##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
|- | ---------------------------------------------------------------

| | EXCHANGE | ACT OF 1934
| | -------- | -----------

For the
fiscal year ended December 31, 2010

OR



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

| | EXCHANGE | ACT OF 1934
| | -------- | -----------

Commission
File Number 001-15663





American Realty Investors, Inc.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Nevada                                                         |  | 75-2847135                          
|(State or other jurisdiction of
Incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|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

Securities
registered pursuant to Section 12(b) of the Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of each exchange on which registered
|Common Stock, $0.01 par value |  | New York Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:

NONE

Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    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 Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 filerx(Do not check if smaller reporting company) |  | Smaller reporting company ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.    Yes   ̈    No  x

The aggregate market value of the shares of voting and non-voting common equity held by non-affiliates of the Registrant, computed by
reference to the closing price at which the common equity was last sold which was the sales price of the Common Stock on the New York Stock Exchange as of June 30, 2010 (the last business day of the Registrants most recently
completed second fiscal quarter) was $12,418,134 based upon a total of 1,533,103 shares held as of June 30, 2010 by persons believed to be non-affiliates of the Registrant. The basis of the calculation does not constitute a determination by the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended, such calculation, if made as of a date within sixty days of this filing, would yield a different value.

As of March 25, 2011, there were 11,874,138 shares of common stock outstanding.

Documents Incorporated By Reference:

Consolidated Financial Statements of Income Opportunity Realty Investors, Inc.; Commission File No. 001-14784

Consolidated Financial Statements of Transcontinental Realty Investors, Inc.; Commission File No. 1-9240









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INDEX TO

ANNUAL REPORT ON FORM 10-K



|               |  |                                                                                                               |     |      |     | 
|-------------- |  | ------------------------------------------------------------------------------------------------------------- | --- | ---- | --- | 
|               |  |                                                                                                               |     | Page |    
|              
|PART I         | 
|               |  |                                                                                                              
|Item 1.        |  | Business                                                                                                      |     |      | 3   | 
|               |  |                                                                                                              
|Item 1A.       |  | Risk Factors                                                                                                  |     |      | 15  | 
|               |  |                                                                                                              
|Item 1B.       |  | Unresolved Staff Comments                                                                                     |     |      | 21  | 
|               |  |                                                                                                              
|Item 2.        |  | Properties                                                                                                    |     |      | 21  | 
|               |  |                                                                                                              
|Item 3.        |  | Legal Proceedings                                                                                             |     |      | 27  | 
|               |  |                                                                                                              
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                                           |     |      | 27  | 
|              
|PART II        | 
|               |  |                                                                                                              
|Item 5.        |  | Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |     |      | 28  | 
|               |  |                                                                                                              
|Item 6.        |  | Selected Financial Data                                                                                       |     |      | 31  | 
|               |  |                                                                                                              
|Item 7.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |     |      | 32  | 
|               |  |                                                                                                              
|Item 7A.       |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |     |      | 46  | 
|               |  |                                                                                                              
|Item 8.        |  | Financial Statements and Supplementary Data                                                                   |     |      | 48  | 
|               |  |                                                                                                              
|Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          |     |      | 107 | 
|               |  |                                                                                                              
|Item 9A(T).    |  | Controls and Procedures                                                                                       |     |      | 107 | 
|               |  |                                                                                                              
|Item 9B.       |  | Other Information                                                                                             |     |      | 107 | 
|              
|PART III       | 
|               |  |                                                                                                              
|Item 10.       |  | Directors, Executive Officers and Corporate Governance                                                        |     |      | 108 | 
|               |  |                                                                                                              
|Item 11.       |  | Executive Compensation                                                                                        |     |      | 117 | 
|               |  |                                                                                                              
|Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                |     |      | 118 | 
|               |  |                                                                                                              
|Item 13.       |  | Certain Relationships and Related Transactions, and Director Independence                                     |     |      | 120 | 
|               |  |                                                                                                              
|Item 14.       |  | Principal Accounting Fees and Services                                                                        |     |      | 125 | 
|              
|PART IV        | 
|               |  |                                                                                                              
|Item 15.       |  | Exhibits, Financial Statement Schedules                                                                       |     |      | 127 | 
|               | 
|Signature Page |  |                                                                                                               | 129 |     



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FORWARD-LOOKING STATEMENTS

Certain Statements in this Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and
Section 21E of the Securities Exchange Act of 1934. The words estimate, plan, intend, expect, anticipate, believe, and similar expressions are intended to identify
forward-looking statements. The forward-looking statements are found at various places throughout this Report and in the documents incorporated herein by reference. The Company disclaims any intention or obligations to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Important
factors that could cause our actual results to differ from estimates or projections contained in any forward-looking statements are described in Part I, Item 1A. Risk Factors.

PART I



|ITEM 1. | BUSINESS
|------- | --------

General

As used herein, the terms ARL, the Company, We, Our, or Us refer to American Realty Investors, Inc., a Nevada corporation, individually or
together with its subsidiaries. ARL is a C corporation for U.S. federal income tax purposes. ARL was organized in 1999. In August 2000, the Company acquired American Realty Trust, Inc., a Georgia corporation (ART) and
National Realty L.P.; a Delaware limited partnership (NRLP). ART was the successor to a District of Columbia business trust organized in 1961. The business trust was merged into ART in 1988. NRLP was organized in 1987 and subsequently
acquired all of the assets and assumed all of the liabilities of several public and private limited partnerships. NRLP also owned a portfolio of real estate and mortgage loan investments.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange under the symbol NYSE:
ARL. Approximately 86.6% of ARLs stock is owned by affiliated entities. ARL subsidiaries own approximately 83.3% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc., a Nevada corporation (TCI)
whose common stock is traded on the New York Stock Exchange under the symbol (NYSE:TCI). ARL has consolidated TCIs accounts and operations since March 2003.

On July 17, 2009, TCI, a subsidiary of ARL, acquired from Syntek West, Inc., (SWI), 2,518,934 shares of common stock,
par value $0.01 per share of IOT at an aggregate price of $17,884,431 (approximately $7.10 per share), the full amount of which was paid by TCI through an assumption of an aggregate amount of indebtedness of $17,884,431 on the outstanding balance
owed by SWI to IOT. The 2,518,934 shares of IOT common stock acquired by TCI constituted approximately 60.4% of the issued and outstanding common stock of IOT. TCI had owned for several years an aggregate of 1,037,184 shares of common stock of IOT
(approximately 25% of the issued and outstanding stock). After giving effect to the transaction on July 17, 2009, TCI owned an aggregate of 3,556,118 shares of IOT common stock which constituted approximately 85.3% of the shares of common stock
of IOT outstanding. In 2010, TCI sold 5,000 shares of IOT stock resulting in an ownership of 3,551,118 shares which constitutes approximately 85.2% of the shares of common stock of IOT outstanding (which is a total of 4,168,214 shares). Shares of
IOT are traded on the American Stock Exchange under the symbol IOT.

With TCIs acquisition of the additional
shares on July 17, 2009, which increased the aggregate ownership to in excess of 80%, beginning in July 2009, IOTs results of operations are now consolidated with those of TCI for tax and financial reporting purposes. At the time of the
acquisition, the historical accounting value of IOTs assets was $112 million and liabilities were $43 million. In that the shares of IOT acquired by TCI were from a related party, the values recorded by TCI are IOTs historical accounting
values at the date of transfer. The



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Companys fair valuation of IOTs assets and liabilities at the acquisition date approximated IOTs book value. The net difference between the purchase price and historical
accounting basis of the assets and liabilities acquired was $35 million and has been reflected by TCI as deferred income. The deferred income will be recognized upon the sale of the land that IOT held on its books as of the date of sale, to an
independent third party.

ARLs Board of Directors represents the Companys shareholders and is responsible for
directing the overall affairs of ARL and for setting the strategic policies that guide the Company. The Board of Directors has delegated the day-to-day management of the Company to Prime Income Asset Management, LLC, a Nevada limited liability
company (Prime) under a written Advisory Agreement that is reviewed annually by ARLs Board of Directors. The directors of ARL are also directors of TCI and IOT. The Chairman of the Board of Directors of ARL also serves as the
Chairman of the Board of Directors of TCI and IOT. The officers of ARL also serve as officers of TCI, IOT and Prime.

ARLs contractual advisor is Prime, the sole member of which is Prime Income Asset Management, Inc. a Nevada corporation
(PIAMI) which is owned 100% by Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc., a Nevada corporation, which is owned 100% by a Trust known as the May Trust. Primes duties
include but are not limited to locating, evaluating and recommending real estate and real estate-related investment opportunities. Prime also arranges, for ARLs benefit, debt and equity financing with third party lenders and investors. Prime
also serves as advisor to TCI and IOT. As the contractual advisor, Prime is compensated by ARL under an Advisory Agreement that is more fully described in Part III, Item 10. Directors, Executive Officers and Corporate GovernanceThe
Advisor. ARL has no employees. Employees of Prime render services to ARL in accordance with the terms of the Advisory Agreement.

Triad Realty Services, L.P. (Triad), an affiliate of Prime, provides management services for our commercial properties. The general partner of Triad is PIAMI. The limited partner of Triad is
HRS Holdings, LLC (HRSHLLC). Triad subcontracts the property-level management and leasing of our commercial properties (office buildings, shopping centers and industrial warehouses) to Regis Realty I, LLC (Regis I), which is
owned by HRSHLLC. Regis Hotel I, LLC, another Prime affiliate, manages the Companys hotel investments. ARL engages third party companies to lease and manage its apartment properties. Triad receives a fee for its property management services.
Regis I receives property and construction management fees and leasing commissions in accordance with the terms of its property-level management agreement with Triad. Regis I is also entitled to receive real estate brokerage commissions in
accordance with the terms of a non-exclusive brokerage agreement. See Part III, Item 10. Directors, Executive Officers and Corporate GovernanceProperty Management.

Our primary business is the acquisition, development and ownership of income-producing residential, hotel and commercial real estate
properties. In addition, ARL opportunistically acquires land for future development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We
generate revenues by leasing apartment units to residents; leasing office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies; leasing trade show and exhibit space to temporary as well
as long-term tenants; and renting hotel rooms to guests. We also generate revenues from gains on sales of income-producing properties and land. At December 31, 2010, our income-producing properties consisted of:



| |  |  | 30 commercial properties totaling 5.7 million rentable square feet, consisting of 19 office buildings, six commercial warehouses, four retail
properties, and a 344,975 square foot trade show and exhibit hall;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Five hotels comprising 808 rooms;
| | - |  | ---------------------------------



| |  |  | 47 apartment communities totaling 8,525 units, excluding apartments being developed.
| | - |  | ------------------------------------------------------------------------------------



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The following table sets forth the location of our real estate held for investment
(income-producing properties only) by asset type as of December 31, 2010:



|                            |  |            |    |  |            |  |       |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|--------------------------- |  | ---------- | -- |  | ---------- |  | ----- | ------ |  |  | -- |  |  | --- | --------- |  | ----- |  | - |  |  |  | --- | 
|                            |  | Apartments |    |  | Commercial |  |       | Hotels | 
|Location                    |  | No.        |    |  | Units      |  |       | No.    |  |  | SF |  |  | No. |           |  | Rooms | 
|Greater Dallas-Ft Worth, TX |  |            | 19 |  |            |  | 3,876 |        |  |  | 16 |  |  |     | 2,865,716 |  |       |  |   |  |  |  |     | 
|Greater Houston, TX         |  |            | 3  |  |            |  | 656   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|San Antonio, TX             |  |            | 2  |  |            |  | 468   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Temple, TX                  |  |            | 2  |  |            |  | 452   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Other Texas                 |  |            | 5  |  |            |  | 1,053 |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Mississippi                 |  |            | 6  |  |            |  | 328   |        |  |  | 1  |  |  |     | 26,000    |  |       |  |   |  |  |  |     | 
|Arkansas                    |  |            | 4  |  |            |  | 580   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Tennessee                   |  |            | 2  |  |            |  | 312   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Baton Rouge, LA             |  |            | 1  |  |            |  | 160   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Kansas                      |  |            | 1  |  |            |  | 320   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Ohio                        |  |            | 1  |  |            |  | 200   |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|New Orleans, LA             |  |            |    |  |            |  |       |        |  |  | 5  |  |  |     | 1,357,475 |  |       |  |   |  |  |  |     | 
|Alaska                      |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 20,715    |  |       |  |   |  |  |  |     | 
|Florida                     |  |            | 1  |  |            |  | 120   |        |  |  | 1  |  |  |     | 6,722     |  |       |  |   |  |  |  |     | 
|Illinois                    |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 306,609   |  |       |  |   |  |  |  |     | 
|Indiana                     |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 220,461   |  |       |  |   |  |  |  |     | 
|Michigan                    |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 179,741   |  |       |  |   |  |  |  |     | 
|Oklahoma                    |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 225,566   |  |       |  |   |  |  |  |     | 
|Wisconsin                   |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 122,205   |  |       |  |   |  |  |  |     | 
|California                  |  |            |    |  |            |  |       |        |  |  |    |  |  |     |           |  |       |  | 4 |  |  |  | 647 | 
|Colorado                    |  |            |    |  |            |  |       |        |  |  | 1  |  |  |     | 344,975   |  |       |  | 1 |  |  |  | 161 | 
|                            |  |            |    |  |            |  |       |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 
|Total                       |  |            | 47 |  |            |  | 8,525 |        |  |  | 30 |  |  |     | 5,676,185 |  |       |  | 5 |  |  |  | 808 | 
|                            |  |            |    |  |            |  |       |        |  |  |    |  |  |     |           |  |       |  |   |  |  |  |     | 

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-rate
construction loans that are refinanced with the proceeds of long-term, fixed-rate amortizing mortgages when the development has been completed and occupancy has been stabilized. When we sell properties, we may carry a portion of the sales price
generally in the form of a short-term, interest bearing seller-financed note receivable, secured by the property being sold. We may also from time to time enter into partnerships or joint ventures with various investors to acquire land or
income-producing properties or to sell interests in certain of our properties.

We partner with various third-party
development companies to construct residential apartment communities. We are currently involved in the construction of five apartment complexes. The third-party developer typically holds a general partner as well as a limited partner interest in a
limited partnership formed for the purpose of building a single property while we generally take a limited partner interest in the limited partnership. We may contribute land to the partnership as part of our equity contribution or we may contribute
the necessary funds to the partnership to acquire the land. We are required to fund all required equity contributions while the third-party developer is responsible for obtaining construction financing, hiring a general contractor and for the
overall management, successful completion and delivery of the project. We generally bear all the economic risks and rewards of ownership in these partnerships and therefore include these partnerships in our consolidated financial statements. The
third-party developer is paid a developer fee typically equal to a percentage of the construction costs. When the project reaches stabilized occupancy, we acquire the third-party developers partnership interests in exchange for any remaining
unpaid developer fees.



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At December 31, 2010, our apartment projects in development included (dollars in
thousands):



|                       |  |          |                    |  |             |  |       |                 |  |   |                        |  |  |   |         | 
|---------------------- |  | -------- | ------------------ |  | ----------- |  | ----- | --------------- |  | - | ---------------------- |  |  | - | ------- | 
|Property               |  | Location |                    |  | No. ofUnits |  |       | Costs
toDate(1) |  |   | TotalProjectedCosts(1) | 
|Blue Ridge             |  |          | Midland, TX        |  |             |  | 290   |                 |  | $ | 18,454                 |  |  | $ | 27,570  | 
|Lodge at Pecan Creek   |  |          | Denton, TX         |  |             |  | 192   |                 |  |   | 3,611                  |  |  |   | 18,887  | 
|Parc at Denham Springs |  |          | Denham Springs, LA |  |             |  | 224   |                 |  |   | 17,034                 |  |  |   | 22,142  | 
|Sonoma Court           |  |          | Rockwall, TX       |  |             |  | 124   |                 |  |   | 4,004                  |  |  |   | 12,587  | 
|Toulon                 |  |          | Gautier, MS        |  |             |  | 240   |                 |  |   | 7,015                  |  |  |   | 27,488  | 
|                       |  |          |                    |  |             |  |       |                 |  |   |                        |  |  |   |         | 
|Total                  |  |          |                    |  |             |  | 1,070 |                 |  | $ | 50,118                 |  |  | $ | 108,674 | 
|                       |  |          |                    |  |             |  |       |                 |  |   |                        |  |  |   |         | 



|(1) | Costs include construction hard costs, construction soft costs and loan borrowing costs.
|--- | ----------------------------------------------------------------------------------------

We are partnered in a joint venture with HarmInvest GmbH, Berlin, to develop an approximately 420 acre former naval base into a holiday
resort located in the northeastern section of Schleswig-Holstein, Germany. It will be a multi-family resort area with vacation homes, hotels, a marina and yacht club, along with an 18-hole golf course.

We have made investments in a number of large tracts of undeveloped and partially developed land and intend to a) continue to improve
these tracts of land for our own development purposes or b) make the improvements necessary to ready the land for sale to other developers.

At December 31, 2010, our investments in undeveloped and partially developed land consisted of the following (dollars in thousands):



|                               |  |          |                    |  |                 |  |           |       |  |  |        |  |  |                     |         |  |  |  |                           | 
|------------------------------ |  | -------- | ------------------ |  | --------------- |  | --------- | ----- |  |  | ------ |  |  | ------------------- | ------- |  |  |  | ------------------------- | 
|Property                       |  | Location |                    |  | Date(s)Acquired |  |           | Acres |  |  | Cost   |  |  | PrimaryIntended Use |        
|Capital City Center            |  |          | Jackson, MS        |  |                 |  | 2007-2008 |       |  |  | 8      |  |  | $                   | 13,455  |  |  |  | Mixed use                 | 
|Kaufman County Multi-Tracts    |  |          | Kaufman County, TX |  |                 |  | 2000-2008 |       |  |  | 2,831  |  |  |                     | 11,886  |  |  |  | Single-family residential | 
|Las Colinas Multi-Tracts       |  |          | Irving, TX         |  |                 |  | 1995-2006 |       |  |  | 221    |  |  |                     | 13,714  |  |  |  | Commercial                | 
|US Virgin Islands Multi-Tracts |  |          | St. Thomas, USVI   |  |                 |  | 2005-2008 |       |  |  | 97     |  |  |                     | 16,367  |  |  |  | Single-family residential | 
|Meloy Portage                  |  |          | Kent, OH           |  |                 |  | 2004      |       |  |  | 53     |  |  |                     | 5,119   |  |  |  | Single-family residential | 
|McKinney Multi-Tracts          |  |          | McKinney, TX       |  |                 |  | 1997-2008 |       |  |  | 224    |  |  |                     | 28,543  |  |  |  | Mixed use                 | 
|Mercer Crossing                |  |          | Dallas, TX         |  |                 |  | 1996-2008 |       |  |  | 918    |  |  |                     | 112,034 |  |  |  | Mixed use                 | 
|Pioneer Crossing               |  |          | Austin, TX         |  |                 |  | 1997-2005 |       |  |  | 887    |  |  |                     | 29,297  |  |  |  | Multi-family residential  | 
|Port Olpenitz                  |  |          | Kappeln, Germany   |  |                 |  | 2008      |       |  |  | 420    |  |  |                     | 31,526  |  |  |  | Mixed use                 | 
|Travis Ranch                   |  |          | Kaufman County, TX |  |                 |  | 2008      |       |  |  | 25     |  |  |                     | 2,780   |  |  |  | Multi-family residential  | 
|Valley Ranch Multi-Tracts      |  |          | Irving, TX         |  |                 |  | 2004      |       |  |  | 27     |  |  |                     | 5,826   |  |  |  | Commercial                | 
|Waco Multi-Tracts              |  |          | Waco, TX           |  |                 |  | 2005-2006 |       |  |  | 492    |  |  |                     | 4,831   |  |  |  | Single-family residential | 
|Windmill Farms                 |  |          | Kaufman County, TX |  |                 |  | 2008      |       |  |  | 3,287  |  |  |                     | 47,522  |  |  |  | Single-family residential | 
|Woodmont Multi-Tracts          |  |          | Dallas, TX         |  |                 |  | 2006-2008 |       |  |  | 76     |  |  |                     | 53,747  |  |  |  | Mixed use                 | 
|Subtotal                       |  |          |                    |  |                 |  |           |       |  |  | 9,566  |  |  |                     | 376,647 |  |  |  |                           | 
|Other land holdings            |  |          | Various            |  |                 |  | 1990-2008 |       |  |  | 825    |  |  |                     | 53,747  |  |  |  | Various                   | 
|                               |  |          |                    |  |                 |  |           |       |  |  |        |  |  |                     |         |  |  |  |                           | 
|Total land holdings            |  |          |                    |  |                 |  |           |       |  |  | 10,391 |  |  | $                   | 430,394 |  |  |  |                           | 
|                               |  |          |                    |  |                 |  |           |       |  |  |        |  |  |                     |         |  |  |  |                           | 

Significant Real Estate Acquisitions/Dispositions and Financings

A summary of some of the significant transactions for the year ended December 31, 2010 are discussed below:

On February 18, 2010, we purchased 15.88 acres of Furniture Row land located in Midland, Texas, for $2.2 million. We financed the
transaction with $0.3 million cash, a $0.8 million draw on a construction loan with a commercial lender, and a $1.0 million loan provided by the seller. The seller financing accrues interest, payable monthly, at 8.0% and matures on March 18,
2011. A construction loan in the amount of $24.5 million was taken out to fund the development of Blue Ridge Apartments, 290-unit complex. The note accrues interest at 5.37%,



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payable monthly at interest only, until November 1, 2011. Thereafter, payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on
October 1, 2051.

On March 17, 2010, we sold our membership in IGCH Villager Associates, Ltd. to Liberty Bankers
Life Insurance Company, a related party under common control, for a sales price of $1.5 million. This entity owns the Villager Apartments, a 33-unit complex located in Fort Walton Beach, Florida, We received $0.8 million in cash, and the buyer
assumed the existing mortgage of $0.7 million secured by the property. The project was sold to a related party; therefore, the gain of $0.4 million was deferred and will be recorded upon sale to a third party.

On March 30, 2010, we refinanced the existing mortgage on Blue Lake Villas apartments, a 186-unit complex located in Waxahachie,
Texas, for a new mortgage of $10.7 million. We paid off the existing mortgage of $10.3 million and $0.5 million in closing costs. The note accrues interest at 4.75% and payments of interest and principal are due monthly based upon a 40-year
amortization schedule, maturing on April 1, 2050.

On March 30, 2010, we refinanced the existing mortgage on
Spyglass apartments, a 256-unit complex located in Mansfield, Texas, for a new mortgage of $15.8 million. We paid off the existing mortgage of $15.5 million and $0.4 million in closing costs. The note accrues interest at 4.75% and payments of
interest and principal are due monthly based upon a 37-year amortization schedule, maturing on April 1, 2047.

On
March 30, 2010, we refinanced the existing mortgage on Falcon Lakes apartments, a 248-unit complex located in Arlington, Texas, for a new mortgage of $13.7 million. We paid off the existing mortgage of $13.1 million and $0.7 million in closing
costs. The note accrues interest at 4.75% and payments of interest and principal are due monthly based upon a 36-year amortization schedule, maturing on April 1, 2046.

On April 15, 2010, we sold 6.77 acres of land known as McKinney Corners II land located in McKinney, Texas for a sales price of $1.6 million. We paid off the existing debt of $1.4 million and closing
costs. We recorded a gain of $1.1 million on the sale of the land parcel.

On April 16, 2010, we sold the Foxwood
apartments, a 220-unit complex located in Memphis, Tennessee, to One Realco Retail, Inc., a related party under common control, for a sales price of $5.1 million. The buyer assumed the existing mortgage of $5.1 million secured by the property. The
property was sold to a related party; therefore, the gain of $5.8 million was deferred. The deferred gain was recognized in June 2010, upon sale of the property to a third party.

On April 23, 2010, we sold our membership interest in Longfellow Investors I, LLC, Longfellow Investors II, LLC, Longfellow
Investors III, LLC, Longfellow Investors IV, LLC and Longfellow Investors V, LLC to Liberty Bankers Life Insurance Company, a related party under common control, for a sales price of $20.0 million. These entities had limited partner
interests in Longfellow Arms Apartments, Ltd., an entity that owned a 216-unit complex located in Longview, Texas. We received $6.1 million in cash, and the buyer assumed the existing mortgage of $14.4 million secured by the property. The
property was sold to a related party; therefore, the gain of $3.6 million was deferred and will be recorded upon sale to a third party.

On May 4, 2010, we sold our investment in T Autumn Chase, Inc. to Taaco Financial, Inc., a related party under common control, for a sales price of $16.0 million. This entity owns 16.79 acres of
land known as Ewing 8 land located in Addison, Texas. The buyer assumed the existing mortgage of $10.7 million secured by the property. We recorded a loss of $5.3 million on the sale of the land parcel.

On May 11, 2010, we refinanced the existing mortgage on Whispering Pines apartments, a 320-unit complex located in Topeka, Kansas,
for a new mortgage of $9.5 million. We paid off the existing mortgage of $8.3 million and $1.4 million in closing costs. The note accrues interest at 4.5% and payments of interest and principal are due monthly based upon a 33-year amortization
schedule, maturing on June 1, 2043.



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On May 13, 2010, a construction loan with a commercial lender in the amount of $17.0
million was taken out to fund the development of the Toulon Apartments, a 240-unit complex located in Gautier, Mississippi. The loan accrues interest at 5.37% payable monthly as interest only, until December 1, 2011. Thereafter payments of
interest and principal are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2051.

On
May 18, 2010, we sold our investment in TCI Eton Square, L.P. to TX Highland RS Corp, a related party under common control, for a sales price of $13.7 million. This entity owns a 225,566 square foot office and retail center known as Eton
Square located in Tulsa, Oklahoma. We provided $4.0 million in seller financing with a three-year note receivable. The note accrues interest at prime plus 2.0% and is payable at maturity on May 18, 2013. The buyer assumed the existing mortgage
of $9.6 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. 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 May 21, 2010, we refinanced the existing mortgage on Desoto
Ranch apartments, a 248-unit complex located in Desoto, Texas, for a new mortgage of $16.3 million. We paid off the existing mortgage of $15.7 million and $0.8 million in closing costs. The note accrues interest at 4.79% and payments of interest and
principal are due monthly based upon a 40-year amortization schedule, maturing on June 1, 2050.

On May 27, 2010, we
refinanced the existing mortgage on Vistas at Pinnacle Park apartments, a 332-unit complex located in Dallas, Texas, for a new mortgage of $19.1 million. We paid off the existing mortgage of $18.3 million and $1.0 million in closing costs. The note
accrues interest at 4.86% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on June 1, 2050.

On May 28, 2010, a loan with a commercial lender in the amount of $3.7 million was taken out to fund real estate property taxes. The loan accrues at 12.5%, payable monthly as interest only, until
July 1, 2012. Thereafter, payments of interest and principal are due monthly based upon an 8-year amortization schedule, maturing on June 1, 2020.

On June 16, 2010, we sold the Chateau apartments, a 115-unit complex located in Bellevue, Nebraska, to One Realco Retail, Inc. and TCI Woodsong, Inc., both related parties under common control, for a
sales price of $2.9 million. The buyer assumed the existing mortgage of $2.9 million secured by the property. The property was sold to a related party; therefore, the gain of $2.4 million was deferred. The deferred gain was recognized in July 2010,
upon sale of the property to a third party.

On July 12, 2010, we sold our investment in Pioneer Crossing Hotels, LLC to
One Realco Corporation, a related party under common control, for a sales price of $17.2 million. This entity owns the Piccadilly Airport Hotel, a 185-room hotel, the Piccadilly Inn Express Hotel, a 78-room hotel, and the Piccadilly Shaw Hotel, a
194-room hotel, all located in Fresno, California. In addition, we sold a $10.1 million intercompany receivable. The buyer assumed the existing mortgage of $27.3 million, secured by the property, but did not assume the obligation of ARLs
guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On July 29, 2010, we refinanced the existing mortgage on Heather Creek apartments, a 200-unit complex located in Mesquite, Texas,
for a new mortgage of $12.0 million. We paid down the existing debt of $11.5 million and $0.7 million in closing costs. The note accrues interest at 4.33% and payments of interest and principal are due monthly based upon a 40-year amortization
schedule, maturing on August 1, 2050.

On July 30, 2010, we purchased 8.91 acres of Sonoma Court land located in
Rockwall, Texas, for $0.9 million. This land was purchased for the development of Sonoma Court apartments, a 124-unit apartment complex. We financed the transaction with a $0.9 million draw on a construction loan with a commercial lender.



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On July 30, 2010, a construction loan with a commercial lender in the amount of $11.2
million was obtained to fund the development of the Sonoma Court apartments, a 124-unit complex located in Rockwall, Texas. The loan accrues interest at 5.35%, payable monthly as interest only, until November 1, 2011. Thereafter, payments of
interest and principal are due monthly based upon a 40-year amortization schedule, maturing on November 1, 2051

On
July 30, 2010, we recognized the 2009 sale of 21.9 acres of land known as Pulaski land located in Pulaski County, Arkansas, to One Realco Land Holdings, Inc. and One Realco Corporation, both related parties under common control, for a sales
price of $2.3 million. The buyer assumed the existing mortgage of $1.1 million secured by the property and we provided seller financing of $1.2 million. We had previously deferred the recognition of the sale in accordance with ASC 360-20 due to
our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $1.2 million when the buyer subsequently sold the land to a third party and the seller financing
was not collected.

The Company had a 14.8% limited partner interest in a partnership that owned a 131-unit apartment complex
known as Quail Oaks apartments, located in Balch Springs, Texas. The partnership was consolidated in accordance with ASC 810, whereby we determined that we were a primary beneficiary. On August 3, 2010 the partnership transferred
ownership of the property to the existing lender and the result was a gain of $1.8 million.

On August 4, 2010, we sold
6.51 acres of land known as Hines Meridian land located in Irving, Texas for a sales price of $2.0 million. We received $0.4 million in cash, after paying in full the existing debt of $0.9 million and providing seller financing of $0.5 million. The
note accrues interest at 8.0% and is payable at maturity on August 11, 2011. We recorded a gain of $0.6 million on the sale of the land parcel.

On August 20, 2010, we sold our investment in American Mart Hotel Corporation to ABC Land and Development, Inc., a related party under common control, for a sales price of $3.1 million. This entity
owns the Comfort Inn Hotel, a 161-room hotel, located in Denver, Colorado. The buyer assumed the existing mortgage of $3.0 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. ARL has deferred the
recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On August 30, 2010, we sold the Mason Park apartments, a 312-unit complex located in Katy, Texas, for a sales price of $22.9 million. We recorded a gain of $0.3 million on the sale of the apartment.

On September 14, 2010, a construction loan with a commercial lender in the amount of $16.5 million was obtained to fund
the development of the Lodge at Pecan Creek apartments, a 192-unit complex located in Denton, Texas. The loan accrues interest at 5.05%, payable monthly as interest only, until March 1, 2012. Thereafter, payments of interest and principal are
due monthly based upon a 40-year amortization schedule, maturing on March 1, 2052.

On September 15, 2010, we sold our
investment in Pacific Center, LLC to ABC Land and Development, Inc., a related party under common control, for a sales price of $2.5 million. This entity owns the Piccadilly University Hotel, a 190-room hotel, located in Fresno, California. In
addition we sold a $2.0 million intercompany receivable. The buyer assumed the existing mortgage of $4.5 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. We have deferred the recognition of the
sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On
September 21, 2010, we sold our investment in EQK Bridgeview Plaza, Inc. to Warren Road Farm, Inc., a related party under common control, for a sales price of $8.3 million. This entity owns a 122,205 square foot retail center known as
Bridgeview Plaza located in La Crosse, Wisconsin. We provided $2.1 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing
mortgage of $6.2 million, secured by the property, but did



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not assume the obligation of our guarantee on the loan. 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 September 21, 2010, we sold our investment in
Transcontinental Brewery, Inc. to Warren Road Farm, Inc., a related party under common control, for a sales price of $3.8 million. This entity owns a 29,784 square foot office building and 13.0 acres of land known as Eagle Crest in Farmers Branch,
Texas. The buyer assumed the existing mortgage of $2.4 million, secured by the property. A five-year note receivable for $1.4 million was given as consideration, with an interest rate of 6.0%, payable at maturity on September 21, 2015. 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 September 21, 2010, we sold our investment in South Cochran Corporation to Warren Road Farm, Inc., a related party under common
control, for a sales price of $2.2 million. This entity owns a 220,461 square foot retail center known as Dunes Plaza located in Michigan City, Indiana. In addition, we sold a $1.0 million intercompany receivable. The buyer assumed the existing
mortgage of $3.2 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and
questionable recovery of investment cost.

On September 21, 2010, we sold our investment in Thornwood Apartments, LLC to
Warren Road Farm, Inc., a related party under common control, for a sales price of $6.7 million. This entity owns 245.95 acres of land known as Windmill Farms-Harlan land located in Kaufman County, Texas. We provided $1.1 million in seller financing
with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $5.5 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 September 21, 2010, we sold our investment in EQK Windmill Farms, LLC to Warren Road Farm, Inc., a related party under common control, for a sales price of $64.5 million. This entity owns 2,957.95
acres of land known as Windmill Farms land located in Kaufman County, Texas. We provided $33.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The
buyer assumed the existing mortgage of $30.7 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 September 28, 2010, we sold the Baywalk apartments, a 192-unit complex located in Galveston,
Texas for a sales price of $8.6 million. We recorded a gain of $1.8 million on the sale of the apartment.

On
September 30, 2010, we recognized the 2003 sale of four properties to subsidiaries of United Housing Foundation, Inc., a Texas Non-Profit 501(c)3 Corporation. We sold the Limestone at Vista Ridge apartments for $19.0 million, the Limestone
Canyon apartments for $18.0 million, the Sendero Ridge apartments for $29.4 million and the Tivoli apartments for $16.1 million. At the time of the sale, We remained as the guarantor on the existing mortgages and the sales were not
recorded. Instead, these transactions were accounted for on the deposit method and the properties and corresponding debt continued to be consolidated. These mortgages have since been refinanced and such refinancing does not include any
obligations by us as guarantor. We recorded the sale and recorded $25.2 million in deferred gain on the sale. Due to the related party nature of these sales, we will not record the gain on the sale until the properties are sold to a third
party.

On October 4, 2010, we sold our investment in Marina Landing Corp. to ABC Land and Development, Inc., a related
party under common control, for a sales price of $5.8 million. This entity owns a 256-unit apartment complex known as Marina Landing Apartments located in Galveston, Texas. The buyer assumed the existing mortgage of $10.4 million. We provided $5.8
million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 4, 2015.



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On October 5, 2010, we sold the Island Bay apartments, a 458-unit complex located in
Galveston, Texas, for a sales price of $15.0 million. The existing mortgage of $14.0 million is secured by the property. Ownership of the property transferred to the existing lender and the result was a gain of $4.1 million.

On October 6, 2010, we recognized the 2009 sale of 4.7 acres of land known as Cigna land located in Irving, Texas to One Realco Land
Holdings, Inc., a related party under common control, for a sales price of $1.0 million. The buyer assumed the existing mortgage of $0.8 million secured by the property.

On October 22, 2010, we sold our investment in Continental Common, Inc., which owns a 512,593 square foot office building known as 1010 Commons, located in New Orleans, Louisiana, 17.2 acres of land
known as Lacy Longhorn land, located in Farmers Branch, Texas, and 44.17 acres of land known as Marine Creek land, located in Fort Worth, Texas, to ABCLD, LLC, a related party under common control, for a sales price of $30.9 million. The buyer
assumed the existing mortgage of $24.1 million secured by the properties and we provided $6.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 22,
2015. 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 October 29, 2010, we recognized the 2009 sale of 100% of our membership interest in JMJ Circle C, LLC, 99% of our membership
interest in JMJ Circle C East, LLC and 99% of our membership interest in JMJ Circle C West, LLC to Avana HRS Development, Inc., a related party under common control, for a sales price of $0.5 million. These entities owned 1,093.98 acres of land
known as Avana land located in Austin, Texas. The buyer assumed the existing mortgage of $39.7 million secured by the property. Included in the debt assumed by the buyer, was approximately $8.6 million due to us. We had previously
deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $8.6 million when the
buyer subsequently sold the land to a third party and the note was not collected.

On November 3, 2010, we sold 8.0 acres
of land known as Alliance Hickman land located in Tarrant County, Texas, for a sales price of $1.3 million. The existing loan of $0.7 million, secured by the property, was paid off at close. We recorded a gain of $0.2 million on the land parcel.

On November 30, 2010, we sold the Kingsland Ranch apartments, a 398-unit complex located in Katy, Texas for a sales
price of $29.3 million. We recorded a gain of $4.2 million on the apartment sale.

On November 30, 2010, we refinanced
the existing mortgage on Dakota Arms apartments, a 208-unit complex located in Lubbock, Texas, for a new mortgage of $12.5 million. We paid down the existing debt of $12.0 million and $0.5 million in closing costs. The note accrues interest at 4.28%
and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2050.

On November 30, 2010, we refinanced the existing mortgage on River Oaks apartments, a 180-unit complex located in Wylie, Texas, for a new mortgage of $9.9 million. We paid down the existing debt of
$9.4 million and $0.5 million in closing costs. The note accrues interest at 3.85% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2050.

On November 30, 2010, we refinanced the existing mortgage on Wildflower Villas apartments, a 220-unit complex located in Temple,
Texas, for a new mortgage of $13.9 million. We paid down the existing debt of $13.4 million and $0.5 million in closing costs. The note accrues interest at 4.27% and payments of interest and principal are due monthly based upon a 40-year
amortization schedule, maturing on December 1, 2050.

On December 23, 2010, ARL sold 34 properties, which consisted
of six commercial buildings comprising an aggregate of 1.4 million square feet, approximately 3,683 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
$229.2 million. The



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buyer assumed the existing mortgages of $174.1 million secured by the properties and we provided $55.1 million in seller financing notes with a five-year note term. The notes accrue interest at
6.0% and are payable at maturity on December 23, 2015. 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.

On December 23, 2010, we sold Cooley Building, a 27,041 office building located in Dallas, Texas, to ABCLD Properties,
LLC and ABCLD Income, LLC, both related parties under common control, for a sales price of $2.8 million. 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 December 30, 2010, we sold 51.71 acres of land known as Alliance Centurion
52 land located in Tarrant County, Texas, for a sales price of $2.0 million. The existing loan of $2.0 million, secured by the property, was paid off at close. We recorded a loss of $0.7 million on the land parcel.

On December 30, 2010, we sold a parking garage known as 217 Rampart located in New Orleans, Louisiana, for a sales price of $0.5
million. The existing loan of $0.4 million, secured by the property, was paid off at close. We recorded a loss of $1.7 million on the sale of the parking garage.

On December 30, 2010, we refinanced the existing mortgage on Windsong apartments, a 188-unit complex located in Fort Worth, Texas, for a new mortgage of $10.7 million. We paid down the existing debt
of $10.3 million and $0.4 million in closing costs. The note accrues interest at 4.25% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on January 1, 2051.

On December 31, 2010, we sold 4.3 acres of land known as Grapevine Vineyards land located in Grapevine, Texas, to ART Westwood FL,
Inc., a related party under common control, for a sales price of $0.9 million. We recorded a loss on sale of $263,000.

On
December 31, 2010, we sold 2.6 acres of land known as Grapevine Vineyards II land located in Grapevine, Texas, to ART Westwood Fl, Inc., a related party under common control, for a sales price of $1.5 million. We recorded a loss on sale of
$30,000.

On December 31, 2010, we sold 5.6 acres of land known as Nashville land located in Nashville, Tennessee and 0.7
acres of land known as Kelly Lots land located in Farmers Branch, Texas, to First Equity Properties, Inc., a related party under common control, for a sales price of $0.3 million. There was no gain or loss recorded on this sale.

On December 31, 2010, we sold 6.3 acres of land known as Nashville land located in Nashville, Tennessee, to ART Westwood FL, Inc., a
related party under common control, for a sales price of $1.2 million. The property was sold to a related party; therefore, the gain of $3,000 was deferred and will be recorded upon sale to a third party.

We continue to invest in the development of apartments and various projects. During the twelve months ended December 31, 2010, we
have expended $50.0 million on construction and development and capitalized $6.2 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 and are listed in detail in Schedule III, Real
Estate and Accumulated Depreciation. 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



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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.

Business Plan and Investment Policy

Our business objective is to maximize long-term value for our stockholders by investing in commercial real estate through the acquisition,
development and ownership of apartments, commercial properties, hotels, and land. We intend to achieve this objective through acquiring and developing properties in multiple markets and operating as an industry-leading landlord. We believe this
objective will provide the benefits of enhanced investment opportunities, economies of scale and risk diversification, both in terms of geographic market and real estate product type. We believe our objective will also result in continuing access to
favorably priced debt and equity capital. In pursuing our business objective, we seek to achieve a combination of internal and external growth while maintaining a strong balance sheet and employing a strategy of financial flexibility. We maximize
the value of our apartments and commercial properties by maintaining high occupancy levels while charging competitive rental rates, controlling costs and focusing on tenant retention. We also pursue attractive development opportunities either
directly or in partnership with other investors.

For our portfolio of commercial properties, we generate increased operating
cash flow through annual contractual increases in rental rates under existing leases. We also seek to identify best practices within our industry and across our business units in order to enhance cost savings and gain operating efficiencies. We
employ capital improvement and preventive maintenance programs specifically designed to reduce operating costs and increase the long-term value of our real estate investments.

We seek to acquire properties consistent with our business objectives and strategies. We execute our acquisition strategy by purchasing properties which management believes will create stockholder value
over the long-term. We will also sell properties when management believes value has been maximized or when a property is no longer considered an investment to be held long-term.

We are continuously in various stages of discussions and negotiations with respect to development, acquisition, and disposition projects.
The consummation of any current or future development, acquisition, or disposition, if any, and the pace at which any may be completed cannot be assured or predicted.

Substantially all of our properties are owned by subsidiary companies, many of which are single-asset entities. This ownership structure permits greater access to financing for individual properties and
permits flexibility in negotiating a sale of either the asset or the equity interests in the entity owning the asset. From time-to-time, our subsidiaries have invested in joint ventures with other investors, creating the possibility of risks that do
not exist with properties solely owned by an ARL subsidiary. In those instances where other investors are involved, those other investors may have business, economic, or other objectives that are inconsistent with our objectives, which may in turn
require us to make investment decisions different from those if we were the sole owner.

Real estate generally cannot be sold
quickly. We may not be able to promptly dispose of properties in response to economic or other conditions. To offset this challenge, selective dispositions have been a part of our strategy to maintain an efficient investment portfolio and to provide
additional sources of capital. We finance acquisitions through mortgages, internally generated funds, and, to a lesser extent, property sales. Those sources provide the bulk of funds for future acquisitions. We may purchase properties by assuming
existing loans secured by the acquired property. When properties are acquired in such a manner, we customarily seek to refinance the asset in order to properly leverage the asset in a manner consistent with our investment objectives.

Our businesses are not generally seasonal with regard to real estate investments. Our investment strategy seeks both current income and
capital appreciation. Our plan of operation is to continue, to the extent our liquidity permits, to make equity investments in income-producing real estate such as hotels, apartments, and



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commercial properties. We may also invest in the debt or equity securities of real estate-related entities. We intend to pursue higher risk, higher reward investments, such as improved and
unimproved land where we can obtain reasonably-priced financing for substantially all of a propertys purchase price. We intend to continue the development of apartment properties in selected markets in Texas and in other locations where we
believe adequate levels of demand exist. We intend to pursue sales opportunities for properties in stabilized real estate markets where we believe our properties value has been maximized. We also intend to be an opportunistic seller of
properties in markets where demand exceeds current supply. Although we no longer actively seek to fund or purchase mortgage loans, we may, in selected instances, originate mortgage loans or we may provide purchase money financing in conjunction with
a property sale.

Our Board of Directors has broad authority under our governing documents to make all types of investments,
and we may devote available resources to particular investments or types of investments without restriction on the amount or percentage of assets that may be allocated to a single investment or to any particular type of investment, and without limit
on the percentage of securities of any one issuer that may be acquired. Investment objectives and policies may be changed at any time by the Board without stockholder approval.

The specific composition from time-to-time of our real estate portfolio owned by ARL directly and through our subsidiaries depends
largely on the judgment of management to changing investment opportunities and the level of risk associated with specific investments or types of investments. We intend to maintain a real estate portfolio that is diversified by both location and
type of property.

Competition

The real estate business is highly competitive and we compete with numerous companies engaged in real estate activities (including certain entities described in Part III, Item 13. Certain
Relationships and Related Transactions, and Director Independence), some of which have greater financial resources than ARL. We believe that success against such competition is dependent upon the geographic location of a property, the
performance of property-level managers in areas such as leasing and marketing, collection of rents and control of operating expenses, the amount of new construction in the area and the maintenance and appearance of the property. Additional
competitive factors include ease of access to a property, the adequacy of related facilities such as parking and other amenities, and sensitivity to market conditions in determining rent levels. With respect to apartments, competition is also based
upon the design and mix of the units and the ability to provide a community atmosphere for the residents. With respect to hotels, competition is also based upon the market served, i.e., transient, commercial, or group users. We believe that beyond
general economic circumstances and trends, the degree to which properties are renovated or new properties are developed in the competing submarket are also competitive factors. See also Part I, Item 1A. Risk Factors.

To the extent that ARL seeks to sell any of its properties, the sales prices for the properties may be affected by competition from other
real estate owners and financial institutions also attempting to sell properties in areas where ARLs properties are located, as well as aggressive buyers attempting to dominate or penetrate a particular market.

As described above and in Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence,
the officers and directors of ARL serve as officers and directors of TCI and IOT. TCI and IOT have business objectives similar to those of ARL. ARLs officers and directors owe fiduciary duties to both IOT and TCI as well as to ARL under
applicable law. In determining whether a particular investment opportunity will be allocated to ARL, IOT, or TCI, management considers the respective investment objectives of each Company and the appropriateness of a particular investment in light
of each Companys existing real estate and mortgage notes receivable portfolio. To the extent that any particular investment opportunity is appropriate to more than one of the entities, the investment opportunity may be allocated to the entity
which has had funds available for investment for the longest period of time, or, if appropriate, the investment may be shared among all three or two of the entities.



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In addition, as described in Part III, Item 13. Certain Relationships and
Related Transactions, and Director Independence, ARL competes with affiliates of Prime having similar investment objectives related to the acquisition, development, disposition, leasing and financing of real estate and real estate-related
investments. In resolving any potential conflicts of interest which may arise, Prime has informed ARL that it intends to exercise its best judgment as to what is fair and reasonable under the circumstances in accordance with applicable law.

We have historically engaged in and will continue to engage in certain business transactions with related parties, including
but not limited to asset acquisitions 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 the best interests of our company.

Available Information

ARL maintains an Internet site at http://www.amrealtytrust.com. Available through the website, free of charge, are Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
reports filed pursuant to Section 16, and amendments to those reports, as soon as reasonably practicable after they are electronically filed or furnished to the Securities and Exchange Commission. In addition, we have posted the charters for
the Audit Committee, Compensation Committee, and Governance and Nominating Committee, as well as the Code of Business Conduct and Ethics, Corporate Governance Guidelines on Director Independence, and other information on the website. These charters
and principles are not incorporated in this report by reference. We will also provide a copy of these documents free of charge to stockholders upon written request. The Company issues Annual Reports containing audited financial statements to its
common shareholders.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

An investment in our securities involves various risks. All investors should carefully consider the following risk factors in conjunction with the other information in this report before trading our
securities.

Risk Factors Related to our Business

Adverse events concerning our existing tenants or negative market conditions affecting our existing tenants could have an adverse impact on our ability to attract new tenants, release space, collect
rent or renew leases, and thus could adversely affect cash flow from operations and inhibit growth.

Cash flow from
operations depends in part on the ability to lease space to tenants on economically favorable terms. We could be adversely affected by various facts and events over which the Company has limited or no control, such as:



| |  |  | lack of demand for space in areas where the properties are located;
| | - |  | -------------------------------------------------------------------



| |  |  | inability to retain existing tenants and attract new tenants;
| | - |  | -------------------------------------------------------------



| |  |  | oversupply of or reduced demand for space and changes in market rental rates;
| | - |  | -----------------------------------------------------------------------------



| |  |  | defaults by tenants or failure to pay rent on a timely basis;
| | - |  | -------------------------------------------------------------



| |  |  | the need to periodically renovate and repair marketable space;
| | - |  | --------------------------------------------------------------



| |  |  | physical damage to properties;
| | - |  | ------------------------------



| |  |  | economic or physical decline of the areas where properties are located; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | potential risk of functional obsolescence of properties over time.
| | - |  | ------------------------------------------------------------------

At any time, any tenant may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may
delay lease commencement, fail to make rental payments when due, decline to extend a



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lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination
of the tenants lease and material losses to the Company.

If tenants do not renew their leases as they expire, we may
not be able to rent the space. Furthermore, leases that are renewed, and some new leases for space that is re-let, may have terms that are less economically favorable than expiring lease terms, or may require us to incur significant costs, such as
renovations, tenant improvements or lease transaction costs. Any of these events could adversely affect cash flow from operations and our ability to make distributions to shareholders and service indebtedness. A significant portion of the costs of
owning property, such as real estate taxes, insurance, and debt service payments, are not necessarily reduced when circumstances cause a decrease in rental income from the properties.

We may not be able to compete successfully with other entities that operate in our industry.

We experience a great deal of competition in attracting tenants for the properties and in locating land to develop and properties to acquire.

In our effort to lease properties, we compete for tenants with a broad spectrum of other landlords in each of the markets. These
competitors include, among others, publicly-held REITs, privately-held entities, individual property owners and tenants who wish to sublease their space. Some of these competitors may be able to offer prospective tenants more attractive financial
terms than we are able to offer.

If the availability of land or high quality properties in our markets diminishes, operating
results could be adversely affected.

We may experience increased operating costs which could adversely affect our financial results and
the value of our properties.

Our properties are subject to increases in operating expenses such
as insurance, cleaning, electricity, heating, ventilation and air conditioning, administrative costs and other costs associated with security, landscaping, repairs, and maintenance of the properties. While some current tenants are obligated by their
leases to reimburse us for a portion of these costs, there is no assurance that these tenants will make such payments or agree to pay these costs upon renewal or new tenants will agree to pay these costs. If operating expenses increase in our
markets, we may not be able to increase rents or reimbursements in all of these markets to offset the increased expenses, without at the same time decreasing occupancy rates. If this occurs, our ability to make distributions to shareholders and
service indebtedness could be adversely affected.

Our ability to achieve growth in operating income depends in part on its ability to
develop additional properties.

We intend to continue to develop properties where warranted by
market conditions. We have a number of ongoing development and land projects being readied for commencement.

Additionally,
general construction and development activities include the following risks:



| |  |  | construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would
result in reduced profitability for that property;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly
making the property less profitable because of inability to increase rents to compensate for the increase in construction costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | some developments may fail to achieve expectations, possibly making them less profitable;
| | - |  | -----------------------------------------------------------------------------------------



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| |  |  | we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and
authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. If we determine
to alter or discontinue its development efforts, future costs of the investment may be expensed as incurred rather than capitalized and we may determine the investment is impaired resulting in a loss;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may expend funds on and devote managements time to projects which will not be completed; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | occupancy rates and rents at newly-completed properties may fluctuate depending on various factors including market and economic conditions, and may
result in lower than projected rental rates and reduced income from operations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We face risks associated with
property acquisitions.

We acquire individual properties and various portfolios of properties and
intend to continue to do so. Acquisition activities are subject to the following risks:



| |  |  | when we are able to locate a desired property, competition from other real estate investors may significantly increase the sellers offering
price;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquired properties may fail to perform as expected;
| | - |  | ----------------------------------------------------



| |  |  | the actual costs of repositioning or redeveloping acquired properties may be higher than original estimates;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | acquired properties may be located in new markets where we face risks associated with an incomplete knowledge or understanding of the local market, a
limited number of established business relationships in the area and a relative unfamiliarity with local governmental and permitting procedures; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into existing
operations, and results of operations and financial condition could be adversely affected.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may acquire
properties subject to liabilities and without any recourse, or with limited recourse, with respect to unknown liabilities. However, if an unknown liability was later asserted against the acquired properties, we might be required to pay substantial
sums to settle it, which could adversely affect cash flow.

Many of our properties are concentrated in our primary markets and the
Company may suffer economic harm as a result of adverse conditions in those markets.

Our properties are located
principally in specific geographic areas in the southwestern, southeastern, and mid-western United States. The Companys overall performance is largely dependent on economic conditions in those regions.

We are leveraged and may not be able to meet our debt service obligations.

We had total indebtedness at December 31, 2010 of approximately $1.3 billion. Substantially all assets have been pledged to secure
debt. These borrowings increase the risk of loss because they represent a prior claim on assets and most require fixed payments regardless of profitability. Our leveraged position makes us vulnerable to declines in the general economy and may limit
the Companys ability to pursue other business opportunities in the future.

We may not be able to access financial markets to
obtain capital on a timely basis, or on acceptable terms.

We rely on proceeds from property dispositions and third
party capital sources for a portion of our capital needs, including capital for acquisitions and development. The public debt and equity markets are among the



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sources upon which the Company relies. There is no guarantee that we will be able to access these markets or any other source of capital. The ability to access the public debt and equity markets
depends on a variety of factors, including:



| |  |  | general economic conditions affecting these markets;
| | - |  | ----------------------------------------------------



| |  |  | our own financial structure and performance;
| | - |  | --------------------------------------------



| |  |  | the markets opinion of real estate companies in general; and
| | - |  | -------------------------------------------------------------



| |  |  | the markets opinion of real estate companies that own similar properties.
| | - |  | --------------------------------------------------------------------------

We may suffer adverse effects as a result of terms and covenants relating to the Companys indebtedness.

Required payments on our indebtedness generally are not reduced if the economic performance of the portfolio declines. If the economic
performance declines, net income, cash flow from operations and cash available for distribution to stockholders may be reduced. If payments on debt cannot be made, we could sustain a loss or suffer judgments, or in the case of mortgages, suffer
foreclosures by mortgagees. Further, some obligations contain cross-default and/or cross-acceleration provisions, which means that a default on one obligation may constitute a default on other obligations.

We anticipate only a small portion of the principal of our debt will be repaid prior to maturity. Therefore, we are likely to refinance a
portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or the terms of any refinancing will not be as favorable as the terms of the maturing debt. If principal balances due at maturity
cannot be refinanced, extended, or repaid with proceeds from other sources, such as the proceeds of sales of assets or new equity capital, cash flow may not be sufficient to repay all maturing debt in years when significant balloon
payments come due.

Our credit facilities and unsecured debt contain customary restrictions, requirements and other
limitations on the ability to incur indebtedness, including total debt to asset ratios, secured debt to total asset ratios, debt service coverage ratios, and minimum ratios of unencumbered assets to unsecured debt. Our continued ability to borrow is
subject to compliance with financial and other covenants. In addition, failure to comply with such covenants could cause a default under credit facilities, and we may then be required to repay such debt with capital from other sources. Under those
circumstances, other sources of capital may not be available, or be available only on unattractive terms.

Our degree of leverage could
limit our ability to obtain additional financing or affect the market price of our common stock.

The degree of
leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes. The degree of leverage could also make us more vulnerable to a downturn in
business or the general economy.

An increase in interest rates would increase interest costs on variable rate debt and could adversely
impact the ability to refinance existing debt.

We currently have, and may incur more, indebtedness that bears interest
at variable rates. Accordingly, if interest rates increase, so will the interest costs, which could adversely affect cash flow and the ability to pay principal and interest on our debt and the ability to make distributions to shareholders. Further,
rising interest rates could limit our ability to refinance existing debt when it matures.

Unbudgeted capital expenditures or cost
overruns could adversely affect business operations and cash flow.

