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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 June 30, 2011

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     ̈ (do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

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

|                             |  |                                
|---------------------------- |  | -------------------------------
|Common Stock, $.01 par value |  | 8,413,469                      
|(Class)                      |  | (Outstanding at August 5, 2011)









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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 June 30, 2011 (unaudited) and December 31, 2010                                     |    |      | 3  | 
|           |  | Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (unaudited)        |    |      | 4  | 
|           |  | Consolidated Statement of Shareholders Equity for the six months ended June 30, 2011
(unaudited)                  |    |      | 5  | 
|           |  | Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2011 and 2010 (unaudited) |    |      | 6  | 
|           |  | Consolidated Statements of Cash Flows the six months ended June 30, 2011 and 2010
(unaudited)                      |    |      | 7  | 
|           |  | Notes to Consolidated Financial Statements                                                                         |    |      | 8  | 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                              |    |      | 22 | 
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risks                                                        |    |      | 32 | 
|Item 4.    |  | Controls and Procedures                                                                                            |    |      | 32 | 
|           |  |                                                                                                                   
|PART II.   |  | OTHER INFORMATION                                                                                                  |    |      |    | 
|           |  |                                                                                                                   
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                        |    |      | 33 | 
|Item 6.    |  | Exhibits                                                                                                           |    |      | 34 | 
|SIGNATURES |  |                                                                                                                    | 35 |     



2



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | --------- |  | ---------------- | - | --------- | 
|                                                                                                                                                                                                                                                                                               |  | June 30,2011                                               |           |  | December 31,2010 |  
|                                                                                                                                                                                                                                                                                               | 
|                                                                                                                                                                                                                                                                                               |  | (dollars in thousands, except share and
par value amounts) |          
|Assets                                                                                                                                                                                                                                                                                         |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Real estate, at cost                                                                                                                                                                                                                                                                           |  | $                                                          | 1,048,466 |  |                  | $ | 1,074,635 | 
|Real estate subject to sales contracts at cost, net of depreciation ($54,940 for 2011 and $58,579 for 2010)                                                                                                                                                                                    |  |                                                            | 131,270   |  |                  |   | 232,495   | 
|Less accumulated depreciation                                                                                                                                                                                                                                                                  |  |                                                            | (107,516) |  |                  |   | (94,016)  | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total real estate                                                                                                                                                                                                                                                                              |  |                                                            | 1,072,220 |  |                  |   | 1,213,114 | 
|Notes and interest receivable                                                                                                                                                                                                                                                                  |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Performing (including $58,246 in 2011 and $66,011 in 2010 from affiliates and related parties)                                                                                                                                                                                                 |  |                                                            | 60,614    |  |                  |   | 71,766    | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Less allowance for estimated losses (including $2,097 in 2011 and $3,061 in 2010 from affiliates and related
parties)                                                                                                                                                                          |  |                                                            | (3,777)   |  |                  |   | (4,741)   | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total notes and interest receivable                                                                                                                                                                                                                                                            |  |                                                            | 56,837    |  |                  |   | 67,025    | 
|Cash and cash equivalents                                                                                                                                                                                                                                                                      |  |                                                            | 7,067     |  |                  |   | 11,259    | 
|Investments in unconsolidated subsidiaries and investees                                                                                                                                                                                                                                       |  |                                                            | 7,441     |  |                  |   | 8,146     | 
|Other assets                                                                                                                                                                                                                                                                                   |  |                                                            | 70,510    |  |                  |   | 85,217    | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total assets                                                                                                                                                                                                                                                                                   |  | $                                                          | 1,214,075 |  |                  | $ | 1,384,761 | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Liabilities and Shareholders
Equity                                                                                                                                                                                                                                                           |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Liabilities:                                                                                                                                                                                                                                                                                   |  |                                                            |           |  |                  |   |           | 
|Notes and interest payable                                                                                                                                                                                                                                                                     |  | $                                                          | 800,362   |  |                  | $ | 831,322   | 
|Notes related to subject to sales contracts                                                                                                                                                                                                                                                    |  |                                                            | 125,083   |  |                  |   | 190,693   | 
|Affiliate payables                                                                                                                                                                                                                                                                             |  |                                                            | 33,885    |  |                  |   | 47,261    | 
|Deferred gain (from sales to related parties)                                                                                                                                                                                                                                                  |  |                                                            | 80,709    |  |                  |   | 82,841    | 
|Accounts payable and other liabilities (including $1,680 in 2011 and $1,466 in 2010 from affiliates and related
parties)                                                                                                                                                                       |  |                                                            | 40,514    |  |                  |   | 49,196    | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                            | 1,080,553 |  |                  |   | 1,201,313 | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Shareholders equity:                                                                                                                                                                                                                                                                          |  |                                                            |           |  |                  |   |           | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Preferred stock, Series C: $.01 par value, authorized 10,000,000 shares, issued and outstanding 30,000 shares in 2011 and 2010
respectively (liquidation preference $100 per share). Series D: $.01 par value, authorized, issued and outstanding 100,000 shares in 2011 and 2010 respectively |  |                                                            | 1         |  |                  |   | 1         | 
|                                                                                                                                                                                                                                                                                               |  |                                                           
|Common stock, $.01 par value, authorized 10,000,000 shares; issued 8,413,669 and 8,113,669 for 2011 and 2010 and outstanding
8,413,469 and 8,113,469 for 2011 and 2010                                                                                                                         |  |                                                            | 84        |  |                  |   | 81        | 
|Treasury stock at cost; 200 shares in 2011 and 2010                                                                                                                                                                                                                                            |  |                                                            | (2)       |  |                  |   | (2)       | 
|Paid-in capital                                                                                                                                                                                                                                                                                |  |                                                            | 274,405   |  |                  |   | 271,682   | 
|Retained earnings                                                                                                                                                                                                                                                                              |  |                                                            | (154,662) |  |                  |   | (101,914) | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total Transcontinental Realty Investors, Inc. shareholders equity                                                                                                                                                                                                                             |  |                                                            | 119,826   |  |                  |   | 169,848   | 
|Non-controlling interest                                                                                                                                                                                                                                                                       |  |                                                            | 13,696    |  |                  |   | 13,600    | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total equity                                                                                                                                                                                                                                                                                   |  |                                                            | 133,522   |  |                  |   | 183,448   | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 
|Total liabilities and equity                                                                                                                                                                                                                                                                   |  | $                                                          | 1,214,075 |  |                  | $ | 1,384,761 | 
|                                                                                                                                                                                                                                                                                               |  |                                                            |           |  |                  |   |           | 

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



3



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TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | --------- | - | --------------------------------- | - | --------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                                                                                                                                                              |  | For the Three Months
Ended June 30,                        |           |   | For the Six Months
Ended June 30, |  
|                                                                                                                                                                                              |  | 2011                                                       |           |   | 2010                              |   |           | 2011 |  |   | 2010      |  
|                                                                                                                                                                                              |  | (dollars in thousands, except
share and per share amounts) |          
|Revenues:                                                                                                                                                                                     |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Rental and other property revenues (including $358 and $908 for the three months and $730 and $1,766 for the six months ended 2011 and 2010
respectively from affiliates and related parties) |  | $                                                          | 31,785    |   |                                   | $ | 30,589    |      |  | $ | 61,439    |   |  | $ | 61,287    |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Expenses:                                                                                                                                                                                     |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Property operating expenses (including $403 and $429 for the three months and $675 and $884 for the six months ended 2011 and 2010 respectively from
affiliates and related parties)          |  |                                                            | 16,200    |   |                                   |   | 18,129    |      |  |   | 32,675    |   |  |   | 35,338    |  
|Depreciation and amortization                                                                                                                                                                 |  |                                                            | 5,970     |   |                                   |   | 6,353     |      |  |   | 12,032    |   |  |   | 12,214    |  
|General and administrative (including $906 and $786 for the three months and $1,748 and $1,677 for the six months ended 2011 and 2010 respectively
from affiliates and related parties)       |  |                                                            | 2,588     |   |                                   |   | 1,793     |      |  |   | 4,730     |   |  |   | 3,619     |  
|Provision on impairment of notes receivable and real estate assets                                                                                                                            |  |                                                            | 25,444    |   |                                   |   | -         |      |  |   | 31,503    |   |  |   | -         |  
|Advisory fee to affiliate                                                                                                                                                                     |  |                                                            | 2,626     |   |                                   |   | 2,962     |      |  |   | 5,246     |   |  |   | 6,058     |  
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Total operating expenses                                                                                                                                                                      |  |                                                            | 52,828    |   |                                   |   | 29,237    |      |  |   | 86,186    |   |  |   | 57,229    |  
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Operating income (loss)                                                                                                                                                                       |  |                                                            | (21,043   | ) |                                   |   | 1,352     |      |  |   | (24,747   | ) |  |   | 4,058     |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Other income (expense):                                                                                                                                                                       |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Interest income (including $700 and $567 for the three months and $1,051 and $1,220 for the six months ended 2011 and 2010 respectively from
affiliates and related parties)                  |  |                                                            | 704       |   |                                   |   | 832       |      |  |   | 1,130     |   |  |   | 1,691     |  
|Other income                                                                                                                                                                                  |  |                                                            | 100       |   |                                   |   | 249       |      |  |   | 1,314     |   |  |   | 914       |  
|Mortgage and loan interest (including $1,269 and $883 for the three months and $1,567 and $1,721 for the six months ended 2011 and 2010 respectively
from affiliates and related parties)     |  |                                                            | (14,611   | ) |                                   |   | (15,663   | )    |  |   | (28,035   | ) |  |   | (30,377   | )
|Earnings from unconsolidated subsidiaries and investees                                                                                                                                       |  |                                                            | 117       |   |                                   |   | (50       | )    |  |   | 57        |   |  |   | (112      | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Total other expenses                                                                                                                                                                          |  |                                                            | (13,690   | ) |                                   |   | (14,632   | )    |  |   | (25,534   | ) |  |   | (27,884   | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Loss before gain on land sales, non-controlling interest, and tax                                                                                                                             |  |                                                            | (34,733   | ) |                                   |   | (13,280   | )    |  |   | (50,281   | ) |  |   | (23,826   | )
|Gain (loss) on land sales                                                                                                                                                                     |  |                                                            | 1,285     |   |                                   |   | (5,640    | )    |  |   | 2,081     |   |  |   | (5,634    | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Loss from continuing operations before tax                                                                                                                                                    |  |                                                            | (33,448   | ) |                                   |   | (18,920   | )    |  |   | (48,200   | ) |  |   | (29,460   | )
|Income tax benefit                                                                                                                                                                            |  |                                                            | 2,584     |   |                                   |   | 554       |      |  |   | 1,637     |   |  |   | 431       |  
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss from continuing operations                                                                                                                                                           |  |                                                            | (30,864   | ) |                                   |   | (18,366   | )    |  |   | (46,563   | ) |  |   | (29,029   | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Discontinued operations:                                                                                                                                                                      |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Loss from discontinued operations                                                                                                                                                             |  |                                                            | (469      | ) |                                   |   | (1,444    | )    |  |   | (1,440    | ) |  |   | (956      | )
|Loss on sale of real estate from discontinued operations                                                                                                                                      |  |                                                            | (6,914    | ) |                                   |   | (139      | )    |  |   | (3,238    | ) |  |   | (139      | )
|Income tax expense from discontinued operations                                                                                                                                               |  |                                                            | (2,584    | ) |                                   |   | (554      | )    |  |   | (1,637    | ) |  |   | (383      | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss from discontinued operations                                                                                                                                                         |  |                                                            | (9,967    | ) |                                   |   | (2,137    | )    |  |   | (6,315    | ) |  |   | (1,478    | )
|Net loss                                                                                                                                                                                      |  |                                                            | (40,831   | ) |                                   |   | (20,503   | )    |  |   | (52,878   | ) |  |   | (30,507   | )
|Net (income) loss attributable to non-controlling interest                                                                                                                                    |  |                                                            | 46        |   |                                   |   | 113       |      |  |   | 130       |   |  |   | (160      | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Net loss attributable to Transcontinental Realty Investors, Inc.                                                                                                                              |  |                                                            | (40,785   | ) |                                   |   | (20,390   | )    |  |   | (52,748   | ) |  |   | (30,667   | )
|Preferred dividend requirement                                                                                                                                                                |  |                                                            | (277      | ) |                                   |   | (264      | )    |  |   | (551      | ) |  |   | (527      | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss applicable to common shares                                                                                                                                                          |  | $                                                          | (41,062   | ) |                                   | $ | (20,654   | )    |  | $ | (53,299   | ) |  | $ | (31,194   | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Earnings per share - basic                                                                                                                                                                    |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Loss from continuing operations                                                                                                                                                               |  | $                                                          | (3.70     | ) |                                   | $ | (2.28     | )    |  | $ | (5.64     | ) |  | $ | (3.66     | )
|Loss from discontinued operations                                                                                                                                                             |  |                                                            | (1.18     | ) |                                   |   | (0.26     | )    |  |   | (0.76     | ) |  |   | (0.18     | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss applicable to common shares                                                                                                                                                          |  | $                                                          | (4.88     | ) |                                   | $ | (2.54     | )    |  | $ | (6.40     | ) |  | $ | (3.84     | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Earnings per share - diluted                                                                                                                                                                  |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Loss from continuing operations                                                                                                                                                               |  | $                                                          | (3.70     | ) |                                   | $ | (2.28     | )    |  | $ | (5.64     | ) |  | $ | (3.66     | )
|Loss from discontinued operations                                                                                                                                                             |  |                                                            | (1.18     | ) |                                   |   | (0.26     | )    |  |   | (0.76     | ) |  |   | (0.18     | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss applicable to common shares                                                                                                                                                          |  | $                                                          | (4.88     | ) |                                   | $ | (2.54     | )    |  | $ | (6.40     | ) |  | $ | (3.84     | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Weighted average common share used in computing earnings per share                                                                                                                            |  |                                                            | 8,413,469 |   |                                   |   | 8,113,669 |      |  |   | 8,327,281 |   |  |   | 8,113,669 |  
|Weighted average common share used in computing diluted earnings per share                                                                                                                    |  |                                                            | 8,413,469 |   |                                   |   | 8,113,669 |      |  |   | 8,327,281 |   |  |   | 8,113,669 |  
|                                                                                                                                                                                              |  |                                                            |           |  
|Amounts attributable to Transcontinental Realty Investors, Inc.                                                                                                                               |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Loss from continuing operations                                                                                                                                                               |  | $                                                          | (30,818   | ) |                                   | $ | (18,253   | )    |  | $ | (46,433   | ) |  | $ | (29,189   | )
|Loss from discontinued operations                                                                                                                                                             |  |                                                            | (9,967    | ) |                                   |   | (2,137    | )    |  |   | (6,315    | ) |  |   | (1,478    | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  
|Net loss                                                                                                                                                                                      |  | $                                                          | (40,785   | ) |                                   | $ | (20,390   | )    |  | $ | (52,748   | ) |  | $ | (30,667   | )
|                                                                                                                                                                                              |  |                                                            |           |   |                                   |   |           |      |  |   |           |   |  |   |           |  

