Transcontinental Realty Investors 8K/A Financial Statements and Exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment #2)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

November 18, 2005 (August 25, 2005)

Date of Report (Date of Earliest Event Reported)

TRANSCONTINENTAL REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	001-09240	94-6565852
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File No.)	(I.R.S. Employer Identification No.)

1800 Valley View Lane, Suite 300 Dallas, Texas			75234
(Address of Principal Executive Office)			(Zip Code)

(469) 522-4200

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

£	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

£	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

£	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

£	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Transcontinental Realty Investors, Inc. (“TCI”) hereby amends its Current Report on Form 8-K dated August 31, 2005 to provide certain financial statements required by Rule 3-14 of Regulation S-X of the Securities and Exchange Commission.

ITEM 9.01

FINANCIAL STATEMENTS AND EXHIBITS

(a)	FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.

	600 Las Colinas Office Building
	Report of Independent Auditors for the year ended December 31, 2004	3
	Statement of Revenues and Certain Expenses for the year ended December 31, 2004	4
	Notes to the Statement of Revenues and Certain Expenses for the year ended December 31, 2004	5

	Two Hickory Office Building
	Report of Independent Auditors for the years ended December 31, 2004, 2003 and 2002	6
	Statements of Revenues and Certain Expenses for the years ended December 31, 2004, 2003 and 2002	7
	Notes to the Statements of Revenues and Certain Expenses for the years ended December 31, 2004, 2003 and 2002	8

	Foxwood Apartments
	Report of Independent Auditors for the years ended December 31, 2004, 2003 and 2002	10
	Statements of Revenues and Certain Expenses for the years ended December 31, 2004, 2003, and 2002	11
	Notes to the Statements of Revenues and Certain Expenses for the years ended December 31, 2004, 2003, and 2002	12

(b)	PRO FORMA FINANCIAL INFORMATION

	Unaudited Pro Forma Consolidated Financial Information	13
	Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2005	14
	Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2004	15
	Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2005	16

(c)	EXHIBITS

	None

Independent Auditors' Report

To the Board of Directors

Transcontinental Realty Investors, Inc.

We have audited the accompanying statement of revenues and direct operating expenses of 600 Las Colinas for the year ended December 31, 2004. This statement of revenues and direct operating expenses is the responsibility of the Property's management. Our responsibility is to express an opinion on this statement of revenues and direct operating expenses based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The accompanying financial statement is prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Form 8-K of Transcontinental Realty Investors, Inc.) and, as described in Note 1, is not intended to be a complete presentation of the results of operations.

In our opinion, the statement of revenues and direct operating expenses referred to above presents fairly, in all material respects, the revenues and direct operating expenses of 600 Las Colinas for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

FARMER, FUQUA, & HUFF, P.C.

Plano, Texas

November 16, 2005

600 LAS COLINAS

STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

YEAR ENDED DECEMBER 31, 2004

REVENUES
Net rental revenue	$	7,154,065

Recoveries and other revenue		3,796,081

Total revenues		10,950,146


DIRECT OPERATING EXPENSES
General and administrative		935,603
Utilities		805,499
Building Services		908,866
Property taxes		1,851,913
Property insurance		86,896

Total direct operating expenses		4,588,777

REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES	$	6,361,369

The accompanying notes are an integral part of this statement.

600 LAS COLINAS

NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES

YEAR ENDED DECEMBER 31, 2004

NOTE A	ORGANIZATION AND BASIS OF PRESENTATION

	600 Las Colinas is an approximately 509,829 square foot office building located in Irving, Texas. During 2004, the building was owned by TGS American Realty Limited Partnership and managed by TGS REIT Management. The accompanying financial statement does not include a provision for depreciation and amortization, interest expense, income taxes or other corporate expenses. Accordingly, this statement is not intended to be a complete presentation of the results of operations.

NOTE B	SIGNIFICANT ACCOUNTING POLICIES

	ACCOUNTING ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION - Rental revenue is recorded on a straight-line basis.

