AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998

Registration Statement No. 333-43777
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------

AMENDMENT NO. 1
TO

FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-------------------------

AMERICAN REALTY TRUST, INC.
(Exact name of registrant as specified in its governing instrument)

GEORGIA 6513 54-0697989
(State of Incorporation) (Primary Standard Industrial) (I.R.S. Employer Identification No.)

Classification Code Number)
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Address and telephone number of principal executive offices)
ROBERT A. WALDMAN, ESQ.
10670 NORTH CENTRAL EXPRESSWAY
SUITE 300
DALLAS, TEXAS 75231
(214) 692-4700
(Name, address and telephone number of agent for service)
-------------------------
Copy to:
THOMAS R. POPPLEWELL, ESQ.
Andrews & Kurth L.L.P.
1711 Main Street, Suite 3700
Dallas, Texas 75201
-------------------------

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|

CALCULATION OF REGISTRATION FEE

===========================================================================================================
PROPOSED
TITLE OF EACH CLASS MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE(1) REGISTRATION FEE
- -------------------------------------------------- -------------------- -------------------- -----------------

Preferred Stock, $2.00 par value.................. 453,552 SHARES $5,255,448 $1,550.36 (3)
- -------------------------------------------------- -------------------- -------------------- -----------------
COMMON STOCK, $0.01 PAR VALUE..................... (2)
- -------------------------------------------------- -------------------- -------------------- -----------------

(1) Pursuant to Rules 457(f) and 457(c) under the Securities Act of 1933, as
amended, and estimated solely for the purpose of calculating the
registration fee, the proposed maximum aggregate offering price is equal
to the market value of the EQK Shares to be acquired by ART in connection
with the Merger and is based upon $1.0938, the average of the high and low
sales prices of the EQK Shares on the New York Stock Exchange Composite
Tapes on January 5, 1998.

(2) The number of shares of Common Stock of the Registrant to be registered is
such currently indeterminate number of shares of Common Stock as may be
required for issuance upon conversion of the preferred stock being
registered hereunder. Such shares of Common Stock will, if issued, be
issued for no additional consideration and therefore, pursuant to Rule
457(g), no separate registration fee is required.

(3) Fee previously paid.

===============================================================================

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

2
EQK REALTY INVESTORS I

----------------

5775 Peachtree Dunwoody Road, Suite 200D
Atlanta, Georgia 30342

---------------------

______________, 1998

Dear Shareholder:

You are cordially invited to attend the delayed 1997 annual meeting (the
"Meeting") of the shareholders of EQK Realty Investors I ("EQK") to be held at
the offices of EQK, 5775 Peachtree Dunwoody Road, Suite 200D in Atlanta, Georgia
on __________, 1998 at 9:00 a.m. Eastern Standard Time. At the Meeting, you will
be asked to consider and vote upon (1) the election of the Board of Trustees of
EQK (the "Board Election Proposal"), (2) an amendment and restatement of EQK's
Amended and Restated Declaration of Trust (the "Declaration Amendment
Proposal"), (3) an Agreement and Plan of Merger, dated as of December 23, 1997
(the "Merger Agreement"), pursuant to which ART Newco, LLC ("ART Newco"), an
affiliate of American Realty Trust, Inc., a Georgia corporation ("ART"), is to
merge with and into EQK(the "Merger"), with EQK being the surviving entity (the
"Merger Proposal"), and (4) the termination of EQK's advisory agreement with
Equitable Realty Portfolio Management, Inc. ("ERPM") and the execution by EQK of
a new advisory agreement with Basic Capital Management, Inc., as the advisor
(the "New Advisory Agreement Proposal" and, together with the Board Election
Proposal, the Declaration Amendment Proposal and the Merger Proposal, the
"Proposals"). If the Merger Proposal is approved by the requisite number of EQK
shareholders, you will be entitled to receive for each EQK Share you own (i)
0.0616 of a share of Series F Cumulative Convertible Preferred Stock of ART,
liquidation value $10.00 per share and (ii) $0.256 in cash (collectively, the
"EQK Merger Consideration"). Immediately after the Merger, ART would own
approximately 49% of EQK's outstanding shares.

The Meeting was delayed as a result of the negotiation of the Merger
Agreement and related matters. Further information concerning the Meeting and
the terms of the Proposals are set forth in the enclosed Notice of Annual
Meeting and Prospectus/Proxy Statement. EQK's management will be in attendance
at the annual meeting to answer questions and to explain the proposed merger in
detail.

Your vote on the Merger is of great importance. The affirmative vote of
the holders of three-quarters of the outstanding shares of beneficial interest
of EQK entitled to vote, among other conditions, is required for the approval
of the Proposals, other than the Board Election Proposal. Even if you plan to
attend the Meeting, we ask that you execute and promptly return your completed
proxy in the enclosed postage-paid envelope so that your vote can be recorded
at the meeting. If you attend the Meeting, you may withdraw your proxy and vote
your shares personally.

The EQK Board of Trustees has considered and approved the Proposals,
including the Merger Proposal, and unanimously recommends that shareholders vote
FOR approval of the Proposals.

Very truly yours,

-------------------------------
President and Chief Executive Officer

EQK REALTY INVESTORS I
5775 Peachtree Dunwoody Road, Suite 200D
Atlanta, Georgia 30342

---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 1998

---------------------

The delayed 1997 annual meeting of the shareholders of EQK Realty
Investors I (the "Meeting") is to be held at the offices of EQK Realty Investors
I at 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on __________,
1998 at 9:00 a.m. Eastern Standard Time, for the following purposes:

(1) To consider and vote on the election of the Board of Trustees of EQK
Realty Investors I;

(2) To consider and vote on an amendment and restatement of the Amended and
Restated Declaration of Trust of EQK Realty Investors I;

(3) To consider and vote upon an Agreement and Plan of Merger, dated as of
December 23, 1997 (the "Merger Agreement"), which provides for, among
other things, the merger of ART Newco, LLC, an affiliate of American
Realty Trust, Inc., a Georgia corporation ("ART"), with and into EQK
Realty Investors I (the "Merger"), with EQK Realty Investors I being
the surviving entity;

(4) To consider and vote on the termination of EQK's advisory agreement
with Equitable Realty Portfolio Management, Inc. the advisor to ART
and the execution by EQK of a new advisory agreement between EQK and
Basic Capital Management, Inc.; and

(5) To transact such other business as may properly come before the annual
meeting or any adjournment thereof.

Only shareholders of record of EQK Realty Investors I at the close of
business on _____________ are entitled to notice of and to vote at the Meeting.
In the event that there are insufficient shares represented to approve the
Merger at the Meeting, the Meeting may be adjourned to permit further
solicitation. The Meeting was delayed as a result of the negotiation of the
Merger Agreement and related matters.

No statutory dissenter's appraisal rights will be available to EQK
shareholders in connection with the Merger and it is the position of EQK that no
common law dissenter's rights will be available in connection with the Merger;
however, any EQK shareholder who wishes to assert common law dissenter's
appraisal rights may file with the Secretary of EQK Realty Investors I a written
notice stating such shareholder's intent to dissent to the Merger at the Meeting
and to assert such rights. In the event that holders of more than 3% of the
outstanding EQK Shares exercise their right to assert such dissenter's appraisal
rights, the Merger Agreement may be terminated. For a detailed discussion of the
procedures that may be required to exercise this right should it be available,
see "The Proposed Merger and Related Matters -- Availability of Appraisal
Rights" in the enclosed Prospectus/Proxy Statement.

Even if you plan to attend the Meeting, we ask that you execute and
promptly return your completed proxy in the enclosed postage-paid envelope so
that your vote can be recorded at the Meeting. If you attend the Meeting, you
may withdraw your proxy and vote your shares personally.

By Order of the Board of Trustees,

-------------------------
Secretary

Atlanta, Georgia
[DATE]

4
PROSPECTUS/PROXY STATEMENT
- --------------------------
SUBJECT TO COMPLETION, DATED DECEMBER 31, 1997
AMERICAN REALTY TRUST, INC.
SERIES F CUMULATIVE
CONVERTIBLE PREFERRED STOCK COMMON STOCK

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

This Prospectus/Proxy Statement relates to 453,552 shares of Series F
Cumulative Convertible Preferred Stock with a par value of $2.00 per share and
a stated liquidation value ("Liquidation Value") of $10.00 per share
(individually, an "ART Preferred Share" and collectively, the "ART Preferred
Shares"), of American Realty Trust, Inc., a Georgia corporation ("ART"), that
may be issued pursuant to an Agreement and Plan of Merger, dated as of
December 23, 1997 (the "Merger Agreement"), among ART, ART Newco, LLC, a
Massachusetts limited liability company ("ART Newco") of which ART and ART
Newco Holdings LLC, a Texas limited liability company that is a wholly owned
subsidiary of ART, are the sole members, and EQK Realty Investors I, a
Massachusetts business trust ("EQK"). The Merger Agreement provides for the
merger of ART Newco with and into EQK (the "Merger"), with EQK being the
surviving entity (the "Trust"). As consideration for the Merger, each holder of
record of outstanding shares of beneficial interest, par value $0.01 per share,
of EQK (individually, an "EQK Share" and collectively, "EQK Shares") as of
________ (the "EQK Record Date"), other than ART and its affiliates, Equitable
Realty Portfolio Management, Inc. ("ERPM") and Greenspring Fund, Incorporated
("Greenspring") (collectively, the "Public EQK Shareholders"), will be entitled
to retain the EQK Shares such holder holds and to receive for each EQK Share
owned by such holder (i) 0.0616 of an ART Preferred Share with a liquidation
value for such portion of a share of $0.616 and (ii) $0.256 in cash
(collectively, the "EQK Merger Consideration"). In addition, as consideration
for the Merger, ART will be entitled to receive 4,804,761 newly-issued EQK
Shares (the "ART Merger Consideration" and, together with the EQK Merger
Consideration, the "Merger Consideration"). Immediately prior to the Merger,
ART will purchase an aggregate of 2,269,356 EQK Shares from ERPM and
Greenspring pursuant to the terms of separate stock purchase agreements
(collectively, the "Block Purchase"). Upon consummation of the Block Purchase
and the Merger, ART would own approximately 49% of the issued and outstanding
EQK Shares. If the Merger is consummated as described herein, the Public EQK
Shareholders will have effectively sold approximately 25.44% of their EQK
Shares to ART for a price per EQK Share equal to $0.77 in cash and 0.185 of an
ART Preferred Share with a Liquidation Value of $1.85.

This Prospectus/Proxy Statement is being furnished to all holders of
EQK Shares (the "EQK Shareholders") as of the EQK Record Date in connection with
the solicitation of proxies by the Board of Trustees of EQK (the "EQK Board")
from EQK Shareholders, for use at the delayed 1997 annual meeting of EQK
Shareholders (the "EQK Annual Meeting") scheduled to be held on ________ __,
1998 at EQK's corporate offices at 5775 Peachtree Dunwoody Road, Suite 200D,
Atlanta, Georgia at 9:00 a.m., Eastern Standard Time, and at any adjournment or
postponement thereof. The EQK Annual Meeting was delayed as a result of the
negotiation of the Merger Agreement and related matters. This Prospectus/Proxy
Statement, together with the applicable Notices of Annual Meeting of
Shareholders and Letters to Shareholders and the accompanying Proxy Cards, are
first being mailed to the EQK Shareholders on or about _______, 1998.

This Prospectus/Proxy Statement also relates to the shares of
ART Common Stock ("ART Common Shares") issuable upon conversion of the ART
Preferred Shares that are a part of the EQK Merger Consideration, as described
herein.

ART has filed a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering up to
453,552 ART Preferred Shares issuable in connection with the Merger and the ART
Common Shares issuable on conversion thereof. This Prospectus/Proxy Statement
constitutes the Prospectus of ART filed as part of the Registration Statement
with respect such the ART Preferred Shares and ART Common Shares. This
Prospectus/Proxy Statement is first being mailed to EQK Shareholders on or about
____________, 1998.

SEE "RISK FACTORS" ON PAGE 10 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY THE EQK SHAREHOLDERS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION

PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.

------------------

The date of this Prospectus/Proxy Statement is _________, 1998

THE EQK BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR AND IN
THE BEST INTERESTS OF EQK AND THE EQK SHAREHOLDERS, AND RECOMMENDS THAT EQK
SHAREHOLDERS APPROVE THE MERGER.

The EQK Shares are listed for trading on the New York Stock Exchange
(the "NYSE"). On December 24, 1997, the last trading day prior to the public
announcement of the Merger Agreement, the closing sales price of the EQK Shares
as reported on the NYSE Composite Tape was $0.875 per EQK Share, and on
________, 1998, the most recent date for which prices were available prior to
mailing this Prospectus/Proxy Statement, the closing sales price of the EQK
Shares as reported on the NYSE Composite Tape was $______ per EQK Share. EQK
Shareholders are urged to obtain a current market quotation for the EQK Shares.

SEE "COMPARISON OF EQK SHARES TO ART PREFERRED SHARES" ON PAGE 101 FOR
A DESCRIPTION OF THE PRINCIPAL TERMS OF AND CERTAIN SIGNIFICANT CONSIDERATIONS
RELATING TO THE MERGER, THE ART PREFERRED SHARES AND THE EQK SHARES.

CERTAIN STATEMENTS UNDER CAPTIONS "SUMMARY OF TERMS," "RISK FACTORS,"
"THE BUSINESS OF ART," "ART MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF ART," "THE BUSINESS OF EQK" AND "EQK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF EQK" CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
ART TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS
CONDITIONS, WHICH WILL, AMONG OTHER THINGS, AFFECT THE SUPPLY AND DEMAND FOR
COMMERCIAL REAL ESTATE, AVAILABILITY AND CREDITWORTHINESS OF PROSPECTIVE
TENANTS, LEASE RATES AND THE AVAILABILITY OF FINANCING; ADVERSE CHANGES IN THE
REAL ESTATE MARKETS INCLUDING, AMONG OTHER THINGS, COMPETITION WITH OTHER
COMPANIES, RISKS ASSOCIATED WITH REAL ESTATE ACQUISITIONS; GOVERNMENTAL ACTIONS
AND INITIATIVES; ENVIRONMENTAL/SAFETY REQUIREMENTS; AND OTHER CHANGES AND
FACTORS REFERENCED IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE.

AVAILABLE INFORMATION

ART and EQK are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and proxy and information
statements filed by ART and EQK with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants, including ART and EQK, that file
electronically with the Commission. The address of such Web site is
"http://www.sec.gov". In addition, reports, proxy statements and other
information concerning ART (symbol: "ARB") and EQK (symbol: "EKR") can be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005- 2601, on which the ART Common Shares and
the EQK Shares are currently listed and on which ART intends to seek listing of
the ART Preferred Shares.

ART has filed with the Commission the Registration Statement under the
Securities Act, with respect to the ART Preferred Shares and the ART Common
Shares. This Prospectus/Proxy Statement does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to ART, the ART Preferred Shares, the ART Common Shares
and EQK, reference is made to the Registration Statement and to the exhibits
thereto and the documents incorporated by reference herein. Statements contained
herein concerning the provisions of certain documents are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the

-ii-

Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected without charge at the office
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the Commission upon payment of the prescribed fees.

The information set forth or incorporated by reference herein
concerning ART has been furnished by ART and the information set forth herein
concerning EQK has been provided by EQK or derived from public filings
previously made by EQK. ART does not have independent knowledge of the matters
set forth or incorporated by reference herein concerning EQK. EQK does not have
independent knowledge of the matters set forth or incorporated by reference
herein concerning ART.

No person has been authorized to give any information or make any
representation other than those set forth or incorporated by reference herein
and, if given or made, such information must not be relied upon as having been
authorized by ART or EQK or any of their respective affiliates. This
Prospectus/Proxy Statement does not constitute an offer to, or a solicitation
of, any person in any jurisdiction in which such offer or solicitation is
unlawful.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

This Prospectus/Proxy Statement incorporates by reference documents not
presented herein or delivered herewith. Each of ART and EQK will provide without
charge to each person, including any EQK Shareholder, to whom a copy of this
Prospectus/Proxy Statement is delivered, upon the written or oral request of any
such person, a copy of any document described below (other than exhibits).
Requests for such copies should be directed to (i) in the case of ART, American
Realty Trust, Inc., 10670 North Central Expressway, Suite 300, Dallas, Texas
75231, Attention: Investor Relations, telephone number: (214) 692-4700, and (ii)
in the case of EQK, EQK Realty Investors I, Inc., 5775 Peachtree Dunwoody Road,
Suite 200D, Atlanta, Georgia 30342, Attention: Investor Relations, telephone
number (404) 303-6100.

In order to ensure timely delivery of such documents, any request for documents
should be submitted not later than five business days before the date of the EQK
Annual Meeting.

The following documents, heretofore filed by ART with the Commission
pursuant to the Exchange Act, are hereby incorporated by reference, except as
superseded or modified herein:

1. ART's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Commission on March 31, 1997.

2. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1997, as filed with the Commission on May 15, 1997, as amended by
ART's Form 10-Q/A, as filed with the Commission on August 11, 1997.

3. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1997, as filed with the Commission on August 13, 1997.

4. ART's Current Report on Form 8-K, dated October 16, 1997, as filed
with the Commission on October 24, 1997, as amended by ART's Form 8-K/A, as
filed with the Commission on December 16, 1997.

5. ART's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997, as filed with the Commission on November 14, 1997, as
amended by ART's Form 10-Q/A, as filed with the Commission on November 20, 1997,
as also amended by ART's Form 10-Q Amendment No. 2 as filed with the
Commission on November 25, 1997, and as further amended by ART's Form 10-Q
Amendment No. 3 as filed with the Commission on January 20, 1998.

6. The Current Report on Form 8-K for Continental Mortgage and Equity
Trust ("CMET") dated December 13, 1996, as filed with the Commission on January
3, 1997, as amended by CMET's Form 8-K/A, as filed with the Commission on
February 11, 1997 and by CMET's Form 8-K/A, as filed with the Commission on
March 11, 1997.

7. The Annual Report on Form 10-K for CMET for the year ended December
31, 1996, as filed with the Commission on March 14, 1997.

8. The Quarterly Report on Form 10-Q for CMET for the fiscal quarter
ended March 31, 1997, as filed with the Commission on May 7, 1997.

-iii-

9. The Current Report on Form 8-K for CMET dated June 24, 1997, as
filed with he Commission on July 9, 1997.

10. The Quarterly Report on Form 10-Q for CMET for the fiscal quarter
ended June 30, 1997, as filed with the Commission on August 8, 1997.

11. The Current Report on Form 8-K for CMET dated July 18, 1997, as
filed with the Commission on August 19, 1997.

12. The Current Report on Form 8-K for CMET dated August 18, 1997, as
filed with the Commission on October 14, 1997.

13. The Quarterly Report on Form 10-Q for CMET for the fiscal quarter
ended September 30, 1997, as filed with the Commission on November 5, 1997.

14. The Current Report on Form 8-K for CMET dated October 16, 1997, as
filed with the Commission on December 22, 1997.

15. The Annual Report on Form 10-K for Income Opportunity Realty
Investors, Inc. ("IORI") for the year ended December 31, 1996, as filed with the
Commission on March 13, 1997.

16. The Quarterly Report on Form 10-Q for IORI for the fiscal quarter
ended March 31, 1997, as filed with the Commission on May 7, 1997.

17. The Current Report on Form 8-K for IORI dated May 14, 1997, as
filed with the Commission on May 27, 1997.

18. The Current Report on Form 8-K for IORI dated June 11, 1997, as
filed with the Commission on June 27, 1997, as amended by IORI's Form 8-K/A, as
filed with the Commission on August 20, 1997.

19. The Quarterly Report on Form 10-Q for IORI for the fiscal quarter
ended June 30, 1997, as filed with the Commission on August 4, 1997.

20. The Quarterly Report on Form 10-Q for IORI for the fiscal quarter
ended September 30, 1997, as filed with the Commission on November 3, 1997.

21. The Current Report on Form 8-K for IORI dated November 19, 1997, as
filed with the Commission on December 3, 1997.

22. The Annual Report on Form 10-K for Transcontinental Realty
Investors, Inc. ("TCI") for the year ended December 31, 1996, as filed with the
Commission on March 26, 1997.

23. The Quarterly Report on Form 10-Q for TCI for the fiscal quarter
ended March 31, 1997, as filed with the Commission on May 12, 1997.

24. The Quarterly Report on Form 10-Q for TCI for the fiscal quarter
ended June 30, 1997, as filed with the Commission on August 7, 1997, as amended
by TCI's Form 8-K/A, as filed with the Commission on December 3, 1997.

25. The Current Report on Form 8-K for TCI dated September 16, 1997, as
filed with the Commission on October 14, 1997.

26. The Quarterly Report on Form 10-Q for TCI for the fiscal quarter
ended September 30, 1997 as filed with the Commission on November 7, 1997.

27. The Annual Report on Form 10-K for National Realty, L.P. ("NRLP")
for the year ended December 31, 1996, as filed with the Commission on March 25,
1997.

28. The Quarterly Report on Form 10-Q for NRLP for the fiscal quarter
ended March 31, 1997, as filed with the Commission on May 13, 1997.

29. The Quarterly Report on Form 10-Q for NRLP for the fiscal quarter
ended June 30, 1997, as filed with the Commission on August 11, 1997.

-iv-

30. The Quarterly Report on Form 10-Q for NRLP for the fiscal quarter
ended September 30, 1997, as filed with the Commission on November 7, 1997.

31. The Current Report on Form 8-K for NRLP dated December 15, 1997,
as filed with the Commission on December 30, 1997.

32. The description of the Common Stock contained in ART's Registration
Statement under Section 12 of the Exchange Act and all amendments and reports
filed for the purpose of updating that description.

In addition, the following documents, heretofore filed by EQK with the
Commission pursuant to the Exchange Act, are hereby incorporated by reference,
except as superseded or modified herein:

1. EQK's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as filed with the Commission on March 31, 1997, as amended by EQK's
Form 10-K/A, as filed with the Commission on April 30, 1997.

2. EQK's Quarterly Report on form 10-Q for the fiscal quarter ended
March 31, 1997, as filed with the Commission on May 15, 1997.

3. EQK's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1997, as filed with the Commission on August 14, 1997.

4. EQK's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997, as filed with the Commission on November 14, 1997.

Any statement contained herein or in a document that is deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed amendment hereto modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus/Proxy Statement.

-v-

TABLE OF CONTENTS

PAGE
----

AVAILABLE INFORMATION......................................................................................ii

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.........................................................iii

SUMMARY OF TERMS............................................................................................1
General...............................................................................................1
Future Proposals of Stockholders......................................................................1
ART...................................................................................................1
Business of ART.......................................................................................1
ART Newco.............................................................................................2
EQK...................................................................................................2
Business of EQK.......................................................................................2
Board Election Proposal...............................................................................3
Merger Proposal.......................................................................................3
Declaration Amendment Proposal........................................................................6
New Advisory Agreement Proposal.......................................................................6
New York Stock Exchange Listing of ART Preferred Shares...............................................6
Regulatory Approval...................................................................................6
The EQK Annual Meeting................................................................................6
Certain Federal Income Tax Considerations.............................................................7
Description of ART Preferred Shares...................................................................7
Description of EQK Shares.............................................................................8
The Dealer Manager....................................................................................8
Market and Trading Information........................................................................9
Comparative Per Share Data............................................................................9

RISK FACTORS...............................................................................................11
Risks Relating to Merger.............................................................................11
Risks Relating to ART Preferred Shares...............................................................12
Potential Adverse Consequences of the Declaration Amendment Proposal.................................13
Potential Risks Associated with BCM Acting as New Advisor to EQK.....................................13
Risks Relating to Listing and Trading of EQK Shares..................................................14
Risks Relating to ART's Business.....................................................................14
Risks Relating to EQK's Business.....................................................................19

RATIO OF EARNINGS TO FIXED CHARGES.........................................................................19

USE OF PROCEEDS............................................................................................19

THE EQK ANNUAL MEETING.....................................................................................20
Introduction.........................................................................................20
Date, Time and Place of Meetings.....................................................................20
Matters to Be Considered at the EQK Annual Meeting...................................................20
Record Date and Vote Required........................................................................20
Proxy................................................................................................20
Solicitation of Proxies..............................................................................21
Other Matters........................................................................................21

THE BOARD ELECTION PROPOSAL................................................................................21

-vi-

THE PROPOSED MERGER AND RELATED MATTERS....................................................................24
Background of the Merger.............................................................................24
General..............................................................................................25
Effects of the Merger................................................................................25
Effective Time of the Merger.........................................................................25
Terms of the Merger..................................................................................25
Cash in Lieu of Fractional Shares of ART Preferred Shares............................................26
Availability of Appraisal Rights.....................................................................26
Conditions to the Merger; Termination; Waiver and Amendment..........................................26
No Solicitation; Board Action; Fees and Expenses.....................................................27
Conduct of EQK's Businesses Pending Completion of the Merger.........................................27
ART's Purposes for the Merger........................................................................27
The EQK Board Recommendation.........................................................................28
Opinion of Financial Advisor.........................................................................29
Analysis and Conclusions of Financial Advisor........................................................31
Certain Federal Income Tax Consequences..............................................................35
Dividend Payments ...................................................................................35
Redemption, Sales and Exchanges .....................................................................36
ART Preferred Shares; Certain Matters ...............................................................37
Special Tax Rules Applicable to Foreign Holders .....................................................37
Back-up Withholding .................................................................................38
Effect of Merger on Market for EQK Shares; Registration Under the Exchange Act.......................38
Fees and Expenses in connection with the Merger......................................................39
Accounting Treatment.................................................................................40
Stock Exchange Listing...............................................................................40

THE DECLARATION AMENDMENT PROPOSAL.........................................................................40

THE NEW ADVISORY AGREEMENT PROPOSAL........................................................................42

DESCRIPTION OF ART.........................................................................................43

THE BUSINESS OF ART........................................................................................44
General..............................................................................................44
Geographic Regions...................................................................................46
Real Estate..........................................................................................46
Mortgage Loans.......................................................................................63
Investments in Real Estate Investment Trusts and Real Estate Partnerships............................66
Other Equity Investments.............................................................................72

SELECTED FINANCIAL DATA OF ART.............................................................................73

ART MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ART.....................................................................76
Introduction.........................................................................................76
Liquidity and Capital Resources......................................................................76
Results of Operations................................................................................83
Commitments and Contingencies........................................................................86
Environmental Matters................................................................................87
Inflation............................................................................................87

DESCRIPTION OF THE CAPITAL STOCK OF ART....................................................................87
General..............................................................................................87

-vii-

ART Preferred Shares.................................................................................87
ART Common Shares....................................................................................88
Special Stock........................................................................................88

DESCRIPTION OF EQK.........................................................................................91

THE BUSINESS OF EQK........................................................................................92
General..............................................................................................92
Summary of the Existing Declaration of Trust.........................................................93
Property Management Agreement........................................................................94

SELECTED FINANCIAL DATA OF EQK.............................................................................95

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF EQK....................................................................................98

DESCRIPTION OF THE EQK SHARES.............................................................................102

COMPARISON OF EQK SHARES TO ART PREFERRED SHARES..........................................................103

DESCRIPTION OF THE HARRISBURG EAST MALL...................................................................106
General ...........................................................................................106
Location and Trade Area Overview....................................................................106
Anchor Tenants......................................................................................106
Mall and Other Tenants..............................................................................107
Lease Expirations...................................................................................108
Capital Requirements................................................................................108
Occupancy Data and Average Effective Annual Rent....................................................109
Competition.........................................................................................110
Debt................................................................................................111
Physical Description of Buildings...................................................................111
Physical Improvements...............................................................................111
Landauer Appraisal..................................................................................112
Real Estate Taxes...................................................................................112
Depreciation........................................................................................112
Additional Information..............................................................................112

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION...............................................113

ART AND EQK
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION..................................................128

PLAN OF DISTRIBUTION......................................................................................128

LEGAL MATTERS.............................................................................................128

EXPERTS...................................................................................................128

INDEX TO FINANCIAL STATEMENTS.............................................................................F-1

APPENDICES:

APPENDIX A - Index of Terms
APPENDIX B - Merger Agreement
APPENDIX C - Fairness Opinion of Legg Mason
APPENDIX D - Amended and Restated Declaration of Trust of EQK

-viii-

SUMMARY OF TERMS

The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the documents
incorporated herein by reference. Certain capitalized terms used herein may be
defined elsewhere in this Prospectus/Proxy Statement. See "Index of Terms"
included as Appendix A to this Prospectus/Proxy Statement.