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



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##### Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

For the Six Months Ended June 30, 2011

(unaudited)

(dollars in thousands)



|                                                   |  |       |          |  |               |   |           |           |  |   |              |  |  |          |           |  |         |   |    |          |  |   |               |  |  |                 |         |  |          |   |               |  |  |   |   |  |  |   |        | 
|-------------------------------------------------- |  | ----- | -------- |  | ------------- | - | --------- | --------- |  | - | ------------ |  |  | -------- | --------- |  | ------- | - | -- | -------- |  | - | ------------- |  |  | --------------- | ------- |  | -------- | - | ------------- |  |  | - | - |  |  | - | ------ | 
|                                                   |  |       |          |  |               |   |           |           |  |   |              |  |  |          |           |  |         |   |    |          |  |   |               |  |  | Accumulated     |         |  |          |  
|                                                   |  |       |          |  |               |   |           |           |  |   |              |  |  |          |           |  |         |   |    |          |  |   |               |  |  | Other           |         |  |          |  
|                                                   |  |       |          |  | Comprehensive |   |           | Preferred |  |   | Common Stock |  |  | Treasury |           |  | Paid-in |   |    | Retained |  |   | Comprehensive |  |  | Non-Controlling |        
|                                                   |  | Total |          |  | Loss          |   |           | Stock     |  |   | Shares       |  |  | Amount   |           |  | Stock   |   |    | Capital  |  |   | Earnings      |  |  | Income (Loss)   |         |  | Interest |  
|                                                   |  |       |          |  |               |   |           |           |  |  
|Balance, December 31, 2010                         |  | $     | 183,448  |  |               | $ | (105,122) |           |  | $ | 1            |  |  |          | 8,113,669 |  |         | $ | 81 |          |  | $ | (2)           |  |  | $               | 271,682 |  |          | $ | (    101,914) |  |  | $ | - |  |  | $ | 13,600 | 
|Series C preferred stock dividends (7.0% per year) |  |       | (105)    |  |               |   | -         |           |  |   | -            |  |  |          | -         |  |         |   | -  |          |  |   | -             |  |  |                 | (105)   |  |          |   | -             |  |  |   | - |  |  |   | -      | 
|Series D preferred stock dividends (8.5% per year) |  |       | (446)    |  |               |   | -         |           |  |   | -            |  |  |          | -         |  |         |   | -  |          |  |   | -             |  |  |                 | (446)   |  |          |   | -             |  |  |   | - |  |  |   | -      | 
|Net loss                                           |  |       | (52,878) |  |               |   | (52,878)  |           |  |   | -            |  |  |          | -         |  |         |   | -  |          |  |   | -             |  |  |                 | -       |  |          |   | (52,748)      |  |  |   | - |  |  |   | (130)  | 
|Issuance of common stock                           |  |       | 1,530    |  |               |   | -         |           |  |   | -            |  |  |          | 300,000   |  |         |   | 3  |          |  |   | -             |  |  |                 | 1,527   |  |          |   | -             |  |  |   | - |  |  |   | -      | 
|Sale of controlling interest                       |  |       | 1,980    |  |               |   | -         |           |  |   | -            |  |  |          | -         |  |         |   | -  |          |  |   | -             |  |  |                 | 1,747   |  |          |   | -             |  |  |   | - |  |  |   | 233    | 
|Distributions to non-controlling interests         |  |       | (7)      |  |               |   | -         |           |  |   | -            |  |  |          | -         |  |         |   | -  |          |  |   | -             |  |  |                 | -       |  |          |   | -             |  |  |   | - |  |  |   | (7)    | 
|                                                   |  |       |          | 
|                                                   |  |       |          |  |               |   |           |           |  |  
|Balance, June 30, 2011                             |  | $     | 133,522  |  |               | $ | (158,000) |           |  | $ | 1            |  |  |          | 8,413,669 |  |         | $ | 84 |          |  | $ | (2)           |  |  | $               | 274,405 |  |          | $ | (154,662)     |  |  | $ | - |  |  | $ | 13,696 | 
|                                                   |  |       |          | 

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



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##### Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)



|                                                                           |  |                                  |          |  |      |   |          | 
|-------------------------------------------------------------------------- |  | -------------------------------- | -------- |  | ---- | - | -------- | 
|                                                                           |  | For the Six Months EndedJune 30, |         
|                                                                           |  | 2011                             |          |  | 2010 |  
|                                                                           |  | (dollars in thousands)           |         
|Net loss                                                                   |  | $                                | (52,878) |  |      | $ | (30,507) | 
|Other comprehensive income (loss)                                          |  |                                  | -        |  |      |   | -        | 
|                                                                           |  |                                  |          |  |      |   |          | 
|Total other comprehensive income (loss)                                    |  |                                  | -        |  |      |   | -        | 
|                                                                           |  |                                  |          |  |      |   |          | 
|Comprehensive loss attributable to Transcontinental Realty Investors, Inc. |  |                                  | (52,878) |  |      |   | (30,507) | 
|Comprehensive (income) loss attributable to non-controlling interest       |  |                                  | 130      |  |      |   | (160)    | 
|                                                                           |  |                                  |          |  |      |   |          | 
|Comprehensive loss attributable to Transcontinental Realty Investors, Inc. |  | $                                | (52,748) |  |      | $ | (30,667) | 
|                                                                           |  |                                  |          |  |      |   |          | 

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



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##### Table of Contents

TRANSCONTINENTAL REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                                        |  |                                   |           |  |      |   |           | 
|------------------------------------------------------------------------------------------------------- |  | --------------------------------- | --------- |  | ---- | - | --------- | 
|                                                                                                        |  | For the Six Months Ended June 30, |          
|                                                                                                        |  | 2011                              |           |  | 2010 |  
|                                                                                                        |  | (dollars in thousands)            |          
|Cash Flow From Operating Activities:                                                                    |  |                                   |           |  |      |   |           | 
|Net loss                                                                                                |  | $                                 | (52,878)  |  |      | $ | (30,507)  | 
|Adjustments to reconcile net loss applicable to common shares to net cash used in operating activities: |  |                                   |           |  |      |   |           | 
|Gain on sale of land                                                                                    |  |                                   | (2,081)   |  |      |   | 5,634     | 
|Gain on sale of income producing properties                                                             |  |                                   | 3,238     |  |      |   | 139       | 
|Depreciation and amortization                                                                           |  |                                   | 12,981    |  |      |   | 14,491    | 
|Provision on impairment of notes receivable and real estate assets                                      |  |                                   | 31,503    |  |      |   | -         | 
|Amortization of deferred borrowing costs                                                                |  |                                   | 1,767     |  |      |   | 1,074     | 
|Earnings from unconsolidated subsidiaries and investees                                                 |  |                                   | (128)     |  |      |   | 112       | 
|(Increase) decrease in assets:                                                                          |  |                                   |           |  |      |   |           | 
|Accrued interest receivable                                                                             |  |                                   | 28        |  |      |   | (128)     | 
|Other assets                                                                                            |  |                                   | (964)     |  |      |   | 7,333     | 
|Prepaid expense                                                                                         |  |                                   | 2,176     |  |      |   | 52        | 
|Escrow                                                                                                  |  |                                   | 10,546    |  |      |   | 8,664     | 
|Earnest money                                                                                           |  |                                   | (75)      |  |      |   | 315       | 
|Rent receivables                                                                                        |  |                                   | 647       |  |      |   | (2,356)   | 
|Increase (decrease) in liabilities:                                                                     |  |                                   |           |  |      |   |           | 
|Accrued interest payable                                                                                |  |                                   | 4,045     |  |      |   | 624       | 
|Affiliate payables                                                                                      |  |                                   | (13,377)  |  |      |   | (893)     | 
|Other liabilities                                                                                       |  |                                   | (10,432)  |  |      |   | (8,836)   | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|Net cash used in operating activities                                                                   |  |                                   | (13,004)  |  |      |   | (4,282)   | 
|                                                                                                        |  |                                  
|Cash Flow From Investing Activities:                                                                    |  |                                   |           |  |      |   |           | 
|                                                                                                        |  |                                  
|Proceeds from notes receivable                                                                          |  |                                   | 12,109    |  |      |   | 1,438     | 
|Originations or advances on notes receivable                                                            |  |                                   | (986)     |  |      |   | -         | 
|Acquisition of land held for development                                                                |  |                                   | -         |  |      |   | (2,259)   | 
|Acquisition of income producing properties                                                              |  |                                   | (13,002)  |  |      |   |           | 
|Proceeds from sale of income producing properties                                                       |  |                                   | 60,852    |  |      |   | 30,043    | 
|Proceeds from sale of land                                                                              |  |                                   | 78,757    |  |      |   | 12,325    | 
|Proceeds from sale of investment in unconsolidated real estate entities                                 |  |                                   | (9)       |  |      |   | -         | 
|Proceeds from sale of investments                                                                       |  |                                   | 554       |  |      |   | -         | 
|Investment in unconsolidated real estate entities                                                       |  |                                   | 279       |  |      |   | 213       | 
|Improvement of land held for development                                                                |  |                                   | (1,101)   |  |      |   | (1,319)   | 
|Improvement of income producing properties                                                              |  |                                   | (340)     |  |      |   | (1,185)   | 
|Acquisition of non-controlling interest                                                                 |  |                                   | -         |  |      |   | -         | 
|Sales of controlling interest                                                                           |  |                                   | 1,980     |  |      |   | -         | 
|Construction and development of new properties                                                          |  |                                   | (30,298)  |  |      |   | (10,294)  | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|Net cash provided by investing activities                                                               |  |                                   | 108,795   |  |      |   | 28,962    | 
|                                                                                                        |  |                                  
|Cash Flow From Financing Activities:                                                                    |  |                                   |           |  |      |   |           | 
|                                                                                                        |  |                                  
|Proceeds from notes payable                                                                             |  |                                   | 102,534   |  |      |   | 93,753    | 
|Recurring amortization of principal on notes payable                                                    |  |                                   | (7,764)   |  |      |   | (5,974)   | 
|Payments on or debt assumed on maturing notes payable                                                   |  |                                   | (195,386) |  |      |   | (110,607) | 
|Deferred financing costs                                                                                |  |                                   | (353)     |  |      |   | (2,627)   | 
|Distributions to non-controlling interests                                                              |  |                                   | 7         |  |      |   | -         | 
|Common stock issuance                                                                                   |  |                                   | 1,530     |  |      |   | -         | 
|Preferred stock dividends - Series C                                                                    |  |                                   | (105)     |  |      |   | (105)     | 
|Preferred stock dividends - Series D                                                                    |  |                                   | (446)     |  |      |   | (422)     | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|Net cash used in financing activities                                                                   |  |                                   | (99,983)  |  |      |   | (25,982)  | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|                                                                                                        |  |                                  
|Net decrease in cash and cash equivalents                                                               |  |                                   | (4,192)   |  |      |   | (1,302)   | 
|Cash and cash equivalents, beginning of period                                                          |  |                                   | 11,259    |  |      |   | 5,665     | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|Cash and cash equivalents, end of period                                                                |  | $                                 | 7,067     |  |      | $ | 4,363     | 
|                                                                                                        |  |                                   |           |  |      |   |           | 
|                                                                                                        |  |                                  
|Supplemental disclosures of cash flow information:                                                      |  |                                   |           |  |      |   |           | 
|Cash paid for interest                                                                                  |  | $                                 | 26,023    |  |      | $ | 32,240    | 
|Cash received for income taxes, net of payments                                                         |  | $                                 | -         |  |      | $ | (48)      | 

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



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

As
used herein, the terms TCI, the Company, we, our or us refer to Transcontinental Realty Investors, Inc., a Nevada corporation. TCI is the successor to a California business trust which was
organized on September 6, 1983, and commenced operations on January 31, 1984. Effective March 31, 2003, TCIs financial results were consolidated in American Realty Investors, Inc. (ARL) Form 10-K and related
consolidated financial statements.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange
under the symbol NYSE: TCI. Subsidiaries of ARL own approximately 82.7% of the Companys common stock. TCI is a C corporation for U.S. federal income tax purposes and files an annual consolidated income tax return with
ARL, whose common stock trades on the New York Stock Exchange under the symbol NYSE: ARL.

TCI owns approximately 83.3% of the
common stock of Income Opportunity Realty Investors, Inc. (IOT). Effective July 17, 2009, IOTs financial results were consolidated with those of ARL and TCI and their subsidiaries. Shares of IOT are traded on the
American Stock Exchange under the symbol AMEX: IOT.

TCI invests in real estate through direct ownership, leases and partnerships
and it also invests in mortgage loans on real estate. Prior to April 30, 2011, Prime Income Asset Management, LLC (Prime) was the Companys external Advisor and Cash Manager. Prime also served as an Advisor and Cash
Manager to ARL and IOT. Effective April 30, 2011, Pillar Income Asset Management, Inc. (Pillar) became the Companys external Advisor and Cash Manager under the same terms as the previous agreement with Prime. Pillar also
serves as an Advisor and Cash Manager to ARL and IOT. Prior to December 31, 2010, Triad Realty Services, L.P. (Triad) managed the Companys commercial properties and Regis Realty I, LLC (Regis Realty) provided
brokerage services. Triad and Regis Realty are affiliates of Prime. Effective January 1, 2011, Regis Realty Prime, LLC (Regis), an affiliate of Prime, manages our commercial properties and provides brokerage services under
the same terms as the previous agreements with Triad and Regis Realty for a term of five years. TCI engages third-party companies to lease and manage its apartment properties. We have no employees.

