ari10q063014.htm
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q

 

 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
 
Commission File Number 001-15663
 

AMERICAN REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

 
 
   
Nevada
75-2847135
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
1603 Lyndon B. Johnson Freeway, Suite 800, Dallas, Texas 75234
(Address of principal executive offices)
(Zip Code)
 
(469) 522-4200
 
(Registrant’s telephone number, including area code)

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    xYes     ¨No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    xYes     ¨No.
 
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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
       
Large accelerated filer ¨
Accelerated filer
¨
     
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨Yes     xNo.
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
   
Common Stock, $.01 par value
14,027,619
(Class)
(Outstanding at August 5, 2014)

 
 

 
 
 


 
 
 

 
 
AMERICAN REALTY INVESTORS, INC.
FORM 10-Q
TABLE OF CONTENTS
 
     
   
    PAGE    
 
 
 
PART I. FINANCIAL INFORMATION
 
 
     
 
Item 1.
 
Financial Statements
 
     
 
Consolidated Balance Sheets at June 30, 2014 (unaudited) and December 31, 2013
               3
 
     
 
Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)
               4
 
     
 
Consolidated Statement of Shareholders’ Equity for the six months ended June 30, 2014 (unaudited)
               5
 
     
 
Consolidated Statements of Comprehensive Income (Loss) for the six months ended June 30, 2014 and 2013 (unaudited)
               6
 
     
 
Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)
               7
 
     
 
Notes to Consolidated Financial Statements
               8
 
     
 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
               23
 
     
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risks
               33
 
     
 
Item 4.
 
Controls and Procedures
               33
 
   
PART II. OTHER INFORMATION
 
     
 
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
               34
 
     
 
Item 6.
 
Exhibits
               35
 
   
 
SIGNATURES
 
               36
 
 
 
 
 
 
2

 
 
PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

AMERICAN REALTY INVESTORS, INC.
 
CONSOLIDATED BALANCE SHEETS
 
(unaudited)
 
             
   
June 30,
   
December 31,
 
   
2014
   
2013
 
   
(dollars in thousands, except
share and par value amounts)
 
Assets
           
Real estate, at cost
  $ 770,583     $ 799,698  
Real estate held for sale at cost, net of depreciation ($1,489 for 2014 and $2,390 for 2013)
    627       16,427  
Real estate subject to sales contracts at cost, net of depreciation ($2,124 for 2014 and $1,949 for 2013)
    23,087       27,598  
Less accumulated depreciation
    (123,137 )     (143,429 )
Total real estate
    671,160       700,294  
Notes and interest receivable
               
Performing (including $146,813 in 2014 and $145,754 in 2013 from related parties)
    154,410       153,275  
Non-performing
    3,141       3,140  
Less allowance for doubtful accounts (including $15,809 in 2014 and 2013 from related parties)
    (19,537 )     (19,600 )
Total notes and interest receivable
    138,014       136,815  
Cash and cash equivalents
    13,721       16,437  
Restricted cash
    26,171       32,929  
Investments in unconsolidated subsidiaries and investees
    3,833       3,789  
Receivable from related party
    26,094       14,086  
Other assets
    43,232       38,972  
Total assets
  $ 922,225     $ 943,322  
                 
Liabilities and Shareholders’ Equity
               
Liabilities:
               
Notes and interest payable
  $ 621,663     $ 618,930  
Notes related to assets held for sale
    3,006       17,100  
Notes related to subject to sales contracts
    20,758       23,012  
Deferred revenue (including $74,303 in 2014 and 2013 from sales to related parties)
    76,148       76,148  
Accounts payable and other liabilities (including $16,522 in 2014 and $15,394 in 2013 to
related parties)
    60,757       73,271  
      782,332       808,461  
                 
Shareholders’ equity:
               
Preferred stock, Series A: $2.00 par value, authorized 15,000,000 shares, issued and outstanding
3,353,954 shares in 2014 and 2013 (liquidation preference $10 per share), including 900,000 shares in
2014 and 2013 held by ARL or subsidiaries.  Series K:  $2.00 par value, authorized, issued and outstanding
0 shares in 2014 and 135,000 shares in 2013, respectively (liquidation preference $22 per share)
    4,908       4,908  
Common stock, $0.01 par value, authorized 100,000,000 shares; issued 11,941,174 shares and
outstanding 11,525,389 shares in 2014 and 2013
    115       115  
Treasury stock at cost; 415,785 shares in 2014 and 2013 and 229,214 shares held by TCI
(consolidated) as of 2014 and 2013
    (6,395 )     (6,395 )
Paid-in capital
    101,584       102,974  
Retained earnings
    (6,727 )     (11,795 )
Total American Realty Investors, Inc. shareholders' equity
    93,485       89,807  
Non-controlling interest
    46,408       45,054  
Total equity
    139,893       134,861  
Total liabilities and equity
  $ 922,225     $ 943,322  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
3

 
 
AMERICAN REALTY INVESTORS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited)
 
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
   
(dollars in thousands, except per share amounts)
 
Revenues:
                       
Rental and other property revenues (including $175 and $166 for the three months and $350
and $331 for the six months ended 2014 and 2013, respectively, from related parties)
  $ 20,848     $ 20,402     $ 41,321     $ 40,637  
                                 
Expenses:
                               
Property operating expenses (including $158 and $169 for the three months and $313 and
$372 for the six months ended 2014 and 2013, respectively, from related parties)
    10,319       9,416       20,578       19,338  
Depreciation and amortization
    4,481       4,331       8,952       8,080  
General and administrative (including $842 and $997 for the three months and $1,760 and
$1,887 for the six months ended 2014 and 2013, respectively, from related parties)
    3,196       2,041       5,188       4,053  
Provision on impairment of notes receivable and real estate assets
    -       800       -       800  
Net income fee to related party
    210       48       700       104  
Advisory fee to related party
    2,202       2,487       4,445       5,042  
     Total operating expenses
    20,408       19,123       39,863       37,417  
     Operating income
    440       1,279       1,458       3,220  
                                 