GENERAL

This Prospectus/Proxy Statement relates to the EQK Annual Meeting at which
the EQK Shareholders will consider and vote upon the following proposals:

(1) The election of the EQK Board (the "Board Election Proposal");

(2) An amendment and restatement of EQK's Amended and Restated Declaration
of Trust dated February 27, 1985, as amended on March 5, 1986 (the "Declaration
of Trust"), as described herein (the "Declaration Amendment Proposal");

(3) The Merger Agreement and the Merger (the "Merger Proposal");

(4) The termination of ERPM's rights and obligations under the advisory
agreement between ERPM and EQK (the "Advisory Agreement") and the execution by
EQK of a new advisory agreement (the "New Advisory Agreement") between EQK and
Basic Capital Management, Inc., a Nevada corporation and an affiliate of ART
("BCM"), as the advisor (the "New Advisory Agreement Proposal"); and

(5) Such other business as may properly come before the EQK Annual Meeting
or any adjournment thereof.

The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the EQK Annual Meeting in
person or by proxy and entitled to vote thereon. The Merger Proposal, the
Declaration Amendment Proposal and the New Advisory Agreement Proposal
(collectively, the "Merger-Related Proposals") will each require the affirmative
vote of EQK Shareholders representing three-quarters of the total votes
authorized to be cast by EQK Shares then outstanding (the "Requisite Shareholder
Approval"). None of the Merger-Related Proposals will take effect unless all
such proposals receive the Requisite Shareholder Approval. The Board Election
Proposal and the Merger-Related Proposals are referred to herein collectively as
the "Proposals."

FUTURE PROPOSALS OF STOCKHOLDERS

Any proposal intended to be presented by an EQK Stockholder at the 1998
Annual Meeting of EQK Shareholders must be received at EQK's principal office
not later than ___, 1998, in order to be considered for that meeting.

ART

ART, a Georgia corporation, is the successor to a District of Columbia
business trust organized pursuant to a declaration of trust dated July 14, 1961.
The business trust merged into ART on June 24, 1988. ART elected to be treated
as a real estate investment trust ("REIT") under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"), during the period from
July 1, 1987 through December 31, 1990. ART allowed its REIT status to lapse in
1991.

ART's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. ART's telephone number is (214) 692-4700. See
"Description of ART."

BUSINESS OF ART

-1-

ART's Board of Directors (the "ART Board") has broad authority under ART's
governing documents to make all types of real estate investments, including
investments in mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, regardless of whether such
entities are engaged in real estate related activities.

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

ART's business is not seasonal. ART has decided to pursue a balanced
investment policy, seeking both current income and capital appreciation. ART's
plan of operation is to continue, to the extent its liquidity permits, to make
equity investments in lower risk real estate such as apartment complexes and
residential development projects or equity securities of real estate-related
entities and to continue to service and hold for investment mortgage loans. ART
also intends to pursue higher risk, higher reward investments, such as
undeveloped land, where it can obtain financing of a significant portion of a
property's purchase price. In addition, ART will continue to seek selected
dispositions of certain of its assets where the prices obtainable for such
assets justify their disposition and will pursue its rights vigorously with
respect to mortgage notes receivable that are in default. For a detailed
description of ART's business, see "The Business of ART."

ART NEWCO

ART Newco is a limited liability company formed under the laws of the
Commonwealth of Massachusetts. The members of ART Newco consist of ART and ART
Newco Holdings, LLC, a Texas limited liability company, of which ART is the sole
member. ART Newco was formed specifically for purposes of the Merger and, as
described herein, subject to the Requisite Shareholder Approval, will be merged
with and into EQK pursuant to the Merger.

EQK

EQK was formed pursuant to the filing of its initial declaration of trust
on October 8, 1984. ERPM currently acts as the advisor (in such capacity, the
"Advisor") to EQK. ERPM is a wholly owned subsidiary of Equitable Real Estate
Investment Management, Inc. ("ERE"), itself originally an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United States
("Equitable"). On June 10, 1997, Lend Lease Corporation, an Australian public
property and financial services company, acquired ERE, including its
subsidiaries, ERPM and Compass Retail, Inc. ("Compass") from Equitable. ERE and
certain of its business units, including ERPM, currently operate under the name
"ERE Yarmouth." Upon consummation of the Merger, subject to Requisite
Shareholder Approval of the Merger-Related Proposals, ERPM has agreed to
terminate its rights and duties as Advisor under the Advisory Agreement, at
which time BCM will become the new advisor to EQK (in such capacity, the "New
Advisor") under the New Advisory Agreement.

The principal executive offices of EQK and ERPM are located at 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100. See "Description of EQK."

BUSINESS OF EQK

EQK was formed for the purpose of acquiring three substantially unleveraged
income-producing properties. EQK sold two of such properties, one in
transactions in 1992 and 1993 and the other in transactions in 1991 and 1995.
The remaining property, the Harrisburg East Mall (the "Center"), is currently
EQK's only real estate investment. The Center is a two-level enclosed regional
mall shopping center located approximately three miles from the central business
district of Harrisburg, Pennsylvania. EQK is currently a closed-end trust (i.e.,
it may not issue any additional EQK Shares without the approval of holders of
three-quarters of the outstanding EQK Shares), and, except in limited
circumstances, it may not make any additional real estate investments and must
distribute to its shareholders the net proceeds from each sale and financing of
any investment. Consequently, EQK is currently a self-liquidating trust. As
described below, upon consummation of the Merger, subject to the Requisite
Shareholder Approval, the Declaration of Trust will be amended to extend the
term of EQK by 20 years and

-2-

15
to permit EQK to issue additional equity securities and to make all types of
real estate investments. See "Risk Factors -- Potential Adverse Consequences of
the Declaration Amendment Proposal -- Extension of Finite Life of EQK."

BOARD ELECTION PROPOSAL

The term of office of each current member of the EQK Board (each, a
"Trustee") expires at the EQK Annual Meeting or when the respective successor is
elected and qualifies. At the EQK Annual Meeting, the EQK Shareholders, voting
together as a class, will be asked to consider and vote upon the Board Election
Proposal. The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the meeting in person or by
proxy and entitled to vote thereon. See "The Board Election Proposal."

MERGER PROPOSAL

Background of the Merger. On March 5, 1996, Mr. Doug Tibetts, President of
Equitable (formerly the indirect parent of ERPM which holds 1,685,556 EQK
Shares), met with ART representatives at ART's office in Dallas. The meeting was
general in nature without a formal agenda. Mr. Tibetts suggested that
representatives of ART speak with Mr. Gregory R. Greenfield, Executive Vice
President and Treasurer of EQK, concerning the possible sale of EQK. During
March and April of 1996, various telephone conversations were held between Mr.
Cooper B. Stuart, an Executive Vice President of BCM, and Mr. Greenfield
regarding the Center and a possible transaction involving EQK.

In August of 1996, Messrs. Stuart and Greenfield had various additional
discussions regarding the possible sale of EQK. Mr. Greenfield informed Mr.
Stuart that EQK needed to focus on completing the sale of certain properties and
Messrs. Stuart and Greenfield agreed to discontinue their discussions until the
beginning of 1997.

On January 23, 1997, representatives of ART held a meeting with Mr. William
G. Brown, Vice President and Controller of EQK, and Mr. Greenfield to discuss a
proposed exchange offer by ART with respect to the EQK Shares. EQK agreed to
engage Legg Mason Wood Walker, Incorporated ("Legg Mason") to review the
fairness of the proposed exchange offer for the EQK Board.

On February 20, 1997, Mr. Stuart and Mr. A. Cal Rossi, Jr., an Executive
Vice President of BCM, met with Messrs. Greenfield and Brown to discuss the
specifics and structure of the proposed exchange offer.

On March 6, 1997, ART and EQK entered into a cost sharing agreement with
respect to the proposed exchange offer. Under the terms of such agreement, (i)
if ART and EQK do not execute a definitive agreement, EQK's liability would
shall be limited to the lesser of 50% of the actual transaction costs or
$50,000 and ART shall be responsible for all additional transaction costs, (ii)
if ART and EQK agree upon the terms of and execute a definitive agreement and
proceed in good faith to complete the proposed transaction, but are
unsuccessful in this effort by reason of inadequate shareholder response to the
related proxy statement or otherwise, EQK's liability shall be limited to the
lesser of 50% of the actual transaction costs or $100,000, and ART shall be
responsible for all additional transaction costs, and (iii) if the proposed
transaction is ultimately initiated and successfully achieves the desired
shareholder exchange in accordance with the terms of a definitive agreement,
EQK's liability shall be limited to the lesser of 50% of the actual transaction
costs or $150,000, and ART shall be responsible for all additional transaction
costs.

On March 24, 1997, representatives of Legg Mason visited ART's offices to
interview key personnel of both ART and BCM.

During April 1997, discussions continued between representatives of ART
and EQK concerning the terms of the ART Preferred Shares, the terms of the
proposed tender offer and the fairness opinion. On April 11, 1997, BCM received
from EQK a copy of a draft appraisal prepared by Landauer Associates, Inc.
("Landauer") with respect to the leasehold interests in the Center. On May 7,
1997, Legg Mason orally issued a fairness opinion with respect to the terms of
the proposed exchange offer. The EQK Board met on May 7, 1997 and approved the
terms of the proposed transaction, which was to be structured as an exchange
offer from ART to the EQK Shareholders.

On June 10, 1997, Lend Lease Corporation acquired ERE, including its
subsidiaries, ERPM and Compass. In connection with such acquisition, the
ownership of ERPM's EQK Shares was transferred for tax purposes, thus
effectively limiting the number of EQK Shares that could be acquired by ART in
an exchange offer without limiting the availability of EQK's NOLs. As a result,
during June and July of 1997, Mr. Stuart and Mr. Brown held further
discussions regarding a proposed change in the structure of the transaction
from an exchange offer to a merger and two separate stock purchases between
ART and the 5% Holders who had acquired or experienced a change in ownership in
EQK Shares during the past three years.

-3-

16
On July 9, 1997, ART and EQK entered into a revised cost sharing agreement
that reflected the change in the proposed structure of the transaction from an
exchange offer to a merger. The terms and conditions of the revised cost
sharing agreement remained substantially the same.

During August and September 1997, Legg Mason evaluated the revised
structure of the transaction and suggested that the consideration to be paid to
ERPM and Greenspring in connection with the Block Purchase should be reduced to
the 0.185 Shares of ART Preferred Stock per EQK Share that is the consideration
being paid for the Block Purchase. On September 30, 1997, Legg Mason orally
issued a revised fairness opinion with respect to the proposed Merger.

On September 30, 1997, and November 13, 1997, the EQK Board and the ART
Board, respectively, approved the terms of the Merger Agreement.

In October 1997 Mr. Brown contacted Greenspring regarding its interest in
the Block Purchase. From September 30, 1997 until December 24, 1997 the parties
held numerous telephone conferences to finalize the definitive agreements for
the Merger and Block Purchase.

On December 24, 1997, ART and EQK issued a joint press release to the
effect that a definitive agreement for the Merger had been signed.

ART's Purpose for the Merger. ART intends to acquire an aggregate of
7,074,117 EQK Shares pursuant to the Block Purchase and the Merger for the
purpose of investment, principally because the ART Board believes that the
EQK Shares are currently undervalued as compared to the value of its sole
asset, the Center, and the value of its net operating losses (the "NOLs") which
approximate $92,000,000. In addition, the ART Board believes that the issuance
and the listing of the ART Preferred Shares on the NYSE in connection with the
Merger will provide ART with greater access to the public capital markets for
future acquisition transactions. Assuming market conditions, industry
conditions and EQK's business and financial condition do not suffer adversely
in the interim, it is currently ART's intention (but not obligation) to seek to
acquire (a) up to 50% of the remaining outstanding EQK Shares at some time
after the third anniversary of the consummation of the Merger and (b) any
remaining outstanding EQK Shares at some time thereafter for consideration of
either (i) cash in an amount equal to at least $1.00 per currently outstanding
EQK Share, or (ii) a combination of (A) cash in an amount equal to at least
$0.27 per currently outstanding EQK Share, and (B) 0.123 of an ART Preferred
Share (with a Liquidation Value of $1.23 per currently outstanding EQK Share.
Notwithstanding the foregoing, ART is not obligated to make any further
acquisition of EQK Shares and no assurance can be given that ART will make any
such acquisitions in the future. In addition, any such acquisitions may be for
a consideration per EQK Share which is greater or less than the consideration
offered in the Merger.

EQK Board Recommendation. The EQK Board believes that the Merger is fair
to, and in the best interests of, EQK and the EQK Shareholders. The EQK Board
also believes that the proposed amendments to the Declaration of Trust as
described herein under "The Declaration Amendment Proposal" are in the best
interests of EQK and the EQK Shareholders in order to facilitate the Merger. The
EQK Board has unanimously approved the terms and conditions of the Merger and
the proposed amendments to the Declaration of Trust and the transactions
contemplated thereby as set forth in the Merger Agreement and unanimously
recommends that the EQK Shareholders vote FOR the Declaration Amendment
Proposal, the Merger Proposal, and the New Advisory Agreement Proposal. See "The
Proposed Merger and Related Matters."

Conditions of the Merger. The Merger is conditioned upon, among other
things, (i) the consummation of the Block Purchase, (ii) the Requisite
Shareholder Approval of the Merger-Related Proposals, (iii) the execution by
each EQK Shareholder (other than ART or its affiliates) holding five percent or
more of the EQK Shares (each, a "5% Holder") of an agreement pursuant to which
each 5% Holder will receive $0.10 per EQK Share held by such 5% Holder in
exchange for a restriction on the rights of such 5% Holder to sell or purchase
any EQK Shares for a period of 42 months after the consummation of the Merger (a
"Standstill Agreement"), (iv) the approval of the ART Preferred Shares for
listing on the NYSE, subject to official notice of issuance, (v) no stop order
suspending the effectiveness of the Registration Statement having been issued
and no proceedings for that purpose having been initiated or threatened by the
Commission, (vi) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, (vii) the receipt by ART and EQK of all required
material governmental authorizations, permits, consents, orders or approvals,
(viii) the receipt of all licenses, permits, consents, approvals and
authorizations from all third parties and governmental bodies and agencies which
are necessary in connection with consummation of the Merger and the conduct of
EQK's business after the Merger (ix) EQK operating in all respects in its
ordinary course of business without any material adverse change in its business,
properties or financial condition, (x) the receipt by ART of written
resignations from all members of the current EQK Board, other than Mr. Robert C.
Robb, and (xi) the number of outstanding EQK Shares immediately prior to the
Merger being 9,264,344, plus any additional EQK Shares to be issued

-4-

upon the exercise of certain warrants to purchase 367,868 EQK Shares (the
"Prudential Warrants") held by The Prudential Insurance Company of America
("Prudential"). See "The Proposed Merger and Related Matters -- Conditions to
the Merger; Termination; Waiver and Amendment."

Effect of Merger on Market for EQK Shares. The Merger, the Block Purchase
and the Standstill Agreements will have the cumulative effect of reducing the
number of EQK Shares that are likely to trade publicly. This may adversely
affect the liquidity of the market for EQK Shares after the Merger. As a result
of this and the dilution resulting from the issuance of additional EQK Shares as
the ART Merger Consideration, the market value of the remaining EQK Shares held
by the Public EQK Shareholders is likely to be materially adversely affected.

The EQK Shares are listed and principally traded on the NYSE. According to
the NYSE's published guidelines (the "NYSE Rules"), the NYSE would consider
delisting the EQK Shares if, among other things, the total number of EQK
Shareholders is less than 1200 and the average monthly trading volume of the EQK
Shares falls below 100,000 shares (for the previous 12 month period). If, as a
result of the Merger, the Standstill Agreements or otherwise, the EQK Shares do
not meet the requirements of the NYSE for continued listing and the listing of
the EQK Shares is discontinued, the market for the EQK Shares could be adversely
affected. See "Risk Factors -- Risks Relating to Listing and Trading of EQK
Shares" and "The Proposed Merger and Related Matters -- Effect of Merger on
Market for EQK Shares; Registration Under the Exchange Act." herein.

Regulatory and Foreign Approvals. To the best of ART's knowledge, ART is
not aware of any license or regulatory permit that appears to be material to its
business that might be adversely affected by its acquisition of EQK Shares in
connection with the Merger or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the acquisition or ownership of EQK Shares
pursuant to the Merger. Should any such approval or other action be required,
ART currently contemplates that it will seek such approval or other action.
There can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
the failure to obtain any such approval or other action might not result in
adverse consequences to ART's business. ART intends to make all required filings
under the Securities Act, the Exchange Act and state securities laws.

Availability of Appraisal Rights. No statutory dissenter's appraisal rights
will be available to EQK shareholders in connection with the Merger and it is
the position of EQK that no common law dissenter's rights will be available in
connection with the Merger; however, any EQK shareholder who wishes to assert
common law dissenter's appraisal rights may file with the Secretary of EQK
Realty Investors I a written notice stating such shareholder's intent to dissent
to the Merger at the EQK Meeting and to assert such rights. In the event that
holders of more than 3% of the outstanding EQK Shares exercise their right to
assert such dissenter's appraisal rights, the Merger Agreement may be
terminated. For a detailed discussion of the procedures that may be required to
exercise this right should it be available, see "The Proposed Merger and Related
Matters -- Availability of Appraisal Rights."

The Merger Agreement. The Merger Agreement provides that, subject to the
satisfaction or waiver of certain conditions, ART Newco will be merged with and
into EQK, whereupon the separate existence of ART Newco will cease and EQK will
be the surviving entity of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of the Commonwealth of
Massachusetts (the "Effective Time"). At the Effective Time, ART will pay the
EQK Merger Consideration to the EQK Shareholders and EQK will pay the ART Merger
Consideration to ART. See "The Proposed Merger and Related Matters."

The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, whether before or after the EQK Shareholder Approvals are
obtained, as follows: (i) by mutual written consent of ART, ART Newco and EQK;
(ii) by ART Newco or ART, on or after June 30, 1998, if any of the conditions
precedent to ART or ART Newco's obligations under the Merger Agreement have not
been met or, to the extent permitted by applicable law, have not been waived in
writing by ART and ART Newco prior to such date, (iii) by EQK on or after June
30, 1998, if any of the conditions precedent to EQK's obligations under the
Merger Agreement have not been met or, to the extent permitted by applicable
law, have not been waived in writing by EQK prior to such date or (iv) by EQK
upon a determination by the EQK Board that, in the exercise of its fiduciary
duties, it can no longer recommend the approval of the Merger-Related Proposals
to the EQK Shareholders (a "Negative Determination").

Under the Merger Agreement, the EQK Board has agreed to propose and
recommend to the EQK Shareholders at the EQK Annual Meeting the adoption and
approval of the Declaration Amendment Proposal, the New Advisory Agreement
Proposal and the Merger Proposal, each as described herein.

-5-

18
DECLARATION AMENDMENT PROPOSAL

In connection with the Merger, subject to the Requisite Shareholder
Approval, EQK's Declaration of Trust will be amended and restated (such
Declaration of Trust, as so amended and restated, the "Amended Declaration of
Trust") to, among other things, (i) extend the finite life of EQK for an
additional 20 year period, (ii) reduce the number of EQK Shareholders required
to vote on the duration of EQK and approve certain other amendments of the
Declaration of Trust from three-quarters to a majority, (iii) remove certain
prohibitions on investments and activities, including (a) prohibitions on the
issuance of additional EQK Shares or other securities, (b) restrictions on
additional investments in the fee ownership of real estate and investments in
mortgage loans and unimproved, non-income producing real property, and (c)
aggregate borrowing restrictions, (iv) authorize an unlimited number of EQK
Shares, (v) revise certain provisions with respect to the number of Unaffiliated
Trustees and voting requirements in respect thereof, (vi) add specific
provisions restricting the ownership of more than 4.9% of the outstanding EQK
Shares by any single shareholder, other than ART (the "Ownership Limit"), (vii)
change the name of EQK to "ART Realty Investors I," and (viii) reduce the number
of Trustees required to approve certain matters. See "Risk Factors -- Potential
Adverse Consequences of the Declaration of Amendment Proposal" and "Declaration
of Trust -- Statement of Policy" and "--Amendment Procedure." The full text of
the Amended Declaration of Trust is attached hereto as Appendix D.

NEW ADVISORY AGREEMENT PROPOSAL

Upon consummation of the Merger and subject to Requisite Shareholder
Approval of the Merger-Related Proposals by the New EQK Board (as defined
herein under "The Board Election Proposal"), ERPM will terminate its rights and
duties as Advisor under the Advisory Agreement and BCM will enter into the New
Advisory Agreement pursuant to which BCM will become the New Advisor of EQK. As
New Advisor, BCM will be entitled to receive the same advisory fees that ERPM
received under the Advisory Agreement, provided that, if the Center is sold,
BCM will be limited to a disposition fee of 1% of the sales price, as opposed
to the 2% fee to which ERPM would have been entitled under the Advisory
Agreement. In consideration of ERPM's agreement to terminate the Advisory
Agreement, ART has agreed to pay to ERPM at the closing of the Merger, in the
form of ART Preferred Shares valued at the Liquidation Value, $1,975,000
(197,500 ART Preferred Shares). In addition, on the first business day
following the third anniversary of the Effective Time, ART will pay to ERPM in
the form of ART Preferred Shares valued at the Liquidation Value, $1,360,000
(136,000 ART Preferred Shares). ERPM will also continue to be entitled to
receive deferred portfolio advisory fees and deferred refinancing fees in the
amount of $303,465 as of November 1, 1997, plus additional amounts that accrue
but are not paid in accordance with the terms of the Advisory Agreement through
the closing date of the Merger, which fees and additional amounts shall remain
an obligation of EQK.

NEW YORK STOCK EXCHANGE LISTING OF ART PREFERRED SHARES

Following the execution of the Merger Agreement by EQK, ART will promptly
take such actions as are necessary and within its control to cause the ART
Preferred Shares to become listed on the NYSE. Approval of the listing of such
shares for trading on the NYSE is a condition to the respective obligations of
ART and EQK to consummate the Merger. See "The Proposed Merger and Related
Matters -- Conditions to the Merger; Termination, Waiver and Amendment."

REGULATORY APPROVAL

Other than (i) the Commission's declaring the Registration Statement
effective , (ii) certain approvals in connection with compliance with applicable
Blue Sky or state securities laws, (iii) the filing of the Certificate of Merger
with the Secretary of the Commonwealth of Massachusetts, (iv) the filing of such
reports under Section 13(a) of the Exchange Act as may be required subsequent to
the Merger in connection with the Merger Agreement, and (v) such filings as may
be required in connection with the payment of any transfer and gains taxes,
neither ART's nor EQK's management believes that any filing with or approval of
any governmental authority is necessary in connection with the consummation of
the Merger.

THE EQK ANNUAL MEETING

The EQK Annual Meeting will be held at the corporate offices of EQK, 5775
Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on ________ __, 1998, at
9:00 a.m., Eastern Standard Time. At the EQK Annual Meeting, the EQK
Shareholders, voting together as a class, will be asked to consider and vote
upon the Proposals.

-6-

The Merger-Related Proposals will each require the Requisite Shareholder
Approval. None of the Merger-Related Proposals will take effect unless all such
proposals receive the Requisite Shareholder Approval. ERPM and Greenspring have
agreed to vote their EQK Shares in favor of the Merger-Related Proposals.

As of November 30, 1997, Trustees and executive officers of EQK as a group
beneficially held EQK Shares representing less than 1% of all the votes
entitled to be cast by EQK Shareholders at the EQK Annual Meeting and as of the
EQK Record Date, such persons as a group held outstanding EQK Shares
representing less than 1% of such shares. The Block Purchase will not be
consummated unless the EQK Shareholders first approve the Merger-Related
Proposals at the EQK Annual Meeting. See "The EQK Annual Meeting."