Properties

We own or had interests in
a total property portfolio of 71 income producing properties as of June 30, 2011. The properties consisted of:



| |  |  | 23 commercial buildings totaling 4.2 million leasable square feet, consisting of 15 office buildings, five industrial properties, and three retail
properties;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 48 apartment communities totaling 8,919 units; excluding apartments being developed; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | 4,891 acres of developed and undeveloped land.
| | - |  | ----------------------------------------------

We are involved in the construction of three apartment complexes as of June 30, 2011. In addition, we invest in several tracts of land and are at various stages of predevelopment on many of these
properties. We partner with several third-party developers to construct residential projects. The third-party developer typically takes a general partner and majority limited partner interest in the development partnership while we take a minority
limited partner interest. We are required to fund the equity contributions. The third-party developer is responsible for obtaining financing, for 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.

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in
accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters)
considered necessary for a fair presentation have been included. The results of operations for the six months ended June 30, 2011, are not necessarily indicative of the results that may be expected for other interim periods or for the full
fiscal year.



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The year-end Consolidated Balance Sheet at December 31, 2010, was derived from the audited financial
statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Companys
Annual Report on Form 10-K for the year ended December 31, 2010. Certain 2010 financial statement amounts have been reclassified to conform to the 2011 presentation, including adjustments for discontinued operations.

Principles of consolidation

The
accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest. Arrangements that are not controlled through
voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810 Consolidation, whereby we have determined that we are a primary beneficiary of the VIE and
meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (EITF) Issue 04-5, Investors Accounting for an Investment in a Limited Partnership when the Investor is
the Sole General Partner and the Limited Partners have Certain Rights (EITF 04-5). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose
equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The primary beneficiary
generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entitys financial results. All significant
intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of a VIE,
we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors
ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about
the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have
less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these
entities is included in consolidated net income. Our investments in ARL and Garden Centura, L.P. are accounted for under the equity method.

During the second quarter of 2011, we evaluated the non-controlling equity interests and made certain reclassifications among equity accounts to
correctly reflect non-controlling interest. In connection with that evaluation, we reclassified approximately $6.3 million of deferred gain to non-controlling interest related to the 2009 acquisition of the controlling interest in IOT, a
consolidated entity. These amounts have been reclassified for all periods presented in the consolidated financial.

Real estate,
depreciation, and impairment

Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major
replacements and betterments are capitalized and depreciated over their estimated useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements  10-40 years; furniture,
fixtures and equipment  5-10 years). The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, Property, Plant and Equipment. Factors
considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes
in general market conditions that are considered permanent in nature. Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated
cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the assets net book value at the balance sheet date. If any real estate asset held for
investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.

Real estate
held for sale

We periodically classify real estate assets as held for sale. An asset is classified as held for sale after the
approval of our board of directors and after an active program to sell the asset has commenced. Upon the classification of a real estate asset as held for sale, the carrying value of the asset is reduced to the lower of its net book value or its
estimated fair value, less costs



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##### Table of Contents

to sell the asset. Subsequent to the classification of assets as held for sale, no further depreciation expense is recorded. Real estate assets held for sale are stated separately on the
accompanying Consolidated Balance Sheets. Upon a decision to no longer market as an asset for sale, the asset is classified as an operating asset and depreciation expense is reinstated. The operating results of real estate assets held for sale and
sold are reported as discontinued operations in the accompanying statements of operations. Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets. This
classification of operating results as discontinued operations applies retroactively for all periods presented. Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations.

Cost capitalization

Costs related to
planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets. We capitalize interest to qualifying assets under development based on average accumulated expenditures
outstanding during the period. In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt. We capitalize interest,
real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.

We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any
internal costs that may be applicable. We allocate these costs to individual tenant leases and amortize them over the related lease term.

Fair value measurement

We apply the
guidance in ASC Topic 820, Fair Value Measurements and Disclosures, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a
transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value
hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entitys own data.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three
levels defined as follows:



|        |  |   |  |                                                                                                                                                                                                                           
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  |  |  | Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.                                                                                                                          
|        |  |  
|Level 2 |  |  |  | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument.
|        |  |  
|Level 3 |  |  |  | Unobservable inputs that are significant to the fair value measurement.                                                                                                                                                   

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

Newly issued accounting pronouncements

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

NOTE 2. REAL ESTATE ACTIVITY

The highlights of our significant real estate transactions for the six months ended June 30, 2011 are listed below:

On January 4, 2011, we recognized the 2010 sale of 18.84 acres of land known as Archon land located in Las Colinas, Texas to FRE Real Estate, Inc.,
a related party under common control, for a sales price of $5.5 million. The buyer assumed the existing mortgage of $4.0 million secured by the property. We recorded a gain of $0.1 million when ownership of the property transferred to the existing
lender.

The Company had a 75.0% limited partner interest in Woodmont TCI Group X, LP, a partnership that owned 7.19 acres of land known as
Galleria West Lofts land located in Dallas, Texas. The partnership was consolidated in accordance with ASC 810. On January 4, 2011 the partnership transferred ownership of the property to the existing lender and there was no gain or loss
recorded on the transfer.



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##### Table of Contents

The Company had a 75.0% limited partner interest in Woodmont TCI Group XI, LP, a partnership that owned 1.97
acres of land known as Galleria West Hotel land located in Dallas, Texas. The partnership was consolidated in accordance with ASC 810. On January 4, 2011 the partnership transferred ownership of the property to the existing lender and there was
no gain or loss recorded on the transfer.

On January 4, 2011, we recognized the 2010 sale of 9.96 acres of land known as Limestone
Canyon II land located in Austin, Texas to FRE Real Estate, Inc., a related party under common control, for a sales price of $0.6 million. We recorded a gain on sale of $0.2 million when ownership of the property transferred to the existing lender.

On January 4, 2011, we recognized the sale of 72.14 acres of land known as Manhattan land located in Farmers Branch, Texas to ABCLD
Income, LLC, a related party under common control, for a sales price of $4.1 million. The buyer assumed the existing mortgage of $2.4 million secured by the property. We recorded the sale when ownership of the property transferred to the existing
lender.

On January 4, 2011, we recognized the 2010 sale of Teleport Blvd., a 6,833 square foot building and 3.70 acres of land, located
in Irving, Texas to FRE Real Estate, Inc., a related party under common control, for a sales price of $0.7 million. We recorded a gain on sale of $0.4 million when ownership of the property transferred to the existing lender.

On January 4, 2011, we recognized the 2010 sale of Westgrove Air Plaza, a 79,652 square foot building, located in Addison, Texas to FRE Real Estate,
Inc., a related party under common control, for a sales price of $4.5 million. The buyer assumed the existing mortgage of $2.3 million secured by the property. We recorded a gain of $3.3 million due to recognition of prior period deferred gain when
ownership of the property transferred to the existing lender.

On January 26, 2011, we sold 100% of our common stock in TCI Willowbrook
Village, Inc. to TX LTS Investments, Inc., a related party under common control, for a sales price of $7.8 million. This entity owns a 179,741 square foot retail shopping center located in Coldwater, Michigan known as Willowbrook Village. We
provided $2.2 million in seller financing with a five-year note receivable. The note accrues interest at 6% and is payable at maturity on January 26, 2016. The buyer assumed the existing mortgage of $5.6 million, secured by the property. We
have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, inadequate initial investment and questionable recovery of investment cost.

The Company had a 75.0% limited partner interest in Woodmont TCI Group XIII, LP, a partnership that owned 8.91 acres of land known as Las Colinas Station land located in Irving, Texas. The partnership was
consolidated in accordance with ASC 810. On February 4, 2011 the partnership transferred ownership of the property to the existing lender and there was no gain or loss recorded on the transfer.

The Company had a 75.0% limited partner interest in Woodmont TCI Group IX, LP, a partnership that owned 15.0 acres of land known as Galleria East Center
Retail land located in Dallas, Texas. The partnership was consolidated in accordance with ASC 810. On February 4, 2011 the partnership transferred ownership of the property to the existing lender and there was no gain or loss recorded on the
transfer.

On March 23, 2011, we sold 82.20 acres of land known as Denton Coonrod land located in Denton, Texas and 23.24 acres of land
known as Cooks Lane land located in Tarrant County, Texas to Cross County National Associates, LP, a related party under common control, for a sales price of $2.9 million. We provided $1.6 million in seller-financing with a five-year note
receivable. The note accrues interest at 6% and is payable at maturity on March 23, 2016. The buyer assumed the existing mortgage of $1.3 million, secured by the property. We have deferred the recognition of the sale in accordance with ASC
360-20 due to our continuing involvement, inadequate initial investment and questionable recovery of investment cost.

On March 23, 2011,
we sold our membership interest in 1340 Poydras Corp. to ABCLD Real Estate, LLC, a related party under common control, for a sales price of $23.5 million. This entity owns a 378,895 square foot building located in New Orleans, Louisiana known as
Amoco. The buyer assumed the existing mortgage of $19.5 million, secured by the property. This transaction was rescinded as of the original transaction date and ownership transferred back to TCI.

On March 23, 2011, we sold our investment in TCI Courtyard, Inc. to One Realco Corporation, a related party under common control, for a sales price
of $11.2 million. This entity owns Quail Hollow at the Lakes apartments, a 200-unit complex located in Holland, Ohio. The buyer assumed the existing mortgage of $11.2 million, secured by the property. We have deferred the recognition of the sale in
accordance with ASC 360-20 due to our continuing involvement, inadequate initial investment and questionable recovery of investment cost.



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On March 28, 2011, we sold our investment in ART One Hickory Corporation and ART Two Hickory
Corporation to ABCLD Real Estate, LLC, a related party under common control, for a sales price of $19.5 million. These entities own a 97,361 square foot office building known as One Hickory Center and a 96,539 square foot office building known as
Two Hickory Center, both located in Dallas, Texas. We provided $0.7 million in seller-financing with a five-year note receivable. The note accrues interest at 6% and is payable at maturity on March 28, 2016. The buyer assumed the existing
mortgage of $18.8 million, secured by the property. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, inadequate initial investment and questionable recovery of investment cost.

On April 1, 2011, we purchased 100% of the general and limited partnership interest in Garden Whispening Pines, LP, which owns Whispering Pines
apartments, a 390-unit complex located in Topeka, Kansas, from ARL, a related party under common control, for $11.0 million. We assumed the current mortgage of $9.5 million.

On April 1, 2011, we purchased 100% of the membership interest in EQK Sesame Square, LLC, which owns Sesame Square, a 20,715 square-foot office building located in Anchorage, Alaska, from ARL, a
related party under common control, for $2.0 million. We assumed the current mortgage of $1.1 million.

On April 5, 2011, we recognized
the sale of 13.22 acres of land known as Hackberry land located in Irving, Texas to One Realco Land Holdings, Inc., a related party under common control, for a sales price of $3.9 million. The buyer assumed the existing mortgage of $3.9 million
secured by the property. We recorded a gain on sale of $2.4 million when ownership of the property transferred to the existing lender.

On
April 5, 2011, we recognized the sale of 14.43 acres of land known as Fortune Drive land located in Irving, Texas to One Realco Land Holdings, Inc., a related party under common control, for a sales price of $1.7 million. The buyer assumed the
existing mortgage of $1.1 million secured by the property. We recorded a loss on sale of $0.4 million when ownership of the property transferred to the existing lender.

On April 5, 2011, we recognized the 2010 sale of 10.69 acres of land known as Temple land, located in Irving, Texas to FRE Real Estate, Inc., a related party under common control, for a sales price
of $0.4 million. We recorded a loss on sale of $0.1 million when ownership of the property transferred to the existing lender.

On
April 5, 2011, we recognized the sale of 7.11 acres of land known as Pac Trust land located in Irving, Texas to One Realco Land Holdings, Inc., a related party under common control, for a sales price of $1.4 million. The buyer assumed the
existing mortgage of $1.4 million secured by the property. We recorded a loss on sale of $0.2 million when ownership of the property transferred to the existing lender.

The Company had a 75.0% limited partner interest in Woodmont TCI Group III, LP, a partnership that owned 5.87 acres of land known as Polo Estates at Bent Tree land located in Dallas, Texas. The
partnership was consolidated in accordance with ASC 810. On April 5, 2011 the partnership transferred ownership of the property to the existing lender and we recorded a gain of $3.0 million due to recognition of a prior period deferred gain.

On April 5, 2011, we recognized the sale of 87.62 acres of land known as Wilmer 88 land located in Dallas, Texas, 24.91acres of land
known as Crowley land located in Dallas, Texas and 30.07 acres of land known as Creekside land located in Fort Worth, Texas to T Sorrento, Inc., a related party under common control, for a sales price of $4.4 million. The buyer assumed the existing
mortgage of $2.4 million secured by the property. We recorded a loss on sale of $2.0 million when ownership of the property transferred to the existing lender.

On June 7, 2011, we recognized the sale of Alpenloan, a 28,594 square foot building and 8.16 acres of land, located in Dallas, Texas to One Realco Retail, Inc., a related party under common control,
for a sales price of $0.4 million. We recorded a loss on sale of $0.9 million when ownership of the property transferred to the existing lender.

On June 7, 2011, we recognized the sale of 5.34 acres of land known as Archon land located in Irving, Texas and 1.31 acres of land known as Ackerley land located in Dallas, Texas to One Realco
Retail, Inc., a related party under common control, for a sales price of $0.7 million. The buyer assumed the existing mortgage of $0.7 million secured by the property. We recorded a loss on sale of $0.7 million when ownership of the property
transferred to the existing lender.

On June 7, 2011, we recognized the sale of Fenton Center, a 707,559 square foot building and 4.70
acres of land, located in Dallas, Texas to ABCLD Properties, LLC, a related party under common control, for a sales price of $67.0 million. We recorded a loss on sale of $7.0 million when ownership of the property transferred to the existing lender.



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On June 7, 2011, we recognized the sale of 27.11 acres of land known as Kinwest land located in Irving,
Texas to Fenton Real Estate, Inc., a related party under common control, for a sales price of $4.1 million. The buyer assumed the existing mortgage of $4.0 million secured by the property. We recorded a gain on sale of $1.1 million when ownership of
the property transferred to the existing lender.

On June 7, 2011, we recognized the sale of 20.85 acres of land known as McKinney Ranch
land located in McKinney, Texas to Fenton Real Estate, Inc., a related party under common control, for a sales price of $5.4 million. The buyer assumed the existing mortgage of $5.4 million secured by the property. We recorded a gain on sale of $0.8
million when ownership of the property transferred to the existing lender.