Other income (expenses):
                               
Interest income (including $5,959 and $3,520 for the three months and $9,994 and $6,856 for
the six months ended 2014 and 2013, respectively, from related parties)
    6,041       3,512       10,158       7,053  
Other income
    232       149       411       2,685  
Mortgage and loan interest (including $933 and $771 for the three months and $1,700 and
$1,681 for the six months ended 2014 and 2013, respectively, from related parties)
    (9,746 )     (9,285 )     (18,212 )     (18,720 )
Deferred borrowing costs amortization
    (343 )     31       (1,282 )     (2,429 )
Loan charges and prepayment penalties
    -       (180 )     (1,582 )     (4,117 )
Loss on sale of investments
    -       -       -       (8 )
Earnings from unconsolidated subsidiaries and investees
    (124 )     (25 )     (54 )     188  
Litigation settlement
    (86 )     57       3,752       12  
        Total other expenses
    (4,026 )     (5,741 )     (6,809 )     (15,336 )
Loss before gain on land sales, non-controlling interest, and taxes
    (3,586 )     (4,462 )     (5,351 )     (12,116 )
Gain (loss) on land sales
    (159 )     -       594       (35 )
Net loss from continuing operations before taxes
    (3,745 )     (4,462 )     (4,757 )     (12,151 )
   Income tax benefit
    2,035       5,217       3,918       7,905  
Net income (loss) from continuing operations
    (1,710 )     755       (839 )     (4,246 )
Discontinued operations:
                               
   Net loss from discontinued operations
    (1,189 )     (3,168 )     (1,862 )     (2,716 )
   Gain on sale of real estate from discontinued operations
    7,003       18,074       13,057       25,301  
   Income tax expense from discontinued operations
    (2,035 )     (5,217 )     (3,918 )     (7,905 )
Net income from discontinued operations
    3,779       9,689       7,277       14,680  
Net income
    2,069       10,444       6,438       10,434  
Net income attributable to non-controlling interest
    (551 )     (2,090 )     (1,370 )     (1,706 )
Net income attributable to American Realty Investors, Inc.
    1,518       8,354       5,068       8,728  
Preferred dividend requirement
    (613 )     (613 )     (1,226 )     (1,226 )
Net income applicable to common shares
  $ 905     $ 7,741     $ 3,842     $ 7,502  
                                 
Earnings per share - basic
                               
   Net loss from continuing operations
  $ (0.25 )   $ (0.17 )   $ (0.30 )   $ (0.62 )
   Net income from discontinued operations
    0.33       0.84       0.63       1.27  
   Net income applicable to common shares
  $ 0.08     $ 0.67     $ 0.33     $ 0.65  
                                 
Earnings per share - diluted
                               
   Net loss from continuing operations
  $ (0.25 )   $ (0.17 )   $ (0.30 )   $ (0.62 )
   Net income from discontinued operations
    0.33       0.84       0.63       1.27  
   Net income applicable to common shares
  $ 0.08     $ 0.67     $ 0.33     $ 0.65  
                                 
Weighted average common shares used in computing earnings per share
    11,525,389       11,525,389       11,525,389       11,525,389  
Weighted average common shares used in computing diluted earnings per share
    11,525,389       11,525,389       11,525,389       11,525,389  
                                 
                                 
Amounts attributable to American Realty Investors, Inc.
                               
Net income (loss) from continuing operations
  $ (2,261 )   $ (1,335 )   $ (2,209 )   $ (5,952 )
Net income from discontinued operations
    3,779       9,689       7,277       14,680  
Net income applicable to American Realty Investors, Inc.
  $ 1,518     $ 8,354     $ 5,068     $ 8,728  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
 
AMERICAN REALTY INVESTORS, INC.
 
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
 
For the Six Months Ended June 30, 2014
 
(unaudited, dollars in thousands, except share amounts)
 
                                                   
 
       
                                                             
   
Total
   
Comprehensive
   
Preferred
   
Common Stock
   
Treasury
   
Paid-in
   
Retained
   
Accumulated
Other
Comprehensive
   
Non-controlling
 
   
Equity
   
Income (Loss)
   
Stock
   
Shares
   
Amount
   
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Interest
 
                                                             
Balance, December 31, 2013
  $ 134,861     $ (93,213 )   $ 4,908       11,941,174     $ 115     $ (6,395 )   $ 102,974     $ (11,795 )   $ -     $ 45,054  
Net income
    6,438       6,438       -       -       -       -       -       5,068       -       1,370  
Distribution to non-controlling interests
    (16 )     -       -       -       -       -       -       -       -       (16 )
Sale of non-controlling interests
    (164 )     -       -       -       -       -       (164 )     -       -       -  
Series A preferred stock dividend
($1.00 per share)
    (1,226 )     -       -       -       -       -       (1,226 )     -       -       -  
Balance, June 30, 2014
  $ 139,893     $ (86,775 )   $ 4,908       11,941,174     $ 115     $ (6,395 )   $ 101,584     $ (6,727 )   $ -     $ 46,408  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
5

 
 
AMERICAN REALTY INVESTORS, INC.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
(unaudited)
 
             
   
For the Six Months Ended
 
   
June 30,
 
   
2014
   
2013
 
   
(dollars in thousands)
 
             
Net income
  $ 6,438     $ 10,434  
Other comprehensive income (loss)
    -       -  
Total comprehensive income
    6,438       10,434  
Comprehensive income attributable to non-controlling interest
    (1,370 )     (1,706 )
Comprehensive income attributable to American Realty Investors, Inc.
  $ 5,068     $ 8,728  
 