A proxy may indicate that all or a portion of the shares represented by
such proxy are not being voted with respect to a specific proposal. This could
occur, for example, when a broker is not permitted to vote shares held in street
name on certain proposals in the absence of instructions from the beneficial
owner. Such broker non-votes and abstentions will be considered as not present
and entitled to vote on such proposal, even though such shares will be
considered present for purposes of determining a quorum and voting on other
proposals. BECAUSE APPROVAL OF THE MERGER-RELATED PROPOSALS AT THE EQK ANNUAL
MEETING REQUIRES THE AFFIRMATIVE VOTE OF THREE QUARTERS OF THE OUTSTANDING EQK
SHARES AS DESCRIBED MORE FULLY IN "THE EQK ANNUAL MEETING--MATTERS TO BE
CONSIDERED AT THE EQK ANNUAL MEETING," ANY BROKER NON-VOTES OR ABSTENTIONS ON
THE PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER-RELATED
PROPOSALS AND ACCORDINGLY WILL AFFECT WHETHER THE MERGER-RELATED PROPOSALS
WILL BE APPROVED.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

In the opinion of Andrews & Kurth L.L.P. ("Tax Counsel"), the issuance of
(i) the ART Preferred Shares and cash to the Public EQK Shareholders as the EQK
Merger Consideration and (ii) the EQK Shares to ART as the ART Merger
Consideration pursuant to the Merger will be treated as a taxable transaction
for Federal income tax purposes. Such opinion is not binding on the Internal
Revenue Service or any court and is subject to the accuracy of certain facts and
assumptions stated and referenced therein, and no ruling has been sought from
the Internal Revenue Service as to the Federal income tax consequences of the
Merger.

In general, a Public EQK Shareholder will recognize a gain equal to the
fair market value of the EQK Merger Consideration over the adjusted tax basis of
EQK Shares deemed sold in the taxable Merger. It is expected that such Public
EQK Shareholders will be deemed to have sold approximately 25.4% of their
respective EQK Shares held before the Merger. Such gain will be treated as a
capital gain if the EQK Shares are capital assets in the hands of the Public EQK
Shareholder.

The tax consequences described in the preceding paragraphs may not apply to
certain non-resident aliens and foreign corporations and stockholders who are
otherwise subject to special tax treatment under the Code.

The Federal income tax consequences set forth above are for general
information only. Each Public EQK Shareholder is urged to consult his own tax
advisor to determine the particular tax consequences to him of the Merger,
including the applicability and effect of state, local and other tax laws. See
"The Merger -- Certain Federal Income Tax Consequences" herein.

DESCRIPTION OF ART PREFERRED SHARES

The ART Board has designated and authorized the issuance of 7,500,000 ART
Preferred Shares with a par value of $2.00 per share and a preference on
liquidation equal to the Liquidation Value $10.00 per share plus the amount of
any accrued and unpaid dividends. The Liquidation Value plus such amount is
referred to as the "Adjusted Liquidation Value". The ART Preferred Shares are
non-voting except (i) as provided by law and (ii) at any time or times when all
or any portion of the dividends on the ART Preferred Shares for any six
quarterly dividends, whether or not consecutive, shall be in arrears and
unpaid. In the latter event, the number of directors constituting the ART Board
shall be increased by two and the holders of ART Preferred Shares, voting
separately as a class, shall be entitled to elect two directors to fill such
newly created directorships with each holder being entitled to one vote in such
election for each share of ART Preferred Shares held. ART is not obligated to
maintain a sinking fund with respect to the ART Preferred Shares.

The ART Preferred Shares are convertible, at the option of the holder, into
fully paid and nonassessable ART Common Shares at any time and from time to
time, in whole or in part, after the earliest to occur of (i) the August 15,
2003; (ii) the first business day, if any, occurring after a Quarterly Dividend
Payment Date (as defined below) on which dividends equal to or in excess of 5%
of the Liquidation

-7-

20
Value (i.e., $0.50 per ART Preferred Share) are accrued and unpaid, or (iii)
ART becomes obligated to mail a statement, signed by an officer of ART, to the
holders of record of each of the ART Preferred Shares because of a proposal by
ART, to merge or consolidate with or into any other corporation (unless ART is
the surviving entity and holders of ART Common Shares continue to hold such ART
Common Shares without modification and without receipt of any additional
consideration), or to sell, lease, or convey all or substantially all its
property or business, or to liquidate, dissolve or wind up. The ART Preferred
Shares are convertible into that number of shares of ART Common Shares obtained
by multiplying the number of ART Preferred Shares being converted by $10.00,
then adding all accrued and unpaid dividends, then dividing such sum by (in
most instances) 90% of the simple average of the daily closing price of the ART
Common Shares for the 20 business days ending on the last business day of the
calendar week immediately preceding the date of conversion on the principal
stock exchange on which such ART Common Shares are then listed (the "Conversion
Price"). Notwithstanding the foregoing, ART, at its option, may elect to redeem
any ART Preferred Shares sought to be so converted by paying the holder of
such ART Preferred Shares cash in an amount equal to the Conversion Price.

The ART Preferred Shares bear a cumulative, compounded dividend per share
equal to 10% per annum of the Adjusted Liquidation Value, payable quarterly on
the 15th day of the month following the end of each calendar quarter (each, a
"Quarterly Dividend Payment Date"), and commencing accrual on August 16, 1998 to
and including the date on which the redemption price of such shares is paid,
whether or not such dividends have been declared and whether or not there are
profits, surplus or other funds of ART legally available for the payment of such
dividends. Dividends on the ART Preferred Shares are in preference to and with
priority over dividends upon the ART Common Shares. Except as described in the
following sentence, the ART Preferred Shares rank on a parity as to dividends
and upon liquidation, dissolution or winding up with all other Special Stock (as
defined herein under "Description of Capital Stock of ART") issued by ART. ART
will not issue any shares of Special Stock of any series which are superior to
the ART Preferred Shares as to dividends or rights upon liquidation, dissolution
or winding up of the Corporation as long as any ART Preferred Shares are issued
and outstanding, without the prior written consent of the holders of at least
662/3% of such ART Preferred Shares then outstanding voting separately as a
class. As of December 1, 1997, ART had outstanding 2,000,000 ART Preferred
Shares, 4,000 shares of Series B 10% Cumulative Preferred Stock and 16,681
shares of Series C 10% Cumulative Preferred Stock.

ART may redeem any or all of the ART Preferred Shares at any time and from
time to time, at its option, for cash upon no less than 20 days nor more than 30
days prior notice thereof. The redemption price of ART Preferred Shares to be
redeemed shall be an amount per share equal to (i) 105% of the Adjusted
Liquidation Value of such shares during the period from August 15, 1997 to
August 15, 1998; (ii) 104% of the Adjusted Liquidation Value of such shares
during the period from August 16, 1998 through August 15, 1999; and (iii)103% of
the Adjusted Liquidation Value of such shares at any time on or after August 16,
1999.

There is no established trading market for the ART Preferred Shares. While
ART intends to apply for listing of the ART Preferred Shares on the NYSE, there
can be no assurance that an active market for the ART Preferred Shares will
develop or be sustained in the future on the NYSE or otherwise. There is no
assurance that the ART Preferred Shares will have a market value at or near
their Adjusted Liquidation Value. See "Risk Factors -- Risks Relating to ART
Preferred Shares."

DESCRIPTION OF EQK SHARES

EQK is currently authorized to issue 10,055,555 EQK Shares, and the EQK
Board may not currently issue any additional EQK Shares unless such issuance is
approved by the holders of three-quarters of the outstanding EQK Shares. As of
December 1, 1997, there were 9,264,344 EQK Shares issued and outstanding. The
only other outstanding equity securities of EQK as of such date were the
Prudential Warrants. Subject to Requisite Shareholder Approval, EQK's
Declaration of Trust will be amended to remove all limitations on the authorized
number of EQK Shares that may be issued by the EQK Board. See "Risk Factors --
Potential Adverse Consequences of the Declaration Amendment Proposal -- Possible
Issuance of Additional EQK Shares or Other Securities." The EQK Shareholders are
entitled to receive and to participate ratably in dividends, when and as
declared by the EQK Board out of any funds legally available for such purpose
and, in the event of termination of EQK or upon the distribution of its net
assets, to receive and to participate ratably in payments and distributions. All
EQK Shares have equal voting rights. The EQK Shares do not have any preference,
appraisal, conversion, exchange or preemptive rights. Outstanding EQK Shares are
freely transferable, subject to the Ownership Limit (if the Declaration
Amendment Proposal is adopted and implemented) and except that, in certain
limited circumstances, the EQK Board currently may refuse to transfer EQK Shares
or may compel redemption of EQK Shares. See "Description of the EQK Shares." The
outstanding EQK Shares have been legally issued and are fully paid and
nonassessable, except to the extent of any personal liability of the EQK
Shareholders as described herein under "Description of the EQK Shares."

-8-

21
THE DEALER MANAGER

Interfirst Capital Corporation, a California corporation that is an
affiliate of ART and BCM, will act as dealer manager ("Dealer Manager") for the
Merger in the states of Florida, Kansas, Missouri, New Jersey, North Carolina,
North Dakota and Vermont.

MARKET AND TRADING INFORMATION

The EQK Shares are listed and traded on the NYSE. The following table sets
forth for the calendar periods indicated the high and low per share closing
sales prices for the EQK Shares as reported in published financial sources:

Year Ended December 31, 1997 HIGH LOW
------- -------

First Quarter $ 1.625 $ 1.375
Second Quarter $ 1.500 $ 1.125
Third Quarter $ 1.250 $ 1.062
Period October 1, 1997 $ 1.250 $0.9375
to December 19,1997

Year Ended December 31, 1996 HIGH LOW
------- -------

First Quarter $ 1.500 $ 1.125
Second Quarter 1.750 1.250
Third Quarter 1.750 1.375
Fourth Quarter 1.500 1.250

Year Ended December 31, 1995 HIGH LOW
------- -------

First Quarter $ 2.250 $ 1.625
Second Quarter 2.250 1.500
Third Quarter 2.125 1.375
Fourth Quarter 2.000 1.375

EQK has not paid any dividends with respect to the EQK Shares since a $.10
per share dividend was declared in 1990 and paid in January 1991. On December
24, 1997, the last trading day prior to the public announcement of the Merger
Agreement, the closing sales price of the EQK Shares as reported on the NYSE
Composite Tape was $0.875 per EQK Share, and on ________, 1998, the most recent
date for which prices were available prior to mailing this Prospectus/Proxy
Statement, the closing sales price of the EQK Shares as reported on the NYSE
Composite Tape was $______ per EQK Share. EQK Shareholders are urged to obtain a
current market quotation for the EQK Shares. See "Risk Factors -- Risks Related
to Listing and Trading of the EQK Shares".

HOLDERS OF EQK SHARES ARE URGED TO OBTAIN CURRENT INFORMATION WITH RESPECT
TO THE SALES PRICES OF THE EQK SHARES.

While ART intends to list the ART Preferred Shares on the NYSE, there can
be no assurance that an active market for the ART Preferred Shares will develop
or be sustained in the future on the NYSE or otherwise. Listing will depend upon
the satisfaction of the NYSE's listing requirements with respect to the ART
Preferred Shares. Accordingly, no assurance can be given as to the liquidity of,
or trading for, the ART Preferred Shares.

COMPARATIVE PER SHARE DATA

The following table sets forth per share data of the ART Common Shares and
EQK Shares on both historical and pro forma combined bases. This table should be
read in conjunction with the historical and financial statements and notes
thereto contained in ART's Annual

-9-

22
Report on Form 10-K (the "ART Form 10-K") for the year ended December 31, 1996
and EQK's Annual Report on Form 10-K (the "EQK Form 10-K") for the year ended
December 31, 1996, each of which is incorporated by reference herein, and in
conjunction with the unaudited pro forma combined financial information
appearing elsewhere in this Prospectus/Proxy Statement.

Pro forma combined per share data reflects the historical results of ART
combined with EQK under the equity method of accounting as if the Merger had
been consummated for all periods presented. This information has been prepared
on the basis of accounting for the Merger as a purchase and is based on the
assumptions set forth in the notes thereto. The pro forma share data is not
necessarily indicative of actual results had the Merger been consummated on such
dates or of future expected results.

Historical Proforma Combined
---------- -----------------

(Loss) per share
Nine months ended
September 30, 1997 $ (.29) $ (.35)

Fiscal year ended
December 31, 1996 (.43) (.51)

Cash dividends per
Common Share

Nine months ended $ .15 $ .15
September 30, 1997

Fiscal Year ended $ .15 $ .15
December 31, 1996

Book value per Common Share

Nine months ended $ 3.42 $ 3.42
September 30, 1997

Fiscal year ended 3.74 3.74
December 31,1996

-10-

23
RISK FACTORS

EQK Shareholders should consider, among other things, the following
risk factors in connection with the transactions contemplated by the Merger.
These factors are intended to identify the significant sources of risk affecting
an investment in the ART Preferred Shares and the EQK Shares.

RISKS RELATING TO MERGER

Foregoing Current Sale and Liquidation. Consummation of the Merger
will result in EQK's foregoing a sale of the Center and liquidation of EQK by
March of 1999. Consequently, EQK Shareholders will be subject to the risk of a
decline in value of the Center over time, as well as risks in connection with
the refinancing of EQK's mortgage debt, that could be avoided by a sale and
liquidation.

Dilution of Current EQK Shareholders and Likely Decline in Trading
Price per EQK Share. Consummation of the Merger will result in the reduction of
the percentage ownership of the Public EQK Shareholders in EQK as a result of
the issuance of EQK Shares to ART as the ART Merger Consideration. Accordingly,
after the Merger, the Public EQK Shareholders will have a correspondingly
smaller share of any appreciation in value of the Center and the trading price
of the EQK Shares is likely to decline substantially.

Anti-Takeover Effect. Consummation of the Merger and the Block
Purchase will result in the acquisition by ART of an aggregate of 7,074,117 EQK
Shares (or approximately 49% of the EQK Shares to be outstanding after the
Merger). As a result of the foregoing and the effect of the Ownership Limit
described herein under "The Declaration Amendment Proposal -- Addition of Excess
Share Provisions", third party attempts to acquire control of EQK may not be
practicable. Accordingly, if the Merger is approved, it is unlikely that an
attempted take-over of EQK, which might result in an increase in the price at
which EQK Shares could be sold, will occur.

Benefits to ERPM and Compass. If the Merger is consummated, ART
has agreed to pay to ERPM at the closing of the Merger, in the form of ART
Preferred Shares valued at the Liquidation Value, an aggregate of $1,975,000
(197,500 ART Preferred Shares). In addition , on the first business day
following the third anniversary of the Effective Time, ART will pay to ERPM
in the form of ART Preferred Shares valued at the Liquidation Value, an
additional $1,360,000 (136,000 ART Preferred Shares). ERPM will also continue
to be entitled to receive deferred portfolio advisory fees and deferred
refinancing fees in the amount of $303,465 as of November 1, 1997, plus
additional amounts that accrue but are not paid in accordance with the terms of
the Advisory Agreement through the closing date of the Merger, which fees and
additional amounts shall remain an obligation of EQK.

In addition, ERPM has entered into an agreement (the "ERPM/ART
Stock Purchase Agreement") with ART to sell all of its 1,685,556 EQK Shares to
ART for 311,828 ART Preferred Shares with an aggregate Liquidation Value of
$3,118,280. Closing under the ERPM/ART Stock Purchase Agreement is conditioned
upon the consummation of the Merger. The Merger Agreement also provides for
Compass, an affiliate of ERPM, to continue as manager of the Center under the
terms of the current property management agreement between EQK and Compass (the
"Property Management Agreement") until the Center is sold by EQK. Compass will
continue to receive all of the fees to which it is entitled under the Property
Management Agreement.

Conflicts of Interest. The management of EQK is subject to
conflicts of interest in recommending the Merger and approval of the
Merger-Related Proposals because most members of management of EQK also are
members of the management of ERPM and Compass, which are receiving the benefits
described above under "-- Benefits of Merger to ERPM and Compass."

Management of BCM (including Thomas A. Holland, A. Cal Rossi, Jr.
and Cooper B. Stuart who are expected to become Trustees of EQK upon
consummation of the Merger) will be subject to conflicts of interest in carrying
out its duties as New Advisor to EQK because: (i) properties owned by the
affiliates of BCM (the "BCM Affiliates") may compete with the Center (or any
additional properties that may be acquired by EQK) for tenants; (ii) BCM
Affiliates may compete with EQK in connection with the acquisition of
properties; (iii) BCM's personnel and other resources must be allocated among
EQK and other BCM Affiliates; (iv) decisions may have to be made with respect to
the extension, termination or modification of the New Advisory Agreement with
BCM; and (v) BCM will be subject to conflicts between its obligations as New
Advisor and its interests in and as an affiliate of ART in light of ART's
intended purchase of additional EQK Shares three years after the date of the
consummation of the Merger. See "The Proposed Merger and Related Matters --
ART's Purposes for the Merger."

-11-

RISKS RELATING TO ART PREFERRED SHARES

Risks Associated with the Listing and Trading of ART Preferred
Shares. There are currently 2,000,000 ART Preferred Shares outstanding; however,
there is currently no established public market for the ART Preferred Shares.
While ART intends to apply for listing of the ART Preferred Shares on the NYSE,
there can be no assurance that an active market for the ART Preferred Shares
will develop or be sustained in the future on such exchange. Listing will also
depend upon the satisfaction of the NYSE's listing requirements with respect to
the ART Preferred Shares. Although the NYSE has not established any minimum
numerical criteria for the listing of preferred stock, it has published certain
numerical delisting criteria therefor. Pursuant to such criteria, the NYSE will
consider suspending or delisting a series of preferred stock if the aggregate
market value of publicly-held shares of such preferred stock is less than
$2,000,000 and the number of publicly-held shares of such preferred stock is
less than 100,000. Upon consummation of the Merger, the aggregate number and
aggregate value of the ART Preferred Shares will satisfy the NYSE listing
requirements; however, since the ART Preferred Shares are subject to conversion
or redemption as described herein under "Description of the Capital Stock of ART
- -- ART Preferred Shares, there can be no assurance that the ART Preferred Shares
will continue to satisfy the NYSE's continued listing requirements. In addition,
no assurance can be given as to the liquidity of, or trading for, the ART
Preferred Shares. The trading price of ART Preferred Shares is likely to be
below their Liquidation Value and there is no assurance as to the price at which
the ART Preferred Shares will actually trade.

Risks Associated with Dividend Payments. Although dividends will
accrue cumulatively on the ART Preferred Shares from August 16, 1998, such
dividends will not be paid unless and until they are declared by the ART Board.
Holders of ART Preferred Shares will not have the authority to direct or compel
the ART Board to declare dividends with respect to the ART Preferred Shares. The
ART Preferred Shares are non-voting except (i) as provided by law and (ii) at
any time or times when all or any portion of the dividends on the ART Preferred
Shares for any six quarterly dividends, whether or not consecutive, shall be in
arrears and unpaid. In the latter event, the number of directors constituting
the ART Board shall be increased by two and the holders of ART Preferred Shares,
voting separately as a class, shall be entitled to elect two directors to fill
such newly created directorships with each holder being entitled to one vote in
such election for each share of ART Preferred Shares held.

Risks Associated with Conversion Feature. The ART Preferred Shares
are convertible into ART Common Shares as described herein under "Summary of
Terms -- Description of ART Preferred Shares" and "Description of the Capital
Stock of ART -- ART Preferred Shares." The Articles of Amendment of ART's
Articles of Incorporation that authorize the ART Preferred Shares provide that a
number of authorized ART Common Shares sufficient to provide for the conversion
of the outstanding ART Preferred Shares as described herein shall at all times
be reserved for such conversion. However, the number of ART Common Shares into
which an ART Preferred Share is convertible is dependent upon the then-current
market price of the ART Common Shares. Therefore, if at the time a holder of ART
Preferred Shares seeks to convert such ART Preferred Shares, ART has failed to
reserve a sufficient number of authorized ART Common Shares to effect such
conversion and assuming that ART does not elect to redeem such ART Preferred
Shares as described herein, such holder would be unable to effect such
conversion. In addition to the ART Preferred Shares, ART has authorized and
issued other preferred stock that may be converted from time to time into ART
Common Shares. See "Description of the Capital Stock of ART." In the future, ART
expects to authorize and issue additional preferred stock or other securities
that may be converted from time to time into ART Common Shares. Certain of the
preferred stock that has been authorized by ART (including the ART Preferred
Shares) is, and securities that may be issued by ART in the future may be,
convertible into a number of ART Common Shares calculated by reference to the
price of ART Common Shares (i.e., the lower the price of the ART Common Shares,
the higher the number of ART Common Shares to be received upon conversion of the
applicable security). At any given time, a decrease in the price of ART Common
Shares below a certain level could result in the number of authorized ART Common
Shares being insufficient to provide for the conversion of all of ART's
convertible securities, including the ART Preferred Shares. ART currently
intends to seek shareholder approval for the authorization of additional ART
Common Shares, but there can be no assurance that such approval will be
obtained. The closing price of ART's common stock as of 5 p.m. Eastern Standard
Time on December 30, 1997, as published in the December 31, 1997 edition of The
Wall Street Journal, was $14.375 per share. Assuming such price was used for
purposes of calculating the number of ART Common Shares issuable on conversion
of ART's authorized convertible preferred stock (which currently constitutes the
only securities authorized by ART that is convertible into ART Common Shares),
ART has sufficient ART Common Shares to convert all outstanding shares of such
preferred stock, but does not have sufficient ART Common Shares to convert all
authorized shares of such preferred stock. However, the other authorized but
unissued ART preferred stock may not ever be issued, and management expects that
such preferred stock would not be issued at a time when such preferred stock
would be immediately convertible into ART Common Shares. So long as management
of ART and affiliates of ART own a majority of the ART Common Shares, management
expects that ART will have the ability to increase the number of authorized ART
Common Shares to a number sufficient to provide for the conversion of its
convertible preferred stock. However, there can be no assurance that management
and affiliates of ART will continue to own a majority of the ART Common Shares.
The actual basis for calculating the number of ART Common Shares issuable upon
conversion of ART's authorized preferred stock is described under "Description
of the Capital Stock of ART."

-12-

25
In the event that ART Preferred Shares are converted into ART
Common Shares, there can be no assurance as to the existence of an active
trading market for the ART Common Shares at the time of such conversion or that
the trading price of the ART Common Shares will not decline substantially after
such conversion.

POTENTIAL ADVERSE CONSEQUENCES OF THE DECLARATION AMENDMENT PROPOSAL

Subject to the Requisite Shareholder Approval of the Declaration
Amendment Proposal, EQK's Declaration of Trust will be amended to provide for,
among other things, (i) the Ownership Limit; (ii) a 20 year extension of the
finite life of the trust, (iii) the ability to change investment, financing,
borrowing and distribution policies without shareholder approval, and (iv) the
ability to issue additional EQK Shares and other types of securities, in each
case as more fully described below. See "The Declaration Amendment Proposal."

Effect of Limits on Ownership and Issuance of Additional EQK
Shares or other Securities. In order to maintain EQK's qualification as a REIT
under the Code, subject to Requisite Shareholder Approval of the Merger-Related
Proposals, the Declaration of Trust will be amended to prohibit ownership of
more than 4.9% of the outstanding EQK Shares by any single shareholder other
than ART and the current 5% Holders. Under the Amended Declaration of Trust, the
EQK Board may exempt a proposed transferee from this restriction upon receipt of
a ruling from the Internal Revenue Service, an opinion of counsel or other
evidence satisfactory to the EQK Board that ownership of EQK shares by a
proposed transferee will not adversely affect EQK's qualification as a REIT
under the Code, and upon such other conditions as the EQK Board may direct.

The Ownership Limit, as well as the ability of EQK to issue
additional EQK Shares or other securities (which may have rights and preferences
senior to the EQK Shares), may discourage a change of control of EQK and may
also (i) deter future tender or exchange offers for the EQK Shares, which offers
may be advantageous to EQK Shareholders, and (ii) limit the opportunity for EQK
Shareholders to receive a premium for their EQK Shares that might otherwise
exist if an investor were attempting to assemble a block of EQK Shares in
excess of the Ownership Limit or otherwise effect a change of control of EQK.

Extension of Finite Life of EQK. The self liquidating provisions
included in EQK's Declaration of Trust reflected an intention of the original
EQK Board to liquidate EQK's assets by March of 1999, and the Declaration of
Trust provides that no additional investments will be made beyond such date. The
EQK Board however, has the discretion to hold current investments for up to two
years beyond such date should market conditions or other circumstances so
dictate, if such action is in the best interests of the EQK Shareholders. At
some time on or before the date on which EQK would be required to terminate its
operations, EQK's investments would be liquidated and the proceeds thereof, net
of taxes, selling expenses and disposition fees, would be distributed to the EQK
Shareholders.

Subject to Requisite Shareholder Approval, EQK's Declaration of
Trust will be amended to extend the duration of EQK for an additional 20 year
period and to revise the liquidation provisions to which EQK is subject.
Following such amendment, if EQK's assets are sold, the proceeds thereof are
expected to be reinvested in additional assets and the EQK Shareholders will
have to sell their EQK Shares in the market to realize the cash value of their
investment in such assets. In addition, the extension of EQK's duration will
likely increase the amount of fees paid to BCM, which is expected to succeed
ERPM as EQK's Advisor.

Changes in Policies without Shareholder Approval. EQK's
Declaration of Trust currently provides that, in general, none of EQK's policies
may be amended without the approval of holders of three-quarters of the
outstanding EQK Shares. Subject to Requisite Shareholder Approval of the Merger
Related Proposals, EQK's Declaration of Trust will be amended to provide that
the EQK Board may change EQK's investment policies from time to time with the
approval of a committee consisting solely of Unaffiliated Trustees and without
the approval of EQK's Shareholders. Accordingly, EQK Shareholders will be
relying upon the discretion of BCM, as EQK's New Advisor, and the EQK Board in
selecting any additional investments. Any such change in investment policies
could adversely affect EQK's financial condition, results of operations and the
market price of the EQK Shares.

Possible Issuance of Additional EQK Shares or Other Securities.
Subject to Requisite Shareholder Approval, EQK's Declaration of Trust will be
amended to remove prohibitions relating to the issuance of additional EQK Shares
or other types of securities, including securities with preferential rights
senior to the EQK Shares. Any such issuance of additional EQK Shares (other than
upon exercise of the Prudential Warrants) would require the affirmative vote of
the holders of not less than a majority of the then outstanding EQK Shares. Any
such issuance of other types of securities would not require the approval of the
EQK Shareholders. In the event that additional EQK Shares or other equity
securities are so issued by EQK, holders of outstanding EQK Shares will incur
dilution in their percentage of equity in EQK.