On June 7, 2011, we recognized the sale of 109.85 acres of
land known as Payne North land located in Irving, Texas to FRE Real Estate, Inc., a related party under common control, for a sales price of $14.1 million. The buyer assumed the existing mortgage of $12.0 million secured by the property. We recorded
a loss on sale of $1.9 million when ownership of the property transferred to the existing lender.

In December 2010, TCI sold 32 properties,
which consisted of six commercial buildings comprising an aggregate of 1.4 million square feet, approximately 3,325 acres of undeveloped land, and one ground lease to FRE Real Estate, Inc., a related party under common control, for an aggregate
sales price of $191.9 million. During the first three months of 2011, many of these transactions were rescinded as of the original transaction date and were subsequently sold to related parties under the same ownership as FRE Real Estate, Inc. The
sales of the ground lease and 210.70 acres of the undeveloped land were rescinded and ownership transferred back to TCI. We have deferred the recognition of the sales in accordance with ASC 360-20 due to our continuing involvement, inadequate
initial investment and questionable recovery of investment cost.

We continue to invest in the development of apartment projects. During the
six months ended June 30, 2011, we have expended $30.3 million on the construction of various apartment complexes and capitalized $1.8 million of interest costs.

The properties that we have sold to a related party under common control and have deferred the recognition of the sale are treated as subject to sales contract on the Consolidated Balance
Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are
secured by the property and many have corporate guarantees. According to the loan documents, we are currently in default on these mortgages primarily due to lack of payment although we are actively involved in discussions with every lender in order
to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.



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NOTE 3. NOTES AND INTEREST RECEIVABLE

A portion of our assets are invested in mortgage notes receivable, principally secured by real estate. We may originate mortgage loans
in conjunction with providing purchase money financing of property sales. Notes receivable are generally collateralized by real estate or interests in real estate and personal guarantees of the borrower and, unless noted otherwise, are so secured.
Management intends to service and hold for investment the mortgage notes in our portfolio. A majority of the notes receivable provide for principal to be paid at maturity. Our mortgage notes receivable consist of first, wraparound and junior
mortgage loans (dollars in thousands):



|                                                           |  |              |         |  |              |  |         |        |  |   |          |   |  |                                                           
|---------------------------------------------------------- |  | ------------ | ------- |  | ------------ |  | ------- | ------ |  | - | -------- | - |  | ----------------------------------------------------------
|Borrower                                                   |  | MaturityDate |         |  | InterestRate |  |         | Amount |  |   | Security
|Performing loans:                                          |  |              |         |  |              |  |         |        |  |   |          |   |  |                                                           
|Dallas Fund XVII L.P.(2)                                   |  |              | 10/09   |  |              |  | 9.00    | %      |  | $ | 1,432    |   |  | Assignment of partnership interest                        
|Garden Centura, L.P.(1)                                    |  |              | N/A     |  |              |  | 7.00    | %      |  |   | 3,767    |   |  | Excess cash flow from partnership                         
|Miscellaneous non-related party notes                      |  |              | Various |  |              |  | Various |        |  |   | 889      |   |  | Various secured interest                                  
|Miscellaneous related party notes (1)                      |  |              | Various |  |              |  | Various |        |  |   | 665      |   |  | Various secured interest                                  
|Ocean Beach Partners, L.P. (1)                             |  |              | 12/11   |  |              |  | 7.00    | %      |  |   | 3,279    |   |  | Folsom Land (36 acres in Farmers Branch, TX)              
|Unified Housing Foundation, Inc. (Cliffs of El Dorado)
(1) |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 2,990    |   |  | 100% Interest in Unified Housing of McKinney, LLC         
|Unified Housing Foundation, Inc. (Echo Station)
(1)        |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 1,481    |   |  | 100% Interest in Unified Housing of Temple, LLC           
|Unified Housing Foundation, Inc. (Lakeshore Villas)
(1)    |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 2,000    |   |  | Unsecured                                                 
|Unified Housing Foundation, Inc. (Lakeshore Villas)
(1)    |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 6,363    |   |  | Membership interest in Housing for Seniors of Humble, LLC 
|Unified Housing Foundation, Inc. (Limestone Canyon)
(1)    |  |              | 07/15   |  |              |  | 5.25    | %      |  |   | 3,057    |   |  | 100% Interest in Unified Housing of Austin, LLC           
|Unified Housing Foundation, Inc. (Limestone Canyon)
(1)    |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 4,663    |   |  | 100% Interest in Unified Housing of Austin, LLC           
|Unified Housing Foundation, Inc. (Limestone Ranch)
(1)     |  |              | 07/15   |  |              |  | 5.25    | %      |  |   | 2,250    |   |  | 100% Interest in Unified Housing of Vista Ridge,LLC       
|Unified Housing Foundation, Inc. (Limestone Ranch)
(1)     |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 6,000    |   |  | 100% Interest in Unified Housing of Vista Ridge,LLC       
|Unified Housing Foundation, Inc. (Parkside Crossing)
(1)   |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 1,936    |   |  | 100% Interest in Unified Housing of Parkside Crossing, LLC
|Unified Housing Foundation, Inc. (Sendero Ridge)(1)        |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 4,812    |   |  | 100% Interest in Unified Housing of Sendero Ridge, LLC    
|Unified Housing Foundation, Inc. (Sendero Ridge)(1)        |  |              | 07/15   |  |              |  | 5.25    | %      |  |   | 5,174    |   |  | 100% Interest in Unified Housing of Sendero Ridge, LLC    
|Unified Housing Foundation, Inc. (Timbers of Terrell)(1)   |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 1,323    |   |  | 100% Interest in Unified Housing of Terrell, LLC          
|Unified Housing Foundation, Inc. (Tivoli)
(1)              |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 7,966    |   |  | 100% Interest in Unified Housing of Tivoli, LLC           
|Accrued interest                                           |  |              |         |  |              |  |         |        |  |   | 567      |   |  |                                                           
|                                                           |  |              |         |  |              |  |         |        |  |   |          |   |  |                                                           
|Total Performing                                           |  |              |         |  |              |  |         |        |  | $ | 60,614   |   |  |                                                           
|Allowance for estimated losses                             |  |              |         |  |              |  |         |        |  |   | (3,777   | ) |  |                                                           
|                                                           |  |              |         |  |              |  |         |        |  |   |          |   |  |                                                           
|Total                                                      |  |              |         |  |              |  |         |        |  | $ | 56,837   |   |  |                                                           
|                                                           |  |              |         |  |              |  |         |        |  |   |          |   |  |                                                           

(1)Related
party notes

(2) Note matured
and an allowance was taken for estimated losses at full value of note

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. ARL is our parent company and is considered as an
unconsolidated subsidiary.

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



|                                   |  |                      |      |   |                 |  |      |  
|---------------------------------- |  | -------------------- | ---- | - | --------------- |  | ---- | -
|                                   |  | Percentage Ownership |     
|                                   |  | at June 30,2011      |      |   | at June 30,2010 | 
|American Realty Investors, Inc.(1) |  |                      | 2.09 | % |                 |  | 2.47 | %
|Garden Centura, L.P.(2)            |  |                      | 5.00 | % |                 |  | 5.00 | %



|(1) | Unconsolidated subsidiary
|--- | -------------------------

|(2) | Other investees
|--- | ---------------



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Our interest in the common stock of ARL and our partnership interest in Garden Centura, L.P., in the amount
of 2.09% and 5.0%, 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 following is a summary of the financial position and results of operations from our unconsolidated subsidiaries and investees (dollars in thousands):



|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|-------------------------------------------- |  | ---------------------------------- | --------- |  | -------------- | - | -------- | ----- |  | - | --------- | 
|For the Six Months Ended June 30, 2011       |  | Unconsolidated        Subsidiaries |           |  | OtherInvestees |   |          | Total | 
|Real estate, net of accumulated depreciation |  | $                                  | 178,689   |  |                | $ | 73,280   |       |  | $ | 251,969   | 
|Notes receivable                             |  |                                    | 23,718    |  |                |   | -        |       |  |   | 23,718    | 
|Other assets                                 |  |                                    | 188,975   |  |                |   | 4,485    |       |  |   | 193,460   | 
|Notes payable                                |  |                                    | (216,643) |  |                |   | (47,989) |       |  |   | (264,632) | 
|Other liabilities                            |  |                                    | (106,940) |  |                |   | (2,182)  |       |  |   | (109,122) | 
|Shareholders equity/partners capital        |  |                                    | (67,799)  |  |                |   | (27,594) |       |  |   | (95,393)  | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|                                             |  |                                    |          
|Revenue                                      |  | $                                  | 13,156    |  |                | $ | 3,638    |       |  | $ | 16,794    | 
|Depreciation                                 |  |                                    | (901)     |  |                |   | (1,571)  |       |  |   | (2,472)   | 
|Operating expenses                           |  |                                    | (14,660)  |  |                |   | (2,149)  |       |  |   | (16,809)  | 
|Gain on land sales                           |  |                                    | 15,009    |  |                |   | -        |       |  |   | 15,009    | 
|Interest expense                             |  |                                    | (6,755)   |  |                |   | (1,156)  |       |  |   | (7,911)   | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Gain (loss) from continuing operations       |  | $                                  | 5,849     |  |                | $ | (1,238)  |       |  | $ | 4,611     | 
|Income from discontinued operations          |  |                                    | -         |  |                |   | -        |       |  |   | -         | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Net income (loss)                            |  | $                                  | 5,849     |  |                | $ | (1,238)  |       |  | $ | 4,611     | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Companys proportionate share of earnings    |  | $                                  | 122       |  |                | $ | (62)     |       |  | $ | 60        | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|                                             |  |                                    |          
|For the Six Months Ended June 30, 2010       |  | Unconsolidated        Subsidiaries |           |  | OtherInvestees |   |          | Total | 
|Real estate, net of accumulated depreciation |  | $                                  | 243,655   |  |                | $ | 75,880   |       |  | $ | 319,535   | 
|Notes Receivable                             |  |                                    | 41,564    |  |                |   | -        |       |  |   | 41,564    | 
|Other assets                                 |  |                                    | 165,274   |  |                |   | 5,709    |       |  |   | 170,983   | 
|Notes payable                                |  |                                    | (230,991) |  |                |   | (48,231) |       |  |   | (279,222) | 
|Other liabilities                            |  |                                    | (117,736) |  |                |   | (1,984)  |       |  |   | (119,720) | 
|Shareholders equity/partners capital         |  |                                    | (101,766) |  |                |   | (31,374) |       |  |   | (133,140) | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|                                             |  |                                    |          
|Rents and interest and other income          |  | $                                  | 17,041    |  |                | $ | 4,078    |       |  | $ | 21,119    | 
|Depreciation                                 |  |                                    | (1,194)   |  |                |   | (1,556)  |       |  |   | (2,750)   | 
|Operating expenses                           |  |                                    | (15,175)  |  |                |   | (1,966)  |       |  |   | (17,141)  | 
|Gain on land sales                           |  |                                    | 1,519     |  |                |   | -        |       |  |   | 1,519     | 
|Interest expense                             |  |                                    | (8,546)   |  |                |   | (1,805)  |       |  |   | (10,351)  | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Loss from continuing operations              |  |                                    | (6,355)   |  |                |   | (1,249)  |       |  |   | (7,604)   | 
|Income from discontinued operations          |  |                                    | 5,821     |  |                |   | -        |       |  |   | 5,821     | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Net loss                                     |  | $                                  | (534)     |  |                | $ | (1,249)  |       |  | $ | (1,783)   | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 
|Companys proportionate share of earnings    |  | $                                  | (13)      |  |                | $ | (62)     |       |  | $ | (75)      | 
|                                             |  |                                    |           |  |                |   |          |       |  |   |           | 

NOTE 5. NOTES PAYABLE

On February 28, 2011, we refinanced the existing mortgage on Vistas of Vance Jackson apartments, a 240-unit complex located in
San Antonio, Texas, for a new mortgage of $16.1 million. We received $0.1 million in cash after paying off the existing mortgage of $15.4 million and $0.6 million in closing costs. The note accrues interest at 4.80% and payments of interest and
principal are due monthly based upon a 40-year amortization schedule, maturing on March 1, 2051.

On February 28, 2011, a loan with
a commercial lender in the amount of $1.3 million was taken out to fund real estate property taxes. The loan accrues interest at 12.5%, payable monthly as interest only, until August 1, 2013. Thereafter, payments of interest and principal are
due monthly based upon an 8-year amortization schedule, maturing on July 1, 2021.

On April 28, 2011, we refinanced the existing
mortgage on Mariposa Villas apartments, a 216-unit complex located in Dallas, Texas, for a new mortgage of $12.4 million. We paid off the existing mortgage of $11.8 million and $0.6 million in closing costs. The note accrues interest at 3.90% and
payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on May 1, 2051.



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On April 28, 2011, we refinanced the existing mortgage on Verandas at City View apartments, a 314-unit
complex located in Fort Worth, Texas, for a new mortgage of $18.5 million. We paid off the existing mortgage of $17.3 million and $1.2 million in closing costs. The note accrues interest at 4.20% and payments of interest and principal are due
monthly based upon a 40-year amortization schedule, maturing on May 1, 2051.

On May 31, 2011, we refinanced the existing mortgage
on Stonebridge at City Park apartments, a 240-unit complex located in Houston, Texas, for a new mortgage of $14.6 million. We paid off the existing mortgage of $13.9 million and $0.7 million in closing costs. The note accrues interest at 3.90% and
payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on June 1, 2051.

In conjunction
with the development of various apartment projects and other developments, we drew down $29.1 million in construction loans during the six months ended June 30, 2011.

The properties that we have sold to a related party under common control and have deferred the recognition of the sale are treated as subject to sales contract on the Consolidated Balance
Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are
secured by the property and many have corporate guarantees. According to the loan documents, we are currently in default on these mortgages primarily due to lack of payment although we are actively involved in discussions with every lender in order
to settle or cure the default situation. We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.