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
6

 
 
AMERICAN REALTY INVESTORS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited)
 
   
For the Six Months Ended
 
   
June 30,
 
   
2014
   
2013
 
   
(dollars in thousands)
 
Cash Flow From Operating Activities:
           
Net income (loss)
  $ 6,438     $ 10,434  
Adjustments to reconcile net income (loss) applicable to common
 shares to net cash flow from operating activities:
 
                   (Gain) loss on sale of land
    (594 )     35  
                   Gain on sale of income-producing properties
    (13,057 )     (25,301 )
                   Depreciation and amortization
    9,146       10,816  
                   Provision for impairment of notes receivable and real estate assets
    -       800  
                   Amortization of deferred borrowing costs
    1,561       3,441  
                   Earnings from unconsolidated subsidiaries and investees
    54       (188 )
      Decrease (increase) in assets:
               
                   Accrued interest receivable
    7,249       (677 )
                   Other assets
    809       -  
                   Prepaid expense
    (1,214 )     (982 )
                   Escrow
    8,320       10,329  
                   Earnest money
    335       900  
                   Rent receivables
    (323 )     2,991  
                   Related party receivables
    -       (871 )
      Decrease in liabilities:
               
                   Accrued interest payable
    36       (1,472 )
                   Payable to related parties
    (12,008 )     (10,922 )
                   Other liabilities
    (12,444 )     (11,934 )
                              Net cash used in operating activities
    (5,692 )     (12,601 )
                 
Cash Flow From Investing Activities:
               
      Proceeds from notes receivable
    -       2,855  
      Origination or advances of notes receivable
    (8,385 )     (198 )
      Acquisition of land held for development
    (3,425 )     (7 )
      Proceeds from sale of income-producing properties
    39,271       73,494  
      Proceeds from sale of land
    2,221       2,550  
      Investment in unconsolidated real estate entities
    (98 )     (2,059 )
      Improvement of land held for development
    (181 )     (291 )
      Improvement of income-producing properties
    (3,137 )     (3,333 )
      Acquisition of non-controlling interest
    -       (79 )
      Sale of non-controlling interest
    (83 )     -  
      Sale of controlling interest
    -       52  
      Construction and development of new properties
    (620 )     (179 )
                              Net cash provided by investing activities
    25,563       72,805  
                 
Cash Flow From Financing Activities:
               
      Proceeds from notes payable
    64,739       137,522  
      Recurring amortization of principal on notes payable
    (10,530 )     (8,878 )
      Payments on maturing notes payable
    (69,884 )     (193,621 )
      Stock-secured borrowings
    (376 )     (411 )
      Deferred financing costs
    (5,213 )     (1,302 )
      Distributions to non-controlling interests
    (97 )     (96 )
      Preferred stock dividends - Series A
    (1,226 )     (1,226 )
                              Net cash used in financing activities
    (22,587 )     (68,012 )
                 
Net increase (decrease) in cash and cash equivalents
    (2,716 )     (7,808 )
Cash and cash equivalents, beginning of period
    16,437       17,141  
Cash and cash equivalents, end of period
  $ 13,721     $ 9,333  
                 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
  $ 10,598     $ 23,047  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
7

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
 
Organization
 
As used herein, the terms “ARL”, “the Company”, “we”, “our” or “us” refer to American Realty Investors, Inc., a Nevada corporation, which was formed in November 1999.  In August 2000, the Company acquired American Realty Trust, Inc. (“ART”), a Georgia corporation and National Realty, L.P. (“NRLP”), a Delaware partnership.

The Company is headquartered in Dallas, Texas and its common stock trades on the New York Stock Exchange (“NYSE”) under the symbol (“ARL”). Approximately 87.4% of ARL’s stock is owned by related parties.  Subsidiaries of ARL own approximately 83.8% of the outstanding shares of common stock of Transcontinental Realty Investors, Inc. (“TCI”), a Nevada corporation, which has its common stock listed and traded on the New York Stock Exchange (“NYSE”) under the symbol (“TCI”).  ARL is a “C” corporation for U.S. federal income tax purposes and has consolidated TCI’s accounts and operations since March 2003.  During the third quarter 2012, Realty Advisors Management, Inc. (“RAMI”) and its subsidiaries acquired more than 80% of ARL stock and as a result, ARL joined the RAMI consolidated group for federal income tax reporting.  We have no employees.

TCI, a subsidiary of ARL, owns approximately 81.1% of the common stock of Income Opportunity Realty Investors, Inc. (“IOT”).   Effective July 17, 2009, IOT’s financial results were consolidated with those of ARL and TCI and their subsidiaries.  Shares of IOT are traded on the NYSE MKT under the symbol (“IOT”). 

ARL invests in real estate through direct ownership, leases and partnerships and also invests in mortgage loans on real estate.  Pillar Income Asset Management, Inc. (“Pillar”) is the Company’s external Advisor and Cash Manager.  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 Pillar, as the contractual Advisor, under the supervision of the Board.  Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors.  Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with ARL’s business plan and investment policy.  Pillar also serves as an Advisor and Cash Manager to TCI and IOT.

Regis Realty Prime, LLC (“Regis”) manages our commercial properties and provides brokerage services.  ARL engages third-party companies to lease and manage its apartment properties.  TCI also has a development agreement with Unified Housing Foundation, Inc. (“UHF”) a non-profit corporation that provides management services for the development of residential apartment projects in the future.  This development agreement was terminated December 31, 2013.

Properties
 
We own or had interests in a total property portfolio of 45 income-producing properties as of June 30, 2014.  The properties consisted of:
 
 
Nine commercial properties consisting of five office buildings, one industrial warehouse, and three retail centers comprising in aggregate approximately 2.1 million rentable square feet;
 
 
36 apartment communities totaling 6,166 units, excluding apartments being developed; and
 
 
4,155 acres of developed and undeveloped land.