-13-

POTENTIAL RISKS ASSOCIATED WITH AFFILIATE OF CONTROLLING SHAREHOLDER OF NEW
ADVISOR

Upon consummation of the Merger, ERPM and EQK will terminate the
Advisory Agreement and EQK will enter into the New Advisory Agreement with BCM
pursuant to which BCM will become the New Advisor. BCM is a privately held
Nevada corporation owned by a trust established for the benefit of the children
of Gene E. Phillips. Mr. Phillips currently serves as a representative of such
trust and, in such capacity, has substantial contact with the management of BCM
and input with respect to BCM's performance of advisory services. Mr. Phillips
is the former chairman of Southmark Corporation ("Southmark"), a real estate
syndicator and parent of San Jacinto Savings Association ("San Jacinto"). Mr.
Phillips resigned his positions with Southmark and certain of its affiliates in
January 1989. Southmark filed a voluntary petition of bankruptcy under Chapter
11 of the United States Bankruptcy Code in July 1989. In November 1990, San
Jacinto was placed under conservatorship of the Resolution Trust Corporation
("RTC") by federal banking authorities. Mr. Phillips was named as a defendant in
a number of lawsuits brought by the RTC and private plaintiffs in which the
allegations made against Mr. Phillips included breach of fiduciary duty and
other misconduct, which allegations were denied by Mr. Phillips. All of these
actions have been dismissed or settled. See "Description of ART" and "The
Business of ART - Investments in Real Estate Investment Trusts and Real Estate
Partnership."

RISKS RELATING TO LISTING AND TRADING OF EQK SHARES

The Merger, the Block Purchase and the Standstill Agreements will
have the cumulative effect of reducing the number of EQK Shares that might
otherwise trade publicly. As a result, the liquidity and market value of the
remaining EQK Shares held by the public may be adversely affected and the EQK
Shares may no longer meet the requirements of the NYSE for continued listing on
the NYSE. According to the NYSE Rules, the NYSE would consider delisting the EQK
Shares if, among other things, (i) the number of publicly held EQK Shares
(exclusive of holdings of officers, directors and members of their immediate
families and other concentrated holdings of 10 percent or more) should fall
below 600,000, (ii) the total number of EQK Shareholders falls below 400, (iii)
the total number of EQK Shareholders falls below 1200 and the average monthly
trading volume of the EQK Shares is less than 100,000 shares (for the previous
12 month period), or (iv) the aggregate market value of publicly held EQK Shares
should fall below $8 million. As a result of the Merger, the Block Purchase, the
Standstill Agreements, the EQK Shares may no longer meet the requirements of the
NYSE for continued listing on the NYSE. If the listing of the EQK Shares is
discontinued, the market for the EQK Shares could be adversely affected.

In the event that the EQK Shares are delisted by the NYSE, it is
possible the EQK Shares would continue to trade on another securities exchange
or in the over-the-counter market and that price quotations would be reported by
such exchange, by the NASD through the NASDAQ Stock Market ("NASDAQ") or by
other sources. The extent of the public market for such EQK Shares and the
availability of such quotations would, however, depend upon such factors as the
number of shareholders remaining at such time, the trading volume at such time,
the interest in maintaining a market in the EQK Shares on the part of securities
firms and the trading value at such time. See "The Proposed Merger and Related
Matters -- Effect of the Merger on Market for EQK Shares; Registration Under the
Exchange Act."

RISKS RELATING TO ART'S BUSINESS

As part of the Merger Consideration and pursuant to the Merger,
EQK Shareholders will receive ART Preferred Shares (and subsequently may receive
ART Common Shares upon conversion of the ART Preferred Shares) as described
herein, the value of which will be substantially dependent upon the success of
ART's business. Set forth below is a summary of potential risks relating to
ART's business.

Recent Operating History. ART experienced net losses for each of
the fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992. During
1996, ART paid a dividend of $0.15 with respect to each ART Common Share, and
during the nine months ended September 30, 1997, ART paid a cumulative dividend
of $0.15 with respect to each ART Common Share. From 1992 through 1995, ART paid
no dividends in respect of the ART Common Shares. There can be no assurance that
ART will be able to pay dividends in respect of the ART Preferred Shares or the
ART Common Shares in the future.

Changes in ART's Policies Without Stockholder Approval. The
investment, financing, borrowing and distribution policies of ART and its
policies with respect to all other activities, growth, debt, capitalization and
operations, will be determined by the ART Board. Although it has no present
intention to do so, the ART Board may amend or revise these policies at any time
and from time to time at its discretion without a vote of the stockholders of
ART. A change in these policies could adversely affect the market price of the
ART Preferred Shares or the ART Common Shares. See "The Business of ART --
General."

Investments in Real Property. Real property investments are
subject to varying degrees of risk and are relatively illiquid. Income from real
property investments and ART's resulting ability to pay dividends to its
shareholders may be adversely affected by a number of factors, including general
economic climate and local real estate conditions (such as oversupply of or
reduced demand for space and changes in market rental rates); the perceptions of
prospective tenants of the safety, convenience and attractiveness of ART's
properties; the ability of ART or the owner of such properties to provide
adequate management, maintenance and insurance; energy and supply shortages; the
ability to collect on a timely basis all rent from tenants and interest from
borrowers; the expense of periodically renovating,

-14-

repairing and reletting spaces; and increasing operating costs (including real
estate taxes and utilities) which may not be passed through to tenants. Certain
significant expenditures associated with investments in real estate (such as
mortgage payments, real estate taxes, insurance and maintenance costs) are
generally not reduced when circumstances cause a reduction in rental revenues
from the investment. If a property of ART is mortgaged to secure the payment of
indebtedness and if ART or an entity in which ART invests or to which it lends
is unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the property or the exercise of other remedies by the
mortgagee. Real estate values and income from properties are also affected by
such factors as compliance with laws, including tax laws, interest rate levels
and the availability of financing.

Nature of Investments Made by ART May Involve High Risk;
Illiquidity of Real Estate Investments. ART may make investments in real
estate-related assets and businesses which have experienced severe financial
difficulties, which difficulties may never be overcome. Since such investments
may involve a high degree of risk, poor performance by any such investments
could severely affect the financial condition and results of operations of ART.

The illiquid nature of ART's real estate investments may limit the
ability of ART to modify its portfolio in response to changes in economic or
other conditions. Such illiquidity may result from the absence of an established
market for ART's investments as well as legal or contractual restrictions on
their resale by ART.

Difficulty of Locating Suitable Investments; Competition.
Identifying, completing and realizing on real estate investments has from time
to time been highly competitive, and involves a high degree of uncertainty. ART
competes for investments with many public and private real estate investment
vehicles, including financial institutions (such as mortgage banks, pension
funds and real estate investment trusts) and other institutional investors, as
well as individuals. There can be no assurance that ART will continue to be able
to locate and complete investments which satisfy ART's objectives or realize
upon their value or that it will be able to fully invest its available capital.

Many of those with whom ART competes for investments and its
services are far larger than ART, may have greater financial resources than ART
and may have management personnel with more experience than the officers of ART.

Risks of Acquisition Activities. From time to time, ART will
acquire existing properties to the extent that they can be acquired on
advantageous terms and meet ART's investment criteria. Acquisitions of
properties entail general investment risks associated with any real estate
investment, including the risk that investments will fail to perform as
expected, that estimates of the cost of improvements to bring an acquired
property up to standards established for the intended market position may prove
inaccurate and the occupancy rates and rents achieved may be less than
anticipated.

Dependence on Rental Income from Real Property. ART's cash flow,
results of operations and value of its assets would be adversely affected if a
significant number of tenants of ART's properties failed to meet their lease
obligations or if ART or the owner of a property in which ART has an interest
were unable to lease a significant amount of space on economically favorable
terms. In the event of a default by a lessee, the owner may experience delays in
enforcing its rights as lessor and may incur substantial costs in protecting its
investment. The bankruptcy or insolvency of a major tenant may have an adverse
effect on a property. At any time, a tenant may also seek protection under the
bankruptcy laws, which could result in rejection and termination of such
tenant's lease and thereby cause a reduction in the cash flow of the property.
If a tenant rejects its lease, the owner's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
Generally, the amount of the claim would be capped at the amount owed for unpaid
pre- petition lease payments unrelated to the rejection, plus the greater of one
year's lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments). No
assurance can be given that the properties in which ART has an interest will not
experience significant tenant defaults in the future.

Operating Risks. The properties in which ART has an interest are
subject to operating risks common to the particular property type, any and all
of which may adversely affect occupancy or rental rates. Such properties are
subject to increases in operating expenses such as cleaning; electricity;
heating, ventilation and air-conditioning; elevator repair and maintenance;
insurance and administrative costs; and other general costs associated with
security, landscaping, repairs and maintenance. While commercial tenants are
often obligated to pay a portion of these escalating costs, there can be no
assurance that they will agree to pay such costs or that the portion that they
agree to pay will fully cover such costs. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to meet
increased expenses without decreasing occupancy rates. To the extent rents
cannot be increased or costs controlled, the cash flow of ART and its financial
condition may be adversely affected.

Adverse Consequences of Debt Financing. ART is subject to the
risks normally associated with debt or preferred equity financing, including the
risk that ART's cash flow will be insufficient to meet required payments of
principal, interest and dividend distributions, the risk that existing
indebtedness may not be refinanced or that the terms of such refinancing will
not be as favorable as the

-15-

terms of current indebtedness and the risk that necessary capital expenditures
for such purposes as renovations and other improvements may not be financed on
favorable terms or at all. If ART were unable to refinance its indebtedness on
acceptable terms, or at all, ART might be forced to dispose of one or more of
its properties on disadvantageous terms, which might result in losses to ART
and might adversely affect the cash available for distributions to its
shareholders. If interest rates or other factors at the time of the refinancing
result in higher interest rates upon refinancing, ART's interest expense would
increase, which would affect ART's ability to make distributions to its
shareholders. Furthermore, if a property is mortgaged to secure payment of
indebtedness and ART is unable to meet mortgage payments, the mortgagee could
foreclose upon the property, appoint a receiver and receive an assignment of
rents and leases or pursue other remedies, all with a consequent loss of income
and asset value to ART.

Some of ART's real estate equity investments may utilize a
leveraged capital structure, in which case a third party lender would be
entitled to cash flow generated by such investments prior to ART receiving a
return. As a result of such leverage, in addition to the risks described above,
ART would be subject to the risk that existing debt (which in most cases will
not have been fully amortized at maturity) will not be able to be refinanced or
that the terms of such refinancings will not be as favorable to ART and the risk
that necessary capital expenditures for such purposes as renovations and other
improvements will not be able to be financed on favorable terms or at all. While
such leverage may increase returns or the funds available for investment by ART,
it also will increase the risk of loss on a leveraged investment. If ART
defaults on secured indebtedness, the lender may foreclose and ART could lose
its entire investment in the security for such loan. Because ART may engage in
portfolio financings where several investments are cross-collateralized,
multiple investments may be subject to the risk of loss. As a result, ART could
lose its interests in performing investments in the event such investments are
cross- collateralized with poorly performing or nonperforming investments. In
addition, recourse debt may subject other assets of ART to risk of loss. Any
such losses will adversely affect ART's ability to make distributions in respect
of the ART Preferred Shares.

Virtually all of ART's mortgage notes receivable, real estate,
equity security holdings in CMET, IORI, TCI, NRLP and its trading portfolio of
equity securities are held subject to secured indebtedness. Such borrowings
increase ART's risk of loss because they represent a prior claim on ART's
assets and require fixed payments regardless of profitability. If ART defaults
on such secured indebtedness, the lender may foreclose on ART's assets securing
such indebtedness, and ART could lose its investment in the pledged assets.

The organizational documents of ART do not contain any limitation
on the amount of indebtedness ART may incur. Accordingly, ART could become even
more highly leveraged than it currently is, thus resulting in an increase in
debt service that could increase the risk of default on ART's indebtedness.

Distributions in respect of the ART Preferred Shares will be
subordinate in right of payment to ART's debt obligations which, as of September
30, 1997, have an aggregate outstanding principal balance of approximately
$265.4 million.

Existing Debt Maturities. ART anticipates that only a portion of
the principal of its indebtedness outstanding from time to time will be repaid
prior to maturity. ART may not have sufficient funds to repay such indebtedness
at maturity; it may therefore be necessary for ART to refinance debt through
additional debt financing or equity offerings. If ART is unable to refinance
this indebtedness on acceptable terms, ART may be forced to dispose of
properties upon disadvantageous terms, which could result in losses to ART and
adversely affect the amount of cash available for further investment, to make
payments on its outstanding indebtedness or to make distributions in respect of
the ART Preferred Shares.

Risk of Rising Interest Rates. As of September 30, 1997,
approximately 28% and 72% of ART's indebtedness is subject to variable interest
rates and fixed interest rates, respectively. ART may incur indebtedness in the
future that also bears interest at a variable rate or may be required to
refinance its debt at higher rates. Accordingly, increases in variable interest
rates could increase ART's interest expense and adversely effect the financial
condition and results of operations of ART.

Covenants. Various debt obligations may require ART to comply with
a number of customary financial and other covenants on an ongoing basis. Failure
to comply with such covenants may limit ART's ability to borrow funds or may
cause a default under its then-existing indebtedness.

Lack of Control and Other Risks of Equity Investments in and with
Third Parties. ART may invest in shares or other equity interests of real estate
investment trusts or other entities that invest in real estate assets. In such
cases, ART will be relying on the assets, investments and management of the real
estate investment trust or other entity in which it is investing. Such entities
and their properties will be subject to the other risks affecting the ownership
and operation of real estate set forth herein.

-16-

ART may also co-invest with third parties through partnerships,
joint ventures or other entities, acquiring non-controlling interests in or
sharing responsibility for managing the affairs of a property, partnership,
joint venture or other entity and, therefore, will not be in a position to
exercise sole decision-making authority regarding the property, partnership,
joint venture or other entity.

Investments in partnerships, joint ventures, or other entities
may, under certain circumstances, involve risks which would not be present were
a third party not involved, including the possibility that ART's partners or
co-venturers might become bankrupt or otherwise fail to fund their share of
required capital contributions, that such partners or co-venturers might at any
time have economic or other business interests or goals which are inconsistent
with the business interests or goals of ART, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of ART and contrary to ART's policies or objectives. Such
investments may also have the potential risk of impasse on decisions, such as a
sale, because neither ART nor the partner or co-venturer would have full control
over the partnership or joint venture. Consequently, actions by such partner or
co-venturer might result in subjecting properties owned by the partnership or
joint venture to additional risk. In addition, ART may in certain circumstances
be liable for the actions of its third-party partners or co-venturers.

Risks of Investments in Mortgage Loans. To the extent ART invests
in mortgage loans, such mortgage loans may or may not be recourse obligations of
the borrower and generally will not be insured or guaranteed by governmental
agencies or otherwise. In the event of a default under such obligations, ART may
have to foreclose its mortgage or protect its investment by acquiring title to a
property and thereafter making substantial improvements or repairs in order to
maximize the property's investment potential. Borrowers may contest enforcement
of foreclosure or other remedies, seek bankruptcy protection against such
enforcement and/or bring claims for lender liability in response to actions to
enforce mortgage obligations. Relatively high "loan-to-value" ratios and
declines in the value of the mortgaged property may prevent ART from realizing
an amount equal to its mortgage loan upon foreclosure.

ART may participate in loans originated by other financing
institutions. As a participant, ART may not have the sole authority to declare a
default under the mortgage or to control the management or disposition of the
related property or any foreclosure proceedings in respect thereof.

Any investments in junior mortgage loans which are subordinate to
liens of senior mortgages would involve additional risks, including the lack of
control over the collateral and any related foreclosure proceeding. In the event
of a default on a senior mortgage, ART may make payments to prevent foreclosure
on the senior mortgage without necessarily improving ART's position with respect
to the subject real property. In such event, ART would be entitled to share in
the proceeds only after satisfaction of the amounts due to the holder of the
senior mortgage.

Limitations on Remedies. Although ART will have certain
contractual remedies upon the default by borrowers under certain debt
instruments, such as foreclosing on the underlying real estate or collecting
rents generated therefrom, certain legal requirements (including the risks of
lender liability) may limit the ability of ART to effectively exercise such
remedies.

The right of a mortgage lender to convert its loan position into
an equity interest may be limited or prevented by certain common law or
statutory prohibitions.

Risks of Uninsured Loss. ART carries comprehensive liability,
fire, extended coverage and rental loss insurance with respect to all of the
improved real property that it owns, with policy specifications, insured limits
and deductibles customarily carried for similar properties. There are, however,
certain types of losses (such as losses arising from acts of war or relating to
pollution) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, ART could lose its capital invested in a property, as well
as the anticipated future revenue from such property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could adversely affect the financial condition and
results of operations of ART.

With respect to those properties in which ART holds an interest
through a mortgage, as well as those properties owned by entities to whom ART
makes unsecured loans, the borrowers will most likely be obligated to maintain
insurance on such properties and to arrange for ART to be covered as a named
insured on such policies. The face amount and scope of such insurance coverage
may be less comprehensive than ART would carry if it held the fee interest in
such property. Accordingly, in such circumstances, or in the event that the
borrowers fail to maintain required coverage, uninsured or underinsured losses
may occur, which could have an adverse impact on ART's cash flow or financial
condition.

Costs of Compliance with the Americans with Disabilities Act and
Similar Laws. Under the Americans with Disabilities Act of 1980 (the "ADA"),
places of public accommodations and commercial facilities are required to meet
certain federal requirements related

-17-

to access and use by disabled persons. Compliance with ADA requirements could
require both structural and non-structural changes to the properties in which
ART invests and noncompliance could result in imposition of fines by the United
States government or an award of damages to private litigants. Although
management of ART believes that its properties are substantially in compliance
with present requirements of the ADA, ART may incur additional costs of
compliance in the future. A number of additional Federal, state and local laws
exist which impose further burdens or restrictions on owners with respect to
access by disabled persons and may require modifications to properties in which
ART invests, or restrict certain further renovations thereof. The ultimate
amount of the cost of compliance with the ADA or other such laws is not
currently ascertainable. While such costs are not expected to have a material
effect on ART, they could be substantial. If required changes involve greater
expense than ART currently anticipates, ART's financial condition and results
of operations could be adversely affected.

Potential Environmental Liability Affecting ART. Under various
Federal, state and local environmental laws, ordinances and regulations, an
owner of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. These laws often impose
environmental liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure properly to remediate such
substances, may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances may also be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
person. Certain laws impose liability for release of asbestos- containing
materials ("ACMs") into the air and third parties may seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, ART may be considered an owner or operator of
such properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, potentially liable for removal or
remediation costs, as well as for certain other related costs, including
governmental fines and injuries to persons and property.

ART's management is not aware of any environmental matters
affecting its properties or investments that would have a material adverse
effect on ART's business, assets or results of operations.

The Center has been the subject of a Phase I or similar
environmental assessment completed by a qualified independent environmental
consultant company within the last five years. This environmental assessment did
not reveal, and neither ART nor EQK is aware of, any environmental liability
that would have a material adverse effect on EQK's business, assets or results
of operations.

No assurance can be given that existing environmental assessments
with respect to any of ART's properties or the Center reveal all environmental
liabilities, that any prior owner of a property did not create any material
environmental condition not known to ART, or that a material environmental
condition does not otherwise exist with respect to the Center or any one or more
properties of ART.

Noncompliance with Other Laws. Real estate properties are also
subject to various Federal, state and local regulatory requirements, such as
state and local fire and life safety requirements. Failure to comply with these
requirements could result in the imposition of fines by governmental authorities
or awards of damages to private litigants. ART believes that its properties are
currently in material compliance with all such regulatory requirements. However,
there can be no assurance that these requirements will not be changed or that
new requirements will not be imposed which would require significant
unanticipated expenditures by ART and could have an adverse effect on ART's
results of operations.

Changes in Laws. Increases in real estate taxes, income taxes and
service or other taxes generally are not passed through to tenants under
existing leases and may adversely affect ART's cash flow from operations and its
ability to make distributions to shareholders. Similarly, changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures, which would adversely affect
ART's funds from operations and thus its ability to make payments on its
outstanding indebtedness and to make distributions to its shareholders.

Dependence on Key Personnel. ART will be dependent on the efforts
of its executive officers and the executive officers of BCM. While ART believes
that it and BCM could find replacements for these key personnel, the loss of
their services may have a temporary adverse effect on the operations of ART.
Only Randall M. Paulson, the President of BCM, has an employment agreement with
BCM. None of the other officers has entered or is expected to enter into
employment agreements with ART or BCM.

-18-

31
RISKS RELATING TO EQK'S BUSINESS

EQK Shareholders are subject to many of the risks described above
under "--Risks Relating to ART's Business," as they may also pertain to the
business of EQK. The value of the EQK Shares may be affected by such risks and
the risks set forth below.

Possible Loss of NOLs. EQK currently has net operating losses
("NOLs") of approximately $92,000,000. In general, such NOLs may be used to
offset any taxable gains realized upon the sale of EQK's assets so long as there
is not or more than a 50 percentage point change in the ownership of the EQK
Shares during any three year period. In the event that there is more than a 50
percentage point change in the ownership of EQK Shares during a three year
period, the availability of such NOLs to offset taxable gains or income would be
reduced to a very significant extent. Although it is not expected that the
Merger, the Block Purchase or the Standstill Agreements would reduce the
availability of the NOLs, a reduction in the availability of such NOLs would
likely have a material adverse effect on the market value of EQK and the EQK
Shares.

Consequences of Failure of EQK to Qualify as a REIT. EQK has
transacted its affairs so as to qualify as, and has elected to be treated as, a
real estate investment trust under applicable provisions of the Code. Under the
Code, a real estate investment trust that meets the applicable requirements is
not subject to Federal income tax on that portion of its taxable income that is
distributed to its shareholders. Upon consummation of the Merger, EQK intends to
continue to operate in a manner so as to qualify as a REIT under the Code.
However, no assurance can be given that EQK will be able to continue to operate
in a manner to so qualify. Qualification as a REIT involves the satisfaction of
numerous requirements (some on an annual and quarterly basis) established under
highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations, and involves the determination of
various factual matters and circumstances not entirely within EQK's control.

If EQK were to fail to qualify as a REIT in any taxable year, EQK
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at corporate rates. Moreover, unless entitled
to relief under certain statutory provisions, EQK also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification is lost. This treatment would reduce the net earnings of EQK
available for investment or distribution to shareholders because of the
additional tax liability to EQK for the years involved. In addition,
distributions to EQK Shareholders would no longer be required to be made.

Refinancing of the Center. As described herein under "The Business
of EQK," EQK has negotiated an extension of the maturity of its existing
mortgage debt (aggregating $45,379,000 as of September 30, 1997) until June 15,
1998. On or prior to June 15, 1998, EQK must refinance the Center. There can be
no assurance that EQK will be able to refinance such mortgage debt upon terms
which are the same or more favorable than the terms under which the mortgage
debt is currently financed. In the event that EQK is unable to obtain favorable
refinancing terms, EQK's operating expenses will increase and EQK's results of
operations may be adversely affected. If a refinancing cannot be obtained, EQK
may be compelled to sell the Center on disadvantageous terms.

RATIO OF EARNINGS TO FIXED CHARGES

The following table summarizes the ratio of ART's earnings to
combined fixed charges and preferred stock dividends for each of the five fiscal
years of ART ended December 31, 1996:

Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----

RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS * * * * *

* Earnings were inadequate to cover fixed charges and preferred stock dividends
by $4,819,000, $189,000, $1,390,000, $4,923,000 and $7,117,000 in 1996, 1995,
1994, 1993 and 1992, respectively.

USE OF PROCEEDS

Neither ART nor EQK will receive any cash proceeds from the
Merger. ART plans to hold the EQK Shares that it receives as the ART Merger
Consideration for investment purposes. See "The Proposed Merger and Related
Matters -- Purposes of the Merger".

-19-

THE EQK ANNUAL MEETING

INTRODUCTION

This Prospectus/Proxy Statement is being furnished in connection
with the solicitation of proxies by the EQK Board for use in connection with the
EQK Annual Meeting and any adjournments or postponements of such meeting.

It is anticipated that the mailing of this Prospectus/Proxy
Statement to EQK Shareholders will commence on _________ __, 1998.

DATE, TIME AND PLACE OF MEETINGS

The EQK Annual Meeting is scheduled to be held at the corporate offices of
EQK, 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia on ________ __,
1998 at 9:00 a.m. Eastern Standard Time.

MATTERS TO BE CONSIDERED AT THE EQK ANNUAL MEETING

At the EQK Annual Meeting, the EQK Shareholders, voting together
as a single class, will be asked to consider and vote upon the Proposals. The
Board Election Proposal will require the affirmative vote of EQK Shareholders
representing a majority of the total votes authorized to be cast by EQK Shares
then outstanding which are present at the EQK Annual Meeting in person or by
proxy and entitled to vote thereon. The Merger-Related Proposals will each
require the Requisite Shareholder Approval. None of the Merger-Related Proposals
will take effect unless all such proposals receive the Requisite Shareholder
Approval.

RECORD DATE AND VOTE REQUIRED

The EQK Board has fixed the close of business on ________ __, 1997
as the EQK Record Date for the EQK Annual Meeting. As of such date, there were
_________________ EQK Shares issued and outstanding.

The presence, in person or by proxy, of EQK Shareholders owning
EQK Shares representing a majority of all the votes entitled to be cast by EQK
Shareholders at the EQK Annual Meeting is necessary to constitute a quorum at
such meeting.

The Board Election Proposal will require the affirmative vote of
EQK Shareholders representing a majority of the total votes authorized to be
cast by EQK Shares then outstanding which are present at the EQK Annual Meeting
in person or by proxy and entitled to vote thereon. The Merger-Related Proposals
will each require the Requisite Shareholder Approval. None of the Merger-Related
Proposals will take effect unless all such proposals receive the Requisite
Shareholder Approval. ERPM and Greenspring have agreed to vote their EQK Shares
in favor of the Merger-Related Proposals. The number of affirmative votes
required for approval of the Proposals at the EQK Annual Meeting is also
described above under "--Matters to be Considered at the EQK Annual Meeting."

As of November 1, 1997, Trustees and executive officers of EQK as
a group beneficially held outstanding EQK Shares representing less than 1% of
all the votes entitled to be cast by EQK Shareholders at the EQK Annual Meeting
and each such person has advised ART that he or she intends to vote to approve
and adopt the Proposals.

A proxy may indicate that all or a portion of the shares
represented by such proxy are not being voted with respect to a specific
proposal. This could occur, for example, when a broker is not permitted to vote
shares held in street name on certain proposals in the absence of instructions
from the beneficial owner. Such broker non-votes and abstentions will be
considered as not present and entitled to vote on such proposal, even though
such shares will be considered present for purposes of determining a quorum and
voting on other proposals. BECAUSE APPROVAL OF THE MERGER-RELATED PROPOSALS AT
THE EQK ANNUAL MEETING REQUIRES THE AFFIRMATIVE VOTE OF THREE QUARTERS OF THE
OUTSTANDING EQK SHARES AS DESCRIBED MORE FULLY ABOVE IN "--MATTERS TO BE
CONSIDERED AT THE EQK ANNUAL MEETING," ANY BROKER NON-VOTES OR ABSTENTIONS ON
THE PROPOSALS WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER-RELATED
PROPOSALS AND ACCORDINGLY WILL AFFECT WHETHER THE MERGER-RELATED PROPOSALS
WILL BE APPROVED.