NOTE 6. RELATED PARTY TRANSACTIONS

The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to affiliates as
of June 30, 2011 (dollars in thousands):



|                                |  |       |          |  |        |   |         |     |  |   |          |  |  |   |          | 
|------------------------------- |  | ----- | -------- |  | ------ | - | ------- | --- |  | - | -------- |  |  | - | -------- | 
|                                |  | Prime |          |  | Pillar |   |         | ARL |  |   | Total    | 
|Balance, December 31, 2010      |  | $     | -        |  |        | $ | -       |     |  | $ | (47,261) |  |  | $ | (47,261) | 
|Cash transfers                  |  |       | 3,588    |  |        |   | 2,467   |     |  |   | -        |  |  |   | 6,055    | 
|Advisory fees                   |  |       | (3,528)  |  |        |   | (1,720) |     |  |   | -        |  |  |   | (5,248)  | 
|Cost reimbursements             |  |       | (1,658)  |  |        |   | -       |     |  |   | -        |  |  |   | (1,658)  | 
|Interest to advisor             |  |       | (926)    |  |        |   | -       |     |  |   | -        |  |  |   | (926)    | 
|POA fees                        |  |       | (10)     |  |        |   | -       |     |  |   | -        |  |  |   | (10)     | 
|Expenses paid by advisor        |  |       | (1,240)  |  |        |   | 378     |     |  |   | -        |  |  |   | (862)    | 
|Financing (mortgage payments)   |  |       | (382)    |  |        |   | (5,045) |     |  |   | -        |  |  |   | (5,427)  | 
|Note receivable with affiliate  |  |       | 8,016    |  |        |   | 2,726   |     |  |   | -        |  |  |   | 10,742   | 
|Sales/Purchases transactions    |  |       | 888      |  |        |   | (261)   |     |  |   | -        |  |  |   | 627      | 
|Intercompany property transfers |  |       | 8,543    |  |        |   | 1,540   |     |  |   | -        |  |  |   | 10,083   | 
|Purchase of obligations         |  |       | (13,291) |  |        |   | (85)    |     |  |   | 13,376   |  |  |   | -        | 
|                                |  |       |          |  |        |   |         |     |  |   |          |  |  |   |          | 
|Balance, June 30, 2011          |  | $     | -        |  |        | $ | -       |     |  | $ | (33,885) |  |  | $ | (33,885) | 
|                                |  |       |          |  |        |   |         |     |  |   |          |  |  |   |          | 

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 expenses received/paid are shown on the face of the financial statements.

NOTE 7. OPERATING SEGMENTS

Our segments are based on our method of internal reporting which classifies our operations by property type. Our property types are
grouped into commercial, apartments, land and other operating segments. 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. We evaluate the performance of each of the operating segments and allocate resources to them based on their operating income and cash flow.

Items of income that are not reflected in the segments are interest, other income, gain on debt extinguishment, gain on condemnation award, equity in
partnerships, and gains on sale of real estate. Expenses that are not reflected in the segments are provision for losses, advisory, net income and incentive fees, general and administrative, non-controlling interests and net loss from discontinued
operations before gains on sale of real estate.



16



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##### Table of Contents

Presented below is our reportable segments operating income for the three and six months ended
June 30, 2011 and 2010, including segment assets and expenditures (dollars in thousands):



|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|---------------------------------------- |  | -------------------- | ------- |  | ---------- | - | ------- | ---- |  | - | ------- |  |  | ----- | ----- |  |  | - | --------- | 
|For the Three Months Ended June 30, 2011 |  | CommercialProperties |         |  | Apartments |   |         | Land |  |   | Other   |  |  | Total |      
|Operating revenue                        |  | $                    | 12,323  |  |            | $ | 19,372  |      |  | $ | 86      |  |  | $     | 4     |  |  | $ | 31,785    | 
|Operating expenses                       |  |                      | 5,915   |  |            |   | 9,873   |      |  |   | 344     |  |  |       | 68    |  |  |   | 16,200    | 
|Depreciation and amortization            |  |                      | 2,156   |  |            |   | 3,814   |      |  |   | -       |  |  |       | -     |  |  |   | 5,970     | 
|Mortgage and loan interest               |  |                      | 2,582   |  |            |   | 8,479   |      |  |   | 1,995   |  |  |       | 1,555 |  |  |   | 14,611    | 
|Interest income                          |  |                      | -       |  |            |   | -       |      |  |   | -       |  |  |       | 704   |  |  |   | 704       | 
|Gain on land sales                       |  |                      | -       |  |            |   | -       |      |  |   | 1,285   |  |  |       | -     |  |  |   | 1,285     | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Segment operating income (loss)          |  | $                    | 1,670   |  |            | $ | (2,794) |      |  | $ | (968)   |  |  | $     | (915) |  |  | $ | (3,007)   | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Capital expenditures                     |  |                      | 190     |  |            |   | 89      |      |  |   | -       |  |  |       | -     |  |  |   | 279       | 
|Assets                                   |  |                      | 232,430 |  |            |   | 622,628 |      |  |   | 217,162 |  |  |       | -     |  |  |   | 1,072,220 | 
|                                         |  |                      |         |  |           
|Property Sales                           |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Sales price                              |  | $                    | 67,397  |  |            | $ | -       |      |  | $ | 40,141  |  |  | $     | -     |  |  | $ | 107,538   | 
|Cost of sale                             |  |                      | 75,274  |  |            |   | -       |      |  |   | 41,846  |  |  |       | -     |  |  |   | 117,120   | 
|Deferred current gain                    |  |                      | -       |  |            |   | -       |      |  |   | -       |  |  |       | -     |  |  |   | -         | 
|Recognized prior deferred gain           |  |                      | -       |  |            |   | 963     |      |  |   | 2,990   |  |  |       | -     |  |  |   | 3,953     | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Gain (loss) on sale                      |  | $                    | (7,877) |  |            | $ | 963     |      |  | $ | 1,285   |  |  | $     | -     |  |  | $ | (5,629)   | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|                                         |  |                      |         |  |           
|For the Three Months Ended June 30, 2010 |  | CommercialProperties |         |  | Apartments |   |         | Land |  |   | Other   |  |  | Total |      
|Operating revenue                        |  | $                    | 11,849  |  |            | $ | 18,659  |      |  | $ | 92      |  |  | $     | (11)  |  |  | $ | 30,589    | 
|Operating expenses                       |  |                      | 6,446   |  |            |   | 10,513  |      |  |   | 1,163   |  |  |       | 7     |  |  |   | 18,129    | 
|Depreciation and amortization            |  |                      | 2,364   |  |            |   | 3,989   |      |  |   | -       |  |  |       | -     |  |  |   | 6,353     | 
|Mortgage and loan interest               |  |                      | 3,495   |  |            |   | 8,794   |      |  |   | 2,443   |  |  |       | 931   |  |  |   | 15,663    | 
|Interest income                          |  |                      | -       |  |            |   | -       |      |  |   | -       |  |  |       | 832   |  |  |   | 832       | 
|Loss on land sales                       |  |                      | -       |  |            |   | -       |      |  |   | (5,640) |  |  |       | -     |  |  |   | (5,640)   | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Segment operating loss                   |  | $                    | (456)   |  |            | $ | (4,637) |      |  | $ | (9,154) |  |  | $     | (117) |  |  | $ | (14,364)  | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Capital expenditures                     |  |                      | 318     |  |            |   | -       |      |  |   | -       |  |  |       | -     |  |  |   | 318       | 
|Assets                                   |  |                      | 244,117 |  |            |   | 570,011 |      |  |   | 379,054 |  |  |       | -     |  |  |   | 1,193,182 | 
|                                         |  |                      |         |  |           
|Property Sales                           |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Sales price                              |  | $                    | 5,970   |  |            | $ | 25,092  |      |  | $ | 17,660  |  |  | $     | -     |  |  | $ | 48,722    | 
|Cost of sale                             |  |                      | 6,184   |  |            |   | 21,418  |      |  |   | 23,300  |  |  |       | -     |  |  |   | 50,902    | 
|Deferred current gain                    |  |                      | -       |  |            |   | 3,599   |      |  |   | -       |  |  |       | -     |  |  |   | 3,599     | 
|Recognized prior deferred gain           |  |                      | -       |  |            |   | -       |      |  |   | -       |  |  |       | -     |  |  |   | -         | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 
|Gain (loss) on sale                      |  | $                    | (214)   |  |            | $ | 75      |      |  | $ | (5,640) |  |  | $     | -     |  |  | $ | (5,779)   | 
|                                         |  |                      |         |  |            |   |         |      |  |   |         |  |  |       |       |  |  |   |           | 

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



|                                                                   |  |                                |          |  |      |   |          | 
|------------------------------------------------------------------ |  | ------------------------------ | -------- |  | ---- | - | -------- | 
|                                                                   |  | For Three Months EndedJune 30, |         
|                                                                   |  | 2011                           |          |  | 2010 |  
|Segment operating loss                                             |  | $                              | (3,007)  |  |      | $ | (14,364) | 
|Other non-segment items of income (expense)                        |  |                                |          |  |      |   |          | 
|General and administrative                                         |  |                                | (2,588)  |  |      |   | (1,793)  | 
|Advisory fees                                                      |  |                                | (2,626)  |  |      |   | (2,962)  | 
|Provision on impairment of notes receivable and real estate assets |  |                                | (25,444) |  |      |   | -        | 
|Other income                                                       |  |                                | 100      |  |      |   | 249      | 
|Equity in earnings of investees                                    |  |                                | 117      |  |      |   | (50)     | 
|Deferred tax benefit                                               |  |                                | 2,584    |  |      |   | 554      | 
|                                                                   |  |                                |          |  |      |   |          | 
|Loss from continuing operations                                    |  | $                              | (30,864) |  |      | $ | (18,366) | 
|                                                                   |  |                                |          |  |      |   |          | 

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



|                                        |  |                                |           |  |      |   |           | 
|--------------------------------------- |  | ------------------------------ | --------- |  | ---- | - | --------- | 
|                                        |  | For Three Months EndedJune 30, |          
|                                        |  | 2011                           |           |  | 2010 |  
|Segment assets                          |  | $                              | 1,072,220 |  |      | $ | 1,193,182 | 
|Investments in real estate partnerships |  |                                | 7,441     |  |      |   | 8,938     | 
|Other assets                            |  |                                | 134,414   |  |      |   | 136,970   | 
|Assets held for sale                    |  |                                | -         |  |      |   | 210,021   | 
|                                        |  |                                |           |  |      |   |           | 
|Total assets                            |  | $                              | 1,214,075 |  |      | $ | 1,549,111 | 
|                                        |  |                                |           |  |      |   |           | 



17



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##### Table of Contents

|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|-------------------------------------- |  | -------------------- | ------- |  | ---------- | - | ------- | ---- |  | - | -------- |  |  | ----- | ------- |  |  | - | --------- | 
|For the Six Months Ended June 30, 2011 |  | CommercialProperties |         |  | Apartments |   |         | Land |  |   | Other    |  |  | Total |        
|Operating revenue                      |  | $                    | 22,477  |  |            | $ | 38,669  |      |  | $ | 281      |  |  | $     | 12      |  |  | $ | 61,439    | 
|Operating expenses                     |  |                      | 12,269  |  |            |   | 19,429  |      |  |   | 883      |  |  |       | 94      |  |  |   | 32,675    | 
|Depreciation and amortization          |  |                      | 4,518   |  |            |   | 7,514   |      |  |   | -        |  |  |       | -       |  |  |   | 12,032    | 
|Mortgage and loan interest             |  |                      | 5,331   |  |            |   | 15,695  |      |  |   | 4,900    |  |  |       | 2,109   |  |  |   | 28,035    | 
|Interest income                        |  |                      | -       |  |            |   | -       |      |  |   | -        |  |  |       | 1,130   |  |  |   | 1,130     | 
|Gain on land sales                     |  |                      | -       |  |            |   | -       |      |  |   | 2,081    |  |  |       | -       |  |  |   | 2,081     | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Segment operating gain (loss)          |  | $                    | 359     |  |            | $ | (3,969) |      |  | $ | (3,421)  |  |  | $     | (1,061) |  |  | $ | (8,092)   | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Capital expenditures                   |  |                      | 258     |  |            |   | 82      |      |  |   | -        |  |  |       | -       |  |  |   | 340       | 
|Assets                                 |  |                      | 232,430 |  |            |   | 622,628 |      |  |   | 217,162  |  |  |       | -       |  |  |   | 1,072,220 | 
|                                       |  |                      |         |  |           
|Property Sales                         |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Sales price                            |  | $                    | 99,911  |  |            | $ | -       |      |  | $ | 86,132   |  |  | $     | -       |  |  | $ | 186,043   | 
|Cost of sale                           |  |                      | 107,503 |  |            |   | -       |      |  |   | 87,426   |  |  |       | -       |  |  |   | 194,929   | 
|Deferred current gain                  |  |                      | -       |  |            |   | -       |      |  |   | -        |  |  |       | -       |  |  |   | -         | 
|Recognized prior deferred gain         |  |                      | 3,391   |  |            |   | 963     |      |  |   | 3,375    |  |  |       | -       |  |  |   | 7,729     | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Gain (loss) on sale                    |  | $                    | (4,201) |  |            | $ | 963     |      |  | $ | 2,081    |  |  | $     | -       |  |  | $ | (1,157)   | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|                                       |  |                      |         |  |           
|For the Six Months Ended June 30, 2010 |  | CommercialProperties |         |  | Apartments |   |         | Land |  |   | Other    |  |  | Total |        
|Operating revenue                      |  | $                    | 24,244  |  |            | $ | 36,913  |      |  | $ | 160      |  |  | $     | (30)    |  |  | $ | 61,287    | 
|Operating expenses                     |  |                      | 12,939  |  |            |   | 20,608  |      |  |   | 1,735    |  |  |       | 56      |  |  |   | 35,338    | 
|Depreciation and amortization          |  |                      | 4,742   |  |            |   | 7,472   |      |  |   | -        |  |  |       | -       |  |  |   | 12,214    | 
|Mortgage and loan interest             |  |                      | 6,920   |  |            |   | 16,386  |      |  |   | 5,077    |  |  |       | 1,994   |  |  |   | 30,377    | 
|Interest income                        |  |                      | -       |  |            |   | -       |      |  |   | -        |  |  |       | 1,691   |  |  |   | 1,691     | 
|Loss on land sales                     |  |                      | -       |  |            |   | -       |      |  |   | (5,634)  |  |  |       | -       |  |  |   | (5,634)   | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Segment operating loss                 |  | $                    | (357)   |  |            | $ | (7,553) |      |  | $ | (12,286) |  |  | $     | (389)   |  |  | $ | (20,585)  | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Capital expenditures                   |  |                      | 540     |  |            |   | 260     |      |  |   | 121      |  |  |       | -       |  |  |   | 921       | 
|Assets                                 |  |                      | 244,117 |  |            |   | 570,011 |      |  |   | 379,054  |  |  |       | -       |  |  |   | 1,193,182 | 
|                                       |  |                      |         |  |           
|Property Sales                         |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Sales price                            |  | $                    | 5,970   |  |            | $ | 25,092  |      |  | $ | 17,669   |  |  | $     | -       |  |  | $ | 48,731    | 
|Cost of sale                           |  |                      | 6,184   |  |            |   | 21,418  |      |  |   | 23,303   |  |  |       | -       |  |  |   | 50,905    | 
|Deferred current gain                  |  |                      | -       |  |            |   | 3,599   |      |  |   | -        |  |  |       | -       |  |  |   | 3,599     | 
|Recognized prior deferred gain         |  |                      | -       |  |            |   | -       |      |  |   | -        |  |  |       | -       |  |  |   | -         | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 
|Gain (loss) on sale                    |  | $                    | (214)   |  |            | $ | 75      |      |  | $ | (5,634)  |  |  | $     | -       |  |  | $ | (5,773)   | 
|                                       |  |                      |         |  |            |   |         |      |  |   |          |  |  |       |         |  |  |   |           | 