We join with various third-party development companies to construct residential apartment communities. We are in the predevelopment process on several residential apartment communities but have not yet begun construction.  At June 30, 2014, we had no apartment projects in development.  The third-party developer typically holds a general partner as well as a majority limited partner interest in a limited partnership formed for the purpose of building a single property while we generally take a minority 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.
 
 
 
8

 

Basis of Presentation
 
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading.  In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.  The results of operations for the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for other interim periods or for the full fiscal year.
 
The year-end Consolidated Balance Sheet at December 31, 2013 was derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements.  For further information, refer to the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  Certain 2013 financial statement amounts have been reclassified to conform to the 2014 presentation, including adjustments for discontinued operations.
 
Principles of Consolidation
 
The accompanying Consolidated Financial Statements include the accounts of the Company, its subsidiaries, generally all of which are wholly-owned, and all entities in which we have a controlling interest.  Arrangements that are not controlled through voting or similar rights are accounted for as a Variable Interest Entity (“VIE”), in accordance with the provisions and guidance of ASC Topic 810, “Consolidation”, whereby we have determined that we are a primary beneficiary of the VIE and meet certain criteria of a sole general partner or managing member as identified in accordance with Emerging Issues Task Force (“EITF”) Issue 04-5, Investor’s Accounting for an Investment in a Limited Partnership when the Investor is the Sole General Partner and the Limited Partners have Certain Rights (“EITF 04-5”).  VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability, the obligation to absorb expected losses or residual returns of the entity, or have voting rights that are not proportional to their economic interests.  The primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks, authorizes certain capital transactions, or makes operating decisions that materially affect the entity’s financial results.  All significant intercompany balances and transactions have been eliminated in consolidation.
 
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; our and the other investors’ ability to control or significantly influence key decisions for the VIE; and the similarity with and significance to the business activities of us and the other investors.  Significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these VIEs and general market conditions.

For entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting. Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income.  Our investment in Gruppa Florentina, LLC is 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).  The Company continually evaluates the recoverability of the carrying value of its real estate assets using the methodology prescribed in ASC Topic 360, “Property, Plant and Equipment”.  Factors considered by management in evaluating impairment of its existing real estate assets held for investment include significant declines in property operating profits, annually recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature.  Under ASC Topic 360, a real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of an asset (both the annual estimated cash flow from future operations and the estimated cash flow from the theoretical sale of the asset) over its estimated holding period are in excess of the asset’s net book value at the balance sheet date.  If any real estate asset held for investment is considered impaired, a loss is provided to reduce the carrying value of the asset to its estimated fair value.
 
 
 
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Real Estate Held For Sale
 
We periodically classify real estate assets as “held for sale”.  An asset is classified as held for sale after the approval of our Board of Directors, after an active program to sell the asset has commenced and if the sale is probable.  One of the deciding factors in determining whether a sale is probable is whether the firm purchase commitment is obtained and whether the sale is probable within the year.  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 that the sale is no longer probable, the asset is classified as an operating asset and depreciation expense is reinstated.  The operating results of real estate assets held for sale and sold are reported as discontinued operations in the accompanying Consolidated Statements of Operations.  Income from discontinued operations includes the revenues and expenses, including depreciation and interest expense, associated with the assets.  This classification of operating results as discontinued operations applies retroactively for all periods presented.  Additionally, gains and losses on assets designated as held for sale are classified as part of discontinued operations.
 
Cost Capitalization
 
Costs related to planning, developing, leasing and constructing a property are capitalized and classified as Real Estate in the Consolidated Balance Sheets.  We capitalize interest to qualifying assets under development based on average accumulated expenditures outstanding during the period.  In capitalizing interest to qualifying assets, we first use the interest incurred on specific project debt, if any, and next use the weighted average interest rate of non-project specific debt.  We capitalize interest, real estate taxes and certain operating expenses until building construction is substantially complete and the building is ready for its intended use, but no later than one year from the cessation of major construction activity.
 
We capitalize leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable.  We allocate these costs to individual tenant leases and amortize them over the related lease term.
 
Fair Value Measurement
 
We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets.  These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy.  The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.
 
The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:
 
   
Level 1 –
Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.
Level 2 –
Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 –
Unobservable inputs that are significant to the fair value measurement.
 
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
 
Related Parties
 
We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may  deal if one party controls or can significantly influence the decision making  of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, or affiliates of the entity.
 
 
 
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Newly Issued Accounting Standards
 
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our Consolidated Financial Statements, including that which we have not yet adopted.  We do not believe that any such guidance will have a material effect on our financial position or results of operations.
 
NOTE 2. REAL ESTATE ACTIVITY
 
Below is a summary of the real estate owned as of June 30, 2014 (dollars in thousands):
 
Apartments
  $ 436,211  
Commercial properties
    178,338  
Land held for development
    156,034  
Real estate held for sale
    2,116  
Real estate subject to sales contract
    25,211  
Total real estate
  $ 797,910  
Less accumulated depreciation
    (126,750 )
Total real estate, net of depreciation
  $ 671,160  
 
The highlights of our significant real estate transactions for the six months ended June 30, 2014 are listed below:

On February 6, 2014, TCI sold a 232-unit apartment complex known as Pecan Pointe located in Temple, Texas for a sales price of $23.1 million to an independent third party.  The buyer assumed the existing debt of $16.5 million secured by the property.  A gain of $6.1 million was recorded on the sale.

On March 26, 2014, TCI sold 6.314 acres of land known as McKinney Ranch land located in McKinney, Texas to an independent third party, for a sales price of $1.7 million.  We paid $1.5 million on the existing mortgage to satisfy a portion of the multi-tract collateral debt of $6.6 million, secured by various land parcels located in McKinney, Texas.  A gain of $0.8 million was recorded on the land parcel sale.