NOTE C	RECOVERIES AND OTHER REVENUE

	Recoveries and other revenue consists of recoveries from tenants for common area maintenance, utilities and property taxes. Parking revenues and other miscellaneous revenues of the property are also included in this caption.

NOTE D	RELATED PARTY TRANSACTIONS

	Management fees of approximately $300,000 were paid to a related party in 2004.

NOTE E	SUBSEQUENT EVENT

	The building was sold to Transcontinental Realty Investors, Inc., a Nevada corporation effective August 25, 2005.

Independent Auditors' Report

To the Board of Directors

Transcontinental Realty Investors, Inc.

We have audited the accompanying statements of revenues and direct operating expenses of ART Two Hickory Corporation for the years ended December 31, 2004, 2003, and 2002. These statements are the responsibility of the Property's management. Our responsibility is to express an opinion on these statements based on our audit.

The accompanying financial statements are prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Form 8-K of Transcontinental Realty Investors, Inc.) and, as described in Note 1, are not intended to be a complete presentation of the results of operations.

In our opinion, the statements of revenues and direct operating expenses referred to above present fairly, in all material respects, the revenues and direct operating expenses of ART Two Hickory Corporation for the years ended December 31, 2004, 2003, and 2002, in conformity with accounting principles generally accepted in the United States of America.

FARMER, FUQUA, & HUFF, P.C.

Plano, Texas

November 8, 2005

ART TWO HICKORY CORPORATION

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

YEARS ENDED DECEMBER 31,

	2004			2003			2002

REVENUES
Gross potential rents	$	2,027,973		$	2,064,013		$	2,040,971
Vacancy and other lost rents		(193,447	)		(175,651	)		(236,669	)
Net rental revenues		1,834,526			1,888,362			1,804,302

Common area maintenance and other revenues		146,752			160,490			149,821

Total revenues		1,981,278			2,048,852			1,954,123


DIRECT OPERATING EXPENSES
Personnel		48,452			63,256			61,594
General and administrative		90,004			101,235			115,156
Utilities		214,374			190,608			149,160
Repairs and maintenance		201,360			209,455			216,042
Property taxes		243,098			289,367			279,150
Property insurance		22,331			29,926			20,000

Total direct operating expenses		819,619			883,847			842,101


REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES	$	1,161,659		$	1,165,005		$	1,112,002

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

ART TWO HICKORY CORPORATION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

NOTE A	ORGANIZATION AND BASIS OF PRESENTATION

	ART Two Hickory Corporation (“Two Hickory”) owns the approximately 96,127 square foot Two Hickory Office Building in Farmers Branch, Texas. During 2004, 2003, and 2002, Two Hickory was owned by American Realty Investors, Inc. (“ARI”). The accompanying financial statements do not include a provision for depreciation and amortization, interest expense, income taxes or other corporate expenses. Accordingly, these statements are not intended to be a complete presentation of the results of operations.

NOTE B	SIGNIFICANT ACCOUNTING POLICIES

	ACCOUNTING ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION - Rental revenue is recorded when due from tenants and is recognized monthly as it is earned, which is not substantially different than on a straight-line basis.

NOTE C	TENANT LEASES

	The Two Hickory building was leased by fourteen tenants during 2004, eight of which remained at December 31, 2004. The lease agreements require the lessees to pay charges associated with the property, including property taxes, utilities, insurance and repairs and maintenance. The building is leased under operating leases, which expire between September of 2005 and May of 2012. At December 31, 2004, the approximate future minimum rental income under the operating leases are as follows:

	2005	$1,336,105
	2006	1,005,289
	2007	346,842
	2008	221,767
	2009	129,905
	Thereafter	251,489

		$3,291,397

ART TWO HICKORY CORPORATION

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

NOTE D	RELATED PARTIES

	Two Hickory received approximately $305,000, $358,000, and $372,000 in rents from related parties in 2004, 2003, and 2002, respectively. At December 31, 2004, the approximate future minimum rental income from related parties under the operating leases are as follows:

	2005	$100,067
	2006	100,067
	2007	33,356

		$233,490

NOTE E	SUBSEQUENT EVENT

	ART Two Hickory Corporation was sold to Transcontinental Realty Investors, Inc., a Nevada corporation, a subsidiary of ARI, effective January 4, 2005 under a contract entered January 4, 2002.