PROXY

Enclosed is a form of proxy which should be completed, dated,
signed and returned by each EQK Shareholder before the EQK Annual Meeting to
ensure that such stockholder's shares will be voted at such meeting. Any EQK
Shareholder signing and delivering a proxy

-20-

33
has the power to revoke the proxy at any time prior to its use by filing with
the corporate secretary of EQK a written revocation of the proxy or a duly
executed proxy bearing a later date or by attending and voting in person at the
meetings.

Shares represented by a properly executed proxy will be voted in
accordance with the instructions indicated on such proxy with respect to the
proposal at the EQK Annual Meeting, and at the discretion of the proxy holders
on all other matters to come properly before such meeting. If an EQK Shareholder
executes a proxy with no instructions indicated thereon, shares represented by
such proxy will be voted in favor of the Proposals.

SOLICITATION OF PROXIES

ART will bear the expense of the proxy solicitation. ART has
retained Shareholder Communications Corporation (the "Proxy Solicitor") to act
as proxy solicitor in connection with the Merger. The Proxy Solicitor may
contact EQK Shareholders by mail, telephone, telex, telegraph and personal
interviews and may request brokers, dealers and other nominee stockholders to
forward the proxy materials to beneficial owners of EQK Shares. The Proxy
Solicitor will receive a fee estimated not to exceed $9,500 for such services,
plus reimbursement of out-of-pocket expenses, and ART will indemnify the Proxy
Solicitor against certain liabilities and expenses in connection with the
Merger, including liabilities under federal securities laws. The telephone
number of the Proxy Solicitor is 1-800-221-5724.

OTHER MATTERS

The EQK Board of Trustees knows of no matters, other than those
described in this Prospectus/Proxy Statement, which are to be brought before the
EQK Annual Meeting. However, if any other matters properly come before such
meeting, it is the intention of the persons named in the enclosed form of proxy
to vote such proxy in accordance with their judgment on such matters.

THE BOARD ELECTION PROPOSAL

At the EQK Annual Meeting, the EQK Shareholders, voting together
as a class, will be asked to consider and vote upon the Board Election Proposal.
The Board Election Proposal will require the affirmative vote of EQK
Shareholders representing a majority of the total votes authorized to be cast by
EQK Shares then outstanding which are present at the EQK Annual Meeting in
person or by proxy and entitled to vote thereon.

The current members of the EQK Board are described below. The term
of office of each member of the EQK Board expires at the 1998 annual meeting of
the EQK Board or when the respective successor is elected and qualifies.

Sylvan M. Cohen, age 82, has been a Trustee since 1988.
Mr. Cohen has been Chairman, Chief Executive Officer, and Trustee
of Pennsylvania Real Estate Investment Trust, an American Stock
Exchange-listed real estate investment trust, since 1994 and was
President and Trustee since its inception in 1960. Mr. Cohen has
been Of Counsel to the law firm Drinker Biddle & Reath since 1995.
For more than five years prior thereto, Mr. Cohen was a partner in
the Philadelphia law firm of Cohen, Shapiro, Polisher, Shiekman
and Cohen. Mr. Cohen is formerly a director of Fidelity Bank,
Philadelphia, Pennsylvania, and is currently a director of FPA
Corporation, an American Stock Exchange-listed real estate
development company. Mr. Cohen was a managing trustee of Arbor
Property Trust, a NYSE-listed real estate investment trust and
successor in interest to EQK Green Acres, L.P., until December
1997. He formerly served as President of the National Association
of Real Estate Investment Trusts and the International Council of
Shopping Centers.

Alton G. Marshall, age 75, has been a Trustee since the
Trust's inception in 1985. Mr. Marshall has been President of
Alton G. Marshall Associates, Inc. a New York City real estate
investment firm since 1971. He was formerly a Senior Fellow of
the Nelson A. Rockefeller Institute of Government in Albany, New
York. He was also Chairman of the Board and Chief Executive
Officer of The Lincoln Savings Bank, FSB from March 1984 through
December 1990. From 1971 to 1981, he was President of the
Rockefeller Center, Inc., a real estate, manufacturing and
entertainment company. Mr. Marshall is currently a director of
the Hudson River Trust and the New York State Electric & Gas
Corp., and was a managing trustee of Arbor Property Trust until
December 1997. He is an independent partner of Equitable Capital
and Equitable Capital Retirement Fund.

-21-

34
George R. Peacock, age 73, has been a Trustee since 1988.
Mr. Peacock has been sole-owner and President of Carluke, Inc., a
real estate investment consulting firm, since 1988. Mr. Peacock
had retired from ERE, a wholly-owned subsidiary of Equitable in
August 1988 after serving as Chairman and Chief Executive
Officer. Mr. Peacock is a past member of Equitable's Investment
Policy Committee. Prior to his retirement, he was also a Senior
Vice President of Equitable for approximately twelve years. He is
also a former director of ERE and was a managing trustee of Arbor
Property Trust until December 1997.

Phillip E. Stephens, age 49, has been a Trustee since
1990. Mr. Stephens is currently a consultant to ERE and Mr.
Stephens was Chairman and Chief Executive Officer of Compass,
a subsidiary of ERE, from February 1996 to June 1997 and was
President and Chief Executive Officer from January 1992 to January
1996. Mr. Stephens was Executive Vice President of Compass from
January 1990 to December 1991. He has also served as President of
ERPM, EQK's advisor and a wholly-owned subsidiary of ERE,
from December 1989 to June 1997. Prior to that date and since
October 1987, he was President of EQK Partners, the predecessor
in interest to ERPM. Prior to that date and since its inception
in September 1983, he was Senior Vice President and subsequently
President of EQK Partners. Mr. Stephens was also a managing
trustee of Arbor Property Trust until December 1997.

Robert C. Robb, Jr., age 51, has been a Trustee since
1991. Mr. Robb has been President of and partner in the
management and financial consulting firm of Lewis, Eckert, Robb &
Company since 1981. Mr. Robb is currently a director of PNC Bank,
N.A., Pittsburgh, Pennsylvania, Tamaqua Cable Products Company,
and Brynwood Partners, and is a former director of Brinks, Inc.
of Darien, Connecticut.

Subject to Requisite Shareholder Approval of the Merger-Related
Proposals, upon completion of the Merger, pursuant to the Merger Agreement, all
of the members of the then current EQK Board, other than Mr. Robb, will resign
and the related vacancies shall be filled with (i) one independent person
designated by ART (such person is referred to as the "ART Independent Trustee"),
and (ii) three persons designated by ART who are affiliated with ART or its
affiliates (such three persons are referred to herein as the "ART Affiliated
Trustees" and, together with the ART Independent Trustee, the "ART Designated
Trustees"). In addition, at the time the ART Designated Trustees take office
(the "Initial Board Change"), and at each election of the EQK Board until ART
acquires more than 80% of the EQK Shares, ART agrees to nominate (or cause to be
nominated and vote all of its EQK Shares for the election of) or, at the time of
the Initial Board Change, cause the ART Designated Trustees to elect (i)
William G. Brown, Jr. and Gregory R. Greenfield (who together with their

successors are referred to herein as the "Non-ART Affiliated Trustees"), and
(ii) Robert C. Robb (who together with his successor is referred to as the
"Non-ART Independent Trustee" and, together with the Non-ART Affiliated
Trustees, the "Non-ART Designated Trustees"). The ART Designated Trustees and
the Non-ART Designated Trustees shall constitute the new seven member board of
EQK (the "New EQK Board"). The ART Independent Trustee and the Non-ART
Designated Trustees are collectively referred to herein as "Unaffiliated
Trustees". ART currently intends to designate Thomas A. Holland, A. Cal Rossi,
Jr. and Cooper B. Stuart as the ART Affiliated Trustees and Al Gonzalez as the
ART as the ART Independent Trustee. To the extent that the current Unaffiliated
Trustees are unwilling or unable to continue to serve as Trustees of EQK, their
successors will generally be nominated by the remaining Unaffiliated Trustees.
See "The Declaration Amendment Proposal -- Revision of Trustee Provisions".

Set forth below are descriptions of the members of the proposed
New EQK Board, other than Mr. Robb whose description is set forth above.

Thomas A. Holland, age 55, has served ART as Executive
Vice President and Chief Financial Officer since August 1995, and
Senior Vice President and Chief Accounting Officer from July 1990
to August 1995. Mr. Holland has also served BCM, Syntek Asset
Management, Inc. ("SAMI"), CMET, IORI and TCI as Executive Vice
President and Chief Financial Officer since August 1995 and Senior
Vice President and Chief Accounting Officer from July 1990 to
August 1995. He has been Secretary of CMET, IORI and TCI since
February 1997. Mr. Holland was Senior Vice President and Chief
Accounting Officer of National Income Realty Trust and Vinland
Property Trust from July 1990 to February 1994. His other previous
positions include Vice President and Controller from December 1986
to June 1990 of Southmark, Vice President-Finance from January
1986 to December 1986 of Diamond Shamrock Chemical Company,
Assistant Controller from May 1976 to January 1986 of Maxus Energy
Corporation (formerly Diamond Shamrock Corporation), and Trustee
from August 1989 to June 1990 of Arlington Realty Investors. Mr.
Holland has been a Certified Public Accountant since 1970.

-22-

35
A. Cal Rossi, Jr., age 60, currently serves as Executive
Vice President and Director of Capital Markets at BCM. He joined
BCM as a permanent employee on March 1, 1996. Mr. Rossi is the
President of the Rossi Group of Companies and has created
world-class hotels and resorts throughout the United States.

Cooper B. Stuart, age 45, currently serves as Executive
Vice President at BCM, where he commenced employment in early
1994. Mr. Stuart currently works in the Capital Markets area of
BCM where he is principally involved in both debt and equity
transactions including public offerings. Mr. Stuart was also
Managing Director of InveQuest Realty Corporation. He was also
President of InveQuest Ventures, Inc., InveQuest Incorporated and
its subsidiary, InveQuest Properties, Inc., and a General Partner
of numerous real estate syndications involving land, office and
apartment development. Mr. Stuart served as Senior Vice President
of First Financial Equities Corporation from 1988 to 1989. Mr.
Stuart is a licensed real estate broker and worked for Moore Myers
& Associates from 1980 to 1981. He was employed by Xerox
Corporation as a sales executive in the New York and Connecticut
areas from 1975 to 1979.

Al Gonzalez, age 60, has served ART as a Director since
1989. He has been the President of AGE Refining, Inc., a
petroleum refining and marketing firm, since March 1991. Mr.
Gonzalez served as President of Moody-Day Inc., which sells and
leases construction equipment and supplies, from January 1988 to
March 1991. He is the owner and President of Gulf-Tex
Construction Company and the owner and lessor of two restaurant
sites in Dallas, Texas. Mr. Gonzalez has served as a Director of
Avecelle, Inc. since April of 1990. He also served as a Director
of Greenbriar Corp., formerly Medical Resource Companies of
America from 1988 to 1992. Mr. Gonzalez served as a member of the
Dallas City Council from 1987 through 1989,

William G. Brown, Jr., age 42, is an Executive Vice
President with ERE and was an Executive Vice President and Chief
Financial Officer of Compass from February 1996, to June 1997
and was Senior Vice President and Chief Financial Officer from
January 1992 through January 1996. Mr. Brown was Vice President

of the Compass Retail division of Equitable Real Estate from
March 1990 to December 1991. He has also served as a Vice
President of ERPM since March 1990. Prior to that date and
since November 1988, he was Vice President and Chief Financial
Officer of Envirosafe Services, Inc., a hazardous waste management
company. Mr. Brown joined Envirosafe in July 1987. From 1981 to
1987, he held financial management positions with IU International
Corporation, and from 1978 to 1981, he was associated with the
accounting firm of Coopers & Lybrand.

Gregory R. Greenfield, age 41, is an Executive Vice
President with ERE and was the President and Chief Operating
Officer of Compass from February 1996 to June 1997, and was
Executive Vice President and Chief Operating Officer from January
1992 to January 1996. Mr. Greenfield was Senior Vice President of
the Compass division of ERE from January 1990 to December 1991. He
has also served as Vice President and Treasurer of ERPM since
December 1989. Prior to that date and since November 1988, he was
Senior Vice President, General Counsel and Secretary of EQK
Partners. Mr. Greenfield joined EQK Partners in June 1984. From
1981 to 1984, he was associated with the law firm of Wolf, Block,
Schorr and Solis-Cohen LLP.

A committee of the New EQK Board consisting solely of the ART
Independent Trustee and the Non-ART Designated Trustees shall approve (i)
transactions between EQK and ART and any of their respective affiliates and
other related persons (other than transactions between related parties pursuant
to the New Advisory Agreement), and (ii) any amendments to EQK's organizational
documents.

-23-

36
THE PROPOSED MERGER AND RELATED MATTERS

BACKGROUND OF THE MERGER

On March 5, 1996, Mr. Doug Tibetts, President of Equitable,
(formerly the indirect parent of ERPM which holds 1,685,556 EQK Shares), met
with ART representatives at ART's office in Dallas. The meeting was general in
nature without a formal agenda. Mr. Tibetts suggested that representatives of
ART speak with Mr. Gregory R. Greenfield, Executive Vice President and Treasurer
of EQK, concerning the possible sale of EQK. During March and April of 1996,
various telephone conversations were held between Mr. Cooper B. Stuart, an
Executive Vice President of BCM, and Mr. Greenfield regarding the Center and a
possible transaction involving EQK.

In August of 1996, Messrs. Stuart and Greenfield had various
additional discussions regarding the possible sale of EQK. Mr. Greenfield
informed Mr. Stuart that EQK needed to focus on completing the sale of certain
properties and Messrs. Stuart and Greenfield agreed to discontinue their
discussions until the beginning of 1997.

On January 23, 1997, representatives of ART held a meeting with
Mr. William G. Brown, Vice President and Controller of EQK, and Mr. Greenfield
to discuss a proposed exchange offer by ART with respect to the EQK Shares. EQK
agreed to engage Legg Mason, Wood Walker, Incorporated ("Legg Mason") to review
the fairness of the proposed exchange offer for the EQK Board.

On February 20, 1997, Mr. Stuart and Mr. Cal A. Rossi Jr., an
Executive Vice President of BCM, met with Messrs. Greenfield and Brown to
discuss the specifics and structure of the proposed exchange offer.

On March 6, 1997, ART and EQK entered into a cost sharing
agreement with respect to the proposed exchange offer. Under the terms of such
agreement, (i) if ART and EQK do not execute a definitive agreement, EQK's
liability would shall be limited to the lesser of 50% of the actual transaction
costs or $50,000 and ART shall be responsible for all additional transaction
costs, (ii) if ART and EQK agree upon the terms of and execute a definitive
agreement and proceed in good faith to complete the proposed transaction, but
are unsuccessful in this effort by reason of inadequate shareholder response to
the related proxy statement or otherwise, EQK's liability shall be limited to
the lesser of 50% of the actual transaction costs or $100,000, and ART shall be
responsible for all additional transaction costs, and (iii) if the proposed
transaction is ultimately initiated and successfully achieves the desired
shareholder exchange in accordance with the terms of a definitive agreement,
EQK's liability shall be limited to the lesser of 50% of the actual transaction
costs or $150,000, and ART shall be responsible for all additional transaction
costs.

On March 24, 1997, representatives of Legg Mason visited ART's
offices to interview key personnel of both ART and BCM.

During April 1997, discussions continued between representatives
of ART and EQK concerning the terms of the ART Preferred Shares, the terms of
the proposed tender offer and the fairness opinion. On April 11, 1997, BCM
received from EQK a copy of a draft appraisal prepared by Landauer Associates,
Inc. ("Landauer") with respect to the leasehold interests in the Center. On May
7, 1997, Legg Mason orally issued a fairness opinion with respect to the terms
of the proposed exchange offer. The EQK Board met on May 7, 1997 and approved
the terms of the proposed exchange offer from ART to the EQK Shareholders.

On June 10, 1997, Lend Lease Corporation Acquired ERE, including
its subsidiaries, ERPM and Compass. In connection with such acquisition, the
ownership of ERPM's EQK Shares was transferred for tax purposes, thus
effectively limiting the number of EQK Shares that could be acquired by ART in
an exchange offer without limiting the availability of EQK's NOLs. As a result,
during June and July of 1997, Mr. Stuart and Mr. Brown held further discussions
regarding a proposed change in the structure of the transaction from an exchange
offer to a merger and two separate stock purchases between ART and the 5%
Holders who had acquired or experienced a change in ownership in EQK Shares
during the past three years.

On July 9, 1997, ART and EQK entered into a revised cost sharing
agreement that reflected the change in the proposed structure of the
transaction from an exchange offer to a merger. The terms and conditions of the
revised cost sharing agreement remained substantially the same.

-24-

37
During August and September 1997, Legg Mason evaluated the revised
structure of the transaction and suggested that the consideration to be paid to
ERPM and Greenspring in connection with the Block Purchase should be reduced to
the 0.185 shares of ART Preferred Stock that is the consideration being paid for
the Block Purchase. On September 30, 1997, Legg Mason orally issued a revised
fairness opinion with respect to the proposed Merger.

On September 30, 1997 and November 13, 1997, the EQK Board and the
ART Board, respectively, approved the terms of the Merger Agreement.

On December 24, 1997, ART and EQK issued a joint press release
to the effect that a definitive agreement for the Merger had been signed.

GENERAL

The following description of the Merger and the Merger Agreement
does not purport to be complete and is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached as Appendix B to this
Prospectus/Proxy Statement and incorporated herein by reference. EQK
Shareholders are urged to read the Merger Agreement in its entirety.

EFFECTS OF THE MERGER

The Merger Agreement provides that, subject to the Requisite
Shareholder Approval of the Merger-Related Proposals and the satisfaction or
waiver of the other conditions to the Merger, ART Newco will be merged with and
into EQK, whereupon the separate existence of ART Newco will cease and EQK will
be the surviving corporation of the Merger. At the Effective Time (as defined
below), the payment of the EQK Merger Consideration will be effected as
described below. The Amended Declaration of Trust and the Trustees' Regulations,
as in effect at the Effective Time, will continue to be the Declaration of Trust
and Trustees' Regulations of EQK after consummation of the Merger. Following
completion of the Merger, the New EQK Board will be comprised of the individuals
identified above in "--The Board Election Proposal."

EFFECTIVE TIME OF THE MERGER

Following the adoption of the Merger Agreement by the EQK
Shareholders and subject to satisfaction or waiver of the terms and conditions
thereof, the Merger will become effective upon the filing of a Certificate of
Merger filed with the Secretary of the Commonwealth of Massachusetts at the
Effective Time.

TERMS OF THE MERGER

At the Effective Time, ART will pay the EQK Merger Consideration
to the EQK Shareholders and EQK will pay the ART Merger Consideration to ART.

Following the Effective Time, American Stock Transfer and Trust
Company, which will act as Merger Agent (the "Merger Agent") in connection with
the Merger, shall distribute or shall cause the Dealer Manager to distribute the
EQK Merger Consideration to each EQK Shareholder of record. In addition,
following the Effective Time, EQK will distribute the ART Merger Consideration
to ART. No interest will be paid or accrued on the Merger Consideration. No EQK
Shareholder will be entitled to dividends or other rights in respect of any
fractional interests. See "--Cash in Lieu of Fractional Shares of ART Preferred
Shares."

ART or the Merger Agent shall be entitled to deduct and withhold
from the EQK Merger Consideration otherwise payable pursuant to the Merger
Agreement to any EQK Shareholder such amounts as ART or the Merger Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by ART or the Merger Agent, such withheld amounts
shall be treated for all purposes as having been paid to the holder of the EQK
Shares in respect of which such deduction and withholding was made by ART or the
Merger Agent. See "The Proposed Merger and Related Matters -- Certain Federal
Income Tax Consequences".

None of ART, ART Newco, EQK or the Merger Agent shall be liable to
any person in respect of any EQK Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.

-25-

38
The ART Preferred Shares to be issued to EQK Shareholders in
connection with the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who may be deemed to be an "affiliate" of
ART or EQK within the meaning of Rule 145 under the Securities Act. It is
expected that the affiliates of ART and EQK will be able to sell such shares
without registration in accordance with the applicable limitations of Rule 145
under the Securities Act.

CASH IN LIEU OF FRACTIONAL SHARES OF ART PREFERRED SHARES

No certificates representing fractional shares of ART Preferred
Shares will be issued pursuant to the Merger. In lieu thereof, each EQK
Shareholder who would otherwise be entitled to a fractional ART Preferred Share
will receive, on the date the EQK Merger Consideration is paid to such EQK
Shareholder, cash in an amount equal to such fraction (expressed as a decimal
and rounded to the nearest 0.01 of a share) multiplied by the Liquidation Value
of an ART Preferred Share.

AVAILABILITY OF APPRAISAL RIGHTS

The EQK Board has been advised that no statutory appraisal rights
are available to EQK Shareholders in connection with the Merger under
Massachusetts law. However, in at least one case, the Massachusetts Supreme
Judicial Court held that shareholders of a merging corporation were entitled to
common law appraisal rights. Neither ART nor EQK believes that the Merger would
give rise to such common law appraisal rights. However, any EQK Shareholder may,
by written notice prior to the EQK Annual Meeting, assert his or her entitlement
to common law dissenter's appraisal rights. EQK intends to oppose any such
assertion of such rights. In the event that holders of more than 3% of the
outstanding EQK Shares asserts common law dissenter's appraisal rights, the
Merger Agreement may be terminated.

All written notices of an EQK Shareholders's assertion of common
law dissenter's appraisal rights with respect to the Merger, if any, should be
addressed to: EQK Realty Investors I, Inc., 5775 Peachtree Dunwoody Road, Suite
200D, Atlanta, Georgia 30342, Attention: Secretary, and should be executed by,
or with the consent of, the holder of record. In the notice, the EQK
Shareholders' name should be stated as it appears on his or her stock
certificates(s). If the EQK Shares are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, such notice should be executed by
or for the fiduciary. If the EQK Shares are owned of record by or for more than
one person, as in a joint tenancy or tenancy in common, such notice should be
executed by or for all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the notice for an EQK Shareholder of
record; however, the agent should identify the record owner(s) and expressly
disclose the fact that, in sending the notice, he is acting as agent for the
record owners.

CONDITIONS TO THE MERGER; TERMINATION; WAIVER AND AMENDMENT

In addition to the Requisite Shareholder Approval, the obligations
of ART Newco on the one hand and EQK on the other to consummate the Merger are
subject to the satisfaction or waiver of certain other conditions including,
among others: (i) the consummation of the Block Purchase, (ii) the execution by
each 5% Holder (other than ART or its affiliates) of a Standstill Agreement,
(iii) the approval of the ART Preferred Shares for listing on the NYSE, subject
to official notice of issuance, (iv) no stop order suspending the effectiveness
of the Registration Statement having been issued and no proceedings for that
purpose having been initiated or threatened by the Commission, (v) no order,
injunction or decree having been issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger, (vi) the receipt by ART and EQK of all required material
governmental authorizations, permits, consents, orders or approvals, the failure
to obtain which could reasonably be expected to have a material adverse effect
on EQK or ART, (vii) the receipt of all licenses, permits, consents, approvals
and authorizations from all third parties and governmental bodies and agencies
which are necessary in connection with consummation of the Merger and the
conduct of EQK's business after the Merger, (viii) EQK operating in all respects
in its ordinary course of business without any material adverse change in its
business, properties or financial condition subsequent to the date of the Merger
Agreement, (ix) the receipt by ART of written resignations from all members of
the current EQK Board, other than Mr. Robb, and (x) the number of outstanding
EQK Shares immediately prior to the Merger being 9,264,344, plus any additional
EQK Shares issued upon the exercise of the Prudential Warrants.

The obligations of ART to consummate the Merger are subject to the
satisfaction or waiver of certain other conditions including, among others: (i)
the continuing accuracy in all material respects of the representations and
warranties made by EQK in the Merger Agreement; (ii) the performance in all
material respects of all agreements and covenants to be performed by EQK or ERPM
under the Merger Agreement; (iii) the receipt of certain opinions of counsel;
(iv) the exercise in full, termination or cancellation of any options or
warrants (or other derivative or convertible interests in the equity securities
of EQK) for EQK

-26-

39
Shares, including the Prudential Warrants, and (v) there having been no change
in EQK's business, results of operations or financial condition which would
have a material adverse effect on EQK.

The obligations of EQK to consummate the Merger are subject to the
satisfaction or waiver of certain other conditions including, among others: (i)
the continuing accuracy in all material respects of the representations and
warranties made by ART in the Merger Agreement; (ii) the performance in all
material respects of all agreements and covenants to be performed by ART under
the Merger Agreement; and (iii) there having been no change in ART's business,
results of operations or financial condition had occurred which would have a
material adverse effect on ART.

The Merger Agreement may be terminated and the Merger abandoned
prior to the Effective Time, whether before or after the Requisite Shareholder
Approval: (i) by mutual written consent of ART and EQK; (ii) by ART Newco or
ART, on or after June 30, 1998, if any of the conditions precedent to ART or ART
Newco's obligations under the Merger Agreement have not been met or, to the
extent permitted by applicable law, have not been waived in writing by ART or
ART Newco prior to such date, (iii) by EQK on or after June 30, 1998, , if any
of the conditions precedent to EQK's obligations under the Merger Agreement have
not been met or, to the extent permitted by applicable law, have not been waived
in writing by EQK prior to such date, or (iv) by EQK upon a Negative
Determination by the EQK Board.

ART and EQK may, by an appropriate instrument executed at any time
prior to the Effective Time, whether before or after the Requisite Shareholder
Approval is obtained, amend the Merger Agreement; provided that after the
receipt of such approvals, no amendment or modification may be made which alters
the amount or changes the form of the EQK Merger Consideration or ART Merger
Consideration.

The parties to the Merger Agreement may also, at any time prior to
the Effective Time, by action taken by its Board of Directors or Trustees, as
applicable: (i) extend the time for the performance of any of the obligations or
other acts of the other party; (ii) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto and (iii) subject to limitations on
amendment, waive compliance with any of the agreements or conditions contained
in the Merger Agreement to the extent permitted by law.