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



|                                                                   |  |                              |          |  |      |   |          | 
|------------------------------------------------------------------ |  | ---------------------------- | -------- |  | ---- | - | -------- | 
|                                                                   |  | For Six Months EndedJune 30, |         
|                                                                   |  | 2011                         |          |  | 2010 |  
|Segment operating loss                                             |  | $                            | (8,092)  |  |      | $ | (20,585) | 
|Other non-segment items of income (expense)                        |  |                              |          |  |      |   |          | 
|General and administrative                                         |  |                              | (4,730)  |  |      |   | (3,619)  | 
|Advisory fees                                                      |  |                              | (5,246)  |  |      |   | (6,058)  | 
|Provision on impairment of notes receivable and real estate assets |  |                              | (31,503) |  |      |   | -        | 
|Other income                                                       |  |                              | 1,314    |  |      |   | 914      | 
|Equity in earnings of investees                                    |  |                              | 57       |  |      |   | (112)    | 
|Deferred tax benefit                                               |  |                              | 1,637    |  |      |   | 431      | 
|                                                                   |  |                              |          |  |      |   |          | 
|Loss from continuing operations                                    |  | $                            | (46,563) |  |      | $ | (29,029) | 
|                                                                   |  |                              |          |  |      |   |          | 

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



|                                        |  |                              |           |  |      |   |           | 
|--------------------------------------- |  | ---------------------------- | --------- |  | ---- | - | --------- | 
|                                        |  | For Six Months EndedJune 30, |          
|                                        |  | 2011                         |           |  | 2010 |  
|Segment assets                          |  | $                            | 1,072,220 |  |      | $ | 1,193,182 | 
|Investments in real estate partnerships |  |                              | 7,441     |  |      |   | 8,938     | 
|Other assets                            |  |                              | 134,414   |  |      |   | 136,970   | 
|Assets held for sale                    |  |                              | -         |  |      |   | 210,021   | 
|                                        |  |                              |           |  |      |   |           | 
|Total assets                            |  | $                            | 1,214,075 |  |      | $ | 1,549,111 | 
|                                        |  |                              |           |  |      |   |           | 



18



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##### Table of Contents

NOTE 8. DISCONTINUED OPERATIONS

We apply the provisions of ASC Topic 360 Property, Plant and Equipment. ASC Topic 360 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.

Discontinued operations relates to properties that were either
sold or held for sale as of the period ended June 30, 2011. Included in discontinued operations are a total of four and 17 properties for 2011 and 2010, respectively. Properties sold in 2011 have been reclassified to discontinued operations for
current and prior year reporting periods. In 2011, we sold four commercial properties (Alpenloan, Fenton Center, Teleport Blvd and Westgrove Air Plaza). In 2010, we sold 11 apartment complexes (Baywalk, Foxwood, Island Bay, Kingsland Ranch,
Limestone Canyon, Limestone Ranch, Longfellow Arms, Marina Landing, Mason Park, Sendero Ridge and Tivoli), one commercial building (217 Rampart) and transferred our limited partnership interest in a consolidated entity that owned an apartment
complex (Quail Oaks). The gain on sale of the properties is also included in discontinued operations for those years. The following table summarizes revenue and expense information for the properties sold and held for sale (dollars in thousands):



|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|------------------------------------------------------------------------------------------ |  | ---------------------------------- | ------- |  | -------------------------------- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|                                                                                           |  | For the Three Months EndedJune 30, |         |  | For the Six Months EndedJune 30, |  
|                                                                                           |  | 2011                               |         |  | 2010                             |   |         | 2011 |  |   | 2010    | 
|Revenue                                                                                    |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|Rental                                                                                     |  | $                                  | 1,842   |  |                                  | $ | 5,041   |      |  | $ | 3,877   |  |  | $ | 12,685  | 
|Property operations                                                                        |  |                                    | 1,293   |  |                                  |   | 3,208   |      |  |   | 2,792   |  |  |   | 6,703   | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|                                                                                           |  | $                                  | 549     |  |                                  | $ | 1,833   |      |  |   | 1,085   |  |  |   | 5,982   | 
|Expenses                                                                                   |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|Interest                                                                                   |  |                                    | (573)   |  |                                  |   | (2,160) |      |  |   | (1,436) |  |  |   | (4,610) | 
|General and administrative                                                                 |  |                                    | (143)   |  |                                  |   | (26)    |      |  |   | (211)   |  |  |   | (43)    | 
|Depreciation                                                                               |  |                                    | (373)   |  |                                  |   | (1,091) |      |  |   | (949)   |  |  |   | (2,285) | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|                                                                                           |  | $                                  | (1,089) |  |                                  | $ | (3,277) |      |  |   | (2,596) |  |  |   | (6,938) | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|Net loss from discontinued operations before gains on sale of real estate, taxes, and fees |  |                                    | (540)   |  |                                  |   | (1,444) |      |  |   | (1,511) |  |  |   | (956)   | 
|Loss on sale of discontinued operations                                                    |  |                                    | (6,914) |  |                                  |   | (139)   |      |  |   | (3,238) |  |  |   | (139)   | 
|Equity in earnings of investees                                                            |  |                                    | 71      |  |                                  |   | -       |      |  |   | 71      |  |  |   | -       | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|Loss from discontinued operations                                                          |  | $                                  | (7,383) |  |                                  | $ | (1,583) |      |  |   | (4,678) |  |  |   | (1,095) | 
|Tax expense                                                                                |  |                                    | (2,584) |  |                                  |   | (554)   |      |  |   | (1,637) |  |  |   | (383)   | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 
|Net loss from discontinued operations                                                      |  | $                                  | (9,967) |  |                                  | $ | (2,137) |      |  | $ | (6,315) |  |  | $ | (1,478) | 
|                                                                                           |  |                                    |         |  |                                  |   |         |      |  |   |         |  |  |   |         | 

Our application of ASC Topic 360 results in the presentation of the net operating results of these qualifying properties
sold or held for sale during 2010 as income from discontinued operations. This does not have an impact on net income available to common shareholders and only impacts the presentation of these properties within the Consolidated Statements of
Operations.

NOTE 9. COMMITMENTS AND CONTINGENCIES AND LIQUIDITY

Liquidity. Management believes that TCI will generate excess cash from property operations in 2011; 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.

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

Other Litigation. The ownership of property and provision of services to the public as tenants entails an inherent risk of
liability. Although the Company and its subsidiaries are involved in various items of litigation incidental to and in the ordinary course of its business, in the opinion of Management, the outcome of such litigation will not have a material adverse
impact upon the Companys financial condition, results of operation or liquidity.



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NOTE 10. EARNINGS PER SHARE

Earnings per share (EPS) have been computed pursuant to the provisions of ASC Topic 260 Earnings Per Share.
The computation of basic EPS is calculated by dividing income available to common shareholders from continuing operations, adjusted for preferred dividends, 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. As of June 30, 2011, we have 10,000 shares of stock options outstanding, 5,000 of which will expire on January 12, 2012, and 5,000 of which will
expire on January 1, 2015 if not exercised. These options 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. As of June 30, 2011, the preferred stock
and the stock options were anti-dilutive and thus not included in the EPS calculation.

NOTE 11. SUBSEQUENT EVENTS

Subsequent to the period ending June 30, 2011, several properties that were sold to a related party and treated on the books as
subject to sales contract have been transferred back to the lender for credit against the loan balance. Any impairment necessary related to the inability to recover our original investment has been recorded in 2010 and 2011 and the sales
that were deferred will be recognized in July and August 2011 when ownership transferred to a third party.

On July 1, 2011, we sold
12.74 acres of land known as Centurion 12 land located in Fort Worth, Texas for a sales price of $1.1 million.

On July 5, 2011, a
warehouse and 13.0 acres of land known as Eagle Crest located in Farmers Branch, Texas, which was sold to a related party and treated on the books as subject to sales contract, was transferred to the lender for credit against the loan
balance. Any impairment necessary related to the inability to recover our original investment has been realized in 2011 and the sale that was deferred will be recognized in the third quarter, when ownership transferred to a third party.

On July 5, 2011, Three Hickory land located in Farmers Branch, Texas, which was sold to a related party and treated on the books as subject to
sales contract, was transferred to the lender for credit against the loan balance. Any impairment necessary related to the inability to recover our original investment has been realized in 2011 and the sale that was deferred will be recognized
in the third quarter, when ownership transferred to a third party.

On July 5, 2011, One Hickory Centre and Two Hickory Centre, office
buildings located in Dallas, Texas, both of which were sold to a related party and treated on the books as subject to sales contract, were transferred to the lender for credit against the loan balance. Any impairment necessary related to
the inability to recover our original investment has been realized in 2011 and the sale that was deferred will be recognized in the third quarter, when ownership transferred to a third party.

On July 5, 2011, Windmill Farms-Harlan land located in Kaufman County, Texas, which was sold to a related party and treated on the books as subject to sales contract, was transferred to
the lender for credit against the loan balance. The sale that was deferred will be recognized in the third quarter, when ownership transferred to a third party.

On August 2, 2011, Centura land located in Dallas, Texas, which was sold to a related party and treated on the books as subject to sales contract, was transferred to the lender for credit
against the loan balance. Any impairment necessary related to the inability to recover our original investment has been realized in 2011 and the sale that was deferred will be recognized in the third quarter, when ownership transferred to a third
party.

On August 2, 2011, seven properties comprising approximately 2,713.68 acres of undeveloped land located in Irving, Farmers Branch
and Forney, Texas, all of which were sold to a related party and treated on the books as subject to sales contract, were transferred to the lender for credit against the loan balance. Any impairment necessary related to the inability to
recover our original investment has been realized in 2011 and we do not anticipate any additional gain or loss. The sale that was deferred will be recognized in the third quarter, when ownership transferred to a third party.

On August 2, 2011, Signature Athletic Club, an office building located in Dallas, Texas, which was sold to a related party and treated on the books
as subject to sales contract, was transferred to the lender for credit against the loan balance. Any impairment necessary related to the inability to recover our original investment has been realized in 2011 and the sale that was
deferred will be recognized in the third quarter, when ownership transferred to a third party.



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On August 2, 2011, Parkway North, an office building located in Dallas, Texas, which was sold to a
related party and treated on the books as subject to sales contract, was transferred to the lender for credit against the loan balance. Any impairment necessary related to the inability to recover our original investment has been
realized in 2011 and the sale that was deferred will be recognized in the third quarter, when ownership transferred to a third party.

On
August 2, 2011, Las Colinas Station land, a land parcel owned by TCI Woodmont Group XIII, LP, which the Company has a 75% limited partner interest in, was transferred to the lender for credit against the loan balance. This property was impaired
in 2008 and 2009 and we do not anticipate any additional losses.

On August 5, 2011, we sold our 30% limited partner interest in a
partnership that owned a 120-unit apartment complex known as Westwood apartments, located in Mary Ester, Florida for a sales price of $7.1 million.



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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 Part I, Item 1A. Risk Factors in the Companys Annual
Report on Form 10-K, which investors should review. There have been no changes from the risk factors previously described in the Companys Form 10-K for the fiscal year ended December 31, 2010.

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



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our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these
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 investment strategy includes acquiring existing income-producing properties as well as
developing new properties on land already owned or acquired for a specific development project. We acquire land primarily in urban in-fill locations or high-growth suburban markets. We are an active buyer and seller of real estate and during the six
months ended June 30, 2011, we acquired $13.0 million of income producing properties and sold $155.8 million of land and income producing properties. As of June 30, 2011, we owned 8,919 units in 48 residential apartment communities and 23
commercial properties of approximately 4.2 million rentable square feet. In addition, we owned 4,891 acres of land held for development and have three apartment complexes currently in development.

We finance our acquisitions primarily through operating cash flow, proceeds from the sale of land and income-producing properties, and debt financing
primarily in the form of property-specific first-lien mortgage loans from commercial banks and institutional lenders. We finance our development projects principally with 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. We will, from time to time, also enter into partnerships with various investors to acquire income-producing properties or land
and to sell interests in certain of our wholly owned properties. When we sell assets, we may carry a portion of the sales price generally in the form of a short-term, interest bearing seller-financed note receivable. We generate operating revenues
primarily by leasing apartment units to residents and leasing office, retail and industrial space to commercial tenants.

We have historically
engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition and dispositions. Transactions involving related parties cannot be presumed to be carried out on an
arms length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms,
conditions and agreements that are not necessarily beneficial to or in our best interest.

Prior to April 30, 2011, Prime Income Asset
Management, LLC (Prime) was the Companys external Advisor and Cash Manager. Prime also served as an Advisor and Cash Manager to ARL and IOT. Effective April 30, 2011, Pillar Income Asset Management, Inc.
(Pillar) became the Companys external Advisor and Cash Manager under the same terms as the previous agreement with Prime. Pillar also serves as an Advisor and Cash Manager to ARL and IOT. Prior to December 31, 2010, Triad
Realty Services, L.P. (Triad), managed the Companys commercial properties and Regis Realty I, LLC (Regis Realty), provided brokerage services. Triad and Regis Realty are affiliates of Prime. Effective
January 1, 2011, Regis Realty Prime, LLC (Regis), an affiliate of Prime, manages our commercial properties and provides brokerage services under the same terms as the previous agreements with Triad and Regis Realty, for a term of
five years. We engage third-party companies to lease and manage our apartment properties.