Independent Auditors' Report

To the Board of Directors

Transcontinental Realty Investors, Inc.

We have audited the accompanying statements of revenues and direct operating expenses of Garden Foxwood, L.P. for the years ended December 31, 2004, 2003, and 2002. These statements are the responsibility of the Property's management. Our responsibility is to express an opinion on these statements based on our audit.

In our opinion, the statements of revenues and direct operating expenses referred to above present fairly, in all material respects, the revenues and direct operating expenses of Garden Foxwood, L.P. for the years ended December 31, 2004, 2003, and 2002, in conformity with accounting principles generally accepted in the United States of America.

FARMER, FUQUA, & HUFF, P.C.

Plano, Texas

November 8, 2005

GARDEN FOXWOOD, L.P.

STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

YEARS ENDED DECEMBER 31,

	2004			2003			2002

REVENUES
Gross potential rents	$	1,542,960		$	1,540,800		$	1,521,000
Vacancy and other lost rents		(409,852	)		(394,490	)		(223,873	)
Net rental revenues		1,133,108			1,146,310			1,297,127

Common area maintenance and other revenues		78,144			114,533			75,796

Total revenues		1,211,252			1,260,843			1,372,923


DIRECT OPERATING EXPENSES
Personnel		198,373			186,186			169,892
General and administrative		136,197			155,571			140,792
Utilities		79,144			73,183			61,214
Repairs and maintenance		420,979			381,942			291,468
Property taxes		134,648			160,525			145,973
Property insurance		35,296			36,788			39,006

Total direct operating expenses		1,004,637			994,195			848,345


REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES	$	206,615		$	266,648		$	524,578

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

GARDEN FOXWOOD, L.P.

NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES

YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

NOTE A	ORGANIZATION AND BASIS OF PRESENTATION

	Garden Foxwood, L.P. (“Foxwood”) owns a 220 unit apartment complex located in Memphis, Tennessee. During 2004, 2003, and 2002, Foxwood was owned by American Realty Investors, Inc. (ARI). The accompanying financial statements do not include a provision for depreciation and amortization, interest expense, income taxes or other corporate expenses. Accordingly, these statements are not intended to be a complete presentation of the results of operations.

NOTE B	SIGNIFICANT ACCOUNTING POLICIES

	ACCOUNTING ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION - Rental revenue is recorded when due from tenants and is recognized monthly as it is earned, which is not substantially different than on a straight-line basis.

NOTE C	OTHER REVENUE

	Other revenue consists of deposit forfeitures, application and late fees, charges for returned checks and other miscellaneous revenues of the property.

NOTE D	SUBSEQUENT EVENT

	Foxwood was sold to Transcontinental Realty Investors, Inc., a Nevada corporation, a subsidiary of ARI, effective April 12, 2005 under a contract entered April 12, 2002.

TRANSCONTINENTAL REALTY INVESTORS, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

This pro forma financial information should be read in conjunction with the financial statements and notes of Transcontinental Realty Investors, Inc. (“TCI”) included in its annual report filed on Form 10-K for the year ended December 31, 2004 and its quarterly report filed on Form 10-Q for the six months ended June 30, 2005.

The unaudited pro forma consolidated balance sheet is presented with 600 Las Colinas, Luna land, Senlac land, Whorton land and Wilmer 88 land as if they were purchased on June 30, 2005. The other properties purchased by TCI prior to June 30, 2005 are already included in TCI’s consolidated balance sheet as of June 30, 2005; therefore, no pro forma adjustments for these properties were made.