If capital expenditures for
ongoing or planned development projects or renovations exceed expectations, the additional cost of these expenditures could have an adverse effect on business operations and cash flow. In addition, we might not have access to funds on a timely basis
to pay the unexpected expenditures.



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Construction costs are funded in large part through construction financing, which the
Company may guarantee. The Companys obligation to pay interest on this financing continues until the rental project is completed, leased-up and permanent financing is obtained, or the for sale project is sold, or the construction loan is
otherwise paid. Unexpected delays in completion of one or more ongoing projects could also have a significant adverse impact on business operations and cash flow.

We may need to sell properties from time to time for cash flow purposes.

Because of the lack of liquidity of real estate investments generally, our ability to respond to changing circumstances may be limited. Real estate investments generally cannot be sold quickly. In the
event that we must sell assets to generate cash flow, we cannot predict whether there will be a market for those assets in the time period desired, or whether we will be able to sell the assets at a price that will allow the Company to fully recoup
its investment. We may not be able to realize the full potential value of the assets and may incur costs related to the early pay-off of the debt secured by such assets.

We intend to devote resources to the development of new projects.

We plan to continue developing new projects as opportunities arise in the future. Development and construction activities entail a number
of risks, including but not limited to the following:



| |  |  | we may abandon a project after spending time and money determining its feasibility;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | construction costs may materially exceed original estimates;
| | - |  | ------------------------------------------------------------



| |  |  | the revenue from a new project may not be enough to make it profitable or generate a positive cash flow;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | we may not be able to obtain financing on favorable terms for development of a property, if at all;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | we may not complete construction and lease-ups on schedule, resulting in increased development or carrying costs; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | we may not be able to obtain, or may be delayed in obtaining, necessary governmental permits.
| | - |  | ---------------------------------------------------------------------------------------------

The overall business is subject to all of the risks associated with the real estate industry.

We are subject to all risks incident to investment in real estate, many of which relate to the general lack of liquidity of real estate
investments, including, but not limited to:



| |  |  | our real estate assets are concentrated primarily in the southwest and any deterioration in the general economic conditions of this region could have
an adverse effect;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interest rates may make the ability to satisfy debt service requirements more burdensome;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | lack of availability of financing may render the purchase, sale or refinancing of a property more difficult or unattractive;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in real estate and zoning laws;
| | - |  | ---------------------------------------



| |  |  | increases in real estate taxes and insurance costs;
| | - |  | ---------------------------------------------------



| |  |  | federal or local economic or rent control;
| | - |  | ------------------------------------------



| |  |  | acts of terrorism, and
| | - |  | ----------------------



| |  |  | hurricanes, tornadoes, floods, earthquakes and other similar natural disasters.
| | - |  | -------------------------------------------------------------------------------

Our performance and value are subject to risks associated with our real estate assets and with the real estate industry.

Our economic performance and the value of our real estate assets, and consequently the value of our securities, are subject to the risk
that if our properties do not generate revenues sufficient to meet our operating



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expenses, including debt service and capital expenditures, our cash flow will be adversely affected. The following factors, among others, may adversely affect the income generated by our
properties:



| |  |  | downturns in the national, regional and local economic conditions (particularly increases in unemployment);
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | competition from other office, hotel and commercial buildings;
| | - |  | --------------------------------------------------------------



| |  |  | local real estate market conditions, such as oversupply or reduction in demand for office, hotel or other commercial space;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in interest rates and availability of financing;
| | - |  | --------------------------------------------------------



| |  |  | vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are
generally not reduced when circumstances cause a reduction in revenues from a property;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | declines in the financial condition of our tenants and our ability to collect rents from our tenants; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | decreases in the underlying value of our real estate.
| | - |  | -----------------------------------------------------

Adverse economic and geopolitical conditions and dislocations in the credit markets could have a material adverse effect on our results of operations, and financial condition.

Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate industry as a whole or by
the local economic conditions in the markets in which our properties are located, including the current dislocations in the credit markets and general global economic recession. These current conditions, or similar conditions existing in the future,
may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences:



| |  |  | the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity,
operational failures or for other reasons;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to
be negatively impacted;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition
and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties
and may reduce the availability of unsecured loans; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of
any such lenders on favorable terms, or at all.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Real estate investments are illiquid, and the Company may not be able
to sell properties if and when it is appropriate to do so.

Real estate generally cannot be sold quickly. We may not be
able to dispose of properties promptly in response to economic or other conditions. In addition, provisions of the Internal Revenue Code may limit our



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ability to sell properties (without incurring significant tax costs) in some situations when it may be otherwise economically advantageous to do so, thereby adversely affecting returns to
stockholders and adversely impacting our ability to meet our obligations.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

On December 31, 2010, our portfolio consisted of 82 income producing properties consisting of 47 apartments, 30 commercial
properties, and five hotels. The apartments have a total of 8,525 units. The commercial properties consist of 19 office buildings, six industrial warehouses, four shopping centers, and one merchandise mart which is 344,975 square feet. The five
hotels have a total of 808 rooms. The average dollar per square foot for the Companys apartment/residential portfolio is $8.93 and $11.96 for the commercial portfolio. In addition, we own or control 10,391 acres of improved and unimproved land
held for future development or sale. The table below shows information relating to those properties.



|                         |  |          |                       |  |       |  |       |           |  |  |       |  
|------------------------ |  | -------- | --------------------- |  | ----- |  | ----- | --------- |  |  | ----- | -
|Apartments               |  | Location |                       |  | Units |  |       | Occupancy | 
|Anderson Estates         |  |          | Oxford, MS            |  |       |  | 48    |           |  |  | 95.80 | %
|Blue Lake Villas I       |  |          | Waxahachie, TX        |  |       |  | 186   |           |  |  | 94.10 | %
|Blue Lake Villas II      |  |          | Waxahachie, TX        |  |       |  | 70    |           |  |  | 98.60 | %
|Breakwater Bay           |  |          | Beaumont, TX          |  |       |  | 176   |           |  |  | 90.30 | %
|Bridgewood Ranch         |  |          | Kaufman, TX           |  |       |  | 106   |           |  |  | 97.20 | %
|Capitol Hill             |  |          | Little Rock, AR       |  |       |  | 156   |           |  |  | 92.30 | %
|Curtis Moore Estates     |  |          | Greenwood, MS         |  |       |  | 104   |           |  |  | 91.30 | %
|Dakota Arms              |  |          | Lubbock, TX           |  |       |  | 208   |           |  |  | 94.70 | %
|David Jordan Phase II    |  |          | Greenwood, MS         |  |       |  | 32    |           |  |  | 96.90 | %
|David Jordan Phase III   |  |          | Greenwood, MS         |  |       |  | 40    |           |  |  | 95.00 | %
|Desoto Ranch             |  |          | DeSoto, TX            |  |       |  | 248   |           |  |  | 91.10 | %
|Dorado Ranch             |  |          | Odessa, TX            |  |       |  | 224   |           |  |  | 99.10 | %
|Falcon Lakes             |  |          | Arlington, TX         |  |       |  | 248   |           |  |  | 94.40 | %
|Heather Creek            |  |          | Mesquite, TX          |  |       |  | 200   |           |  |  | 95.50 | %
|Huntington Ridge         |  |          | DeSoto, TX            |  |       |  | 198   |           |  |  | 94.40 | %
|Laguna Vista             |  |          | Dallas, TX            |  |       |  | 206   |           |  |  | 91.70 | %
|Lake Forest              |  |          | Houston, TX           |  |       |  | 240   |           |  |  | 94.20 | %
|Legends of El Paso       |  |          | El Paso, TX           |  |       |  | 240   |           |  |  | 99.20 | %
|Mansions of Mansfield    |  |          | Mansfield, TX         |  |       |  | 208   |           |  |  | 95.70 | %
|Mariposa Villas          |  |          | Dallas, TX            |  |       |  | 216   |           |  |  | 98.60 | %
|Mission Oaks             |  |          | San Antonio, TX       |  |       |  | 228   |           |  |  | 93.90 | %
|Monticello Estate        |  |          | Monticello, AR        |  |       |  | 32    |           |  |  | 90.60 | %
|Northside on Travis      |  |          | Sherman, TX           |  |       |  | 200   |           |  |  | 96.50 | %
|Paramount Terrace        |  |          | Amarillo. TX          |  |       |  | 181   |           |  |  | 90.10 | %
|Parc at Clarksville      |  |          | Clarksville, TN       |  |       |  | 168   |           |  |  | 83.90 | %
|Parc at Maumelle         |  |          | Little Rock, AR       |  |       |  | 240   |           |  |  | 94.60 | %
|Parc at Metro Center     |  |          | Nashville, TN         |  |       |  | 144   |           |  |  | 93.80 | %
|Parc at Rogers           |  |          | Rogers, AR            |  |       |  | 152   |           |  |  | 94.40 | %
|Pecan Pointe             |  |          | Temple, TX            |  |       |  | 232   |           |  |  | 93.50 | %
|Portofino                |  |          | Farmers Branch, TX    |  |       |  | 224   |           |  |  | 93.80 | %
|Preserve at Pecan Creek  |  |          | Denton, TX            |  |       |  | 192   |           |  |  | 96.90 | %
|Quail Hollow             |  |          | Holland, OH           |  |       |  | 200   |           |  |  | 99.50 | %
|River Oaks               |  |          | Wylie, TX             |  |       |  | 180   |           |  |  | 94.40 | %
|Riverwalk Phase I        |  |          | Greenville, MS        |  |       |  | 32    |           |  |  | 93.80 | %
|Riverwalk Phase II       |  |          | Greenville, MS        |  |       |  | 72    |           |  |  | 93.10 | %
|Savoy of Garland         |  |          | Garland, TX           |  |       |  | 144   |           |  |  | 96.50 | %
|Spyglass                 |  |          | Mansfield, TX         |  |       |  | 256   |           |  |  | 94.90 | %
|Stonebridge at City Park |  |          | Houston, TX           |  |       |  | 240   |           |  |  | 94.60 | %
|Sugar Mill               |  |          | Baton Rouge, LA       |  |       |  | 160   |           |  |  | 97.50 | %
|Treehouse                |  |          | Irving, TX            |  |       |  | 160   |           |  |  | 95.00 | %
|Verandas at City View    |  |          | Fort Worth, TX        |  |       |  | 314   |           |  |  | 94.90 | %
|Vistas of Pinnacle Park  |  |          | Dallas, TX            |  |       |  | 332   |           |  |  | 89.20 | %
|Vistas of Vance Jackson  |  |          | San Antonio, TX       |  |       |  | 240   |           |  |  | 97.50 | %
|Westwood                 |  |          | Mary Esther, FL       |  |       |  | 120   |           |  |  | 91.70 | %
|Whispering Pines         |  |          | Topeka, KS            |  |       |  | 320   |           |  |  | 91.60 | %
|Wildflower Villas        |  |          | Temple, TX            |  |       |  | 220   |           |  |  | 90.00 | %
|Windsong                 |  |          | Fort Worth, TX        |  |       |  | 188   |           |  |  | 93.60 | %
|                         |  |          |                       |  |       |  |       |           |  |  |       |  
|                         |  |          | Total Apartment Units |  |       |  | 8,525 |           |  |  |       |  
|                         |  |          |                       |  |       |  |       |           |  |  |       |  



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PROPERTIES (contd)



|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|---------------------------- |  | -------- | --------------------------- |  | ---- |  | --------- | --------- |  |  | ------ | -
|Office Buildings             |  | Location |                             |  | SqFt |  |           | Occupancy | 
|225 Baronne                  |  |          | New Orleans, LA             |  |      |  | 422,037   |           |  |  | 0.00   | %
|305 Baronne                  |  |          | New Orleans, LA             |  |      |  | 37,081    |           |  |  | 35.18  | %
|600 Las Colinas              |  |          | Las Colinas, TX             |  |      |  | 510,841   |           |  |  | 67.60  | %
|Browning Place (Park West I) |  |          | Farmers Branch, TX          |  |      |  | 627,312   |           |  |  | 62.49  | %
|Ergon Office Building        |  |          | Jackson, MS                 |  |      |  | 26,000    |           |  |  | 0.00   | %
|Fruitland Plaza              |  |          | Fruitland Park, FL          |  |      |  | 6,722     |           |  |  | 100.00 | %
|One Hickory Center           |  |          | Farmers Branch, TX          |  |      |  | 97,361    |           |  |  | 95.95  | %
|Sesame Square                |  |          | Anchorage, AK               |  |      |  | 20,715    |           |  |  | 81.02  | %
|Stanford Center              |  |          | Dallas, TX                  |  |      |  | 336,910   |           |  |  | 100.00 | %
|Two Hickory Center           |  |          | Farmers Branch, TX          |  |      |  | 97,117    |           |  |  | 75.40  | %
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          | Total Office Buildings      |  |      |  | 2,182,096 |           |  |  |        |  
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          |                            
|Industrial Warehouses        |  | Location |                             |  | SqFt |  |           | Occupancy | 
|Addison Hanger I             |  |          | Addison, TX                 |  |      |  | 25,102    |           |  |  | 100.00 | %
|Addison Hanger II            |  |          | Addison, TX                 |  |      |  | 24,000    |           |  |  | 30.00  | %
|Alpenloan                    |  |          | Dallas, TX                  |  |      |  | 28,594    |           |  |  | 22.54  | %
|Clark Garage                 |  |          | New Orleans, LA             |  |      |  | 6,869     |           |  |  | 34.44  | %
|Senlac (VHP)                 |  |          | Farmers Branch, TX          |  |      |  | 2,812     |           |  |  | 0.00   | %
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          | Total Industrial Warehouses |  |      |  | 87,377    |           |  |  |        |  
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          |                            
|Shopping Centers             |  | Location |                             |  | SqFt |  |           | Occupancy | 
|Cross County Mall            |  |          | Matoon, IL                  |  |      |  | 306,609   |           |  |  | 79.31  | %
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          | Total Shopping Centers      |  |      |  | 306,609   |           |  |  |        |  
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          |                            
|Merchandise Mart             |  | Location |                             |  | SqFt |  |           | Occupancy | 
|Denver Merchandise Mart      |  |          | Denver, CO                  |  |      |  | 344,975   |           |  |  | 73.82  | %
|                             |  |          |                             |  |      |  |           |           |  |  |        |  
|                             |  |          |                             |  |      |  | 344,975   |           |  |  |        |  
|                             |  |          |                             |  |      |  |           |           |  |  |        |  



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##### Table of Contents

PROPERTIES (contd)



|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  |  |   |       | 
|----------------------------------------------------- |  | -------- | -------------------------------------- | --------- | ----- |  | ------- | --------------------- |  |  | ---------------- | - |  | ----------------------------------- | ----- |  |  | - | ----- | 
|Hotels Subject to SalesContract                       |  | Location |                                        |           | Rooms |  |         | AverageOccupancy Rate |  |  | AverageRoom Rate |   |  | Total Revenues/Total
AvailableRooms |      
|Inn at the Mart (Comfort Inn)                         |  |          | Denver, CO                             |           |       |  | 161     |                       |  |  | 48.08            | % |  | $                                   | 71.46 |  |  | $ | 34.90 | 
|PiccadillyAirport                                    |  |          | Fresno, CA                             |           |       |  | 185     |                       |  |  | 34.62            | % |  |                                     | 82.41 |  |  |   | 48.12 | 
|PiccadillyChateau                                    |  |          | Fresno, CA                             |           |       |  | 78      |                       |  |  | 36.30            | % |  |                                     | 73.77 |  |  |   | 26.91 | 
|PiccadillyShaw                                       |  |          | Fresno, CA                             |           |       |  | 194     |                       |  |  | 37.90            | % |  |                                     | 86.29 |  |  |   | 42.31 | 
|PiccadillyUniversity                                 |  |          | Fresno, CA                             |           |       |  | 190     |                       |  |  | 31.66            | % |  |                                     | 75.40 |  |  |   | 34.81 | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  |  |   |       | 
|                                                      |  |          | Total Hotels Subject to Sales Contract |           |       |  | 808     |                       |  |  | 37.71            | % |  | $                                   | 78.36 |  |  | $ | 48.02 | 
|                                                      |  |          |                                        |           |      
|Office Buildings Subject toSales Contract             |  | Location |                                        |           | SqFt  |  |         | Occupancy             |  |  |                  |   |  |                                     |      
|1010 Common                                           |  |          | New Orleans, LA                        |           |       |  | 512,593 |                       |  |  | 73.89            | % |  |                                     |       |  |  |   |       | 
|Amoco Building                                        |  |          | New Orleans, LA                        |           |       |  | 378,895 |                       |  |  | 72.38            | % |  |                                     |       |  |  |   |       | 
|Cooley Building                                       |  |          | Farmers Branch, TX                     |           |       |  | 27,000  |                       |  |  | 69.44            | % |  |                                     |       |  |  |   |       | 
|Eton Square                                           |  |          | Tulsa, OK                              |           |       |  | 225,566 |                       |  |  | 70.35            | % |  |                                     |       |  |  |   |       | 
|Fenton Center (Park West II)                          |  |          | Farmers Branch, TX                     |           |       |  | 696,458 |                       |  |  | 58.46            | % |  |                                     |       |  |  |   |       | 
|Parkway North                                         |  |          | Dallas, TX                             |           |       |  | 69,009  |                       |  |  | 70.93            | % |  |                                     |       |  |  |   |       | 
|Signature Building                                    |  |          | Dallas, TX                             |           |       |  | 58,910  |                       |  |  | 0.00             | % |  |                                     |       |  |  |   |       | 
|Teleport                                              |  |          | Irving, TX                             |           |       |  | 6,833   |                       |  |  | 0.00             | % |  |                                     |       |  |  |   |       | 
|Westgrove Air Plaza                                   |  |          | Addison, TX                            |           |       |  | 79,652  |                       |  |  | 70.32            | % |  |                                     |       |  |  |   |       | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  |  |   |       | 
|Total Office Buildings Subject to Sales
Contract      |  |          |                                        | 2,054,916 |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 
|                                                      |  |          |                                        |           |      
|Industrial WarehousesSubject to Sales Contract        |  | Location |                                        |           | SqFt  |  |         | Occupancy             |  |  |                  |   |  |                                     |      
|Thermalloy                                            |  |          | Farmers Branch, TX                     |           |       |  | 177,805 |                       |  |  | 0.00             | % |  |                                     |       |  |  |   |       | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  |  |   |       | 
|Total Industrial Warehouses Subject to Sales
Contract |  |          |                                        | 177,805   |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 
|                                                      |  |          |                                        |           |      
|Shopping Centers Subject toSales Contract             |  | Location |                                        |           | SqFt  |  |         | Occupancy             |  |  |                  |   |  |                                     |      
|Bridgeview Plaza                                      |  |          | LaCrosse, WI                           |           |       |  | 122,205 |                       |  |  | 89.28            | % |  |                                     |       |  |  |   |       | 
|Dunes Plaza                                           |  |          | Michigan City, IN                      |           |       |  | 220,461 |                       |  |  | 26.62            | % |  |                                     |       |  |  |   |       | 
|Willowbrook Village                                   |  |          | Coldwater, MI                          |           |       |  | 179,741 |                       |  |  | 81.25            | % |  |                                     |       |  |  |   |       | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  |  |   |       | 
|Total Shopping Centers Subject to Sales
Contract      |  |          |                                        | 522,407   |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 
|                                                      |  |          |                                        |           |       |  |         |                       |  |  |                  |   |  |                                     |       |  | 



23



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##### Table of Contents

Lease Expiration by Year

The table below shows the lease expirations of the commercial properties over a ten-year period (dollars in thousands):



|                         |  |                                             |           |  |                                                         |   |            |                                                                 |  |   |                               |  |  |                           |      |   |  |  |      |  
|------------------------ |  | ------------------------------------------- | --------- |  | ------------------------------------------------------- | - | ---------- | --------------------------------------------------------------- |  | - | ----------------------------- |  |  | ------------------------- | ---- | - |  |  | ---- | -
|Year of Lease Expiration |  | RentableSquare FeetSubject toExpiringLeases |           |  | CurrentAnnualized(1)ContractualRent UnderExpiringLeases |   |            | CurrentAnnualized(1)ContractualRent UnderExpiringLeases(P.S.F.) |  |   | Percentageof TotalSquare Feet |  |  | Percentageof GrossRentals |     
|2011                     |  |                                             | 614,517   |  |                                                         | $ | 10,199,994 |                                                                 |  | $ | 16.60                         |  |  |                           | 10.8 | % |  |  | 19.6 | %
|2012                     |  |                                             | 634,715   |  |                                                         |   | 11,047,492 |                                                                 |  |   | 17.41                         |  |  |                           | 11.2 | % |  |  | 21.2 | %
|2013                     |  |                                             | 730,092   |  |                                                         |   | 9,280,010  |                                                                 |  |   | 12.71                         |  |  |                           | 12.9 | % |  |  | 17.8 | %
|2014                     |  |                                             | 383,171   |  |                                                         |   | 4,861,940  |                                                                 |  |   | 12.69                         |  |  |                           | 6.8  | % |  |  | 9.3  | %
|2015                     |  |                                             | 340,088   |  |                                                         |   | 4,265,600  |                                                                 |  |   | 12.54                         |  |  |                           | 6.0  | % |  |  | 8.2  | %
|2016                     |  |                                             | 128,521   |  |                                                         |   | 2,314,366  |                                                                 |  |   | 18.01                         |  |  |                           | 2.3  | % |  |  | 4.4  | %
|2017                     |  |                                             | 349,278   |  |                                                         |   | 6,332,813  |                                                                 |  |   | 18.13                         |  |  |                           | 6.2  | % |  |  | 12.2 | %
|2018                     |  |                                             | 42,042    |  |                                                         |   | 841,566    |                                                                 |  |   | 20.02                         |  |  |                           | 0.7  | % |  |  | 1.6  | %
|2019                     |  |                                             | 109,507   |  |                                                         |   | 2,326,247  |                                                                 |  |   | 21.24                         |  |  |                           | 1.9  | % |  |  | 4.5  | %
|2020                     |  |                                             |          |  |                                                         |   |           |                                                                 |  |   |                              |  |  |                           | 0.0  | % |  |  | 0.0  | %
|Thereafter               |  |                                             | 44,167    |  |                                                         |   | 574,106    |                                                                 |  |   | 13.00                         |  |  |                           | 0.8  | % |  |  | 1.2  | %
|                         |  |                                             |           |  |                                                         |   |            |                                                                 |  |   |                               |  |  |                           |      |   |  |  |      |  
|Total                    |  |                                             | 3,376,098 |  |                                                         | $ | 52,044,134 |                                                                 |  |   |                               |  |  |                           | 59.6 | % |  |  | 100  | %
|                         |  |                                             |           |  |                                                         |   |            |                                                                 |  |   |                               |  |  |                           |      |   |  |  |      |  



|(1) | Represents the monthly contractual base rent and recoveries from tenants under existing leases as of December 31, 2010 multiplied by twelve. This amount reflects
total rent before any rent abatements and includes expense reimbursements which may be estimates as of such date.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                               |  |                    |  |       |       | 
|------------------------------ |  | ------------------ |  | ----- | ----- | 
|Land                           |  | Location           |  | Acres |      
|1013 Common St                 |  | New Orleans, LA    |  |       | 0.41  | 
|Alliance Airport               |  | Tarrant County, TX |  |       | 12.70 | 
|Audubon                        |  | Adams County, MS   |  |       | 48.20 | 
|Backlick Land                  |  | Springfield, VA    |  |       | 4.00  | 
|Cooks Lane Land                |  | Fort Worth, TX     |  |       | 23.24 | 
|Copperridge                    |  | Dallas, TX         |  |       | 3.90  | 
|Dedeaux                        |  | Gulfport, MS       |  |       | 10.00 | 
|Denham Springs                 |  | Denham Springs, LA |  |       | 4.38  | 
|Denton (Andrew B)              |  | Denton, TX         |  |       | 22.90 | 
|Denton (Andrew C)              |  | Denton, TX         |  |       | 5.20  | 
|Denton Coonrod                 |  | Denton, TX         |  |       | 82.80 | 
|Desoto Ranch                   |  | Desoto, TX         |  |       | 8.02  | 
|Dunes Plaza Vacant Land        |  | Michigan City, IN  |  |       | 14.62 | 
|Elm Fork Land                  |  | Denton County, TX  |  |       | 35.84 | 
|Folsom Land                    |  | Dallas, TX         |  |       | 36.38 | 
|Galleria East Center Retail    |  | Dallas, TX         |  |       | 15.00 | 
|Galleria West Hotel            |  | Dallas, TX         |  |       | 1.97  | 
|Galleria West Lofts            |  | Dallas, TX         |  |       | 7.19  | 
|Gautier Land                   |  | Gautier, MS        |  |       | 40.06 | 
|GNB Land                       |  | Farmers Branch, TX |  |       | 45.00 | 
|Hollywood Casino Land Tract II |  | Farmers Branch, TX |  |       | 13.85 | 
|Hunter Equities Land           |  | Dallas, TX         |  |       | 2.56  | 
|Jackson Capital City Center    |  | Jackson, MS        |  |       | 7.95  | 
|Keller Springs Lofts           |  | Addison, TX        |  |       | 7.40  | 



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|                                 |  |                        |  |       |          | 
|-------------------------------- |  | ---------------------- |  | ----- | -------- | 
|LAND (contd)                    |  |                        |  |       |          | 
|                                 |  |                       
|Land                             |  | Location               |  | Acres |         
|Kinwest Manor                    |  | Irving, TX             |  |       | 7.98     | 
|LaDue Land                       |  | Farmers Branch, TX     |  |       | 8.01     | 
|Lake Shore Villas                |  | Humble, TX             |  |       | 19.51    | 
|Lamar/Palmer Land                |  | Austin, TX             |  |       | 17.07    | 
|Las Colinas Station              |  | Las Colinas, TX        |  |       | 10.08    | 
|Las Colinas Village              |  | Las Colinas, TX        |  |       | 16.81    | 
|Lubbock Land                     |  | Lubbock, TX            |  |       | 2.86     | 
|Luna (Carr)                      |  | Farmers Branch, TX     |  |       | 2.60     | 
|Luna Ventures                    |  | Farmers Branch, TX     |  |       | 26.74    | 
|Manhattan Land                   |  | Farmers Branch, TX     |  |       | 108.90   | 
|Mansfield Land                   |  | Mansfield, TX          |  |       | 21.89    | 
|McKinney 36                      |  | Collin County, TX      |  |       | 34.05    | 
|McKinney Ranch Land              |  | McKinney,TX            |  |       | 169.74   | 
|Meloy/Portage Land               |  | Kent, OH               |  |       | 52.95    | 
|Nicholson Croslin                |  | Dallas, TX             |  |       | 0.80     | 
|Nicholson Mendoza                |  | Dallas, TX             |  |       | 0.35     | 
|Ocean Estates                    |  | Gulfport, MS           |  |       | 12.00    | 
|Palmer Lane (Las Praderas)       |  | Austin, TX             |  |       | 367.43   | 
|Pioneer Crossing Tract I         |  | Austin, TX             |  |       | 303.32   | 
|Pioneer Crossing Tract II        |  | Austin, TX             |  |       | 38.54    | 
|Polo Estates At Bent Tree        |  | Dallas, TX             |  |       | 5.87     | 
|Port Olpenitz GmbH               |  | Kappelin, Germany      |  |       | 420.00   | 
|Seminary West Land               |  | Fort Worth, TX         |  |       | 3.03     | 
|Senlac Land Tract II             |  | Farmers Branch, TX     |  |       | 11.94    | 
|Sheffield Village                |  | Grand Prairie, TX      |  |       | 13.90    | 
|Sisikiyou County Land            |  | Siskiyou County, CA    |  |       | 20.70    | 
|Southwood Plantation 1394        |  | Tallahassee, FL        |  |       | 14.52    | 
|Texas Plaza Land                 |  | Irving, TX             |  |       | 10.33    | 
|Travelers Land                   |  | Farmers Branch, TX     |  |       | 193.17   | 
|Travis Ranch Land                |  | Kaufman County, TX     |  |       | 10.00    | 
|Travis Ranch Retail              |  | Kaufman County, TX     |  |       | 14.93    | 
|Union Pacific Railroad Land      |  | Dallas, TX             |  |       | 0.04     | 
|US Virgin Islands Land           |  | US Virgin Islands      |  |       | 96.60    | 
|Valley View 34 (Mercer Crossing) |  | Farmers Branch, TX     |  |       | 2.19     | 
|Valley View/Senlac               |  | Farmers Branch, TX     |  |       | 3.45     | 
|Waco 151 Land                    |  | Waco,TX                |  |       | 151.40   | 
|Waco Swanson                     |  | Waco, TX               |  |       | 340.65   | 
|Walker Land                      |  | Dallas County, TX      |  |       | 82.59    | 
|Walker Land (Flood Plain)        |  | Dallas County, TX      |  |       | 48.62    | 
|Willowick Land                   |  | Pensacola, TX          |  |       | 39.78    | 
|                                 |  |                        |  |       |          | 
|                                 |  | Total Land/Development |  |       | 3,158.91 | 
|                                 |  |                        |  |       |          | 



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|                               |  |                                      |  |       |          | 
|------------------------------ |  | ------------------------------------ |  | ----- | -------- | 
|Land Subject to Sales Contract |  | Location                             |  | Acres |         
|Ackerley Land                  |  | Dallas, TX                           |  |       | 1.31     | 
|Archon Land                    |  | Irving, TX                           |  |       | 29.07    | 
|Bonneau Land                   |  | Dallas County, TX                    |  |       | 8.39     | 
|Centura Land                   |  | Dallas, TX                           |  |       | 10.08    | 
|Chase Oaks Land                |  | Plano, TX                            |  |       | 6.54     | 
|Creekside                      |  | Fort Worth, TX                       |  |       | 30.07    | 
|Crowley                        |  | Fort Worth, TX                       |  |       | 24.90    | 
|Dalho                          |  | Farmers Branch, TX                   |  |       | 2.89     | 
|Diplomat Drive                 |  | Farmers Branch, TX                   |  |       | 11.65    | 
|Dominion Tract                 |  | Dallas, TX                           |  |       | 10.59    | 
|Eagle Crest                    |  | Dallas, TX                           |  |       | 18.60    | 
|Fortune Drive                  |  | Irving, TX                           |  |       | 14.44    | 
|Hollywood Casino Land Tract I  |  | Farmers Branch, TX                   |  |       | 18.56    | 
|HSM Cummings                   |  | Farmers Branch, TX                   |  |       | 6.11     | 
|JHL Connell                    |  | Carrollton, TX                       |  |       | 2.11     | 
|KaufmanAdams                  |  | Kaufman County, TX                   |  |       | 193.73   | 
|KaufmanBridgewood             |  | Kaufman County, TX                   |  |       | 5.04     | 
|KaufmanCogen Land             |  | Forney, TX                           |  |       | 2,567.00 | 
|KaufmanStagliano              |  | Forney, TX                           |  |       | 34.80    | 
|KaufmanTaylor                 |  | Forney, TX                           |  |       | 31.00    | 
|Keenan Bridge Land             |  | Farmers Branch, TX                   |  |       | 7.36     | 
|Lacy Longhorn Land             |  | Farmers Branch, TX                   |  |       | 17.12    | 
|Las ColinasWalnut Hill        |  | Las Colinas, TX                      |  |       | 1.58     | 
|LCLLP (Kinwest/Hackberry)      |  | Las Colinas, TX                      |  |       | 41.19    | 
|Limestone Canyon II            |  | Austin, TX                           |  |       | 9.96     | 
|Marine Creek                   |  | Fort Worth, TX                       |  |       | 44.17    | 
|McKinney Ranch Land            |  | McKinney,TX                          |  |       | 20.85    | 
|Pac Trust Land                 |  | Farmers Branch, TX                   |  |       | 7.07     | 
|Pantaze Land                   |  | Dallas, TX                           |  |       | 6.00     | 
|Payne Land                     |  | Las Colinas, TX                      |  |       | 149.70   | 
|Pioneer Crossing Tract I       |  | Austin, TX                           |  |       | 97.28    | 
|Ridgepoint Drive               |  | Irving, TX                           |  |       | 0.60     | 
|Senlac Land Tract I            |  | Farmers Branch, TX                   |  |       | 3.98     | 
|Stanley Tools                  |  | Farmers Branch, TX                   |  |       | 23.76    | 
|Temple Land                    |  | Temple, TX                           |  |       | 10.69    | 
|Thompson Land I                |  | Farmers Branch, TX                   |  |       | 3.99     | 
|Thompson Land II               |  | Farmers Branch, TX                   |  |       | 3.32     | 
|Three Hickory                  |  | Dallas, TX                           |  |       | 6.64     | 
|Tomlin Land                    |  | Farmers Branch, TX                   |  |       | 9.20     | 
|Valley Ranch Land              |  | Irving, TX                           |  |       | 26.91    | 
|Valley View (Hutton/Senlac)    |  | Farmers Branch, TX                   |  |       | 2.42     | 
|Valwood                        |  | Dallas, TX                           |  |       | 257.05   | 
|Whorton Land                   |  | Bentonville, AR                      |  |       | 79.70    | 
|Wilmer 88                      |  | Dallas, TX                           |  |       | 87.60    | 
|Windmill FarmsHarlan Land     |  | Kaufman County, TX                   |  |       | 245.95   | 
|Windmill Farms I               |  | Kaufman County, TX                   |  |       | 3,041.05 | 
|                               |  |                                      |  |       |          | 
|                               |  | Total Land Subject to Sales Contract |  |       | 7,232.01 | 
|                               |  |                                      |  |       |          | 



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|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

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 operations or liquidity.

During the fourth quarter of the fiscal year covered by this Report, no proceeding previously reported was terminated.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

The Annual Meeting of Stockholders was held on September 16, 2010, at which proxies were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended (the Exchange
Act). There was no solicitation in opposition to managements nominees listed in the Proxy Statement, all of which were elected. At the annual meeting, stockholders were asked to consider and vote upon the election of Directors and the
ratification of the selection of the independent public accountants for ARL for the fiscal year ending December 31, 2010. With respect to each nominee for election as a director, the following table sets forth the number of votes cast for or
withheld:



|                      |  |               |           |  |                   |  |        | 
|--------------------- |  | ------------- | --------- |  | ----------------- |  | ------ | 
|                      |  | Shares Voting |          
|Director              |  | For           |           |  | WithheldAuthority | 
|Henry A. Butler       |  |               | 9,886,192 |  |                   |  | 24,833 | 
|Sharon Hunt           |  |               | 9,887,143 |  |                   |  | 23,882 | 
|Robert A. Jakuszewski |  |               | 9,880,304 |  |                   |  | 30,721 | 
|Ted R. Munselle       |  |               | 9,887,123 |  |                   |  | 23,902 | 

There were no
abstentions or broker non-votes on the election of Directors. With respect to the ratification of the appointment of Farmer, Fuqua & Huff, P.C. as independent auditors of the Company for the fiscal year ending December 31, 2010, and
any interim period, at least 9,897,747 votes were received in favor of such proposal, 4,590 votes were received against such proposal, and 8,688 votes abstained.



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##### Table of Contents

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------

ARLs common stock is listed and traded on the New York Stock Exchange under the symbol ARL. The following table sets
forth the high and low sales prices as reported in the consolidated reporting system of the New York Stock Exchange:



|               |  |      |       |  |      |   |      |      |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- |  | ---- | - | ---- | ---- |  | - | ----- |  |  | - | ----- | 
|               |  | 2010 |       |  | 2009 |  
|               |  | High |       |  | Low  |   |      | High |  |   | Low   | 
|First Quarter  |  | $    | 11.64 |  |      | $ | 8.50 |      |  | $ | 11.25 |  |  | $ | 8.46  | 
|Second Quarter |  | $    | 8.95  |  |      | $ | 7.59 |      |  | $ | 12.00 |  |  | $ | 9.62  | 
|Third Quarter  |  | $    | 9.33  |  |      | $ | 7.71 |      |  | $ | 14.06 |  |  | $ | 10.12 | 
|Fourth Quarter |  | $    | 8.99  |  |      | $ | 6.81 |      |  | $ | 13.02 |  |  | $ | 8.27  | 

On March 25,
2011, the closing market price of ARLs common stock on the New York Stock Exchange was $3.04 per share, and was held by approximately 3,000 stockholders of record.



28



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Performance Graph

The following graph compares the cumulative total stockholder return on ARLs shares of common stock with the Dow Jones Industrial Average (Dow Jones Industrial) and the Dow Jones Real
Estate Investment Index (Dow Jones Real Estate). The comparison assumes that $100 was invested on December 31, 2005 in shares of common stock and in each of the indices and further assumes the reinvestment of all dividends. Past
performance is not necessarily an indicator of future performance.

LOGO

$100 invested on 12/31/05 in stock or index-including reinvestment of dividends.

Fiscal year ending December 31.



|                               |  |       |        |  |       |   |        |       |  |   |        |  |  |       |        |  |       |   |        |  |  |   |        | 
|------------------------------ |  | ----- | ------ |  | ----- | - | ------ | ----- |  | - | ------ |  |  | ----- | ------ |  | ----- | - | ------ |  |  | - | ------ | 
|                               |  | 12/05 |        |  | 12/06 |   |        | 12/07 |  |   | 12/08  |  |  | 12/09 |        |  | 12/10 |  
|American Realty Investors Inc. |  | $     | 100.00 |  |       | $ | 98.13  |       |  | $ | 122.19 |  |  | $     | 111.60 |  |       | $ | 152.74 |  |  | $ | 99.13  | 
|Dow Jones Industrial           |  | $     | 100.00 |  |       | $ | 116.29 |       |  | $ | 123.77 |  |  | $     | 81.89  |  |       | $ | 97.30  |  |  | $ | 108.02 | 
|Dow Jones Real Estate          |  | $     | 100.00 |  |       | $ | 133.15 |       |  | $ | 106.72 |  |  | $     | 63.46  |  |       | $ | 78.27  |  |  | $ | 95.38  | 

ARLs
Board of Directors has established a policy that dividend declarations on common stock would be determined on an annual basis following the end of each year. In accordance with that policy, the Board determined not to pay any dividends on common
stock in 2010, 2009 or 2008. Future distributions to common stockholders will be determined by the Board of Directors in light of conditions then existing, including the Companys financial condition and requirements, future prospects,
restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.

Under ARLs
Amended Articles of Incorporation, 15,000,000 shares of Series A 10.0% Cumulative Convertible Preferred Stock are authorized with a par value of $2.00 per share and a liquidation preference of $10.00 per share plus accrued and unpaid dividends.
Dividends are payable at the annual rate of $1.00 per share, or $.25 per share quarterly, to stockholders of record on the last day of each March, June, September, and December, when and as declared by the Board of Directors. The Series A Preferred
Stock may be converted into common stock at 90.0% of the average daily closing price of ARLs common stock for the prior 20 trading days. At December 31, 2010, 3,389,546 shares of Series A Preferred Stock were outstanding and 869,808
shares were



29



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##### Table of Contents

reserved for issuance as future consideration in various business transactions. Of the outstanding shares, 300,000 shares are owned by ART Edina, Inc., and 600,000 shares are owned by ART Hotel
Equities, Inc., a wholly-owned subsidiary of ARL. Dividends are not paid on the shares owned by ARL subsidiaries.

Under
ARLs Amended Articles of Incorporation, 231,750 shares of Series C Cumulative Convertible Preferred Stock are authorized with a par value of $2.00 per share and liquidation preference of $100.00 per share plus accrued and unpaid dividends. The
Series C Preferred Stock bears a quarterly dividend of $2.50 per share to stockholders of record on the last day of March, June, September and December when and as declared by the Board of Directors. The Series C Preferred Stock is reserved for
conversion of the Class A limited partner units of ART Palm, L.P. (Art Palm). At December 31, 2010, 1,505,731 Class A units were outstanding. The Class A units may be exchanged for Series C Preferred Stock at the rate
of 100 Class A units for each share of Series C Preferred Stock. After December 31, 2006, all outstanding shares of Series C Preferred Stock may be converted into ARL common stock. All conversions of Series C Preferred Stock into ARL
common stock will be at 90.0% of the average daily closing price of ARLs common stock for the prior 20 trading days. At March 5, 2011, no shares of Series C Preferred Stock were outstanding.

Under ARLs Amended Articles of Incorporation, 91,000 shares of Series D 9.50% Cumulative Preferred Stock are authorized with a par
value of $2.00 per share, and a liquidation preference of $20.00 per share. Dividends are payable at the annual rate of $1.90 per year or $0.475 per quarter to stockholders of record on the last day of each March, June, September and December when
and as declared by the Board of Directors. The Series D Preferred Stock is reserved for the conversion of the Class A limited partner units of Ocean Beach Partners, L.P. The Class A units may be exchanged for Series D Preferred Stock at
the rate of 20 Class A units for each share of Series D Preferred Stock. At March 5, 2011, no shares of Series D Preferred Stock were outstanding.

Under ARLs Amended Articles of Incorporation, 500,000 shares of Series E 6.0% Cumulative Preferred Stock are authorized with a par value $2.00 per share and a liquidation preference of $10.00 per
share. Dividends are payable at the annual rate of $.60 per share or $.15 per quarter to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors. At March 5, 2011, no
Series E Preferred Stock was outstanding.

As an instrument amendatory to ARLs Amended Articles of Incorporation,
100,000 shares of Series J 8% Cumulative Convertible Preferred Stock have been designated pursuant to a Certificate of Designation filed March 16, 2006, with a par value of $2.00 per share, and a liquidation preference of $1,000 per share.
Dividends are payable at the annual rate of $80 per share, or $20 per quarter, to stockholders of record on the last day of each of March, June, September and December, when and as declared by the Board of Directors. Although the Series J 8%
Cumulative Convertible Preferred Stock has been designated, no shares have been issued as of March 5, 2011.

On
September 1, 2000, the Board of Directors approved a share repurchase program authorizing the repurchase of up to a total of 1,000,000 shares of ARL Common Stock. This repurchase program has no termination date. In August 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 1,250,000 shares. The following table sets forth
information regarding purchases made by ARL of shares of ARL common stock on a monthly basis during the fourth quarter of 2010:



|                              |  |                                 |        |  |                              |   |      |                                                                     |  |  |                                                                   |  |  |  |         | 
|----------------------------- |  | ------------------------------- | ------ |  | ---------------------------- | - | ---- | ------------------------------------------------------------------- |  |  | ----------------------------------------------------------------- |  |  |  | ------- | 
|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 September 30, 2010 |  |                                 |        |  |                              |   |      |                                                                     |  |  | 968,026                                                           |  |  |  | 281,974 | 
|October 31, 2010              |  |                                 | 8,392  |  |                              | $ | 8.02 |                                                                     |  |  | 976,418                                                           |  |  |  | 273,582 | 
|November 30, 2010             |  |                                 | 307    |  |                              | $ | 7.60 |                                                                     |  |  | 976,725                                                           |  |  |  | 273,275 | 
|December 31, 2010             |  |                                 | 1,525  |  |                              | $ | 8.17 |                                                                     |  |  | 978,250                                                           |  |  |  | 271,750 | 
|                              |  |                                 |        |  |                              |   |      |                                                                     |  |  |                                                                   |  |  |  |         | 
|Total                         |  |                                 | 10,224 |  |                              |   |      |                                                                     |  |  |                                                                   |  |  |  |         | 
|                              |  |                                 |        |  |                              |   |      |                                                                     |  |  |                                                                   |  |  |  |         | 



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

AMERICAN REALTY INVESTORS, INC.



|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|-------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                           |  | For the Years Ended December 31,                           |           
|                                                                           |  | 2010                                                       |            |   | 2009 |   |            | 2008 |  |   | 2007       |   |  | 2006 |           
|                                                                           |  | (dollars in thousands, except share and per share amounts) |           
|EARNINGS DATA                                                              |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total operating revenues                                                   |  | $                                                          | 157,030    |   |      | $ | 161,863    |      |  | $ | 150,645    |   |  | $    | 144,378    |   |  | $ | 137,418    |  
|Total operating expenses                                                   |  |                                                            | 214,945    |   |      |   | 196,426    |      |  |   | 163,816    |   |  |      | 146,546    |   |  |   | 134,906    |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Operating income (loss)                                                    |  |                                                            | (57,915    | ) |      |   | (34,563    | )    |  |   | (13,171    | ) |  |      | (2,168     | ) |  |   | 2,512      |  
|Other expenses                                                             |  |                                                            | (61,159    | ) |      |   | (65,793    | )    |  |   | (67,280    | ) |  |      | (33,404    | ) |  |   | (34,419    | )
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Loss before gain on land sales, non-controlling interest, and income taxes |  |                                                            | (119,074   | ) |      |   | (100,356   | )    |  |   | (80,451    | ) |  |      | (35,572    | ) |  |   | (31,907    | )
|Gain (loss) on land sales                                                  |  |                                                            | (10,103    | ) |      |   | 11,605     |      |  |   | 5,584      |   |  |      | 20,468     |   |  |   | 23,973     |  
|Income tax benefit                                                         |  |                                                            | 8,456      |   |      |   | 2,132      |      |  |   | 35,575     |   |  |      | 15,511     |   |  |   | 6,972      |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) from continuing operations                               |  |                                                            | (120,721   | ) |      |   | (86,619    | )    |  |   | (39,292    | ) |  |      | 407        |   |  |   | (962       | )
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income from discontinuing operations, net of non-controlling interest  |  |                                                            | 14,526     |   |      |   | 3,960      |      |  |   | 66,261     |   |  |      | 28,807     |   |  |   | 13,356     |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss)                                                          |  |                                                            | (106,195   | ) |      |   | (82,659    | )    |  |   | 26,969     |   |  |      | 29,214     |   |  |   | 12,394     |  
|Net (income) loss attributable to non-controlling interest                 |  |                                                            | 11,448     |   |      |   | 12,518     |      |  |   | (4,335     | ) |  |      | (2,652     | ) |  |   | 672        |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) attributable to American Realty Investors, Inc.          |  |                                                            | (94,747    | ) |      |   | (70,141    | )    |  |   | 22,634     |   |  |      | 26,562     |   |  |   | 13,066     |  
|Preferred dividend requirement                                             |  |                                                            | (2,488     | ) |      |   | (2,488     | )    |  |   | (2,487     | ) |  |      | (2,490     | ) |  |   | (2,491     | )
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) applicable to common shares                              |  | $                                                          | (97,235    | ) |      | $ | (72,629    | )    |  | $ | 20,147     |   |  | $    | 24,072     |   |  | $ | 10,575     |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                                           |  |                                                            |            |   |     
|PER SHARE DATA                                                             |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Earnings per sharebasic                                                   |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Loss from continuing operations                                            |  | $                                                          | (9.75      | ) |      | $ | (6.65      | )    |  | $ | (4.13      | ) |  | $    | (0.43      | ) |  | $ | (0.26      | )
|Income from discontinued operations                                        |  |                                                            | 1.27       |   |      |   | 0.34       |      |  |   | 5.93       |   |  |      | 2.62       |   |  |   | 1.23       |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) applicable to common shares                              |  | $                                                          | (8.48      | ) |      | $ | (6.31      | )    |  | $ | 1.80       |   |  | $    | 2.19       |   |  | $ | 0.97       |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Weighted average common share used in computing earnings per share         |  |                                                            | 11,463,084 |   |      |   | 11,514,038 |      |  |   | 11,165,805 |   |  |      | 10,974,565 |   |  |   | 10,895,972 |  
|Earnings per sharediluted                                                 |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Loss from continuing operations                                            |  | $                                                          | (9.75      | ) |      | $ | (6.65      | )    |  | $ | (4.13      | ) |  | $    | (0.43      | ) |  | $ | (0.26      | )
|Income from discontinued operations                                        |  |                                                            | 1.27       |   |      |   | 0.34       |      |  |   | 5.93       |   |  |      | 2.62       |   |  |   | 1.23       |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net income (loss) applicable to common shares                              |  | $                                                          | (8.48      | ) |      | $ | (6.31      | )    |  | $ | 1.80       |   |  | $    | 2.19       |   |  | $ | 0.97       |  
|                                                                           |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Weighted average common share used in computing diluted earnings per share |  |                                                            | 11,463,084 |   |      |   | 11,514,038 |      |  |   | 11,165,805 |   |  |      | 10,974,565 |   |  |   | 10,895,972 |  
|                                                                           |  |                                                            |            |   |     
|BALANCE SHEET DATA                                                         |  |                                                            |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Real estate, net                                                           |  | $                                                          | 1,332,585  |   |      | $ | 1,581,521  |      |  | $ | 1,613,402  |   |  | $    | 1,485,859  |   |  | $ | 1,272,424  |  
|Notes and interest receivable, net                                         |  |                                                            | 88,614     |   |      |   | 83,144     |      |  |   | 77,003     |   |  |      | 83,467     |   |  |   | 52,631     |  
|Total assets                                                               |  |                                                            | 1,557,275  |   |      |   | 1,806,054  |      |  |   | 1,842,153  |   |  |      | 1,777,854  |   |  |   | 1,493,671  |  
|Notes and interest payables                                                |  |                                                            | 1,228,681  |   |      |   | 1,394,076  |      |  |   | 1,382,629  |   |  |      | 1,400,877  |   |  |   | 1,124,765  |  
|Stock-secured notes payable                                                |  |                                                            | 23,100     |   |      |   | 24,853     |      |  |   | 14,026     |   |  |      | 17,546     |   |  |   | 22,452     |  
|Shareholders equity                                                       |  |                                                            | 100,235    |   |      |   | 211,349    |      |  |   | 297,578    |   |  |      | 254,547    |   |  |   | 238,683    |  
|Book value per share                                                       |  | $                                                          | 8.74       |   |      | $ | 18.36      |      |  | $ | 26.65      |   |  | $    | 23.19      |   |  | $ | 21.91      |  



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|ITEM 7. | 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 Annual Report on Form 10-K 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 financing and the use of debt to fund acquisitions and developments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | 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-K, including those described under the caption Risk Factors.
| | - |  | ----------------------------------------------------------------------------------------------------------------

The risks included here are not exhaustive. Other sections of this report, including Part I, Item 1A.
Risk Factors, include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is
not possible for management to predict all such risk factors, nor can we assess the impact of



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all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our quarterly reports on Form 10-Q for future periods and
current reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise.

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, hotels, a trade mart located in Denver,
Colorado, 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 2010 we acquired $3.1 million and sold $176.9 million of land and income-producing properties. As of December 31,
2010, we owned 8,525 units in 47 residential apartment communities, 30 commercial properties comprising almost 5.7 million rentable square feet and five hotels containing a total of 808 rooms. In addition, we own 10,391 acres of land held for
development with five apartment complexes and a 420-acre holiday resort project in Germany 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; leasing office, retail and industrial
space to commercial tenants; and renting hotel rooms to guests.

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.

We are advised by Prime under a contractual arrangement that is reviewed annually by
our Board of Directors. Our commercial properties are managed by Triad Realty Services, L.P. (Triad), an affiliate of Prime. Triad subcontracts the property-level management and leasing of our commercial properties to Regis Realty I, LLC
(Regis I), while our hotels are managed by Regis Hotel I, LLC. We currently contract with third-party companies to manage our apartment communities.

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 September 30, 2009 and is the single source of



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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 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 Gruppa Florentina, LLC, LK-Four
Hickory, LLC, 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.



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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 the
carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from
actual results in future periods. If we determine that impairment has occurred, the affected assets must be reduced to their face value.

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 consider a construction project as
substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed
and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.



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Investment 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. For hotel properties, revenues for room sales and guest services are recognized as rooms are occupied and services are rendered. An
allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.

Revenue Recognition on the Sale of Real Estate

Sales 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.



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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 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, hotels, 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 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



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operations. Once a developed property becomes leased-up (80% or more) and is held the entire period for both years 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 twelve months ended December 31, 2010, 2009, and 2008 as included in Part II, Item 8. Financial
Statements and Supplementary Data 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 December 31, 2010, 2009, and 2008, we owned or had interests in a portfolio of 82, 98,
and 99 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
December 31 for the year end presented. Sales subsequent to year end represent properties that were held as of year-end for the years presented, but sold in the next year. Continuing operations represents all properties that have not been
reclassed to discontinued operations as of December 31, 2010 for the year presented. The table below shows the number of income producing properties held by year.



|                             |  |      |    |  |      |  |    |      |  |  |    | 
|---------------------------- |  | ---- | -- |  | ---- |  | -- | ---- |  |  | -- | 
|                             |  | 2010 |    |  | 2009 |  |    | 2008 | 
|Continued operations         |  |      | 82 |  |      |  | 83 |      |  |  | 77 | 
|Sales subsequent to year end |  |      |   |  |      |  | 15 |      |  |  | 22 | 
|                             |  |      |    |  |      |  |    |      |  |  |    | 
|Total property portfolio     |  |      | 82 |  |      |  | 98 |      |  |  | 99 | 
|                             |  |      |    |  |      |  |    |      |  |  |    | 

Comparison of the year ended December 31, 2010 to the same period ended December 31, 2009:

Our net loss applicable to common shares increased $24.6 million as compared to the prior year. The current year net
loss applicable to common shares was $97.2 million, which includes loss on land sales of $10.1 million and net income from discontinued operations, net of non-controlling interest of $14.5 million, as compared to prior year net loss applicable to
common shares of $72.6 million, which includes gain on land sales of $11.6 million and net income from discontinued operations, net of non-controlling interest of $4.0 million.

The majority of the $12.4 million decrease in our net loss applicable to common shares is primarily due to our impairment on notes
receivable and real estate assets of $24.5 million in the current period, as compared to $42.5 million in the prior period. This was offset by other income received from a consulting agreement with EurEnergy Resources Poland Sp.zo.o. and an
incentive fee from Regis I.

Revenues

Rental and other property revenues were $157.0 million for the twelve months ended December 31, 2010. This represents a decrease of $4.8 million, as compared to the prior period revenues of $161.9
million. This change, by segment, is a decrease in the commercial portfolio of $7.2 million, a decrease in the hotel portfolio of $2.6 million and a decrease in the land portfolio of $1.0 million, offset by an increase in the apartment portfolio of
$3.3 million and an increase in the other portfolio of $2.7 million. Within the commercial portfolio, the $4.8 million decrease from the same properties was due to an increase in vacancy, which we attribute to the current state of the economy.
Revenues from our same hotel portfolio are also suffering due to the economy with decreased stays from travelers. Within the apartment portfolio, there was an increase of $3.2 million due to the developed properties in the lease-up phase and an
increase of $0.1 million in the same property portfolio. We have directed our efforts to apartment development and put some additional land projects on hold until the economic conditions turn around. We are 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.



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Expenses

Property operating expenses were $96.3 million for the twelve months ended December 31, 2010. This represents an increase of $1.3 million, as compared to the prior period operating expenses of $95.0
million. This change, by segment, is an increase in our land portfolio of $3.6 million, offset by a decrease in our apartment portfolio of $0.8 million, a decrease in our commercial properties of $0.1 million and a decrease in our hotels of $1.4
million. Within the apartment portfolio, the same apartment properties decreased $1.3 million due to a decrease in overall costs and additional repairs and maintenance. The developed apartments increased expenses by $0.5 million. We have directed
our efforts to apartment development and put some additional land projects on hold until the economic conditions turn around. The decrease in our hotel portfolio is due to the decrease in variable costs that are directly associated with stays within
the hotel. The increase within the land portfolio was primarily due to an adjustment in 2009 to correct over accrual of 2008 real estate property taxes, resulting in recording lower operating expenses in 2009. In the current period, we incurred
additional real estate tax penalties and interest that we did not incur in the prior period.

Depreciation expense was $28.9
million for the twelve months ended December 31, 2010. This represents an increase of $2.4 million, as compared to the prior period depreciation expense of $26.5 million.This change, by segment, is an increase in our apartment portfolio
of $1.7 million and an increase in our land and other segments of $1.0 million, offset by a decrease in the commercial portfolio of $0.3 million. Within the apartment portfolio, $1.5 million was attributable to the developed properties and $0.2
million from the same properties. The increase within the land and other portfolios was due to a prior year adjustment recorded in 2009.