NO SOLICITATION; BOARD ACTION; FEES AND EXPENSES

The Merger Agreement provides that EQK and those acting on its
behalf will not solicit, encourage, or initiate any discussions with, or provide
any information to, any person or entity other than ART and its officers,
employees, agents and advisers, concerning any merger, sale of substantial
assets, or similar transaction involving EQK, or any sale of any of the EQK
Shares (other than pursuant to the exercise of fiduciary duties by of the EQK
Board to the EQK Shareholders and in connection with the Block Purchase as
described herein). EQK must notify ART in writing of all of the relevant details
relating to all inquiries and proposals which it may receive relating to any of
such matters.

None of the foregoing shall prohibit any conduct in a manner in
keeping with the ordinary conduct of EQK's business, providing information to
others as required to satisfy the fiduciary obligations of EQK's Trustees, or
providing information to government authorities.

CONDUCT OF EQK'S BUSINESSES PENDING COMPLETION OF THE MERGER

The Merger Agreement provides that, prior to the Effective Time or
the termination of the Merger Agreement pursuant to its terms, unless ART shall
otherwise consent in writing, EQK will conduct its operations according to its
ordinary and usual course of business and will not (i) enter into or agree to
any transaction outside the ordinary course of business, (ii) incur any
additional indebtedness for borrowed money except pursuant to existing lines of
credit and in the ordinary course of business, (iii) pay dividends on or make
other distributions or payments in respect of its capital stock, (iv) issue any
additional equity securities or rights therefor (except upon the exercise of any
outstanding warrants), (v) increase or agree to increase the salary,
compensation, bonus or benefits of any officer, Trustee or employee of EQK other
than in the ordinary course of business (except for reasonable consideration to
be granted to Trustees upon their retirement from the EQK Board) or (vi) sell or
otherwise dispose of any of its properties other than in the ordinary course of
business.

-27-

40
ART'S PURPOSES FOR THE MERGER

ART intends to acquire an aggregate of 7,074,117 EQK Shares
pursuant to the Block Purchase and the Merger primarily for the purpose of
investment and the Merger is based principally on the opinion of the ART Board
that the EQK Shares are currently undervalued as compared to the value of its
sole asset, the Center, and the value of its net operating losses (the "NOLs")
which are approximately $92,000,000. In addition, the ART Board believes that
the listing of the ART Preferred Shares on the NYSE in connection with the
Merger will provide ART with greater access to the public capital markets for
future acquisition transactions. Assuming market conditions, industry conditions
and EQK's business and financial condition do not suffer adversely in the
interim, it is currently ART's intention (but not obligation) to seek to acquire
(a) up to 50% of the remaining outstanding EQK Shares at some time after the
third anniversary of the consummation of the Merger and (b) any remaining
outstanding EQK Shares at some time thereafter for consideration of either (i)
cash in an amount equal to at least $1.00 per currently outstanding EQK Share,
or (ii) a combination of (A) cash in an amount equal to at least $0.27 per
currently outstanding EQK Share and (B) 0.123 of an ART Preferred Share (with a
Liquidation Value of $1.23) per currently outstanding EQK Share.
Notwithstanding the foregoing, ART is not obligated to make any further
acquisitions of EQK Shares and no assurance can be given that ART will make any
such acquisitions in the future. In addition, any such acquisitions may be for
a consideration per EQK Share which is greater or less than the consideration
offered in the Merger or set forth above.

THE EQK BOARD RECOMMENDATION

The EQK Board believes that the Merger is fair to, and in the best
interests of, EQK and the holders of EQK Shares. By unanimous vote, the EQK
Board approved the Merger and the transactions contemplated thereby and
unanimously recommend that the EQK Shareholders approve the Merger.

In approving the Merger Agreement and determining to recommend
that the EQK Shareholders approve the Merger, the EQK Board considered certain
information, including primarily the following:

(i) The financial condition, results of operations,
business and prospects of EQK.

(ii) Certain publicly available information regarding
the financial condition, results of operations,
business and properties of ART.

(iii) The Legg Mason Opinion (as defined below under
"--Opinion of the Financial Advisor") which sets
forth certain assumptions made, matters
considered and limits of the review by Legg Mason
in rendering its opinion, to the effect that as
of the date of the Legg Mason Opinion the
proposed Merger Consideration to be received by
the EQK Shareholders in the Merger is fair to
such holders from a financial point of view, and
the analyses of Legg Mason in reaching its
opinion, as described below under "--Opinion of
Financial Advisor." A copy of the Legg Mason
Opinion is attached as Appendix C and EQK
Shareholders are urged to read the Legg Mason
Opinion carefully in its entirety.

The following factors were deemed by the EQK Board to be reasons
supporting its recommendation that the EQK Shareholders approve the Merger.

(i) Based upon available information, the Merger Consideration
appeared to represent, in the judgment of the EQK Board,
the highest available overall return to EQK Shareholders
as compared to the return that might be realized by
selling the Center and liquidating EQK currently or within
approximately the next 12 to 18 months. Furthermore, the
Merger Consideration is based upon, in the judgment of the
EQK Board, the value of EQK as an entity, and not solely
the value of the Center as a property.

(ii) The Merger-Related Proposals are subject to Requisite
Shareholder Approval.

(iii) As a result of the receipt of the Merger Consideration,
the Merger would allow current EQK Shareholders
effectively to reduce the risk of further declines in the
value of the EQK Shares and the possible future inability
to locate a buyer for the Center or the EQK Shares at a
reasonable price. The current EQK Shareholders will retain
their ability to participate in any future increases in
value of the Center, subject to the reduction in the
percentage of EQK Shares held by the Public EQK
Shareholders resulting from the issuance of EQK Shares to
ART pursuant to the Merger.

-28-

41
(iv) The Merger has been structured to preserve the
availability of EQK's accumulated NOLs, although the EQK
Board recognizes that there is no assurance that some or
all of such availability will not be lost as a result of
future changes in the ownership of EQK Shares or
otherwise.

(v) The ART Preferred Shares received as part of the Merger
Consideration will entitle the recipients thereof to
quarterly dividend payments commencing on October 15,
1998, whereas the EQK Shares have not been paying
dividends, and the ART Preferred Shares will represent an
equity interest in an entity with a greater net worth than
that of EQK.

(vi) The affiliation of EQK with ART that will result from the
Merger may provide EQK with improved ability to negotiate
a refinancing of EQK's debt to Prudential and to pursue
development opportunities related to the Center, although
there can be no assurance of this.

(vii) The retention, subsequent to the Merger, of Compass as the
property manager of the Center will encourage continuity
of operations for the Center.

The following factors were deemed by the EQK Board to be reasons
that would weigh against recommending that the EQK Shareholders accept the Offer
(see "Risk Factors" for a further discussion of certain of these
considerations):

(i) The Merger does not represent a complete liquidation for
the EQK Shareholders of all of their EQK Shares, and no
assurance can be given as to the availability of
alternative methods of liquidation for the EQK Shares held
by the Public EQK Shareholders. Accordingly, the current
EQK Shareholders will be at risk of a future decline in
value of the Center and the possible risk that EQK may not
be able to refinance its debt with Prudential upon the
same or more favorable terms than the current financing
arrangement, as well as the likely decline in the trading
price of EQK Shares as a result of the dilution arising
from the issuance of EQK Shares to ART as the ART Merger
Consideration.

(ii) The ART Preferred Shares may not trade at or near their
Liquidation Value. Furthermore, the ART Preferred Shares
will be subject to the risks of ART's business, including
those described under "Risk Factors -- Risks Relating to
ART's Business."

(iii) The execution of Standstill Agreements by certain EQK
Shareholders and the concentration of ownership in ART may
adversely affect the market for EQK Shares.

(iv) The Public EQK Shareholders will, to the extent that their
percentage ownership of EQK Shares is reduced as a result
of the issuance of EQK Shares to ART pursuant to the
Merger, surrender their right to participate in future
earnings or increases in the value of the Center.

(v) ART and BCM and certain of their management personnel had
relationships with Southmark Corporation, which underwent
bankruptcy proceedings beginning in July 1989 and was the
subject of various legal proceedings. For a further
description of such bankruptcy and certain related and
other legal proceedings, see the discussion under the
caption "Description of ART." See "Risk Factors --
Potential Risks Associated With Affiliate of Controlling
Shareholder of New Advisor."

(vi) Certain conflicts of interest exist with regard to the
approval of the Merger-Related Transactions and the
resulting control of EQK by ART. See "Risk Factors --
Risks Relating to Merger -- Conflicts of Interest" herein.

The foregoing discussion of the information and factors considered
and given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger
Agreement and the Merger, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.

-29-
42

OPINION OF FINANCIAL ADVISOR

The EQK Board retained Legg Mason to render an opinion to the EQK
Board as to whether the amount of the EQK Merger Consideration to be received by
the Public EQK Shareholders pursuant to the Merger Agreement is fair to such
shareholders from a financial point of view. The EQK Board retained Legg Mason
to act as its advisor based upon Legg Mason's prominence as an investment
banking and financial advisory firm with experience in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate purposes, especially with respect to
REITs and other real estate companies.

On September 30, 1997, Legg Mason delivered its oral opinion to
the EQK Board, which was confirmed in writing on _______, 1998 (the "Legg Mason
Opinion"), to the effect that, as of the applicable date of such opinion, based
on Legg Mason's review and subject to the limitations described below, the
amount of the EQK Merger Consideration to be received by the Public EQK
Shareholders pursuant to the Merger Agreement is fair to them from a financial
point of view. The Legg Mason Opinion addresses only the fairness of the EQK
Merger Consideration from a financial point of view and does not constitute a
recommendation of the Merger Proposal over any other alternative transactions
which may be available to EQK and does not address the underlying business
decision of the EQK Board to proceed with or effect the Merger. Legg Mason was
not requested to, and did not participate in the structuring or negotiating of
the Merger and did not make any recommendation to the EQK Board as to the form
or amount of consideration to be offered to the Public EQK Shareholders in the
Merger. Furthermore, Legg Mason expresses no opinion and makes no
recommendation to any EQK Shareholder as to how such shareholder should vote on
the Merger-Related Proposals.

EQK SHAREHOLDERS ARE URGED TO READ THE LEGG MASON OPINION (A COPY
OF WHICH IS ATTACHED AS APPENDIX C TO THIS PROSPECTUS/PROXY STATEMENT) CAREFULLY
AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND SCOPE AND LIMITATIONS OF THE REVIEWS UNDERTAKEN AND THE
PROCEDURES FOLLOWED BY LEGG MASON IN RENDERING ITS OPINION. THE FOLLOWING
DESCRIPTION OF THE LEGG MASON OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE OPINION.

In rendering this opinion, Legg Mason has, among other things: (i)
reviewed a draft of the Agreement and Plan of Merger to be used in connection
with the Merger; (ii) reviewed a draft in substantially final form of the
Prospectus/Proxy Statement of ART to be filed with the Securities and Exchange
Commission; (iii) reviewed certain historical and pro forma financial and
operating data of EQK, the Center, ART and its affiliates that was available
from public sources or furnished to it by EQK; (iv) analyzed certain publicly
available information concerning the terms of selected merger and acquisition
transactions that it considered relevant to its inquiry; (v) reviewed certain
publicly available financial and stock market data with respect to operating
statistics relating to selected public companies that it deemed relevant to its
inquiry; (vi) held meetings and discussions with certain Trustees, officers and
employees of EQK, ART and its affiliates concerning the operations, financial
condition and future prospects of EQK, ART and its affiliates, as well as the
combined company; (vii) held meetings and discussions with associates of
Landauer, a recognized appraisal firm that has conducted multiple appraisals of
the Center, and reviewed one such appraisal dated March 31, 1997; (viii)
reviewed and discussed with EQK management and its accountants regulations
governing the utilization of NOLs; (ix) conducted site visits of the Center and
held meetings with members of Compass; and (x) conducted such other financial
studies, analyses and investigations and considered such other information as
it deemed appropriate.

In preparing its opinion, Legg Mason relied upon and assumed,
without independent verification, the accuracy and completeness of the financial
and other information provided to it by management of EQK and ART, and further
relied upon the assurances of management that they were unaware of any facts
that would make the information provided to Legg Mason incomplete or misleading.
Legg Mason assumed that the financial forecasts examined by it were reasonably
prepared and reflected the best currently available estimates and good faith
judgments of the managements of EQK, ART and its affiliates as to the future
performance of EQK, ART and its affiliates, respectively. Legg Mason also
assumed, with the consent of EQK, that any material liabilities (contingent or
otherwise, known or unknown) of EQK, ART and its affiliates are as set forth in
the financial statements of EQK, ART and its affiliates, respectively. Legg
Mason has not been requested to make, nor has it made or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
EQK. Legg Mason relied upon the appraisal prepared by Landauer and upon EQK's
counsel for legal matters relevant to the Merger. The Legg Mason Opinion is
necessarily based upon financial, economic, market and other conditions and
circumstances existing and disclosed to Legg Mason as of the date thereof.
Subsequent developments may affect the Legg Mason Opinion, and Legg Mason does
not have any obligation to update, revise or reaffirm the Legg Mason Opinion.

-30-
43

The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant quantitative methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Accordingly, Legg Mason believes that
its analysis must be considered as a whole and that considering any portion of
the analysis and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete picture of the process
underlying the Legg Mason Opinion. Any estimates contained in such analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither EQK, the EQK Board
nor Legg Mason assumes responsibility for the accuracy of such analyses or
estimates. The following paragraphs summarize the significant quantitative and
qualitative analyses performed by Legg Mason in arriving at the Legg Mason
Opinion.

ANALYSIS AND CONCLUSIONS OF FINANCIAL ADVISOR

As background for its analyses, Legg Mason held extensive
discussions with members of senior management of EQK, ART and its affiliates
regarding the history, current business operations, financial condition, future
prospects and strategic objectives of EQK, ART and its affiliates.

In valuing EQK, Legg Mason considered a variety of valuation
methodologies, including (i) an analysis of the historical closing prices and
trading volumes of the EQK Shares; (ii) an analysis of selected publicly traded
regional mall and shopping center REITs; (iii) an analysis of certain
transactions pursuant to which publicly traded REITs have acquired other
publicly traded REITs; (iv) an analysis of certain transactions pursuant to
which publicly traded REITs have acquired certain regional mall or shopping
center properties; (v) a discounted cash flow analysis; and (vi) an analysis of
EQK's current balance of net operating loss carryforwards.

Legg Mason believes that EQK should be valued in terms of the
profitability and cash flow of its operations and therefore focused its analysis
on EQK's and of the Center's earnings before interest, taxes, depreciation and
amortization ("EBITDA"), funds from operations ("FFO"), and cash flow both on a
historical and on a forecasted basis.

In connection with rendering its oral opinion to the EQK Board on
September 30, 1997, Legg Mason performed a variety of financial and comparative
analyses, including those summarized below. Legg Mason updated these analyses
for purposes of rendering its written opinion attached to this Prospectus/Proxy
Statement. Legg Mason's opinion is directed only to the fairness of the amount
of the EQK Merger Consideration to be received by the Public EQK Shareholders
pursuant to the Merger Agreement from a financial point of view. The summary set
forth below does not purport to be a complete description of the analyses
performed and factors considered by Legg Mason in this regard.

EQK MERGER CONSIDERATION ANALYSIS. For purposes of its financial
analysis, Legg Mason used a dollar value range of the EQK Merger Consideration
to be paid to the Public EQK Shareholders of approximately $5.7 million ($0.78
per EQK Share to be held by the Public EQK Shareholders after the Merger (each,
a "Continuing EQK Share")) to approximately $6.1 million ($0.84 per Continuing
EQK Share), with a mean value of approximately $5.9 million ($0.80 per
Continuing EQK Share). Legg Mason assumed that the Continuing EQK Shares will
consist of all currently issued and outstanding EQK Shares (assuming exercise of
the Prudential Warrants) with the exception of approximately 2.3 million
currently issued and outstanding EQK Shares that will be purchased from ERPM and
Greenspring by ART pursuant to the Block Purchase. For purposes of its opinion,
Legg Mason therefore calculated the number of EQK Shares entitled to the EQK
Merger Consideration to be approximately 7.3 million.

The total value of the EQK Merger Consideration to be paid to the
Public EQK Shareholders was obtained by adding (i) the value of the cash
component of the EQK Merger Consideration, or approximately $1.9 million ($0.26
per Continuing EQK Share) and (ii) the value of the ART Preferred Share
component of the EQK Merger Consideration (the "ART Preferred Consideration"),
which ranged in value from approximately $3.8 million ($0.52 per Continuing EQK
share) to approximately $4.2 million ($0.58 per Continuing EQK share), with a
mean of approximately $4.0 million ($0.54 per Continuing EQK share). The range
of values of the ART Preferred Consideration was calculated by first discounting
the streams of quarterly dividend payments and then adding these values to the
net present values of the principal amount, utilizing certain redemption premium
assumptions. Legg Mason utilized a discount rate of 12.5%, which reflects Legg
Mason's assessment of the risks of the business of ART and of the ART Preferred
Consideration. Legg Mason assumed that because the ART Preferred Consideration
cannot be converted by the holder into ART Common Stock for a period of six
years following the closing of

-31-
44

the Merger, at which time its converted value would exceed its redeemable
value, the ART Preferred Consideration would instead be redeemed by ART at some
point prior to six years following the closing of the Merger, and therefore
was valued as a debt instrument rather than equity.

Although Legg Mason evaluated the financial terms of the Merger
and participated in discussions concerning the consideration to be paid, Legg
Mason did not recommend the specific EQK Merger Consideration payable to the
Public EQK Shareholders in the Merger.

PUBLIC MARKET ANALYSIS. Legg Mason analyzed the historical closing
prices and trading volumes of EQK's Common Stock for the twenty day trading
period from August 29, 1997 to September 26, 1997, inclusive. Legg Mason noted
that for the twenty day period, the closing price per EQK Share (the "Pre Merger
Public Market Equity Value per EQK Share") ranged from $1.06 per share to $1.19
per share with a mean closing price (as weighted by daily trading volume) of
$1.07 per share, assuming approximately 9.6 million EQK Shares are outstanding.
Following the Merger and the issuance of approximately 4.7 million new EQK
Shares to ART in connection with the Merger, the adjusted equity value per EQK
Share (the "Post Merger Public Market Equity Value per EQK Share") ranged from
$0.72 per share to $0.80 per share with a mean value (as weighted by daily
trading volume) of $0.72 per share, assuming approximately 14.3 million EQK
Shares outstanding.

By adding the range of values of the EQK Merger Consideration to
the range of values of the Post Merger Public Market Equity Value per EQK Share,
the resulting value per Continuing EQK Share (the "Post Merger Public Market
Investment Value per Continuing EQK Share") ranged from $1.50 per share to $1.64
per share with a mean value of $1.52 per share.

Given that the mean value of the Post Merger Public Market
Investment Value per Continuing EQK Share of $1.52 per share is above the mean
value of the Pre Merger Public Market Equity Value per EQK Share of $1.07 per
share, as derived from the historical closing prices of EQK's Common Stock, Legg
Mason believes that this analysis supports the fairness of the amount of the EQK
Merger Consideration to be received by the Public EQK Shareholders pursuant to
the Merger Agreement from a financial point of view.

SELECTED MULTIPLES ANALYSIS. Legg Mason analyzed selected publicly
traded REITs engaged primarily in the ownership, acquisition and management of
regional mall and shopping center properties (the "Retail REITs"). The Retail
REITs include: CBL & Associates Properties, Inc.; Crown American Realty Trust;
Federal Realty Investment Trust; First Washington Realty Trust; General Growth
Properties, Inc.; Glimcher Realty Trust; JDN Realty Corporation; JP Realty,
Inc.; Kranzco Realty Trust; The Macerich Company; Mid Atlantic Realty Trust;
Simon DeBartolo Group, Inc.; Taubman Centers, Inc.; Urban Shopping Centers,
Inc.; and Weingarten Realty Investors.

Legg Mason compared the total market capitalization (equity market
capitalization plus debt) or equity market capitalization of each of the Retail
REITs with its actual EBITDA and FFO for the trailing twelve months ended June
30, 1997, as well as its 1997 and 1998 projected FFO. Based on closing market
trading prices as of September 26, 1997, the Retail REITs traded in the
following ranges: a range of total market capitalization to trailing twelve
months EBITDA of 9.5x to 14.8x with a mean of 12.4x; a range of equity market
capitalization to trailing twelve months FFO of 7.9x to 14.3x with a mean of
12.1x; a range of equity market capitalization to 1997 projected FFO of 8.0x to
13.5x with a mean of 11.8x; and a range of equity market capitalization to 1998
projected FFO of 7.5x to 12.4x with a mean of 10.9x.

-32-
45

Legg Mason also analyzed certain transactions (the "REIT
Transactions") pursuant to which publicly traded REITs have acquired other
publicly traded REITs (the "Target Companies"). These transactions included
Equity Office Properties Trust's pending acquisition of Beacon Properties
Corporation; Equity Residential Properties Trust's pending acquisition of Evans
Withycombe Residential, Inc.; Post Properties, Inc.'s pending acquisition of
Columbus Realty Trust; Chateau Properties, Inc.'s acquisition of ROC
Communities, Inc.; Equity Residential Properties Trust's acquisition of
Wellsford Residential Properties Trust; Camden Property Trust's acquisition of
Paragon Group, Inc.; Kranzco Realty Trust's acquisition of Union Property
Investors; Patriot American Hospitality, Inc.'s acquisition of California Jockey
and Bay Meadows; United Dominion Realty Trust's acquisition of South West
Property Trust; Simon Property Group, Inc.'s acquisition of DeBartolo Realty
Corporation; Bradley Real Estate, Inc.'s acquisition of Tucker Properties
Corporation; BRE Properties, Inc.'s acquisition of Real Estate Investment Trust
of California; Horizon Group, Inc.'s acquisition of McArthur/ Glen Realty
Corporation; and Wellsford Residential Properties, Inc.'s acquisition of Holly
Residential Properties Trust. Legg Mason did note that none of the REIT
Transactions took place under market conditions or competitive circumstances
that were directly comparable to those of the Merger, and each of the Target
Companies is distinguishable from EQK in certain respects.

Legg Mason compared the purchase price paid (or to be paid in the
cases of the pending transactions) in each REIT Transaction with the latest
twelve months or reported period, on an annualized basis, EBITDA and FFO of the
Target Companies and calculated the following range of multiples: a range of
purchase price to Target Company EBITDA of 9.5x to 14.7x, with a mean of 12.0x;
and a range of purchase price to Target Company FFO of 6.7x to 14.1x, with a
mean of 11.4x.

Applying the applicable range of these selected multiples to EQK's
EBITDA and FFO for the trailing twelve month period ended June 30, 1997, to
EQK's 1997 projected FFO, and to EQK's 1998 projected FFO, as adjusted to
reflect management's pro forma adjustments (including, as appropriate, the
subtraction of EQK's approximately $45.4 million in outstanding mortgage
indebtedness at June 30, 1997) and certain additional adjustments that Legg
Mason deemed appropriate yielded an implied range of equity values per EQK
Share (the "Pre Merger Multiples Equity Value per EQK Share") from $0.21 per
share to $2.98 per share, with a mean of $1.19 per share, assuming
approximately 9.6 million EQK Shares outstanding.

Following the Merger and the issuance of approximately 4.7 million
new EQK Shares to ART in connection with the Merger, the adjusted equity value
per EQK Share (the "Post Merger Multiples Equity Value per EQK Share") ranged
from $0.14 per share to $2.01 per share with a mean value of $0.80 per share,
assuming approximately 14.3 million EQK Shares outstanding.

By adding the range of values of the EQK Merger Consideration to
the range of values of the Post Merger Multiples Equity Value per EQK Share, the
resulting value per Continuing EQK Share (the "Post Merger Multiples Investment
Value per Continuing EQK Share") ranged from $0.92 per share to $2.84 per share
with a mean value of $1.60 per share.

Given that the mean value of the Post Merger Multiples Investment
Value per Continuing EQK Share of $1.60 per share is above the mean value of the
Pre Merger Multiples Equity Value per EQK Share of $1.19 per share, Legg Mason
believes that this analysis supports the fairness of the amount of the EQK
Merger Consideration to be received by the Public EQK Shareholders pursuant to
the Merger Agreement from a financial point of view.

COMPONENTS ANALYSIS. Legg Mason calculated an equity value of EQK
by deriving values for (i) the Center, net of EQK's approximately $45.4 million
in outstanding mortgage indebtedness and net of certain estimated selling
expenses ("Selling Costs"); (ii) the other net assets of EQK which included all
assets and liabilities not directly related to the Center ("Net Assets"); and
(iii) EQK's current balance of NOLs.

Legg Mason compared certain financial information relating to the
Center to certain transactions ("Retail Transactions") whereby selected publicly
traded REITs engaged primarily in the ownership, acquisition and management of
regional mall and shopping center properties acquired individual retail
properties or small portfolios of retail properties ("Target Properties"). Each
of the 26 Retail Transactions occurred between August 1995 and September 1997
and involved one to ten buildings with total square footage ranging from
approximately 100,000 square feet to 2.5 million square feet. Acquiring REITs
for which data was available included Burnham Pacific Properties, Inc.; CBL &
Associates Properties, Inc.; Federal Realty Investment Trust; General Growth
Properties; JP Realty, Inc.; Mid Atlantic Realty Trust; The Macerich Company;
The Taubman Realty Group; and Urban Shopping Centers, Inc. Legg Mason did note
that none of the Retail Transactions took place under market conditions or
competitive circumstances that were directly comparable to those of the Merger,
and each of the Target Properties is distinguishable from the Center in certain
respects.

Legg Mason compared the purchase price paid in each Retail
Transaction with the latest twelve months or reported period, on an annualized
basis, EBITDA and FFO of the Target Properties and calculated the following
range of multiples: a range of purchase price to Target Property EBITDA of 7.6x
to 15.2x, with a mean of 10.4x; and a range of purchase price to Target Property
FFO of 5.4x to 15.6x, with a mean of 9.8x. Legg Mason then applied the
applicable range of these acquisition multiples to the EBITDA and FFO of the
Center for the trailing twelve month period ending June 30, 1997, as adjusted to
reflect management's pro forma adjustments (including, as appropriate, the
subtraction of EQK's approximately $45.4 million in outstanding mortgage
indebtedness at June 30, 1997) and certain additional adjustments that Legg
Mason deemed appropriate.