On March 31, 2014, the Company purchased 16.87 acres of land known as Valwood Acres located in Farmers Branch, Texas from an independent third party for a purchase price of $3.2 million.

On April 3, 2014, TCI sold 1010 Common, a 512,593 square foot commercial building, located in New Orleans, Louisiana, for a sales price of $16.6 million to an independent third party.  A gain of $7.0 million was recorded on the sale.
 
As of June 30, 2014, there is one apartment complex, one commercial building and 134 acres of land that TCI has sold to a related party and has deferred the recognition of the sale.  These are treated as “subject to sales contract” on the Consolidated Balance Sheets. These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution. These properties have mortgages that are secured by the property and many have corporate guarantees. According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation. TCI has reviewed each asset and taken impairment to the extent it feels the value of the property was less than its current basis.  TCI did not recognize or record the sale in accordance with ASC 360-20 due to our continuing involvement, which included the potential payment of cash shortfalls, future obligations under the existing mortgage and guaranty, the buyer’s inadequate initial investment and TCI’s questionable recovery of investment cost.  TCI determined that no sale had occurred for financial reporting purposes and therefore the asset remained on the books and continued to record operating expenses and depreciation as a period cost until a sale occurred that met the requirements of ASC 360-20.  The buyers received no compensation for the facilitation of the bankruptcy or debt restructuring process.
 
We continue to invest in the development of apartment projects. During the six months ended June 30, 2014, we have expended $0.6 million related to the construction or predevelopment of various apartment complexes.
 
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. 

 
 
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 Our mortgage notes receivable consist of first, wraparound and junior mortgage loans (dollars in thousands):
 
               Maturity   Interest         
Borrower
           
Date
 
Rate
 
Amount
 
Security
Performing loans:
   
 
                 
 
     Miscellaneous non-related party notes
   
Various
 
Various
 
 $           3,297
 
Various secured interests
 
     Miscellaneous related party notes (1)
   
Various
 
Various
 
              3,441
 
Various secured interests
 
     One Realco Corporation (1) (2)
   
01/17
 
3.00%
 
              7,000
 
Unsecured
 
     Realty Advisors Management, Inc. (1)
   
12/16
 
2.20%
 
            20,387
 
Unsecured
 
     S Breeze I-V, LLC
       
06/14
 
5.00%
 
              3,314
 
6% Class A and 25% Class B Limited Partner Interests
 
     Woodhaven-Hawthorn, Inc. (1)
   
10/19
 
5.50%
 
                 985
 
Unsecured
 
     Unified Housing Foundation, Inc. (Cliffs of El Dorado) (1)
 
12/32
 
12.00%
 
              2,097
 
100% Membership Interest in Unified Housing of McKinney, LLC
 
     Unified Housing Foundation, Inc. (Echo Station) (1)
 
12/32
 
12.00%
 
              1,481
 
100% Membership Interest in Unified Housing of Temple, LLC
 
     Unified Housing Foundation, Inc. (Inwood on the Park) (1)
 
12/32
 
12.00%
 
              5,059
 
100% Membership Interest in Unified Housing Inwood, LLC
 
     Unified Housing Foundation, Inc. (Kensington Park) (1)
 
12/32
 
12.00%
 
              3,936
 
100% Membership Interest in Unified Housing Kensington, LLC
 
     Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
 
12/32
 
12.00%
 
              2,000
 
Unsecured
 
     Unified Housing Foundation, Inc. (Lakeshore Villas) (1)
 
12/32
 
12.00%
 
              9,096
 
Membership interest in Housing for Seniors of Humble, LLC
 
     Unified Housing Foundation, Inc. (Limestone Canyon) (1)
 
12/32
 
12.00%
 
              3,057
 
100% Membership Interest in Unified Housing of Austin, LLC
 
     Unified Housing Foundation, Inc. (Limestone Canyon) (1)
 
12/32
 
12.00%
 
              4,663
 
100% Membership Interest in Unified Housing of Austin, LLC
 
     Unified Housing Foundation, Inc. (Limestone Ranch) (1)
 
12/32
 
12.00%
 
              2,250
 
100% Membership Interest in Unified Housing of Vista Ridge, LLC
 
     Unified Housing Foundation, Inc. (Limestone Ranch) (1)
 
12/32
 
12.00%
 
              6,000
 
100% Membership Interest in Unified Housing of Vista Ridge, LLC
 
     Unified Housing Foundation, Inc. (Parkside Crossing) (1)
 
12/32
 
12.00%
 
              2,272
 
100% Membership Interest in Unified Housing of Parkside Crossing, LLC
 
     Unified Housing Foundation, Inc. (Sendero Ridge) (1)
 
12/32
 
12.00%
 
              5,174
 
100% Membership Interest in Unified Housing of Sendero Ridge, LLC
 
     Unified Housing Foundation, Inc. (Sendero Ridge) (1)
 
12/32
 
12.00%
 
              4,812
 
100% Membership Interest in Unified Housing of Sendero Ridge, LLC
 
     Unified Housing Foundation, Inc. (Timbers at the Park) (1)
 
12/32
 
12.00%
 
              1,323
 
100% Membership Interest in Unified Housing of Terrell, LLC
 
     Unified Housing Foundation, Inc. (Tivoli) (1)
 
12/32
 
12.00%
 
              7,966
 
100% Membership Interest in Unified Housing of Tivoli, LLC
 
     Unified Housing Foundation, Inc. (Reserve at White Rock Phase I) (1)
12/32
 
12.00%
 
              2,485
 
100% Membership Interest in Unified Housing of Harvest Hill I, LLC
 
     Unified Housing Foundation, Inc. (Reserve at White Rock Phase II) (1)
12/32
 
12.00%
 
              2,555
 
100% Membership Interest in Unified Housing of Harvest Hill, LLC
 
     Unified Housing Foundation, Inc. (Trails at White Rock) (1)
 