Provision for allowance on notes receivable and impairment was $61.3 million for the twelve months ended December 31, 2010. The provision on impairment of notes receivable, investment in real estate
partnerships, and real estate assets increased by $16.7 million as compared to the prior year period. Impairment was recorded as an additional loss in the investment portfolio of $1.9 million in commercial properties we currently hold, $7.8 million
for hotels that we currently hold, $47.6 million in land we currently hold and $4.0 million allowance for doubtful receivables. The properties that were considered subject to sales contract were reviewed by management at the time of the
sale or during the reorganization process in the fourth quarter. Impairment was taken to the extent the basis of the property exceeded the current value. In 2009, we recorded a $44.6 million allowance in the investment portfolio of $1.9 million in
commercial properties we currently hold, $35.6 million in land we currently hold and $7.1 million in land that was sold for a loss.

Other income (expense)

Other income was $9.5 million for the twelve months
ended December 31, 2010. This represents an increase of $5.3 million, as compared to the prior period other income of $4.2 million. The increase was due to revenue received from a consulting agreement with EurEnergy Resources Poland Sp.zoo.o.
and an incentive fee from Regis I.

Interest income was $8.4 million for the twelve months ended December 31, 2010. This
represents a decrease of $1.3 million as compared to the prior period interest income of $9.7 million. This change was due to the receipt of interest payments due on our Unified Housing surplus cash flow notes. Interest is recognized when interest
payments are received.

Interest expense was $79.1 million for the twelve months ended December 31, 2010. This represents
an increase of $0.6 million as compared to the prior period interest expense of $78.5 million. This change, by segment, is an increase in the apartment portfolio of $3.5 million, an increase in the commercial portfolio of $0.3 million, an increase
in the other portfolio of $1.4 million, offset by a decrease in the land portfolio of $4.6 million. Within the apartment portfolio, the same apartment portfolio increased $1.7 million and the developed properties increased $1.8 million due to
properties in the lease-up phase. Once an apartment is completed, the interest expense is no longer capitalized. The land portfolio decrease was due to land sales.



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Earnings from unconsolidated subsidiaries and investees were a loss of $0.2 million. This
represents our portion of income (equity pickup) for unconsolidated subsidiaries and joint ventures.

Litigation settlement
expense decreased by $1.4 million as compared to the prior year. There were no litigation settlement expenses in the current period. Expenses were incurred in 2009 resolving the Caruth-Preston litigation, Denver Merchandise Marts Darrell Hare
litigation and the Sunset litigation.

Gain on land sales decreased in the current year. This decrease is in part due to the
overall economic environment which, among other issues, has resulted in the tightening of the credit markets, causing an inability of potential buyers to obtain financing. Thus, we have found it difficult to complete land transactions. In the
current year, we sold 1,243.88 acres of land in 17 separate transactions for an aggregate sales price of $31.0 million, receiving $8,984 in cash and recorded a loss of $10.1 million. The average sales price was $20,701 per acre. In the prior
year, we sold 1,244.93 acres of land in 11 separate transactions for an aggregate sales price of $40.9 million, receiving $9.1 million in cash, recorded a gain on sale of $8.2 million and recognized $3.4 million in prior year deferred gain due to
the payoff of seller financing. The average sales price was $32,833 per acre.

Discontinued Operations

Discontinued operations relates to properties that were either sold or held for sale as of the year ended
December 31, 2010. Included in discontinued operations are a total of 15 and 10 properties as of 2010 and 2009, respectively. Properties sold in 2010 that were held in 2009 have been reclassified to discontinued operations for 2009. In 2010, we
sold 13 apartment complexes (Baywalk, Chateau, Foxwood, Island Bay, Kingsland Ranch, Limestone Canyon, Limestone Ranch, Longfellow Arms, Marina Landing, Mason Park, Sendero Ridge, Tivoli and Villager), one commercial building (217 Rampart) and
transferred our limited partnership interest in a consolidated entity that owned an apartment complex (Quail Oaks). In 2009, we had one property (Baywalk Apartments) pending sale, and sold nine properties which consisted of three apartment complexes
(Bridges on Kinsey, Bridgestone, and Chateau Bayou), five commercial buildings (2010 Valley View, 5000 Space Center, 5360 Tulane, Cullman Shopping Center and Parkway Centre) and one townhouse. The gain on sale of the properties is also included in
discontinued operations for those years as shown in the table below (dollars in thousands):



|                                                                                                    |  |                                 |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                    |  | For the Year Ended December 31, |        
|                                                                                                    |  | 2010                            |         |   | 2009 |  
|Revenue                                                                                             |  |                                 |         |   |      |   |         |  
|Rental                                                                                              |  | $                               | 11,714  |   |      | $ | 26,625  |  
|Property operations                                                                                 |  |                                 | 5,926   |   |      |   | 14,728  |  
|                                                                                                    |  |                                 | 5,788   |   |      |   | 11,897  |  
|Expenses                                                                                            |  |                                 |         |   |      |   |         |  
|Other income                                                                                        |  |                                 | 3,697   |   |      |   | 87      |  
|Interest                                                                                            |  |                                 | (4,820  | ) |      |   | (11,196 | )
|General and administrative                                                                          |  |                                 | (52     | ) |      |   | 6       |  
|Litigation settlement                                                                               |  |                                 | (5      | ) |      |   | (5      | )
|Depreciation                                                                                        |  |                                 | (1,566) |   |      |   | (4,803) |  
|                                                                                                    |  |                                 |         |   |      |   |         |  
|                                                                                                    |  |                                 | (2,746  | ) |      |   | (15,911 | )
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Net income (loss) from discontinued operations before gains on sale of real estate, taxes, and fees |  |                                 | 3,042   |   |      |   | (4,014) |  
|Gain on sale of discontinued operations                                                             |  |                                 | 19,306  |   |      |   | 10,106  |  
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Income from discontinued operations before tax                                                      |  |                                 | 22,348  |   |      |   | 6,092   |  
|Tax expense                                                                                         |  |                                 | (7,822  | ) |      |   | (2,132  | )
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Income from discontinued operations                                                                 |  | $                               | 14,526  |   |      | $ | 3,960   |  
|                                                                                                    |  |                                 |         |   |      |   |         |  



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Comparison of the year ended December 31, 2009 to the same period ended December 31, 2008:

Revenues

Rental and other property revenues were $161.9 million for the twelve months ended December 31, 2009. This represents an increase of $11.3 million, as compared to the prior period revenues of $150.6
million. This change, by segment, is an increase in the apartment portfolio of $11.3 million, an increase in the commercial portfolio of $2.2 million and an increase in the other portfolio of $3.8 million, offset by a decrease in the hotel portfolio
of $4.5 million and a decrease in the land portfolio of $1.6 million. The increase in the commercial portfolio was due to $2.9 million of lease term buyouts received offset by a $0.7 million decrease due to an increase in vacancy, which we attribute
to the current state of the economy. Revenues from our same hotel portfolio are also suffering due to the economy with decreased stays from travelers. Within the apartment portfolio, there was an increase of $5.3 million due to the developed
properties in the lease-up phase and an increase of $6.0 million in the same property portfolio. We have directed our efforts to apartment development and put some additional land projects on hold until the economic conditions turn around. We are
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 $95.0 million for the twelve
months ended December 31, 2009. This represents a decrease of $7.1 million, as compared to the prior period operating expenses of $102.1 million. This change, by segment, is a decrease in our commercial properties of $3.5 million, a decrease in
our land and other segments of $7.9 million, and a decrease in our hotels of $2.2 million, offset by is an increase in our apartments of $6.5 million. Within the apartment portfolio, the same apartment properties increased $3.5 million due to an
increase in overall costs and additional repairs and maintenance. The developed apartments increased expenses by $2.8 million, and the prior year acquisition increased expenses by $0.2 million. The decrease within the commercial portfolio was due to
a decrease in our same property portfolio of $5.1 million, offset by an increase from acquired properties of $1.6 million. The decrease within our land and other portfolios is due to less spending on development within the current period on our land
held for development. We have directed our efforts to apartment development and put some additional land projects on hold until the economic conditions turn around. The decrease in our hotel portfolio is due to the decrease in variable costs that
are directly associated with stays within the hotel.

Depreciation expense was $26.5 million for the twelve months ended
December 31, 2009. This represents an increase of $5.0 million, as compared to the prior period depreciation expense of $21.5 million. This change, by segment, is an increase of $4.8 million due to our apartments, and a decrease of $1.5 million
due to our commercial buildings, offset by decrease of $1.4 million due to our land and other holdings. The increase within our apartment portfolio was due to a decrease of $0.1 million in the same properties, an increase of $2.9 million in the
newly acquired properties and an increase of $1.5 million in the developed properties. Developed apartment properties are depreciated as we complete each phase and lease-up the properties.

Provision for allowance on notes receivable and impairment was $44.6 million for the twelve months ended December 31, 2009. The
provision on impairment of notes receivable, investment in real estate partnerships, and real estate assets increased by $32.2 million as compared to the prior year period. Impairment was recorded as an additional loss in the investment portfolio of
$1.9 million in commercial properties we currently hold, $35.6 million in land we currently hold and $7.1 million in land that was sold in the third quarter for a loss. In 2008, we recorded a $5.0 million allowance for doubtful receivables and a
$7.4 million allowance for doubtful collectability of certain investments within our portfolio.



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Other income (expense)

Interest income was $9.7 million for the twelve months ended December 31, 2009. This represents an decrease of $1.2 million as
compared to the prior period interest income of $10.9 million. This decrease was due to the notes receivable paid off in 2009 and the reclassification on the Port Olpentiz construction note receivable from interest income to work in progress.

Interest expense was $78.5 million for the twelve months ended December 31, 2009. This represents a decrease of $2.5
million, as compared to the prior period depreciation expense of $81.0 million. This change, by segment, is a decrease of $2.9 million due to our land and other holdings, a decrease of $1.8 million due to our commercial buildings a decrease in
hotels of $0.2 million, offset by an increase of $2.4 million due to our apartments. The increase in the apartment portfolio is due to interest expense on the developed properties in the lease up phase. During the construction phase, the interest
expense is capitalized. When the properties are completed and begin lease up, the interest is expensed. The decrease of $1.8 million in the commercial portfolio is primarily due to the refinance of the loan on Park West II. The decrease in the hotel
portfolio is due to the rates being tied to prime, and the decreased prime rate. The decrease within the land portfolio is primarily due to the sale of properties and the disposition of the debt upon sale.

Litigation settlement expense increased as compared to the prior year. The majority of the increase was due to resolving the
Caruth-Preston litigation, Denver Merchandise Marts Darrell Hare litigation and expenses related to the Sunset litigation in the prior period.

Gain on land sales increased by $6.0 million. The majority of the increase in 2009 is due to the recognition of $3.4 million in prior year deferred gain due to the payoff of seller financing. In 2009, we
sold 1,244.93 acres of land in 11 separate transactions for an aggregate sales price of $40.9 million, receiving $9.1 million in cash, recorded a gain on sale of $8.2 million. The average sales price was $32,833 per acre. In 2008, we sold 136.82
acres of land in 10 separate transactions for an aggregate sales price of $14.9 million, receiving $4.3 million in cash, recorded a gain on sale of $5.5 million. The average sales price was $104,517 per acre.

Discontinued Operations

Discontinued operations relates to properties that were either sold or held for sale as of the year ended December 31, 2010. Included in discontinued operations are a total of 24 and 51 properties as
of 2009 and 2008, respectively. Properties sold or held for sale in 2010, were reclassed to prior year discontinued operations. In 2009, we had one property (Baywalk Apartments) pending sale and sold nine properties, which consisted of three
apartment complexes (Bridges on Kinsey, Bridgestone, and Chateau Bayou), five commercial properties (2010 Valley View, 5000 Space Center, 5360 Tulane, Cullman Shopping Center and Parkway Centre) and one townhouse. In addition, we recognized the
deferred gain on the sale of the Hartford building sold in 2002 in accordance with the requirements per ASC Topic 360-20 Property, Plant, and EquipmentReal Estate Sales. In 2008, we sold 27 properties which consisted of 20
apartment complexes (Arbor Pointe, Ashton Way, Autumn Chase, Courtyard, Coventry Pointe, Fairways, Fairway View Estate, Forty-Four Hundred, Fountain Lake, Fountains at Waterford, Governors Square, Hunters Glen, Mountain Plaza, Southgate, Sunchase,
Sunset, Thornwood, Westwood Square, Willow Creek, and Woodview), three commercial buildings (Encon Warehouse, Executive Court, and Lexington Center), and four hotels (City Suites, Hotel Akademia, Majestic Inn, and Willow).



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|                                                                                                    |  |                                 |         |   |      |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                    |  | For the Year Ended December 31, |        
|                                                                                                    |  | 2009                            |         |   | 2008 |  
|Revenue                                                                                             |  |                                 |         |   |      |   |         |  
|Rental                                                                                              |  | $                               | 26,625  |   |      | $ | 31,702  |  
|Property operations                                                                                 |  |                                 | 14,728  |   |      |   | 18,874  |  
|                                                                                                    |  |                                 |         |   |      |   |         |  
|                                                                                                    |  |                                 | 11,897  |   |      |   | 12,828  |  
|                                                                                                    |  |                                
|Expenses                                                                                            |  |                                 |         |   |      |   |         |  
|Other income                                                                                        |  |                                 | 87      |   |      |   | 1,018   |  
|Interest                                                                                            |  |                                 | (11,196 | ) |      |   | (18,154 | )
|General and administrative                                                                          |  |                                 | 6       |   |      |   | (1,292  | )
|Litigation settlement                                                                               |  |                                 | (5      | ) |      |   | (261    | )
|Depreciation                                                                                        |  |                                 | (4,803  | ) |      |   | (6,458  | )
|                                                                                                    |  |                                 |         |   |      |   |         |  
|                                                                                                    |  |                                 | (15,911 | ) |      |   | (25,147 | )
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Net income (loss) from discontinued operations before gains on sale of real estate, taxes, and fees |  |                                 | (4,014  | ) |      |   | (12,319 | )
|Gain on sale of discontinued operations                                                             |  |                                 | 10,106  |   |      |   | 119,572 |  
|Net income and sales fee to affiliate                                                               |  |                                 |        |   |      |   | (10,994 | )
|Equity of investees gain on sale                                                                    |  |                                 |        |   |      |   | 5,681   |  
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Income from discontinued operations before tax                                                      |  |                                 | 6,092   |   |      |   | 101,940 |  
|Tax expense                                                                                         |  |                                 | (2,132  | ) |      |   | (35,679 | )
|                                                                                                    |  |                                 |         |   |      |   |         |  
|Income from discontinued operations                                                                 |  | $                               | 3,960   |   |      | $ | 66,261  |  
|                                                                                                    |  |                                 |         |   |      |   |         |  

Liquidity and Capital Resources

General

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;
| | - |  | ----------------------------------------



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



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



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

It is important to realize that the current status of the banking industry has had a significant effect on our industry. The banks
willingness and/or ability to originate loans affects our ability to buy and sell property, and refinance existing debt. We are unable to foresee the extent and length of this down-turn. A continued and



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extended decline could materially impact our cash flows. We draw on multiple financing sources to fund our long-term capital needs. We generally fund our development projects with construction
loans, which are converted to traditional mortgages upon completion of the project.

We may also issue additional equity
securities, including common stock and preferred stock. Management anticipates that our cash at December 31, 2010, along with cash that will be generated in 2011 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 borrowings secured by real estate to meet its liquidity requirements. Although the past cannot predict
the future, historically, management has been successful at refinancing and extending a portion of the Companys current maturity obligations and selling assets as necessary to meet current obligations.

Management reviews the carrying values of ARLs properties and mortgage notes receivable at least annually and whenever events or a
change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property.
For notes receivable, impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings to the
extent that the investment in the note exceeds managements estimate of the fair value of the collateral securing such note. The mortgage note receivable review includes an evaluation of the collateral property securing each note. The property
review generally includes: (1) selective property inspections, (2) a review of the propertys current rents compared to market rents, (3) a review of the propertys expenses, (4) a review of maintenance requirements,
(5) a review of the propertys cash flow, (6) discussions with the manager of the property, and (7) a review of properties in the surrounding area.

Cash flow summary

The following summary discussion of our cash flows is
based on the Consolidated Statements of Cash Flows in Part II, Item 8. Consolidated Financial Statements and Supplementary Data and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods
presented below (dollars in thousands).



|                                          |  |      |          |   |      |   |         |          |  |   |          |  
|----------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -------- |  | - | -------- | -
|                                          |  | 2010 |          |   | 2009 |   |         | Variance | 
|Net cash used in operating activities     |  | $    | (9,627   | ) |      | $ | (25,849 | )        |  | $ | 16,222   |  
|Net cash provided by investing activities |  | $    | 198,074  |   |      | $ | 46,853  |          |  | $ | 151,221  |  
|Net cash used in financing activities     |  | $    | (180,685 | ) |      | $ | (22,159 | )        |  | $ | (158,526 | )

The primary use of cash
for operations is daily operating costs, general and administrative expenses, advisory fees, and land holding costs. Our primary source of cash from operating activities is from rental income on properties. In addition, we had a significant
receivable due from affiliated entities that we receive interest income from.

Our major investing cash outlays are from
construction and development of new properties. We currently have five apartment projects under construction and one mixed-used development project under construction. In the current year, we have used $50.0 million on the construction and
development of these new properties and $5.0 million to acquire land for two of the apartment projects currently in development. Our sources of cash from investing activities are the sales of land and income producing properties. We receive
sales proceeds from the sale of income-producing properties and land.

Our major use of cash from financing activities is to
satisfy the pay off obligations for properties that we have sold or refinanced, of which the proceeds to repay are from sales or new loans. We also receive draws on our construction loans in order to cover the costs associated with the
development of our apartment projects and mixed use project.



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We anticipate that funds from existing cash resources, aggressive sales of land and
selected income producing property sales, refinancing of real estate, and borrowings against our real estate will be sufficient to meet the cash requirements associated with our current and anticipated level of operations, maturing debt obligations
and existing commitments. To the extent that our liquidity permits or financing sources are available, we will continue to make investments in real estate, primarily in improved and unimproved land, real estate entities and marketable equity
securities, and will develop and construct income-producing properties.

Equity Investments.

ARL has from time to time purchased shares of IOT and TCI. The Company may purchase additional equity securities of IOT and
TCI through open market and negotiated transactions to the extent ARLs liquidity permits.

Equity securities of TCI held
by ARL (and of IOT held by TCI) may be deemed restricted securities under Rule 144 of the Securities Act of 1933 (Securities Act). Accordingly, ARL may be unable to sell such equity securities other than in a registered
public offering or pursuant to an exemption under the Securities Act for a one-year period after they are acquired. Such restrictions may reduce ARLs ability to realize the full fair value of such investments if ARL attempted to dispose of
such securities in a short period of time.

Contractual Obligations

We have contractual obligations and commitments primarily with regards to the payment of mortgages. The following table aggregates our
expected contractual obligations and commitments and includes items not accrued, per Generally Accepted Accounting Principles, through the term of the obligation such as interest expense and operating leases. Our aggregate obligations subsequent to
December 31, 2010 are shown in the table below (dollars in thousands):



|                                                               |  |       |           |  |      |   |         |      |  |   |           |  |  |            |         |  |  |   |           | 
|-------------------------------------------------------------- |  | ----- | --------- |  | ---- | - | ------- | ---- |  | - | --------- |  |  | ---------- | ------- |  |  | - | --------- | 
|                                                               |  | Total |           |  | 2011 |   |         | 2012 |  |   | 2013-2015 |  |  | Thereafter |        
|Long-term debt obligation(1)                                   |  | $     | 1,896,985 |  |      | $ | 473,165 |      |  | $ | 223,911   |  |  | $          | 230,468 |  |  | $ | 969,441   | 
|Capital lease obligation                                       |  |       |          |  |      |   |        |      |  |   |          |  |  |            |        |  |  |   |          | 
|Operating lease obligation                                     |  |       | 55,119    |  |      |   | 1,030   |      |  |   | 1,039     |  |  |            | 3,170   |  |  |   | 49,880    | 
|Purchase obligation                                            |  |       |          |  |      |   |        |      |  |   |          |  |  |            |        |  |  |   |          | 
|Other long-term debt liabilities reflected on the Registrants |  |       |          |  |      |   |        |      |  |   |          |  |  |            |        |  |  |   |          | 
|Balance sheet under GAAP                                       |  |       |           |  |      |   |         |      |  |   |           |  |  |            |         |  |  |   |           | 
|                                                               |  |       |           |  |      |   |         |      |  |   |           |  |  |            |         |  |  |   |           | 
|Total                                                          |  | $     | 1,952,104 |  |      | $ | 474,195 |      |  | $ | 224,950   |  |  | $          | 233,638 |  |  | $ | 1,019,321 | 
|                                                               |  |       |           |  |      |   |         |      |  |   |           |  |  |            |         |  |  |   |           | 



|(1) | ARLs long-term debt may contain financial covenants that, if certain thresholds are not met, could allow the lender to accelerate principal payments or cause the
note to become due immediately.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Environmental Matters

Under various federal, state and local environmental laws, ordinances and regulations, ARL 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 ARLs business, assets or results of operations.



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Inflation

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



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|-------- | -----------------------------------------------------------

ARLs primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments that bear interest
at variable rates that fluctuate with market interest rates and maturing debt that has to be refinanced. ARLs future operations, cash flow and fair values of financial instruments are also partially dependent on the then existing market
interest rates and market equity prices.

As of December 31, 2010, our $1.2 billion debt portfolio consisted of
approximately $838.4 million of fixed-rate debt and approximately $398.5 million of variable-rate debt with interest rates ranging from 2.0% to 13.0%. Our overall weighted average interest rate at December 31, 2010 and 2009 was 6.78% and 6.36%,
respectively.

ARLs interest rate sensitivity position is managed by the capital markets department. Interest rate
sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. ARLs earnings are affected as changes in short-term interest rates affect its cost of variable-rate
debt and maturing fixed-rate debt.

If market interest rates for variable-rate debt average 100 basis points more in 2011 than
they did during 2010, ARLs interest expense would increase and net income would decrease by $4.0 million. This amount is determined by considering the impact of hypothetical interest rates on ARLs borrowing cost. The analysis does not
consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change.
However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in ARLs financial structure.



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The following table contains only those exposures that existed at December 31, 2010.
Anticipation of exposures of risk on positions that could possibly arise was not considered. ARLs ultimate interest rate risk and its effect on operations will depend on future capital market exposures, which cannot be anticipated with a
probable assurance level (dollars are in thousands):



|                                  |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  |   |         | 
|--------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - | ---------- | - | ------ | ----- |  | - | ------- | - |  | - | ------- | 
|                                  |  | 2011 |         |   | 2012 |   |        | 2013 |  |   | 2014   |   |  | 2015 |        |   | Thereafter |   |        | Total | 
|Assets                            |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  |   |         | 
|Market securities at fair value   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  | $ |        | 
|Note Receivable                   |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  |   |         | 
|Variable interest ratefair value |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  | $ |        | 
|Instruments maturities           |  | $    |        |   |      | $ |       |      |  | $ |       |   |  | $    |       |   |            | $ |       |       |  | $ |        |   |  | $ |        | 
|Instruments amortization         |  |      |        |   |      |   |       |      |  |   |       |   |  |      |       |   |            |   |       |       |  |   |        |   |  |   |        | 
|Interest                          |  |      |        |   |      |   |       |      |  |   |       |   |  |      |       |   |            |   |       |       |  |   |        |   |  |   |        | 
|Average Rate                      |  |      | 0.00    | % |      |   | 0.00   | %    |  |   | 0.00   | % |  |      | 0.00   | % |            |   | 0.00   | %     |  |   | 0.00    | % |  |   |         | 
|Fixed interest ratefair value    |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  | $ | 98,156  | 
|Instruments maturities           |  | $    | 9,665   |   |      | $ | 1,875  |      |  | $ | 1,076  |   |  | $    |       |   |            | $ |       |       |  | $ | 85,540  |   |  | $ | 98,156  | 
|Instruments amortization         |  |      |        |   |      |   |       |      |  |   |       |   |  |      |       |   |            |   |       |       |  |   |        |   |  |   |        | 
|Interest                          |  |      | 7,813   |   |      |   | 9,734  |      |  |   | 7,885  |   |  |      | 6,621  |   |            |   | 6,621  |       |  |   | 126,918 |   |  | $ | 165,592 | 
|Average Rate                      |  |      | 7.96    | % |      |   | 7.93   | %    |  |   | 7.96   | % |  |      | 7.74   | % |            |   | 7.74   | %     |  |   | 10.96   | % |  |   |         | 
|                                  |  |      |         |   |      |   |       
|                                  |  | 2011 |         |   | 2012 |   |        | 2013 |  |   | 2014   |   |  | 2015 |        |   | Thereafter |   |        | Total | 
|Notes Payable                     |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  |   |         | 
|Variable interest ratefair value |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  | $ | 398,524 | 
|Instruments maturities           |  | $    | 249,462 |   |      | $ | 88,498 |      |  | $ | 25,785 |   |  | $    | 5,796  |   |            | $ |       |       |  | $ | 20,968  |   |  | $ | 390,509 | 
|Instruments amortization         |  |      | 4,726   |   |      |   | 1,557  |      |  |   | 740    |   |  |      | 226    |   |            |   | 239    |       |  |   | 527     |   |  |   | 8,015   | 
|Interest                          |  |      | 11,046  |   |      |   | 5,173  |      |  |   | 2,524  |   |  |      | 1,917  |   |            |   | 1,621  |       |  |   | 3,221   |   |  |   | 25,502  | 
|Average Rate                      |  |      | 6.24    | % |      |   | 5.56   | %    |  |   | 8.99   | % |  |      | 6.24   | % |            |   | 8.82   | %     |  |   | 8.11    | % |  |   |         | 
|Fixed interest ratefair value    |  |      |         |   |      |   |        |      |  |   |        |   |  |      |        |   |            |   |        |       |  |   |         |   |  | $ | 838,459 | 
|Instruments maturities           |  | $    | 155,756 |   |      | $ | 80,918 |      |  | $ | 86,074 |   |  | $    | 334    |   |            | $ | 256    |       |  | $ | 10,954  |   |  | $ | 334,292 | 
|Instruments amortization         |  |      | 9,835   |   |      |   | 11,379 |      |  |   | 8,554  |   |  |      | 8,684  |   |            |   | 9,180  |       |  |   | 456,535 |   |  |   | 504,167 | 
|Interest                          |  |      | 42,340  |   |      |   | 36,386 |      |  |   | 27,235 |   |  |      | 25,905 |   |            |   | 25,398 |       |  |   | 477,236 |   |  |   | 634,500 | 
|Average Rate                      |  |      | 6.73    | % |      |   | 7.46   | %    |  |   | 5.71   | % |  |      | 5.60   | % |            |   | 5.59   | %     |  |   | 5.23    | % |  |   |         | 



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|ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | --------------------------------------------------------



|                                                                                              |  |      |     | 
|--------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                              |  | Page |    
|Financial Statements                                                                          |  |      |     | 
|Report of Independent Registered Public Accounting Firm                                       |  |      | 49  | 
|Consolidated Balance SheetsDecember 31, 2010 and 2009                                        |  |      | 50  | 
|Consolidated Statements of OperationsYears Ended December 31, 2010, 2009 and
2008            |  |      | 51  | 
|Consolidated Statements of Shareholders EquityYears Ended December 
31, 2010, 2009 and 2008 |  |      | 52  | 
|Consolidated Statements of Cash FlowsYears Ended December 31, 2010, 2009 and
2008            |  |      | 53  | 
|Statements of Consolidated Comprehensive Income (Loss)                                        |  |      | 54  | 
|Notes to Consolidated Financial Statements                                                    |  |      | 55  | 
|                                                                                              | 
|Financial Statement Schedules                                                                 |  |      |     | 
|Schedule IIIReal Estate and Accumulated Depreciation                                         |  |      | 87  | 
|Schedule IVMortgage Loan Receivables on Real Estate                                          |  |      | 100 | 

All other schedules
are omitted because they are not required, are not applicable, or the information required is included in the Consolidated Financial Statements or the notes thereto.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of and

Stockholders of American Realty Investors, Inc.

Dallas, Texas

We have audited
the accompanying consolidated balance sheets of American Realty Investors, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders equity, and cash flows each for each of
the years in the three-year period ended December 31, 2010. American Realty Investors, Inc.s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 17, American Realty
Investors, Inc.s management intends to sell land and income producing properties and refinance or extend debt secured by real estate to meet the Companys liquidity needs.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of American Realty Investors, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. Schedules III and IV are presented for the purpose of complying with the Securities and Exchange Commissions rules and are not a required part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, fairly state, in all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

Farmer, Fuqua & Huff, PC

Plano, Texas

March 31, 2011



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AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                                                                 |  | December 31,2010                                          |           |   | December 31,2009 |  
|                                                                                                                                                                                                                                                 |  | (dollars in thousands, exceptshare and par value amounts) |          
|Assets                                                                                                                                                                                                                                           |  |                                                           |           |   |                  |   |           |  
|Real estate, at cost                                                                                                                                                                                                                             |  | $                                                         | 1,170,214 |   |                  | $ | 1,718,837 |  
|Real estate held for sale at cost, net of depreciation ($ 0 for 2010 and $1,252 for 2009)                                                                                                                                                        |  |                                                           |          |   |                  |   | 5,147     |  
|Real estate subject to sales contracts at cost, net of depreciation ($75,639 for 2010 and $13,985 for 2009)                                                                                                                                      |  |                                                           | 295,921   |   |                  |   | 53,341    |  
|Less accumulated depreciation                                                                                                                                                                                                                    |  |                                                           | (133,550  | ) |                  |   | (195,804  | )
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total real estate                                                                                                                                                                                                                                |  |                                                           | 1,332,585 |   |                  |   | 1,581,521 |  
|Notes and interest receivable                                                                                                                                                                                                                    |  |                                                           |           |   |                  |   |           |  
|Performing (including $89,982 in 2010 and $80,870 in 2009 from affiliates and related parties)                                                                                                                                                   |  |                                                           | 99,839    |   |                  |   | 91,872    |  
|Non-performing                                                                                                                                                                                                                                   |  |                                                           | 3,123     |   |                  |   | 3,108     |  
|Less allowance for estimated losses                                                                                                                                                                                                              |  |                                                           | (14,348   | ) |                  |   | (11,836   | )
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total notes and interest receivable                                                                                                                                                                                                              |  |                                                           | 88,614    |   |                  |   | 83,144    |  
|Cash and cash equivalents                                                                                                                                                                                                                        |  |                                                           | 12,649    |   |                  |   | 4,887     |  
|Investments in unconsolidated subsidiaries and investees                                                                                                                                                                                         |  |                                                           | 12,491    |   |                  |   | 13,149    |  
|Other assets (including $164 in 2010 and $175 in 2009 from affiliates and related parties)                                                                                                                                                       |  |                                                           | 110,936   |   |                  |   | 123,353   |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total assets                                                                                                                                                                                                                                     |  | $                                                         | 1,557,275 |   |                  | $ | 1,806,054 |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Liabilities and Shareholders Equity                                                                                                                                                                                                             |  |                                                           |           |   |                  |   |           |  
|Liabilities:                                                                                                                                                                                                                                     |  |                                                           |           |   |                  |   |           |  
|Notes and interest payable                                                                                                                                                                                                                       |  | $                                                         | 913,134   |   |                  | $ | 1,327,188 |  
|Notes related to assets held-for-sale                                                                                                                                                                                                            |  |                                                           |          |   |                  |   | 5,002     |  
|Notes related to assets subject to sales contracts                                                                                                                                                                                               |  |                                                           | 315,547   |   |                  |   | 61,886    |  
|Stock-secured notes payable                                                                                                                                                                                                                      |  |                                                           | 23,100    |   |                  |   | 24,853    |  
|Affiliate payables                                                                                                                                                                                                                               |  |                                                           | 12,219    |   |                  |   | 20,574    |  
|Deferred revenue (including $100,212 in 2010 and $62,337 in 2009 from sales to related parties)                                                                                                                                                  |  |                                                           | 104,534   |   |                  |   | 70,083    |  
|Accounts payable and other liabilities (including $1,558 in 2010 and $199 in 2009 to affiliates and related
parties)                                                                                                                             |  |                                                           | 88,506    |   |                  |   | 85,119    |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|                                                                                                                                                                                                                                                 |  |                                                           | 1,457,040 |   |                  |   | 1,594,705 |  
|Shareholders equity:                                                                                                                                                                                                                            |  |                                                           |           |   |                  |   |           |  
|Preferred stock, $2.00 par value, authorized 15,000,000 shares, issued and outstanding Series A, 3,389,546 shares in 2010 and
3,390,913 in 2009 (liquidation preference $33,895), including 900,000 shares in 2010 and 2009 held by subsidiaries |  |                                                           | 4,979     |   |                  |   | 4,979     |  
|Common stock, $.01 par value, authorized 100,000,000 shares; issued 11,874,138, and outstanding 11,466,853 and 11,514,038 shares
in 2010 and in 2009                                                                                             |  |                                                           | 114       |   |                  |   | 114       |  
|Treasury stock at cost, 407,285 and 360,100 shares in 2010 and 2009 and 276,972 shares held by TCI (consolidated) as of 2010 and
2009                                                                                                            |  |                                                           | (6,333    | ) |                  |   | (5,954    | )
|Paid-in capital                                                                                                                                                                                                                                  |  |                                                           | 88,620    |   |                  |   | 91,081    |  
|Retained earnings                                                                                                                                                                                                                                |  |                                                           | (47,776   | ) |                  |   | 46,971    |  
|Accumulated other comprehensive income (loss)                                                                                                                                                                                                    |  |                                                           | (786      | ) |                  |   | 2,186     |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total American Realty Investors, Inc. shareholders equity                                                                                                                                                                                       |  |                                                           | 38,818    |   |                  |   | 139,377   |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Non- controlling interest                                                                                                                                                                                                                        |  |                                                           | 61,417    |   |                  |   | 71,972    |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total equity                                                                                                                                                                                                                                     |  |                                                           | 100,235   |   |                  |   | 211,349   |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  
|Total liabilities and equity                                                                                                                                                                                                                     |  | $                                                         | 1,557,275 |   |                  | $ | 1,806,054 |  
|                                                                                                                                                                                                                                                 |  |                                                           |           |   |                  |   |           |  

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



50



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##### Table of Contents

AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                                                                        |  | For the Years Ended December 31,                          |           
|                                                                                                                                                        |  | 2010                                                      |            |   | 2009 |   |            | 2008 | 
|                                                                                                                                                        |  | (dollars in thousands, except share andpar value amounts) |           
|Revenues:                                                                                                                                               |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Rental and other property revenues (including $2,595 and $2,582 and $3,691 for 2010 and 2009 and 2008 respectively from
affiliates and related parties) |  | $                                                         | 157,030    |   |      | $ | 161,863    |      |  | $ | 150,645    |  
|                                                                                                                                                        |  |                                                           |           
|Expenses:                                                                                                                                               |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Property operating expenses (including $2,480 and $2,942 and $3,101 for 2010 and 2009 and 2008 respectively from affiliates and
related parties)        |  |                                                           | 96,317     |   |      |   | 95,002     |      |  |   | 102,068    |  
|Depreciation and amortization                                                                                                                           |  |                                                           | 28,907     |   |      |   | 26,473     |      |  |   | 21,537     |  
|General and administrative (including $ 4,517 and $5,867 and $8,344 for 2010 and 2009 and 2008 respectively from affiliates and
related parties)        |  |                                                           | 12,640     |   |      |   | 14,690     |      |  |   | 16,854     |  
|Provision on impairment of notes receivable and real estate assets                                                                                      |  |                                                           | 61,311     |   |      |   | 44,578     |      |  |   | 7,417      |  
|Advisory fee to affiliate                                                                                                                               |  |                                                           | 15,770     |   |      |   | 15,683     |      |  |   | 15,940     |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                                                                                |  |                                                           | 214,945    |   |      |   | 196,426    |      |  |   | 163,816    |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Operating loss                                                                                                                                          |  |                                                           | (57,915    | ) |      |   | (34,563    | )    |  |   | (13,171    | )
|                                                                                                                                                        |  |                                                           |           
|Other income (expense):                                                                                                                                 |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Interest income (including $4,664 and $ 5,648 and $8,061 for 2010 and 2009 and 2008 respectively from affiliates and related
parties)                   |  |                                                           | 8,425      |   |      |   | 9,701      |      |  |   | 10,876     |  
|Other income                                                                                                                                            |  |                                                           | 9,460      |   |      |   | 4,169      |      |  |   | 5,200      |  
|Mortgage and loan interest (including $ 3,374 and $2,595 and $2,729 for 2010 and 2009 and 2008 respectively from affiliates and
related parties)        |  |                                                           | (79,066    | ) |      |   | (78,532    | )    |  |   | (81,001    | )
|Earnings from unconsolidated subsidiaries and investees                                                                                                 |  |                                                           | (200       | ) |      |   | 35         |      |  |   | (968       | )
|Gain (loss) on foreign currency translation                                                                                                             |  |                                                           | 222        |   |      |   | 292        |      |  |   | (517       | )
|Involuntary conversion                                                                                                                                  |  |                                                           |           |   |      |   |           |      |  |   |           |  
|Litigation settlement                                                                                                                                   |  |                                                           |           |   |      |   | (1,458     | )    |  |   | (870       | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Total other expenses                                                                                                                                    |  |                                                           | (61,159    | ) |      |   | (65,793    | )    |  |   | (67,280    | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Loss before gain on land sales, non-controlling interest, and taxes                                                                                     |  |                                                           | (119,074   | ) |      |   | (100,356   | )    |  |   | (80,451    | )
|Gain (loss) on land sales                                                                                                                               |  |                                                           | (10,103    | ) |      |   | 11,605     |      |  |   | 5,584      |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations before tax                                                                                                              |  |                                                           | (129,177   | ) |      |   | (88,751    | )    |  |   | (74,867    | )
|Income tax benefit                                                                                                                                      |  |                                                           | 8,456      |   |      |   | 2,132      |      |  |   | 35,575     |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net loss from continuing operations                                                                                                                     |  |                                                           | (120,721   | ) |      |   | (86,619    | )    |  |   | (39,292    | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Discontinued operations:                                                                                                                                |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Income (loss) from discontinued operations                                                                                                              |  |                                                           | 3,042      |   |      |   | (4,014     | )    |  |   | (17,632    | )
|Gain on sale of real estate from discontinued operations                                                                                                |  |                                                           | 19,306     |   |      |   | 10,106     |      |  |   | 119,572    |  
|Income tax expense from discontinued operations                                                                                                         |  |                                                           | (7,822     | ) |      |   | (2,132     | )    |  |   | (35,679    | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income from discontinued operations                                                                                                                 |  |                                                           | 14,526     |   |      |   | 3,960      |      |  |   | 66,261     |  
|Net income (loss)                                                                                                                                       |  |                                                           | (106,195   | ) |      |   | (82,659    | )    |  |   | 26,969     |  
|Net income (loss) attributable to non-controlling interests                                                                                             |  |                                                           | 11,448     |   |      |   | 12,518     |      |  |   | (4,335     | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income (loss) attributable to American Realty Investors, Inc.                                                                                       |  |                                                           | (94,747    | ) |      |   | (70,141    | )    |  |   | 22,634     |  
|Preferred dividend requirement                                                                                                                          |  |                                                           | (2,488     | ) |      |   | (2,488     | )    |  |   | (2,487     | )
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income (loss) applicable to common shares                                                                                                           |  | $                                                         | (97,235    | ) |      | $ | (72,629    | )    |  | $ | 20,147     |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Earnings per sharebasic                                                                                                                                |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations                                                                                                                         |  | $                                                         | (9.75      | ) |      | $ | (6.65      | )    |  | $ | (4.13      | )
|Discontinued operations                                                                                                                                 |  |                                                           | 1.27       |   |      |   | 0.34       |      |  |   | 5.93       |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income (loss) applicable to common shares                                                                                                           |  | $                                                         | (8.48      | ) |      | $ | (6.31      | )    |  | $ | 1.80       |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Earnings per sharediluted                                                                                                                              |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations                                                                                                                         |  | $                                                         | (9.75      | ) |      | $ | (6.65      | )    |  | $ | (4.13      | )
|Discontinued operations                                                                                                                                 |  |                                                           | 1.27       |   |      |   | 0.34       |      |  |   | 5.93       |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income (loss) applicable to common shares                                                                                                           |  | $                                                         | (8.48      | ) |      | $ | (6.31      | )    |  | $ | 1.80       |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Weighted average common share used in computing earnings per share                                                                                      |  |                                                           | 11,463,084 |   |      |   | 11,514,038 |      |  |   | 11,165,805 |  
|Weighted average common share used in computing diluted earnings per share                                                                              |  |                                                           | 11,463,084 |   |      |   | 11,514,038 |      |  |   | 11,165,805 |  
|                                                                                                                                                        |  |                                                           |           
|Amounts attributable to American Realty Investors, Inc.                                                                                                 |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Loss from continuing operations                                                                                                                         |  | $                                                         | (120,721   | ) |      | $ | (86,619    | )    |  | $ | (39,292    | )
|Income from discontinued operations                                                                                                                     |  |                                                           | 14,526     |   |      |   | 3,960      |      |  |   | 66,261     |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  
|Net income (loss)                                                                                                                                       |  | $                                                         | (106,195   | ) |      | $ | (82,659    | )    |  | $ | 26,969     |  
|                                                                                                                                                        |  |                                                           |            |   |      |   |            |      |  |   |            |  

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



51



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##### Table of Contents

AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Three Years Ended December 31, 2010

(dollars in thousands)



|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|-------------------------------------------------------- |  | ------------ | -------- | - | ----------------- | - | -------- | ---------------------- |  | - | ------------ |  |  | ------------- | ---------- |  | -------------- | - | --- | ---------------- |  | - | ------------------------------------------ | - |  | ----------------------- | ------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                         |  | TotalCapital |          |   | ComprehensiveLoss |   |          | Series
APreferredStock |  |   | Common Stock |  |  | TreasuryStock |            |  | Paid-inCapital |   |     | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Non-controllingInterest |        
|                                                         |  |              |          |   | Shares            |   |          | Amount                 |  |   |              |  |  |              
|Balance, December 31, 2007                               |  | $            | 254,547  |   |                   | $ | 27,658   |                        |  | $ | 4,979        |  |  |               | 11,592,272 |  |                | $ | 114 |                  |  | $ | (12,664                                    | ) |  | $                       | 100,277 |   |  | $ | 99,452  |   |  | $ | 228    |   |  | $ | 62,161  |  
|Unrealized gain on foreign investments                   |  |              | 9,685    |   |                   |   | 9,685    |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   | 9,685  |   |  |   |        |  
|Unrealized loss on investment securities                 |  |              | (5,582   | ) |                   |   | (5,582   | )                      |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   | (5,582 | ) |  |   |        |  
|Net income                                               |  |              | 26,969   |   |                   |   | 26,969   |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   | 22,634  |   |  |   |       |   |  |   | 4,335   |  
|Acquisition of non-controlling interest                  |  |              | 7,736    |   |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         | (7,668  | ) |  |   |        |   |  |   |       |   |  |   | 15,404  |  
|Stock reconciliation                                     |  |              |         |   |                   |   |         |                        |  |   |             |  |  |               | 281,866    |  |                |   |    |                  |  |   |                                            |   |  |                         |        |   |  |   |        |   |  |   |       |   |  |   |        |  
|Repurchase/sale of treasury stock                        |  |              | 6,710    |   |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   | 6,710                                      |   |  |                         |        |   |  |   |        |   |  |   |       |   |  |   |        |  
|Series A preferred stock cash dividend ($1.00 per share) |  |              | (2,487   | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   | (2,487  | ) |  |   |       |   |  |   |        |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2008                               |  | $            | 297,578  |   |                   | $ | 58,730   |                        |  | $ | 4,979        |  |  |               | 11,874,138 |  |                | $ | 114 |                  |  | $ | (5,954                                     | ) |  | $                       | 92,609  |   |  | $ | 119,599 |   |  | $ | 4,331  |   |  | $ | 81,900  |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Unrealized loss on investment securities                 |  |              | (2,775   | ) |                   |   | (2,775   | )                      |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   | (2,145 | ) |  |   | (630    | )
|Net loss                                                 |  |              | (82,659  | ) |                   |   | (82,659  | )                      |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   | (70,141 | ) |  |   |       |   |  |   | (12,518 | )
|Acquisition of non-controlling interest                  |  |              | 1,692    |   |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         | (1,528  | ) |  |   |        |   |  |   |       |   |  |   | 3,220   |  
|Series A preferred stock cash dividend ($1.00 per share) |  |              | (2,487   | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   | (2,487  | ) |  |   |       |   |  |   |        |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2009                               |  | $            | 211,349  |   |                   | $ | (26,704  | )                      |  | $ | 4,979        |  |  |               | 11,874,138 |  |                | $ | 114 |                  |  | $ | (5,954                                     | ) |  | $                       | 91,081  |   |  | $ | 46,971  |   |  | $ | 2,186  |   |  | $ | 71,972  |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Unrealized loss on foreign investments                   |  |              | (786     | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   | (786   | ) |  |   |        |  
|Unrealized loss on investment securities                 |  |              |         |   |                   |   | 2,186    |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   | (2,186 | ) |  |   | 2,186   |  
|Net loss                                                 |  |              | (106,195 | ) |                   |   | (106,195 | )                      |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   | (94,747 | ) |  |   |       |   |  |   | (11,448 | )
|Acquisition of non-controlling interest                  |  |              | (373     | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   |       |   |  |   | (373    | )
|Distribution to non-controlling interests                |  |              | (1,259   | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         |        |   |  |   |        |   |  |   |       |   |  |   | (1,259  | )
|Sale of controlling interest                             |  |              | 366      |   |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         | 27      |   |  |   |        |   |  |   |       |   |  |   | 339     |  
|Repurchase of treasury stock                             |  |              | (379     | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   | (379                                       | ) |  |                         |        |   |  |   |        |   |  |   |       |   |  |   |        |  
|Series A preferred stock cash dividend ($1.00 per share) |  |              | (2,488   | ) |                   |   |         |                        |  |   |             |  |  |               |           |  |                |   |    |                  |  |   |                                           |   |  |                         | (2,488  | ) |  |   |        |   |  |   |       |   |  |   |        |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2010                               |  | $            | 100,235  |   |                   | $ | (130,713 | )                      |  | $ | 4,979        |  |  |               | 11,874,138 |  |                | $ | 114 |                  |  | $ | (6,333                                     | ) |  | $                       | 88,620  |   |  | $ | (47,776 | ) |  | $ | (786   | ) |  | $ | 61,417  |  
|                                                         |  |              |          |   |                   |   |          |                        |  |   |              |  |  |               |            |  |                |   |     |                  |  |   |                                            |   |  |                         |         |   |  |   |         |   |  |   |        |   |  |   |         |  

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



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AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|------------------------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                                                                        |  | For the Years EndedDecember 31, |         
|                                                                                                        |  | 2010                            |          |   | 2009 |   |         | 2008 | 
|                                                                                                        |  | (dollars in thousands)          |         
|Cash Flow From Operating Activities:                                                                    |  |                                 |          |   |      |   |         |      |  |   |          |  
|Net income (loss) applicable to common shares                                                           |  | $                               | (97,235  | ) |      | $ | (72,629 | )    |  | $ | 20,147   |  
|Adjustments to reconcile net loss applicable to common shares to net cash used in operating activities: |  |                                 |          |   |      |   |         |      |  |   |          |  
|(Gain) loss on sale of land                                                                             |  |                                 | 10,103   |   |      |   | (11,605 | )    |  |   | (5,584   | )
|Depreciation and amortization                                                                           |  |                                 | 30,460   |   |      |   | 32,418  |      |  |   | 27,995   |  
|Provision on impairment of notes receivable and real estate assets                                      |  |                                 | 61,311   |   |      |   | 44,578  |      |  |   | 12,417   |  
|Amortization of deferred borrowing costs                                                                |  |                                 | 4,187    |   |      |   | 5,676   |      |  |   | 9,481    |  
|Earnings from unconsolidated subsidiaries and investees                                                 |  |                                 | (200     | ) |      |   | 35      |      |  |   | (4,713   | )
|Earnings due to non-controlling interest                                                                |  |                                 | (11,448  | ) |      |   | 9,929   |      |  |   | 4,334    |  
|Gain (loss) on foreign currency translation                                                             |  |                                 | (222     | ) |      |   | (292    | )    |  |   | 517      |  
|Gain on sale of income producing properties                                                             |  |                                 | (19,306  | ) |      |   | (10,106 | )    |  |   | (119,572 | )
|(Increase) decrease in assets:                                                                          |  |                                 |          |   |      |   |         |      |  |   |          |  
|Accrued interest receivable                                                                             |  |                                 | (2,440   | ) |      |   | 1,520   |      |  |   | 2,081    |  
|Restricted cash                                                                                         |  |                                 |         |   |      |   | (271    | )    |  |   | 2,285    |  
|Other assets                                                                                            |  |                                 | 6,375    |   |      |   | (13,559 | )    |  |   | 58,529   |  
|Prepaid expense                                                                                         |  |                                 | 437      |   |      |   | (1,127  | )    |  |   | (1,187   | )
|Escrow                                                                                                  |  |                                 | 7,990    |   |      |   | (3,035  | )    |  |   | (21,227  | )
|Earnest money                                                                                           |  |                                 | 821      |   |      |   | (1,723  | )    |  |   | 4,128    |  
|Rent receivables                                                                                        |  |                                 | (2,250   | ) |      |   | (413    | )    |  |   | (6,530   | )
|Increase (decrease) in liabilities:                                                                     |  |                                 |          |   |      |   |         |      |  |   |          |  
|Accrued interest payable                                                                                |  |                                 | 6,758    |   |      |   | (116    | )    |  |   | (1,997   | )
|Affiliate payables                                                                                      |  |                                 | (8,355   | ) |      |   | (2,444  | )    |  |   | 23,018   |  
|Other liabilities                                                                                       |  |                                 | 3,387    |   |      |   | (2,685  | )    |  |   | 20,018   |  
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) operating activities                                                     |  |                                 | (9,627   | ) |      |   | (25,849 | )    |  |   | 24,140   |  
|Cash Flow From Investing Activities:                                                                    |  |                                 |          |   |      |   |         |      |  |   |          |  
|Proceeds from notes receivables                                                                         |  |                                 | 20,847   |   |      |   | 8,000   |      |  |   | (351     | )
|Originations of notes receivables                                                                       |  |                                 | (29,455  | ) |      |   |        |      |  |   |         |  
|Acquisition of land held for development                                                                |  |                                 | (4,937   | ) |      |   | (11,844 | )    |  |   | (54,744  | )
|Proceeds from sales of income producing properties                                                      |  |                                 | 210,411  |   |      |   | 44,356  |      |  |   | 179,669  |  
|Proceeds from sale of land                                                                              |  |                                 | 59,554   |   |      |   | 42,029  |      |  |   | 16,988   |  
|Investment in unconsolidated real estate entities                                                       |  |                                 | 858      |   |      |   | 16,740  |      |  |   | (3,246   | )
|Improvement of land held for development                                                                |  |                                 | (4,929   | ) |      |   | (13,542 | )    |  |   | (1,789   | )
|Improvement of income producing properties                                                              |  |                                 | (3,136   | ) |      |   | (3,233  | )    |  |   | (16,873  | )
|Investment in marketable securities                                                                     |  |                                 | (1,267   | ) |      |   | 2,775   |      |  |   | 10,382   |  
|Acquisition of income producing properties                                                              |  |                                 |         |   |      |   | (5,971  | )    |  |   | (64,466  | )
|Sale of non-controlling interest                                                                        |  |                                 | 22       |   |      |   |        |      |  |   | 19,739   |  
|Construction and development of new properties                                                          |  |                                 | (49,894  | ) |      |   | (32,457 | )    |  |   | (148,822 | )
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) investing activities                                                     |  |                                 | 198,074  |   |      |   | 46,853  |      |  |   | (63,513  | )
|Cash Flow From Financing Activities:                                                                    |  |                                 |          |   |      |   |         |      |  |   |          |  
|Proceeds from notes payable                                                                             |  |                                 | 193,499  |   |      |   | 62,408  |      |  |   | 221,354  |  
|Recurring amortization of principal on notes payable                                                    |  |                                 | (12,629  | ) |      |   | (26,528 | )    |  |   | (20,323  | )
|Payments on maturing notes payable                                                                      |  |                                 | (252,595 | ) |      |   | (61,505 | )    |  |   | (178,746 | )
|Debt assumption by buyer                                                                                |  |                                 | (101,851 | ) |      |   |        |      |  |   |         |  
|Deferred financing costs                                                                                |  |                                 | (5,143   | ) |      |   | (4,534  | )    |  |   | 8,380    |  
|Stock-secured borrowings                                                                                |  |                                 | (328     | ) |      |   | 8,000   |      |  |   | (3,520   | )
|Distributions to non-controlling interests                                                              |  |                                 | (1,259   | ) |      |   |        |      |  |   |         |  
|Repurchase/sale of treasury stock                                                                       |  |                                 | (379     | ) |      |   |        |      |  |   | 6,710    |  
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Net cash provided by (used in) financing activities                                                     |  |                                 | (180,685 | ) |      |   | (22,159 | )    |  |   | 33,855   |  
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                    |  |                                 | 7,762    |   |      |   | (1,155  | )    |  |   | (5,518   | )
|Cash and cash equivalents, beginning of period                                                          |  |                                 | 4,887    |   |      |   | 6,042   |      |  |   | 11,560   |  
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Cash and cash equivalents, end of period                                                                |  | $                               | 12,649   |   |      | $ | 4,887   |      |  | $ | 6,042    |  
|                                                                                                        |  |                                 |          |   |      |   |         |      |  |   |          |  
|Supplemental disclosures of cash flow information:                                                      |  |                                 |          |   |      |   |         |      |  |   |          |  
|Cash paid for interest                                                                                  |  | $                               | 76,223   |   |      | $ | 83,948  |      |  | $ | 97,158   |  
|Cash paid for income taxes, net of refunds                                                              |  | $                               | (634     | ) |      | $ | 1,851   |      |  | $ |         |  
|Schedule of noncash investing and financing activities:                                                 |  |                                 |          |   |      |   |         |      |  |   |          |  
|Unrealized foreign currency translation gain                                                            |  | $                               |         |   |      | $ |        |      |  | $ | 9,685    |  
|Unrealized loss on marketable securities                                                                |  | $                               |         |   |      | $ | (2,575  | )    |  | $ | (5,582   | )
|Note receivable allowance                                                                               |  | $                               |         |   |      | $ |        |      |  | $ | (1,500   | )
|Note receivable in exchange for reduction of affiliate payable                                          |  | $                               | 16,778   |   |      | $ |        |      |  | $ |         |  
|Note receivable received from affiliate                                                                 |  | $                               |         |   |      | $ | 2,341   |      |  | $ |         |  
|Note receivable from sale of real estate                                                                |  | $                               |         |   |      | $ | 2,700   |      |  | $ |         |  
|Note paydown from right to build sale                                                                   |  | $                               |         |   |      | $ | 1,500   |      |  | $ |         |  
|Acquitision of real estate to satisfy note receivable                                                   |  | $                               |         |   |      | $ | (7,748  | )    |  | $ |         |  

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



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AMERICAN REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three Years Ended December 31,



|                                                                            |  |                        |          |   |      |   |         |      |  |   |        |  
|--------------------------------------------------------------------------- |  | ---------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                            |  | 2010                   |          |   | 2009 |   |         | 2008 | 
|                                                                            |  | (dollars in thousands) |         
|Net income (loss)                                                           |  | $                      | (106,195 | ) |      | $ | (82,659 | )    |  | $ | 26,969 |  
|Other comprehensive loss                                                    |  |                        |          |   |      |   |         |      |  |   |        |  
|Unrealized gain (loss) on foreign currency translation                      |  |                        | (786     | ) |      |   |        |      |  |   | 9,685  |  
|Unrealized loss on investment securities                                    |  |                        |         |   |      |   | (2,575  | )    |  |   | (5,582 | )
|                                                                            |  |                        |          |   |      |   |         |      |  |   |        |  
|Total other comprehensive income (loss)                                     |  |                        | (786     | ) |      |   | (2,575  | )    |  |   | 4,103  |  
|                                                                            |  |                        |          |   |      |   |         |      |  |   |        |  
|Comprehensive income (loss)                                                 |  |                        | (106,981 | ) |      |   | (85,234 | )    |  |   | 31,072 |  
|Comprehensive income (loss) attributable to non-controlling interest        |  |                        | 11,448   |   |      |   | 12,518  |      |  |   | (4,335 | )
|                                                                            |  |                        |          |   |      |   |         |      |  |   |        |  
|Comprehensive income (loss) attributable to American Realty Investors, Inc. |  | $                      | (95,533  | ) |      | $ | (72,716 | )    |  | $ | 26,737 |  
|                                                                            |  |                        |          |   |      |   |         |      |  |   |        |  







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



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AMERICAN REALTY INVESTORS, INC.