Legg Mason also derived values for the Center using a discounted
cash flow approach. The discounted cash flow approach assumes, as a basic
premise, that the intrinsic value of any business is the current value of the
future cash flow that the business will generate for its owners. To establish a
current implied value under this approach, future cash flow must be estimated
and an appropriate discount rate determined. Legg Mason used projections and
other information provided by the

-33-
46

management of EQK to estimate the free cash flows, defined as total property
related revenue minus property related expenses and capital expenditures net of
available cash reserve accounts ("Free Cash Flows") for the six months ending
December 31, 1997 and for each calendar year from 1998 to 2007, inclusive. Legg
Mason then calculated the net present value of the Free Cash Flows, using
discount rates ranging from 11.0% to 14.0%, with a mid point of 12.5% and
terminal value growth rates applied to projected 2007 Free Cash Flows from
3.50% to 4.25%. These discount rates reflected Legg Mason's assessment of
equity investments in general, and the specific risks of regional mall
ownership and management, in particular.

Legg Mason's calculations from its Retail Transactions analysis
and from its discounted cash flow analysis resulted in an implied range of
values of the Center per EQK Share from $-0.45 per share to $3.82 per share,
with a mean of $1.54 per share, assuming approximately 9.6 million EQK Shares
outstanding.

Legg Mason then subtracted the Selling Costs as provided by EQK
from the above values of the Center to calculate a range of net values of the
Center. Selling Costs included estimates of disposition fees, transfer taxes,
title expenses, alternative minimum tax liability and other miscellaneous
closing costs. The amount of the estimated Selling Costs is approximately $2.3
million, or $0.24 per EQK Share, assuming approximately 9.6 million EQK Shares
outstanding.

Legg Mason then calculated the value of the Net Assets of EQK
which included all assets and liabilities not directly related to the Center.
These Net Assets, as listed on EQK's 10-Q at June 30, 1997 and in the associated
work papers, consisted of excess cash balances, accounts receivable, prepaid
expenses, accounts payable, miscellaneous accruals and approximately $2.7
million in deferred advisory fees owed by EQK to ERPM. The Net Assets as
adjusted to reflect certain additional adjustments that Legg Mason deemed
appropriate were estimated at -$3.2 million, or -$0.33 per EQK Share, assuming
approximately 9.6 million EQK Shares outstanding.

Legg Mason then derived a range of values for EQK's current
balance of NOLs. Legg Mason utilized an aggregate balance of NOLs of $92 million
as provided by EQK and an estimated corporate tax rate of 40% to arrive at an
undiscounted after tax aggregate value of the NOLs of $36.8 million. Legg Mason
then assumed that transfer of control would be accomplished under the
stipulation of Rule 382 of the Code and full use of net operating losses against
taxable income would commence three years following consummation of the Merger.
Legg Mason then applied three year, five year, seven year and ten year
utilization rates to the $36.8 million balance of after-tax NOLs; each usage
period would begin three years following consummation of the Merger. Legg Mason
then calculated the net present value of the NOLs by discounting the streams of
utilized NOLs at discount rates ranging from 25.0% to 35.0%, which reflects Legg
Mason's assessment of the risks of the business of ART and of the likelihood of
the assumed utilization rate of the NOLs. Legg Mason's calculations resulted in
an implied range of values of the NOLs per EQK Share from $0.42 per share to
$1.27 per share, with a mean of $0.79 per share, assuming approximately 9.6
million EQK Shares outstanding.

By adding the range of values of (i) the Center (net of $45.4
million in outstanding mortgage indebtedness and Selling Costs); (ii) the Net
Assets; and (iii) the NOLs, Legg Mason calculations resulted in an implied range
of equity values per share (the "Pre Merger Components Equity Value per EQK
Share") from -$0.60 per share to $4.52 per share, with a mean of $1.76 per
share, assuming approximately 9.6 million EQK Shares outstanding.

Following the Merger and the issuance of approximately 4.7 million
new EQK Shares to ART in connection with the Merger, the adjusted equity value
per Continuing EQK Share (the "Post Merger Components Equity Value per
Continuing EQK Share") ranged from -$0.14 per share to $3.31 per share with a
mean value of $1.45 per share, assuming approximately 14.3 million EQK Shares
outstanding. In connection with the terms of the Merger Agreement, Legg Mason
also made adjustments to the Selling Costs (specifically to the calculations of
the appropriate disposition fees) and to the Net Assets (specifically the
elimination of EQK's $2.7 million liability for deferred advisory fees owed to
ERPM).

By adding the range of values of the EQK Merger Consideration to
the range of values of the Post Merger Components Equity Value per EQK Share,
the resulting value per Continuing EQK Share (the "Post Merger Components
Investment Value per Continuing EQK Share") ranged from $0.64 per share to $4.14
per share with a mean value of $2.25 per share.

Given that the mean value of the Post Merger Components Investment
Value per Continuing EQK Share of $2.25 per share is above the mean value of the
Pre Merger Components Equity Value per EQK Share of $1.76 per share, Legg Mason
believes that this analysis supports the fairness of the amount of the EQK
Merger Consideration to be received by the Public EQK Shareholders pursuant to
the Merger Agreement from a financial point of view.

-34-
47

Based on and subject to the foregoing, Legg Mason concluded that,
as of the date of the Legg Mason Opinion and based on various assumptions and
considerations, the amount of the EQK Merger Consideration to be received by the
Public EQK Shareholders pursuant to the Merger Agreement is fair to them from a
financial point of view.

Pursuant to an engagement letter dated February 28, 1997 and a
subsequent addendum dated September 22, 1997, Legg Mason received an upfront fee
of $50,000 upon the signing of the engagement letter and will receive an
additional $200,000 upon delivery of the Legg Mason Opinion and its inclusion in
the Prospectus/Proxy Statement. If the EQK Board or ART determines not to
request the Legg Mason Opinion, then EQK will pay Legg Mason a fee of $50,000
in addition to the $50,000 fee paid upon signing of the engagement letter. Legg
Mason will also be reimbursed for certain of its expenses, in an amount not to
exceed $40,000 without the prior consent of the EQK Board. EQK has also agreed
to indemnify Legg Mason, its affiliates and each of its directors, officers,
employees, agents, consultants and attorneys, and each person or firm, if any,
controlling Legg Mason or any of the foregoing, against certain liabilities,
including liabilities under federal securities law, arising out of or related
to the services rendered by Legg Mason under the engagement letter.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of certain Federal income tax
consequences of the Merger. This summary may not apply to certain classes of
persons, including, without limitation, foreign persons, insurance companies,
tax-exempt organizations, financial institutions, dealers in securities, persons
who acquired EQK Shares pursuant to the exercise of employee stock options or
rights or otherwise as compensation and persons who hold EQK Shares as part of a
straddle or conversion transaction. This summary is based upon laws,
regulations, rulings and decisions, all of which are subject to change (possibly
with retroactive effect), and no ruling has been or will be requested from the
Internal Revenue Service on the tax consequences of the Merger.

In the opinion of Andrews & Kurth L.L.P., special tax counsel to
ART, which opinion is based upon certain assumptions made with the consent of
ART, the payment of the EQK Merger Consideration to the Public EQK Shareholders
pursuant to the Merger will be treated as a taxable transaction for Federal
income tax purposes.

In general, a Public EQK Shareholder will recognize a gain equal
to the fair market value of the EQK Merger Consideration over the adjusted tax
basis of EQK Shares deemed sold in the taxable Merger. It is expected that such
Public EQK Shareholders will be deemed to have sold approximately 25.4% of
their respective EQK Shares held before the Merger. Such gain will be treated
as a capital gain if the EQK Shares are capital assets in the hands of the
Public EQK Shareholder.

The Federal income tax consequences set forth above are for
general information only. Each EQK Shareholder is urged to consult his own tax
advisor to determine the particular tax consequences to him or her of the
Merger, including the applicability and effect of state, local and other tax
laws.

DIVIDEND PAYMENTS

A distribution made with respect to ART Common Shares or ART
Preferred Shares (other than a distribution in redemption of such stock or in
liquidation of ART) will be a dividend for federal income tax purposes to the
extent made out of the current or accumulated earnings and profits, as
determined for federal income tax purposes, of ART. If a distribution exceeds
the current or accumulated earnings and profits of ART, such distribution will
be treated first as a return of capital to the extent of the holder's adjusted
basis in the stock on which the distribution was made (the basis of such stock
would be reduced by the amount of the distribution) and will be treated second
as an amount received from the sale or exchange of the stock on which the
distribution was made.

A domestic corporation which holds ART Common Shares or ART
Preferred Shares will be entitled to the 70% dividends received deduction with
respect to dividends received thereon, subject however to generally applicable
limitations thereon which are discussed below. The special rule that the
dividends received deduction is 80% for a stockholder who owns 20% by vote and
value of the stock of ART is not discussed here. The dividends received
deduction (taking into account dividends received from ART and from other
corporations) may not exceed 70% of the taxable income (adjusted as provided in
Section 246(b) of the Code) of the corporate stockholder. Moreover, the
dividends received deduction is completely disallowed if the stock with respect
to which the dividend is paid is not held for 46 days or more during the 90-day
period beginning on the date which is 45 days before the stock becomes
ex-dividend (91 days or more during the 180 day period beginning 90 days before
the date on which the stock becomes ex-dividend, if the dividends are with
respect to ART Preferred

-35-
48

Shares and are attributable to a period or periods of 366 days or more) or the
holder of such stock is obligated to make related payments with respect to a
position in substantially similar or related property. The holding period of
stock includes the day of disposition of the stock but not the day of
acquisition, does not include any day which is more than 45 days (or 90 days in
the case of ART Preferred Shares) after the date on which the stock becomes
ex-dividend, and is determined without regard to Section 1223(4) of the Code
with respect to wash sales. A holder may not count toward the required holding
period any period during which it (a) has an option to sell, is under a
contractual obligation to sell, or has made (and not closed) a short sale of
substantially identical stock or securities, (b) is the grantor of an option
(other than a qualified covered call) to buy substantially identical stock or
securities, or (c) has diminished its risk of loss by holding one or more other
positions with respect to substantially similar or related property (with
respect to the meaning of which regulations have recently been proposed). The
dividends received deduction is reduced under Section 246A of the Code to the
extent that a holder incurs indebtedness directly attributable to its
investment in the stock with respect to which the dividend is received. A
corporate holder must reduce its basis, but not below zero, in stock with
respect to which an extraordinary dividend is received by the amount of the
extraordinary dividend which is not subject to tax by reason of the dividends
received deduction. An extraordinary dividend is, with an exception that
excludes qualified preferred dividends within the meaning of Section 1059(e)(3)
of the Code from classification thereas, a dividend with respect to stock held
for two years or less on the dividend announcement date (i) exceeds 5% (10%, in
the case of ART Common Shares) of the holder's basis in the stock, treating all
dividends having ex-dividend dates within an 85-day period as one dividend or
(ii) that exceed 20% of the holder's basis in the stock, treating all dividends
having ex-dividend dates within a 365-day period as one dividend. Fair market
value, if it can be established by the holder to the satisfaction of the IRS,
may be substituted for basis for purposes of the preceding sentence. In
addition, an amount treated as a dividend in the case of a redemption that is
either not pro rata as to all stockholders, an amount which is a dividend and
is part of a partial liquidation, and an amount which is a dividend with
respect to stock the issue price of which exceeds its liquidation rights or its
stated redemption price is an extraordinary dividend without regard to the
length of time that the stock has been held. A holder disposing of stock with
respect to which one or more extraordinary dividends has been paid will
recognize gain upon such disposition, in addition to the gain which would
otherwise be recognized upon such disposition, in an amount which is equal to
the untaxed portion of the extraordinary dividends, if any, which were in
excess of the basis in the stock at the time of the distribution.

Dividend income that is not subject to regular corporate taxation
as a consequence of the dividends received deduction may give rise to
alternative minimum tax liability. Holders of ART Preferred Shares or ART Common
Shares may be liable for state and local income taxes with respect to dividends
or other distributions paid on the ART Preferred Shares or ART Common Shares.
Because a state or locality may not allow, or may limit, a dividends received
deduction, each prospective purchaser of ART Preferred Shares or ART Common
Shares is advised to consult its own tax advisor concerning state and local
taxes.

REDEMPTION, SALES AND EXCHANGES

Generally, any redemption of ART Common Shares or preferred stock
will be treated as a sale or exchange thereof if the redemption (a) results in a
complete termination of the holder's stock interest in ART, (b) is substantially
disproportionate with respect to the holder or (c) is not essentially equivalent
to a dividend with respect to the holder, in each case within the meaning of
Section 302(b) of the Code. In determining whether any of these tests has been
met, stock which is constructively owned by reason of Section 318 of the Code
(pursuant to which a holder will be deemed to own stock owned (actually or
constructively) by certain related individuals and entities and to own stock
subject to option), as well as stock actually owned is taken into account. A
distribution will generally be treated as substantially disproportionate if the
percentage of the voting stock of ART which is owned immediately after the
redemption is less than 80% of the percentage of the voting stock of ART which
is owned immediately before the redemption and if the percentage of the ART
Common Shares of ART which is owned by such person is also so reduced. A
distribution will be not essentially equivalent to a dividend if it results in a
"meaningful reduction" in a holder's stock interest in ART. The IRS has stated
in published rulings that a redemption that results in a reduction in the actual
and constructive stock interest of a minority stockholder, whose relative actual
and constructive stock interest is minimal and who exercises no control over
corporate affairs, will generally be treated as not essentially equivalent to a
dividend. If a redemption does not satisfy any of the Section 302 tests, the
amount received in the redemption will be treated as a distribution which is
made by ART with respect to the stock so redeemed which is taxable as provided
in "Dividend Payments" above, and the adjusted tax basis of the stock so
redeemed will be transferred to any retained stock interest in ART.

The amount of gain or loss which is recognized upon the sale or
exchange (including a redemption which is treated as a sale or exchange) of ART
Common Shares or ART Preferred Shares is the difference between the amount
realized and the adjusted basis in the ART Common Shares or ART Preferred Shares
so sold or exchanged. Reductions in adjusted basis which

-36-
49

are the result of distributions as discussed above will increase the amount of
gain recognized or reduce the amount of loss recognized upon the sale thereof.
Any gain or loss so recognized upon such a disposition of ART Common Shares or
ART Preferred Shares will be a capital gain or loss if such stock is a capital
asset.

ART PREFERRED SHARES; CERTAIN MATTERS

Conversion into ART Common Shares. No gain or loss will be
recognized upon the conversion of ART Preferred Shares into shares of ART Common
Shares except as noted below. As discussed below, special rules apply to Foreign
Holders. Any cash which is received in lieu of a fractional share upon any such
conversion will be treated under the current advance ruling policy of the IRS as
an amount received in exchange of the fractional share. Moreover, if dividends
on the ART Preferred Stock are in arrears at the time of conversion into ART
Common Shares, a portion of the ART Common Shares so received the value of which
is less than or equal to the amount of such arrearage may be includible in
income as a dividend (to the extent of ART's current or accumulated earnings and
profits).

The adjusted tax basis of the shares of ART Common Shares received
upon such a conversion (excluding any shares the receipt of which was taxable
because of dividend arrearages) will be equal to the adjusted tax basis of the
ART Preferred Shares converted (exclusive of any tax basis allocated to a
fractional share in lieu of which cash was received). The holding period of the
shares of ART Common Shares which are held with a carryover basis will include
the holding period of the ART Preferred Shares converted, if the ART Preferred
Shares were held as a capital asset at the time of the exchange. The holding
period of any shares the receipt of which was taxable because of dividend
arrearages will begin the day after the receipt thereof.

Redemption Premium. Under Section 305 of the Code and applicable
regulations, any excess of the redemption price of the ART Preferred Shares over
the issue price thereof is includible in income as a dividend (to the extent of
ART's current or accumulated earnings and profits) on a constant yield to
maturity base under current regulations (in accordance with the economic accrual
principles of Section 1272 of the Code under regulations which are to be
prescribed) even though no cash is received in respect thereof units if (i)
based on all of the facts and circumstances as of the issue date, the redemption
pursuant to ART's call right is more likely than not to occur and (ii) the
premium is not solely in the nature of a penalty for premature redemption.
Although the issue is not free from doubt, ART intends to take the position that
no such accrual will be required. A redemption premium for the ART Preferred
Shares is reasonable if it is in the nature of a penalty for premature
redemption and if it does not exceed the amount which ART would be required to
pay for such redemption right under market conditions existing at the time of
issuance of the ART Preferred Shares. ART believes that the redemption premium
on the ART Preferred Shares satisfies this standard.

Adjustment of Conversion Price. Under applicable Treasury
regulations certain adjustments to the conversion price of convertible preferred
stock, such as adjustments to reflect taxable distributions of cash or property
on the related common stock, will be treated as a constructive distribution of
stock and will be treated as a dividend to the holders of the preferred stock to
the extent of the current or accumulated earnings and profits of the
corporation. The formula for the conversion price of the ART Preferred Stock is
not adjusted to reflect such distributions, however, the actual conversion price
may be adjusted through changes in the value of the ART Common Stock as a result
of such distributions. Adjustments to reflect nontaxable stock splits or
distributions to the holders of ART Common Shares of stock, stock warrants or
stock rights will, however, generally not be so treated. The failure to adjust
fully the conversion price for the ART Preferred Shares to reflect distributions
of stock, stock warrants or stock rights with respect to the ART Common Shares
may result in a taxable dividend to holders of ART Common Shares.

SPECIAL TAX RULES APPLICABLE TO FOREIGN HOLDERS

As used herein in the discussion of U.S. federal income tax
matters, a "Foreign Holder" is a person who, for United States federal income
tax purposes, is a foreign corporation, a nonresident alien individual, a
foreign estate, a foreign trust, or a foreign partnership. Foreign Holders
seeking benefits under applicable tax treaties or an exemption from United
States withholding tax for "effectively connected income," as described below,
will be required to comply with certain certification and other requirements in
order to establish their entitlement to such benefits or exemption. Additional
or different rules, not discussed herein, may apply in light of the
circumstances of a particular Foreign Holder. Accordingly, each prospective
Foreign Holder should discuss these matters with its own tax advisors.

Dividends. Dividends on the ART Preferred Shares or the ART Common
Shares which are paid to a Foreign Holder and which are not effectively
connected with the conduct of a trade or business in the United States will be
subject to United

-37-
50

States withholding tax at a rate of 30% (or such lower rate as may be
prescribed by an applicable tax treaty). If the dividends on the ART Preferred
Shares or the ART Common Shares are effectively connected with the conduct of a
trade or business carried on in the United States, such dividends will be
subject to tax at the rates and in the manner applicable to United States
persons and may also be subject to an additional "branch profits tax" at a 30%
rate (or such lower rate as may be specified by an applicable income tax
treaty).

Gain on Disposition of ART Preferred Shares or ART Common Shares.
Foreign Holders will not be subject to U.S. federal income tax on gain realized
on a disposition of the ART Preferred Shares or the ART Common Shares unless (a)
the gain is effectively connected with the conduct of a trade or business in the
United States in which case such gain will be subject to tax at the rates and in
the manner applicable to United States persons (the branch profits tax described
above may also apply if the holder is a foreign corporation), (b) in the case of
an individual Foreign Holder, such holder is present in the United States for at
least 183 days in the taxable year of the disposition and either the income from
the disposition is attributable to an office or other fixed place of business
maintained by the holder in the United States or the holder has a tax home, as
defined in Section 911(d)(3) of the Code, in the United States or (c) the gain
is subject to tax under Section 897 of the Code.

Gain realized by a Foreign Holder on a disposition of ART
Preferred Shares (including a disposition by conversion or redemption) will not
be subject to tax under Section 897 of the Code if the Foreign Holder, after
taking into account certain constructive ownership rules, does not own and has
not owned within the five-year period ending on the date of the disposition more
than five percent of the outstanding ART Preferred Shares assuming that the ART
Preferred Shares is regularly traded on an established securities market, within
the meaning of Section 897(c)(3) of the Code. Similarly, gain realized by a
Foreign Holder on a disposition of ART Common Shares will not be subject to tax
under Section 897 of the Code if the Foreign Holder after taking into account
certain constructive ownership rules has not owned within the five year period
ending on the date of the disposition more than five percent of the outstanding
ART Common Shares assuming that the ART Common Shares is regularly traded on an
established securities market, within the meaning of Section 897 of the Code. If
the exemption which is discussed in the two preceding sentences is not
available, then a Foreign Holder of ART Preferred Shares or of ART Common Shares
should discuss the effect of Section 897 of the Code with its tax advisors.

United States Federal Income Tax. Unless otherwise provided in an
applicable estate tax treaty, shares of ART Preferred Shares and ART Common
Shares will be considered property situated in the United States for federal
estate tax purposes and will be subject to U.S. federal estate tax.

BACK-UP WITHHOLDING

A noncorporate holder of ART Preferred Shares or ART Common Shares
may be subject to backup withholding at the rate of 31 percent with respect to
dividends paid on ART Preferred Shares or ART Common Shares or the proceeds of a
sale, exchange or redemption thereof if (i) the payee fails to furnish a
taxpayer identification number ("TIN") to the payor, (ii) the IRS notifies the
payor that the TIN furnished by the payee is incorrect, (iii) there has been a
notified payee under reporting with respect to interest, dividends or original
issue discount described in Section 3406(c) of the Code, or (iv) there has been
a failure of the payee to certify under penalty of perjury that the payee is not
subject to back-up withholding.

The payment of the proceeds of a sale of ART Preferred Shares or
ART Common Shares to or through the foreign office of a broker generally will
not be subject to back-up withholding. However, information reporting
requirements will apply to a payment of proceeds from the sale of shares of ART
Preferred Shares or ART Common Shares through a foreign office of a broker that
is a United States person or of certain foreign brokers unless the broker has
documentary evidence in its files that the owner is a non-United States holder
and the broker has no actual knowledge to the contrary.

Any amounts withheld under the back-up withholding rules from a
payment to a holder will be allowed as a refund or a credit against the holder's
U.S. federal income tax liability, provided that the required information is
furnished to the IRS.

EFFECT OF MERGER ON MARKET FOR EQK SHARES; REGISTRATION UNDER THE EXCHANGE ACT

One effect of the Block Purchase and the Merger could be to reduce
the number of EQK Shareholders and the number of EQK Shares that might otherwise
trade publicly and, thus, the liquidity and market value of the EQK Shares could
be adversely affected. In addition, the Merger is conditioned upon the execution
by each 5% Holder (other than ART or its affiliates) of a Standstill Agreement
which will restrict the ability of such holders to purchase or sell any EQK
Shares for a period of 42 months after the Expiration Date. Thus, the Standstill
Agreements will have the effect of reducing the number

-38-
51

of EQK Shares that might otherwise be traded publicly and could adversely
affect the liquidity and market value of the EQK Shares that are not subject to
a Standstill Agreement.

The EQK Shares are listed and principally traded on the NYSE.
Depending upon the number of EQK Shares ART acquires pursuant to the Merger and
the number of EQK Shares subject to restrictions under the Standstill
Agreements, following consummation of the Merger, the EQK Shares may no longer
meet the requirements of such exchange for continued listing. According to the
NYSE Rules, the NYSE would consider delisting the outstanding EQK Shares if,
among other things, (i) the number of publicly held EQK Shares (exclusive of
holdings of officers, directors and members of their immediate families and
other concentrated holdings of 10 percent or more) should fall below 600,000,
(ii) the total number of EQK Shareholders falls below 400, (iii) the total
number of EQK Shareholders falls below 1200 and the average monthly trading
volume of the EQK Shares is less than 100,000 shares (for the previous 12 month
period), or (iv) the aggregate market value of publicly held EQK Shares should
fall below $8 million.

If the NYSE were to delist the EQK Shares, the market therefor
could be adversely affected. It is possible that the EQK Shares would be traded
on other securities exchanges or in the over-the-counter market, and that price
quotations would be reported by such exchanges, or through the NASDAQ Stock
Market or by other sources. The extent of the public market for such EQK Shares
and the availability of such quotations would, however, depend upon such factors
as the number of shareholders remaining at such time, the interest in
maintaining a market in the EQK Shares on the part of securities firms, the
trading value at such time, the possible termination of registration of EQK
Shares under the Exchange Act, as described below, and other factors.

The EQK Shares are currently registered under the Exchange Act.
Such registration may be terminated by EQK upon application to the Commission if
the outstanding EQK Shares are not listed on a national securities exchange and
if there are fewer than 300 holders of record of EQK Shares. As of February 28,
1997 EQK had 271 holders of record. Although legally permissible, pursuant to
the Merger Agreement, EQK will agree not to affirmatively deregister the EQK
Shares. Termination of registration of the EQK Shares under the Exchange Act
would reduce the information required to be furnished by EQK to its shareholders
and to the Commission and would make certain provisions of the Exchange Act,
such as the short-swing profit recovery provisions of Section 16(b) and the
requirement of furnishing a proxy statement in connection with shareholders'
meetings pursuant to Section 14(a) and the related requirement of furnishing an
annual report to shareholders, no longer applicable with respect to the EQK
Shares. Furthermore, the ability of "affiliates" of EQK and persons holding
"restricted securities" of EQK to dispose of such securities pursuant to Rules
144 or 145 under the Securities Act may be impaired or eliminated.

FEES AND EXPENSES IN CONNECTION WITH THE MERGER

ART has retained Shareholder Communications Corporation to act as
Proxy Solicitor in connection with the Merger. The Proxy Solicitor may contact
EQK Shareholders by mail, telephone, telex, telegraph and personal interviews
and may request brokers, dealers and other nominee stockholders to forward the
Merger materials to beneficial owners of EQK Shares. The Proxy Solicitor will
receive a fee estimated not to exceed $9,500 for such services, plus
reimbursement of out-of-pocket expenses, and ART will indemnify the Proxy
Solicitor against certain liabilities and expenses in connection with the
Merger, including liabilities under federal securities laws.

ART will pay the Merger Agent and the Dealer Manager reasonable
and customary compensation for their respective services in connection with the
Merger, plus reimbursement for their out-of-pocket expenses, and will indemnify
each of them against certain liabilities and expenses in connection therewith,
including liabilities under the federal securities laws. ART will not pay any
fees or commissions to any broker or dealer or other person (other than the
Proxy Solicitor and the Dealer Manager) for soliciting proxies in connection
with the Merger. Brokers, dealers, commercial banks and trust companies will be
reimbursed by ART for customary mailing and handling expenses incurred by them
in forwarding material to their customers.