12/32
 
12.00%
 
              3,815
 
100% Membership Interest in Unified Housing of Harvest Hill III, LLC
 
     Unified Housing Foundation, Inc. (1)
   
12/13
 
5.00%
 
              6,000
 
Unsecured
 
     Unified Housing Foundation, Inc. (1)
   
12/15
 
12.00%
 
            17,928
 
Unsecured
 
     Unified Housing Foundation, Inc. (1)
   
12/16
 
12.00%
 
              3,657
 
Unsecured
 
     Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1)
03/19
 
12.00%
 
              1,810
 
Unsecured
 
     Foundation for Better Housing, Inc. (Preserve at Prairie Pointe) (1)
03/17
 
12.00%
 
              1,156
 
Unsecured
 
     Foundation for Better Housing, Inc. (Vista Ridge) (1)
 
04/19
 
12.00%
 
              3,923
 
Unsecured
 
     Accrued interest
               
            11,471
   
Total Performing
                 
 $       154,410
   
                             
Non-Performing loans:
                     
 
     Leman Development, Ltd (2)
     
07/11
 
7.00%
 
              1,500
 
Unsecured
 
     Tracy Suttles (2)
       
12/11
 
0.00%
 
              1,077
 
Unsecured
 
     Miscellaneous non-related party notes
   
Various
 
Various
 
                 507
 
Various secured interests
 
     Accrued interest
               
                   57
   
Total Non-Performing
               
 $           3,141
   
                             
 
      Allowance for doubtful accounts
           
          (19,537)
   
Total
                   
 $       138,014
   
                             
                             
 (1)  Related party notes
                     
 (2)  An allowance was taken for estimated losses at full value of note
             
 
At June 30, 2014, we had junior mortgage loans and accrued interest receivable from related parties, net of allowances, totaling $131.0 million. We recognized interest income of $7.8 million related to these notes receivables.
 
The Company has various notes receivable from Unified Housing Foundation, Inc. (“UHF”).  UHF is determined to be a related party to the Company due to our significant investment in the performance of the collateral secured under the notes receivable.  Payments are due from surplus cash flow of operations.  Sale or refinance of any of the properties underlying these notes will be used to repay outstanding interest and principal for the remaining notes.  These notes are cross-collateralized but to the extent cash is received from a specific UHF property, it is applied against any outstanding interest for the related-property note.  The allowance on the UHF notes was a purchase allowance that was netted against the notes when acquired.
 
On March 31, 2014, TCI invested $3.2 million of notes and accrued interest receivable from Foundation for Better Housing, Inc. for the acquisition and refinance of Preserve at Prairie Pointe.  The notes accrue interest at 12% and mature at various times.
 
 
 
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On April 1, 2014, TCI invested $4.0 million of a note and accrued interest receivable from Foundation for Better Housing, Inc. for the acquisition of Vista Ridge.  The note accrues interest at 12% and matures in April 2019.

NOTE 4. INVESTMENT IN UNCONSOLIDATED INVESTEES
 
Investments in unconsolidated investees in which we have a 20% to 50% interest or otherwise exercise significant influence are carried at cost and adjusted for the Company’s proportionate share of their undistributed earnings or losses under the equity method of accounting.
 
Investments in unconsolidated investees consist of the following:
 
   
Percentage ownership as of
 
   
June 30, 2014
   
June 30, 2013
 
Gruppa Florentina, LLC
    20.00 %     20.00 %
 
Gruppa Florentina, LLC is the sole member of Milano Restaurants International Corporation, (“Milano”) which operates 35 pizza parlors under the trade name “Me-N-Ed’s Pizza Parlors” located primarily in Central and Northern California.  Milano has a 100% ownership interest in SienaCorp, which operates two grills under the trade names “Me-N-Ed’s Victory Grill” and “Me-N-Ed’s Coney Island Grill”.  Milano has a 100% ownership interest in Piazza del Pane, Inc., which operates two restaurants located in Central California.  Milano also has 23 franchised locations, including two operating, under the trade name Angelo & Vito’s Pizzerias.

The following is a summary of the financial position and results of operations from our investees (dollars in thousands):
 
As of June 30,
 
2014
   
2013
 
Real estate, net of accumulated depreciation
  $ 10,832     $ 11,153  
Notes receivable
    6,934       6,367  
Other assets
    31,107       31,589  
Notes payable
    (11,002 )     (12,490 )
Other liabilities
    (6,631 )     (7,093 )
Shareholders' equity
    (31,240 )     (29,526 )
                 
For the Six Months Ended June 30,
    2014       2013  
Revenue
  $ 23,990     $ 23,029  
Depreciation
    (575 )     (589 )
Operating expenses
    (22,121 )     (20,946 )
Interest expense
    (445 )     (534 )
Income from continuing operations
    849       960  
Income from discontinued operations
    -       -  
Net income
  $ 849     $ 960  
 
               
Company's proportionate share of earnings (1)
  $ 170     $ 192  
                 
(1) Earnings represents continued and discontinued operations
         
 
 
 
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NOTE 5. NOTES PAYABLE

Below is a summary of our notes and interest payable as of June 30, 2014 (dollars in thousands):
 
   
Notes Payable
   
Accrued Interest
   
Total Debt
 
Apartments
  $ 406,222     $ 1,199     $ 407,421  
Commercial
    101,855       463       102,318  
Land
    88,344       117       88,461  
Real estate held for sale
    2,203       -       2,203  
Real estate subject to sales contract
    19,174       1,584       20,758  
Other
    24,174       92       24,266  
                         
Total
  $ 641,972     $ 3,455     $ 645,427  

The segment labeled as “Other” consists of unsecured or stock-secured notes payable.