NOTES TO FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of American Realty Investors, Inc. and consolidated entities have been prepared in conformity with accounting principles generally accepted in the United
States of America, the most significant of which are described in Note 1. Organization and Summary of Significant Accounting Policies. The Notes to Consolidated Financial Statements are an integral part of the Consolidated Financial
Statements. The data presented in the Notes to Consolidated Financial Statements are as of December 31 of each year and for the year then ended, unless otherwise indicated. Dollar amounts in tables are in thousands, except per share amounts.

Certain balances for 2008 and 2009 have been reclassified to conform to the 2010 presentation.



|NOTE 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------- | -----------------------------------------------------------

FASB Accounting Standards Codification.The company presents its 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 the Companys 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, the company will no longer refer to the authoritative guidance dictating its accounting methodologies under the previous
accounting standards hierarchy. Instead, the Company will refer to the ASC Codification as the sole source of authoritative literature.

Organization and business.ARL was organized in 1999. In August 2000, the Company acquired American Realty Trust, Inc., a Georgia corporation (ART)
and National Realty L.P.; a Delaware limited partnership (NRLP). ART was the successor to a District of Columbia business trust organized in 1961. The business trust was merged into ART in 1988. NRLP was organized in 1987 and
subsequently acquired all of the assets and assumed all of the liabilities of several public and private limited partnerships. NRLP also owned a portfolio of real estate and mortgage loan investments. ARL is a C corporation for U.S.
federal income tax purposes.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock
Exchange under the symbol NYSE: ARL. Approximately 86.6% of ARLs stock is owned by affiliated entities. ARL subsidiaries own approximately 83.3% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc.,
a Nevada corporation (TCI) whose common stock is traded on the New York Stock Exchange under the symbol NYSE: TCI. ARL has consolidated TCIs accounts and operations since March 2003.

On July 17, 2009, TCI, a subsidiary of ARL, acquired from Syntek West, Inc., (SWI), 2,518,934 shares of common stock,
par value $0.01 per share of IOT at an aggregate price of $17,884,431 (approximately $7.10 per share), the full amount of which was paid by TCI through an assumption of an aggregate amount of indebtedness of $17,884,431 on the outstanding balance
owed by SWI to IOT. The 2,518,934 shares of IOT common stock acquired by TCI constituted approximately 60.4% of the issued and outstanding common stock of IOT. TCI had owned for several years an aggregate of 1,037,184 shares of common stock of IOT
(approximately 25% of the issued and outstanding stock). After giving effect to the transaction on July 17, 2009, TCI owned an aggregate of 3,556,118 shares of IOT common stock which constituted approximately 85.3% of the shares of common stock
of IOT outstanding. In 2010, TCI sold 5,000 shares of IOT stock resulting in an ownership of 3,551,118 shares which constitutes approximately 85.2% of the shares of common stock of IOT outstanding (which is a total of 4,168,214 shares). Shares of
IOT are traded on the American Stock Exchange under the symbol IOT.



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With TCIs acquisition of the additional shares on July 17, 2009, which increased
the aggregate ownership to in excess of 80%, beginning in July 2009, IOTs results of operations are now consolidated with those of TCI for tax and financial reporting purposes. At the time of the acquisition, the historical accounting value of
IOTs assets was $112 million and liabilities were $43 million. In that the shares of IOT acquired by TCI were from a related party, the values recorded by TCI are IOTs historical accounting values at the date of transfer. The
Companys fair valuation of IOTs assets and liabilities at the acquisition date approximated IOTs book value. The net difference between the purchase price and historical accounting basis of the assets and liabilities acquired was
$35 million and has been reflected by TCI as deferred income. The deferred income will be recognized upon the sale of the land that IOT held on its books as of the date of sale, to an independent third party.

ARLs Board of Directors represents the Companys shareholders and is responsible for directing the overall affairs of ARL and
for setting the strategic policies that guide the Company. The Board of Directors has delegated the day-to-day management of the Company to Prime Income Asset Management, LLC, a Nevada limited liability company (Prime) under a written
Advisory Agreement that is reviewed annually by ARLs Board of Directors. The directors of ARL are also directors of TCI and IOT. The Chairman of the Board of Directors of ARL also serves as the Chairman of the Board of Directors of TCI and
IOT. The officers of ARL also serve as officers of TCI, IOT and Prime.

ARLs contractual advisor is Prime, the sole
member of which is Prime Income Asset Management, Inc., a Nevada corporation (PIAMI), which is owned 100% by Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc., a Nevada
corporation, which is owned 100% by a Trust known as the May Trust. Primes duties include but are not limited to locating, evaluating and recommending real estate and real estate-related investment opportunities. Prime also arranges, for
ARLs benefit, debt and equity financing with third party lenders and investors. Prime also serves as advisor to TCI and IOT. As the contractual advisor, Prime is compensated by ARL under an Advisory Agreement that is more fully described in
Part III, Item 10. Directors, Executive Officers and Corporate Governance  The Advisor. ARL has no employees. Employees of Prime render services to ARL in accordance with the terms of the Advisory Agreement.

Triad Realty Services, L.P. (Triad), an affiliate of Prime, provides management services for our commercial properties. The
general partner of Triad is PIAMI. The limited partner of Triad is HRS Holdings, LLC (HRSHLLC). Triad subcontracts the property-level management and leasing of our commercial properties (office buildings, shopping centers and industrial
warehouses) to Regis Realty I, LLC (Regis I), which is owned by HRSHLLC. ARL engages third party companies to lease and manage its apartment properties. Triad receives a fee for its property management services. Regis I receives property
and construction management fees and leasing commissions in accordance with the terms of its property-level management agreement with Triad. Regis I is also entitled to receive real estate brokerage commissions in accordance with the terms of a
non-exclusive brokerage agreement. See Part III, Item 10. Directors, Executive Officers and Corporate GovernanceProperty Management.

Our primary business is the acquisition, development and ownership of income-producing residential and commercial real estate properties. In addition, we opportunistically acquire land for future
development in in-fill or high-growth suburban markets. From time to time and when we believe it appropriate to do so, we will also sell land and income-producing properties. We generate revenues by leasing apartment units to residents and leasing
office, industrial and retail space to various for-profit businesses as well as certain local, state and federal agencies. We also generate revenues from gains on sales of income-producing properties and land. At December 31, 2010, we owned 47
residential apartment communities comprising of 8,525 units, five apartment projects in development, 30 commercial properties comprising an aggregate of approximately 5.7 million square feet, five hotels comprising 808 rooms and an investment
in 10,391 acres of undeveloped and partially developed land.



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

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 it is 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. ARIs investments in Gruppa Florentina, LLC,
LK-Four Hickory, LLC, and Garden Centura, L.P. are accounted for under the equity method.

Real estate, depreciation,
and impairment.Real estate assets are stated at the lower of depreciated cost or fair value, if deemed impaired. Major replacements and betterments are capitalized and depreciated over their estimated
useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (buildings and improvements10-40 years; furniture, fixtures and equipment5-10 years). We continually evaluate 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 the Companys 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 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



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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 Properties 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 uses 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.

Recognition of revenue.Our revenues, which are composed largely of rental income, include
rents reported on a straight-line basis over the lease term. In accordance with ASC 805 Business Combinations, we recognize rental revenue of acquired in-place above- and below-market leases at their fair values
over the terms of the respective leases.

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.



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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. For hotel properties, revenues for room sales and guest services are recognized as rooms are
occupied and services are rendered. An allowance for doubtful accounts is recorded for all past due rents and operating expense reimbursements considered to be uncollectible.

Sales and the associated gains or losses of real estate assets 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, the Company defers some or all of the gain recognition and accounts 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.

Foreign currency
translation.Foreign currency denominated assets and liabilities of subsidiaries with local functional currencies are translated to United States dollars at year-end exchange rates. The effects of
translation are recorded in the cumulative translation component of shareholders equity. Subsidiaries with a United States dollar functional currency re-measure monetary assets and liabilities at year-end exchange rates and non-monetary assets
and liabilities at historical exchange rates. The effects of re-measurement are included in income. Exchange gains and losses arising from transactions denominated in foreign currencies are translated at average exchange rates.

Non-performing notes receivable.ARL considers 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 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 for details on our Notes Receivable.

Cash equivalents.For purposes of the Consolidated Statements of Cash Flows,
all highly liquid investments purchased with an original maturity of three months or less are considered to be cash equivalents.

Earnings per share.Income (loss) per share is presented in accordance with ASC 620 Earnings per Share. Income (loss) per share is
computed based upon the weighted average number of shares of common stock outstanding during each year.

Use of
estimates.In the preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America, it is necessary for management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expense for the year ended.
Actual results could differ from those estimates.



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Income Taxes.ARL is a C
Corporation for U.S. federal income tax purposes. ARL files an annual consolidated income tax return with TCI and IOT and their subsidiaries. ARL is the common parent for the consolidated group. ARL is part of a tax sharing and compensating
agreement with respect to federal income taxes between ARL, TCI and IOT and their subsidiaries that was entered into in July of 2009. Prior to 2009, ARL and TCI and their subsidiaries were in a tax sharing and compensating agreement with respect to
federal income taxes and IOT was the parent company of its own consolidated filing group. The agreement specifies the manner in which the group will share the consolidated tax liability and also how certain tax attributes are to be treated among
members of the group.

Recent Accounting Pronouncements.There were
no recent accounting pronouncements that our company has not implemented that materially affect our financial statements.



|NOTE 2. | REAL ESTATE
|------- | -----------

A summary of our real estate owned as of the end of the year is listed below (dollars in thousands):



|                                      |  |      |           |   |      |   |           |  
|------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                      |  | 2010 |           |   | 2009 |  
|Apartments                            |  | $    | 608,959   |   |      | $ | 713,384   |  
|Apartments under construction         |  |      | 47,178    |   |      |   | 5,296     |  
|Commercial properties                 |  |      | 255,565   |   |      |   | 445,061   |  
|Hotels                                |  |      |          |   |      |   | 41,139    |  
|Land held for development             |  |      | 258,512   |   |      |   | 513,957   |  
|Real estate held for sale             |  |      |          |   |      |   | 6,399     |  
|Real estate subject to sales contract |  |      | 371,560   |   |      |   | 67,326    |  
|                                      |  |      |           |   |      |   |           |  
|Total Real Estate                     |  |      | 1,541,774 |   |      |   | 1,792,562 |  
|Less accumulated deprecation          |  |      | (209,189  | ) |      |   | (211,041  | )
|                                      |  |      |           |   |      |   |           |  
|                                      |  | $    | 1,332,585 |   |      | $ | 1,581,521 |  
|                                      |  |      |           |   |      |   |           |  

Expenditures for repairs and maintenance are charged to operations as incurred. Significant betterments are capitalized.
When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.

Depreciation is computed on a straight line basis over the estimated useful lives of the assets as follows:



|                                  |  |                                                 
|--------------------------------- |  | ------------------------------------------------
|Land improvements                 |  | 25 to 40 years                                  
|Buildings and improvements        |  | 10 to 40 years                                  
|Tenant improvements               |  | Shorter of useful life or terms of related lease
|Furniture, fixtures and equipment |  | 3 to 7 years                                    

Provision
for Asset Impairments:

In 2010, the provision for allowance and impairments was related to our receivables and our investments
in unconsolidated entities and other investees. Provision for allowance on notes receivable and impairment was $61.3 million for the twelve months ended December 31, 2010. Impairment was recorded as an additional loss in the investment
portfolio of $1.9 million in commercial properties we currently hold, $47.6 million in land we currently hold, $7.8 million for hotels we currently hold and a $4.0 million increase in our allowance for doubtful receivables. In 2009, we recorded a
$44.6 million allowance in the investment portfolio of $1.9 million in commercial properties we currently hold, $35.6 million in land we currently hold and $7.1 million in land that was sold in the third quarter for loss.



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The following is a brief description of the more significant property acquisitions and
sales in 2010:

On February 18, 2010, we purchased 15.88 acres of Furniture Row land located in Midland, Texas, for $2.2
million. This land was purchased for the development of Blue Ridge apartments, a 290-unit apartment complex. We financed the transaction with $0.3 million cash, a $0.8 million draw on a construction loan with a commercial lender and a $1.0 million
loan provided by the seller. In addition, we paid $0.1 million in commissions and closing costs. The seller financing accrues interest, payable monthly, at 8.0% and matures on March 18, 2011.

On March 17, 2010, we sold our membership in IGCH Villager Associates, Ltd. to Liberty Bankers Life Insurance Company, a related
party under common control, for a sales price of $1.5 million. This entity owns the Villager Apartments, a 33-unit complex located in Fort Walton Beach, Florida. We received $0.8 million in cash, and the buyer assumed the existing mortgage of $0.7
million, secured by the property. The project was sold to a related party; therefore, the gain of $0.4 million was deferred and will be recorded upon sale to a third party.

On April 15, 2010, we sold 6.77 acres of land known as McKinney Corners II land located in McKinney, Texas, for a sales price of $1.6 million. We paid off the existing debt of $1.4 million and
closing costs. We recorded a gain of $1.1 million on the sale of the land parcel.

On April 16, 2010, we sold the Foxwood
apartments, a 220-unit complex located in Memphis, Tennessee, to One Realco Retail, Inc., a related party under common control, for a sales price of $5.1 million. The buyer assumed the existing mortgage of $5.1 million secured by the property. The
property was sold to a related party; therefore, the gain of $5.8 million was deferred. The deferred gain was recognized in June 2010, upon sale of the property to a third party.

On April 23, 2010, we sold our membership interest in Longfellow Investors I, LLC, Longfellow Investors II, LLC, Longfellow
Investors III, LLC, Longfellow Investors IV, LLC and Longfellow Investors V, LLC to Liberty Bankers Life Insurance Company, a related party under common control, for a sales price of $20.0 million. These entities had limited partner interests
in Longfellow Arms Apartments, Ltd., an entity that owned a 216-unit apartment complex located in Longview, Texas. We received $6.1 million in cash, and the buyer assumed the existing mortgage of $14.4 million secured by the property. The
property was sold to a related party; therefore, the gain of $3.6 million was deferred and will be recorded upon sale to a third party.

On May 4, 2010, we sold our investment in T Autumn Chase, Inc. to Taaco Financial, Inc., a related party under common control, for a sales price of $16.0 million. This entity owns 16.79 acres of land
known as Ewing 8 land located in Addison, Texas. The buyer assumed the existing mortgage of $10.7 million secured by the property. We recorded a loss of $5.3 million on the sale of the land parcel.

On May 18, 2010, we sold our investment in TCI Eton Square, L.P. to TX Highland RS Corp, a related party under common control, for a
sales price of $13.7 million. This entity owns a 225,566 square foot office and retail center known as Eton Square located in Tulsa, Oklahoma. We provided $4.0 million in seller financing with a three-year note receivable. The note accrues interest
at prime plus 2.0% and is payable at maturity on May 18, 2013. The buyer assumed the existing mortgage of $9.6 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. 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 June 16, 2010, we sold the Chateau apartments, a 115-unit complex located in Bellevue, Nebraska, to One Realco Retail, Inc. and TCI Woodsong, Inc., both related parties under common control, for a
sales price of $2.9 million. The buyer assumed the existing mortgage of $2.9 million secured by the property. The property was sold to a related party; therefore, the gain of $2.4 million was deferred. The deferred gain was recognized in July 2010,
upon sale of the property to a third party.



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On July 12, 2010, we sold our investment in Pioneer Crossing Hotels, LLC to One Realco
Corporation, a related party under common control, for a sales price of $17.2 million. This entity owns the Piccadilly Airport Hotel, a 185-room hotel, the Piccadilly Inn Express Hotel, a 78-room hotel, and the Piccadilly Shaw Hotel, a 194-room
hotel, all located in Fresno, California. In addition, we sold a $10.1 million intercompany receivable. The buyer assumed the existing mortgage of $27.3 million, secured by the property, but did not assume the obligation of ARLs guarantee on
the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On July 30, 2010, we purchased 8.91 acres of Sonoma Court land located in Rockwall, Texas, for $0.9 million. This land was purchased for the development of Sonoma Court apartments, a 124-unit
apartment complex. We financed the transaction with a $0.9 million draw on a construction loan with a commercial lender.

On
July 30, 2010, we recognized the 2009 sale of 21.9 acres of land known as Pulaski land located in Pulaski County, Arkansas, to One Realco Land Holdings, Inc. and One Realco Corporation, both related parties under common control, for a sales
price of $2.3 million. The buyer assumed the existing mortgage of $1.1 million secured by the property and we provided seller financing of $1.2 million. We had previously deferred the recognition of the sale in accordance with ASC 360-20 due to
our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $1.2 million when the buyer subsequently sold the land to a third party and the seller financing
was not collected.

The Company had a 14.8% limited partner interest in a partnership that owned a 131-unit apartment complex
known as Quail Oaks apartments, located in Balch Springs, Texas. The partnership was consolidated in accordance with ASC 810, whereby we determined that we were a primary beneficiary. On August 3, 2010 the partnership transferred
ownership of the property to the existing lender and the result was a gain of $1.8 million.

On August 4, 2010, we sold
6.51 acres of land known as Hines Meridian land located in Irving, Texas, for a sales price of $2.0 million. We received $0.4 million in cash, after paying in full the existing debt of $0.9 million and providing seller financing of $0.5 million. The
note accrues interest at 8.0% and is payable at maturity on August 11, 2011. We recorded a gain of $0.6 million on the sale of the land parcel.

On August 20, 2010, we sold our investment in American Mart Hotel Corporation to ABC Land and Development, Inc., a related party under common control, for a sales price of $3.1 million. This entity
owns the Comfort Inn Hotel, a 161-room hotel, located in Denver, Colorado. The buyer assumed the existing mortgage of $3.0 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. ARL has deferred the
recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On August 30, 2010, we sold the Mason Park apartments, a 312-unit complex located in Katy, Texas, for a sales price of $22.9 million. We recorded a gain of $0.3 million on the sale of the apartment.

On September 15, 2010, we sold our investment in Pacific Center, LLC to ABC Land and Development, Inc., a related party
under common control, for a sales price of $2.5 million. This entity owns the Piccadilly University Hotel, a 190-room hotel, located in Fresno, California. In addition we sold a $2.0 million intercompany receivable. The buyer assumed the existing
mortgage of $4.5 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable
recovery of investment cost.

On September 21, 2010, we sold our investment in EQK Bridgeview Plaza, Inc. to Warren Road
Farm, Inc., a related party under common control, for a sales price of $8.3 million. This entity owns a 122,205 square foot retail center known as Bridgeview Plaza located in La Crosse, Wisconsin. We provided $2.1 million in seller financing with a
five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $6.2 million, secured by the property, but did



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not assume the obligation of TCIs guarantee on the loan. 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 September 21, 2010, we sold our investment in
Transcontinental Brewery, Inc. to Warren Road Farm, Inc., a related party under common control, for a sales price of $3.8 million. This entity owns a 29,784 square foot office building and 13.0 acres of land known as Eagle Crest in Farmers Branch,
Texas. The buyer assumed the existing mortgage of $2.4 million, secured by the property. A five-year note receivable for $1.4 million was given as consideration, with an interest rate of 6.0%, payable at maturity on September 21, 2015. 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 September 21, 2010, we sold our investment in South Cochran Corporation to Warren Road Farm, Inc., a related party under common
control, for a sales price of $2.2 million. This entity owns a 220,461 square foot retail center known as Dunes Plaza located in Michigan City, Indiana. In addition, we sold a $1.0 million intercompany receivable. The buyer assumed the existing
mortgage of $3.2 million, secured by the property, but did not assume the obligation of our guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable
recovery of investment cost.

On September 21, 2010, we sold our investment in Thornwood Apartments, LLC to Warren Road
Farm, Inc., a related party under common control, for a sales price of $6.7 million. This entity owns 245.95 acres of land known as Windmill Farms-Harlan land located in Kaufman County, Texas. We provided $1.1 million in seller financing with a
five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $5.5 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 September 21, 2010, we sold our investment in EQK Windmill Farms, LLC to Warren Road Farm, Inc., a related party under common control, for a sales price of $64.5 million. This entity owns 2,957.95
acres of land known as Windmill Farms land located in Kaufman County, Texas. We provided $33.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The
buyer assumed the existing mortgage of $30.7 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 September 28, 2010, we sold the Baywalk apartments, a 192-unit complex located in Galveston,
Texas for a sales price of $8.6 million. We recorded a gain of $1.8 million on the sale of the apartment.

On
September 30, 2010, we recognized the 2003 sale of four properties to subsidiaries of United Housing Foundation, Inc., a Texas Non-Profit 501(c)3 Corporation. We sold the Limestone at Vista Ridge apartments for $19.0 million, the Limestone
Canyon apartments for $18.0 million, the Sendero Ridge apartments for $29.4 million and the Tivoli apartments for $16.1 million. At the time of the sale, we remained as the guarantor on the existing mortgages and the sales were not
recorded. Instead, these transactions were accounted for on the deposit method and the properties and corresponding debt continued to be consolidated. These mortgages have since been refinanced and such refinancing does not include any
obligations by us as guarantor. We recorded the sale and recorded $25.2 million in deferred gain on the sale. Due to the related party nature of these sales, we will not record the gain on the sale until the properties are sold to a third
party.

On October 4, 2010, we sold our investment in Marina Landing Corp. to ABC Land and Development, Inc., a related
party under common control, for a sales price of $5.8 million. This entity owns a 256-unit apartment complex known as Marina Landing Apartments located in Galveston, Texas. The buyer assumed the existing mortgage of $10.4 million. We provided $5.8
million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 4, 2015.



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On October 5, 2010, we sold the Island Bay apartments, a 458-unit complex located in
Galveston, Texas, for a sales price of $15.0 million. The existing mortgage of $14.0 million is secured by the property. Ownership of the property transferred to the existing lender and the result was a gain of $4.1 million.

On October 6, 2010, we recognized the 2009 sale of 4.7 acres of land known as Cigna land located in Irving, Texas, to One Realco
Land Holdings, Inc., a related party under common control, for a sales price of $1.0 million. The buyer assumed the existing mortgage of $0.8 million secured by the property.

On October 22, 2010, we sold our investment in Continental Common, Inc., which owns a 512,593 square foot office building known as 1010 Commons, located in New Orleans, Louisiana, 17.2 acres of land
known as Lacy Longhorn land, located in Farmers Branch, Texas, and 44.17 acres of land known as Marine Creek land, located in Fort Worth, Texas, to ABCLD, LLC, a related party under common control, for a sales price of $30.9 million. The buyer
assumed the existing mortgage of $24.1 million secured by the properties and we provided $6.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 22,
2015. 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 October 29, 2010, we recognized the 2009 sale of 100% of our membership interest in JMJ Circle C, LLC, 99% of our membership
interest in JMJ Circle C East, LLC and 99% of our membership interest in JMJ Circle C West, LLC to Avana HRS Development, Inc., a related party under common control, for a sales price of $0.5 million. These entities owned 1,093.98 acres of land
known as Avana land located in Irving, Texas. The buyer assumed the existing mortgage of $39.7 million secured by the property. Included in the debt assumed by the buyer, was approximately $8.6 million that was due to us. We had
previously deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $8.6
million when the buyer subsequently sold the land to a third party and the note was not collected.

On November 3, 2010,
we sold 8.0 acres of land known as Alliance Hickman land located in Tarrant County, Texas, for a sales price of $1.3 million. The existing loan of $0.7 million, secured by the property, was paid off at close. We recorded a gain of $0.2 million on
the sale of the land parcel.

On November 30, 2010, we sold the Kingsland Ranch apartments, a 398-unit complex located in
Katy, Texas, for a sales price of $29.3 million. We recorded a gain on sale of $4.2 million on the apartment sale.

On
December 23, 2010, ARL sold 34 properties, which consisted of six commercial buildings comprising an aggregate of 1.4 million square feet, 3,683 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 $229.2 million. The buyer assumed the existing mortgages of $174.1 million secured by the properties and we provided $55.1 million in seller financing notes with a five-year note term. The notes accrue
interest at 6.0% and are payable at maturity on December 23, 2015.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.

On December 23, 2010, we sold Cooley Building, a 27,041 office building located in Dallas, Texas, to
ABCLD Properties, LLC and ABCLD Income, LLC, both related parties under common control, for a sales price of $2.8 million. 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 December 30, 2010, we sold 51.71 acres of land known
as Alliance Centurion 52 land located in Tarrant County, Texas, for a sales price of $2.0 million. The existing loan of $2.0 million, secured by the property, was paid off at close. We recorded a loss of $0.7 million on the sale of the land parcel.

On December 30, 2010, we sold a parking garage known as 217 Rampart located in New Orleans, Louisiana for a sales price
of $0.5 million. The existing loan of $0.4 million, secured by the property, was paid off at close. We recorded a loss of $1.7 million on the sale of the parking garage.



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On December 31, 2010, we sold 4.3 acres of land known as Grapevine Vineyards land
located in Grapevine, Texas, to ART Westwood FL, Inc., a related party under common control, for a sales price of $0.9 million. We recorded a loss on sale of $263,000.

On December 31, 2010, we sold 2.6 acres of land known as Grapevine Vineyards II land located in Grapevine, Texas, to ART Westwood Fl, Inc., a related party under common control, for a sales price of
$1.5 million. We recorded a loss on sale of $30,000.

On December 31, 2010, we sold 5.6 acres of land known as Nashville
land located in Nashville, Tennessee and 0.7 acres of land known as Kelly Lots land located in Farmers Branch, Texas, to First Equity Properties, Inc., a related party under common control, for a sales price of $0.3 million. There was no gain or
loss recorded on this sale.

On December 31, 2010, we sold 6.3 acres of land known as Nashville land located in
Nashville, Tennessee, to ART Westwood FL, Inc., a related party under common control, for a sales price of $1.2 million. The property was sold to a related party; therefore, the gain of $3,000 was deferred and will be recorded upon sale to a
third party.

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 and are listed in detail in Schedule III, Real Estate and Accumulated Depreciation. 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 |  |   |        
|Performing loans:                                                    |  |              |         |  |              |  |         |        |  |   |         |   |  |                                                           
|3334Z Apts, LP                                                       |  |              | 04/12   |  |              |  | 6.50    | %      |  | $ | 1,875   |   |  | 100% Interest in 3334Z Apts                               
|ABC Land & Development(1)                                            |  |              | 10/15   |  |              |  | 10.00   | %      |  |   | 5,779   |   |  | Marina Landing (256 Unit Apartment Complex)               
|Dallas Fund XVII LP                                                  |  |              | 10/09   |  |              |  | 9.00    | %      |  |   | 1,432   |   |  | Assignment of partnership interests                       
|Garden Centura LP(1)                                                 |  |              | N/A     |  |              |  | 7.00    | %      |  |   | 3,056   |   |  | Excess cash flow from partnership                         
|Housing for Seniors of Humble, LLC (Lakeshore Villas)(1)             |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 2,000   |   |  | Unsecured                                                 
|Housing for Seniors of Humble, LLC (Lakeshore Villas)(1)             |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 9,096   |   |  | Membership interest in Housing for Seniors of Humble, LLC 
|Miscellaneous non-related party notes                                |  |              | Various |  |              |  | Various |        |  |   | 6,074   |   |  | Various security interests                                
|Miscellaneous related party notes(1)                                 |  |              | Various |  |              |  | Various |        |  |   | 3,076   |   |  | Various security interests                                
|Unified Housing Foundation, Inc. (Cliffs of El Dorado)(1)            |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 5,459   |   |  | 100% Interest in Unified Housing of McKinney, LLC         
|Unified Housing Foundation, Inc. (Echo Station)(1)                   |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 1,668   |   |  | 100% Interest in Unified Housing of Temple, LLC           
|Unified Housing Foundation, Inc. (Inwood on the Park)(1)             |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 5,059   |   |  | 100% Interest in United Housing of Inwood, LLC            
|Unified Housing Foundation, Inc. (Kensington Park)(1)                |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 3,984   |   |  | 100% Interest in United Housing of Kensington, LLC        
|Unified Housing Foundation, Inc. (Limestone Canyon)(1)               |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 7,720   |   |  | 100% Interest in United Housing of Austin, LLC            
|Unified Housing Foundation, Inc. (Limestone Ranch)(1)                |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 8,250   |   |  | 100% Interest in United Housing of Vista Ridge, LLC       
|Unified Housing Foundation, Inc. (Marquis at Vista Ridge)(1)         |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 439     |   |  | 100% Interest in Housing for Seniors of Lewisville 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    | %      |  |   | 9,986   |   |  | 100% Interest in United Housing of Sendero Ridge, LLC     
|Unified Housing Foundation, Inc. (Timbers of Terrell)(1)             |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 1,323   |   |  | 100% Interest in United Housing of Terrell, LLC           
|Unified Housing Foundation, Inc. (Tivoli)(1)                         |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 7,966   |   |  | 100% Interest in United Housing of Tivoli, LLC            
|Unified Housing Foundation, Inc. (Reserve at White Rock Phase I)(1)  |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 2,524   |   |  | 100% Interest in Unified Housing of Harvest Hill I, LLC   
|Unified Housing Foundation, Inc. (Reserve at White Rock Phase II)(1) |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 2,555   |   |  | 100% Interest in Unified Housing of Harvest Hill, LLC     
|Unified Housing Foundation, Inc. (Trails at White Rock)(1)           |  |              | 12/27   |  |              |  | 5.25    | %      |  |   | 3,815   |   |  | 100% Interest in Unified Housing of Harvest Hill III, LLC 
|Accrued interest                                                     |  |              |         |  |              |  |         |        |  |   | 4,767   |   |  |                                                           
|                                                                     |  |              |         |  |              |  |         |        |  |   |         |   |  |                                                           
|Total Performing                                                     |  |              |         |  |              |  |         |        |  | $ | 99,839  |   |  |                                                           
|Non-Performing loans:                                                |  |              |         |  |              |  |         |        |  |   |         |   |  |                                                           
|130 Windmill Farms, L.P.                                             |  |              | 07/11   |  |              |  | 7.00    | %      |  |   | 507     |   |  | Unsecured                                                 
|Leman Development, Ltd.                                              |  |              | 07/11   |  |              |  | 7.00    | %      |  |   | 1,500   |   |  | Unsecured                                                 
|Tracy Suttles                                                        |  |              | 12/11   |  |              |  | 0.00    | %      |  |   | 1,077   |   |  | Unsecured                                                 
|Accrued interest                                                     |  |              |         |  |              |  |         |        |  |   | 39      |   |  |                                                           
|                                                                     |  |              |         |  |              |  |         |        |  |   |         |   |  |                                                           
|Total Non-Performing                                                 |  |              |         |  |              |  |         |        |  | $ | 3,123   |   |  |                                                           
|Allowance for estimated losses                                       |  |              |         |  |              |  |         |        |  |   | (14,348 | ) |  |                                                           
|                                                                     |  |              |         |  |              |  |         |        |  |   |         |   |  |                                                           
|Total                                                                |  |              |         |  |              |  |         |        |  | $ | 88,614  |   |  |                                                           



|(1) | Related party
notes
|--- | -------------------



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Junior Mortgage Loans.We may
invest in junior mortgage loans, secured by mortgages that are subordinate to one or more prior liens either on the fee or a leasehold interest in real estate. Recourse on such loans ordinarily includes the real estate on which the loan is made,
other collateral and personal guarantees by the borrower. The Board of Directors restricts investment in junior mortgage loans, excluding wraparound mortgage loans, to not more than 10.0% of our assets. At December 31, 2010, 5.7% of our assets
were invested in junior and wraparound mortgage loans.

Effective 2009, interest income is recorded when cash is received, and
no accrued interest income is recorded on non-performing notes receivables. If the notes for the years 2010 and 2009 had been performing, an additional interest income totaling $4.3 million and $2.7 million, respectively, would have been recognized.

As of December 31, 2010, the obligors on $90.0 million or 90.88% of the mortgage notes receivable portfolio were due
from affiliated entities. Also at that date, $3.1 million or 3.0% of the mortgage notes receivable portfolio was non-performing. At December 31, 2010, approximately 5.7% of our assets were invested in notes and interest receivable.



|NOTE 4. | ALLOWANCE FOR ESTIMATED LOSSES
|------- | ------------------------------

The allowance account was reviewed and increased in 2010 and 2008. There were no additional allowances for receivables in 2009; our allowance account decreased in 2009 due to loan payoff that had an
allowance. The table below shows our allowance for estimated losses (dollars in thousands):



|                                 |  |      |        |  |      |   |        |      |  |   |        | 
|-------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                 |  | 2010 |        |  | 2009 |   |        | 2008 | 
|Balance January 1,               |  | $    | 11,836 |  |      | $ | 11,874 |      |  | $ | 2,978  | 
|(Decrease) Increase in provision |  |      | 2,512  |  |      |   | (38    | )    |  |   | 8,896  | 
|                                 |  |      |        |  |      |   |        |      |  |   |        | 
|Balance December 31,             |  | $    | 14,348 |  |      | $ | 11,836 |      |  | $ | 11,874 | 
|                                 |  |      |        |  |      |   |        |      |  |   |        | 



|NOTE 5. | INVESTMENTS 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. IOT is a related entity and is consolidated as of July 2009.

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



|                                      |  |                            |       |   |                   |  |       |                   |  |  |       |  
|------------------------------------- |  | -------------------------- | ----- | - | ----------------- |  | ----- | ----------------- |  |  | ----- | -
|                                      |  | Percentage ownership as of |      
|                                      |  | December 31, 2010          |       |   | December 31, 2009 |  |       | December 31, 2008 | 
|Garden Centura, L.P.(2)               |  |                            | 5.00  | % |                   |  | 5.00  | %                 |  |  | 5.00  | %
|Gruppa Florentina, LLC(2)             |  |                            | 20.00 | % |                   |  | 20.00 | %                 |  |  | 20.00 | %
|Income Opportunity Investors, Inc.(1) |  |                            | N/A   |   |                   |  | N/A   |                   |  |  | 25.00 | %
|LK-Four Hickory, LLC(2)               |  |                            | 28.57 | % |                   |  | 28.57 | %                 |  |  | 28.57 | %



|(1) | Consolidated subsidiary as of 7/09
|--- | ----------------------------------

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

Our partnership interest in Garden Centura, L.P. in the amount of 5.0% is accounted for under the equity method, because we exercise significant influence over the operations and financial activities. We
have guaranteed the notes payable and control the day to day activities. Accordingly, the investment is carried at cost, adjusted for the companies proportionate share of earnings or losses.



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The market values, other than the unconsolidated subsidiaries, as of the year ended
December 31, 2010 and 2009 were not determinable as there were no readily traded markets for these entities.

The
following is a summary of the financial position and results of operations from our unconsolidated subsidiaries and investees (dollars in thousands):



|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|-------------------------------------------- |  | -------------------------- | - |  | -------------- | - | ------- | ----- |  | - | ------- | -
|                                             |  | UnconsolidatedSubsidiaries |   |  | OtherInvestees |   |         | Total | 
|For the Year Ended December 31, 2010         |  |                            |   |  |                |   |         |       |  |   |         |  
|Real estate, net of accumulated depreciation |  | $                          |  |  |                | $ | 120,672 |       |  | $ | 120,672 |  
|Notes receivable                             |  |                            |  |  |                |   | 4,905   |       |  |   | 4,905   |  
|Other assets                                 |  |                            |  |  |                |   | 43,266  |       |  |   | 43,266  |  
|Notes payable                                |  |                            |  |  |                |   | (90,423 | )     |  |   | (90,423 | )
|Other liabilities                            |  |                            |  |  |                |   | (14,336 | )     |  |   | (14,336 | )
|Shareholders equity/partners capital        |  |                            |  |  |                |   | (64,084 | )     |  |   | (64,084 | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|                                             |  |                            |  |  |                |   |        |       |  |   |        |  
|Revenue                                      |  | $                          |  |  |                | $ | 50,596  |       |  | $ | 50,596  |  
|Depreciation                                 |  |                            |  |  |                |   | (6,208  | )     |  |   | (6,208  | )
|Operating expenses                           |  |                            |  |  |                |   | (41,453 | )     |  |   | (41,453 | )
|Gain on land sales                           |  |                            |  |  |                |   |        |       |  |   |        |  
|Interest expense                             |  |                            |  |  |                |   | (6,168  | )     |  |   | (6,168  | )
|Loss from continuing operations              |  |                            |  |  |                |   | (3,233  | )     |  |   | (3,233  | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Income from discontinued operations          |  |                            |  |  |                |   |        |       |  |   |        |  
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Net loss                                     |  | $                          |  |  |                | $ | (3,233  | )     |  | $ | (3,233  | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Companys proportionate share of earnings    |  | $                          |  |  |                | $ | (126    | )     |  | $ | (126    | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|                                             |  |                            |  
|                                             |  | UnconsolidatedSubsidiaries |   |  | OtherInvestees |   |         | Total | 
|For the Year Ended December 31, 2009         |  |                            |   |  |                |   |         |       |  |   |         |  
|Real estate, net of accumulated depreciation |  | $                          |  |  |                | $ | 125,510 |       |  | $ | 125,510 |  
|Notes receivable                             |  |                            |  |  |                |   | 3,927   |       |  |   | 3,927   |  
|Other assets                                 |  |                            |  |  |                |   | 43,595  |       |  |   | 43,595  |  
|Notes payable                                |  |                            |  |  |                |   | (92,494 | )     |  |   | (92,494 | )
|Other liabilities                            |  |                            |  |  |                |   | (11,911 | )     |  |   | (11,911 | )
|Shareholders equity/partners capital        |  |                            |  |  |                |   | (68,627 | )     |  |   | (68,627 | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|                                             |  |                            |  |  |                |   |        |       |  |   |        |  
|Revenue                                      |  | $                          |  |  |                | $ | 52,571  |       |  | $ | 52,571  |  
|Depreciation                                 |  |                            |  |  |                |   | (6,511  | )     |  |   | (6,511  | )
|Operating expenses                           |  |                            |  |  |                |   | (39,944 | )     |  |   | (39,944 | )
|Gain on land sales                           |  |                            |  |  |                |   |        |       |  |   |        |  
|Interest expense                             |  |                            |  |  |                |   | (6,341  | )     |  |   | (6,341  | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Loss from continuing operations              |  |                            |  |  |                |   | (225    | )     |  |   | (225    | )
|Income from discontinued operations          |  |                            |  |  |                |   |        |       |  |   |        |  
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Net loss                                     |  | $                          |  |  |                | $ | (225    | )     |  | $ | (225    | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  
|Companys proportionate share of earnings    |  | $                          |  |  |                | $ | (39     | )     |  | $ | (39     | )
|                                             |  |                            |   |  |                |   |         |       |  |   |         |  



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|                                             |  |                            |         |   |                |   |         |       |  |   |          |  
|-------------------------------------------- |  | -------------------------- | ------- | - | -------------- | - | ------- | ----- |  | - | -------- | -
|                                             |  | UnconsolidatedSubsidiaries |         |   | OtherInvestees |   |         | Total | 
|For the Year Ended December 31, 2008         |  |                            |         |   |                |   |         |       |  |   |          |  
|Real estate, net of accumulated depreciation |  | $                          | 36,942  |   |                | $ | 130,538 |       |  | $ | 167,480  |  
|Notes receivable                             |  |                            | 39,606  |   |                |   | 3,367   |       |  |   | 42,973   |  
|Other assets                                 |  |                            | 39,005  |   |                |   | 43,929  |       |  |   | 82,934   |  
|Notes payable                                |  |                            | (42,319 | ) |                |   | (97,543 | )     |  |   | (139,862 | )
|Other liabilities                            |  |                            | (2,459  | ) |                |   | (9,093  | )     |  |   | (11,552  | )
|Shareholders equity/partners capital        |  |                            | (70,775 | ) |                |   | (71,198 | )     |  |   | (141,973 | )
|                                             |  |                            |         |   |                |   |         |       |  |   |          |  
|                                             |  |                            |        |   |                |   |        |       |  |   |         |  
|Revenue                                      |  | $                          | 3,304   |   |                | $ | 58,706  |       |  | $ | 62,010   |  
|Depreciation                                 |  |                            | (61     | ) |                |   | (6,244  | )     |  |   | (6,305   | )
|Operating expenses                           |  |                            | (3,344  | ) |                |   | (44,914 | )     |  |   | (48,258  | )
|Gain on land sales                           |  |                            |        |   |                |   |        |       |  |   |         |  
|Interest expense                             |  |                            | (2,043  | ) |                |   | (6,382  | )     |  |   | (8,425   | )
|                                             |  |                            |         |   |                |   |         |       |  |   |          |  
|Income (loss) from continuing operations     |  |                            | (2,144  | ) |                |   | 1,166   |       |  |   | (978     | )
|Income from discontinued operations          |  |                            | 28,854  |   |                |   |        |       |  |   | 28,854   |  
|                                             |  |                            |         |   |                |   |         |       |  |   |          |  
|Net income                                   |  | $                          | 26,710  |   |                | $ | 1,166   |       |  | $ | 27,876   |  
|                                             |  |                            |         |   |                |   |         |       |  |   |          |  
|Companys proportionate share of earnings    |  | $                          | 6,656   |   |                | $ | 146     |       |  | $ | 6,802    |  
|                                             |  |                            |         |   |                |   |         |       |  |   |          |  



|NOTE 6. | NOTES AND INTEREST PAYABLE
|------- | --------------------------

The following table schedules the principal payments on the notes payable for the following five years and thereafter (dollars in thousands):



|           |  |        |           | 
|---------- |  | ------ | --------- | 
|Year       |  | Amount |          
|2011       |  | $      | 419,779   | 
|2012       |  |        | 182,352   | 
|2013       |  |        | 121,153   | 
|2014       |  |        | 15,040    | 
|2015       |  |        | 9,675     | 
|Thereafter |  |        | 488,984   | 
|           |  |        |           | 
|           |  | $      | 1,236,983 | 
|           |  |        |           | 

Interest payable at December 31, 2010 was $14.8 million. Interest accrues at rates ranging from 2.0% to
13.0% per annum, and mature between 2011 and 2051. The mortgages were collateralized by deeds of trust on real estate having a net carrying value of $1.3 billion. Of the total notes payable, the senior debt is $1.19 billion, junior debt is
$26.7 million, and other debt is $17.0 million. Included in senior debit are property tax loans of $2.6 million.

With respect
to the additional notes payable due to the acquisition of properties, a summary of some of the more significant transactions are discussed below:

On February 18, 2010, we purchased 15.88 acres of Furniture Row land located in Midland, Texas, for $2.2 million. We financed the transaction with $0.3 million cash, a $0.8 million draw on a
construction loan with a commercial lender, and a $1.0 million loan provided by the seller. The seller financing accrues interest, payable monthly, at 8.0% and matures on March 18, 2011. A construction loan in the amount of $24.5 million was
taken out to fund the development of Blue Ridge apartments, 290-unit complex. The note accrues interest at 5.37%, payable monthly as interest only, until November 1, 2011. Thereafter, payments of interest and principal are due monthly based
upon a 40-year amortization schedule, maturing on October 1, 2051.



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On March 30, 2010, we refinanced the existing mortgage on Blue Lake Villas apartments,
a 186-unit complex located in Waxahachie, Texas, for a new mortgage of $10.7 million. We paid off the existing mortgage of $10.3 million and $0.5 million in closing costs. The note accrues interest at 4.75% and payments of interest and principal are
due monthly based upon a 40-year amortization schedule, maturing on April 1, 2050.

On March 30, 2010, we refinanced
the existing mortgage on Spyglass apartments, a 256-unit complex located in Mansfield, Texas, for a new mortgage of $15.8 million. We paid off the existing mortgage of $15.5 million and $0.4 million in closing costs. The note accrues interest at
4.75% and payments of interest and principal are due monthly based upon a 37-year amortization schedule, maturing on April 1, 2047.

On March 30, 2010, we refinanced the existing mortgage on Falcon Lakes apartments, a 248-unit complex located in Arlington, Texas, for a new mortgage of $13.7 million. We paid off the existing
mortgage of $13.1 million and $0.7 million in closing costs. The note accrues interest at 4.75% and payments of interest and principal are due monthly based upon a 36-year amortization schedule, maturing on April 1, 2046.

On May 11, 2010, we refinanced the existing mortgage on Whispering Pines apartments, a 320-unit complex located in Topeka, Kansas,
for a new mortgage of $9.5 million. We paid off the existing mortgage of $8.3 million and $1.4 million in closing costs. The note accrues interest at 4.5% and payments of interest and principal are due monthly based upon a 33-year amortization
schedule, maturing on June 1, 2043.

On May 13, 2010, a construction loan with a commercial lender in the amount of
$17.0 million was taken out to fund the development of the Toulon apartments, a 240-unit complex located in Gautier, Mississippi. The loan accrues interest at 5.37%, payable monthly as interest only, until December 1, 2011. Thereafter, payments
of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2051.

On
May 21, 2010, we refinanced the existing mortgage on Desoto Ranch apartments, a 248-unit complex located in Desoto, Texas, for a new mortgage of $16.3 million. We paid off the existing mortgage of $15.7 million and $0.8 million in closing
costs. The note accrues interest at 4.79% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on June 1, 2050.

On May 27, 2010, we refinanced the existing mortgage on Vistas at Pinnacle Park apartments, a 332-unit complex located in Dallas, Texas, for a new mortgage of $19.1 million. We paid off the existing
mortgage of $18.3 million and $1.0 million in closing costs. The note accrues interest at 4.86% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on June 1, 2050.

On May 28, 2010, a loan with a commercial lender in the amount of $3.7 million was taken out to fund real estate property taxes. The
loan accrues interest at 12.5%, payable monthly as interest only, until July 1, 2012. Thereafter, payments of interest and principal are due monthly based upon an 8-year amortization schedule, maturing on June 1, 2020.

On July 29, 2010, we refinanced the existing mortgage on Heather Creek apartments, a 200-unit complex located in Mesquite, Texas,
for a new mortgage of $12.0 million. We paid down the existing debt of $11.5 million and $0.7 million in closing costs. The note accrues interest at 4.33% and payments of interest and principal are due monthly based upon a 40-year amortization
schedule, maturing on August 1, 2050.

On July 30, 2010, a construction loan with a commercial lender in the amount
of $11.2 million was obtained to fund the development of the Sonoma Court apartments, a 124-unit complex located in Rockwall, Texas. The loan accrues interest at 5.35%, payable monthly as interest only, until November 1, 2011. Thereafter,
payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on November 1, 2051.



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On September 14, 2010, a construction loan with a commercial lender in the amount of
$16.5 million was obtained to fund the development of the Lodge at Pecan Creek apartments, a 192-unit complex located in Denton, Texas. The loan accrues interest at 5.05%, payable monthly as interest only, until March 1, 2012. Thereafter,
payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on March 1, 2052.

On November 30, 2010, we refinanced the existing mortgage on Dakota Arms apartments, a 208-unit complex located in Lubbock, Texas,
for a new mortgage of $12.5 million. We paid down the existing debt of $12.0 million and $0.5 million in closing costs. The note accrues interest at 4.28% and payments of interest and principal are due monthly based upon a 40-year amortization
schedule, maturing on December 1, 2050.

On November 30, 2010, we refinanced the existing mortgage on River Oaks
apartments, a 180-unit complex located in Wylie, Texas, for a new mortgage of $9.9 million. We paid down the existing debt of $9.4 million and $0.5 million in closing costs. The note accrues interest at 3.85% and payments of interest and principal
are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2050.

On November 30, 2010, we
refinanced the existing mortgage on Wildflower Villas apartments, a 220-unit complex located in Temple, Texas, for a new mortgage of $13.9 million. We paid down the existing debt of $13.4 million and $0.5 million in closing costs. The note accrues
interest at 4.27% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on December 1, 2050.

On December 30, 2010, we refinanced the existing mortgage on Windsong apartments, a 188-unit complex located in Fort Worth, Texas, for a new mortgage of $10.7 million. We paid down the existing debt
of $10.3 million and $0.4 million in closing costs. The note accrues interest at 4.25% and payments of interest and principal are due monthly based upon a 40-year amortization schedule, maturing on January 1, 2051.

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 and are listed in detail in Schedule III, Real Estate and Accumulated Depreciation. 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 7. | STOCK-SECURED NOTES PAYABLE
|------- | ---------------------------

ARL has margin arrangements with various financial institutions and brokerage firms, which provide for borrowings of up to 50.0% of the fair value of marketable equity securities. ARL also has other notes
payable secured by stock. The borrowings under such margin arrangements and notes are secured by the equity securities of IOT and TCI and ARLs trading portfolio securities and bear interest rates ranging from 4.25% to 12.3% per annum.
Margin borrowings were $23.1 million at December 31, 2010 and $24.9 million at December 31, 2009, representing 1.87% and 1.76%, respectively, of the market values of the equity securities at those dates.



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|NOTE 8. | RELATED PARTY TRANSACTIONS AND FEES
|------- | -----------------------------------

The Advisory Agreement provides for Prime or an affiliate of Prime to receive fees and cost reimbursements as defined in Part III, Item 10. Directors, Executive Officers and Corporate
GovernanceThe Advisor. Cost reimbursements are allocated based on the relative market values of the Companys assets. The fees paid to our advisor and cost reimbursements are detailed below (dollars in thousands):



|                                          |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                          |  | 2010 |        |   | 2009 |   |        | 2008 | 
|Fees:                                     |  |      |        |   |      |   |        |      |  |   |        |  
|Advisory fee                              |  | $    | 15,770 |   |      | $ | 15,683 |      |  | $ | 15,940 |  
|Incentive fee                             |  |      |       |   |      |   |       |      |  |   | 7,953  |  
|Net income fee                            |  |      | 145    |   |      |   | 115    |      |  |   | 3,041  |  
|Adjust 2009 net income fee                |  |      | (45    | ) |      |   |       |      |  |   |       |  
|Construction supervision                  |  |      | 1,761  |   |      |   | 941    |      |  |   | 3,409  |  
|Property acquisition and sales            |  |      | 31     |   |      |   | 41     |      |  |   | 1,041  |  
|Mortgage brokerage and equity refinancing |  |      | 1,667  |   |      |   | 674    |      |  |   | 503    |  
|                                          |  |      |        |   |      |   |        |      |  |   |        |  
|                                          |  | $    | 19,329 |   |      | $ | 17,454 |      |  | $ | 31,887 |  
|                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Cost reimbursements                       |  | $    | 4,882  |   |      | $ | 5,405  |      |  | $ | 6,741  |  
|                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Rent revenue                              |  | $    | 2,595  |   |      | $ | 2,901  |      |  | $ | 3,414  |  
|                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Interest paid/(received)                  |  | $    | 1,470  |   |      | $ | 208    |      |  | $ | (3,769 | )
|                                          |  |      |        |   |      |   |        |      |  |   |        |  

Cost reimbursements incurred by BCM and Prime related to TCI and ARI are allocated based on the relative
market values of each companys assets.

Fees paid to Triad, an affiliate, Regis I and related parties:



|                                                             |  |      |       |  |      |   |       |      |  |   |        | 
|------------------------------------------------------------ |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | ------ | 
|                                                             |  | 2010 |       |  | 2009 |   |       | 2008 | 
|Fees:                                                        |  |      |       |  |      |   |       |      |  |   |        | 
|Property acquisition                                         |  | $    | 106   |  |      | $ | 136   |      |  | $ | 2,910  | 
|Real estate brokerage                                        |  |      | 1,497 |  |      |   | 1,536 |      |  |   | 5,228  | 
|Property and construction management and leasing commissions |  |      | 2,896 |  |      |   | 3,003 |      |  |   | 4,131  | 
|                                                             |  |      |       |  |      |   |       |      |  |   |        | 
|                                                             |  | $    | 4,499 |  |      | $ | 4,675 |      |  | $ | 12,269 | 
|                                                             |  |      |       |  |      |   |       |      |  |   |        | 

Rents received from Prime and its affiliates for ARL-owned properties in 2010, 2009, and 2008 include
Addison Hanger, Browning Place, Eagle Crest, Fenton Center, Folsom, GNB, One Hickory, Senlac, Thermalloy, and Two Hickory.

As
of December 31, 2010, ARL has notes and interest receivable of $90.0 million due from related parties. See discussion in Part 2, Item 8, Note 3. Notes and Interest Receivable.



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The following table reconciles the beginning and ending balances of affiliated accounts as
of December 31, 2010 (dollars in thousands):



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Balance, December 31, 2009          |  | $ | (20,574 | )
|Cash transfers                      |  |   | 520     |  
|Advisory fees                       |  |   | (15,770 | )
|Net income fee                      |  |   | (100    | )
|Cost reimbursements                 |  |   | (4,882  | )
|Interest to Advisor                 |  |   | (1,471  | )
|Fees and commissions to Prime/Regis |  |   | (3,301  | )
|Construction management fees        |  |   | (1,761  | )
|POA fees                            |  |   | (498    | )
|Regis incentive fee                 |  |   | 6,886   |  
|Expenses paid by Advisor            |  |   | 2,015   |  
|Financing (mortgage payments)       |  |   | (2,045  | )
|Note receivable with affiliate      |  |   | 26,581  |  
|Sales/purchase transactions         |  |   | 5,118   |  
|Intercompany property transfers     |  |   | (2,937  | )
|                                    |  |   |         |  
|Balance, December 31, 2010          |  | $ | (12,219 | )
|                                    |  |   |         |  

Below are property sales that involve a related party:

On March 17, 2010, we sold our membership in IGCH Villager Associates, Ltd. to Liberty Bankers Life Insurance Company, a related
party under common control, for a sales price of $1.5 million. This entity owns the Villager Apartments, a 33-unit complex located in Fort Walton Beach, Florida. We received $0.8 million in cash, and the buyer assumed the existing mortgage of $0.7
million secured by the property. The project was sold to a related party; therefore, the gain of $0.4 million was deferred and will be recorded upon sale to a third party.

On April 16, 2010, we sold the Foxwood apartments, a 220-unit complex located in Memphis, Tennessee, to One Realco Retail, Inc., a related party under common control, for a sales price of $5.1
million. The buyer assumed the existing mortgage of $5.1 million secured by the property. The property was sold to a related party; therefore, the gain of $5.8 million was deferred. The deferred gain was recognized in June 2010, upon sale of the
property to a third party.

On April 23, 2010, we sold our membership interest in Longfellow Investors I, LLC, Longfellow
Investors II, LLC, Longfellow Investors III, LLC, Longfellow Investors IV, LLC and Longfellow Investors V, LLC to Liberty Bankers Life Insurance Company, a related party under common control, for a sales price of $20.0 million. These entities
had limited partner interests in Longfellow Arms Apartments, Ltd., an entity that owned a 216-unit complex located in Longview, Texas. We received $6.1 million in cash, and the buyer assumed the existing mortgage of $14.4 million secured by the
property. The property was sold to a related party; therefore, the gain of $3.6 million was deferred and will be recorded upon sale to a third party.

