depreciation                                                                       |  |                                     | (22  | ) |      |   | (232    | )
|                                                                                   |  |                                     |      |   |      |   |         |  
|                                                                                   |  |                                     | (38  | ) |      |   | (5,486  | )
|                                                                                   |  |                                     |      |   |      |   |         |  
|Net income (loss) from discontinued operations before gains on sale of real estate |  |                                     | 65   |   |      |   | (3,476  | )
|Gain on sale of discontinued operations                                            |  |                                     | 532  |   |      |   | 98,059  |  
|Net income fee to affiliate                                                        |  |                                     | -    |   |      |   | (9,337  | )
|                                                                                   |  |                                     |      |   |      |   |         |  
|Income from discontinued operations                                                |  |                                     | 597  |   |      |   | 85,246  |  
|Tax expense                                                                        |  |                                     | (209 | ) |      |   | (29,836 | )
|                                                                                   |  |                                     |      |   |      |   |         |  
|Net income from discontinued operations                                            |  | $                                   | 388  |   |      | $ | 55,410  |  
|                                                                                   |  |                                     |      |   |      |   |         |  

Tax Matter

Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable
and payable and the difference in the allowance for estimated losses. TCI had a loss for federal income tax purposes in the first three months of 2009, and a loss, after the use of net operating loss carryforwards, in 2008; therefore, it recorded no
provision for income taxes.

At March 31, 2009, TCI had a net deferred tax asset of $24.3 million due to tax deductions available to it in future
years. However, as management cannot determine that it is more likely than not that TCI will realize the benefit of the deferred tax assets, a 100% valuation allowance has been established.

Inflation

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

Environmental Matters

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

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



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|------- | -----------------------------------------------------------

At
March 31, 2009, TCIs exposure to a change in interest rates on its debt is as follows (dollars in thousands except per share):



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|                                          |  |         |         |                              |       |                                   |   |       | 
|----------------------------------------- |  | ------- | ------- | ---------------------------- | ----- | --------------------------------- | - | ----- | 
|                                          |  | Balance |         | WeightedAverageInterest Rate |       | Effect of 1%Increase InBase Rates |  
|                                          |  |         |         |                             
|Notes payable:                            |  |         |         |                              |       |                                   |   |       | 
|Variable rate                             |  | $       | 321,428 |                              | 5.63% |                                   | $ | 3,214 | 
|                                          |  |         |         |                              |       |                                   |   |       | 
|Total decrease in TCIs annual net income |  |         |         |                              |       |                                   |   | 3,214 | 
|                                          |  |         |         |                              |       |                                   |   |       | 
|Per share                                 |  |         |         |                              |       |                                   | $ | 0.396 | 
|                                          |  |         |         |                              |       |                                   |   |       | 



|ITEM 4T. | CONTROLS AND PROCEDURES
|-------- | -----------------------



|(a) | As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management,
including the Companys Principal Executive Officer and Chief Financial Officer per the Companys disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Companys Principal
Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys periodic SEC filings.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | There have been no changes in the Companys internal controls over financial reporting during the quarter ended March 31, 2009 that have materially affected or are
reasonably likely to materially affect the Companys internal controls over financial reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PART II. OTHER INFORMATION



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

During the period of time covered by this report, no equity securities of Transcontinental Realty Investors, Inc.s stock were repurchased. The following table sets forth a summary by month for the quarter ended March 31, 2009 of
repurchases made and the specified numbers of shares that may be repurchased under the stock repurchase program as specified below:



|                             |  |                                 |  |                             |  |                                                                     |  |                                                                       
|---------------------------- |  | ------------------------------- |  | --------------------------- |  | ------------------------------------------------------------------- |  | ----------------------------------------------------------------------
|Period                       |  | Total Number ofShares Purchased |  | Average PricePaid per share |  | Total Number ofShares Purchasedas Part of PubliclyAnnounced Program |  | Maximum Number ofShares that May Yet be PurchasedUnder the Program (a)
|Balance at December 31, 2008 |  |                                 |  |                             |  | 1,286,212                                                           |  | 122,788                                                               
|January 31, 2009             |  | -                               |  | -                           |  | 1,286,212                                                           |  | 122,788                                                               
|February 28, 2009            |  | -                               |  | -                           |  | 1,286,212                                                           |  | 122,788                                                               
|March 31, 2009               |  | -                               |  | -                           |  | 1,286,212                                                           |  | 122,788                                                               
|                             |  |                                 |  |                             |  |                                                                     |  |                                                                       
|Total                        |  | -                               |  |                             |  |                                                                     |  |                                                                       
|                             |  |                                 |  |                             |  |                                                                     |  |                                                                       



|(a) | On June 23, 2000, the TCI Board of Directors approved a share repurchase program for up to 1,409,000 shares of our common stock. This repurchase program has no termination
date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 6. | EXHIBITS
|------- | --------

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



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                                                                                                        
|3.0           |  | Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 1991).                                                                                                                                                                                                          
|              | 
|3.1           |  | Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrants Current Report on Form 8-K, dated June
3, 1996).                                                                                                                                                                                                              
|              | 
|3.2           |  | Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrants Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                                                   
|              | 
|3.3           |  | Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A Cumulative
Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).                         
|              | 
|3.4           |  | Certificate of Designation of Transcontinental Realty Investors, Inc., setting for the Voting Powers, Designations, References, Limitations, Restriction and Relative Rights of Series B
Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                    
|              | 
|3.5           |  | Certificate of Designation of Transcontinental Realty Investors, Inc., Setting for the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of Series C
Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).                                     
|              | 
|3.6           |  | Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc. Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred Stock dated
December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001).                                                                   
|              | 
|3.7           |  | By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrants Annual Report on Form 10-K for the year ended December 31,
1991).                                                                                                                                                                                                                             
|              | 
|3.8           |  | Certificate of Designation of Transcontinental Realty Investors, Inc. setting forth the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of Series D
Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrants Current Report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8 thereof).
|              | 
|10.0          |  | Advisory Agreement dated as of October 1, 2003, between Transcontinental Realty Investors, Inc. and Prime Income Asset Management, LLC (incorporated by reference to Exhibit 10.0 to the
registrants current report on Form 8-K for event occurring October 1, 2003).                                                                                                                                             
|              | 
|31.1*         |  | Certification of President and Chief Operating Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                   
|              | 
|31.2*         |  | Certification by the Chief Accounting Officer and Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                            
|              | 
|32.1*         |  | Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                     



|* | Filed herewith.
|- | ---------------



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SIGNATURE PAGE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                   |  |  |  |     |  |                                         |  |                                                                                    
|------------------ |  |  |  | --- |  | --------------------------------------- |  | -----------------------------------------------------------------------------------
|                   |  |  |  |     |  | TRANSCONTINENTAL REALTY INVESTORS, INC.
|                   |  |  | 
|Date: May 15, 2009 |  |  |  | By: |  | /s/ Daniel J. Moos                     
|                   |  |  |  |     |  |                                         |  | Daniel J. Moos                                                                     
|                   |  |  |  |     |  |                                         |  | President and Chief Operating Officer (Principal
Executive Officer)                
|                   |  |  | 
|Date: May 15, 2009 |  |  |  | By: |  | /s/ Gene S. Bertcher                   
|                   |  |  |  |     |  |                                         |  | Gene S. Bertcher                                                                   
|                   |  |  |  |     |  |                                         |  | Executive Vice President and Chief Accounting Officer (Principal Financial Officer)



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TRANSCONTINENTAL REALTY INVESTORS, INC.

EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q

For the Period Ended
March 31, 2009



|              |  |                                                                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibits                                                                                                                                                
|31.1*         |  | Certification Chief Operating Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.                                        
|              | 
|31.2*         |  | Certification by the Chief Accounting Officer and Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.
|              | 
|32.1*         |  | Certification pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                         



|* | Filed herewith
|- | --------------



27