With respect to the additional notes payable due to the acquisition of properties or refinancing of existing mortgages, a summary of some of the more significant transactions is discussed below:

On February 10, 2014, a subsidiary of the Company paid off an existing margin loan and entered into a $4 million promissory note with a third party, secured by TCI stock.  The note matures on February 10, 2016 and has an interest rate of 6%.

On February 12, 2014, TCI exercised the first prepayment option on the settlement relating to the Amoco Building and paid $1.2 million to settle all obligations.  The remaining balance of the note in the amount of $3.5 million, along with accrued interest, was forgiven.  The 135,000 shares of Series K Convertible Preferred Stock of ARL that was pledged to the lender has been released to TCI.  The Series K preferred stock was cancelled May 7, 2014.

On February 14, 2014, the Company entered into a settlement and loan modification agreement with the lender regarding EQK Portage land.  The new loan is for $1.6 million, matures on February 6, 2017 and has an interest rate of one-month LIBOR plus 5%.  The Company paid $200,000 at close which was used to adjust the current outstanding loan balance to the newly stated loan balance and the remainder was used to pay down interest that had been accruing under the prior agreement.  The rest of the unpaid interest that accrued under the prior agreement was waived.  Per the agreement, the Company was also required to pay off the property tax note of $257,000.

On February 28, 2014, TCI refinanced the existing mortgage on Parc at Denham Springs apartments, a 224-unit complex located in Denham Springs, LA, for a new mortgage of $19.2 million.  TCI paid off the existing mortgage of $19.2 million and $1.6 million in closing costs.  The note accrues interest at 3.75% and payments of interest and principal are due monthly, maturing April 1, 2051.

On March 25, 2014, TCI exercised its lender granted option under the settlement agreement relating to the Galleria East Center Retail / Showcase Chevrolet land which was transferred to the existing lender on February 4, 2011.  TCI paid the balance of the notes along with all accrued and unpaid interest and received a reduction in price of $0.4 million.

On March 28, 2014, TCI secured financing of $40.0 million from an independent third party.  The note has a term of five years at an interest rate of 12.0%.  The note is interest only for the first year with quarterly principal payments due of $500,000 starting April 1, 2015.  The loan is secured by various equity interests in residential apartments and can be prepaid at a penalty rate of 4% for year 1 with the penalty declining by 1% each year thereafter.

On March 31, 2014, TCI entered into a settlement agreement relating to the Fenton Centre building which was transferred to the existing lender on June 7, 2011.  The total amount of the settlement was $7.0 million, $5.0 million was paid at the time of the settlement and the remaining $2.0 million will be paid out in equal monthly installments through November 5, 2015.
 
On May 28, 2014, a $1.5 million principal payment was made to the existing Realty Advisors, Inc. mortgage and two additional land parcels, including 8.0 acres of Ladue land owned by TCI and 16.75 acres of Valwood land owned by ARL, were substituted as collateral under the note in exchange for a release of a $4 million deposit account.  The principal balance is allocated based on the land valuation.
 
 
 
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There are various land mortgages, secured by the property, that are in the process of a modification or extension to the original note due to expiration of the loan.  We are in constant contact with these lenders, working together in order to modify the terms of these loans and we anticipate a timely resolution that is similar to the existing agreement or subsequent modification.
 
 
The properties that we have sold to a related party and have deferred the recognition of the sale are treated as “subject to sales contract” on the Consolidated Balance Sheets.  These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution.  These properties have mortgages that are secured by the property and many have corporate guarantees.  According to the loan documents, the maker is currently in default on these mortgages primarily due to lack of payment and is actively involved in discussions with every lender in order to settle or cure the default situation.  We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.
 
NOTE 6. RELATED PARTY TRANSACTIONS
 
The following table reconciles the beginning and ending balances of accounts receivable from and (accounts payable) to related parties as of June 30, 2014 (dollars in thousands):
 
   
Pillar
 
Related party receivable, December 31, 2013
  $ 14,086  
Cash transfers
    27,262  
Advisory fees
    (4,445 )
Fees and commissions
    (1,194 )
Cost reimbursements
    (1,670 )
Interest (to) from advisor
    490  
Notes receivable purchased
    (8,437 )
Net income fee
    (700 )
Expenses paid by Advisor
    (1,317 )
Financing (mortgage payments)
    1,669  
Sales/purchases transactions
    350  
Related party receivable, June 30, 2014
  $ 26,094  

During the ordinary course of business, we have related party transactions that include, but are not limited to, rent income, interest income, interest expense, general and administrative costs, commissions, management fees and property expenses.  In addition, we have assets and liabilities that include related party amounts.  The related party amounts included in assets and liabilities, and the related party revenues and expenses received/paid are shown on the face of the financial statements.
 
NOTE 7. OPERATING SEGMENTS
 
Our segments are based on our method of internal reporting which classifies our operations by property type.  Our property types are grouped into commercial, apartments, hotels, land and other operating segments.  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 and net loss from discontinued operations before gains on sale of real estate.
 
The segment labeled as “Other” consists of revenue and operating expenses related to the notes receivable and corporate debt.
 