On May 4, 2010, we sold our investment in T Autumn Chase, Inc. to Taaco Financial, Inc., a related party under common control, for a sales price of $16.0 million. This entity owns 16.79 acres of land
known as Ewing 8 land located in Addison, Texas. The buyer assumed the existing mortgage of $10.7 million secured by the property. We recorded a loss of $5.3 million on the sale of the land parcel.

On May 18, 2010, we sold our investment in TCI Eton Square, L.P. to TX Highland RS Corp, a related party under common control, for a
sales price of $13.7 million. This entity owns a 225,566 square foot office and retail center known as Eton Square located in Tulsa, Oklahoma. We provided $4.0 million in seller financing with a three-year note receivable. The note accrues interest
at prime plus 2.0% and is payable at maturity on



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May 18, 2013. The buyer assumed the existing mortgage of $9.6 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. 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 June 16, 2010, we sold the Chateau apartments, a 115-unit complex located in Bellevue, Nebraska, to One Realco Retail, Inc. and TCI Woodsong, Inc., both related parties under common control, for a
sales price of $2.9 million. The buyer assumed the existing mortgage of $2.9 million secured by the property. The property was sold to a related party; therefore, the gain of $2.4 million was deferred. The deferred gain was recognized in July 2010,
upon sale of the property to a third party.

On July 12, 2010, we sold our investment in Pioneer Crossing Hotels, LLC to
One Realco Corporation, a related party under common control, for a sales price of $17.2 million. This entity owns the Piccadilly Airport Hotel, a 185-room hotel, the Piccadilly Inn Express Hotel, a 78-room hotel, and the Piccadilly Shaw Hotel, a
194-room hotel, all located in Fresno, California. In addition, we sold a $10.1 million intercompany receivable. The buyer assumed the existing mortgage of $27.3 million, secured by the property, but did not assume the obligation of ARLs
guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On July 30, 2010, we recognized the 2009 sale of 21.9 acres of land known as Pulaski land located in Pulaski County, Arkansas, to
One Realco Land Holdings, Inc. and One Realco Corporation, both related parties under common control, for a sales price of $2.3 million. The buyer assumed the existing mortgage of $1.1 million secured by the property and we provided seller financing
of $1.2 million. We had previously deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded
a loss on sale of $1.2 million when the buyer subsequently sold the land to a third party and the seller financing was not collected.

On August 20, 2010, we sold our investment in American Mart Hotel Corporation to ABC Land and Development, Inc., a related party under common control, for a sales price of $3.1 million. This entity
owns the Comfort Inn Hotel, a 161-room hotel, located in Denver, Colorado. The buyer assumed the existing mortgage of $3.0 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. ARL has deferred the
recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On September 15, 2010, we sold our investment in Pacific Center, LLC to ABC Land and Development, Inc., a related party under common control, for a sales price of $2.5 million. This entity owns the
Piccadilly University Hotel, a 190-room hotel, located in Fresno, California. In addition we sold a $2.0 million intercompany receivable. The buyer assumed the existing mortgage of $4.5 million, secured by the property, but did not assume the
obligation of ARLs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On September 21, 2010, we sold our investment in EQK Bridgeview Plaza, Inc. to Warren Road Farm, Inc., a related party under common
control, for a sales price of $8.3 million. This entity owns a 122,205 square foot retail center known as Bridgeview Plaza located in La Crosse, Wisconsin. We provided $2.1 million in seller financing with a five-year note receivable. The note
accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $6.2 million, secured by the property, but did not assume the obligation of our guarantee on the loan. 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 September 21, 2010, we sold our investment in Transcontinental Brewery, Inc. to Warren Road Farm, Inc., a related party under common control, for a sales price of $3.8 million. This entity owns a
29,784 square foot office building and 13.0 acres of land known as Eagle Crest in Farmers Branch, Texas. The buyer assumed



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the existing mortgage of $2.4 million, secured by the property. A five-year note receivable for $1.4 million was given as consideration, with an interest rate of 6.0%, payable at maturity on
September 21, 2015. 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 September 21, 2010, we sold our investment in South Cochran Corporation to Warren Road Farm, Inc., a related party under common
control, for a sales price of $2.2 million. This entity owns a 220,461 square foot retail center known as Dunes Plaza located in Michigan City, Indiana. In addition, we sold a $1.0 million intercompany receivable. The buyer assumed the existing
mortgage of $3.2 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and
questionable recovery of investment cost.

On September 21, 2010, we sold our investment in Thornwood Apartments, LLC to
Warren Road Farm, Inc., a related party under common control, for a sales price of $6.7 million. This entity owns 245.95 acres of land known as Windmill Farms-Harlan land located in Kaufman County, Texas. We provided $1.1 million in seller financing
with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $5.5 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 September 21, 2010, we sold our investment in EQK Windmill Farms, LLC to Warren Road Farm, Inc., a related party under common control, for a sales price of $64.5 million. This entity owns 2,957.95
acres of land known as Windmill Farms land located in Kaufman County, Texas. We provided $33.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The
buyer assumed the existing mortgage of $30.7 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 September 30, 2010, we recognized the 2003 sale of four properties to subsidiaries of United
Housing Foundation, Inc., a Texas Non-Profit 501(c)3 Corporation. We sold the Limestone at Vista Ridge apartments for $19.0 million, the Limestone Canyon apartments for $18.0 million, the Sendero Ridge apartments for $29.4 million and the Tivoli
apartments for $16.1 million. At the time of the sale, We remained as the guarantor on the existing mortgages and the sales were not recorded. Instead, these transactions were accounted for on the deposit method and the properties and
corresponding debt continued to be consolidated. These mortgages have since been refinanced and such refinancing does not include any obligations by us as guarantor. We recorded the sale and recorded $25.2 million in deferred gain on the
sale. Due to the related party nature of these sales, we will not record the gain on the sale until the properties are sold to a third party.

On October 4, 2010, we sold our investment in Marina Landing Corp. to ABC Land and Development, Inc., a related party under common control, for a sales price of $5.8 million. This entity owns a
256-unit apartment complex known as Marina Landing Apartments located in Galveston, Texas. The buyer assumed the existing mortgage of $10.4 million. We provided $5.8 million in seller financing with a five-year note receivable. The note accrues
interest at 6.0% and is payable at maturity on October 4, 2015.

On October 6, 2010, we recognized the 2009 sale of
4.7 acres of land known as Cigna land located in Irving, Texas to One Realco Land Holdings, Inc., a related party under common control, for a sales price of $1.0 million. The buyer assumed the existing mortgage of $0.8 million secured by the
property.

On October 22, 2010, we sold our investment in Continental Common, Inc., which owns a 512,593 square foot
office building known as 1010 Commons, located in New Orleans, Louisiana, 17.2 acres of land known as Lacy Longhorn land, located in Farmers Branch, Texas, and 44.17 acres of land known as Marine Creek land, located in Fort Worth, Texas, to ABCLD,
LLC, a related party under common control, for a sales price of $30.9 million. The buyer assumed the existing mortgage of $24.1 million secured by the properties and we provided



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$6.8 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 22, 2015. 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 October 29, 2010, we recognized the 2009 sale of 100% of our membership interest in JMJ Circle C, LLC, 99% of our membership interest in JMJ Circle C East, LLC and 99% of our membership interest
in JMJ Circle C West, LLC to Avana HRS Development, Inc., a related party under common control, for a sales price of $0.5 million. These entities owned 1,093.98 acres of land known as Avana land located in Austin, Texas. The buyer assumed the
existing mortgage of $39.7 million secured by the property. Included in the debt assumed by the buyer, was approximately $8.6 million due to us. We had previously deferred the recognition of the sale in accordance with ASC 360-20 due to
our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $8.6 million when the buyer subsequently sold the land to a third party and the note was not
collected.

On December 23, 2010, ARL sold 34 properties, which consisted of six commercial buildings comprising an
aggregate of 1.4 million square feet, approximately 3,683 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$229.2 million. The buyer assumed the
existing mortgages of $174.1 million secured by the properties and we provided $55.1 million in seller financing notes with a five-year note term. The notes accrue interest at 6.0% and are payable at maturity on December 23, 2015.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.

On December 23, 2010, we sold Cooley Building, a 27,041 office building located in Dallas, Texas, to ABCLD Properties, LLC and ABCLD
Income, LLC, both related parties under common control, for a sales price of $2.8 million. 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 December 31, 2010, we sold 4.3 acres of land known as Grapevine Vineyards land located
in Grapevine, Texas, to ART Westwood FL, Inc., a related party under common control, for a sales price of $0.9 million. We recorded a loss on sale of $263,000.

On December 31, 2010, we sold 2.6 acres of land known as Grapevine Vineyards II land located in Grapevine, Texas, to ART Westwood Fl, Inc., a related party under common control, for a sales price of
$1.5 million. We recorded a loss on sale of $30,000.

On December 31, 2010, we sold 5.6 acres of land known as Nashville
land located in Nashville, Tennessee and 0.7 acres of land known as Kelly Lots land located in Farmers Branch, Texas, to First Equity Properties, Inc., a related party under common control, for a sales price of $0.3 million. There was no gain or
loss recorded on this sale.

On December 31, 2010, we sold 6.3 acres of land known as Nashville land located in
Nashville, Tennessee, to ART Westwood FL, Inc., a related party under common control, for a sales price of $1.2 million. The property was sold to a related party; therefore, the gain of $3,000 was deferred and will be recorded upon sale to a
third party.



|NOTE 9. | DIVIDENDS
|------- | ---------

ARLs Board of Directors established a policy that dividend declarations on common stock would be determined on an annual basis
following the end of each year. In accordance with that policy, no dividends on ARLs common stock were declared for 2010, 2009, or 2008. Future distributions to common stockholders will be determined by the Board of Directors in light of
conditions then existing, including the Companys financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board.



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|NOTE 10. | PREFERRED STOCK
|-------- | ---------------

There are 15,000,000 shares of Series A 10.0% Cumulative Convertible Preferred Stock authorized, with a par value of $2.00 per share and liquidation preference of $10.00 per share plus accrued and unpaid
dividends. Dividends are payable at the annual rate of $1.00 per share or $.25 per share quarterly to stockholders of record on the last day of each March, June, September and December when and as declared by the Board of Directors. The Series A
Preferred Stock may be converted into ARL common stock at 90.0% of the average daily closing price of ARLs common stock for the prior 20 trading days. At December 31, 2010, 3,389,546 shares of Series A Preferred Stock were outstanding and
869,808 shares were reserved for issuance as future consideration in various business transactions. Of the outstanding shares, 300,000 shares are owned by ART Edina, Inc., and 600,000 shares are owned by ART Hotel Equities, Inc., a wholly owned
subsidiary of ARL. Dividends are not paid on the shares owned by ARL subsidiaries.

There are 231,750 shares of Series C
Cumulative Convertible Preferred Stock authorized, with a par value of $2.00 per share and liquidation preference of $100.00 per share plus accrued and unpaid dividends. The Series C Preferred Stock bears a quarterly dividend of $2.25 per share
through June 30, 2001 and $2.50 per share thereafter, to stockholders of record on the last day of March, June, September and December when and as declared by the Board of Directors. The Series C Preferred Stock is reserved for conversion of
the Class A limited partner units of ART Palm, L.P. (ART Palm). At December 31, 2010, there were 1,505,731 Class A units outstanding. The Class A units may be exchanged for Series C Preferred Stock at the rate of 100
Class A units for each share of Series C Preferred Stock. On or after December 31, 2006, all outstanding shares of Series C Preferred Stock may be converted into ARL common stock. All conversions of Series C Preferred Stock into ARL
common stock will be at 90.0% of the average daily closing price of ARLs common stock for the prior 20 trading days. In January 2006, the company redeemed 1,625,000 Class A limited partner units for $1.6 million in cash. At
December 31, 2010, no shares of Series C Preferred Stock were outstanding.

There are 91,000 shares of Series D 9.50%
Cumulative Preferred Stock authorized, with a par value of $2.00 per share, and a liquidation preference of $20.00 per share. Dividends are payable at the annual rate of $1.90 per year or $.475 per quarter to stockholders of record on the last day
of each March, June, September and December when and as declared by the Board of Directors. The Series D Preferred Stock is reserved for the conversion of the Class A limited partner units of Ocean Beach Partners, L.P. The Class A units
may be exchanged for Series D Preferred Stock at the rate of 20 Class A units for each share of Series D Preferred Stock. Between June 1, 2001 and May 31, 2006, all unexchanged Class A units are exchangeable. At December 31,
2010, no shares of Series D Preferred Stock were outstanding.

There are 500,000 shares of Series E 6.0% Cumulative Preferred
Stock authorized, with a par value $2.00 per share and a liquidation preference of $10.00 per share. Dividends are payable at the annual rate of $.60 per share or $.15 per quarter to stockholders of record on the last day of each March, June,
September and December when and as declared by the Board of Directors. At December 31, 2010, no shares of Series E Preferred Stock were outstanding.

100,000 shares of Series J 8% Cumulative Convertible Preferred Stock have been designated pursuant to a Certificate of Designation filed March 16, 2006, as an instrument amendatory to ARLs
Amended Articles of Incorporation, with a par value of $2.00 per share, and a liquidation preference of $1,000 per share. Dividends are payable at the annual rate of $80 per share, or $20 per quarter, to stockholders of record on the last day of
each of March, June, September and December, when and as declared by the Board of Directors. Although the Series J 8% Cumulative Convertible Preferred Stock has been designated, no shares have been issued as of December 31, 2010.



|NOTE 11. | STOCK OPTIONS
|-------- | -------------

In January 1998, stockholders approved the 1997 Stock Option Plan (the Option Plan). The plan was terminated effective December 31, 2005. As of July 1, 2008, all options still
outstanding under the plan expired. There are no remaining options outstanding under this plan as of December 31, 2010.



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In January 1999, stockholders approved the Directors Stock Option Plan (the
Directors Plan) which provided for options to purchase up to 40,000 shares of common stock. In December 2005, the Directors Plan was terminated. Options granted pursuant to the Directors Plan were immediately
exercisable and expire on the earlier of the first anniversary of the date on which a Director ceases to be a Director or ten years from the date of grant. Each Independent Director was granted an option to purchase 1,000 common shares. As of
December 31, 2010, there were 2,000 shares outstanding which were exercisable at $9.70 per share.



|NOTE 12. | INCOME TAXES
|-------- | ------------

During 2009, ARLs subsidiary TCI acquired stock of Income Opportunity Realty Investors, Inc. (IOT), such that more than 80% of IOT was owned by TCI. As a result, IOT joined the ARL consolidated
group and joined a Tax Sharing and Compensating Agreement with TCI and ARL governing the use of current losses to offset taxable income. There was no deferred tax expense (benefit) recorded for 2010, 2009 or 2008 as a result of the uncertainty of
the future use of the deferred tax asset.

The Federal income tax expense differs from the amount computed by applying the
corporate tax rate of 35% to the income before income taxes as follows:



|                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | 2010 |         |   | 2009 |   |         | 2008 | 
|Computed expected income tax (benefit) expense                        |  | $    | (34,368 | ) |      | $ | (24,549 | )    |  | $ | 8,149   |  
|Book to tax differences in gains on sale of property.                   |  |      | 419     |   |      |   | (12,767 | )    |  |   | (21,683 | )
|Book to tax differences from entities not consolidated for tax purposes |  |      | (3,638  | ) |      |   | 9,786   |      |  |   | 7,087   |  
|Book to tax differences of depreciation and amortization                |  |      | 1,871   |   |      |   | 1,607   |      |  |   | 1,313   |  
|Book to tax differences from insurance proceeds                         |  |      |        |   |      |   |        |      |  |   |        |  
|Use of net operating Loss carryforwards                                 |  |      |        |   |      |   |        |      |  |   |        |  
|Valuation allowance against current net operating loss benefit          |  |      | 51,685  |   |      |   | 12,749  |      |  |   | 8,853   |  
|Other book to tax differences                                           |  |      | (15,969 | ) |      |   | 13,174  |      |  |   | (3,719  | )
|                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|                                                                        |  | $    |        |   |      | $ |        |      |  | $ |        |  
|                                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Alternative Minimum Tax                                                 |  | $    |        |   |      | $ |        |      |  | $ |        |  
|                                                                        |  |      |         |   |      |   |         |      |  |   |         |  

The tax effect of temporary differences that give rise to the deferred tax asset are as follows:



|                                     |  |      |          |   |      |   |          |      |  |   |         |  
|------------------------------------ |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                     |  | 2010 |          |   | 2009 |   |          | 2008 | 
|Net operating losses and tax credits |  | $    | 82,398   |   |      | $ | 75,043   |      |  | $ | 55,299  |  
|                                     |  |      |         
|Basis difference of                  |  |      |          |   |      |   |          |      |  |   |         |  
|Real estate holdings and equipment   |  |      | (54,602  | ) |      |   | (50,020  | )    |  |   | (32,853 | )
|Notes receivable                     |  |      | 10,329   |   |      |   | 9,550    |      |  |   | 9,479   |  
|Investments                          |  |      | (14,462  | ) |      |   | (14,544  | )    |  |   | (13,322 | )
|Goodwill and intangibles             |  |      |         |   |      |   |         |      |  |   |        |  
|Notes payable                        |  |      | 56,208   |   |      |   | 56,410   |      |  |   | 32,143  |  
|Deferred gains                       |  |      | 41,312   |   |      |   | 34,553   |      |  |   | 30,608  |  
|                                     |  |      |          |   |      |   |          |      |  |   |         |  
|Total                                |  |      | 121,183  |   |      |   | 110,992  |      |  |   | 81,354  |  
|Deferred tax valuation allowance     |  |      | (121,183 | ) |      |   | (110,992 | )    |  |   | (81,354 | )
|                                     |  |      |          |   |      |   |          |      |  |   |         |  
|Net deferred tax asset               |  | $    |         |   |      | $ |         |      |  | $ |        |  
|                                     |  |      |          |   |      |   |          |      |  |   |         |  

At December 31, 2010, 2009 and 2008 ARL had a net deferred tax asset due to tax deductions available to
it in future years. However, as management could not determine that it was more likely than not that ARL would realize the benefit of the deferred tax asset, a 100% valuation allowance was established.



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ARL has prior tax net operating losses and capital loss carryforwards of approximately
$64.3 million expiring through the year 2030.



|NOTE 13. | FUTURE MINIMUM RENTAL INCOME UNDER OPERATING LEASES
|-------- | ---------------------------------------------------

ARLs operations include the leasing of commercial properties (office buildings, industrial warehouses, shopping centers, and a merchandise mart). The leases, thereon, expire at various dates through
2020. The following is a schedule of minimum future rents due to ARL under non-cancelable operating leases as of December 31, 2010 (dollars in thousands):



|           |  |   |         | 
|---------- |  | - | ------- | 
|2011       |  | $ | 34,015  | 
|2012       |  |   | 28,495  | 
|2013       |  |   | 18,226  | 
|2014       |  |   | 13,190  | 
|2015       |  |   | 8,589   | 
|Thereafter |  |   | 15,346  | 
|           |  |   |         | 
|           |  | $ | 117,861 | 
|           |  |   |         | 



|NOTE 14. | OPERATING SEGMENTS
|-------- | ------------------

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

Items of
income that are not reflected in the segments are interest, other income, gain on debt extinguishment, gain on condemnation award, equity in partnerships, and gains on sale of real estate. Expenses that are not reflected in the segments are
provision for losses, advisory, net income and incentive fees, general and administrative, non-controlling interests, foreign currency transaction loss and net loss from discontinued operations before gains on sale of real estate. There are no
intersegment revenues and expenses and ARL conducted all of its business within the United States, with the exception of Hotel Akademia, a 161-room hotel in Wroclaw, Poland, which was sold March 28, 2008. See Note 2. Real
Estate.

Presented below is the operating income of each operating segment and each segments assets for 2010, 2009
and 2008 (dollars in thousands):



|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|------------------------------- |  | -------------------- | ------- | - | ---------- | - | ------- | ------ |  | - | ------ | - |  | ----- | ------- | - | ----- | - | ------- | - |  | - | --------- | -
|                                |  | CommercialProperties |         |   | Apartments |   |         | Hotels |  |   | Land   |   |  | Other |         |   | Total |  
|For year ended 12/31/10         |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|Operating revenue               |  | $                    | 67,912  |   |            | $ | 76,921  |        |  | $ | 11,476 |   |  | $     | 621     |   |       | $ | 100     |   |  | $ | 157,030   |  
|Operating expenses              |  |                      | 41,384  |   |            |   | 41,369  |        |  |   | 10,059 |   |  |       | 3,498   |   |       |   | 7       |   |  |   | 96,317    |  
|Depreciation and amortization   |  |                      | 13,191  |   |            |   | 15,005  |        |  |   | 1,121  |   |  |       |        |   |       |   | (410    | ) |  |   | 28,907    |  
|Mortgage and loan interest      |  |                      | 19,549  |   |            |   | 33,534  |        |  |   | 3,006  |   |  |       | 14,247  |   |       |   | 8,730   |   |  |   | 79,066    |  
|Interest income                 |  |                      |        |   |            |   |        |        |  |   |       |   |  |       |        |   |       |   | 8,425   |   |  |   | 8,425     |  
|Loss on land sales              |  |                      |        |   |            |   |        |        |  |   |       |   |  |       | (10,103 | ) |       |   |        |   |  |   | (10,103   | )
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|Segment operating income (loss) |  | $                    | (6,212  | ) |            | $ | (12,987 | )      |  | $ | (2,710 | ) |  | $     | (27,227 | ) |       | $ | 198     |   |  | $ | (48,938   | )
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|Capital expenditures            |  |                      | 293     |   |            |   | 233     |        |  |   |       |   |  |       |        |   |       |   |        |   |  |   | 526       |  
|Assets                          |  |                      | 313,770 |   |            |   | 589,611 |        |  |   | 17,502 |   |  |       | 430,782 |   |       |   | (19,080 | ) |  |   | 1,332,585 |  
|                                |  |                      |         |   |            |  
|Property Sales                  |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|Sales price                     |  | $                    | 6,470   |   |            | $ | 195,984 |        |  | $ |       |   |  | $     | 28,357  |   |       | $ |        |   |  | $ | 230,811   |  
|Cost of sale                    |  |                      | 8,376   |   |            |   | 151,735 |        |  |   |       |   |  |       | 43,400  |   |       |   |        |   |  |   | 203,511   |  
|Deferred current gain           |  |                      |        |   |            |   | 29,194  |        |  |   |       |   |  |       | 3       |   |       |   |        |   |  |   | 29,197    |  
|Recognized prior deferred gain  |  |                      |        |   |            |   | 6,157   |        |  |   |       |   |  |       | 4,943   |   |       |   |        |   |  |   | 11,100    |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  
|Gain on sale                    |  | $                    | (1,906  | ) |            | $ | 21,212  |        |  | $ |       |   |  | $     | (10,103 | ) |       | $ |        |   |  | $ | 9,203     |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |         |   |  |   |           |  



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|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|------------------------------- |  | -------------------- | ------- | - | ---------- | - | ------- | ------ |  | - | ------ | - |  | ----- | ------- | - | ----- | - | ------ | - |  | - | --------- | -
|                                |  | CommercialProperties |         |   | Apartments |   |         | Hotels |  |   | Land   |   |  | Other |         |   | Total |  
|For year ended 12/31/09         |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Operating revenue               |  | $                    | 75,153  |   |            | $ | 73,576  |        |  | $ | 14,073 |   |  | $     | 1,612   |   |       | $ | (2,551 | ) |  | $ | 161,863   |  
|Operating expenses              |  |                      | 41,270  |   |            |   | 42,176  |        |  |   | 11,456 |   |  |       | (114    | ) |       |   | 214    |   |  |   | 95,002    |  
|Depreciation and amortization   |  |                      | 13,516  |   |            |   | 13,276  |        |  |   | 1,142  |   |  |       | (185    | ) |       |   | (1,276 | ) |  |   | 26,473    |  
|Mortgage and loan interest      |  |                      | 19,172  |   |            |   | 30,051  |        |  |   | 3,154  |   |  |       | 18,834  |   |       |   | 7,321  |   |  |   | 78,532    |  
|Interest income                 |  |                      |        |   |            |   |        |        |  |   |       |   |  |       |        |   |       |   | 9,701  |   |  |   | 9,701     |  
|Gain on land sales              |  |                      |        |   |            |   |        |        |  |   |       |   |  |       | 11,605  |   |       |   |       |   |  |   | 11,605    |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Segment operating income (loss) |  | $                    | 1,195   |   |            | $ | (11,927 | )      |  | $ | (1,679 | ) |  | $     | (5,318  | ) |       | $ | 891    |   |  | $ | (16,838   | )
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Capital expenditures            |  |                      | 1,934   |   |            |   | 367     |        |  |   | 93     |   |  |       | 376     |   |       |   |       |   |  |   | 2,770     |  
|Assets                          |  |                      | 336,056 |   |            |   | 704,926 |        |  |   | 26,421 |   |  |       | 508,971 |   |       |   |       |   |  |   | 1,576,374 |  
|                                |  |                      |         |   |            |  
|Property Sales                  |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Sales price                     |  | $                    | 8,000   |   |            | $ | 30,640  |        |  | $ |       |   |  | $     | 43,524  |   |       | $ |       |   |  | $ | 82,164    |  
|Cost of sale                    |  |                      | 2,871   |   |            |   | 19,019  |        |  |   |       |   |  |       | 35,317  |   |       |   |       |   |  |   | 57,207    |  
|Deferred current gain           |  |                      | 1,955   |   |            |   | 5,221   |        |  |   |       |   |  |       |        |   |       |   |       |   |  |   | 7,176     |  
|Recognized prior deferred gain  |  |                      | 532     |   |            |   |        |        |  |   |       |   |  |       | 3,398   |   |       |   |       |   |  |   | 3,930     |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Gain on sale                    |  | $                    | 3,706   |   |            | $ | 6,400   |        |  | $ |       |   |  | $     | 11,605  |   |       | $ |       |   |  | $ | 21,711    |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|                                |  |                      |         |   |            |  
|                                |  | CommercialProperties |         |   | Apartments |   |         | Hotels |  |   | Land   |   |  | Other |         |   | Total |  
|For year ended 12/31/08         |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Operating revenue               |  | $                    | 72,984  |   |            | $ | 62,206  |        |  | $ | 18,550 |   |  | $     | 3,212   |   |       | $ | (6,307 | ) |  | $ | 150,645   |  
|Operating expenses              |  |                      | 44,767  |   |            |   | 35,687  |        |  |   | 13,672 |   |  |       | 6,916   |   |       |   | 1,026  |   |  |   | 102,068   |  
|Depreciation and amortization   |  |                      | 12,025  |   |            |   | 8,432   |        |  |   | 1,126  |   |  |       | (49     | ) |       |   | 3      |   |  |   | 21,537    |  
|Mortgage and loan interest      |  |                      | 20,928  |   |            |   | 27,700  |        |  |   | 3,365  |   |  |       | 17,385  |   |       |   | 11,623 |   |  |   | 81,001    |  
|Interest income                 |  |                      |        |   |            |   |        |        |  |   |       |   |  |       |        |   |       |   | 10,876 |   |  |   | 10,876    |  
|Gain on land sales              |  |                      |        |   |            |   |        |        |  |   |       |   |  |       | 5,584   |   |       |   |       |   |  |   | 5,584     |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Segment operating income (loss) |  | $                    | (4,736  | ) |            | $ | (9,613  | )      |  | $ | 387    |   |  | $     | (15,456 | ) |       | $ | (8,083 | ) |  | $ | (37,501   | )
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Capital expenditures            |  |                      | 4,048   |   |            |   | (168    | )      |  |   | 1,510  |   |  |       | (3,091  | ) |       |   |       |   |  |   | 2,299     |  
|Assets                          |  |                      | 366,455 |   |            |   | 747,524 |        |  |   | 27,461 |   |  |       | 461,629 |   |       |   |       |   |  |   | 1,603,069 |  
|                                |  |                      |         |   |            |  
|Property Sales                  |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Sales price                     |  | $                    | 26,193  |   |            | $ | 111,727 |        |  | $ | 41,749 |   |  | $     | 21,466  |   |       | $ |       |   |  | $ | 201,135   |  
|Cost of sale                    |  |                      | 10,171  |   |            |   | 34,333  |        |  |   | 15,593 |   |  |       | 12,623  |   |       |   |       |   |  |   | 72,720    |  
|Deferred current gain           |  |                      |        |   |            |   |        |        |  |   |       |   |  |       | 3,259   |   |       |   |       |   |  |   | 3,259     |  
|Recognized prior deferred gain  |  |                      |        |   |            |   |        |        |  |   |       |   |  |       |        |   |       |   |       |   |  |   |          |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  
|Gain on sale                    |  | $                    | 16,022  |   |            | $ | 77,394  |        |  | $ | 26,156 |   |  | $     | 5,584   |   |       | $ |       |   |  | $ | 125,156   |  
|                                |  |                      |         |   |            |   |         |        |  |   |        |   |  |       |         |   |       |   |        |   |  |   |           |  

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



|                                                                   |  |      |          |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------ |  | ---- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                   |  | 2010 |          |   | 2009 |   |         | 2008 | 
|Segment operating loss                                             |  | $    | (48,938  | ) |      | $ | (16,838 | )    |  | $ | (37,501 | )
|Other non-segment items of income (expense)                        |  |      |          |   |      |   |         |      |  |   |         |  
|General and administrative                                         |  |      | (12,640  | ) |      |   | (14,690 | )    |  |   | (16,854 | )
|Advisory fees                                                      |  |      | (15,770  | ) |      |   | (15,683 | )    |  |   | (15,940 | )
|Litigation                                                         |  |      |         |   |      |   | (1,458  | )    |  |   | (870    | )
|Provision on impairment of notes receivable and real estate assets |  |      | (61,311  | ) |      |   | (44,578 | )    |  |   | (7,417  | )
|Other income (expense)                                             |  |      | 9,460    |   |      |   | 4,169   |      |  |   | 5,200   |  
|Equity in earnings of investees                                    |  |      | (200     | ) |      |   | 35      |      |  |   | (968    | )
|Gain on foreign currency transaction                               |  |      | 222      |   |      |   | 292     |      |  |   | (517    | )
|Deferred tax benefit                                               |  |      | 8,456    |   |      |   | 2,132   |      |  |   | 35,575  |  
|                                                                   |  |      |          |   |      |   |         |      |  |   |         |  
|Loss from continuing operations                                    |  | $    | (120,721 | ) |      | $ | (86,619 | )    |  | $ | (39,292 | )
|                                                                   |  |      |          |   |      |   |         |      |  |   |         |  



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|                                             |  |      |           |  |      |   |           |      |  |   |           | 
|-------------------------------------------- |  | ---- | --------- |  | ---- | - | --------- | ---- |  | - | --------- | 
|SEGMENT ASSET RECONCILIATION TO TOTAL ASSETS | 
|                                             |  | 2010 |           |  | 2009 |   |           | 2008 | 
|Segment assets                               |  | $    | 1,332,585 |  |      | $ | 1,576,374 |      |  | $ | 1,603,069 | 
|Investments in real estate partnerships      |  |      | 12,491    |  |      |   | 13,149    |      |  |   | 27,113    | 
|Investments in marketable securities         |  |      |          |  |      |   |          |      |  |   | 2,775     | 
|Other assets and receivables                 |  |      | 212,199   |  |      |   | 211,384   |      |  |   | 198,863   | 
|Assets held for sale                         |  |      |          |  |      |   | 5,147     |      |  |   | 10,333    | 
|                                             |  |      |           |  |      |   |           |      |  |   |           | 
|Total assets                                 |  | $    | 1,557,275 |  |      | $ | 1,806,054 |      |  | $ | 1,842,153 | 
|                                             |  |      |           |  |      |   |           |      |  |   |           | 

NOTE 15.DISCONTINUED OPERATIONS

The Company applies 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 repositioned as held for sale as of the year ended 2010, 2009 and 2008. Income from discontinued operations relates to 15, 10, and 37 properties that were sold or repositioned in 2010, 2009 and 2008,
respectively. The following table summarizes revenue and expense information for these properties sold and held for sale (dollars in thousands):



|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                    |  | For the Year Ended December 31, |       
|                                                                                                    |  | 2010                            |        |   | 2009 |   |         | 2008 | 
|Revenue                                                                                             |  |                                 |        |   |      |   |         |      |  |   |         |  
|Rental                                                                                              |  | $                               | 11,714 |   |      | $ | 26,625  |      |  | $ | 31,702  |  
|Property operations                                                                                 |  |                                 | 5,926  |   |      |   | 14,728  |      |  |   | 18,874  |  
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|                                                                                                    |  |                                 | 5,788  |   |      |   | 11,897  |      |  |   | 12,828  |  
|Expenses                                                                                            |  |                                 |        |   |      |   |         |      |  |   |         |  
|Other income                                                                                        |  |                                 | 3,697  |   |      |   | 87      |      |  |   | 1,018   |  
|Interest                                                                                            |  |                                 | (4,820 | ) |      |   | (11,196 | )    |  |   | (18,154 | )
|General and administrative                                                                          |  |                                 | (52    | ) |      |   | 6       |      |  |   | (1,292  | )
|Litigation settlement                                                                               |  |                                 | (5     | ) |      |   | (5      | )    |  |   | (261    | )
|Depreciation                                                                                        |  |                                 | (1,566 | ) |      |   | (4,803  | )    |  |   | (6,458  | )
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|                                                                                                    |  |                                 | (2,746 | ) |      |   | (15,911 | )    |  |   | (25,147 | )
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|Net income (loss) from discontinued operations before gains on sale of real estate, taxes, and fees |  |                                 | 3,042  |   |      |   | (4,014  | )    |  |   | (12,319 | )
|Gain on sale of discontinued operations                                                             |  |                                 | 19,306 |   |      |   | 10,106  |      |  |   | 119,572 |  
|Net income and sales fee to affiliate                                                               |  |                                 |       |   |      |   |        |      |  |   | (10,994 | )
|Equity of investees gain on sale                                                                    |  |                                 |       |   |      |   |        |      |  |   | 5,681   |  
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|Income from discontinued operations before tax                                                      |  |                                 | 22,348 |   |      |   | 6,092   |      |  |   | 101,940 |  
|Tax expense                                                                                         |  |                                 | (7,822 | ) |      |   | (2,132  | )    |  |   | (35,679 | )
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  
|Income from discontinued operations                                                                 |  | $                               | 14,526 |   |      | $ | 3,960   |      |  | $ | 66,261  |  
|                                                                                                    |  |                                 |        |   |      |   |         |      |  |   |         |  

The Companys 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, 2009 and 2008 as income from discontinued operations. The application of ASC Topic 360 does not have an impact on net income available to common shareholders. ASC Topic 360 only impacts
the presentation of these properties within the Consolidated Statements of Operations.



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NOTE 16.QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of quarterly results of operations for the years 2010, 2009, and 2008 (dollars in
thousands):



|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ---------- | - | -------- | - | ---------- | ------------- |  | - | ------------ | - |  | - | ---------- | -
|                                                                            |  | Three Months Ended 2010                                    |           
|                                                                            |  | March 31,                                                  |            |   | June 30, |   |            | September 30, |  |   | December 31, |  
|                                                                            |  | (dollars in thousands, except share and per share amounts) |           
|2010                                                                        |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Total operating revenues                                                    |  | $                                                          | 40,394     |   |          | $ | 39,419     |               |  | $ | 38,844       |   |  | $ | 38,373     |  
|Total operating expenses                                                    |  |                                                            | 38,249     |   |          |   | 39,663     |               |  |   | 37,978       |   |  |   | 99,055     |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Operating (loss) income                                                     |  |                                                            | 2,145      |   |          |   | (244       | )             |  |   | 866          |   |  |   | (60,682    | )
|Other income (expense)                                                      |  |                                                            | (17,604    | ) |          |   | (18,048    | )             |  |   | (17,160      | ) |  |   | (8,347     | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Loss before gain on land sales, non-contolling interest, and taxes          |  |                                                            | (15,459    | ) |          |   | (18,292    | )             |  |   | (16,294      | ) |  |   | (69,029    | )
|Gain (loss) on land sales                                                   |  |                                                            | 7          |   |          |   | (4,122     | )             |  |   | (72          | ) |  |   | (5,916     | )
|Income tax expense                                                          |  |                                                            | 1,100      |   |          |   | 1,793      |               |  |   | 1,823        |   |  |   | 3,740      |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  |                                                            | (14,352    | ) |          |   | (20,621    | )             |  |   | (14,543      | ) |  |   | (71,205    | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income from discontinuing operations                                    |  |                                                            | 865        |   |          |   | 3,329      |               |  |   | 3,386        |   |  |   | 6,946      |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss                                                                    |  |                                                            | (13,487    | ) |          |   | (17,292    | )             |  |   | (11,157      | ) |  |   | (64,259    | )
|Less: net (income) loss attributable to non-controlling interest            |  |                                                            | 1,577      |   |          |   | 3,543      |               |  |   | 2,140        |   |  |   | 4,188      |  
|Preferred dividend requirement                                              |  |                                                            | (622       | ) |          |   | (622       | )             |  |   | (622         | ) |  |   | (622       | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss applicable to common shares                                        |  | $                                                          | (12,532    | ) |          | $ | (14,371    | )             |  | $ | (9,639       | ) |  | $ | (60,693    | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|                                                                            |  |                                                            |            |  
|PER SHARE DATA                                                              |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Earnings per sharebasic                                                    |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  | $                                                          | (1.16      | ) |          | $ | (1.55      | )             |  | $ | (1.13        | ) |  | $ | (5.96      | )
|Net income from discontinued operations                                     |  |                                                            | 0.08       |   |          |   | 0.29       |               |  |   | 0.29         |   |  |   | 0.61       |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss applicable to common shares                                        |  | $                                                          | (1.08      | ) |          | $ | (1.26      | )             |  | $ | (0.84        | ) |  | $ | (5.35      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing earnings per share         |  |                                                            | 11,514,038 |   |          |   | 11,510,322 |               |  |   | 11,485,444   |   |  |   | 11,344,153 |  
|                                                                            |  |                                                            |            |  
|Earnings per sharediluted                                                  |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  | $                                                          | (1.16      | ) |          | $ | (1.55      | )             |  | $ | (1.13        | ) |  | $ | (5.96      | )
|Net income from discontinued operations                                     |  |                                                            | 0.08       |   |          |   | 0.29       |               |  |   | 0.29         |   |  |   | 0.61       |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss applicable to common shares                                        |  | $                                                          | (1.08      | ) |          | $ | (1.26      | )             |  | $ | (0.84        | ) |  | $ | (5.35      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing diluted earnings per share |  |                                                            | 11,514,038 |   |          |   | 11,510,322 |               |  |   | 11,485,444   |   |  |   | 11,344,153 |  



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|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|--------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ---------- | - | -------- | - | ---------- | ------------- |  | - | ------------ | - |  | - | ---------- | -
|                                                                            |  | Three Months Ended 2009                                    |           
|                                                                            |  | March 31,                                                  |            |   | June 30, |   |            | September 30, |  |   | December 31, |  
|                                                                            |  | (dollars in thousands, except share and per share amounts) |           
|2009                                                                        |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Total operating revenues                                                    |  | $                                                          | 41,132     |   |          | $ | 40,055     |               |  | $ | 41,472       |   |  | $ | 39,204     |  
|Total operating expenses                                                    |  |                                                            | 37,778     |   |          |   | 65,827     |               |  |   | 39,584       |   |  |   | 53,237     |  
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Operating income (loss)                                                     |  |                                                            | 3,354      |   |          |   | (25,772    | )             |  |   | 1,888        |   |  |   | (14,033    | )
|Other income (expense)                                                      |  |                                                            | (12,916    | ) |          |   | (19,169    | )             |  |   | (18,971      | ) |  |   | (14,737    | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Loss before gain on land sales, non-contolling interest, and taxes          |  |                                                            | (9,562     | ) |          |   | (44,941    | )             |  |   | (17,083      | ) |  |   | (28,770    | )
|Gain on land sales                                                          |  |                                                            | 168        |   |          |   | 8,040      |               |  |   | 3,397        |   |  |   |           |  
|Income tax benefit (expense)                                                |  |                                                            | 387        |   |          |   | 1,147      |               |  |   | 904          |   |  |   | (306       | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  |                                                            | (9,007     | ) |          |   | (35,754    | )             |  |   | (12,782      | ) |  |   | (29,076    | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) from discontinuing operations                             |  |                                                            | 718        |   |          |   | 2,130      |               |  |   | 1,679        |   |  |   | (567       | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss                                                                    |  |                                                            | (8,289     | ) |          |   | (33,624    | )             |  |   | (11,103      | ) |  |   | (29,643    | )
|Less: net (income) loss attributable to non-controlling interest            |  |                                                            | 1,685      |   |          |   | 5,338      |               |  |   | 1,526        |   |  |   | 3,969      |  
|Preferred dividend requirement                                              |  |                                                            | (622       | ) |          |   | (622       | )             |  |   | (622         | ) |  |   | (622       | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss applicable to common shares                                        |  | $                                                          | (7,226     | ) |          | $ | (28,908    | )             |  | $ | (10,199      | ) |  | $ | (26,296    | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|                                                                            |  |                                                            |            |  
|PER SHARE DATA                                                              |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Earnings per sharebasic                                                    |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  | $                                                          | (0.68      | ) |          | $ | (2.70      | )             |  | $ | (1.03        | ) |  | $ | (2.23      | )
|Net income (loss) from discontinued operations                              |  |                                                            | 0.06       |   |          |   | 0.18       |               |  |   | 0.15         |   |  |   | (0.05      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) applicable to common shares                               |  | $                                                          | (0.62      | ) |          | $ | (2.52      | )             |  | $ | (0.88        | ) |  | $ | (2.28      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing earnings per share         |  |                                                            | 11,514,038 |   |          |   | 11,514,038 |               |  |   | 11,514,038   |   |  |   | 11,514,038 |  
|                                                                            |  |                                                            |            |  
|Earnings per sharediluted                                                  |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net loss from continuing operations                                         |  | $                                                          | (0.68      | ) |          | $ | (2.70      | )             |  | $ | (1.03        | ) |  | $ | (2.23      | )
|Net income (loss) from discontinued operations                              |  |                                                            | 0.06       |   |          |   | 0.18       |               |  |   | 0.15         |   |  |   | (0.05      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) applicable to common shares                               |  | $                                                          | (0.62      | ) |          | $ | (2.52      | )             |  | $ | (0.88        | ) |  | $ | (2.28      | )
|                                                                            |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing diluted earnings per share |  |                                                            | 11,514,038 |   |          |   | 11,514,038 |               |  |   | 11,514,038   |   |  |   | 11,514,038 |  



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|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------------------------- | ---------- | - | -------- | - | ---------- | ------------- |  | - | ------------ | - |  | - | ---------- | -
|                                                                                 | 
|                                                                                 |  | Three Months Ended 2008                                    |           
|                                                                                 |  | March 31,                                                  |            |   | June 30, |   |            | September 30, |  |   | December 31, |  
|                                                                                 |  | (dollars in thousands, except share and per share amounts) |           
|2008                                                                             |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Total operating revenues                                                         |  | $                                                          | 32,581     |   |          | $ | 38,611     |               |  | $ | 39,950       |   |  | $ | 39,503     |  
|Total operating expenses                                                         |  |                                                            | 54,459     |   |          |   | 35,957     |               |  |   | 31,728       |   |  |   | 41,672     |  
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Operating income (loss)                                                          |  |                                                            | (21,878    | ) |          |   | 2,654      |               |  |   | 8,222        |   |  |   | (2,169     | )
|Other income (expense)                                                           |  |                                                            | (19,417    | ) |          |   | (21,139    | )             |  |   | (1,957       | ) |  |   | (24,767    | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Income (loss) before gain on land sales, non-controlling interest, and taxes     |  |                                                            | (41,295    | ) |          |   | (18,485    | )             |  |   | 6,265        |   |  |   | (26,936    | )
|Gain on land sales                                                               |  |                                                            | 1,275      |   |          |   | 2,890      |               |  |   | 1,172        |   |  |   | 247        |  
|Income tax benefit (expense)                                                     |  |                                                            | 35,066     |   |          |   | 1,008      |               |  |   | (4,527       | ) |  |   | 4,028      |  
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) from continuing operations                                     |  |                                                            | (4,954     | ) |          |   | (14,587    | )             |  |   | 2,910        |   |  |   | (22,661    | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) from discontinuing operations, net of non-controlling interest |  |                                                            | 77,257     |   |          |   | (297       | )             |  |   | (12,198      | ) |  |   | 1,499      |  
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss)                                                                |  |                                                            | 72,303     |   |          |   | (14,884    | )             |  |   | (9,288       | ) |  |   | (21,162    | )
|Less: net (income) loss attributable to non-controlling interest                 |  |                                                            | (11,877    | ) |          |   | 2,417      |               |  |   | 1,459        |   |  |   | 3,666      |  
|Preferred dividend requirement                                                   |  |                                                            | (622       | ) |          |   | (622       | )             |  |   | (622         | ) |  |   | (621       | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) applicable to common shares                                    |  | $                                                          | 59,804     |   |          | $ | (13,089    | )             |  | $ | (8,451       | ) |  | $ | (18,117    | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|                                                                                 |  |                                                            |            |  
|PER SHARE DATA                                                                   |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Earnings per sharebasic                                                         |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) from continuing operations                                     |  | $                                                          | (1.52      | ) |          | $ | (1.12      | )             |  | $ | 0.33         |   |  | $ | (1.69      | )
|Net income (loss) from discontinued operations                                   |  |                                                            | 6.73       |   |          |   | (0.03      | )             |  |   | (1.10        | ) |  |   | 0.13       |  
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) applicable to common shares                                    |  | $                                                          | 5.21       |   |          | $ | (1.15      | )             |  | $ | (0.77        | ) |  | $ | (1.56      | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing earnings per share              |  |                                                            | 11,479,880 |   |          |   | 11,471,879 |               |  |   | 11,133,945   |   |  |   | 11,514,038 |  
|                                                                                 |  |                                                            |            |  
|Earnings per sharediluted                                                       |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) from continuing operations                                     |  | $                                                          | (1.52      | ) |          | $ | (1.12      | )             |  | $ | 0.33         |   |  | $ | (1.69      | )
|Net income (loss) from discontinued operations                                   |  |                                                            | 6.73       |   |          |   | (0.03      | )             |  |   | (1.10        | ) |  |   | 0.13       |  
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Net income (loss) applicable to common shares                                    |  | $                                                          | 5.21       |   |          | $ | (1.15      | )             |  | $ | (0.77        | ) |  | $ | (1.56      | )
|                                                                                 |  |                                                            |            |   |          |   |            |               |  |   |              |   |  |   |            |  
|Weighted average common shares used in computing diluted earnings per share      |  |                                                            | 11,479,880 |   |          |   | 11,471,879 |               |  |   | 11,133,945   |   |  |   | 11,514,038 |  

Quarterly results
presented differ from those previously reported in ARLs Form 10-Q due to the reclassification of the operations of properties sold or held for sale to discontinued operations in accordance with ASC topic 360.

NOTE 17.COMMITMENTS, CONTINGENCIES, AND LIQUIDITY

In conjunction with its sale of Four Hickory in November 2007, the Company agreed to fund approximately $1.0 million to satisfy its
commitment to compensate LK-Four Hickory, LLC for move-in discounts and other concessions to existing tenants at the time of sale. The Company also has certain agreements with LK-Four Hickory, LLC to fund projection shortfalls, which, to date, they
have not had to provide any additional funding. In addition, related parties of the Company have active lease agreements with LK-Four Hickory, LLC.



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On December 17, 2007, both Limkwang Nevada, Inc, the majority owner of LK-Four
Hickory, LLC, and ARL unconditionally guaranteed the punctual payment when due, whether at stated maturity, by acceleration or hereafter, including all fees and expense incurred by the bank on collection of a $28.0 million note payable for LK-Four
Hickory, LLC.

Liquidity.    Management believes that ARL will generate excess cash flow from
property operations in 2011, such excess however, will not be sufficient to discharge all of ARLs obligations as they became due. Management intends to sell land and income producing real estate, refinance real estate and obtain additional
borrowings primarily secured by real estate to meet its liquidity requirements.

Partnership
Buyouts.    ARL is the limited partner in five partnerships currently constructing residential properties. As permitted in the respective partnership agreements, ARL 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 buyout the nonaffiliated partners are limited to development fees earned by the nonaffiliated partners, and are set forth in the
respective partnership agreements.

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.

Litigation.    A lawsuit has been filed against the Company with regard to certain guaranties pertaining to a
$12 million real estate note made by a consolidated subsidiary of the Company. The note is secured by certain real estate owned by the subsidiary. The lender has not taken any action to foreclose on the property and the Company is vigorously
defending the lawsuit. The book value for the property is equal to the debt and should the lender ultimately prevail there will be no loss or additional liability recorded by the Company.

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

NOTE 18.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 net 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. We have 3,389,546 shares of Series A 10.0% Cumulative Convertible Preferred Stock, which are outstanding. These shares may
be converted into common stock at 90.0% of the average daily closing price of the common stock for the prior 20 trading days. These are considered in the computation of diluted earnings per share if the effect of applying the
if-converted method is dilutive. The majority of the stock options issued expired July 1, 2008. The remaining 2,000 stock options still outstanding will expire January 1, 2015 if not exercised. The outstanding options are
considered in the computation of diluted earnings per share if the effect of applying the treasury stock method is dilutive. As of December 31, 2010, the preferred stock and the stock options were anti-dilutive and thus not included
in the EPS calculation.

NOTE 19.SUBSEQUENT EVENTS

Subsequent to year end, 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 taken in 2010 and the sales that were deferred will be
recognized in 2011, when ownership transferred to a third party.



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During the first three months of 2011, several land parcels owned by various Woodmont
entities have been transferred to the lender for credit against the loan balance. These properties were impaired in 2008 and 2009 and we do not anticipate any additional losses. This includes the land parcels Galleria West Hotel, Galleria
West Lofts, Galleria East Center Retail and Las Colinas Station.