Critical Accounting Policies

We present our financial statements in accordance with generally accepted accounting principles in the United States (GAAP).
In June 2009, the Financial Accounting Standards Board (FASB) completed its accounting guidance codification project. The FASB Accounting Standards Codification (ASC) became effective for our financial statements issued
subsequent to June 30, 2009 and is the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. As of the effective
date, we no longer refer to the authoritative guidance dictating our accounting methodologies under the previous accounting standards hierarchy. Instead, we refer to the ASC guidance as the sole source of authoritative literature.

The accompanying Consolidated Financial Statements include our accounts, our subsidiaries, generally all of which are wholly-owned, and all entities in
which we have a controlling interest. Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (VIE), in accordance with the provisions and guidance of ASC Topic 810
Consolidation, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (EITF)
Issue 04-5, Investors Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner



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and the Limited Partners have Certain Rights (EITF 04-5). VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from
other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests. The
primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entitys financial
results. All significant intercompany balances and transactions have been eliminated in consolidation.

In determining whether we are the
primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our
and the other investors ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these
determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of
accounting. Accordingly, our share of the net earnings or losses of these entities are included in consolidated net income. Our investments in ARL and Garden Centura, L.P. are accounted for under the equity method.

Real Estate

Upon acquisitions of real
estate, we assess the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, above-market and below-market leases, origination costs, acquired in-place leases, other identified
intangible assets and assumed liabilities in accordance with ASC Topic 805 Business Combinations, and allocate the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings at
replacement cost.

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

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.

Other intangible assets acquired include amounts for in-place lease values that are based
on our evaluation of the specific characteristics of each tenants lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute
similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In
estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.

Depreciation and Impairment

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

Management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates
impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. If such impairment is present, an impairment loss is recognized based on the excess of



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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.

ASC Topic 360 Property, Plant and
Equipment 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 we 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 ASC Topic 835-20 Interest  Capitalization of Interest and ASC Topic 970 Real Estate - General. The costs of land and buildings under development include
specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs
incurred during the period of development. We cease capitalization when a building is considered substantially complete and ready for its intended use, but no later than one year from the cessation of major construction activity.

Investments in Unconsolidated Real Estate Ventures

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

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 ASC Topic 805 Business Combinations, 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. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.



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Revenue Recognition on the Sale of Real Estate

Sales and the associated gains or losses of real estate are recognized in accordance with the provisions of ASC Topic 360-20, Property, Plant and
Equipment  Real Estate Sale. The specific timing of a sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance
associated with the properties. If the sales criteria for the full accrual method are not met, we defer some or all of the gain recognition and account for the continued operations of the property by applying the finance, leasing, deposit,
installment or cost recovery methods, as appropriate, until the sales criteria are met.

Non-performing Notes Receivable

We consider a note receivable to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest
payments in accordance with the terms of the agreement.

Interest Recognition on Notes Receivable

For notes other than surplus cash notes, we record interest income as earned in accordance with the terms of the related loan agreements. On cash flow
notes where payments are based upon surplus cash from operations, accrued but unpaid interest income is only recognized to the extent that cash is received.

Allowance for Estimated Losses

We assess the collectability of notes receivable on a
periodic basis, of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of
the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the
fair value of the partnerships real estate that represents the primary source of loan repayment. See Note 3 Notes and Interest Receivable for details on our notes receivable.

Fair Value of Financial Instruments

We
apply the guidance in ASC Topic 820, Fair Value Measurements and Disclosures, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability
in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value
hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entitys own data.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three
levels defined as follows:



|        |  |   |  |                                                                                                                                                                                                                           
|------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  |  |  | Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.                                                                                                                          
|        |  |  
|Level 2 |  |  |  | Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the
full term of the financial instrument.
|        |  |  
|Level 3 |  |  |  | Unobservable inputs that are significant to the fair value measurement.                                                                                                                                                   

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

Results of Operations

The discussion of our results of operations is based on managements review of operations, which is based on our segments. Our segments consist of apartments, commercial buildings, land and other.
For discussion purposes, we break these segments down into the following sub-categories; same property portfolio, acquired properties, and developed properties in the lease-up phase. The same property portfolio consists of properties that were held
by us for the entire period for both years being compared. The acquired property portfolio consists of properties that we acquired but have not been held for the entire period for both periods being compared. Developed properties in the lease-up
phase consist of completed projects that are being leased up. As we complete each phase of the project, we lease up that phase and include those revenues in our continued operations.



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Once a developed property becomes leased up and is held the entire period for both periods under comparison, it is considered to be included in the same property portfolio. Income producing
properties that we have sold during the year are reclassified to discontinuing operations for all periods presented.

The following discussion
is based on our Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 as included in Part I, Item 1. Financial Statements of this report. The prior years property portfolios have
been adjusted for subsequent sales. Continued operations relates to income producing properties that were held during those years as adjusted for sales in the subsequent years.

At June 30, 2011 and 2010, we owned or had interests in a portfolio of 71 and 82 income producing properties, respectively. For discussion purposes, we broke this out between continued operations and
discontinued operations. The total property portfolio represents all income producing properties held as of June 30 for the period presented. Sales subsequent to quarter end represent properties that were held as of period end for the periods
presented, but sold in the next quarter. Continuing operations represents all properties that have not been reclassified to discontinued operations as of June 30, 2011 for the periods presented. The table below shows the number of income
producing properties held at the quarter ended:



|                               |  |          |    |  |      |  |    | 
|------------------------------ |  | -------- | -- |  | ---- |  | -- | 
|                               |  | June 30, |   
|                               |  | 2011     |    |  | 2010 | 
|Continuing operations          |  |          | 66 |  |      |  | 67 | 
|Sales subsequent to period end |  |          | 5  |  |      |  | -  | 
|Discontinued operations        |  |          | -  |  |      |  | 15 | 
|                               |  |          |    |  |      |  |    | 
|Total property portfolio       |  |          | 71 |  |      |  | 82 | 
|                               |  |          |    |  |      |  |    | 

Comparison of the three months ended June 30, 2011 to the same period ended 2010

For the three months ended June 30, 2011, we reported a net loss applicable to common shares of $41.1 million or $4.88 per diluted earnings per
share, as compared to a net loss applicable to common shares of $20.7 million or $2.54 per diluted earnings per share for the same period ended 2010.

Revenues

Rental and other property revenues were $31.8 million for the three months ended
June 30, 2011. This represents an increase of $1.2 million, as compared to the prior period revenues of $30.6 million. The change, by segment, is an increase in the commercial portfolio of $0.5 million and an increase in the apartment portfolio
of $0.7 million. Within the apartment portfolio, the developed apartments had an increase of $0.3 million and the same properties had an increase of $0.4 million. Within the commercial portfolio, the same property portfolio increased by $0.5
million. This was due to a $2.6 million tenant lease buyout. As a whole the commercial portfolio decreased due to an increase in vacancy, which we attribute to the current state of the economy. We have directed our efforts to apartment development
and put some additional land projects on hold until the economic conditions turn around. We are also continuing to market our properties aggressively to attract new tenants and strive for continuous improvement of our properties in order to maintain
our existing tenants.

Expenses

Property operating expenses were $16.2 million for the three months ended June 30, 2011. This represents a decrease of $1.9 million, as compared to the prior period operating expenses of $18.1
million. This change, by segment, is a decrease in the commercial portfolio of $0.5 million, a decrease in the apartment portfolio of $0.6 million, and a decrease in the land and other portfolios of $0.7 million. Within the commercial portfolio, the
same properties portfolio decreased by $0.5 million. Within the apartment portfolio the same properties decreased by $0.9 million and the developed properties increased by $0.3 million. The decreases in operating expenses were attributable to
decreases in overall costs and additional repairs and maintenance, offset by an increase from developed properties in the lease-up phase.

General and administrative expenses were $2.6 million for the three months ended June 30, 2011. This represents an increase of $0.8 million, as
compared to the prior period operating expenses of $1.8 million. This change is primarily due to an increase in professional services.

Mortgage and loan interest was $14.6 million for the three months ended June 30, 2011. This represents a decrease of $1.1 million, as compared to
the prior period interest expense of $15.7 million. This change, by segment, is a decrease in the commercial portfolio of $0.9 million, a decrease in the apartment portfolio of $0.3 million, a decrease in the land portfolio of $0.5 million, offset
by an increase in the other portfolio of $0.6 million. The decrease in the apartment portfolio is primarily due to loans that were refinanced in 2010 at a lower interest rate. The majority of the decrease in the commercial portfolio is due to a
matured loan that is being negotiated.



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Provision for impairment was $25.4 million for the three months ended June 30, 2011. Impairment was
recorded as an additional loss of $4.4 million in the commercial properties we currently hold and $21.0 million in land parcels that we currently hold. The majority of the impairment losses were taken on the properties that are treated as
subject to sales contract where, subsequent to sale to a related party under common control, negotiations have occurred for property ownership transfers to the lender and estimated current property values are lower than our current
basis.

Other income (expense)

Gain on land sales increased for the three months ended June 30, 2011 as compared to the prior period. In the current period we sold 566.81 acres of land in 15 separate transactions for an aggregate
sales price of $40.1 million and recorded a loss of $1.7 million. We also recognized a deferred gain of $3.0 million in the current period from a sale in prior years. In the prior period, we sold 23.56 acres of land in two separate transactions for
an aggregate sales price of $17.6 million and recorded a loss of $5.6 million.

Included in discontinued operations are a total of four and 17
properties for 2011 and 2010, respectively. Properties sold in 2011 have been reclassified to discontinued operations for current and prior year reporting periods. In 2011, we sold four commercial properties (Alpenloan, Fenton Center, Teleport Blvd
and Westgrove Air Plaza). In 2010, we sold 11 apartment complexes (Baywalk, Foxwood, Island Bay, Kingsland Ranch, Limestone Canyon, Limestone Ranch, Longfellow Arms, Marina Landing, Mason Park, Sendero Ridge and Tivoli), one commercial building (217
Rampart) and transferred our limited partnership interest in a consolidated entity that owned an apartment complex (Quail Oaks). The gain on sale of the properties is also included in discontinued operations for those years. The following table
summarizes revenue and expense information for these properties sold and held for sale (dollars in thousands):



|                                                                                           |  |                                    |         |  |      |   |         | 
|------------------------------------------------------------------------------------------ |  | ---------------------------------- | ------- |  | ---- | - | ------- | 
|                                                                                           |  | For the Three Months EndedJune 30, |        
|                                                                                           |  | 2011                               |         |  | 2010 |  
|Revenue                                                                                    |  |                                    |         |  |      |   |         | 
|Rental                                                                                     |  | $                                  | 1,842   |  |      | $ | 5,041   | 
|Property operations                                                                        |  |                                    | 1,293   |  |      |   | 3,208   | 
|                                                                                           |  |                                    |         |  |      |   |         | 
|                                                                                           |  | $                                  | 549     |  |      | $ | 1,833   | 
|Expenses                                                                                   |  |                                    |         |  |      |   |         | 
|Interest                                                                                   |  |                                    | (573)   |  |      |   | (2,160) | 
|General and administrative                                                                 |  |                                    | (143)   |  |      |   | (26)    | 
|Depreciation                                                                               |  |                                    | (373)   |  |      |   | (1,091) | 
|                                                                                           |  |                                    |         |  |      |   |         | 
|                                                                                           |  | $                                  | (1,089) |  |      | $ | (3,277) | 
|                                                                                           |  |                                    |         |  |      |   |         | 
|Net loss from discontinued operations before gains on sale of real estate, taxes, and fees |  |                                    | (540)   |  |      |   | (1,444) | 
|Loss on sale of discontinued operations                                                    |  |                                    | (6,914) |  |      |   | (139)   | 
|Equity in earnings of investees                                                            |  |                                    | 71      |  |      |   | -       | 
|                                                                                           |  |                                    |         |  |      |   |         | 
|Loss from discontinued operations                                                          |  | $                                  | (7,383) |  |      | $ | (1,583) | 
|Tax expense                                                                                |  |                                    | (2,584) |  |      |   | (554)   | 
|                                                                                           |  |                                    |         |  |      |   |         | 
|Net loss from discontinued operations                                                      |  | $                                  | (9,967) |  |      | $ | (2,137) | 
|                                                                                           |  |                                    |         |  |      |   |         | 

Comparison of the six months ended June 30, 2011 to the same period ended 2010

For the six months ended June 30, 2011, we reported a net loss applicable to common shares of $53.3 million or $6.40 per diluted earnings per share,
as compared to a net loss applicable to common shares of $31.2 million or $3.84 per diluted earnings per share for the same period ended 2010.

Revenues

Rental and other property
revenues were $61.4 million for the six months ended June 30, 2011. This represents a decrease of $0.1 million, as compared to the prior period revenues of $61.3 million. The change, by segment, is a decrease in the commercial portfolio of $1.8
million, a decrease in the land and other portfolios of $0.1 million, offset by an increase in the



28



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apartment portfolio of $1.8 million. Within the apartment portfolio, the developed apartments had an increase of $0.5 million and the same properties had an increase of $1.3 million. Within the
commercial portfolio, the same property portfolio decreased by $1.8 million due to an increase in vacancy, which we attribute to the current state of the economy. We have directed our efforts to apartment development and put some additional land
projects on hold until the economic conditions turn around. We are also continuing to market our properties aggressively to attract new tenants and strive for continuous improvement of our properties in order to maintain our existing tenants.

Expenses

Property
operating expenses were $32.7 million for the six months ended June 30, 2011. This represents a decrease of $2.6 million, as compared to the prior period operating expenses of $35.3 million. This change, by segment, is a decrease in the
commercial portfolio of $0.7 million, a decrease in the apartment portfolio of $1.2 million, and a decrease in the land and other portfolios of $0.7 million. Within the commercial portfolio, the same properties portfolio decreased by $0.7 million.
Within the apartment portfolio the same properties decreased by $1.6 million and the developed properties increased by $0.4 million. The decreases in operating expenses were attributable to decreases in overall costs and additional repairs and
maintenance, offset by an increase from the developed properties in the lease-up phase.