The unaudited pro forma statements of operations are presented for the six months ended June 30, 2005 and the year ended December 31, 2004. The unaudited pro forma consolidated statements of operations present TCI’s operations as if the transactions had occurred at January 1 of each of the periods presented.

The pro forma consolidated balance sheet and pro forma consolidated statements of operations are not necessarily indicative of what the actual financial position would have been or what the actual results of operations would have been had TCI completed all the property acquisitions on January 1, 2004 or January 1, 2005, nor do they purport to represent our future operations from these property acquisitions.

TRANSCONTINENTAL REALTY INVESTORS, INC.

PRO FORMA CONSOLIDATED BALANCE SHEET

JUNE 30, 2005

(Dollars in thousands)

	Actual⁽¹⁾			600 Las Colinas			Two Hickory		Foxwood Apartments		Insignificant Acquisitions⁽²⁾			Total Consolidated Pro Forma
*ASSETS*
Real Estate held for Investment	$	767,860		$	57,510		$	—	$	—	$	6,116		$	831,486
Less: Accumulated Depreciation		(76,335	)		—			—		—		—			(76,335	)
		691,525			57,510			—		—		6,116			755,151

Real estate held for sale		43,866			—			—		—		—			43,866
Real estate subject to sales contract		69,544			—			—		—		—			69,544

Notes and Interest Receivable:
Performing		52,854			—			—		—		—			52,854
Non-Performing		—			—			—		—		—			—
		52,854			—			—							52,854
Less: Allowances for Estimated Losses		—			—			—		—		—			—
		52,854			—			—		—		—			52,854

Investment in real estate entities		19,045			—			—		—		—			19,045
Marketable equity securities, at market value		7,507			—			—		—		—			7,507
Cash and cash equivalents		9,824			(7,639	)		—		—		(2,184	)		1
Other Assets		42,837			2,352			—		—		(85	)		45,104
Total Assets	$	937,002		$	52,223		$	—	$	—	$	3,847		$	993,072

*LIABILITIES AND EQUITY*
Notes and interest payable	$	548,053		$	40,699		$	—	$	—	$	3,828		$	592,580
Liabilities related to assets held for sale		52,897			—			—		—		—			52,897
Liabilities related to assets subject to sales contract		59,679			—			—		—		—			59,679
Other Liabilities		32,494			11,360			—		—		19			43,873
		693,123			52,059			—		—		3,847			749,029

Minority Interest		1,147			—			—		—		—			1,147

Stockholders’ equity:
Preferred Stock		—			—			—		—		—			—
Common Stock		81			—			—		—		—			81
Paid-in capital		256,599			—			—		—		—			256,599
Treasury stock		(3,086	)		—			—		—		—			(3,086	)
Accumulated deficit		(10,234	)		164			—		—		—			(10,070	)
Accumulated other comprehensive loss		(628	)		—			—		—		—			(628	)
		242,732			164			—		—		—			242,896
Total Liabilities and Equity	$	937,002		$	52,223		$	—	$	—	$	3,847		$	993,072

(1) Historical financial information derived from quarterly report on Form 10-K.

(2) Insignificant acquisitions includes Alliance Airport land, Luna land, all Mandahl Bay land purchases, Park West Office Building, Senlac land, Southwood Plantation land, West End land, Whorton land and Wilmer 88 land.