On January 26, 2011 we sold our investment in TCI
Willowbrook Village, Inc. to TX LTS Investments, Inc., a related party under common control, for $7.8 million. This entity owns a 179,741 square foot shopping center in Coldwater, Michigan. The buyer will assume the existing mortgage,
secured by the property, of $5.6 million and we provided seller financing for $2.2 million. The note will accrue interest at 6% and will mature on January 26, 2016. 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
January 3, 2011, we sold our membership interests in TCI Manhattan 1, LLC to ABCLD Income, LLC, a related party under common control, for $4.1 million. This entity owns 72.138 acres of land in Dallas, TX. The buyer will assume the
existing mortgage, secured by the property, of $2.4 million and we provided seller financing for $1.7 million. The note will accrue interest at 6% and will mature on January 3, 2016. 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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Schedule III

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                      |  |                        |        |  |              |                        |       |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |       |              |       |   |                                                                    |  |  |   |        |  |  |   |        |  |  |   |       |  |  |  |      |  |  |  |       |  |  |  |           | 
|------------------------------------- |  | ---------------------- | ------ |  | ------------ | ---------------------- | ----- | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ----- | ------------ | ----- | - | ------------------------------------------------------------------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ----- |  |  |  | ---- |  |  |  | ----- |  |  |  | --------- | 
|                                      |  | Encumbrances           |        |  | Initial Cost |                        |       | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |       | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                     |  |                        | Land   |  |              | Building &Improvements |       |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |       |              | Total |   |                                                                    |  |  |  
|                                      |  | (dollars in thousands) |        |  |              |                        |       |                                          |                 |   |                                              |              |  |                         |     
|Properties Held for Investment        |  |                        |        |  |              |                        |       |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |       |              |       |   |                                                                    |  |  |   |        |  |  |   |        |  |  |   |       |  |  |  |      |  |  |  |       |  |  |  |           | 
|Apartments                            |  |                        |        |  |              |                        |       |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |       |              |       |   |                                                                    |  |  |   |        |  |  |   |        |  |  |   |       |  |  |  |      |  |  |  |       |  |  |  |           | 
|Anderson Estates, Oxford, MS          |  | $                      | 925    |  |              | $                      | 378   |                                          |                 | $ | 2,683                                        |              |  | $                       |     |  |                     | $                      | 313   |              |       | $ | 691                                                                |  |  | $ | 2,683  |  |  | $ | 3,373  |  |  | $ | 330   |  |  |  | 2003 |  |  |  | 01/06 |  |  |  | 40 years  | 
|Blue Lake Villas I, Waxahachie, TX    |  |                        | 10,676 |  |              |                        | 439   |                                          |                 |   | 9,751                                        |              |  |                         |     |  |                     |                        | 201   |              |       |   | 439                                                                |  |  |   | 9,951  |  |  |   | 10,390 |  |  |   | 2,149 |  |  |  | 2003 |  |  |  | 01/02 |  |  |  | 40 years  | 
|Blue Lake Villas II, Waxahachie, TX   |  |                        | 3,922  |  |              |                        | 287   |                                          |                 |   | 4,451                                        |              |  |                         |     |  |                     |                        |      |              |       |   | 287                                                                |  |  |   | 4,451  |  |  |   | 4,738  |  |  |   | 344   |  |  |  | 2004 |  |  |  | 01/04 |  |  |  | 40 years  | 
|Breakwater Bay, Beaumont, TX          |  |                        | 9,335  |  |              |                        | 740   |                                          |                 |   | 10,435                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 740                                                                |  |  |   | 10,435 |  |  |   | 11,175 |  |  |   | 1,537 |  |  |  | 2004 |  |  |  | 05/03 |  |  |  | 40 years  | 
|Bridgewood Ranch, Kaufman, TX         |  |                        | 5,137  |  |              |                        | 762   |                                          |                 |   | 6,856                                        |              |  |                         |     |  |                     |                        |      |              |       |   | 762                                                                |  |  |   | 6,856  |  |  |   | 7,618  |  |  |   | 520   |  |  |  | 2007 |  |  |  | 04/08 |  |  |  | 5-40years | 
|Capitol Hill, Little Rock, AR         |  |                        | 8,970  |  |              |                        | 1,860 |                                          |                 |   | 7,948                                        |              |  |                         |     |  |                     |                        |      |              |       |   | 1,860                                                              |  |  |   | 7,948  |  |  |   | 9,807  |  |  |   | 1,294 |  |  |  | 2003 |  |  |  | 03/03 |  |  |  | 40 years  | 
|Curtis Moore Estates, Greenwood, MS   |  |                        | 1,657  |  |              |                        | 186   |                                          |                 |   | 5,733                                        |              |  |                         |     |  |                     |                        | 702   |              |       |   | 847                                                                |  |  |   | 5,774  |  |  |   | 6,620  |  |  |   | 841   |  |  |  | 2003 |  |  |  | 01/06 |  |  |  | 40 years  | 
|Dakota Arms, Lubbock, TX              |  |                        | 12,527 |  |              |                        | 921   |                                          |                 |   | 12,644                                       |              |  |                         |     |  |                     |                        | 231   |              |       |   | 921                                                                |  |  |   | 12,875 |  |  |   | 13,796 |  |  |   | 1,924 |  |  |  | 2004 |  |  |  | 01/04 |  |  |  | 40 years  | 
|David Jordan Phase II Greenwood, MS   |  |                        | 617    |  |              |                        | 51    |                                          |                 |   | 1,521                                        |              |  |                         |     |  |                     |                        | 225   |              |       |   | 277                                                                |  |  |   | 1,521  |  |  |   | 1,798  |  |  |   | 222   |  |  |  | 1999 |  |  |  | 01/06 |  |  |  | 40 years  | 
|David Jordan Phase III, Greenwood, MS |  |                        | 649    |  |              |                        | 83    |                                          |                 |   | 2,115                                        |              |  |                         |     |  |                     |                        | 356   |              |       |   | 439                                                                |  |  |   | 2,115  |  |  |   | 2,554  |  |  |   | 260   |  |  |  | 2003 |  |  |  | 01/06 |  |  |  | 40 years  | 
|Desoto Ranch, Desoto, TX              |  |                        | 16,205 |  |              |                        | 1,349 |                                          |                 |   | 16,783                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 1,349                                                              |  |  |   | 16,783 |  |  |   | 18,132 |  |  |   | 3,062 |  |  |  | 2002 |  |  |  | 05/02 |  |  |  | 40 years  | 
|Dorado Ranch, Odessa, TX              |  |                        | 16,463 |  |              |                        | 761   |                                          |                 |   | 18,467                                       |              |  |                         |     |  |                     |                        | 24    |              |       |   | 761                                                                |  |  |   | 18,491 |  |  |   | 19,252 |  |  |   | 847   |  |  |  | 2009 |  |  |  | 07/07 |  |  |  | 40 years  | 
|Falcon Lakes, Arlington, TX           |  |                        | 13,576 |  |              |                        | 1,318 |                                          |                 |   | 14,039                                       |              |  |                         |     |  |                     |                        | 327   |              |       |   | 1,318                                                              |  |  |   | 14,366 |  |  |   | 15,684 |  |  |   | 3,258 |  |  |  | 2001 |  |  |  | 10/01 |  |  |  | 40 years  | 
|Heather Creek, Mesquite, TX           |  |                        | 12,008 |  |              |                        | 1,326 |                                          |                 |   | 12,015                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 1,326                                                              |  |  |   | 12,015 |  |  |   | 13,341 |  |  |   | 1,802 |  |  |  | 2003 |  |  |  | 03/03 |  |  |  | 40 years  | 
|Huntington Ridge, DeSoto, TX          |  |                        | 14,773 |  |              |                        | 1,693 |                                          |                 |   | 15,927                                       |              |  |                         |     |  |                     |                        | 9     |              |       |   | 1,693                                                              |  |  |   | 15,936 |  |  |   | 17,630 |  |  |   | 927   |  |  |  | 2007 |  |  |  | 10/04 |  |  |  | 40 years  | 
|Laguna Vista, Dallas, TX              |  |                        | 17,157 |  |              |                        | 288   |                                          |                 |   | 20,743                                       |              |  |                         |     |  |                     |                        | 497   |              |       |   | 370                                                                |  |  |   | 21,158 |  |  |   | 21,528 |  |  |   | 2,150 |  |  |  | 2006 |  |  |  | 12/04 |  |  |  | 40 years  | 
|Lake Forest, Houston, TX              |  |                        | 12,234 |  |              |                        | 335   |                                          |                 |   | 12,267                                       |              |  |                         |     |  |                     |                        | 1,435 |              |       |   | 335                                                                |  |  |   | 13,702 |  |  |   | 14,037 |  |  |   | 1,827 |  |  |  | 2004 |  |  |  | 01/04 |  |  |  | 40 years  | 
|Legends Of El Paso, El Paso, TX       |  |                        | 15,558 |  |              |                        | 1,318 |                                          |                 |   | 17,215                                       |              |  |                         |     |  |                     |                        | 697   |              |       |   | 1,318                                                              |  |  |   | 17,912 |  |  |   | 19,230 |  |  |   | 1,535 |  |  |  | 2006 |  |  |  | 07/05 |  |  |  | 40 years  | 
|Mansions of Mansfield, Mansfield, TX  |  |                        | 16,050 |  |              |                        | 977   |                                          |                 |   | 17,799                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 977                                                                |  |  |   | 17,799 |  |  |   | 18,775 |  |  |   | 778   |  |  |  | 2009 |  |  |  | 09/05 |  |  |  | 40 years  | 
|Mariposa Villas, Dallas, TX           |  |                        | 11,822 |  |              |                        | 721   |                                          |                 |   | 12,825                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 722                                                                |  |  |   | 12,825 |  |  |   | 13,547 |  |  |   | 1,763 |  |  |  | 2002 |  |  |  | 01/02 |  |  |  | 40 years  | 
|Mission Oaks, San Antonio, TX         |  |                        | 15,096 |  |              |                        | 1,266 |                                          |                 |   | 16,627                                       |              |  |                         |     |  |                     |                        | 212   |              |       |   | 1,266                                                              |  |  |   | 16,839 |  |  |   | 18,105 |  |  |   | 1,512 |  |  |  | 2005 |  |  |  | 05/05 |  |  |  | 40 years  | 
|Monticello Estate, Monticello, AR     |  |                        | 511    |  |              |                        | 36    |                                          |                 |   | 1,493                                        |              |  |                         |     |  |                     |                        | 263   |              |       |   | 285                                                                |  |  |   | 1,508  |  |  |   | 1,793  |  |  |   | 196   |  |  |  | 2001 |  |  |  | 01/06 |  |  |  | 40 years  | 
|Northside on Travis, Sherman, TX      |  |                        | 13,759 |  |              |                        | 1,301 |                                          |                 |   | 14,525                                       |              |  |                         |     |  |                     |                        |      |              |       |   | 1,301                                                              |  |  |   | 14,525 |  |  |   | 15,826 |  |  |   | 488   |  |  |  | 2009 |  |  |  | 10/07 |  |  |  | 40 years  | 
|Paramount Terrace, Amarillo, TX       |  |                        | 2,893  |  |              |                        | 312   |                                          |                 |   | 2,805                                        |              |  |                         |     |  |                     |                        |      |              |       |   | 312                                                                |  |  |   | 2,805  |  |  |   | 3,117  |  |  |   | 953   |  |  |  | 1983 |  |  |  | 05/00 |  |  |  | 40 years  | 
|Park at Clarksville, Clarksville, TN  |  |                        | 13,171 |  |              |                        | 571   |                                          |                 |   | 14,390                                       |              |  |                         |     |  |                     |                        | 102   |              |       |   | 571                                                                |  |  |   | 14,492 |  |  |   | 15,063 |  |  |   | 807   |  |  |  | 2007 |  |  |  | 06/02 |  |  |  | 40 years  | 



87



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                           |  |                        |        |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |      |  |  |  |       |  |  |  |             | 
|------------------------------------------ |  | ---------------------- | ------ |  | ------------ | ---------------------- | ----- | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ----- | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- |  |  |  | ---- |  |  |  | ----- |  |  |  | ----------- | 
|                                           |  | Encumbrances           |        |  | Initial Cost |                        |       | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |       | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                          |  |                        | Land   |  |              | Building &Improvements |       |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |       |              | Total |  |                                                                    |  |  | 
|                                           |  | (dollars in thousands) |        |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |     
|Properties Held for Investment(Continued) |  |                        |        |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |      |  |  |  |       |  |  |  |             | 
|Apartments-(Continued)                     |  |                        |        |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |        |  |  |  |        |  |  |  |       |  |  |  |      |  |  |  |       |  |  |  |             | 
|Parc at Maumelle, Little Rock, AR          |  |                        | 16,229 |  |              |                        | 1,048 |                                          |                 |  | 17,688                                       |              |  |                         |     |  |                     |                        | 617   |              |       |  | 1,048                                                              |  |  |  | 18,305 |  |  |  | 19,353 |  |  |  | 1,731 |  |  |  | 2006 |  |  |  | 12/04 |  |  |  | 40 years    | 
|Parc at Metro Center, Nashville, TN        |  |                        | 10,674 |  |              |                        | 947   |                                          |                 |  | 12,226                                       |              |  |                         |     |  |                     |                        | 486   |              |       |  | 947                                                                |  |  |  | 12,713 |  |  |  | 13,660 |  |  |  | 1,269 |  |  |  | 2006 |  |  |  | 05/05 |  |  |  | 40 years    | 
|Parc at Rogers, Rogers, AR                 |  |                        | 20,067 |  |              |                        | 1,482 |                                          |                 |  | 22,993                                       |              |  |                         |     |  |                     |                        | 266   |              |       |  | 1,749                                                              |  |  |  | 22,993 |  |  |  | 24,742 |  |  |  | 1,347 |  |  |  | 2007 |  |  |  | 04/04 |  |  |  | 40 years    | 
|Pecan Pointe, Temple, TX                   |  |                        | 16,541 |  |              |                        | 1,744 |                                          |                 |  | 16,876                                       |              |  |                         |     |  |                     |                        | 144   |              |       |  | 1,744                                                              |  |  |  | 17,020 |  |  |  | 18,764 |  |  |  | 1,055 |  |  |  | 2007 |  |  |  | 10/06 |  |  |  | 40 years    | 
|Portofino, Farmers Branch, TX              |  |                        | 20,375 |  |              |                        | 1,729 |                                          |                 |  | 23,037                                       |              |  |                         |     |  |                     |                        | 13    |              |       |  | 1,729                                                              |  |  |  | 23,050 |  |  |  | 24,779 |  |  |  | 1,311 |  |  |  | 2007 |  |  |  | 09/06 |  |  |  | 40 years    | 
|Preserve at Pecan Creek, Denton, TX        |  |                        | 14,893 |  |              |                        | 885   |                                          |                 |  | 16,626                                       |              |  |                         |     |  |                     |                        |      |              |       |  | 885                                                                |  |  |  | 16,626 |  |  |  | 17,511 |  |  |  | 962   |  |  |  | 2008 |  |  |  | 10/05 |  |  |  | 40 years    | 
|Quail Hollow, Holland, OH                  |  |                        | 11,129 |  |              |                        | 1,406 |                                          |                 |  | 12,650                                       |              |  |                         |     |  |                     |                        |      |              |       |  | 1,406                                                              |  |  |  | 12,650 |  |  |  | 14,056 |  |  |  | 843   |  |  |  | 2000 |  |  |  | 04/08 |  |  |  | 5-40 years  | 
|River Oaks, Wylie, TX                      |  |                        | 9,849  |  |              |                        | 590   |                                          |                 |  | 11,674                                       |              |  |                         |     |  |                     |                        | 148   |              |       |  | 590                                                                |  |  |  | 11,822 |  |  |  | 12,412 |  |  |  | 2,306 |  |  |  | 2002 |  |  |  | 10/01 |  |  |  | 40 years    | 
|Riverwalk Phase I, Greenville, MS          |  |                        | 331    |  |              |                        | 23    |                                          |                 |  | 1,537                                        |              |  |                         |     |  |                     |                        | 175   |              |       |  | 198                                                                |  |  |  | 1,537  |  |  |  | 1,736  |  |  |  | 232   |  |  |  | 2003 |  |  |  | 01/06 |  |  |  | 40 years    | 
|Riverwalk Phase II, Greenville, MS         |  |                        | 1,261  |  |              |                        | 52    |                                          |                 |  | 4,007                                        |              |  |                         |     |  |                     |                        | 363   |              |       |  | 297                                                                |  |  |  | 4,126  |  |  |  | 4,423  |  |  |  | 862   |  |  |  | 2003 |  |  |  | 01/06 |  |  |  | 40 years    | 
|Savoy of Garland, Garland, TX              |  |                        | 10,245 |  |              |                        | 760   |                                          |                 |  | 11,499                                       |              |  |                         |     |  |                     |                        | 147   |              |       |  | 760                                                                |  |  |  | 11,646 |  |  |  | 12,406 |  |  |  | 348   |  |  |  | 2009 |  |  |  | 10/06 |  |  |  | 5-40 years  | 
|Spyglass, Mansfield, TX                    |  |                        | 15,653 |  |              |                        | 1,165 |                                          |                 |  | 14,172                                       |              |  |                         |     |  |                     |                        | 905   |              |       |  | 1,175                                                              |  |  |  | 15,066 |  |  |  | 16,241 |  |  |  | 2,572 |  |  |  | 2002 |  |  |  | 03/02 |  |  |  | 40 years    | 
|Stonebridge at City Park, Houston, TX      |  |                        | 13,993 |  |              |                        | 1,545 |                                          |                 |  | 14,786                                       |              |  |                         |     |  |                     |                        | 97    |              |       |  | 1,545                                                              |  |  |  | 14,883 |  |  |  | 16,428 |  |  |  | 2,180 |  |  |  | 2004 |  |  |  | 01/04 |  |  |  | 40 years    | 
|Sugar Mill, Baton Rouge, LA                |  |                        | 11,908 |  |              |                        | 1,882 |                                          |                 |  | 13,247                                       |              |  |                         |     |  |                     |                        | 135   |              |       |  | 1,882                                                              |  |  |  | 13,382 |  |  |  | 15,264 |  |  |  | 406   |  |  |  | 2009 |  |  |  | 08/08 |  |  |  | 40 years    | 
|Treehouse, Irving, TX                      |  |                        | 5,157  |  |              |                        | 297   |                                          |                 |  | 2,672                                        |              |  |                         |     |  |                     |                        |      |              |       |  | 297                                                                |  |  |  | 2,672  |  |  |  | 2,969  |  |  |  | 456   |  |  |  | 1974 |  |  |  | 05/04 |  |  |  | 5-40 years  | 
|Verandas at City View, Fort Worth, TX      |  |                        | 17,348 |  |              |                        | 1,792 |                                          |                 |  | 18,375                                       |              |  |                         |     |  |                     |                        | 1,195 |              |       |  | 1,791                                                              |  |  |  | 19,570 |  |  |  | 21,361 |  |  |  | 3,602 |  |  |  | 2003 |  |  |  | 09/01 |  |  |  | 40 years    | 
|Vistas of Pinnacle Park, Dallas, TX        |  |                        | 19,070 |  |              |                        | 1,750 |                                          |                 |  | 19,808                                       |              |  |                         |     |  |                     |                        | 111   |              |       |  | 1,750                                                              |  |  |  | 19,920 |  |  |  | 21,670 |  |  |  | 3,196 |  |  |  | 2002 |  |  |  | 10/02 |  |  |  | 40 years    | 
|Vistas of Vance Jackson, San Antonio, TX   |  |                        | 15,408 |  |              |                        | 1,265 |                                          |                 |  | 16,540                                       |              |  |                         |     |  |                     |                        | 189   |              |       |  | 1,327                                                              |  |  |  | 16,666 |  |  |  | 17,993 |  |  |  | 2,198 |  |  |  | 2004 |  |  |  | 01/04 |  |  |  | 40 years    | 
|Westwood, Mary Esther, FL                  |  |                        | 3,265  |  |              |                        | 172   |                                          |                 |  | 1,337                                        |              |  |                         |     |  |                     |                        |      |              |       |  | 172                                                                |  |  |  | 1,338  |  |  |  | 1,509  |  |  |  | 293   |  |  |  | 1972 |  |  |  | 03/02 |  |  |  | 5-40 years  | 
|Whispering Pines, Topeka, KS               |  |                        | 9,467  |  |              |                        | 244   |                                          |                 |  | 4,831                                        |              |  |                         |     |  |                     |                        | 596   |              |       |  | 244                                                                |  |  |  | 5,427  |  |  |  | 5,671  |  |  |  | 4,713 |  |  |  | 1974 |  |  |  | 02/78 |  |  |  | 15-40 years | 



88



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|------------------------------------------------ |  | ---------------------- | ------- |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ------ | ------------ | ----- | - | ------------------------------------------------------------------ |  |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  |  | --------- |  |  |  | ----- |  |  |  | ---------- | 
|                                                 |  | Encumbrances           |         |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |        | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                |  |                        | Land    |  |              | Building &Improvements |        |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |        |              | Total |   |                                                                    |  |  |  
|                                                 |  | (dollars in thousands) |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |     
|Properties Held for Investment(Continued)       |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|Apartments(Continued)                           |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|Wildflower Villas, Temple, TX                    |  |                        | 13,916  |  |              |                        | 1,119  |                                          |                 |   | 15,526                                       |              |  |                         |     |  |                     |                        | 122    |              |       |   | 1,119                                                              |  |  |   | 15,648  |  |  |   | 16,768  |  |  |   | 1,359  |  |  |  | 2004      |  |  |  | 03/04 |  |  |  | 40 years   | 
|Windsong, Fort Worth, TX                         |  |                        | 10,745  |  |              |                        | 790    |                                          |                 |   | 11,526                                       |              |  |                         |     |  |                     |                        |       |              |       |   | 790                                                                |  |  |   | 11,526  |  |  |   | 12,316  |  |  |   | 1,973  |  |  |  | 2002      |  |  |  | 07/03 |  |  |  | 40 years   | 
|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 513,215 |  |              | $                      | 41,966 |                                          |                 | $ | 555,689                                      |              |  | $                       |     |  |                     | $                      | 11,306 |              |       | $ | 44,610                                                             |  |  | $ | 564,348 |  |  | $ | 608,959 |  |  | $ | 66,540 |  |  |  |           |  |  |  |       |  |  |  |            | 
|Apartments Under Construction                    |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|Blue Ridge, Midland, TX                          |  | $                      | 17,955  |  |              | $                      | 2,259  |                                          |                 | $ | 15,368                                       |              |  | $                       |     |  |                     | $                      |       |              |       | $ | 2,259                                                              |  |  | $ | 15,368  |  |  | $ | 17,627  |  |  | $ |       |  |  |  |          |  |  |  | 02/10 |  |  |  |           | 
|Lodge at Pecan Creek, Denton, TX                 |  |                        | 3,550   |  |              |                        | 1,349  |                                          |                 |   | 1,675                                        |              |  |                         |     |  |                     |                        |       |              |       |   | 1,349                                                              |  |  |   | 1,675   |  |  |   | 3,024   |  |  |   |       |  |  |  |          |  |  |  | 10/05 |  |  |  |           | 
|Parc at Denham Springs, Lake Charles, LA         |  |                        | 15,255  |  |              |                        | 1,022  |                                          |                 |   | 15,339                                       |              |  |                         |     |  |                     |                        |       |              |       |   | 1,022                                                              |  |  |   | 15,339  |  |  |   | 16,361  |  |  |   |       |  |  |  |          |  |  |  | 07/07 |  |  |  |           | 
|Sonoma Court, Rockwall, TX                       |  |                        | 3,682   |  |              |                        | 941    |                                          |                 |   | 2,720                                        |              |  |                         |     |  |                     |                        |       |              |       |   | 941                                                                |  |  |   | 2,720   |  |  |   | 3,661   |  |  |   |       |  |  |  |          |  |  |  | 07/10 |  |  |  |           | 
|Toulon, Gautier, MS                              |  |                        | 6,574   |  |              |                        | 1,621  |                                          |                 |   | 4,884                                        |              |  |                         |     |  |                     |                        |       |              |       |   | 1,993                                                              |  |  |   | 4,512   |  |  |   | 6,505   |  |  |   |       |  |  |  |          |  |  |  | 09/09 |  |  |  |           | 
|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 47,016  |  |              | $                      | 7,191  |                                          |                 | $ | 39,986                                       |              |  | $                       |     |  |                     | $                      |       |              |       | $ | 7,564                                                              |  |  | $ | 39,614  |  |  | $ | 47,178  |  |  | $ |       |  |  |  |           |  |  |  |       |  |  |  |            | 
|Commercial                                       |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |           |  |  |  |       |  |  |  |            | 
|225 Baronne, New Orleans, LA                     |  | $                      |        |  |              | $                      | 1,065  |                                          |                 | $ | 492                                          |              |  | $                       |     |  |                     | $                      | 7,301  |              |       | $ | 1,065                                                              |  |  | $ | 7,794   |  |  | $ | 8,858   |  |  | $ | 7,619  |  |  |  | 1960      |  |  |  | 03/98 |  |  |  | 5-40 years | 
|305 Baronne, New Orleans, LA                     |  |                        | 5,353   |  |              |                        | 211    |                                          |                 |   | 1,953                                        |              |  |                         |     |  |                     |                        | 451    |              |       |   | 211                                                                |  |  |   | 2,404   |  |  |   | 2,616   |  |  |   | 284    |  |  |  | 1902      |  |  |  | 08/06 |  |  |  | 5-40 years | 
|600 Las Colinas, Las Colinas, TX                 |  |                        | 35,210  |  |              |                        | 5,751  |                                          |                 |   | 51,759                                       |              |  |                         |     |  |                     |                        | 5,707  |              |       |   | 5,751                                                              |  |  |   | 57,466  |  |  |   | 63,217  |  |  |   | 9,580  |  |  |  | 1984      |  |  |  | 08/05 |  |  |  | 5-40 years | 
|Addison Hanger I, Addison, TX                    |  |                        |        |  |              |                        | 1,481  |                                          |                 |   | 724                                          |              |  |                         |     |  |                     |                        | 49     |              |       |   | 1,481                                                              |  |  |   | 774     |  |  |   | 2,255   |  |  |   | 417    |  |  |  | 1992      |  |  |  | 12/99 |  |  |  | 5-40 years | 
|Addison Hanger II, Addison, TX                   |  |                        |        |  |              |                        |       |                                          |                 |   | 1,207                                        |              |  |                         |     |  |                     |                        | 79     |              |       |   |                                                                   |  |  |   | 1,286   |  |  |   | 1,286   |  |  |   | 416    |  |  |  | 2000      |  |  |  | 12/99 |  |  |  | 5-40 years | 
|Alpenloan, Dallas, TX                            |  |                        | 384     |  |              |                        | 1,061  |                                          |                 |   | 261                                          |              |  |                         |     |  |                     |                        |       |              |       |   | 1,061                                                              |  |  |   | 261     |  |  |   | 1,322   |  |  |   | 17     |  |  |  |          |  |  |  | 05/08 |  |  |  | 5-40 years | 
|Browning Place (Park West I), Farmers Branch, TX |  |                        | 32,416  |  |              |                        | 5,096  |                                          |                 |   | 45,868                                       |              |  |                         |     |  |                     |                        | 6,197  |              |       |   | 5,096                                                              |  |  |   | 52,065  |  |  |   | 57,161  |  |  |   | 7,669  |  |  |  | 1984      |  |  |  | 04/05 |  |  |  | 5-40 years | 
|Clark Garage, New Orleans, LA                    |  |                        |        |  |              |                        | 1,033  |                                          |                 |   | 9,293                                        |              |  |                         |     |  |                     |                        | 26     |              |       |   | 1,033                                                              |  |  |   | 9,319   |  |  |   | 10,352  |  |  |   | 808    |  |  |  |          |  |  |  | 08/06 |  |  |  | 40 years   | 
|Cross County Mall, Matoon, IL                    |  |                        | 8,849   |  |              |                        | 608    |                                          |                 |   | 4,891                                        |              |  |                         |     |  |                     |                        | 7,802  |              |       |   | 1,394                                                              |  |  |   | 11,907  |  |  |   | 13,301  |  |  |   | 11,697 |  |  |  | 1971      |  |  |  | 08/79 |  |  |  | 5-40 years | 
|Denver Merchandise Mart, Denver, CO              |  |                        | 21,591  |  |              |                        | 5,986  |                                          |                 |   | 4,967                                        |              |  |                         |     |  |                     |                        | 20,252 |              |       |   | 5,994                                                              |  |  |   | 25,211  |  |  |   | 31,205  |  |  |   | 12,887 |  |  |  | 1965/1986 |  |  |  | 04/94 |  |  |  | 7-40 years | 



89



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                           |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |             | 
|------------------------------------------ |  | ---------------------- | ------- |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ------ | ------------ | ----- | - | ------------------------------------------------------------------ |  |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  |  | ---- |  |  |  | ----- |  |  |  | ----------- | 
|                                           |  | Encumbrances           |         |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |        | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                          |  |                        | Land    |  |              | Building &Improvements |        |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |        |              | Total |   |                                                                    |  |  |  
|                                           |  | (dollars in thousands) |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |     
|Properties Held for Investment(Continued) |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |             | 
|Commercial(Continued)                     |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |             | 
|Ergon Office Building, Jackson, Ms         |  |                        | 1,878   |  |              |                        | 201    |                                          |                 |   | 1,914                                        |              |  |                         |     |  |                     |                        |       |              |       |   | 201                                                                |  |  |   | 1,914   |  |  |   | 2,115   |  |  |   | 104    |  |  |  |     |  |  |  | 11/08 |  |  |  | 5-40 years  | 
|Fruitland Plaza, Fruitland Park, FL        |  |                        |        |  |              |                        | 17     |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 16     |              |       |   | 17                                                                 |  |  |   | 16      |  |  |   | 33      |  |  |   | 16     |  |  |  |     |  |  |  | 05/92 |  |  |  | 40 years    | 
|One Hickory Center, Farmers Branch, TX     |  |                        | 9,006   |  |              |                        | 1,221  |                                          |                 |   | 7,657                                        |              |  |                         |     |  |                     |                        | 87     |              |       |   | 1,221                                                              |  |  |   | 7,744   |  |  |   | 8,965   |  |  |   | 1,281  |  |  |  | 1998 |  |  |  | 01/00 |  |  |  | 7-40 years  | 
|Senlac VHP, Farmers Branch, TX             |  |                        | 628     |  |              |                        | 622    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 142    |              |       |   | 622                                                                |  |  |   | 142     |  |  |   | 765     |  |  |   | 67     |  |  |  |     |  |  |  | 08/05 |  |  |  | 40 years    | 
|Sesame Square, Anchorage, AK               |  |                        | 1,141   |  |              |                        | 562    |                                          |                 |   | 1,299                                        |              |  |                         |     |  |                     |                        | 206    |              |       |   | 562                                                                |  |  |   | 1,505   |  |  |   | 2,068   |  |  |   | 1,418  |  |  |  | 1981 |  |  |  | 12/81 |  |  |  | 17-40 years | 
|Stanford Center, Dallas, TX                |  |                        | 24,844  |  |              |                        | 3,878  |                                          |                 |   | 34,862                                       |              |  |                         |     |  |                     |                        | 208    |              |       |   | 3,878                                                              |  |  |   | 35,070  |  |  |   | 38,948  |  |  |   | 2,264  |  |  |  |     |  |  |  | 06/08 |  |  |  | 5-40 years  | 
|Two Hickoy Center, Farmers Branch, TX      |  |                        | 9,171   |  |              |                        | 1,150  |                                          |                 |   | 8,667                                        |              |  |                         |     |  |                     |                        | 1,281  |              |       |   | 1,150                                                              |  |  |   | 9,949   |  |  |   | 11,099  |  |  |   | 3,751  |  |  |  | 2000 |  |  |  | 06/05 |  |  |  | 3-40 years  | 
|                                           |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |             | 
|                                           |  | $                      | 150,471 |  |              | $                      | 29,944 |                                          |                 | $ | 175,814                                      |              |  | $                       |     |  |                     | $                      | 49,806 |              |       | $ | 30,738                                                             |  |  | $ | 224,826 |  |  | $ | 255,565 |  |  | $ | 60,295 |  |  |  |      |  |  |  |       |  |  |  |             | 
|Land                                       |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |      |  |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |             | 
|1013 Common St, New Orleans, LA            |  | $                      |        |  |              | $                      | 530    |                                          |                 | $ |                                             |              |  | $                       |     |  |                     | $                      | 159    |              |       |   | 690                                                                |  |  | $ |        |  |  | $ | 690     |  |  | $ |       |  |  |  |     |  |  |  | 08/98 |  |  |  |            | 
|Alliance Airport, Tarrant County, TX       |  |                        | 490     |  |              |                        | 895    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        |       |              |       |   | 895                                                                |  |  |   |        |  |  |   | 895     |  |  |   |       |  |  |  |     |  |  |  | 05/05 |  |  |  |            | 
|Audubon, Adams County, MS                  |  |                        |        |  |              |                        | 519    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 297    |              |       |   | 815                                                                |  |  |   |        |  |  |   | 815     |  |  |   |       |  |  |  |     |  |  |  |      |  |  |  |            | 
|Backlick Land, Springfield, VA             |  |                        |        |  |              |                        | 74     |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        |       |              |       |   | 74                                                                 |  |  |   |        |  |  |   | 74      |  |  |   |       |  |  |  |     |  |  |  | 10/07 |  |  |  |            | 
|Cooks Lane Land, Ft. Worth, TX             |  |                        | 511     |  |              |                        | 1,046  |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 10     |              |       |   | 1,056                                                              |  |  |   |        |  |  |   | 1,056   |  |  |   |       |  |  |  |     |  |  |  | 06/04 |  |  |  |            | 
|Copperridge, Dallas, TX                    |  |                        | 4,326   |  |              |                        | 6,392  |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 1,119  |              |       |   | 7,510                                                              |  |  |   |        |  |  |   | 7,510   |  |  |   |       |  |  |  |     |  |  |  | 01/08 |  |  |  |            | 
|Dedeaux, Gulfport, MS                      |  |                        | 1,520   |  |              |                        | 1,612  |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 46     |              |       |   | 1,658                                                              |  |  |   |        |  |  |   | 1,658   |  |  |   |       |  |  |  |     |  |  |  | 10/06 |  |  |  |            | 
|Denham Springs, Denham Springs, LA         |  |                        | 230     |  |              |                        | 339    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        |       |              |       |   | 339                                                                |  |  |   |        |  |  |   | 339     |  |  |   |       |  |  |  |     |  |  |  | 08/08 |  |  |  |            | 
|Denton (Andrew B), Denton, TX              |  |                        | 507     |  |              |                        | 895    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        | 8      |              |       |   | 903                                                                |  |  |   |        |  |  |   | 903     |  |  |   |       |  |  |  |     |  |  |  | 12/05 |  |  |  |            | 
|Denton (Andrew C), Denton, TX              |  |                        | 144     |  |              |                        | 318    |                                          |                 |   |                                             |              |  |                         |     |  |                     |                        |       |              |       |   | 318                                                                |  |  |   |        |  |  |   | 318     |  |  |   |       |  |  |  |     |  |  |  | 12/05 |  |  |  |            | 



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                   |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|-------------------------------------------------- |  | ---------------------- | ------ |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ------ | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | - |  |  |  | ------ |  |  |  | - |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                                   |  | Encumbrances           |        |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |        | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                  |  |                        | Land   |  |              | Building &Improvements |        |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |        |              | Total |  |                                                                    |  |  | 
|                                                   |  | (dollars in thousands) |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |     
|Properties Held for Investment(Continued)         |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land(Continued)                                   |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Denton Coonrod, Denton, TX                         |  |                        | 766    |  |              |                        | 1,848  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |       |              |       |  | 1,848                                                              |  |  |  |  |  |  |  | 1,848  |  |  |  |  |  |  |  |  |  |  |  | 07/09 |  |  |  |  | 
|Desoto Ranch, Desoto, TX                           |  |                        | 499    |  |              |                        | 898    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 27     |              |       |  | 925                                                                |  |  |  |  |  |  |  | 925    |  |  |  |  |  |  |  |  |  |  |  | 10/04 |  |  |  |  | 
|Elm Fork Land, Denton County, TX                   |  |                        | 1,938  |  |              |                        | 2,963  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |       |              |       |  | 2,963                                                              |  |  |  |  |  |  |  | 2,963  |  |  |  |  |  |  |  |  |  |  |  | 03/01 |  |  |  |  | 
|Folsom Land, Dallas, TX                            |  |                        | 50     |  |              |                        | 3,341  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |       |              |       |  | 3,341                                                              |  |  |  |  |  |  |  | 3,341  |  |  |  |  |  |  |  |  |  |  |  | 06/06 |  |  |  |  | 
|Galleria East Center Retail, Dallas, TX            |  |                        | 19,057 |  |              |                        | 25,653 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 11,765 |              |       |  | 37,418                                                             |  |  |  |  |  |  |  | 37,418 |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Galleria West Hotel, Dallas, TX                    |  |                        | 1,225  |  |              |                        | 1,681  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 487    |              |       |  | 2,169                                                              |  |  |  |  |  |  |  | 2,169  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Galleria West Lofts, Dallas, TX                    |  |                        | 5,230  |  |              |                        | 6,094  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 3,349  |              |       |  | 9,443                                                              |  |  |  |  |  |  |  | 9,443  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Gautier Land, Gautier, MS                          |  |                        | 750    |  |              |                        | 2,526  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 127    |              |       |  | 2,653                                                              |  |  |  |  |  |  |  | 2,653  |  |  |  |  |  |  |  |  |  |  |  | 07/98 |  |  |  |  | 
|GNB Land, Farmers Branch, TX                       |  |                        | 10,129 |  |              |                        | 4,385  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 32     |              |       |  | 4,418                                                              |  |  |  |  |  |  |  | 4,418  |  |  |  |  |  |  |  |  |  |  |  | 07/06 |  |  |  |  | 
|Hollywood Casino Land Tract II, Farmers Branch, TX |  |                        | 3,710  |  |              |                        | 3,131  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 387    |              |       |  | 3,518                                                              |  |  |  |  |  |  |  | 3,518  |  |  |  |  |  |  |  |  |  |  |  | 03/08 |  |  |  |  | 
|Hunter Equities Land, Dallas, TX                   |  |                        |       |  |              |                        | 398    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |       |              |       |  | 398                                                                |  |  |  |  |  |  |  | 398    |  |  |  |  |  |  |  |  |  |  |  | 07/08 |  |  |  |  | 
|Jackson Capital City Center, Jackson,MS            |  |                        | 8,416  |  |              |                        | 8,986  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 4,469  |              |       |  | 13,455                                                             |  |  |  |  |  |  |  | 13,455 |  |  |  |  |  |  |  |  |  |  |  | 11/08 |  |  |  |  | 
|Keller Springs Lofts, Addison, TX                  |  |                        | 2,695  |  |              |                        | 3,378  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 2,388  |              |       |  | 5,766                                                              |  |  |  |  |  |  |  | 5,766  |  |  |  |  |  |  |  |  |  |  |  | 10/06 |  |  |  |  | 
|Kinwest Manor, Irving, TX                          |  |                        | 1,108  |  |              |                        | 1,819  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 1,707  |              |       |  | 3,526                                                              |  |  |  |  |  |  |  | 3,526  |  |  |  |  |  |  |  |  |  |  |  | 10/06 |  |  |  |  | 
|LaDue Land, Farmers Branch, TX                     |  |                        | 750    |  |              |                        | 1,810  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |       |              |       |  | 1,810                                                              |  |  |  |  |  |  |  | 1,810  |  |  |  |  |  |  |  |  |  |  |  | 07/98 |  |  |  |  | 
|Lake Shore Villas, Humble, TX                      |  |                        |       |  |              |                        | 81     |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 3      |              |       |  | 84                                                                 |  |  |  |  |  |  |  | 84     |  |  |  |  |  |  |  |  |  |  |  | 03/02 |  |  |  |  | 
|Lamar/Parmer, Austin, TX                           |  |                        | 1,087  |  |              |                        | 1,589  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 615    |              |       |  | 2,204                                                              |  |  |  |  |  |  |  | 2,204  |  |  |  |  |  |  |  |  |  |  |  | 01/00 |  |  |  |  | 
|Las Colinas Station, Las Colinas, TX               |  |                        | 5,663  |  |              |                        | 6,985  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 3,992  |              |       |  | 10,977                                                             |  |  |  |  |  |  |  | 10,977 |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Las Colinas Village, Las Colinas, TX               |  |                        | 7,215  |  |              |                        | 3,484  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 2,895  |              |       |  | 6,379                                                              |  |  |  |  |  |  |  | 6,379  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                           |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |         |   |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|------------------------------------------ |  | ----------------------- | ------ |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ------- | - | ------------------- | ---------------------- | ------ | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | - |  |  |  | ------ |  |  |  | - |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                           |  | Encumbrances            |        |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |         |   | Date ofConstruction |                        |        | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                          |  |                         | Land   |  |              | Building &Improvements |        |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land    |   |                     | Building &Improvements |        |              | Total |  |                                                                    |  |  | 
|                                           |  | (dollars in thousands ) |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |        
|Properties Held for Investment(Continued) |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |         |   |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land(Continued)                           |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |         |   |                     |                        |        |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Lubbock Land, Lubbock, TX                  |  |                         | 12     |  |              |                        | 234    |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 234                                                                |  |  |  |  |  |  |  | 234    |  |  |  |  |  |  |  |  |  |  |  | 01/04 |  |  |  |  | 
|Luna (Carr), Farmers Branch, TX            |  |                         | 385    |  |              |                        | 589    |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 589                                                                |  |  |  |  |  |  |  | 589    |  |  |  |  |  |  |  |  |  |  |  | 07/05 |  |  |  |  | 
|Luna Ventures, Farmers Branch TX           |  |                         | 1,069  |  |              |                        | 2,934  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 2,934                                                              |  |  |  |  |  |  |  | 2,934  |  |  |  |  |  |  |  |  |  |  |  | 04/08 |  |  |  |  | 
|Manhattan Land, Farmers Branch, TX         |  |                         | 3,742  |  |              |                        | 23,389 |                                          |                 |  |                                             |              |  |                         | (16,981 | ) |                     |                        | 169    |              |       |  | 6,577                                                              |  |  |  |  |  |  |  | 6,577  |  |  |  |  |  |  |  |  |  |  |  | 02/00 |  |  |  |  | 
|Mansfield Land, Mansfield, TX              |  |                         | 880    |  |              |                        | 543    |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 3      |              |       |  | 546                                                                |  |  |  |  |  |  |  | 546    |  |  |  |  |  |  |  |  |  |  |  | 09/05 |  |  |  |  | 
|Mckinney 36, Collin County, TX             |  |                         | 3,898  |  |              |                        | 1,769  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 1,769                                                              |  |  |  |  |  |  |  | 1,769  |  |  |  |  |  |  |  |  |  |  |  | 01/98 |  |  |  |  | 
|Mckinney Ranch Land, McKinney, TX          |  |                         | 14,158 |  |              |                        | 21,402 |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 744    |              |       |  | 22,147                                                             |  |  |  |  |  |  |  | 22,147 |  |  |  |  |  |  |  |  |  |  |  | 12/05 |  |  |  |  | 
|Meloy/Portage Land, Kent, OH               |  |                         | 2,063  |  |              |                        | 5,119  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 5,119                                                              |  |  |  |  |  |  |  | 5,119  |  |  |  |  |  |  |  |  |  |  |  | 02/04 |  |  |  |  | 
|Mira Lago, Farmers Branch, TX              |  |                         |       |  |              |                        | 53     |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 15     |              |       |  | 68                                                                 |  |  |  |  |  |  |  | 68     |  |  |  |  |  |  |  |  |  |  |  | 05/01 |  |  |  |  | 
|Nakash, New York                           |  |                         |       |  |              |                        | 103    |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 103                                                                |  |  |  |  |  |  |  | 103    |  |  |  |  |  |  |  |  |  |  |  | 01/93 |  |  |  |  | 
|Nicholson Croslin, Dallas, TX              |  |                         | 116    |  |              |                        | 63     |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 63                                                                 |  |  |  |  |  |  |  | 63     |  |  |  |  |  |  |  |  |  |  |  | 10/98 |  |  |  |  | 
|Nicholson Mendoza, Dallas, TX              |  |                         | 49     |  |              |                        | 27     |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 27                                                                 |  |  |  |  |  |  |  | 27     |  |  |  |  |  |  |  |  |  |  |  | 10/98 |  |  |  |  | 
|Ocean Estates, Gulfport, MS                |  |                         |       |  |              |                        | 1,418  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 390    |              |       |  | 1,808                                                              |  |  |  |  |  |  |  | 1,808  |  |  |  |  |  |  |  |  |  |  |  | 10/07 |  |  |  |  | 
|Palmer Lane (Las Praderas), Austin, TX     |  |                         | 13,678 |  |              |                        | 22,756 |                                          |                 |  |                                             |              |  |                         | (9,200  | ) |                     |                        | 63     |              |       |  | 13,619                                                             |  |  |  |  |  |  |  | 13,619 |  |  |  |  |  |  |  |  |  |  |  | 12/05 |  |  |  |  | 
|Pioneer Crossing (38.54 acres), Austin, TX |  |                         | 1,185  |  |              |                        | 614    |                                          |                 |  |                                             |              |  |                         | (72     | ) |                     |                        | 952    |              |       |  | 1,494                                                              |  |  |  |  |  |  |  | 1,494  |  |  |  |  |  |  |  |  |  |  |  | 03/06 |  |  |  |  | 
|Pioneer Crossing (257 acres), Austin, TX   |  |                         | 12,000 |  |              |                        | 6,713  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 2,339  |              |       |  | 9,052                                                              |  |  |  |  |  |  |  | 9,052  |  |  |  |  |  |  |  |  |  |  |  | 05/97 |  |  |  |  | 
|Polo Estates At Bent Tree, Dallas, TX      |  |                         | 2,866  |  |              |                        | 4,003  |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 2,048  |              |       |  | 6,051                                                              |  |  |  |  |  |  |  | 6,051  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Port Olpenitz GmbH, Kappelin, Germany      |  |                         | 5,447  |  |              |                        |        |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        | 31,526 |              |       |  | 31,526                                                             |  |  |  |  |  |  |  | 31,526 |  |  |  |  |  |  |  |  |  |  |  | 12/06 |  |  |  |  | 
|Seminary West Land, Fort Worth, TX         |  |                         | 11     |  |              |                        | 136    |                                          |                 |  |                                             |              |  |                         |        |   |                     |                        |       |              |       |  | 136                                                                |  |  |  |  |  |  |  | 136    |  |  |  |  |  |  |  |  |  |  |  | 07/01 |  |  |  |  | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                     |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|---------------------------------------------------- |  | ----------------------- | ------ |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | ----- | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | - |  |  |  | ------ |  |  |  | - |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                                     |  | Encumbrances            |        |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |       | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                    |  |                         | Land   |  |              | Building &Improvements |        |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |       |              | Total |  |                                                                    |  |  | 
|                                                     |  | (dollars in thousands ) |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |     
|Properties Held for Investment(Continued)           |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land(Continued)                                     |  |                         |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |       |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Senlac Land, Farmers Branch, TX                      |  |                         | 344    |  |              |                        | 656    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 656                                                                |  |  |  |  |  |  |  | 656    |  |  |  |  |  |  |  |  |  |  |  | 08/05 |  |  |  |  | 
|Sheffield Village, Grand Prairie, TX                 |  |                         | 912    |  |              |                        | 1,643  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 428   |              |       |  | 2,071                                                              |  |  |  |  |  |  |  | 2,071  |  |  |  |  |  |  |  |  |  |  |  | 09/03 |  |  |  |  | 
|Siskiyou County Land, Siskiyou County, CA            |  |                         |       |  |              |                        | 3      |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 3                                                                  |  |  |  |  |  |  |  | 3      |  |  |  |  |  |  |  |  |  |  |  | 08/96 |  |  |  |  | 
|Southwood Plantation 1394, Tallahassee, FL           |  |                         | 578    |  |              |                        | 1,209  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 119   |              |       |  | 1,329                                                              |  |  |  |  |  |  |  | 1,329  |  |  |  |  |  |  |  |  |  |  |  | 02/06 |  |  |  |  | 
|Texas Plaza Land, Irving, TX                         |  |                         | 565    |  |              |                        | 1,738  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 1,738                                                              |  |  |  |  |  |  |  | 1,738  |  |  |  |  |  |  |  |  |  |  |  | 12/06 |  |  |  |  | 
|Travelers Land (178 acres), Farmers Branch, TX       |  |                         | 27,221 |  |              |                        | 24,511 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 24,511                                                             |  |  |  |  |  |  |  | 24,511 |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Travelers Land (15 acres), Farmers Branch, TX        |  |                         | 2,749  |  |              |                        | 1,913  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 1,913                                                              |  |  |  |  |  |  |  | 1,913  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Travis Ranch Land, Kaufman County, TX                |  |                         | 787    |  |              |                        | 1,030  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 1,030                                                              |  |  |  |  |  |  |  | 1,030  |  |  |  |  |  |  |  |  |  |  |  | 08/08 |  |  |  |  | 
|Travis Ranch Retail, Kaufman City, TX                |  |                         |       |  |              |                        | 1,750  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 1,750                                                              |  |  |  |  |  |  |  | 1,750  |  |  |  |  |  |  |  |  |  |  |  | 08/08 |  |  |  |  | 
|Union Pacific Railroad Land, Dallas, TX              |  |                         |       |  |              |                        | 130    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 130                                                                |  |  |  |  |  |  |  | 130    |  |  |  |  |  |  |  |  |  |  |  | 03/04 |  |  |  |  | 
|US Virgin IslandsPearl, Us Virgin Islands           |  |                         | 3,651  |  |              |                        | 14,031 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 2,336 |              |       |  | 16,367                                                             |  |  |  |  |  |  |  | 16,367 |  |  |  |  |  |  |  |  |  |  |  | 10/08 |  |  |  |  | 
|Valley View 34 (Mercer Crossing), Farmers Branch, TX |  |                         | 400    |  |              |                        | 228    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 228                                                                |  |  |  |  |  |  |  | 228    |  |  |  |  |  |  |  |  |  |  |  | 08/08 |  |  |  |  | 
|Valley View/Senlac, Farmers Branch, TX               |  |                         | 613    |  |              |                        | 780    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 780                                                                |  |  |  |  |  |  |  | 780    |  |  |  |  |  |  |  |  |  |  |  | 12/05 |  |  |  |  | 
|Waco 151 Land, Waco, TX                              |  |                         | 1,263  |  |              |                        | 2,106  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 2,106                                                              |  |  |  |  |  |  |  | 2,106  |  |  |  |  |  |  |  |  |  |  |  | 04/07 |  |  |  |  | 
|Waco Swanson, Waco, TX                               |  |                         | 1,525  |  |              |                        | 2,725  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 2,725                                                              |  |  |  |  |  |  |  | 2,725  |  |  |  |  |  |  |  |  |  |  |  | 08/06 |  |  |  |  | 
|Walker Land (48.2 acres), Dallas County, TX          |  |                         | 8      |  |              |                        | 4,465  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 4,465                                                              |  |  |  |  |  |  |  | 4,465  |  |  |  |  |  |  |  |  |  |  |  | 07/98 |  |  |  |  | 
|Walker Land (82.6 acres), Dallas County, TX          |  |                         | 8,219  |  |              |                        | 12,613 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |      |              |       |  | 12,613                                                             |  |  |  |  |  |  |  | 12,613 |  |  |  |  |  |  |  |  |  |  |  | 09/06 |  |  |  |  | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|------------------------------------------------ |  | ---------------------- | ------- |  | ------------ | ---------------------- | ------- | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | ------- | - | ------------------- | ---------------------- | ------- | ------------ | ----- | - | ------------------------------------------------------------------ | - |  | - | ------- | - |  | - | --------- | - |  | - | ------- |  |  |  | ---- |  |  |  | ----- |  |  |  | ---------- | 
|                                                 |  | Encumbrances           |         |  | Initial Cost |                        |         | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at Which Carriedat End of Year |              |  | AccumulatedDepreciation |         |   | Date ofConstruction |                        |         | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed |  
|Property/Location                                |  |                        | Land    |  |              | Building &Improvements |         |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land    |   |                     | Building &Improvements |         |              | Total |   |                                                                    |   |  |  
|                                                 |  | (dollars in thousands) |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |        
|Properties Held for Investment(Continued)       |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|Land(Continued)                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|Willowick Land, Pensacola, FL                    |  |                        |        |  |              |                        | 137     |                                          |                 |   |                                             |              |  |                         |        |   |                     |                        |        |              |       |   | 137                                                                |   |  |   |        |   |  |   | 137       |   |  |   |        |  |  |  |     |  |  |  | 01/95 |  |  |  |           | 
|Woodmont Reserve                                 |  |                        |        |  |              |                        |        |                                          |                 |   |                                             |              |  |                         | (40,718 | ) |                     |                        | 5,226   |              |       |   | (35,492                                                            | ) |  |   |        |   |  |   | (35,492   | ) |  |   |        |  |  |  |     |  |  |  |      |  |  |  |           | 
|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 188,410 |  |              | $                      | 257,204 |                                          |                 | $ |                                             |              |  | $                       | (66,971 | ) |                     | $                      | 80,241  |              |       | $ | 270,474                                                            |   |  | $ |        |   |  | $ | 270,474   |   |  | $ |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |             
|Corporate Departments/Investments/Misc.          |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|TCICorporate                                    |  | $                      | 12,925  |  |              | $                      | 9,293   |                                          |                 | $ | (21,271                                      | )            |  | $                       |        |   |                     | $                      |        |              |       | $ | 9,293                                                              |   |  | $ | (21,271 | ) |  | $ | (11,978   | ) |  | $ | 6,700   |  |  |  |     |  |  |  |      |  |  |  |           | 
|ARLCorporate                                    |  |                        | 22,175  |  |              |                        |        |                                          |                 |   |                                             |              |  |                         |        |   |                     |                        | 16      |              |       |   | 16                                                                 |   |  |   |        |   |  |   | 16        |   |  |   | 16      |  |  |  |     |  |  |  |      |  |  |  |           | 
|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 35,100  |  |              | $                      | 9,293   |                                          |                 | $ | (21,271                                      | )            |  | $                       |        |   |                     | $                      | 16      |              |       | $ | 9,309                                                              |   |  | $ | (21,271 | ) |  | $ | (11,962   | ) |  | $ | 6,716   |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |             
|Total Properties Held for Investment             |  | $                      | 934,212 |  |              | $                      | 345,598 |                                          |                 | $ | 750,218                                      |              |  | $                       | (66,971 | ) |                     | $                      | 141,369 |              |       | $ | 362,696                                                            |   |  | $ | 807,518 |   |  | $ | 1,170,214 |   |  | $ | 133,550 |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |             
|Properties Subject to Sales Contract             |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|Commercial                                       |  |                        |         |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         |   |                     |                        |         |              |       |   |                                                                    |   |  |   |         |   |  |   |           |   |  |   |         |  |  |  |      |  |  |  |       |  |  |  |            | 
|1010 Common, New Orleans, LA                     |  | $                      | 14,171  |  |              | $                      | 2,718   |                                          |                 | $ | 11,079                                       |              |  | $                       |        |   |                     | $                      | 22,133  |              |       | $ | 2,718                                                              |   |  | $ | 33,212  |   |  | $ | 35,930    |   |  | $ | 25,480  |  |  |  | 1971 |  |  |  | 03/98 |  |  |  | 5-40 years | 
|Amoco Building, New Orleans, LA                  |  |                        | 18,750  |  |              |                        | 1,130   |                                          |                 |   | 3,078                                        |              |  |                         |        |   |                     |                        | 6,383   |              |       |   | 1,130                                                              |   |  |   | 9,461   |   |  |   | 10,591    |   |  |   | 7,544   |  |  |  | 1974 |  |  |  | 07/97 |  |  |  | 5-40 years | 
|Bridgeview Plaza, LaCrosse, WI                   |  |                        | 6,368   |  |              |                        | 797     |                                          |                 |   | 7,174                                        |              |  |                         |        |   |                     |                        | 223     |              |       |   | 797                                                                |   |  |   | 7,398   |   |  |   | 8,195     |   |  |   | 1,586   |  |  |  | 1979 |  |  |  | 03/03 |  |  |  | 5-40 years | 
|Cooley Building, Farmers Branch, TX              |  |                        | 2,628   |  |              |                        | 729     |                                          |                 |   | 1,392                                        |              |  |                         |        |   |                     |                        | 702     |              |       |   | 729                                                                |   |  |   | 2,094   |   |  |   | 2,823     |   |  |   | 1,221   |  |  |  | 1996 |  |  |  | 05/99 |  |  |  | 5-40 years | 
|Dunes Plaza, Michigan City, IN                   |  |                        | 3,296   |  |              |                        | 1,215   |                                          |                 |   | 4,714                                        |              |  |                         | (1,851  | ) |                     |                        | 1,542   |              |       |   | 1,401                                                              |   |  |   | 4,219   |   |  |   | 5,620     |   |  |   | 3,181   |  |  |  | 1978 |  |  |  | 03/92 |  |  |  | 5-40 years | 
|Eton Square, Tulsa, OK                           |  |                        | 9,213   |  |              |                        | 1,346   |                                          |                 |   | 12,064                                       |              |  |                         |        |   |                     |                        | 4,125   |              |       |   | 1,346                                                              |   |  |   | 16,189  |   |  |   | 17,535    |   |  |   | 5,496   |  |  |  | 1985 |  |  |  | 09/99 |  |  |  | 5-40 years | 
|Fenton Center (Park West II), Farmers Branch, TX |  |                        | 60,692  |  |              |                        | 6,968   |                                          |                 |   | 62,712                                       |              |  |                         |        |   |                     |                        | 5,077   |              |       |   | 6,968                                                              |   |  |   | 67,789  |   |  |   | 74,757    |   |  |   | 8,120   |  |  |  |     |  |  |  | 01/07 |  |  |  | 5-40 years | 
|Parkway North, Dallas, TX                        |  |                        | 2,879   |  |              |                        | 1,075   |                                          |                 |   | 4,221                                        |              |  |                         |        |   |                     |                        | 2,102   |              |       |   | 1,075                                                              |   |  |   | 6,322   |   |  |   | 7,398     |   |  |   | 3,256   |  |  |  | 1980 |  |  |  | 02/98 |  |  |  | 2-40 years | 