Mortgage and loan interest was $28.0 million for the
six months ended June 30, 2011. This represents a decrease of $2.4 million, as compared to the prior period interest expense of $30.4 million. This change, by segment is a decrease in the commercial portfolio of $1.6 million, a decrease in the
apartment portfolio of $0.7 million and a decrease in the land portfolio of $0.2 million, offset by an increase in the other portfolio of $0.1 million. The decrease in the apartment portfolio is primarily due to loans that were refinanced in 2010 at
a lower interest rate. The majority of the decrease in the commercial portfolio is due to a matured loan that is being negotiated.

General
and administrative expenses were $4.7 million for the six months ended June 30, 2011. This represents an increase of $1.1 million, as compared to the prior period operating expenses of $3.6 million. The majority of this increase was
attributable to professional fees.

Provision for impairment was $31.5 million for the six months ended June 30, 2011. Impairment was
recorded as an additional loss of $5.2 million in the apartments we currently hold, $5.3 million in the commercial properties we currently hold, and $21.0 million in land parcels we currently hold. The majority of the impairment losses were taken on
the properties that are treated as subject to sales contract where, subsequent to sale to a related party under common control, negotiations have occurred for property ownership transfers to the lender and estimated current property
values are lower than our current basis.

Other income (expense)

Interest income was $1.1 million for the six months ended June 30, 2011. This represents a decrease of $0.6 million, as compared to the prior period interest income of $1.7 million. The majority of
this decrease is due to the accrued interest recognition on the cash flow notes from Unified Housing Foundation, Inc. On cash flow notes where payments are based upon surplus cash from operations, accrued but unpaid interest income is only
recognized to the extent that cash is received. Less cash was received in the current period as compared to the prior period.

Other income
was $1.6 million for the six months ended June 30, 2011. This represents an increase of $0.7 million as compared to the prior year income of $.9 million. This increase was due to revenue received from a consulting agreement with EurEnergy
Resources Poland Sp.zoo.o.

Gain on land sales increased for the six months ended June 30, 2011 as compared to the prior period. In the
current period we sold 758.80 acres of land in 25 separate transactions for an aggregate sales price of $82.9 million and recorded a loss of $0.9 million. We also recognized a deferred gain of $3.0 million in the current period from a prior
years sale. In the prior period, we sold 23.56 acres of land in two separate transactions for an aggregate sales price of $17.6 million and recorded a loss of $5.6 million.



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##### Table of Contents

Included in discontinued operations are a total of four and 17 properties for 2011 and 2010, respectively.
Properties sold in 2011 have been reclassified to discontinued operations for current and prior year reporting periods. In 2011, we sold four commercial properties (Alpenloan, Fenton Center, Teleport Blvd and Westgrove Air Plaza). In 2010, we sold
11 apartment complexes (Baywalk, Foxwood, Island Bay, Kingsland Ranch, Limestone Canyon, Limestone Ranch, Longfellow Arms, Marina Landing, Mason Park, Sendero Ridge and Tivoli), one commercial building (217 Rampart) and transferred our limited
partnership interest in a consolidated entity that owned an apartment complex (Quail Oaks). The gain on sale of the properties is also included in discontinued operations for those years. The following table summarizes revenue and expense
information for these properties sold and held for sale (dollars in thousands):



|                                                                          |  |                                  |         |  |      |   |         | 
|------------------------------------------------------------------------- |  | -------------------------------- | ------- |  | ---- | - | ------- | 
|                                                                          |  | For the Six Months EndedJune 30, |        
|                                                                          |  | 2011                             |         |  | 2010 |  
|Revenue                                                                   |  |                                  |         |  |      |   |         | 
|Rental                                                                    |  | $                                | 3,877   |  |      | $ | 12,685  | 
|Property operations                                                       |  |                                  | 2,792   |  |      |   | 6,703   | 
|                                                                          |  |                                  |         |  |      |   |         | 
|                                                                          |  |                                  | 1,085   |  |      |   | 5,982   | 
|Expenses                                                                  |  |                                  |         |  |      |   |         | 
|Interest                                                                  |  |                                  | (1,436) |  |      |   | (4,610) | 
|General and administrative                                                |  |                                  | (211)   |  |      |   | (43)    | 
|Depreciation                                                              |  |                                  | (949)   |  |      |   | (2,285) | 
|                                                                          |  |                                  |         |  |      |   |         | 
|                                                                          |  |                                  | (2,596) |  |      |   | (6,938) | 
|                                                                          |  |                                  |         |  |      |   |         | 
|Net loss from discontinued operations before gains on sale of real estate |  |                                  | (1,511) |  |      |   | (956)   | 
|Loss on sale of discontinued operations                                   |  |                                  | (3,238) |  |      |   | (139)   | 
|Equity in earnings of investees                                           |  |                                  | 71      |  |      |   | -       | 
|                                                                          |  |                                  |         |  |      |   |         | 
|Loss from discontinued operations                                         |  |                                  | (4,678) |  |      |   | (1,095) | 
|Tax expense                                                               |  |                                  | (1,637) |  |      |   | (383)   | 
|                                                                          |  |                                  |         |  |      |   |         | 
|Net loss from discontinued operations                                     |  | $                                | (6,315) |  |      | $ | (1,478) | 
|                                                                          |  |                                  |         |  |      |   |         | 

Liquidity and Capital Resources

Our principal liquidity needs are:



| |  |  | fund normal recurring expenses;
| | - |  | -------------------------------



| |  |  | meet debt service and principal repayment obligations including balloon payments on maturing debt;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | fund capital expenditures, including tenant improvements and leasing costs;
| | - |  | ---------------------------------------------------------------------------



| |  |  | fund development costs not covered under construction loans; and
| | - |  | ----------------------------------------------------------------



| |  |  | fund possible property acquisitions.
| | - |  | ------------------------------------

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



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



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



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



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



| |  |  | refinancing of existing debt; and
| | - |  | ---------------------------------



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

We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction loans. Management anticipates that our available cash from property
operations may not be sufficient to meet all of our cash requirements. Management intends to selectively sell land and income producing assets, refinance or extend real estate debt and seek additional borrowing secured by real estate to meet its
liquidity requirements. Although the past cannot predict the future, historically, management has been successful at extending a portion of our current maturity obligations and selling assets as necessary to meet current obligations.



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Cash flow summary

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



|                                          |  |          |          |  |      |   |          |          |  |   |          | 
|----------------------------------------- |  | -------- | -------- |  | ---- | - | -------- | -------- |  | - | -------- | 
|                                          |  | June 30, |          |  |      |  
|                                          |  | 2011     |          |  | 2010 |   |          | Variance | 
|Net cash used in operating activities     |  | $        | (13,004) |  |      | $ | (4,282)  |          |  | $ | (8,722)  | 
|Net cash provided by investing activities |  | $        | 108,795  |  |      | $ | 28,962   |          |  | $ | 79,833   | 
|Net cash used in financing activities     |  | $        | (99,983) |  |      | $ | (25,982) |          |  | $ | (74,001) | 

Our primary use of cash for operations is daily operating costs, general and administrative expenses, advisory fees and
land holding costs. Our primary source of cash from operating activities is from rental income on properties. In addition, we have an affiliated account in which excess cash is transferred to or from. The majority of the overall decrease in cash
used in operating activities is due to the repayment of affiliate payables in the current period.

Our cash from investing activities
increased $79.8 million as compared to the prior period. The increase is primarily attributable to the sale of income producing properties and land in the current period offset by an increase in cash used for the construction and development of new
properties than in the prior period. The majority of the proceeds from sales were used for payment on loans associated with those projects.

Our cash used in financing activities consists of payments on recurring debt obligations and maturing notes payable. There was an increase in cash used
in financing activities due to payoff or assumption of debt related to the sales of income producing properties and land in the current period.

Environmental Matters

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

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

Inflation

The effects of inflation on our operations are not quantifiable. Revenues from
property operations tend to fluctuate proportionately with inflationary increases 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.

Tax Matters

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 after the use of net operating loss carryforwards in the first six months of 2011, and a loss in 2010 and 2009; therefore, it recorded no provision for income taxes.

At June 30, 2011, TCI had a net deferred tax asset of $85.0 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.



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

At June 30, 2011, our exposure to a change in interest rates on our debt is as follows (dollars in thousands, except per share):



|                                          |         |   |         |               |          |  |             |              |  |   |       | 
|----------------------------------------- | ------- | - | ------- | ------------- | -------- |  | ----------- | ------------ |  | - | ----- | 
|                                          |         |   |         |               | Weighted |  |             | Effect of 1% | 
|                                          |         |   |         | Average       |          |  | Increase In |             
|                                          | Balance |   |         | Interest Rate |          |  | Base Rates  |             
|Notes payable:                            |         |   |         |               |          |  |             |              |  |   |       | 
|Variable rate                             |         | $ | 216,927 |               |          |  | 5.21        | %            |  | $ | 2,169 | 
|                                          |         |   |         |               |          |  |             |              |  |   |       | 
|Total decrease in TCIs annual net income |         |   |         |               |          |  |             |              |  |   | 2,169 | 
|                                          |         |   |         |               |          |  |             |              |  |   |       | 
|Per share                                 |         |   |         |               |          |  |             |              |  | $ | 0.26  | 
|                                          |         |   |         |               |          |  |             |              |  |   |       | 



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

Based on an
evaluation by our management (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), were effective to provide reasonable assurance that information required
to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our
management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.

There has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



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

In December 1989, the Board of Directors approved a share repurchase program, authorizing the repurchase of a total of 687,000 shares of TCIs Common Stock. In June 2000, the Board increased this
authorization to 1,387,000 shares. On August 10, 2010, the Board of Directors approved an increase in the share repurchase program for up to an additional 250,000 shares of common stock which results in a total authorization under the
repurchase program for up to 1,637,000 shares of our common stock. This repurchase program has no termination date. The following table represents shares repurchased on a monthly basis during the second quarter of 2011:



|                          |  |                                 |   |  |                             |  |   |                                                                      |  |  |                                                                   |  |  |  |         | 
|------------------------- |  | ------------------------------- | - |  | --------------------------- |  | - | -------------------------------------------------------------------- |  |  | ----------------------------------------------------------------- |  |  |  | ------- | 
|Period                    |  | Total Number ofShares Purchased |   |  | Average PricePaid per share |  |   | Total Number ofShares Purchasedas Part of PubliclyAnnounced 
Program |  |  | Maximum Number ofShares that MayYet be PurchasedUnder the Program | 
|Balance at March 31, 2011 |  |                                 |   |  |                             |  |   |                                                                      |  |  | 1,230,535                                                         |  |  |  | 406,465 | 
|April 30, 2011            |  |                                 | - |  |                             |  | - |                                                                      |  |  | 1,230,535                                                         |  |  |  | 406,465 | 
|May 31, 2011              |  |                                 | - |  |                             |  | - |                                                                      |  |  | 1,230,535                                                         |  |  |  | 406,465 | 
|June 30, 2011             |  |                                 | - |  |                             |  | - |                                                                      |  |  | 1,230,535                                                         |  |  |  | 406,465 | 
|                          |  |                                 |   |  |                             |  |   |                                                                      |  |  |                                                                   |  |  |  |         | 
|Total                     |  |                                 | - |  |                             |  |   |                                                                      |  |  |                                                                   |  |  |  |         | 
|                          |  |                                 |   |  |                             |  |   |                                                                      |  |  |                                                                   |  |  |  |         | 



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##### Table of Contents

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

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



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                         
|               | 
|3.0            |  | Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to Exhibit No. 3.1 to the Registrants Annual Report on Form 10-K for the year
ended December 31, 1991).                                                                                                                                                                                                           
|               | 
|3.1            |  | Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., (incorporated by reference to the Registrants Current Report on Form 8-K,
dated June 3, 1996).                                                                                                                                                                                                               
|               | 
|3.2            |  | Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000 (incorporated by reference to the Registrants
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                                                    
|               | 
|3.3            |  | Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., setting forth the Certificate of Designations, Preferences and Rights of Series A
Cumulative Convertible Preferred Stock, dated October 20, 1998 (incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).                          
|               | 
|3.4            |  | Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, References, Limitations, Restriction and Relative Rights of
Series B Cumulative Convertible Preferred Stock, dated October 23, 2000 (incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                   
|               | 
|3.5            |  | Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designating, Preferences, Limitations, Restrictions and Relative Rights of
Series C Cumulative Convertible Preferred Stock, dated September 28, 2001 (incorporated by reference to Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).                                    
|               | 
|3.6            |  | Articles of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc., Decreasing the Number of Authorized Shares of and Eliminating Series B Preferred
Stock dated December 14, 2001 (incorporated by reference to Exhibit 3.7 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001).                                                                   
|               | 
|3.7            |  | By-Laws of Transcontinental Realty Investors, Inc. (incorporated by reference to Exhibit No. 3.2 to the Registrants Annual Report on Form 10-K for the year ended December 31,
1991).                                                                                                                                                                                                                              
|               | 
|3.8            |  | Certificate of Designation of Transcontinental Realty Investors, Inc., setting forth the Voting Powers, Designations, Preferences, Limitations, Restrictions and Relative Rights of
Series D Cumulative Preferred Stock filed August 14, 2006 with the Secretary of State of Nevada (incorporated by reference to Registrants Current Report on Form 8-K for event dated November 21, 2006 at Exhibit 3.8
thereof).
|               | 
|10.1           |  | Advisory Agreement dated as of April 30, 2011, between Transcontinental Realty Investors, Inc., and Pillar Income Asset Management, Inc. (incorporated by reference to Exhibit 10.1
to the registrants current report on Form 8-K for event occurring May 2, 2011).                                                                                                                                                
|               | 
|31.1*          |  | Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                          
|               | 
|31.2*          |  | Certification by the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended.                                                                                                                                                                                                                                                                          
|               | 
|32.1*          |  | Certification pursuant to 18 U.S.C. 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      



|* | 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: August 15, 2011 |  | By:                                     |  | /s/ Daniel J. Moos                                                                
|                      |  |                                         |  | Daniel J. Moos                                                                    
|                      |  |                                         |  | President and Chief Executive Officer (Principal Executive Officer)               
|                      |  |                                        
|Date: August 15, 2011 |  | By:                                     |  | /s/ Gene S. Bertcher                                                              
|                      |  |                                         |  | Gene S. Bertcher                                                                  
|                      |  |                                         |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)



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TRANSCONTINENTAL REALTY INVESTORS, INC.

EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q

For the Period Ended June 30, 2011



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



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



36