 
15

 
 
Presented below is our reportable segments’ operating income for the three and six months ended June 30, 2014 and 2013, including segment assets and expenditures (dollars in thousands):
 
   
Commercial
                               
For the Three Months Ended June 30, 2014
 
Properties
   
Apartments
   
Hotels
   
Land
   
Other
   
Total
 
Rental and other property revenues
  $ 4,775     $ 16,055     $ -     $ -     $ 18     $ 20,848  
Property operating expenses
    3,168       6,871       -       280       -       10,319  
Depreciation
    1,758       2,741       -       -       (18 )     4,481  
Mortgage and loan interest
    1,637       4,161       -       1,412       2,536       9,746  
Deferred borrowing costs amortization
    8       104       -       46       185       343  
Interest income
    -       -       -       -       6,041       6,041  
Gain on land sales
    -       -       -       (159 )     -       (159 )
Segment operating income (loss)
  $ (1,796 )   $ 2,178     $ -     $ (1,897 )   $ 3,356     $ 1,841  
Capital expenditures
    1,862       99       -       159       -       2,120  
Real estate assets
    131,193       372,674       -       167,293       -       671,160  
                                                 
Property Sales
                                               
Sales price
  $ 16,600     $ -     $ -     $ 717     $ -     $ 17,317  
Cost of sale
    9,597       -       -       876       -       10,473  
Gain (loss) on sale
  $ 7,003     $ -     $ -     $ (159 )   $ -     $ 6,844  
                                                 
                                                 
   
Commercial
                                         
For the Three Months Ended June 30, 2013
 
Properties
   
Apartments
   
Hotels
   
Land
   
Other
   
Total
 
Rental and other property revenues
  $ 5,121     $ 15,252     $ -     $ 22     $ 7     $ 20,402  
Property operating expenses
    2,383       6,645       -       356       32       9,416  
Depreciation
    1,669       2,701       -       -       (39 )     4,331  
Mortgage and loan interest
    1,655       4,336       -       1,504       1,790       9,285  
Deferred borrowing costs amortizaion
    21       (94 )     -       35       7       (31 )
Loan charges and prepayment penalties
    -       -       -       -       180       180  
Interest income
    -       -       -       -       3,512       3,512  
Segment operating income (loss)
  $ (607 )   $ 1,664     $ -     $ (1,873 )   $ 1,549     $ 733  
Capital expenditures
    2,236       79       -       -       -       2,315  
Real estate assets
    138,990       383,068       -       210,095       -       732,153  
                                                 
Property Sales
                                               
Sales price
  $ 26,974     $ 24,822     $ -     $ -     $ -     $ 51,796  
Cost of sale
    14,914       18,808       -       -       -       33,722  
Gain on sale
  $ 12,060     $ 6,014     $ -     $ -     $ -     $ 18,074  
 
The table below reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations:

   
For the Three Months Ended
 
   
June 30,
 
   
2014
   
2013
 
Segment operating income
  $ 1,841     $ 733  
Other non-segment items of income (expense)
               
General and administrative
    (3,196 )     (2,041 )
Net income fee to related party
    (210 )     (48 )
Advisory fee to related party
    (2,202 )     (2,487 )
Other income
    232       149  
Provision on impairment of notes receivable and real estate assets
    -       (800 )
Earnings from unconsolidated investees
    (124 )     (25 )
Litigation settlement
    (86 )     57  
Income tax benefit
    2,035       5,217  
Net income (loss) from continuing operations
  $ (1,710 )   $ 755  
 
 
 
16

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

   
June 30,
 
   
2014
   
2013
 
Segment assets
  $ 671,160     $ 732,153  
Investments in unconsolidated investees
    3,833       10,415  
Notes and interest receivable
    138,014       103,690  
Other assets
    109,218       212,355  
Total assets
  $ 922,225     $ 1,058,613  
 
   
Commercial
                               
For the Six Months Ended June 30, 2014
 
Properties
   
Apartments
   
Hotels
   
Land
   
Other
   
Total
 
Rental and other property revenues
  $ 9,557     $ 31,736     $ -     $ -     $ 28     $ 41,321  
Property operating expenses
    6,315       13,668       -       590       5       20,578  
Depreciation
    3,571       5,435       -       (54 )     -       8,952  
Mortgage and loan interest
    3,114       8,357       -       2,462       4,279       18,212  
Deferred borrowing costs amortization
    21       992       -       81       188       1,282  
Loan charges and prepayment penalties
    9       1,573       -       -       -       1,582  
Interest income
    -       -       -       -       10,158       10,158  
Gain on land sales
    -       -       -       594       -       594  
Segment operating income (loss)
  $ (3,473 )   $ 1,711     $ -     $ (2,485 )   $ 5,714     $ 1,467  
Capital expenditures
    2,992       99       -       151       -       3,242  
Real estate assets
    131,193       372,674       -       167,293       -       671,160  
                                                 
Property Sales
                                               
Sales price
  $ 16,600     $ 23,131     $ -     $ 717     $ -     $ 40,448  
Cost of sale
    9,597       17,077       -       123       -       26,797  
Gain on sale
  $ 7,003     $ 6,054     $ -     $ 594     $ -     $ 13,651  
                                                 
                                                 
   
Commercial
                                         
For the Six Months Ended June 30, 2013
 
Properties
   
Apartments
   
Hotels
   
Land
   
Other
   
Total
 
Rental and other property revenues
  $ 10,384     $ 30,183     $ -     $ 56     $ 14     $ 40,637  
Property operating expenses
    5,594       13,009       -       726       9       19,338  
Depreciation
    2,777       5,401       -       -       (98 )     8,080  
Mortgage and loan interest
    2,986       9,000       -       3,041       3,693       18,720  
Deferred borrowing costs amortizaion
    43       2,247       -       97       42       2,429  
Loan charges and prepayment penalties
    -       3,937       -       -       180       4,117  
Interest income
    -       -       -       -       7,053       7,053  
Loss on land sales
    -       -       -       (35 )     -       (35 )
Segment operating income (loss)
  $ (1,016 )   $ (3,411 )   $ -     $ (3,843 )   $ 3,241     $ (5,029 )
Capital expenditures
    2,913       110       -       281       -       3,304  
Real estate assets
    138,990       383,068       -       210,095       -       732,153  
                                                 
Property Sales
                                               
Sales price
  $ 26,974     $ 50,122     $ -     $ 2,250     $ -     $ 79,346  
Cost of sale