94



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|------------------------------------------------ |  | ---------------------- | ------- |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | ------ | - | ------------------- | ---------------------- | ------ | ------------ | ----- | - | ------------------------------------------------------------------ |  |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  |  | ---- |  |  |  | ----- |  |  |  | ---------- | 
|                                                 |  | Encumbrances           |         |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |        |   | Date ofConstruction |                        |        | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                |  |                        | Land    |  |              | Building &Improvements |        |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land   |   |                     | Building &Improvements |        |              | Total |   |                                                                    |  |  |  
|                                                 |  | (dollars in thousands) |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |       
|Properties Subject to Sales Contract(Continued) |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|Commercial(Continued)                           |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|Signature Building, Dallas, TX                   |  |                        | 1,242   |  |              |                        | 985    |                                          |                 |   | 2,173                                        |              |  |                         |       |   |                     |                        | 592    |              |       |   | 1,026                                                              |  |  |   | 2,725   |  |  |   | 3,750   |  |  |   | 1,168  |  |  |  | 1985 |  |  |  | 02/99 |  |  |  | 5-40 years | 
|Teleport, Las Colinas, TX                        |  |                        | 29      |  |              |                        | 642    |                                          |                 |   | 28                                           |              |  |                         |       |   |                     |                        |       |              |       |   | 642                                                                |  |  |   | 28      |  |  |   | 670     |  |  |   | 2      |  |  |  |     |  |  |  | 05/08 |  |  |  | 5-40 years | 
|Thermalloy, Farmers Branch, TX                   |  |                        | 59      |  |              |                        | 791    |                                          |                 |   | 1,061                                        |              |  |                         |       |   |                     |                        |       |              |       |   | 791                                                                |  |  |   | 1,061   |  |  |   | 1,852   |  |  |   | 69     |  |  |  |     |  |  |  | 05/08 |  |  |  | 5-40 years | 
|Westgrove Air Plaza, Addison, TX                 |  |                        | 2,233   |  |              |                        | 165    |                                          |                 |   | 1,483                                        |              |  |                         | (1,923 | ) |                     |                        | 645    |              |       |   | 182                                                                |  |  |   | 188     |  |  |   | 370     |  |  |   | 1,661  |  |  |  | 1982 |  |  |  | 10/97 |  |  |  | 5-40 years | 
|Willowbrook Village, Coldwater, MI               |  |                        | 5,239   |  |              |                        | 851    |                                          |                 |   | 7,663                                        |              |  |                         |       |   |                     |                        | 296    |              |       |   | 851                                                                |  |  |   | 7,959   |  |  |   | 8,811   |  |  |   | 1,018  |  |  |  | 1991 |  |  |  | 10/05 |  |  |  | 5-40 years | 
|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 126,799 |  |              | $                      | 19,413 |                                          |                 | $ | 118,844                                      |              |  | $                       | (3,774 | ) |                     | $                      | 43,820 |              |       | $ | 19,656                                                             |  |  | $ | 158,646 |  |  | $ | 178,302 |  |  | $ | 59,802 |  |  |  |      |  |  |  |       |  |  |  |            | 
|Hotels                                           |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|Inn at the Mart (Comfort Inn), Denver, CO        |  | $                      | 2,974   |  |              | $                      |       |                                          |                 | $ | 245                                          |              |  | $                       |       |   |                     | $                      | 2,792  |              |       | $ |                                                                   |  |  | $ | 3,037   |  |  | $ | 3,037   |  |  | $ | 2,769  |  |  |  | 1974 |  |  |  | 06/94 |  |  |  | 7-40 years | 
|PiccadillyAirport, Fresno, CA                   |  |                        | 11,593  |  |              |                        |       |                                          |                 |   | 7,678                                        |              |  |                         | (450   | ) |                     |                        | 873    |              |       |   | 15                                                                 |  |  |   | 8,087   |  |  |   | 8,102   |  |  |   | 3,163  |  |  |  | 1970 |  |  |  | 10/97 |  |  |  | 7-40 years | 
|PiccadillyChateau, Fresno, CA                   |  |                        | 3,555   |  |              |                        |       |                                          |                 |   | 3,676                                        |              |  |                         |       |   |                     |                        | 233    |              |       |   |                                                                   |  |  |   | 3,908   |  |  |   | 3,908   |  |  |   | 1,409  |  |  |  | 1989 |  |  |  | 10/97 |  |  |  | 7-40 years | 
|PiccadillyShaw, Fresno, CA                      |  |                        | 12,172  |  |              |                        | 2,392  |                                          |                 |   | 9,447                                        |              |  |                         | (1,450 | ) |                     |                        | 1,033  |              |       |   | 2,392                                                              |  |  |   | 9,031   |  |  |   | 11,423  |  |  |   | 3,952  |  |  |  | 1973 |  |  |  | 10/97 |  |  |  | 7-40 years | 
|PiccadillyUniversity, Fresno, CA                |  |                        | 4,542   |  |              |                        |       |                                          |                 |   | 11,639                                       |              |  |                         | (5,900 | ) |                     |                        | 1,130  |              |       |   |                                                                   |  |  |   | 6,869   |  |  |   | 6,869   |  |  |   | 4,544  |  |  |  | 1984 |  |  |  | 10/97 |  |  |  | 7-40 years | 
|                                                 |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|                                                 |  | $                      | 34,836  |  |              | $                      | 2,392  |                                          |                 | $ | 32,685                                       |              |  | $                       | (7,800 | ) |                     | $                      | 6,062  |              |       | $ | 2,407                                                              |  |  | $ | 30,932  |  |  | $ | 33,339  |  |  | $ | 15,837 |  |  |  |      |  |  |  |       |  |  |  |            | 
|Land                                             |  |                        |         |  |              |                        |        |                                          |                 |   |                                              |              |  |                         |        |   |                     |                        |        |              |       |   |                                                                    |  |  |   |         |  |  |   |         |  |  |   |        |  |  |  |      |  |  |  |       |  |  |  |            | 
|Ackerley Land, Dallas, TX                        |  | $                      | 4       |  |              | $                      | 150    |                                          |                 | $ |                                             |              |  | $                       |       |   |                     | $                      |       |              |       | $ | 150                                                                |  |  | $ |        |  |  | $ | 150     |  |  | $ |       |  |  |  |     |  |  |  | 06/08 |  |  |  |           | 
|Archon Land, Irving, TX                          |  |                        | 4,500   |  |              |                        | 6,671  |                                          |                 |   |                                             |              |  |                         | (1,255 | ) |                     |                        |       |              |       |   | 5,416                                                              |  |  |   |        |  |  |   | 5,416   |  |  |   |       |  |  |  |     |  |  |  | 07/08 |  |  |  |           | 
|Bonneau Land, Dallas County, TX                  |  |                        | 2,174   |  |              |                        | 770    |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        |       |              |       |   | 770                                                                |  |  |   |        |  |  |   | 770     |  |  |   |       |  |  |  |     |  |  |  | 02/98 |  |  |  |           | 
|Centura Land, Dallas, TX                         |  |                        | 7,121   |  |              |                        | 10,431 |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        | 709    |              |       |   | 11,140                                                             |  |  |   |        |  |  |   | 11,140  |  |  |   |       |  |  |  |     |  |  |  | 12/02 |  |  |  |           | 
|Chase Oaks Land, Plano, TX                       |  |                        | 1,696   |  |              |                        | 837    |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        |       |              |       |   | 837                                                                |  |  |   |        |  |  |   | 837     |  |  |   |       |  |  |  |     |  |  |  | 05/97 |  |  |  |           | 
|Creekside, Fort Worth, TX                        |  |                        | 495     |  |              |                        | 2,201  |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        |       |              |       |   | 2,201                                                              |  |  |   |        |  |  |   | 2,201   |  |  |   |       |  |  |  |     |  |  |  | 07/06 |  |  |  |           | 
|Crowley, Fort Worth, TX                          |  |                        | 422     |  |              |                        | 1,569  |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        |       |              |       |   | 1,569                                                              |  |  |   |        |  |  |   | 1,569   |  |  |   |       |  |  |  |     |  |  |  | 07/06 |  |  |  |           | 
|Dalho, Farmers Branch, TX                        |  |                        | 750     |  |              |                        | 266    |                                          |                 |   |                                             |              |  |                         |       |   |                     |                        |       |              |       |   | 266                                                                |  |  |   |        |  |  |   | 266     |  |  |   |       |  |  |  |     |  |  |  | 10/97 |  |  |  |           | 



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##### Table of Contents

SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |       |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |       |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|------------------------------------------------ |  | ---------------------- | ----- |  | ------------ | ---------------------- | ----- | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | --- | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | - |  |  |  | ----- |  |  |  | - |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                                 |  | Encumbrances           |       |  | Initial Cost |                        |       | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |     | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                |  |                        | Land  |  |              | Building &Improvements |       |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |     |              | Total |  |                                                                    |  |  | 
|                                                 |  | (dollars in thousands) |       |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |     
|Properties Subject to Sales Contract(Continued) |  |                        |       |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |       |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land(Continued)                                 |  |                        |       |  |              |                        |       |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |       |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Diplomat Drive, Farmers Branch, TX               |  |                        | 554   |  |              |                        | 1,479 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 1,479                                                              |  |  |  |  |  |  |  | 1,479 |  |  |  |  |  |  |  |  |  |  |  | 12/06 |  |  |  |  | 
|Dominion Tract, Dallas, TX                       |  |                        | 1,221 |  |              |                        | 2,036 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 2,036                                                              |  |  |  |  |  |  |  | 2,036 |  |  |  |  |  |  |  |  |  |  |  | 03/99 |  |  |  |  | 
|Eagle Crest, Dallas, TX                          |  |                        | 2,369 |  |              |                        | 2,066 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 58  |              |       |  | 2,124                                                              |  |  |  |  |  |  |  | 2,124 |  |  |  |  |  |  |  |  |  |  |  | 10/09 |  |  |  |  | 
|Fortune Drive, Irving, TX                        |  |                        | 1,002 |  |              |                        | 1,748 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 1,748                                                              |  |  |  |  |  |  |  | 1,748 |  |  |  |  |  |  |  |  |  |  |  | 03/08 |  |  |  |  | 
|Hollywood Casino Tract I, Farmers Branch, TX     |  |                        | 2,220 |  |              |                        | 3,236 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 135 |              |       |  | 3,370                                                              |  |  |  |  |  |  |  | 3,370 |  |  |  |  |  |  |  |  |  |  |  | 06/02 |  |  |  |  | 
|HSM Cummings, Farmers Branch, TX                 |  |                        | 1,582 |  |              |                        | 567   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 567                                                                |  |  |  |  |  |  |  | 567   |  |  |  |  |  |  |  |  |  |  |  | 08/98 |  |  |  |  | 
|JHL Connell, Carrollton, TX                      |  |                        | 783   |  |              |                        | 278   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 278                                                                |  |  |  |  |  |  |  | 278   |  |  |  |  |  |  |  |  |  |  |  | 02/98 |  |  |  |  | 
|KaufmanAdams, Kaufman County, TX                |  |                        | 357   |  |              |                        | 823   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 823                                                                |  |  |  |  |  |  |  | 823   |  |  |  |  |  |  |  |  |  |  |  | 05/08 |  |  |  |  | 
|KaufmanBridgewood, Kaufman County, TX           |  |                        | 115   |  |              |                        | 262   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 21  |              |       |  | 282                                                                |  |  |  |  |  |  |  | 282   |  |  |  |  |  |  |  |  |  |  |  | 04/08 |  |  |  |  | 
|KaufmanCogen Land, Forney, TX                   |  |                        | 2,058 |  |              |                        | 6,109 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 6,109                                                              |  |  |  |  |  |  |  | 6,109 |  |  |  |  |  |  |  |  |  |  |  | 12/05 |  |  |  |  | 
|KaufmanStagliano, Forney, TX                    |  |                        | 1,463 |  |              |                        | 4,119 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 67  |              |       |  | 4,185                                                              |  |  |  |  |  |  |  | 4,185 |  |  |  |  |  |  |  |  |  |  |  | 06/06 |  |  |  |  | 
|Kaufman Taylor, Kaufman County, TX               |  |                        | 179   |  |              |                        | 486   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 486                                                                |  |  |  |  |  |  |  | 486   |  |  |  |  |  |  |  |  |  |  |  | 11/05 |  |  |  |  | 
|Keenan Bridge Land, Farmers Branch, TX           |  |                        | 1,735 |  |              |                        | 676   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 676                                                                |  |  |  |  |  |  |  | 676   |  |  |  |  |  |  |  |  |  |  |  | 01/05 |  |  |  |  | 
|Lacy Longhorn Land, Farmers Branch, TX           |  |                        | 1,723 |  |              |                        | 1,908 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 1,908                                                              |  |  |  |  |  |  |  | 1,908 |  |  |  |  |  |  |  |  |  |  |  | 06/04 |  |  |  |  | 
|Las ColinasWalnut Hill, Las Colinas, TX         |  |                        | 408   |  |              |                        | 515   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 515                                                                |  |  |  |  |  |  |  | 515   |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|LCLLP (Kinwest/Hackberry), Los Colinas, TX       |  |                        | 7,298 |  |              |                        | 4,506 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 4,506                                                              |  |  |  |  |  |  |  | 4,506 |  |  |  |  |  |  |  |  |  |  |  | 12/04 |  |  |  |  | 
|Limestone Canyon II, Austin, TX                  |  |                        |      |  |              |                        | 428   |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 154 |              |       |  | 582                                                                |  |  |  |  |  |  |  | 582   |  |  |  |  |  |  |  |  |  |  |  | 06/00 |  |  |  |  | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|------------------------------------------------ |  | ---------------------- | ------ |  | ------------ | ---------------------- | ------ | ---------------------------------------- | --------------- |  | -------------------------------------------- | ------------ |  | ----------------------- | ---- |  | ------------------- | ---------------------- | --- | ------------ | ----- |  | ------------------------------------------------------------------ |  |  |  | - |  |  |  | ------ |  |  |  | - |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                                 |  | Encumbrances           |        |  | Initial Cost |                        |        | Cost CapitalizedSubsequent toAcquisition |                 |  | Gross Amounts at WhichCarried at End of Year |              |  | AccumulatedDepreciation |      |  | Date ofConstruction |                        |     | DateAcquired |       |  | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                |  |                        | Land   |  |              | Building &Improvements |        |                                          | AssetImpairment |  |                                              | Improvements |  |                         | Land |  |                     | Building &Improvements |     |              | Total |  |                                                                    |  |  | 
|                                                 |  | (dollars in thousands) |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |     
|Properties Subject to Sales Contract(Continued) |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land(Continued)                                 |  |                        |        |  |              |                        |        |                                          |                 |  |                                              |              |  |                         |      |  |                     |                        |     |              |       |  |                                                                    |  |  |  |   |  |  |  |        |  |  |  |   |  |  |  |   |  |  |  |       |  |  |  |   | 
|Marine Creek, Ft. Worth, TX                      |  |                        | 1,672  |  |              |                        | 2,427  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 243 |              |       |  | 2,670                                                              |  |  |  |   |  |  |  | 2,670  |  |  |  |  |  |  |  |  |  |  |  | 06/02 |  |  |  |  | 
|McKinney Ranch (20.8 acres), McKinney, TX        |  |                        | 5,259  |  |              |                        | 4,627  |                                          |                 |  |                                              |              |  |                         |     |  |                     |                        |     |              |       |  | 4,627                                                              |  |  |  |   |  |  |  | 4,627  |  |  |  |  |  |  |  |  |  |  |  | 11/09 |  |  |  |   | 
|Pac Trust, Farmers Branch, TX                    |  |                        | 1,237  |  |              |                        | 1,496  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 1,496                                                              |  |  |  |  |  |  |  | 1,496  |  |  |  |  |  |  |  |  |  |  |  | 10/01 |  |  |  |  | 
|Pantaze Land, Dallas, TX                         |  |                        | 299    |  |              |                        | 290    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 8   |              |       |  | 299                                                                |  |  |  |  |  |  |  | 299    |  |  |  |  |  |  |  |  |  |  |  | 11/05 |  |  |  |  | 
|Payne Land, Los Colinas, TX                      |  |                        | 13,200 |  |              |                        | 619    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 325 |              |       |  | 943                                                                |  |  |  |  |  |  |  | 943    |  |  |  |  |  |  |  |  |  |  |  | 12/04 |  |  |  |  | 
|Pioneer Crossing (97 acres), Austin, TX          |  |                        | 7,569  |  |              |                        | 2,171  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 756 |              |       |  | 2,927                                                              |  |  |  |  |  |  |  | 2,927  |  |  |  |  |  |  |  |  |  |  |  | 05/97 |  |  |  |  | 
|Ridgepoint Drive, Irving, TX                     |  |                        | 92     |  |              |                        | 189    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 189                                                                |  |  |  |  |  |  |  | 189    |  |  |  |  |  |  |  |  |  |  |  | 12/06 |  |  |  |  | 
|Senlac Land, Farmers Branch, TX                  |  |                        | 501    |  |              |                        | 365    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 365                                                                |  |  |  |  |  |  |  | 365    |  |  |  |  |  |  |  |  |  |  |  | 08/05 |  |  |  |  | 
|Stanley Tools, Farmers Branch, TX                |  |                        | 1,324  |  |              |                        | 4,987  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 4,987                                                              |  |  |  |  |  |  |  | 4,987  |  |  |  |  |  |  |  |  |  |  |  | 02/04 |  |  |  |  | 
|Temple Land, Temple, TX                          |  |                        | 3      |  |              |                        | 415    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 415                                                                |  |  |  |  |  |  |  | 415    |  |  |  |  |  |  |  |  |  |  |  | 07/98 |  |  |  |  | 
|Thompson Land I, Farmers Branch, TX              |  |                        | 1,157  |  |              |                        | 367    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 367                                                                |  |  |  |  |  |  |  | 367    |  |  |  |  |  |  |  |  |  |  |  | 10/97 |  |  |  |  | 
|Thompson II, Farmers Branch, TX                  |  |                        | 578    |  |              |                        | 305    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 305                                                                |  |  |  |  |  |  |  | 305    |  |  |  |  |  |  |  |  |  |  |  | 07/98 |  |  |  |  | 
|Three Hickory, Dallas, TX                        |  |                        | 5      |  |              |                        | 1,161  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 48  |              |       |  | 1,210                                                              |  |  |  |  |  |  |  | 1,210  |  |  |  |  |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|Tomlin Land, Farmers Branch, TX                  |  |                        | 723    |  |              |                        | 845    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 845                                                                |  |  |  |  |  |  |  | 845    |  |  |  |  |  |  |  |  |  |  |  | 10/97 |  |  |  |  | 
|Valley Ranch Land, Irving, TX                    |  |                        | 2,054  |  |              |                        | 5,826  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 5,826                                                              |  |  |  |  |  |  |  | 5,826  |  |  |  |  |  |  |  |  |  |  |  | 12/04 |  |  |  |  | 
|Valley View (Hutton/Senlac), Farmers Branch, TX  |  |                        | 170    |  |              |                        | 544    |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        |    |              |       |  | 544                                                                |  |  |  |  |  |  |  | 544    |  |  |  |  |  |  |  |  |  |  |  | 05/06 |  |  |  |  | 
|Valwood, Dallas, TX                              |  |                        | 22,400 |  |              |                        | 25,089 |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 301 |              |       |  | 25,390                                                             |  |  |  |  |  |  |  | 25,390 |  |  |  |  |  |  |  |  |  |  |  | 08/96 |  |  |  |  | 
|Whorton Land, Bentonville, AR                    |  |                        | 2,950  |  |              |                        | 4,291  |                                          |                 |  |                                             |              |  |                         |     |  |                     |                        | 6   |              |       |  | 4,297                                                              |  |  |  |  |  |  |  | 4,297  |  |  |  |  |  |  |  |  |  |  |  | 06/05 |  |  |  |  | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010



|                                                 |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 
|------------------------------------------------ |  | ---------------------- | --------- |  | ------------ | ---------------------- | ------- | ---------------------------------------- | --------------- | - | -------------------------------------------- | ------------ |  | ----------------------- | -------- | - | ------------------- | ---------------------- | ------- | ------------ | ----- | - | ------------------------------------------------------------------ |  |  | - | ------- |  |  | - | --------- |  |  | - | ------- |  |  |  | - |  |  |  | ----- |  |  |  | - | 
|                                                 |  | Encumbrances           |           |  | Initial Cost |                        |         | Cost CapitalizedSubsequent toAcquisition |                 |   | Gross Amounts at Which Carriedat End of Year |              |  | AccumulatedDepreciation |          |   | Date ofConstruction |                        |         | DateAcquired |       |   | Life on WhichDepreciationIn LatestStatementof Operationis Computed | 
|Property/Location                                |  |                        | Land      |  |              | Building &Improvements |         |                                          | AssetImpairment |   |                                              | Improvements |  |                         | Land     |   |                     | Building &Improvements |         |              | Total |   |                                                                    |  |  |  
|                                                 |  | (dollars in thousands) |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |         
|Properties Subject to Sales Contract(Continued) |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 
|Land-(Continued)                                 |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 
|Wilmer 88 Land, Dallas, TX                       |  |                        | 1,474     |  |              |                        | 673     |                                          |                 |   |                                             |              |  |                         |         |   |                     |                        |        |              |       |   | 673                                                                |  |  |   |        |  |  |   | 673       |  |  |   |        |  |  |  |  |  |  |  | 08/05 |  |  |  |  | 
|Windmill FarmsHarlan Land, Kaufman County, TX   |  |                        | 5,524     |  |              |                        | 6,660   |                                          |                 |   |                                             |              |  |                         | (1,136   | ) |                     |                        |        |              |       |   | 5,524                                                              |  |  |   |        |  |  |   | 5,524     |  |  |   |        |  |  |  |  |  |  |  | 07/08 |  |  |  |  | 
|Windmill Farms I, Kaufman County, TX             |  |                        | 30,718    |  |              |                        | 50,420  |                                          |                 |   |                                             |              |  |                         | (21,009  | ) |                     |                        | 12,587  |              |       |   | 41,998                                                             |  |  |   |        |  |  |   | 41,998    |  |  |   |        |  |  |  |  |  |  |  | 11/06 |  |  |  |  | 
|                                                 |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 
|                                                 |  | $                      | 141,136   |  |              | $                      | 167,902 |                                          |                 | $ |                                             |              |  | $                       | (23,400  | ) |                     | $                      | 15,418  |              |       | $ | 159,920                                                            |  |  | $ |        |  |  | $ | 159,920   |  |  | $ |        |  |  |  |   |  |  |  |       |  |  |  |   | 
|Total Properties Subject to Sales Contract       |  | $                      | 302,771   |  |              | $                      | 189,706 |                                          |                 | $ | 151,529                                      |              |  | $                       | (34,974  | ) |                     | $                      | 65,299  |              |       | $ | 181,983                                                            |  |  | $ | 189,577 |  |  | $ | 371,560   |  |  | $ | 75,639  |  |  |  |   |  |  |  |       |  |  |  |   | 
|                                                 |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 
|TOTAL: Real Estate                               |  | $                      | 1,236,983 |  |              | $                      | 535,304 |                                          |                 | $ | 901,747                                      |              |  | $                       | (101,945 | ) |                     | $                      | 206,668 |              |       | $ | 544,679                                                            |  |  | $ | 997,095 |  |  | $ | 1,541,774 |  |  | $ | 209,189 |  |  |  |   |  |  |  |       |  |  |  |   | 
|                                                 |  |                        |           |  |              |                        |         |                                          |                 |   |                                              |              |  |                         |          |   |                     |                        |         |              |       |   |                                                                    |  |  |   |         |  |  |   |           |  |  |   |         |  |  |  |   |  |  |  |       |  |  |  |   | 



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SCHEDULE III

(Continued)

AMERICAN REALTY INVESTORS, INC.

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2010

SCHEDULE III

(Continued)



|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|------------------------------------------- |  | ---------------------- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                            |  | 2010                   |           |   | 2009 |   |           | 2008 | 
|                                            |  | (dollars in thousands) |          
|Reconciliation of Real Estate               |  |                        |           |   |      |   |           |      |  |   |           |  
|Balance at January 1,                       |  | $                      | 1,792,562 |   |      | $ | 1,800,183 |      |  | $ | 1,665,232 |  
|Additions                                   |  |                        |           |   |      |   |           |      |  |   |           |  
|Acquisitions, improvements and construction |  |                        | 74,796    |   |      |   | 104,940   |      |  |   | 314,192   |  
|Deductions                                  |  |                        |           |   |      |   |           |      |  |   |           |  
|Sale of real estate                         |  |                        | (268,616  | ) |      |   | (67,584   | )    |  |   | (179,241  | )
|Asset impairments                           |  |                        | (56,968   | ) |      |   | (44,977   | )    |  |   |          |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|Balance at December 31,                     |  | $                      | 1,541,774 |   |      | $ | 1,792,562 |      |  | $ | 1,800,183 |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|Reconciliation of Accumulated Depreciation  |  |                        |           |   |      |   |           |      |  |   |           |  
|Balance at January 1,                       |  | $                      | 211,041   |   |      | $ | 186,781   |      |  | $ | 179,373   |  
|Additions                                   |  |                        |           |   |      |   |           |      |  |   |           |  
|Depreciation                                |  |                        | 26,370    |   |      |   | 32,454    |      |  |   | 27,646    |  
|Deductions                                  |  |                        |           |   |      |   |           |      |  |   |           |  
|Sale of real estate                         |  |                        | (28,222   | ) |      |   | (8,194    | )    |  |   | (20,238   | )
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  
|Balance at December 31,                     |  | $                      | 209,189   |   |      | $ | 211,041   |      |  | $ | 186,781   |  
|                                            |  |                        |           |   |      |   |           |      |  |   |           |  



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SCHEDULE IV

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                           |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|-------------------------------------------------------------------------- |  | ------------ | ----- |  | ----------------- |  | ----- | ---------------------- |  | --------------------------------------- |  | - | ---------------------- |  |  | ------------------------- | ----- |  | ---------------------------------------------------------- | - | ----- |  |  | - | - | 
|Description                                                                |  | InterestRate |       |  | FinalMaturityDate |  |       | Periodic Payment Terms |  | Prior Liens                             |  |   | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |       |  | Principal orLoans Subjectto DelinquentPrincipal orInterest |  
|                                                                           |  |              |       |  |                   |  |       |                        |  | (dollars in thousands)                  | 
|                                                                           |  |              |       |  |                   |  |      
|JUNIOR MORTGAGE LOANS                                                      |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |      |  |                                                            |   |       |  |  |   |   | 
|Dallas Fund XVII                                                           |  |              | 9.00  |  |                   |  | 10/09 |                        |  | Principle and interest due at maturity. |  | $ |                       |  |  | $                         | 4,303 |  |                                                            | $ | 1,432 |  |  | $ |  | 
|Secured by an assignment of partnership interests and litigation proceeds. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|OTHER                                                                      |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|2410 Partnership                                                           |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 145   |  |                                                            |   | 145   |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|3334Z APTS, LP                                                             |  |              | 6.50  |  |                   |  | 04/12 |                        |  |                                         |  |   |                       |  |  |                           | 1,875 |  |                                                            |   | 1,875 |  |  |   |  | 
|Secured by 3334Z Apartments                                                |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|ABC Land & Development                                                     |  |              | 10.00 |  |                   |  | 1/38  |                        |  |                                         |  |   |                        |  |  |                           | 5,779 |  |                                                            |   | 5,779 |  |  |   |  | 
|Secured by Marina Landing (256 Unit Apartment Complex)                     |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Christine Tunney                                                           |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 48    |  |                                                            |   | 48    |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Compton Partners                                                           |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 289   |  |                                                            |   | 289   |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|David Monier                                                               |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 96    |  |                                                            |   | 96    |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Earl Samson                                                                |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 96    |  |                                                            |   | 96    |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Edward Samson                                                              |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 96    |  |                                                            |   | 96    |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Hammon Operating Corporation                                               |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 193   |  |                                                            |   | 193   |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 
|                                                                           |  |              |       |  |                   |  |      
|Harold Wolfe                                                               |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.           |  |   |                       |  |  |                           | 193   |  |                                                            |   | 193   |  |  |   |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                         |  |   |                        |  |  |                           |       |  |                                                            |   |       |  |  |   |   | 



100



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SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                           |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|-------------------------------------------------------------------------- |  | ------------ | ------- |  | ----------------- |  | ------- | ---------------------- |  | ----------------------------------------------- |  |  | ---------------------- |  |  | ------------------------- | ----- |  | ---------------------------------------------------------- |  | ----- |  |  |  | - | 
|Description                                                                |  | InterestRate |         |  | FinalMaturityDate |  |         | Periodic Payment Terms |  | Prior Liens                                     |  |  | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |       |  | Principal orLoans Subjectto DelinquentPrincipal orInterest | 
|                                                                           |  |              |         |  |                   |  |         |                        |  | (dollars in thousands)                          | 
|                                                                           |  |              |         |  |                   |  |        
|Herrick Partners                                                           |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 91    |  |                                                            |  | 91    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Mark Small                                                                 |  |              | 18.00   |  |                   |  | 12/10   |                        |  | All principal and interest are due at maturity. |  |  |                       |  |  |                           | 587   |  |                                                            |  | 639   |  |  |  |  | 
|Secured by Collateral Assignment of Contract Proceeds                      |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Mary Ann MacLean                                                           |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 193   |  |                                                            |  | 193   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Michael Monier                                                             |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 304   |  |                                                            |  | 304   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Michale Witte                                                              |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 96    |  |                                                            |  | 96    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Miscellaneous Non-Related Party                                            |  |              | Various |  |                   |  | Various |                        |  |                                                 |  |  |                       |  |  |                           | 2,636 |  |                                                            |  | 2,137 |  |  |  |  | 
|Various Security Interest                                                  |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Miscellaneous Related Party                                                |  |              | Various |  |                   |  | Various |                        |  |                                                 |  |  |                       |  |  |                           | 542   |  |                                                            |  | 521   |  |  |  |  | 
|Various Security Interest                                                  |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Palmer Brown Madden                                                        |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 96    |  |                                                            |  | 96    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Peter Van Dyk Berg                                                         |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 193   |  |                                                            |  | 193   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Quintin Smith Jr.                                                          |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 193   |  |                                                            |  | 193   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |         |  |                   |  |        
|Richard Schmaltz                                                           |  |              | 10.00   |  |                   |  | 09/17   |                        |  | Interest only paid quarterly.                   |  |  |                       |  |  |                           | 203   |  |                                                            |  | 203   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |         |  |                   |  |         |                        |  |                                                 |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 



101



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SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                             |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|---------------------------------------------------------------------------- |  | ------------ | ----- |  | ----------------- |  | ----- | ---------------------- |  | ----------------------------- |  |  | ---------------------- |  |  | ------------------------- | ----- |  | ---------------------------------------------------------- |  | ----- |  |  |  | - | 
|Description                                                                  |  | InterestRate |       |  | FinalMaturityDate |  |       | Periodic Payment Terms |  | Prior Liens                   |  |  | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |       |  | Principal orLoans Subjectto DelinquentPrincipal orInterest | 
|                                                                             |  |              |       |  |                   |  |       |                        |  | (dollars in thousands)        | 
|                                                                             |  |              |       |  |                   |  |      
|Robert Baylis                                                                |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly. |  |  |                       |  |  |                           | 193   |  |                                                            |  | 193   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P.   |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Sherman Bull                                                                 |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly. |  |  |                       |  |  |                           | 193   |  |                                                            |  | 193   |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P.   |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|TrustBrett & Nicole Monier                                                  |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly. |  |  |                       |  |  |                           | 33    |  |                                                            |  | 33    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P.   |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|TrustDavid Monier                                                           |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly. |  |  |                       |  |  |                           | 33    |  |                                                            |  | 33    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P.   |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|TrustJoseph Monier                                                          |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly. |  |  |                       |  |  |                           | 32    |  |                                                            |  | 32    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P.   |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Cliffs of El Dorado/UH of McKinney, LLC)   |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow              |  |  | 9,607                  |  |  |                           | 2,003 |  |                                                            |  | 439   |  |  |  |  | 
|100% Interest in UH of Mckinney, LLC                                         |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Cliffs of El Dorado/UH of McKinney, LLC)   |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow              |  |  | 9,607                  |  |  |                           | 2,990 |  |                                                            |  | 2,469 |  |  |  |  | 
|100% Interest in UH of Mckinney, LLC                                         |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Echo Station/UH of Temple, LLC)            |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow              |  |  | 9,928                  |  |  |                           | 1,054 |  |                                                            |  | 1,668 |  |  |  |  | 
|100% Interest in UH of Temple, LLC                                           |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Fountains of Burleson/UH of Burleson, LLC) |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow              |  |  | 7,446                  |  |  |                           | 785   |  |                                                            |  | 694   |  |  |  |  | 
|100% Interest in UH of Burleson, LLC                                         |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                             |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Inwood on the Park/UH of Inwood, LLC)      |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow              |  |  | 23,316                 |  |  |                           | 4,213 |  |                                                            |  | 5,059 |  |  |  |  | 
|100% Interest in UH of Inwood, LLC                                           |  |              |       |  |                   |  |       |                        |  |                               |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 



102



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##### Table of Contents

SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                                           |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|------------------------------------------------------------------------------------------ |  | ------------ | ---- |  | ----------------- |  | ----- | ---------------------- |  | ------------------------------------------------------------------------- |  |  | ---------------------- |  |  | ------------------------- | ----- |  | ---------------------------------------------------------- |  | ----- |  |  |  | - | 
|Description                                                                                |  | InterestRate |      |  | FinalMaturityDate |  |       | Periodic Payment Terms |  | Prior Liens                                                               |  |  | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |       |  | Principal orLoans Subjectto DelinquentPrincipal orInterest | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  | (dollars in thousands)                                                    | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Kensington Park/UH of Kensington, LLC)                   |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 19,713                 |  |  |                           | 4,300 |  |                                                            |  | 3,984 |  |  |  |  | 
|100% Interest in UH of Kensington, LLC                                                     |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC (31.5% of cash flow) |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 12,790                 |  |  |                           | 6,363 |  |                                                            |  | 6,363 |  |  |  |  | 
|100 % Interest in Unified Housing Foundation Inc.                                          |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble, LLC)                     |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 16,223                 |  |  |                           | 2,220 |  |                                                            |  | 2,733 |  |  |  |  | 
|100% Interest in HFS of Humble, LLC                                                        |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Limestone Canyon/UH of Austin, LLC)                      |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 14,093                 |  |  |                           | 3,080 |  |                                                            |  | 7,652 |  |  |  |  | 
|100% Interest in UH of Austin, LLC                                                         |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Limestone Ranch/UH of Vista Ridge, LLC)                  |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 13,109                 |  |  |                           | 2,320 |  |                                                            |  | 7,323 |  |  |  |  | 
|100% Interest in UH of Vista Ridge, LLC                                                    |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Marquis at Vista Ridge/HFS of Lewisville, LLC)           |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 14,961                 |  |  |                           | 1,770 |  |                                                            |  | 1,826 |  |  |  |  | 
|100% Interest in UH of Lewisville, LLC                                                     |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Parkside Crossing/UH of Parkside Crossing, LLC)          |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 11,525                 |  |  |                           | 272   |  |                                                            |  | 1,936 |  |  |  |  | 
|100% Interest in UH of Parkside Crossing, LLC                                              |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Parkside Crossing/UH of Parkside Crossing, LLC)          |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 11,525                 |  |  |                           | 1,223 |  |                                                            |  | 336   |  |  |  |  | 
|100% Interest in UH of Parkside Crossing, LLC                                              |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Plaza at Chase Oaks/UH of Chase Oaks, LLC)               |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow                                                          |  |  | 13,766                 |  |  |                           | 398   |  |                                                            |  | 132   |  |  |  |  | 
|100% Interest in UHF Chase Oaks                                                            |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                                           |  |              |      |  |                   |  |      
|Unified Housing Foundation, Inc. (Reserve at White Rock I & II and Trails at White Rock)   |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Interest compounded annually. All principal and interest due at maturity. |  |  | 50,721                 |  |  |                           | 4,982 |  |                                                            |  | 8,895 |  |  |  |  | 
|100% Interest in UH of Harvest Hill, Harvest Hill I and Harvest Hill III                   |  |              |      |  |                   |  |       |                        |  |                                                                           |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 



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SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                           |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|-------------------------------------------------------------------------- |  | ------------ | ----- |  | ----------------- |  | ----- | ---------------------- |  | -------------------------------------------------------------- |  |  | ---------------------- |  |  | ------------------------- | ----- |  | ---------------------------------------------------------- |  | ----- |  |  |  | - | 
|Description                                                                |  | InterestRate |       |  | FinalMaturityDate |  |       | Periodic Payment Terms |  | Prior Liens                                                    |  |  | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |       |  | Principal orLoans Subjectto DelinquentPrincipal orInterest | 
|                                                                           |  |              |       |  |                   |  |       |                        |  | (dollars in thousands)                                         | 
|                                                                           |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (UH of
Samsung, Inc.)                     |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow                                               |  |  |                       |  |  |                           | 584   |  |                                                            |  | 720   |  |  |  |  | 
|100% Interest in UH of Samsung I, LLC                                      |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Sendero
Ridge)                           |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow                                               |  |  | 23,581                 |  |  |                           | 2,942 |  |                                                            |  | 9,986 |  |  |  |  | 
|100% Interest in UH of Sendero Ridge, LLC                                  |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Timbers at the Park/UH of Terrell, LLC)  |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow                                               |  |  | 7,201                  |  |  |                           | 837   |  |                                                            |  | 2,250 |  |  |  |  | 
|100% Interest in UH of Terrell LLC                                         |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (Tivoli)                                  |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow                                               |  |  | 10,759                 |  |  |                           | 1,615 |  |                                                            |  | 9,197 |  |  |  |  | 
|100% Interest in UH of Tivoli, LLC                                         |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|Unified Housing Foundation, Inc. (UH of Walnut Hill
Crossing, LLC)         |  |              | 5.25  |  |                   |  | 12/27 |                        |  | Excess cash flow                                               |  |  |                       |  |  |                           | 300   |  |                                                            |  | 369   |  |  |  |  | 
|100% Interest in UH of Walnut Park Crossing, LLC                           |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|William Ingram                                                             |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.                                  |  |  |                       |  |  |                           | 96    |  |                                                            |  | 96    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|William Urkiel                                                             |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.                                  |  |  |                       |  |  |                           | 96    |  |                                                            |  | 96    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|130 Willingham Trust                                                       |  |              | 10.00 |  |                   |  | 09/17 |                        |  | Interest only paid quarterly.                                  |  |  |                       |  |  |                           | 96    |  |                                                            |  | 96    |  |  |  |  | 
|Class A limited partnership interests in Edina Park Plaza Associates, L.P. |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|                                                                           |  |              |       |  |                   |  |      
|UNSECURED LOANS                                                            |  |              |       |  |                   |  |       |                        |  |                                                                |  |  |                        |  |  |                           |       |  |                                                            |  |       |  |  |  |   | 
|Windmill Farms, L.P.                                                       |  |              | 7.00  |  |                   |  | 10/11 |                        |  |                                                                |  |  |                       |  |  |                           | 770   |  |                                                            |  | 507   |  |  |  |  | 
|                                                                           |  |              |       |  |                   |  |      
|Garden Centura, L.P.                                                       |  |              | 7.00  |  |                   |  | None  |                        |  | Excess property cash flow payments or property sales proceeds. |  |  |                       |  |  |                           |      |  |                                                            |  | 3,056 |  |  |  |  | 
|Leman Development, Ltd.                                                    |  |              | 7.00  |  |                   |  | 10/11 |                        |  |                                                                |  |  |                       |  |  |                           | 1,500 |  |                                                            |  | 1,500 |  |  |  |  | 
|Tracy Suttles                                                              |  |              | 0.00  |  |                   |  | 11/13 |                        |  | Due at maturity.                                               |  |  |                       |  |  |                           | 2,147 |  |                                                            |  | 1,077 |  |  |  |  | 



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SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOANS ON REAL ESTATE

December 31, 2010



|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   |         |   |  |   |   | 
|------------------------------------------------------------------------------------------ |  | ------------ | ---- |  | ----------------- |  | ----- | ---------------------- |  | ---------------------- |  | - | ---------------------- |  |  | ------------------------- | ------ |  | ---------------------------------------------------------- | - | ------- | - |  | - | - | 
|Description                                                                                |  | InterestRate |      |  | FinalMaturityDate |  |       | Periodic Payment Terms |  | Prior Liens            |  |   | Face Amountof Mortgage |  |  | CarryingAmount ofMortgage |        |  | Principal orLoans Subjectto DelinquentPrincipal orInterest |  
|                                                                                           |  |              |      |  |                   |  |       |                        |  | (dollars in thousands) | 
|Unified Housing Foundation, Inc. (North Ridge/HAF of Dallas, LLC)                          |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Due at maturity.       |  |   | 14,030                 |  |  |                           | 451    |  |                                                            |   | 305     |   |  |   |  | 
|Unified Housing Foundation, Inc. (Lakeshore Villas/HFS of Humble,LLC) (68.5% of cash flow) |  |              | 5.25 |  |                   |  | 12/27 |                        |  | Excess cash flow       |  |   | 16,223                 |  |  |                           | 2,000  |  |                                                            |   | 2,000   |   |  |   |  | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   |         |   |  |   |   | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  | $ | 310,124                |  |  | $                         | 70,138 |  |                                                            | $ | 98,156  |   |  | $ |  | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   |         |   |  |   |   | 
|Interest                                                                                   |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   | 4,806   |   |  |   |   | 
|Allowance for estimated losses                                                             |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   | (14,348 | ) |  |   |   | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   |         |   |  |   |   | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            | $ | 88,614  |   |  |   |   | 
|                                                                                           |  |              |      |  |                   |  |       |                        |  |                        |  |   |                        |  |  |                           |        |  |                                                            |   |         |   |  |   |   | 



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SCHEDULE IV

(Continued)

AMERICAN REALTY INVESTORS, INC.

MORTGAGE LOAN RECEIVABLES ON REAL ESTATE

December 31, 2010



|                                                                                                    |  |                        |         |   |      |   |         |      |  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                    |  | 2010                   |         |   | 2009 |   |         | 2008 | 
|                                                                                                    |  | (dollars in thousands) |        
|Balance at January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |  | $                      | 94,980  |   |      | $ | 88,877  |      |  | $ | 86,445 |  
|Additions                                                                                           |  |                        |         |   |      |   |         |      |  |   |        |  
|New mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          |  |                        | 29,309  |   |      |   | 32,096  |      |  |   | 7,366  |  
|Funding of existing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           |  |                        | 12,315  |   |      |   | 7,753   |      |  |   |       |  
|Increase of interest receivable on mortgage loans . . . . . . . . . . . . . .                       |  |                        | 6,315   |   |      |   | 6,350   |      |  |   |       |  
|Deductions                                                                                          |  |                        |         |   |      |   |         |      |  |   |        |  
|Collection of principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         |  |                        | (11,121 | ) |      |   | (40,654 | )    |  |   | (8,588 | )
|Conversion to property interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .             |  |                        |        |   |      |   | 3,518   |      |  |   | 3,654  |  
|Non-cash reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         |  |                        | (28,836 | ) |      |   | (2,960  | )    |  |   |       |  
|                                                                                                    |  |                        |         |   |      |   |         |      |  |   |        |  
|Balance at December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       |  | $                      | 102,962 |   |      | $ | 94,980  |      |  | $ | 88,877 |  
|                                                                                                    |  |                        |         |   |      |   |         |      |  |   |        |  



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|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|ITEM 9A(T). | CONTROLS AND PROCEDURES
|----------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Under the supervision and
with the participation of our management, including our Principal Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) of the
Securities Exchange Act of 1934, as amended (the Exchange Act), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified by the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of
internal control over financial reporting. These limitations include the possibility of human error, the circumvention of overriding of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with policies or procedures may deteriorate.

Management assessed the effectiveness of the Companys internal
control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on managements assessments and those criteria, management has concluded that Companys internal control over financial reporting was effective as of December 31, 2010.

This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal
control over financial report. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide
only managements report in this annual report.

Changes in Internal Control over Financial Reporting

In preparation for managements report on internal control over financial reporting, we documented and tested the design and
operating effectiveness of our internal control over financial reporting. There were no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended
December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|Item 9B. | OTHER INFORMATION
|-------- | -----------------

Not applicable.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Directors

The affairs of ARL are managed by a Board of Directors. The
Directors are elected at the annual meeting of stockholders or are appointed by the incumbent Board and serve until the next annual meeting of stockholders or until a successor has been elected or appointed.

After December 31, 2003, a number of changes occurred in the composition of the Board of Directors of ARL, the creation of certain
Board Committees, the adoption of Committee charters, the adoption of a Code of Ethics for Senior Financial Officers, and the adoption of Guidelines for Director Independence. Also, the composition of the members of the Board of Directors changed
with the resignation of Earl D. Cecil (on February 29, 2004), as well as the election of independent directors, Ted R. Munselle and Sharon Hunt, on February 20, 2004, and Robert A. Jakuszewski on November 22, 2005.

It is the Boards objective that a majority of the Board consists of independent directors. For a Director to be considered
independent, the Board must determine that the Director does not have any direct or indirect material relationship with ARL. The Board has established guidelines to assist it in determining director independence which conform to, or are more
exacting than, the independence requirements in the New York Stock Exchange listing rules. The independence guidelines are set forth in ARLs Corporate Governance Guidelines. The text of this document has been posted on ARLs
Internet website at http://www.amrealtytrust.com and is available in print to any shareholder who requests it. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independence
determination.

ARL has adopted a code of conduct that applies to all Directors, officers and employees, including our
principal executive officer, principal financial officer, and principal accounting officer. Stockholders may find our code of conduct on our website by going to our website address at http://www.amrealtytrust.com. We will post any amendments
to the code of conduct, as well as any waivers that are required to be disclosed by the rules of the SEC or the New York Stock Exchange, on our website.

Our Board of Directors has adopted charters for our Audit, Compensation, and Governance and Nominating Committees of the Board of Directors. Stockholders may find these documents on our website by going
to the website address at http://www.amrealtytrust.com. You may also obtain a printed copy of the materials referred to by contacting us at the following address:

American Realty Investors, Inc.

Attn: Investor Relations

1800 Valley View Lane, Suite 300

Dallas, Texas 75234

Telephone: 469-522-4200

All members of the Audit Committee and the Governance and Nominating Committee must be independent directors. Members of the Audit
Committee must also satisfy additional independence requirements, which provide (i) that they may not accept, directly or indirectly, any consulting, advisory, or compensatory fee from ARL or any of its subsidiaries other than their
Directors compensation (other than in their capacity as a member of the Audit Committee, the Board of Directors, or any other committee of the Board), and (ii) no member of the Audit Committee may be an affiliated person of
ARL or any of its subsidiaries, as defined by the Securities and Exchange Commission.

Effective at the close of business of
January 31, 2011, Sharon Hunt resigned as a Director and Chairman of the Compensation Committee of the Board of Directors of American Realty Investors, Inc. Ms. Hunt had been a director of the Company since February 2004. Ms. Hunt,
age 67, is a licensed realtor in the Dallas, Texas area, retired. At the time of her resignation as a Director, Ms. Hunt had no disagreement with the Registrant on any matter relating to the Registrants operations, policies or practices.



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On February 1, 2011, the Board of Directors of the Company elected Martha C. Stephens,
age 64 as a Director to fill the vacancy on the Board of Directors created by the resignation of Sharon Hunt. On February 1, 2011, the Board of Directors of the Company also elected RL S. Lemke, age 54, as a director to fill a vacancy on the
Board of Directors. Mr. Lemke was also elected as Vice President of the Company on that date. Mr. Lemke is Vice President, Project Development for Prime. Mr. Lemke has been so employed for more than the past five years. Mr. Lemke
holds a Juris Doctor degree (1982) from Creighton University School of Law.

The current Directors of ARL are listed
below, together with their ages, terms of service, all positions and offices with ARL, its former advisor (BCM), or current advisor (Prime), which took over as contractual advisor for BCM on July 1, 2003, their principal occupations, business
experience, and directorships with other companies during the last five years or more. The designation Affiliated, when used below with respect to a Director, means that the Director is an officer, director, or employee of BCM or Prime,
an officer of ARL, or an officer or director of an affiliate of ARL. The designation Independent, when used below with respect to a Director, means that the Director is neither an officer of ARL nor a director, officer, or employee of
BCM or Prime (but may be a director of ARL), although ARL may have certain business or professional relationships with such Director as discussed in Part III, Item 13. Certain Relationships and Related Transactions and Director
Independence.

HENRY A. BUTLER: Age 60, Director (Affiliated) (since July 2003) and Chairman of the Board since
May 28, 2009.

Mr. Butler is Vice President Land Sales (since July 2003) for Prime Income Asset
Management, LLC (Prime), the contractual advisor to the Company. Mr. Butler is Chairman of the Board (since May 2009) and a Director (since July 2003) of the Company and Chairman of the Board (since May 2009) and a Director (since
December 2001 ) of Transcontinental Realty Investors, Inc., a Nevada corporation (TCI) which has its Common Stock listed and traded on the New York Stock Exchange (NYSE) and a Director (December 2001 to July 2003) and again
(since February 2011) of Income Opportunity Realty Investors, Inc., a Nevada corporation (IOT) which has its Common Stock listed and traded on the American Stock Exchange (AMEX) and Owner/Operator (1989 to 1991) of Butler
Interests, Inc.

ROBERT A. JAKUSZEWSKI:Age 48, Director (Independent) (since November 2005).

Mr Jakuszewski was Vice President of Sales and Marketing (since September 1998) of New Horizons Communications, Inc.,
a Consultant (January 1998September 1998) for New Horizon Communications, Inc.; Regional Sales Manager (1996-1998) of Continental Funding; Territory Manager (1992-1996) of Sigvaris, Inc.; Senior Sales Representative (1988-1992) of
Mead Johnson Nutritional Division, USPNG; Sales Representative (1986-1987) of Muro Pharmaceutical, Inc.; and Director of IOT (since March 16, 2004) and Director of TCI (since November 22, 2005).

RL S. LEMKE:Age 54, Director (Affiliated) (since February 2011)

Mr. Lemke is Vice President, Project Development (since 1999) for Prime, the contractual advisor to the Company.
Mr. Lemke has been a Director (since February 2011) of TCI and a Director (since February 2011) of IOT. Mr. Lemke holds a Juris Doctor degree from Creighton University of Law. Mr. Lemkes primary focus is the development of Mercer
Crossing, the 1,200 acre urban density mixed-use development in the heart of the Dallas/Ft. Worth Metroplex. At different times since 1984, Mr. Lemke has worked for companies, dealing with land projects, large and small, from Puerto Rico
through to Hawaii as well as commercial tracts and the Tahoe Reno Industrial Center.

MARTHA C. STEPHENS,Age
64, Director (Independent) (Since February 2011).

Ms. Stephens is retired and has been so for more
than three years. Until January 2007 and for more than five years prior thereto, she was employed in various administrative capacities by Prime, the contractual advisor to the Company, and other entities. Ms. Stephens is also a member of the
Board of



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Directors since February 23, 2007 of IOT. On May 7, 2009, Ms. Stephens was elected Chairman of the Board of IOT, a position she continues to hold. Also on February 1, 2011,
Ms. Stephens was elected as a member of the Compensation Committee and Chairperson of such Compensation Committee and appointed as a member of the Governance and Nominating Committee of the Board of Directors of the Company. Ms. Stephens
has also been elected (on February 1, 2011) a Director of TCI.

TED R. MUNSELLE:Age 55, Director (Independent)
(since February 2004).

Mr. Munselle is Vice President and Chief Financial Officer (since October 1998) of
Landmark Nurseries, Inc.; he was President (December 2004 to August 2007) of Applied Educational Opportunities LLC, an educational organization which had career training schools located in the cities of Richardson and Tyler, Texas. He is a certified
public accountant (since 1980) who was employed as an Audit Partner in two Dallas, Texas based CPA firms (1986 to 1998), as an Audit Manager at Grant Thornton, LLP (1983 to 1986) and as Audit Staff to Audit Supervisor at Laventhol & Horwath
(1977 to 1983). Mr. Munselle has also been a director (since February 20, 2004) of TCI, a Nevada corporation which has its common stock listed and traded on the New York Stock Exchange (NYSE), as well as a director (since May
2009) of IOT, a Nevada corporation which has its common stock listed and traded on the American Stock Exchange (the AMEX). Mr. Munselle is qualified as an Audit Committee financial expert within the meaning of SEC regulations and
the Board of Directors of ARL has determined that he has accounting and related financial management expertise within the meaning of the listing standards of the NYSE.

Board Meetings and Committees

The Board of Directors held eight meetings
during 2010. For such year, no incumbent Director attended fewer than 88.0% of the aggregate of (1) the total number of meetings held by the Board during the period for which he/she had been a Director and (2) the total number of meetings
held by all committees of the Board on which he/she served during the periods that he/she served.

The Board of Directors has
standing Audit, Compensation, and Governance and Nominating Committees.

Audit Committee.    The
current Audit Committee was formed on February 19, 2004, and its function is to review ARLs operating and accounting procedures. The charter of the Audit Committee has also been adopted by the Board. The charter of the Audit Committee was
adopted on February 19, 2004 and is available on the companys investor relations website (www.amrealtytrust.com). The Audit Committee is an audit committee for purposes of Section 3(a) (58) of the Securities
Exchange Act of 1934. The current members of the Audit Committee, all of whom are independent within the meaning of the SEC Regulations, the listing standards of the New York Stock Exchange, Inc., and ARLs Corporate Governance Guidelines, are
Messrs. Jakuszewski and Munselle (Chairman) and Ms. Stephens. Mr. Ted R. Munselle, a member of the Committee, is qualified as an Audit Committee financial expert within the meaning of SEC Regulations, and the Board has determined that
he has accounting and related financial management expertise within the meaning of the listing standards of the New York Stock Exchange, Inc. All of the members of the Audit Committee meet the experience requirements of the listing standards of
the listing standards of the New York Stock Exchange. The Audit Committee met eight times during 2010.

Governance and
Nominating Committee.    The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of
ARLs Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also prepares and
supervises the Boards annual review of director independence and the Boards performance self-evaluation. The Charter of the Governance and Nominating Committee was adopted on March 22, 2004. The current members of the Committee are
Messrs. Jakuszewski (Chairman), and Munselle and Ms. Stephens. The Governance and Nominating Committee met once during 2010.



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Compensation Committee.    The Compensation Committee is
responsible for overseeing the policies of the Company relating to compensation to be paid by the Company to the Companys principal executive officer and any other officers designated by the Board and make recommendations to the Board with
respect to such policies, produce necessary reports and executive compensation for inclusion in the Companys Proxy Statement in accordance with applicable rules and regulations and to monitor the development and implementation of succession
plans for the principal executive officers and other key executives and make recommendations to the Board with respect to such plans. The charter of the Compensation Committee was adopted on March 22, 2004, and is available on the
Companys Investor Relations website (www.amrealtytrust.com). The current members of the Compensation Committee are Ms. Stephens (Chairman) and Messrs. Jakuszewski and Munselle. All of the members of the Compensation Committee are
independent within the meaning of the listing standards of the NYSE and the Companys Corporate Governance Guidelines. The Compensation Committee is to be comprised of at least two directors who are independent of Management and the Company.
The Compensation Committee met once during 2010.

The members of the Board of Directors on the date of this Report and the
Committees of the Board on which they serve are identified below:



|                      |  |                 |  |                                    |  |                       
|--------------------- |  | --------------- |  | ---------------------------------- |  | ----------------------
|                      |  | Audit Committee |  | Governance andNominating Committee |  | Compensation Committee
|                      |  |                 | 
|Martha C. Stephens    |  | X               |  | Chair                              |  | X                     
|                      |  |                 | 
|Robert A. Jakuszewski |  | X               |  | X                                  |  | Chair                 
|                      |  |                 | 
|Ted R. Munselle       |  | Chair           |  | X                                  |  | X                     
|                      |  |                 | 
|Henry A. Butler       |  |                 |  |                                    |  |                       
|                      |  |                 | 
|RL S. Lemke           |  |                 |  |                                    |  |                       

Presiding Director

In March 2004, the Board created a new position of presiding director, whose primary responsibility is to preside over periodic executive sessions of the Board in which Management directors and other
members of Management do not participate. The presiding director also advises the Chairman of the Board and, as appropriate, Committee Chairs with respect to agendas and information needs relating to Board and Committee meetings, provides advice
with respect to the selection of Committee Chairs and performs other duties that the Board may from time to time delegate to assist the Board in fulfillment of its responsibilities.

In September 2010, the non-management members of the Board designated Ted R. Munselle as presiding director to serve in this
position until the Companys annual meeting of stockholders to be held following the fiscal year ended December 31, 2011.

Determination of Directors Independence

In February 2004, the Board adopted its Corporate Governance Guidelines. The Guidelines adopted by the Board meet or exceed the new listing standards adopted during that year by the New York Stock
Exchange. The full text of the Guidelines can be found on the Companys Investor Relations website (www.amrealtytrust.com).

Pursuant to the Guidelines, the Board undertook its annual review of director independence in March 2009, and during this review, the Board considered transactions and relationships between each director
or any member of his or her immediate family and ARL and its subsidiaries and affiliates, including those reported under Certain Relationships and Related Transactions below. The Board also examined transactions and relationships between directors
or their affiliates and members of ARLs senior management or their affiliates. As provided in the Guidelines, the purpose of such review was to determine whether such relationships or transactions were inconsistent with the determination that
the director is independent.



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As a result of this review, the Board affirmatively determined of the then directors,
Messrs. Munselle and Jakuszewski and Ms. Stephens are each independent of the Company and its Management under the standards set forth in the Corporate Governance Guidelines.

Executive Officers

Executive officers of the Company are listed below, all
except one of whom are employed by Prime. None of the executive officers receive any direct remuneration from the Company nor do any hold any options granted by the Company. Their positions with the Company are not subject to a vote of stockholders.
In addition to the following executive officers, the Company has several vice presidents and assistant secretaries who are not listed herein. The ages, terms of service and all positions and offices with the Company, Prime, BCM, other entities,
other principal occupations, business experience and directorships with other publicly held companies during the last five years or more are set forth below.

DANIEL J. MOOS, 60

President (since April 2007) and Chief
Executive Officer (effective March 2010) of ARL, TCI, IOT and (effective March 2007) of Prime; Senior Vice President and Business Line Manager of U.S. Bank (NYSE) working out of their offices in Houston, Texas from 2003 to April 2007; Executive Vice
President and Chief Financial Officer, Fleetcor Technologies a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice President and Chief Financial Officer, ICSA a privately held
internet security and information company headquartered in Carlisle, Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles for PhoneTel Technologies, Inc. which was a
publicly traded telecommunication company on the American Stock Exchange headquartered in Cleveland, Ohio (1992 to 1996) and LDI which was a publicly traded computer equipment sales/service and asset leasing company listed on the NASDAQ and
headquartered in Corporation of Cleveland, Ohio.