TRANSCONTINENTAL REALTY INVESTORS, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2004

(Dollars in thousands)

	Actual⁽¹⁾			600 Las Colinas			Two Hickory			Foxwood Apartments			Insignificant Acquisitions			Pro forma

Property revenue:
Rents	$	92,959		$	8,215		$	1,981		$	1,211		$	27		$	104,393

Expenses:
Property operations		59,177			5,316			820			1,005			1,039			67,357
Depreciation and amortization		17,700			1,294			259			157			233			19,643
General and administrative		9,312			—			—			—			—			9,312
Advisory fees		6,733			449			90			54			216			7,542
Total operating expenses		92,922			7,059			1,169			1,216			1,488			103,854

Operating income (loss)		37			1,156			812			(5	)		(1,461	)		539

Other income (expense):
Interest income		3,683			—			—			—			—			3,683
Gain on foreign currency transaction		3,766			—			—			—			—			3,766
Mortgage and loan interest		(32,433	)		(2,170	)		(596	)		(388	)		(963	)		(36,550	)
Net income fee		(1,933	)		88			23			48			211			(1,563	)
Provision for asset impairment		(1,722	)		—			—			—			—			(1,722	)
Provision for losses		1,456			—			—			—			—			1,456
Other income (expense)		555			—			—			—			—			555
Total other income (expense)		(26,628	)		(2,082	)		(573	)		(340	)		(752	)		(30,375	)

Loss before gain on land sales, minority interest and equity in earnings of investees		(26,591	)		(926	)		239			(345	)		(2,213	)		(29,836	)

Gain on land sales		7,110			—			—			—			—			7,110
Equity in earnings of investees		(1,497	)		—			—			—			—			(1,497	)
Minority interests		(1,194	)		—			—			—			—			(1,194	)

Net income (loss) from continuing operations	$	(22,172	)	$	(926	)	$	239		$	(345	)	$	(2,213	)	$	(25,417	)

Basic and Diluted Earnings Per Share:
Net Loss from Continuing Operations	$	(2.74	)													$	(3.14	)

Weighted Average Common Shares Used in Computing Earnings Per Share		8,082,854															8,082,854

(1) Historical financial information derived from quarterly report on Form 10-K.

TRANSCONTINENTAL REALTY INVESTORS, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2005

(Dollars in thousands)

	Actual⁽¹⁾			600 Las Colinas			Two Hickory			Foxwood Apartments			Insignificant Acquisitions⁽²⁾			Pro Forma

Property revenue:
Rents	$	50,002		$	4,112		$	155		$	435		$	—		$	54,704

Expenses:
Property operations		31,673			2,560			96			340			341			35,010
Depreciation and amortization		7,910			647			22			39			117			8,735
General and administrative		3,394			—			—			—			—			3,394
Advisory fees		3,538			225			—			14			54			3,831
Total operating expenses		46,515			3,432			118			393			512			50,970

Operating income (loss)		3,487			680			37			42			(512	)		3,734

Other income (expense):
Interest income		1,897			—			—			—						1,897
Gain on foreign currency transaction		228			—			—			—			—			228
Mortgage and loan interest		(18,698	)		(1,085	)		(35	)		(133	)		(262	)		(20,213	)
Other income (expense)		234			—			—			—			—			234
Total other income (expense)		(16,339	)		(1,085	)		(35	)		(133	)		(262	)		(17,854	)

Loss before gain on land sales, minority interest and equity in earnings of investees		(12,852	)		(405	)		2			(91	)		(774	)		(14,120	)

Gain on land sales		2,404			—			—			—			—			2,404
Equity in earnings of investees		1,146			—			—			—			—			1,146
Minority interests		(26	)		—			—			—			—			(26	)

Net income (loss) from continuing operations	$	(9,328	)	$	(405	)	$	2		$	(91	)	$	(774	)	$	(10,596	)

Basic and Diluted Earnings Per Share:
Net Loss from Continuing Operations	$	(1.18	)													$	(1.34	)

Weighted Average Common Shares Used in Computing Earnings Per Share		7,900,869															7,900,869

(1) Historical financial information derived from quarterly report on Form 10-K.

SIGNATURES

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

		TRANSCONTINENTAL REALTY INVESTORS, INC.

Date: November 18, 2005	By:	/s/ Steven A. Abney
		Steven A. Abney
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer and
		Acting Principal Executive Officer)

Transcontinental Realty Investors (TCI) 8-K/AFinancial Statements and Exhibits