GENE S. BERTCHER, 62

Executive Vice President (since February 2008) and Chief Financial Officer (since Oct. 28, 2009) of the Company, TCI and
IOT. Mr. Bertcher is also Chief Executive Officer (from December 2006 to present), Chief Financial Officer (since November 1989) and a Director (from November 1989 to September 1996 and from June 1999 to present) of New Concept Energy, Inc.
(NCE), a Nevada corporation which has its common stock listed on the American Stock Exchange. Mr. Bertcher has been employed by NCE since November 1989. He has been a Certified Public Accountant since 1973. Mr. Bertcher is also
a Director, Vice President and Treasurer (since March 24, 2009) of First Equity Properties, Inc., a Nevada corporation with securities registered under Section 12(g) of the Exchange Act.

LOUIS J. CORNA, 63

Executive Vice President, General Counsel/Tax Counsel and Secretary (since February 2004), Executive Vice PresidentTax (October 2001 to February 2004), Executive Vice PresidentTax and Chief
Financial Officer (June 2001 to October 2001) and Senior Vice PresidentTax (December 2000 to June 2001) of ARL, TCI, IOT and BCM; Executive Vice President, General Counsel/Tax Counsel and Secretary (since February 2004), Executive Vice
PresidentTax (July 2003 to February 2004) of Prime and PIAMI; Private Attorney (January 2000 to December 2000); Vice PresidentTaxes and Assistant Treasurer (March 1998 to January 2000) of IMC Global, Inc.; Vice PresidentTaxes (July
1991 to February 1998) of Whitman Corporation. Mr. Corna was also a Director and Vice President (June 2004 to December 2010) and Secretary (January 2005 to December 2010) of First Equity Properties, Inc., a Nevada corporation with
securities registered under Section 12(g) of the Exchange Act.



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ALFRED CROZIER, 58

Executive Vice PresidentResidential Construction (since November 2006) of ARL, TCI and IOT; Managing Director of
Development for Woodmont Investment Company GP, LLC of Dallas, Texas from November 2005 to November 2006; President of Sterling Builders, Inc. of Spring, Texas from October 2003 to November 2005; Vice President of Westchase Construction, Ltd. of
Houston, Texas from August 2001 to September 2003. For more than five years prior thereto, Mr. Crozier was employed by various firms in the construction industry including, Trammell Crow Residential (February 1995 through February 2000) and The
Finger Companies (August 1991 through February 1995). Mr. Crozier is a licensed architect.

Officers

Although not an executive officer of the Company, Daeho Kim currently serves as Treasurer. His position with the Company is not
subject to a vote of stockholders. His age, term of service and all positions and offices with the Company, other principal occupations, business experience and relationships with other entities during the last five years or more are set forth
below.

DAEHO KIM, 34

Treasurer (since October 29, 2008) of ARL, TCI and IOT. For more than five years prior thereto, Mr. Kim has been employed by Prime in various financial capacities including Cash Manager and
Assistant Director of Capital Markets.

Code of Ethics

ARL has adopted a code of ethics entitled Code of Business Conduct and Ethics that applies to all directors, officers, and employees (including those of the contractual Advisor to ARL). In
addition, ARL has adopted a code of ethics entitled Code of Ethics for Senior Financial Officers that applies to the principal executive officer, president, principal financial officer, chief financial officer, principal accounting
officer, and controller. The text of these documents has been posted on ARLs internet website at http://www.amrealtytrust.com and are available in print to any stockholder who requests them.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Under the securities laws of the United States, ARLs Directors, executive officers, and any persons holding more than 10% of ARLs shares of common stock are required to report their ownership
and any changes in that ownership to the Securities and Exchange Commission (the Commission). Specific due dates for these reports have been established and ARL is required to report any failure to file by these dates. All of these
filing requirements were satisfied by ARLs directors and executive officers and 10% holders during the fiscal year ended December 31, 2010. In making these statements, ARL has relied on the written representations of its incumbent
Directors and executive officers and its 10% holders and copies of the reports that they have filed with the Commission.

The Advisor

Although the Board of Directors is directly responsible for managing the affairs of ARL and for setting the policies which
guide it, the day-to-day operations of ARL are performed by Prime, a contractual advisor under the supervision of the Board. The duties of the advisor include, among other things, locating, investigating, evaluating and recommending real estate and
mortgage loan investment and sales opportunities as well as financing and refinancing sources. Prime also serves as a consultant in connection with ARLs business plan and investment policy decisions made by the Board.



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Prime, an affiliate, is the contractual advisor to ARL. Prime is a single member Nevada
limited liability company, the sole member of which is PIAMI, which is owned 100% by Realty Advisors, LLC, a Nevada limited liability company, the sole member of which is Realty Advisors, Inc., a Nevada corporation which is owned 100% by a Trust
known as the May Trust. Until early 2009, SWI, a Nevada corporation, which is 100% owned by Gene E. Phillips, owned 20% of PIAMI, which SWI exchanged to Realty Advisors, Inc. for certain securities originally issued by SWI. For the period ended
December 31, 2009, Gene E. Phillips and SWI are each a related party for financial statement purposes because of the prior ownership arrangement of PIAMI. The May Trust is a Trust for the benefit of the children of Gene E. Phillips.
Gene E. Philips is not an officer, manager or director of Prime, PIAMI, Realty Advisors, LLC, Realty Advisors, Inc. or ARL, nor is he a Trustee of the May Trust. Prime is a company of which Messrs. Moos, Bertcher, Corna, and Crozier, serve as
executive officers.

Under the Advisory Agreement, Prime is required to annually formulate and submit, for Board approval, a
budget and business plan containing a twelve-month forecast of operations and cash flow, a general plan for asset sales and purchases, lending, foreclosure and borrowing activity, and other investments, and Prime is required to report quarterly to
the Board on ARLs performance against the business plan. In addition, all transactions require prior Board approval, unless they are explicitly provided for in the approved business plan or are made pursuant to authority expressly delegated to
Prime by the Board

The Advisory Agreement also requires prior Board approval for the retention of all consultants and third
party professionals, other than legal counsel. The Advisory Agreement provides that Prime shall be deemed to be in a fiduciary relationship to the ARL stockholders; contains a broad standard governing Primes liability for losses incurred by
ARL; and contains guidelines for Primes allocation of investment opportunities as among itself, ARL and other entities it advises.

The Advisory Agreement provides for Prime to be responsible for the day-to-day operations of ARL and to receive a monthly base compensation at the rate of 0.0625% per month (0.75% on an annualized
basis) of Average Invested Assets.

In addition to base compensation, Prime, an affiliate of Prime, or a related party
receives the following forms of additional compensation:

1) an acquisition fee for locating, leasing or
purchasing real estate for ARL in an amount equal to the lesser of (a) the amount of compensation customarily charged in similar arms-length transactions or (b) up to 6.0% of the costs of acquisition, inclusive of commissions, if
any, paid to non-affiliated brokers;

2) a disposition fee for the sale of each equity investment in real
estate in an amount equal to the lesser of (a) the amount of compensation customarily charged in similar arms-length transactions or (b) 3.0% of the sales price of each property, exclusive of fees, if any, paid to non-affiliated
brokers;

3) a loan arrangement fee in an amount equal to 1.0% of the principal amount of any loan made to ARL
arranged by Prime;

4) an incentive fee equal to 10.0% of net income for the year in excess of a 10.0% return
on stockholders equity, and 10.0% of the excess of net capital gains over net capital losses, if any, realized from sales of assets;

5) a mortgage placement fee, on mortgage loans originated or purchased, equal to 50.0%, measured on a cumulative basis, of the total amount of mortgage origination and placement fees on mortgage loans
advanced by ARL for the fiscal year; and

6) a construction management fee equal to 6.0% of the so-called
hard costs only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architects certificate issued in connection with such construction, which fee is payable at such time as the
applicable architect certifies other costs for payment to third parties.



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The ARL Advisory Agreement further provides that Prime shall bear the cost of certain
expenses of its employees, excluding fees paid to ARLs Directors; rent and other office expenses of both Prime and ARL (unless ARL maintains office space separate from that of Prime); costs not directly identifiable to ARLs assets,
liabilities, operations, business or financial affairs; and miscellaneous administrative expenses relating to the performance by Prime of its duties under the Advisory Agreement.

If and to the extent that ARL shall request Prime, or any director, officer, partner, or employee of Prime, to render services for ARL
other than those required to be rendered by the Advisory Agreement, Prime or an affiliate of Prime separately would be compensated for such additional services on terms to be agreed upon between such party and ARL from time to time. As discussed
below, under Property Management, ARL has hired Triad Realty Services, Ltd. (Triad), an affiliate of Prime, to provide property management services for ARLs commercial properties. Also, as discussed below, under
Real Estate Brokerage ARL had engaged, on a non-exclusive basis, Regis Realty, Inc. (Regis), a related party, to perform brokerage services for ARL until December 2002. Beginning January 1, 2003, Regis Realty I LLC
performs brokerage services for ARL.

Effective July 1, 2005, the Company and Prime entered into a Cash Management
Agreement to further define the administration of the Companys day-to-day investment operations, relationship contacts, flow of funds and deposit and borrowing of funds. Under the Cash Management Agreement, all funds of the Company are
delivered to Prime which has a deposit liability to the Company and is responsible for payment of all payables and investment of all excess funds which earn interest at the Wall Street Journal Prime Rate plus 1.0% per annum, as set
quarterly on the first day of each calendar quarter. Borrowings for the benefit of the Company bear the same interest rate. The term of the Cash Management Agreement is coterminous with the Advisory Agreement, and is automatically renewed each year
unless terminated with the Advisory Agreement.

The Advisory Agreement automatically renews from year-to-year unless
terminated in accordance with its terms. ARLs management believes that the terms of the Advisory Agreement are at least as fair as could be obtained from unaffiliated third parties.

Situations may develop in which the interests of ARL are in conflict with those of one or more directors or officers in their individual
capacities, or of Prime, or of their respective affiliates. In addition to services performed for ARL, as described above, Prime actively provides similar services as agent for, and advisor to, other real estate enterprises, including persons and
entities involved in real estate development and financing, including TCI. The Advisory Agreement provides that Prime may also serve as advisor to other entities.

As advisor, Prime is a fiduciary of ARLs public investors. In determining to which entity a particular investment opportunity will be allocated, Prime will consider the respective investment
objectives of each entity and the appropriateness of a particular investment in light of each such entitys existing mortgage note and real estate portfolios and business plan. To the extent any particular investment opportunity is appropriate
to more than one such entity, such investment opportunity will be allocated to the entity that has had funds available for investment for the longest period of time, or, if appropriate, the investment may be shared among various entities. See Part
III, Item 13 Certain Relationships and Related Transactions, and Director Independence.

The terms of
TCIs Advisory Agreement with Prime are not identical to those of ARLs Advisory Agreement. The provisions of TCIs Advisory Agreement are:

The TCI Advisory Agreement provides for Prime to be responsible for the day-to-day operations of TCI and to receive, as compensation for basic management and advisory services, a gross asset fee of
0.0625% per month (0.75% per annum) of the average of the gross asset value (total assets less allowance for amortization, depreciation or depletion and valuation reserves).

In addition to base compensation, Prime receives the following forms of additional compensation:



| | (1) | an annual net income fee equal to 7.5% of TCIs net income as an incentive for successful investment and management of the Companys assets;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



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| | (2) | an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate
sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of:
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | the cost of each such property as originally recorded in TCIs books for tax purposes (without deduction for depreciation, amortization or reserve for losses);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | capital improvements made to such assets during the period owned; and
| | --- | ---------------------------------------------------------------------



| | (c) | all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such
real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and
sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate
equal to the lesser of:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or
| | --- | -----------------------------------------------------------------------------------------------------------



| | (b) | the compensation customarily charged in arms-length transactions by others rendering similar property acquisition services as an ongoing public activity in the
same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such propertys appraised value at
acquisition;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | a construction fee equal to 6% of the so-called hard costs only of any costs of construction on a completed basis, based upon amounts set forth as approved
on any architects certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. The phrase hard costs means all actual
costs of construction paid to contractors, subcontractors and third parties for materials or labor performed as part of the construction but does not include items generally regarded as soft costs, which are consulting fees,
attorneys fees, architectural fees, permit fees and fees of other professionals; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | reimbursement of certain expenses incurred by the advisor in the performance of advisory services.
| | --- | --------------------------------------------------------------------------------------------------

The TCI Advisory Agreement also provides that Prime, or an affiliate of Prime, receive the following forms of compensation:



| | (1) | a mortgage or loan acquisition fee with respect to the acquisition or purchase from an unaffiliated party of any existing mortgage loan by TCI equal to the lesser of:
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | 1.0% of the amount of the mortgage or loan purchased; or
| | --- | --------------------------------------------------------



| | (b) | a brokerage or commitment fee which is reasonable and fair under the circumstances. Such fee will not be paid in connection with the origination or funding of any
mortgage loan by TCI; and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | a mortgage brokerage and equity refinancing fee for obtaining loans or refinancing on properties equal to the lesser of:
| | --- | ------------------------------------------------------------------------------------------------------------------------



| | (a) | 1.0% of the amount of the loan or the amount refinanced; or
| | --- | -----------------------------------------------------------



| | (b) | a brokerage or refinancing fee which is reasonable and fair under the circumstances; provided, however, that no such fee shall be paid on loans from Prime, or an
affiliate of Prime, without the approval of TCIs Board of Directors. No fee shall be paid on loan extensions.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Under the TCI Advisory Agreement, all or a portion of the annual advisory fee must be
refunded by the Advisor if the operating expenses of TCI (as defined in the Advisory Agreement) exceed certain limits specified in the Advisory Agreement based on the book value, net asset value, and net income of TCI during the fiscal year.

The TCI Advisory Agreement requires Prime, or an affiliate of Prime, to pay to TCI one-half of any compensation received from
third parties with respect to the origination, placement or brokerage of any loan made by TCI; provided, however, that the compensation retained by Prime, or any affiliate of Prime, shall not exceed the lesser of (1) 2.0% of the amount of the
loan commitment or (2) a loan brokerage and commitment fee which is reasonable and fair under the circumstances.

Effective July 1, 2005, TCI and Prime entered into a Cash Management Agreement substantially in the same form and with the same
terms as the Cash Management Agreement between ARL and Prime.

Prime may assign the Advisory Agreement only with the prior
consent of ARL.

The managers and principal officers of Prime are set forth below:



|                   |  |                                                                        
|------------------ |  | -----------------------------------------------------------------------
|Name               |  | Managers/Officer(s)                                                    
|                   | 
|Daniel J. Moos     |  | President and Chief Executive Officer                                  
|                   | 
|Gene S. Bertcher   |  | Executive Vice President, Chief Financial Officer                      
|                   | 
|Louis J. Corna     |  | Executive Vice President, Secretary, Tax Counsel, General Legal Counsel
|                   | 
|Alfred Crozier     |  | Executive Vice President, Residential Construction                     
|                   | 
|Mickey N. Phillips |  | Manager                                                                
|                   | 
|Ryan T. Phillips   |  | Manager                                                                

Property Management

Affiliates of Prime provide property management
services to ARL. Currently, Triad provides property management services to ARLs properties for a fee of 6.0% or less of the monthly gross rents collected on the residential properties under its management and 3.0% or less of the monthly gross
rents collected on the commercial properties under its management. Triad subcontracts with other entities for the provision of property-level management services at various rates. The general partner of Triad is PIAMI. The limited partner of Triad
is HRSHLLC. Triad subcontracts the property-level management and leasing of ARLs commercial properties (shopping centers, office buildings and individual warehouses) to Regis I, which is entitled to receive property and construction management
fees and leasing commissions in accordance with the terms of its property-level management agreement with Triad. Regis Hotel I, LLC, manages ARLs hotels. The sole member of Regis I and Regis Hotel I, LLC is HRSHLLC.

Real Estate Brokerage

Regis I, a related party, provides real estate brokerage services to ARL and receives brokerage commissions of 3% of transaction amounts.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

ARL has no employees, payroll, or benefit plans, and pays no compensation to its executive officers. The Directors and executive officers of ARL , who are also officers or employees of Prime, ARLs
advisor, are compensated by Prime. Such affiliated Directors and executive officers perform a variety of services for Prime and the amount of their compensation is determined solely by Prime. Prime does not allocate the cash



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compensation of its officers among the various entities for which it serves as advisor. See Part III, Item 10. Directors, Executive Officers and Corporate Governance for a more
detailed discussion of compensation payable to Prime by ARL.

The only remuneration paid by ARL is to those directors who are
not officers or employees of Prime or its affiliated companies. The Independent Directors (1) review the business plan of TCI to determine that it is in the best interest of TCIs stockholders, (2) review the advisory contract,
(3) supervise the performance of the advisor and review the reasonableness of the compensation paid to the advisor in terms of the nature and quality of services performed, (4) review the reasonableness of the total fees and expenses of
TCI and (5) select, when necessary, a qualified independent real estate appraiser to appraise properties acquired

Each
Independent Director is entitled to be compensated at the rate of $45,000 per year, plus $300 per Audit Committee meeting attended. The Chairman of the Board of Directors is entitled to be compensated at the rate of $49,500 per year. Also, each
non-employee Director receives an additional fee of $1,000 per day for any special services rendered outside of their ordinary duties as Director, plus reimbursement of expenses. Effective January 4, 2010, the Board of Directors reduced their
compensation to $22,500 per annum and no fees for meetings, with the Chairman of the Audit Committeeis to receive a one time annual fee of $500. During 2010, $84,875 was paid to non-employee Directors in total Directors fees for all services
including the annual fee for service during the period January 1, 2010 through December 31, 2010. The fees paid to the directors are as follows: Sharon Hunt, $28,125; Robert A. Jakuszewski, $28,125, Ted R. Munselle, $28,625.

In January 1999, stockholders approved the Directors Stock Option Plan (the Directors Plan) which provides for
options to purchase up to 40,000 shares of common stock. Options granted pursuant to the Directors Plan are immediately exercisable and expire on the earlier of the first anniversary of the date on which a Director ceases to be a Director or
ten years from the date of grant. On January 1, 2003, 2004, 2005 total options granted were 1,000, 2,000 and 4,000, respectively. In December 2005, the Directors Plan was terminated. At December 31, 2010, options covering 2,000
shares remain outstanding all of which are exercisable at $9.70 per share. These options expire in 2015.

In January 1998,
stockholders approved the 1997 Stock Option Plan (the Option Plan), which provides for options to purchase up to 300,000 shares of common stock. This plan was terminated in 2005. Effective July 1, 2008, all outstanding options under
this plan expired.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------

Securities Authorized for Issuance Under Equity Compensation Plans

The
following table provides information as of December 31, 2010 regarding compensation plans under which equity securities of ARL are authorized for issuance.

Equity Compensation Plan Information



|                                                       |  |                                                                                            |       |  |                                                                          |   |      |                                                                                                                                         |  |  |   | 
|------------------------------------------------------ |  | ------------------------------------------------------------------------------------------ | ----- |  | ------------------------------------------------------------------------ | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------- |  |  | - | 
|Plan Category                                          |  | Number of Securities to be Issued Upon Exercise of
Outstanding Options,Warrants and Rights |       |  | Weighted-AverageExercise Price ofOutstanding Options,Warrants and Rights |   |      | Number of SecuritiesRemaining Available forFuture Issuance Under 
EquityCompensation Plans(Excluding SecuritiesReflected in Column) (a) | 
|                                                       |  | (a)                                                                                        |       |  | (b)                                                                      |   |      | (c)                                                                                                                                     | 
|Equity compensation plans approved by security holders |  |                                                                                            | 2,000 |  |                                                                          | $ | 9.70 |                                                                                                                                         |  |  |  | 

See Note 12. to the
financial statements Stock Options for information regarding the material features of the above plans.



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Security Ownership of Certain Beneficial Owners

The following table sets forth the ownership of ARLs common stock both beneficially and of record, both individually and in the
aggregate, for those persons or entities known by ARL to be the owner of more than 5.0% of the shares of ARLs common stock as of the close of business on March 25, 2011.



|                                                                              |  |                                          |           |              |                               |  |       |  
|----------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | ------------ | ----------------------------- |  | ----- | -
|Name and Address of Beneficial Owner                                          |  | Amount and Natureof
BeneficialOwnership* |           |              | ApproximatePercent ofClass ** | 
|Arcadian Energy, Inc. (formerly known as International Health Products, Inc.) |  |                                          | 1,346,620 | (5)          |                               |  | 11.63 | %
|1755 Wittington Place, Suite 340                                              |  |                                          |           |              |                               |  |       |  
|Dallas, Texas 75234                                                           |  |                                          |           |              |                               |  |       |  
|Prime Income Asset Management, Inc.                                           |  |                                          | 1,666,659 | (1)(2)       |                               |  | 14.39 | %
|1800 Valley View Lane, Suite 300                                              |  |                                          |           |              |                               |  |       |  
|Dallas, Texas 75234                                                           |  |                                          |           |              |                               |  |       |  
|Realty Advisors, Inc.                                                         |  |                                          | 8,276,167 | (1)(2)(3)    |                               |  | 71.46 | %
|1800 Valley View Lane, Suite 300                                              |  |                                          |           |              |                               |  |       |  
|Dallas, Texas 75234                                                           |  |                                          |           |              |                               |  |       |  
|Realty Advisors LLC                                                           |  |                                          | 6,609,508 | (3)          |                               |  | 57.07 | %
|1800 Valley View Lane, Suite 300                                              |  |                                          |           |              |                               |  |       |  
|Dallas, Texas 75234                                                           |  |                                          |           |              |                               |  |       |  
|Ryan T. Phillips                                                              |  |                                          | 8,303,769 | (1)(2)(3)(4) |                               |  | 71.70 | %
|1800 Valley View Lane, Suite 300                                              |  |                                          |           |              |                               |  |       |  
|Dallas, Texas 75234                                                           |  |                                          |           |              |                               |  |       |  



|* | Beneficial Ownership means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any
combination thereof.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Percentages are based upon 11,581,074 shares outstanding as of March 25, 2011.
|-- | ------------------------------------------------------------------------------

|(1) | Includes 1,432,209 shares owned by Prime Income Asset Management, Inc. (PIAMI), over which each of the directors of PIAMI, Ryan T. Phillips and Mickey Ned
Phillips, may be deemed to be beneficial owners by virtue of their positions as directors of PIAMI. The directors of PIAMI disclaim beneficial ownership of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 234,450 shares owned by Prime Stock Holdings, Inc. (PSH), formerly One Realco Stock Holdings, a wholly-owned subsidiary of PIAMI over which each of the
directors of PSH, Mickey Ned Phillips and Ryan T. Phillips, may be deemed to be the beneficial owners by virtue of their positions as directors of PSH. The directors of PSH disclaim beneficial ownership of such
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 6,609,508 shares owned directly by Realty Advisors LLC (RALLC), over which each of the managers, Gene S. Bertcher and Daniel J. Moos, may be deemed
to be beneficial owners by virtue of their positions as managers of RALLC. The managers of RALLC disclaim beneficial ownership of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 27,602 shares owned by the Gene E. Phillips Childrens Trust of which Ryan T. Phillips is a beneficiary.
|--- | ------------------------------------------------------------------------------------------------------------------

|(5) | Includes 1,346,620 shares owned by Arcadian Energy, Inc. (formerly International Health Products, Inc.), over which Craig E. Landess and Christina A. Morin, the
directors of AEI may be deemed to be the beneficial owner by virtue of their positions as directors of AEI. Mr. Landess and Ms. Morin each disclaim beneficial ownership of such shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Security Ownership of Management.    The following table sets forth the ownership of shares of ARLs
common stock, both beneficially and of record, both individually in the aggregate, for the Directors and executive officers of ARL, as of the close of business on March 25, 2011.



|                                                             |  |                                           |           |                 |                                 |  |       |  
|------------------------------------------------------------ |  | ----------------------------------------- | --------- | --------------- | ------------------------------- |  | ----- | -
|Name of Beneficial Owner                                     |  | Amount and Natureof BeneficialOwnership** |           |                 | ApproximatePercent of 
Class*** | 
|Gene S. Bertcher                                             |  |                                           | 8,276,167 | (2)(3)(4)       |                                 |  | 71.46 | %
|Henry A. Butler                                              |  |                                           |          |                 |                                 |  |       |  
|Louis J. Corna                                               |  |                                           | 8,276,167 | (2)(3)(4)       |                                 |  | 71.46 | %
|Alfred Crozier                                               |  |                                           | 8,276,167 | (2)(3)(4)       |                                 |  | 71.46 | %
|Robert A. Jakuszewski                                        |  |                                           |          |                 |                                 |  |       |  
|Daniel J. Moos                                               |  |                                           | 8,281,167 | (2)(3)(4)(5)    |                                 |  | 71.48 | %
|Ted R. Munselle                                              |  |                                           | 1,000     | (1)             |                                 |  | *     |  
|RL S. Lemke                                                  |  |                                           |          |                 |                                 |  |       |  
|Martha C. Stephens                                           |  |                                           |          |                 |                                 |  |       |  
|All Directors and Executive Officers as a group (10 persons) |  |                                           | 8,282,167 | (1)(2)(3)(4)(5) |                                 |  | 72.51 | %



|* | Less than 1%
|- | -------------

|** | Beneficial Ownership means the sole or shared power to vote, or to direct the voting of, a security or investment power with respect to a security, or any
combination thereof.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Percentages are based upon 11,581,074 shares outstanding as of March 25, 2011.
|--- | ------------------------------------------------------------------------------



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|(1) | Ted R. Munselle has options to purchase shares of Common Stock of the Company.
|--- | ------------------------------------------------------------------------------

|(2) | Includes 6,609,508 shares owned by RALLC, over which the managers and executive offices of RALLC may be deemed to be the beneficial owners by virtue of their positions
as managers and executive officers of RALLC. The managers and executive officers of RALLC disclaim beneficial ownership of such shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 1,432,209 shares owned by PIAMI, over which the executive officers of PIAMI may be deemed to be the beneficial owners by virtue of their positions as executive
officers of PIAMI. The executive officers of PIAMI disclaim beneficial ownership of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 234,450 shares owned by PSH over which the executive officers of PSH may be deemed to be the beneficial owners by virtue of their positions as executive
officers of PSH. The executive officers of PSH disclaim beneficial ownership of such shares.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 5,000 shares owned by Daniel J. Moos.
|--- | ----------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | -------------------------------------------------------------------------

Policies with Respect to Certain Activities

Article 11 of ARLs Articles of Incorporation provides that ARL shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of ARL,
(2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned
persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by ARLs Board of Directors or the
appropriate committee thereof and (b) ARLs Board of Directors or committee thereof determines that such contract or transaction is fair to ARL and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote
of a majority of independent directors of ARL entitled to vote thereon.

Article 11 defines an Independent
Director (for purposes of that Article) as one who is neither an officer or employee of ARL, nor a director, officer or employee of ARLs advisor. This definition predates ARLs director independence guidelines adopted in February
2004.

ARLs policy is to have such contracts or transactions approved or ratified by a majority of the disinterested
Directors with full knowledge of the character of such transactions, as being fair and reasonable to the stockholders at the time of such approval or ratification under the circumstances then prevailing. Such Directors also consider the fairness of
such transactions to ARL. Management believes that, to date, such transactions have represented the best investments available at the time and they were at least as advantageous to ARL as other investments that could have been obtained.

ARL may enter into future transactions with entities, the officers, directors, or stockholders of which are also officers, directors, or
stockholders of ARL, if such transactions would be beneficial to the operations of ARL and consistent with ARLs then-current investment objectives and policies, subject to approval by a majority of disinterested Directors as discussed above.

ARL does not prohibit its officers, directors, stockholders, or related parties from engaging in business activities of the
types conducted by ARL.

Certain Business Relationships

Effective July 1, 2003, PAMI became the advisor to ARL and TCI. Effective August 18, 2003, PAMI changed its name to PIAMI. On October 1, 2003, Prime, which is 100% owned by PIAMI, replaced
PIAMI as the advisor to ARL and TCI. Prime also serves as an advisor to IOT effective July 1, 2009.

Prime, ARLs
advisor, is a company for which Messrs. Moos, Bertcher, Corna, and Crozier serve as executive officers. Prime, a Nevada limited liability company, the sole member of which is PIAMI, which is owned 100% by Realty Advisors, LLC, a Nevada limited
liability company, the sole member of which is Realty Advisors, Inc., a Nevada corporation, which is owned 100% by a Trust known as the May Trust. See Part III, Item 10. Directors, and Executive Officers and Corporate Governance.



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All of ARLs directors also serve as Directors of TCI and IOT. The executive officers
of ARL also serve as executive officers of TCI and IOT. As such, they owe fiduciary duties to that entity as well as to Prime under applicable law. TCI has the same relationship with Prime, as does ARL. Mr. Bertcher is an officer, director and
employee of NCE and as such also owes fiduciary duties to NCE as well as ARL, TCI and IOT under applicable law.

ARL contracts
with affiliates of Prime for commercial and hotel property management services. Triad, an affiliate, provides commercial property management services. The general partner of Triad is PIAMI. The limited partner of Triad is HRSHLLC, a related party.
Triad subcontracts the property-level management of ARLs commercial properties (office buildings, shopping centers, and industrial warehouses) to Regis I, a related party. Regis I also provides real estate brokerage services to ARL and
receives brokerage commissions in accordance with the Advisory Agreement. Regis Hotel I, LLC manages ARLs hotels. The sole member of Regis I and Regis Hotel I, LLC is HRSHLLC. ARL engages third-party companies to lease and manage its apartment
properties.

At December 31, 2010, ARL owned approximately 83.3% of TCIs outstanding common stock through its
interest in TCI and approximately 85.2% of IOTs outstanding common stock.

Related Party Transactions

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

ARL paid advisory fees of $15.8 million, construction supervision fees of $1.8 million, net income fees of $0.1 million, acquisition fees
of $0.3 million, mortgage brokerage and equity refinancing fees of $1.6 million and costs reimbursements of $4.9 million to Prime in 2010.

ARL paid property acquisition fees of $0.1 million, real estate brokerage fees of $1.5 million, and property and construction management and leasing commissions of $2.9 million to Regis I in 2010.

Below are property sales that involve a related party:

On March 17, 2010, we sold our membership in IGCH Villager Associates, Ltd. to Liberty Bankers Life Insurance Company, a related
party under common control, for a sales price of $1.5 million. This entity owns the Villager Apartments, a 33-unit complex located in Fort Walton Beach, Florida. We received $0.8 million in cash, and the buyer assumed the existing mortgage of $0.7
million secured by the property. The project was sold to a related party; therefore, the gain of $0.4 million was deferred and will be recorded upon sale to a third party.

On April 16, 2010, we sold the Foxwood apartments, a 220-unit complex located in Memphis, Tennessee, to One Realco Retail, Inc., a related party under common control, for a sales price of $5.1
million. The buyer assumed the existing mortgage of $5.1 million secured by the property. The property was sold to a related party; therefore, the gain of $5.8 million was deferred. The deferred gain was recognized in June 2010, upon sale of the
property to a third party.

On April 23, 2010, we sold our membership interest in Longfellow Investors I, LLC, Longfellow
Investors II, LLC, Longfellow Investors III, LLC, Longfellow Investors IV, LLC and Longfellow Investors V, LLC to Liberty Bankers Life Insurance Company, a related party under common control, for a sales price of $20.0 million. These entities
had limited partner interests in Longfellow Arms Apartments, Ltd., an entity that owned a 216-unit complex located in Longview, Texas. We received $6.1 million in cash, and the buyer assumed the existing mortgage of $14.4 million secured by the
property. The property was sold to a related party; therefore, the gain of $3.6 million was deferred and will be recorded upon sale to a third party.



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On May 4, 2010, we sold our investment in T Autumn Chase, Inc. to Taaco Financial,
Inc., a related party under common control, for a sales price of $16.0 million. This entity owns 16.79 acres of land known as Ewing 8 land located in Addison, Texas. The buyer assumed the existing mortgage of $10.7 million secured by the property.
We recorded a loss of $5.3 million on the sale of the land parcel.

On May 18, 2010, we sold our investment in TCI Eton
Square, L.P. to TX Highland RS Corp, a related party under common control, for a sales price of $13.7 million. This entity owns a 225,566 square foot office and retail center known as Eton Square located in Tulsa, Oklahoma. We provided $4.0 million
in seller financing with a three-year note receivable. The note accrues interest at prime plus 2.0% and is payable at maturity on May 18, 2013. The buyer assumed the existing mortgage of $9.6 million, secured by the property, but did not assume
the obligation of TCIs guarantee on the loan. 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 June 16, 2010, we sold the Chateau apartments, a 115-unit complex located in Bellevue, Nebraska, to One Realco
Retail, Inc. and TCI Woodsong, Inc., both related parties under common control, for a sales price of $2.9 million. The buyer assumed the existing mortgage of $2.9 million secured by the property. The property was sold to a related party; therefore,
the gain of $2.4 million was deferred. The deferred gain was recognized in July 2010, upon sale of the property to a third party.

On July 12, 2010, we sold our investment in Pioneer Crossing Hotels, LLC to One Realco Corporation, a related party under common control, for a sales price of $17.2 million. This entity owns the
Piccadilly Airport Hotel, a 185-room hotel, the Piccadilly Inn Express Hotel, a 78-room hotel, and the Piccadilly Shaw Hotel, a 194-room hotel, all located in Fresno, California. In addition, we sold a $10.1 million intercompany receivable. The
buyer assumed the existing mortgage of $27.3 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing
involvement and questionable recovery of investment cost.

On July 30, 2010, we recognized the 2009 sale of 21.9 acres of
land known as Pulaski land located in Pulaski County, Arkansas, to One Realco Land Holdings, Inc. and One Realco Corporation, both related parties under common control, for a sales price of $2.3 million. The buyer assumed the existing mortgage of
$1.1 million secured by the property and we provided seller financing of $1.2 million. We had previously deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, the inadequate investment from the
buyer and the questionable recovery of our investment. We recorded a loss on sale of $1.2 million when the buyer subsequently sold the land to a third party and the seller financing was not collected.

On August 20, 2010, we sold our investment in American Mart Hotel Corporation to ABC Land and Development, Inc., a related party
under common control, for a sales price of $3.1 million. This entity owns the Comfort Inn Hotel, a 161-room hotel, located in Denver, Colorado. The buyer assumed the existing mortgage of $3.0 million, secured by the property, but did not assume the
obligation of ARLs guarantee on the loan. ARL has deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On September 15, 2010, we sold our investment in Pacific Center, LLC to ABC Land and Development, Inc., a related party under common
control, for a sales price of $2.5 million. This entity owns the Piccadilly University Hotel, a 190-room hotel, located in Fresno, California. In addition we sold a $2.0 million intercompany receivable. The buyer assumed the existing mortgage of
$4.5 million, secured by the property, but did not assume the obligation of ARLs guarantee on the loan. We have deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement and questionable recovery of
investment cost.

On September 21, 2010, we sold our investment in EQK Bridgeview Plaza, Inc. to Warren Road Farm, Inc.,
a related party under common control, for a sales price of $8.3 million. This entity owns a 122,205 square foot



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retail center known as Bridgeview Plaza located in La Crosse, Wisconsin. We provided $2.1 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is
payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $6.2 million, secured by the property, but did not assume the obligation of our guarantee on the loan. 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 September 21, 2010, we sold our investment in Transcontinental Brewery, Inc. to Warren Road Farm, Inc., a related party under common control, for a sales price of $3.8 million. This entity owns a
29,784 square foot office building and 13.0 acres of land known as Eagle Crest in Farmers Branch, Texas. The buyer assumed the existing mortgage of $2.4 million, secured by the property. A five-year note receivable for $1.4 million was given as
consideration, with an interest rate of 6.0%, payable at maturity on September 21, 2015. 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 September 21, 2010, we sold our investment in South Cochran Corporation to
Warren Road Farm, Inc., a related party under common control, for a sales price of $2.2 million. This entity owns a 220,461 square foot retail center known as Dunes Plaza located in Michigan City, Indiana. In addition, we sold a $1.0 million
intercompany receivable. The buyer assumed the existing mortgage of $3.2 million, secured by the property, but did not assume the obligation of TCIs guarantee on the loan. We have deferred the recognition of the sale in accordance with
ASC 360-20 due to our continuing involvement and questionable recovery of investment cost.

On September 21, 2010, we
sold our investment in Thornwood Apartments, LLC to Warren Road Farm, Inc., a related party under common control, for a sales price of $6.7 million. This entity owns 245.95 acres of land known as Windmill Farms-Harlan land located in Kaufman County,
Texas. We provided $1.1 million in seller financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $5.5 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 September 21, 2010, we sold our investment in EQK Windmill Farms, LLC to Warren Road Farm, Inc., a related party under common
control, for a sales price of $64.5 million. This entity owns 2,957.95 acres of land known as Windmill Farms land located in Kaufman County, Texas. We provided $33.8 million in seller financing with a five-year note receivable. The note accrues
interest at 6.0% and is payable at maturity on September 21, 2015. The buyer assumed the existing mortgage of $30.7 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 September 30,
2010, we recognized the 2003 sale of four properties to subsidiaries of United Housing Foundation, Inc., a Texas Non-Profit 501(c)3 Corporation. We sold the Limestone at Vista Ridge apartments for $19.0 million, the Limestone Canyon apartments for
$18.0 million, the Sendero Ridge apartments for $29.4 million and the Tivoli apartments for $16.1 million. At the time of the sale, We remained as the guarantor on the existing mortgages and the sales were not recorded. Instead, these
transactions were accounted for on the deposit method and the properties and corresponding debt continued to be consolidated. These mortgages have since been refinanced and such refinancing does not include any obligations by us as
guarantor. We recorded the sale and recorded $25.2 million in deferred gain on the sale. Due to the related party nature of these sales, we will not record the gain on the sale until the properties are sold to a third party.

On October 4, 2010, we sold our investment in Marina Landing Corp. to ABC Land and Development, Inc., a related party under common
control, for a sales price of $5.8 million. This entity owns a 256-unit apartment complex known as Marina Landing Apartments located in Galveston, Texas. The buyer assumed the existing mortgage of $10.4 million. We provided $5.8 million in seller
financing with a five-year note receivable. The note accrues interest at 6.0% and is payable at maturity on October 4, 2015.



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On October 6, 2010, we recognized the 2009 sale of 4.7 acres of land known as Cigna
land located in Irving, Texas to One Realco Land Holdings, Inc., a related party under common control, for a sales price of $1.0 million. The buyer assumed the existing mortgage of $0.8 million secured by the property.

On October 22, 2010, we sold our investment in Continental Common, Inc., which owns a 512,593 square foot office building known as
1010 Commons, located in New Orleans, Louisiana, 17.2 acres of land known as Lacy Longhorn land, located in Farmers Branch, Texas, and 44.17 acres of land known as Marine Creek land, located in Fort Worth, Texas, to ABCLD, LLC, a related party under
common control, for a sales price of $30.9 million. The buyer assumed the existing mortgage of $24.1 million secured by the properties and we provided $6.8 million in seller financing with a five-year note receivable. The note accrues interest
at 6.0% and is payable at maturity on October 22, 2015. 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 October 29, 2010, we recognized the 2009 sale of 100% of our membership interest in JMJ Circle C, LLC, 99% of
our membership interest in JMJ Circle C East, LLC and 99% of our membership interest in JMJ Circle C West, LLC to Avana HRS Development, Inc., a related party under common control, for a sales price of $0.5 million. These entities owned 1,093.98
acres of land known as Avana land located in Austin, Texas. The buyer assumed the existing mortgage of $39.7 million secured by the property. Included in the debt assumed by the buyer, was approximately $8.6 million due to us. We had
previously deferred the recognition of the sale in accordance with ASC 360-20 due to our continuing involvement, the inadequate investment from the buyer and the questionable recovery of our investment. We recorded a loss on sale of $8.6
million when the buyer subsequently sold the land to a third party and the note was not collected.

On December 23, 2010,
ARL sold 34 properties, which consisted of six commercial buildings comprising an aggregate of 1.4 million square feet, 3,683 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 $229.2 million. The buyer assumed the existing mortgages of $174.1 million secured by the properties and we provided $55.1 million in seller financing notes with a five-year note term. The notes accrue interest at 6.0% and
are payable at maturity on December 23, 2015.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.

On December 23, 2010, we sold Cooley Building, a 27,041 office building located in Dallas, Texas, to ABCLD Properties, LLC and ABCLD
Income, LLC, both related parties under common control, for a sales price of $2.8 million. 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 December 31, 2010, we sold 4.3 acres of land known as Grapevine Vineyards land located
in Grapevine, Texas, to ART Westwood FL, Inc., a related party under common control, for a sales price of $0.9 million. We recorded a loss on sale of $263,000.

On December 31, 2010, we sold 2.6 acres of land known as Grapevine Vineyards II land located in Grapevine, Texas, to ART Westwood Fl, Inc., a related party under common control, for a sales price of
$1.5 million. We recorded a loss on sale of $30,000.

On December 31, 2010, we sold 5.6 acres of land known as Nashville
land located in Nashville, Tennessee and 0.7 acres of land known as Kelly Lots land located in Farmers Branch, Texas, to First Equity Properties, Inc., a related party under common control, for a sales price of $0.3 million. There was no gain or
loss recorded on this sale.

On December 31, 2010, we sold 6.3 acres of land known as Nashville land located in
Nashville, Tennessee, to ART Westwood FL, Inc., a related party under common control, for a sales price of $1.2 million. The property was sold to a related party; therefore, the gain of $3,000 was deferred and will be recorded upon sale to a
third party.



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Operating Relationships

ARL received rents of $2.6 million in 2010, $2.9 million in 2009, and $3.4 million in 2008 from Prime and its affiliates for rents of ARL owned properties, including Addison Hanger, Browning Place, Eagle
Crest, Fenton Center, Folsom land, GNB, One Hickory, Senlac, Thermalloy and Two Hickory.

Advances and Loans

From time to time, ARL and its affiliates have made advances to each other, which generally have not had specific repayment terms, did not
bear interest, are unsecured, and have been reflected in ARLs financial statements as other assets or other liabilities. ARL and the advisor charge interest on the outstanding balance of funds advanced to or from ARL. The interest rate, set at
the beginning of each quarter, is the Prime rate plus 1% on the average daily cash balances advanced. At December 31, 2010, ARL owes Prime $12.2 million.



|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------

The following table sets forth the aggregate fees for professional services rendered to ARL for the years 2010 and 2009 by ARLs principal accounting firms, Farmer, Fuqua and Huff, L.P. and
Swalm & Associates, PC:



|            |  |                    |         |     |            |   |        |                   |  |   |                    |     |  |            |         |     |                   |   |        |  |  |   |        |    
|----------- |  | ------------------ | ------- | --- | ---------- | - | ------ | ----------------- |  | - | ------------------ | --- |  | ---------- | ------- | --- | ----------------- | - | ------ |  |  | - | ------ | ---
|            |  | 2010               |         |     | 2009       |  
|Type of Fee |  | Farmer,Fuqua &Huff |         |     | BDOSeidman |   |        | Swalm &Associates |  |   | Farmer,Fuqua &Huff |     |  | BDOSeidman |         |     | Swalm &Associates |  
|Audit Fees  |  | $                  | 658,192 | (1) |            | $ |       |                   |  | $ | 45,269             | (3) |  | $          | 636,692 | (5) |                   | $ |       |  |  | $ | 75,835 | (7)
|Tax Fees    |  |                    | 60,975  | (2) |            |   | 30,000 |                   |  |   | 1,050              | (4) |  |            | 64,600  | (6) |                   |   | 37,673 |  |  |   | 3,172  | (8)
|            |  |                    |         |     |            |   |        |                   |  |   |                    |     |  |            |         |     |                   |   |        |  |  |   |        |    
|Total       |  | $                  | 719,167 |     |            | $ | 30,000 |                   |  | $ | 46,319             |     |  | $          | 701,292 |     |                   | $ | 37,673 |  |  | $ | 79,007 |    
|            |  |                    |         |     |            |   |        |                   |  |   |                    |     |  |            |         |     |                   |   |        |  |  |   |        |    



|(1) | Includes $434,992 TCI
|--- | ---------------------

|(2) | Includes $47,675 TCI
|--- | --------------------

|(3) | All TCI
|--- | -------

|(4) | All TCI
|--- | -------

|(5) | Includes $405,992 TCI
|--- | ---------------------

|(6) | Includes $51,300 TCI
|--- | --------------------

|(7) | All TCI
|--- | -------

|(8) | All TCI
|--- | -------

The audit fees for
2010 and 2009, respectively, were for professional services rendered for the audits and reviews of the consolidated financial statements of ARL. Tax fees for 2010 and 2009, respectively, were for services related to federal and state tax compliance
and advice.

All services rendered by the principal auditors are permissible under applicable laws and regulations and were
pre-approved by either the Board of Directors or the Audit Committee, as required by law. The fees paid the principal auditors for services as described in the above table fall under the categories listed below:

Audit Fees.    These are fees for professional services performed by the principal auditor for the audit of
the Companys annual financial statements and review of financial statements included in the Companys 10-Q filings and services that are normally provided in connection with statutory and regulatory filing or engagements.

Audit-Related Fees.    These are fees for assurance and related services performed by the principal auditor
that are reasonably related to the performance of the audit or review of the Companys financial statements. These services include attestations by the principal auditor that are not required by statute or regulation and consulting on financial
accounting/reporting standards.



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Tax Fees.    These are fees for professional services performed
by the principal auditor with respect to tax compliance, tax planning, tax consultation, returns preparation, and review of returns. The review of tax returns includes the Company and its consolidated subsidiaries.

All Other Fees.    These are fees for other permissible work performed by the principal auditor that do not
meet the above category descriptions.

These services are actively monitored (as to both spending level and work content) by
the Audit Committee to maintain the appropriate objectivity and independence in the principal auditors core work, which is the audit of the Companys consolidated financial statements.

The Audit Committee has established policies and procedures for the approval and pre-approval of audit services and permitted non-audit
services. The Audit Committee has the responsibility to engage and terminate ARIs independent auditors, to pre-approve their performance of audit services and permitted non-audit services, to approve all audit and non-audit fees, and to set
guidelines for permitted non-audit services and fees. All the fees for 2010 and 2009 were pre-approved by the Audit Committee or were within the pre-approved guidelines for permitted non-audit services and fees established by the Audit Committee,
and there were no instances of waiver of approved requirements or guidelines during the same periods.

Under the
Sarbanes-Oxley Act of 2002 (the SOX Act) and the rules of the Securities and Exchange Commission (the SEC), the Audit Committee of the Board of Directors is responsible for the appointment, compensation, and oversight of the
work of the independent auditor. The purpose of the provisions of the SOX Act and the SEC rules for the Audit Committee role in retaining the independent auditor is two-fold. First, the authority and responsibility for the appointment, compensation,
and oversight of the auditors should be with directors who are independent of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that any non-audit services
performed by the auditor do not impair the independence of the independent auditor. To implement the provisions of the SOX Act, the SEC issued rules specifying the types of services that an independent may not provide to its audit client, and
governing the Audit Committees administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in
order to assure that they do not impair the auditors independence. Accordingly, the Audit Committee has adopted a pre-approval policy of audit and non-audit services (the Policy), which sets forth the procedures and conditions
pursuant to which services to be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers
pre-approval of audit services, audit-related services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting and compliance services, and U.S. tax compliance and planning. At the
beginning of each fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and approve or reject each service, taking
into account whether services are permissible under applicable law and the possible impact of each non-audit service on the independent auditors independence from management. Typically, in addition to the generally pre-approved services, other
services would include due diligence for an acquisition that may or may not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit Committee designated by the Board or the financial expert
member of the Audit Committee responsibilities to pre-approve services to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services, and such authority may only be exercised when
the Audit Committee is not in session.

All the fees for 2010 and 2011 were pre-approved by the Audit Committee or were within
the pre-approved guidelines for permitted non-audit services and fees established by the Audit Committee, and there were no instances of waiver of approved requirements or guidelines during the same periods.



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PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



| | (a) | The following documents are filed as part of this Report:
| | --- | ---------------------------------------------------------



| | 1. | Consolidated Financial Statements
| | -- | ---------------------------------

Report of Independent Certified Public Accountants

Consolidated
Balance SheetsDecember 31, 2010 and 2009

Consolidated Statements of OperationsYears Ended
December 31, 2010, 2009 and 2008

Consolidated Statements of Shareholders EquityYears Ended
December 31, 2010, 2009 and 2008

Consolidated Statements of Cash FlowsYears Ended
December 31, 2010, 2009 and 2008

Consolidated Statements of comprehensive Income (loss)Years
ended December 31, 2010, 2009 and 2008.

Notes to Consolidated Financial Statements



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

Schedule IIIReal Estate and Accumulated Depreciation

Schedule IVMortgage Loan Receivables on Real Estate

All other schedules are omitted because they are not applicable or because the required information is shown in the financial statements
or the notes thereto.



| | 3. | Incorporated Financial Statements
| | -- | ---------------------------------

Consolidated Financial Statements of Income Opportunity Realty Investors, Inc. (Incorporated by reference to Item 8. of Income Opportunity Realty Investors, Inc.s Annual Report on Form 10-K for
the year ended December 31, 2010).



| | (b) | Exhibits.
| | --- | ---------



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The following documents are filed as Exhibits to this Report:



|              |      |   |             |                                                                                                                                                                                                                                                                                                                                                                                                
|------------- | ---- | - | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |      |   | Description
|              |     
|              | 3.1  |   |             | Certificate of Restatement of Articles of Incorporation of American Realty Investors, Inc., dated August 3, 2000 (incorporated by reference to Exhibit 3.0 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                        
|              |     
|              | 3.2  |   |             | Certificate of Correction of Restated Articles of Incorporation of American Realty Investors, Inc., dated August 29, 2000 (incorporate by reference to Exhibit 3.1 to the
Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                
|              |     
|              | 3.3  |   |             | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series B
Cumulative Convertible Preferred Stock dated August 26, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).                  
|              |     
|              | 3.4  |   |             | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series I
Cumulative Preferred Stock dated October 1, 2003 (incorporated by reference to Exhibit 3.4 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).                              
|              |     
|              | 3.5  |   |             | By-laws of American Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-4, filed on December 30,
1999).                                                                                                                                                                                                                      
|              |     
|              | 4.1  |   |             | Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof of Series F
Redeemable Preferred Stock of American Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2001).
|              |     
|              | 4.2  |   |             | Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June 18, 2002
(incorporated by reference to Exhibit 3.0 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                         
|              |     
|              | 4.3  |   |             | Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of American Realty Investors, Inc., dated February 3, 2003 (incorporated by
reference to Exhibit 4.3 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2002).                                                                                                       
|              |     
|              | 4.4  |   |             | Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock as filed with the Secretary of State of Nevada on
March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006).                                                                                                
|              |     
|              | 10.1 |   |             | Advisory Agreement between American Realty Investors, Inc. and Prime Income Asset Management, LLC, dated October 1, 2003 (incorporated by reference to Exhibit 10.0 to the
Registrants Current Report on Form 8-K, dated October 1, 2003).                                                                                                                                                    
|              |     
|              | 10.2 |   |             | Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to Exhibit 10.1 to the Registrants Registration
Statement on Form S-4, dated February 24, 2002).                                                                                                                                                                              
|              |     
|              | 14.0 |   |             | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrants Annual Report on Form 10-K for the year ended December 31,
2004).                                                                                                                                                                                                                  
|              |     
|              | 21.1 | * |             | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                
|              |     
|              | 31.1 | * |             | Rule 13a-14(a) Certification by Principal Executive Officer.                                                                                                                                                                                                                                                                                                                                   
|              |     
|              | 31.2 | * |             | Rule 13a-14(a) Certification by Principal Financial Officer.                                                                                                                                                                                                                                                                                                                                   
|              |     
|              | 32.1 | * |             | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                        



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



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: March 31, 2011

AMERICAN REALTY INVESTORS, INC.By:

/s/    GENE S.
BERTCHERExecutive Vice President and
Chief Financial Officer (Principal Financial and Accounting Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated.



|                                                   |  |                                                                                                   |  |               
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                          |  | Title                                                                                             |  | Date          
|                                                   |  |                                                                                                  
|/s/    HENRY A.
BUTLER Henry A. Butler             |  | Chairman of the Board and Director                                                                |  | March 31, 2011
|                                                   |  |                                                                                                  
|/s/    ROBERT A.
JAKUSZEWSKI Robert A. Jakuszewski |  | Director                                                                                          |  | March 31, 2011
|                                                   |  |                                                                                                  
|/s/    RL S.
LEMKE RL S. Lemke                     |  | Director                                                                                          |  | March 31, 2011
|                                                   |  |                                                                                                  
|/s/    TED R.
MUNSELLE Ted R. Munselle             |  | Director                                                                                          |  | March 31, 2011
|                                                   |  |                                                                                                  
|/s/    DANIEL J.
MOOS Daniel J. Moos               |  | President and Chief Executive Officer (Principal Executive Officer)                               |  | March 31, 2011
|                                                   |  |                                                                                                  
|/s/    GENE S.
BERTCHER Gene S. Bertcher           |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 31, 2011



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##### Table of Contents

ANNUAL REPORT ON FORM 10-K

EXHIBIT INDEX

For the Year Ended December 31, 2010



| |      |   |  |                                                                                                                                                                                                                                                                                                                                                                                                
| | ---- | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     
| | 3.1  |   |  | Certificate of Restatement of Articles of Incorporation of American Realty Investors, Inc., dated August 3, 2000
(incorporated by reference to Exhibit 3.0 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                        
| |     
| | 3.2  |   |  | Certificate of Correction of Restated Articles of Incorporation of American Realty Investors, Inc., dated August 29, 2000
(incorporate by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).                                                                                                                                
| |     
| | 3.3  |   |  | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of
authorized shares of and eliminating Series B Cumulative Convertible Preferred Stock dated August 26, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                  
| |     
| | 3.4  |   |  | Articles of Amendment to the Restated Articles of Incorporation of American Realty Investors, Inc. decreasing the number of
authorized shares of and eliminating Series I Cumulative Preferred Stock dated October 1, 2003 (incorporated by reference to Exhibit 3.4 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).                              
| |     
| | 3.5  |   |  | By-laws of American Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrants Registration
Statement on Form S-4, filed on December 30, 1999).                                                                                                                                                                                                                      
| |     
| | 4.1  |   |  | Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof of Series F Redeemable Preferred Stock of American Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrants Annual Report on Form 10-K for the year ended
December 31, 2001).
| |     
| | 4.2  |   |  | Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F
Redeemable Preferred Stock, dated June 18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).                                                                                         
| |     
| | 4.3  |   |  | Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of American Realty Investors,
Inc., dated February 3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2002).                                                                                                       
| |     
| | 4.4  |   |  | Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock
as filed with the Secretary of State of Nevada on March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006).                                                                                                
| |     
| | 10.1 |   |  | Advisory Agreement between American Realty Investors, Inc. and Prime Income Asset Management, LLC, dated October 1, 2003
(incorporated by reference to Exhibit 10.0 to the Registrants Current Report on Form 8-K, dated October 1, 2003).                                                                                                                                                    
| |     
| | 10.2 |   |  | Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to
Exhibit 10.1 to the Registrants Registration Statement on Form S-4, dated February 24, 2002).                                                                                                                                                                              
| |     
| | 14.0 |   |  | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrants Annual Report
on Form 10-K for the year ended December 31, 2004).                                                                                                                                                                                                                  
| |     
| | 21.1 | * |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                



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| |      |   |  |                                                                                                                        
| | ---- | - |  | -----------------------------------------------------------------------------------------------------------------------
| |     
| | 31.1 | * |  | Rule 13a-14(a) Certification by Principal Executive Officer.                                                           
| |     
| | 31.2 | * |  | Rule 13a-14(a) Certification by Principal Financial Officer.                                                           
| |     
| | 32.1 | * |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.



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



131