ART and EQK have entered into an expense sharing agreement (the
"Expense Sharing Agreement") whereby each of ART and EQK will share the costs
and expenses associated with the Merger. Under the terms of the Expense Sharing
Agreement, if EQK and ART enter into the Merger Agreement and proceed in good
faith to complete the Merger but are unsuccessful in such effort by reason of an
inadequate EQK Shareholder response to this Prospectus/Proxy Statement or
otherwise, EQK's liability under the Expense Sharing Agreement shall be limited
to the lesser of 50% of the actual transaction costs or $100,000, and ART shall
be responsible for all additional transaction costs. In addition, if the Merger
is consummated

-39-

52
in accordance with the terms of the Merger Agreement, EQK's liability shall be
limited to the lesser of 50% of the actual transaction costs or $150,000 and ART
shall be responsible for all additional transaction costs.

ACCOUNTING TREATMENT

Since ART may be considered to have the ability to exercise
significant influence over the operating policies of EQK upon consummation of
the Merger, ART will account for its investment in EQK using the equity method.

STOCK EXCHANGE LISTING

Application will be made to list the ART Preferred Shares to be
issued pursuant to the Merger on the NYSE. See "Risk Factors -- Risks Relating
to ART Preferred Shares -- Risks Associated with the Listing and Trading of ART
Preferred Shares."

-40-
53

THE DECLARATION AMENDMENT PROPOSAL

The following is a brief summary of proposed amendments to the
Declaration of Trust that will be reflected in the Amended Declaration of Trust.
All of the amendments contemplated by the Amended Declaration of Trust are
subject to the Requisite Shareholder Approval of the Merger-Related Proposals.
The full text of the Amended Declaration of Trust is attached hereto as Appendix
D.

Extension of the Duration and Termination of the Trust. The
Declaration of Trust currently provides that the term of EQK will expire in
March 1999. The Amended Declaration of Trust will permit the existence of EQK to
continue for an additional 20 year period, unless sooner terminated as otherwise
provided under "The Business of EQK -- Summary of the Existing Declaration of
Trust -- Duration and Termination of the Trust".

Removal of Limitation of Number of Authorized EQK Shares. The
Declaration of Trust currently provides that the total number of authorized EQK
Shares is 10,055,555. There will be no limitation on the number of authorized
EQK Shares under the Amended Declaration of Trust.

Reduction of the Number of EQK Shareholders Required to Vote on
Certain Matters. The Declaration of Trust currently provides that each of the
following amendments to the Declaration of Trust shall require the affirmative
vote of the holders of three-quarters of the outstanding EQK Shares: (i)
increases in the number of authorized EQK Shares, (ii) amendments to the
investment policies of EQK, (iii) any plan for the termination of EQK which
contemplates the distribution to the EQK Shareholders of securities or other
property-in-kind (other than the right promptly to receive cash), and (iv) any
amendments which would reduce the percentage vote required to approve any
amendments to the amendment provisions of the Declaration of Trust. The Amended
Declaration of Trust will remove restrictions on the number of authorized EQK
Shares and will allow the Trustees to amend EQK's investment policies without
the approval of the EQK Shareholders. In addition, the Amended Declaration of
Trust will reduce the number of affirmative votes of EQK Shareholders required
to amend the Amended Declaration of Trust in all other instances to a majority.
See "The Business of EQK -- Summary of the Existing Declaration of Trust --
Duration and Termination of the Trust."

Removal of Prohibitions and Restrictions from Certain Activities
and Investments. The Declaration of Trust currently provides that EQK may
acquire additional real properties, but only under very limited circumstances.
The Amended Declaration of Trust will remove all restrictions on EQK's ability
to acquire additional real or personal property and other debt and equity
investments, although it is not currently intended that any such acquisitions or
additional investments will be made in the foreseeable future. See "The Business
of EQK -- Summary of the Existing Declaration of Trust -- Prohibited Activities
and Investments."

Removal of Prohibitions on the Issuance of EQK Shares and other
Securities. Under the Declaration of Trust, EQK is currently prohibited from
issuing any additional EQK Shares or any rights, warrants or options to
subscribe to, purchase or acquire any EQK Shares. The Amended Declaration of
Trust will allow EQK to issue additional EQK Shares and other types of
securities from time to time, including securities with preferential rights to
the EQK Shares, provided that any issuance of additional EQK Shares (other than
in connection with the Prudential Warrants) will require the affirmative vote of
holders of not less than a majority of the then outstanding EQK Shares entitled
to vote thereon.

Removal of Borrowing Restrictions. The Declaration of Trust
currently restricts the aggregate amount of secured or unsecured borrowings that
EQK may incur to 75% of EQK's total assets (other than intangibles). The
Amended Declaration of Trust will eliminate such borrowing restrictions.

Revision of Trustee Provisions. The Declaration of Trust currently
provides that the number of Trustees must be no fewer than five and no more than
twelve and that a majority of the Trustees shall be unaffiliated with EQK and
its affiliates. The Amended Declaration of Trust will reduce the maximum number
of Trustees to seven and will provide that there shall be at least four
Unaffiliated Trustees at all times until ART owns at least 80% of the
outstanding EQK Shares; provided, however, that if, as a result of vacancies
created by the resignation, removal or death of an Unaffiliated Trustee, there
are less than four Unaffiliated Trustees, the remaining Unaffiliated Trustees,
if any, must fill such vacancy with one or more substitute Unaffiliated Trustees
(in such capacity, the "Substitute Unaffiliated Trustees") until the total
number of Unaffiliated Trustees is equal to four or more; and provided further
that, if there are no Unaffiliated Trustees, the remaining Trustees, if any,
must fill such vacancies with four or more Substitute Unaffiliated Trustees;
and, provided further that, if there are no Trustees, the Shareholders shall
elect at least four or more Unaffiliated Trustees by a majority vote. At and
after such time as ART owns

-41-
54

80% or more of the outstanding EQK Shares, the number of Unaffiliated Trustees
required under the Amended Declaration of Trust will be reduced to two. See "The
Business of EQK -- Summary of the Existing Declaration of Trust -- Trustees".

Ownership Limit. The Declaration of Trust currently contains
provisions which allow the Trustees to restrict ownership of EQK Shares in order
to maintain EQK's qualification as a REIT under the Code. The Amended
Declaration of Trust will specifically prohibit ownership of more than 4.9% of
the outstanding EQK Shares by any single shareholder, other than ART and the
current 5% Holders. Under the Amended Declaration of Trust, the EQK Board may
exempt a proposed transferee from this restriction upon receipt of a ruling from
the Internal Revenue Service, an opinion of counsel or other evidence
satisfactory to the EQK Board that ownership of EQK by a proposed transferee
will not adversely affect EQK's qualification as a REIT under the Code, and upon
such other conditions as the EQK Board may direct.

Change the Name of EQK. The Amended Declaration of Trust will
change the name of EQK from "EQK Realty Investors I" to "ART Realty Investors I"
to eliminate any reference to EQK or ERPM or any of their affiliates.

Reduction of the Number of EQK Trustees Required to Vote on
Certain Matters. The Declaration of Trust currently requires the approval of
two-thirds of the EQK Board to amend the Declaration of Trust, without the vote
or consent of EQK Shareholders, in order to conform the Declaration of Trust to
the requirements of (a) the REIT provisions of the Code, (b) other applicable
Federal laws or regulations or (c) any state securities or "blue sky" laws or
requirements of administrative agencies thereunder in connection with the
initial public offering of EQK Shares. The Amended Declaration of Trust will
require only a majority vote of the New EQK Board to approve amendments to the
Declaration of Trust with respect to the aforementioned conformity issues. The
Declaration of Trust will also be amended to require only a majority vote of the
New EQK Board, without EQK Shareholder approval, to change the investment
policies of EQK from time to time, in keeping with the other provisions of the
Declaration of Trust. Approval of the following transactions shall require the
approval of a majority of the Unaffiliated Trustees: (i) transactions between
the Trust (including any subsidiaries of the Trust) and ART and any of ART's
affiliates and other related persons (other than transactions between related
parties pursuant to the New Advisory Agreement which shall be approved or
ratified by the holders of a majority of the outstanding EQK Shares, including
holders of a majority of the EQK Shares not held by ART or any of its
affiliates, that actually vote at the applicable meeting); (ii) amendments to
The Declaration of Trust; and (iii) amendments to the Trustees' regulations
which govern the Trustees. See "The Business of EQK -- Summary of the Existing
Declaration of Trust - Amendment of Declaration of Trust; Merger."

Incorporation. The Amended Declaration of Trust will provide that,
upon a vote of a majority of the New EQK Board (including a majority of the
Unaffiliated Trustees), and with the affirmative vote of the holders of a
majority of the outstanding EQK Shares, the New EQK Board shall have the power
to cause to be organized or to assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association, or other organization to take over the trust estate of EQK or any
part or parts thereof or to carry on any business in which EQK shall directly or
indirectly have any interest, and to sell, convey and transfer the trust estate
of EQK or any part or parts thereof to any such corporation, trust, partnership,
association, or organization in exchange for the EQK Shares or securities issued
by EQK or otherwise, and to lend money to, subscribe for the EQK Shares or
securities issued by EQK, and enter into any contracts with any such
corporation, trust, partnership, association, or organization, or any
corporation, trust partnership, association, or organization in which EQK holds
or is about to acquire shares or any other interest. The New EQK Board may also
cause a merger or consolidation between EQK or any successor thereto and any
such corporation if and to the extent permitted by law, provided that under the
law then in effect, the federal income tax benefits available to qualified real
estate investment trusts and their shareholders, or substantially similar
benefits, are also available to such corporation, trust, partnership,
association, or organization and its stockholders or members, and provided that
the resulting investment would be substantially equal in quality and
substantially the same in type as an investment in the EQK Shares.

The EQK Board believes that the Amended Declaration of Trust is
fair to, and in the best interests of, EQK and the holders of EQK Shares. By
unanimous vote, the EQK Board approved the Declaration Amendment Proposal and
unanimously recommends that the EQK Shareholders approve the Declaration
Amendment Proposal.

THE NEW ADVISORY AGREEMENT PROPOSAL

EQK has entered into an agreement with ERPM, a wholly owned
subsidiary of ERE, to act as its "Advisor." The Advisor makes recommendations to
EQK concerning investments, administration and day-to-day operations.

-42-
55

Under the terms of the Advisory Agreement, the Advisor receives a
management fee that is based upon the average daily per share price of EQK's
shares plus the average daily balance of outstanding mortgage indebtedness. Such
fee is calculated using a factor of 42.5 basis points (0.425%) and generally has
been payable monthly without subordination. Commencing with the December 1995
extension of debt and continuing with the December 1996 debt extension,
Prudential requested, and the Advisor agreed to, a partial deferral of payment
of its fee. Whereas the fee continues to be computed as described above,
payments to the Advisor are limited to $37,500 per quarter. Accrued but unpaid
fees, which amounted to $303,465 as of November 1, 1997, will be eligible for
payment upon the repayment of the Mortgage Note (as defined in "The Business of
EQK -- General"). For the years ended December 31, 1996, 1995 and 1994,
portfolio management fees were $250,000, $403,000, and $430,000, respectively.
For the nine months ended September 30, 1997 and 1996, portfolio management fees
amounted to $183,000 and 188,000, respectively.

Upon consummation of the Merger and subject to Requisite
Shareholder Approval of the Merger-Related Proposals, ERPM will terminate its
rights and duties as Advisor under the Advisory Agreement and BCM will become
the New Advisor to EQK under the New Advisory Agreement. As New Advisor, BCM
will be entitled to receive the same advisory fees that ERPM received under the
Advisory Agreement, provided that if the Center is sold, BCM will be limited to
a disposition fee of 1% of the sales price, as opposed to the 2% fee to which
ERPM would have been entitled. In consideration of ERPM's agreement to terminate
the Advisory Agreement, ART has agreed to pay to ERPM at Closing, in the form of
ART Preferred Shares valued at the Liquidation Value, (i) 1,975,000 (197,500 ART
Preferred Shares). In addition, on the first business day following the
third anniversary of the Effective Time, ART will pay to ERPM, in the form of
ART Preferred Shares valued at the Liquidation Value, $1,360,000 (136,000 ART
Preferred Shares). ERPM will also continue to be entitled to receive deferred
portfolio advisory fees and deferred refinancing fees in the amount of
$303,465 as of November 1, 1997, plus additional amounts that accrue but are
not paid in accordance with the terms of the Advisory Agreement through the
closing date of the Merger, which fees and additional amounts shall remain an
obligation of EQK.

The EQK Board believes that the New Advisory Agreement is fair to,
and in the best interests of, EQK and the holders of EQK Shares. By unanimous
vote, the EQK Board approved the New Advisory Agreement Proposal and unanimously
recommend that the EQK Shareholders approve the New Advisory Agreement Proposal.

DESCRIPTION OF ART

ART, a Georgia corporation, is the successor to a District of
Columbia business trust organized pursuant to a declaration of trust dated July
14, 1961. The business trust merged into ART on June 24, 1988. ART invests in
equity interests in real estate (including equity securities of real
estate-related entities), leases, joint venture development projects and
partnerships and finances real estate and real estate activities through
investments in mortgage loans. ART has invested in private and open market
purchases in the equity securities of CMET, IORI, TCI and NRLP.

The ART Board has broad authority under ART's governing documents
to make all types of real estate investments, including mortgage loans and
equity real estate investments, as well as investments in the securities of
other entities, whether or not such entities are engaged in real estate related
activities.

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

BCM is a company owned by a trust for the benefit of the children
of Gene E. Phillips, the Chairman of the Board and a Director of ART until
November 16, 1992. Gene E. Phillips served as a director of BCM until December
22, 1989 and as Chief Executive Officer of BCM until September 1, 1992. Gene E.
Phillips currently serves as a representative of the trust for the benefit of
his children that owns BCM and, in such capacity, Gene E. Phillips has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to ART. Ryan T. Phillips, the son of Gene E.
Phillips and a Director of ART until June 4, 1996, is also a director of BCM and
a trustee of the trust for the benefit of the children of Gene E. Phillips which
owns BCM. As of October 31, 1997, BCM owned 5,246,124 shares of ART's Common
Stock, representing approximately 49.0% of the shares then outstanding. BCM has
been providing advisory services to ART since February 6, 1989. BCM also serves
as advisor to CMET, IORI and TCI. Karl L. Blaha, Randall M. Paulson, Bruce A.

-43-
56

Endendyk and Thomas A. Holland, executive officers of ART, are also executive
officers of CMET, IORI and TCI. Karl L. Blaha also serves as a Director of ART.
Oscar W. Cashwell, a Director of ART, served as Executive Vice President of BCM
until January 10, 1997. Randall M. Paulson, Executive Vice President of ART,
serves as President and sole director of SAMI, the managing general partner of
Syntek Asset Management, L.P. ("SAMLP"), the general partner of NRLP and
National Operating, L.P. ("NOLP"), the operating partnership of NRLP. Gene E.
Phillips is also a general partner of SAMLP and served as a director and Chief
Executive Officer of SAMI until May 15, 1996. SAMI is a company owned by BCM.
BCM performs certain administrative functions for NRLP and NOLP on a cost
reimbursement basis.

Gene E. Phillips is the former chairman of Southmark, a real
estate syndicator and parent of San Jacinto. As a result of a deadlock on
Southmark's Board of Directors, Mr. Phillips, among others, reached an agreement
whereby he resigned his positions with Southmark and certain of Southmark's
subsidiaries and affiliates in January 1989. Southmark filed a voluntary
petition in bankruptcy under Chapter 11 of the United States Bankruptcy Code in
July 1989. In November 1990, San Jacinto was placed under conservatorship of the
RTC by federal banking authorities. In December 1990, San Jacinto was converted
into a Federal Association and placed in receivership. Mr. Phillips has been
named as a defendant in a number of lawsuits brought by the RTC and private
plaintiffs in which the allegations made against Mr. Phillips included breach of
fiduciary duty and other misconduct, which allegations were denied by Mr.
Phillips. These actions have been dismissed or settled.

Since February 1, 1990, affiliates of BCM have provided property
management services to ART. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services. Carmel, Ltd. subcontracts
with other entities for the provision of the property-level management services
to ART at various rates. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) First Equity Properties, Inc. ("First Equity")
which is 50% owned by BCM, (ii) Gene E. Phillips, and (iii) a trust for the
benefit of the children of Gene E. Phillips. Carmel, Ltd. subcontracts the
property-level management of ART's hotels, shopping centers, one of its office
buildings and the Denver Merchandise Mart to Carmel Realty, Inc. ("Carmel
Realty") which is owned by First Equity. Carmel Realty is entitled to receive
property and construction management fees and leasing commissions in accordance
with the terms of its property-level management agreement with Carmel, Ltd.

Affiliates of BCM are also entitled to receive real estate
brokerage commissions in accordance with the terms of the advisory agreement
between ART and BCM.

ART has no employees itself, but a wholly-owned food service
subsidiary of ART has approximately 800 employees as of November 1, 1997.
Employees of BCM render services to ART.

ART's principal offices are located at 10670 North Central
Expressway, Suite 300, Dallas, Texas 75231. ART's telephone number is (214)
692-4700.

THE BUSINESS OF ART

GENERAL

ART, a Georgia corporation, is the successor to a District of
Columbia business trust. ART elected to be treated as a REIT under Sections 856
through 860 of the Code, during the period July 1, 1987 through December 31,
1990. ART allowed its REIT tax status to lapse in 1991.

ART's primary business is investing in equity interests in real
estate (including equity securities of real estate-related entities), leases,
joint venture development projects and partnerships and financing real estate
and real estate activities through investments in mortgage loans, including
first, wraparound and junior mortgage loans. The ART Board has broad authority
under ART's governing documents to make all types of real estate investments,
including mortgage loans and equity real estate investments, as well as
investments in the securities of other entities, whether or not such entities
are engaged in real estate related activities. ART does not have a policy
limiting the amount or percentage of assets that may be invested in any
particular property or type of property or in any geographic area. ART's
governing documents do not contain any limitation on the amount or percentage of
indebtedness ART may incur.

ART's business is not seasonal. ART has determined to pursue a
balanced investment policy, seeking both current income and capital
appreciation. ART's plan of operation is to continue, to the extent its
liquidity permits, to make equity

-44-
57

investments in lower risk real estate such as apartment complexes and
residential development projects or equity securities of real estate-related
entities and to continue to service and hold for investment its mortgage notes.
ART also intends to pursue higher risk, higher reward investments, such as
developed, partially developed and undeveloped land where it can obtain
financing of a significant portion of a property's purchase price. ART intends
to seek selected dispositions of certain of its assets, in particular certain of
its land holdings, where the prices obtainable for such assets justify their
disposition. ART intends to continue to service and hold for investment its
mortgage notes. ART also intends to pursue its rights vigorously with respect to
mortgage notes receivable that are in default.

ART may purchase or lease properties for long-term investment,
develop or redevelop its properties or sell such properties, in whole or in
part, when circumstances warrant. ART currently participates and may continue to
participate with other entities in property ownership, through joint ventures or
other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness that have priority over ART's equity
interest.

ART may repurchase or otherwise reacquire ART Common Shares,
Special Stock (as defined under "Description of the Capital Stock of ART --
General") or other securities and may also invest in securities of other
entities engaged in real estate activities or securities of other issuers. ART
may invest in the securities of other issuers in connection with acquisitions of
indirect interests in real estate (normally general or limited partnership
interests in special purpose partnerships owning one or more properties). ART
may in the future acquire all or substantially all of the securities or assets
of real estate investment trusts, management companies or similar entities where
such investments would be consistent with its investment policies. ART may also
invest in securities of other issuers from time to time for the purpose of
exercising control. It is not intended that ART's investments in securities will
require it to register as an "investment company" under the Investment Company
Act of 1940, as amended, and it is intended that ART would divest securities
before any such registration would be required.

The ART Board may devote available assets to particular
investments or types of investments, without restriction on the amount or
percentage of ART's assets that may be so devoted to a single investment or to
any particular type of investment, and without limit on the percentage of
securities of any one issuer that ART may acquire. ART's investment objectives
and policies may be changed at any time by the ART Board without the approval of
ART's shareholders. See "Risk Factors -- Risks Relating to ART's Business --
Changes in ART's Policies Without Stockholder Approval."

To the extent that the ART Board determines to seek additional
capital, ART may raise such capital through additional equity offerings, debt
financing or retention of cash flow, or a combination of these methods. If the
ART Board determines to raise additional equity capital, it may, without
stockholder approval, issue additional shares of ART Common Stock or Special
Stock up to the amount of its authorized capital in any manner (and on such
terms and for such consideration) as it deems appropriate, including in exchange
for property. Such securities may be senior to the outstanding ART Common Shares
and may include additional series of Special Stock (which may be convertible
into ART Common Shares). Existing stockholders of ART will have no preemptive
right to purchase shares in any subsequent offering of securities by ART, and
any such offering could cause a dilution of a stockholder's investment in ART.

To the extent that the ART Board determines to obtain additional
debt financing, ART intends to do so generally through mortgages on properties.
Such mortgages may be recourse, non-recourse or cross-collateralized. ART does
not have a policy limiting the number or amount of mortgages that may be placed
on any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. ART may also borrow funds through
bank borrowings, publicly and privately placed debt instruments, or purchase
money obligations to the sellers of properties, any of which indebtedness may be
unsecured or may be secured by any or all of the assets of ART or any existing
or new property-owning entity in which ART holds an interest and may have full
or limited recourse to all or any portion of the assets of ART, or any such
existing or new property-owning entity.

ART may seek to obtain unsecured or secured lines of credit or may
determine to issue debt securities (which may be convertible into capital stock
or be accompanied by warrants to purchase capital stock), or to sell or
securitize its receivables. The proceeds from any borrowings may be used to
finance acquisitions, to develop or redevelop properties, to refinance existing
indebtedness or for working capital or capital improvements. ART also may
determine to finance acquisitions through the exchange of properties or issuance
of additional ART Preferred Shares, ART Common Shares, Special Stock or other
securities.

ART has made and may in the future make loans to joint ventures or
other entities in which it participates. ART does not intend to engage in (i)
trading, underwriting or agency distribution or sale of securities of other
issuers and (ii) the active

-45-
58

trade of loans and investments, other than in connection with acquisitions of
additional interests in CMET, IORI, TCI and NRLP.

Except as required under the Exchange Act, ART is not required to
make annual or other reports to its securityholders.

The specific composition of ART's real estate and mortgage notes
receivable portfolios from time to time depends largely on the judgment of ART's
management as to changing investment opportunities and the level of risk
associated with specific investments or types of investments. ART's management
intends to continue to maintain real estate and mortgage notes receivable
portfolios diversified by location and type of property. In addition to its
equity investments in real estate and mortgage notes, ART has also invested in
private and open market purchases of the equity securities of CMET, IORI, TCI
and NRLP.

GEOGRAPHIC REGIONS

For purposes of its investments, ART has divided the continental United States
into the following six geographic regions.

Northeast region comprised of the states of Connecticut, Delaware,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New
York, Pennsylvania, Rhode Island and Vermont, and the District of
Columbia. ART has no properties in this region.

Southeast region comprised of the states of Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Tennessee
and Virginia. As of September 30, 1997, ART had two hotels in this
region.

Southwest region comprised of the states of Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma and Texas. As of September 30,
1997, ART had one commercial property in this region.

Midwest region comprised of the states of Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, South Dakota, West Virginia and Wisconsin. As of
September 30, 1997 ART had two commercial properties and one hotel
in this region.

Mountain region comprised of the states of Colorado, Idaho,
Montana, Nevada, Utah and Wyoming. As of September 30, 1997, ART
had two commercial properties and one hotel in this region.

Pacific region comprised of the states of California, Oregon and
Washington. As of September 30, 1997, ART had no properties in
this region.

Excluded from the above are a single family residence in Dallas, Texas and 32
parcels of developed, partially developed and undeveloped land as described
below.

REAL ESTATE

At September 30, 1997, approximately 79% of ART's assets were
invested in real estate and the equity securities of real estate entities. ART
has invested in real estate located throughout the continental United States,
either on a leveraged or nonleveraged basis. ART's real estate portfolio
consists of properties held for investment, investments in partnerships,
properties held for sale and investments in equity securities of CMET, IORI, TCI
and NRLP.

Types of Real Estate Investments. ART's real estate consists of
commercial properties (office buildings, shopping centers and a merchandise
mart), hotels and developed, partially developed and undeveloped land. In
selecting new real estate investments, the location, age and type of property,
gross rents, lease terms, financial and business standing of tenants, operating
expenses, fixed charges, land values and physical condition are among the
factors considered. ART may acquire properties subject to or assume existing
debt and may mortgage, pledge or otherwise obtain financing for its properties.
The ART Board may alter the types of and criteria for selecting new real estate
investments and for obtaining financing without a vote of ART's stockholders.

Although ART has typically invested in developed real estate, ART
may also invest in new construction or development either directly or in
partnership with nonaffiliated parties or affiliates (subject to approval by the
ART Board). To the extent

-46-
59

that ART invests in construction and development projects, ART would be subject
to business risks, such as cost overruns and construction delays, associated
with such higher risk projects.

At September 30, 1997, the only property owned by ART on which
significant capital improvements were in process was the Denver Merchandise Mart
located in Denver, Colorado.

In the opinion of ART's management, the properties owned by ART
are adequately covered by insurance.

The following table sets forth the percentages, by property type
and geographic region, of ART's owned real estate (excluding the 32 parcels of
developed, partially developed and undeveloped land, and a single family
residence, described below) at September 30, 1997.

Commercial
Region Properties Hotels
- ------ ---------- ------

Midwest .................................. 50% 25%
Mountain ................................. 33 25
Southwest ................................ 17 --
Southeast ................................ -- 50
--- ---
100% 100%

The foregoing table is based solely on the commercial square footage
and hotel rooms owned by ART, and does not reflect the value of ART's investment
in each region. Excluded from the above table are a single family residence in
Dallas, Texas and 32 parcels of developed, partially developed and undeveloped
land consisting of: one developed residential lot in a residential subdivision
in Fort Worth, Texas, two parcels of partially developed land in Las Colinas,
Texas, totaling 115.69 acres, 3.5 acres of undeveloped land in downtown Atlanta,
Georgia, 42.7 acres of partially developed land in Denver, Colorado, 567.7 acres
of partially developed land in Houston, Texas, 280.0 acres of partially
developed land in Dallas, Texas, 78.45 acres of partially developed land in
Lewisville, Texas, 428.0 acres of partially developed land in Irving, Texas,
420.0 acres of undeveloped land in Duchense, Utah, 82.4 acres of undeveloped
land in Oceanside, California, 546 acres of undeveloped land in Tarrant County,
Texas, 130.6 acres of undeveloped land in Harris County, Texas, six parcels of
undeveloped land in Collin County, Texas, totaling 426.1 acres, 17.1 acres of
undeveloped land in Farmer's Branch, Texas, 60.5 acres of undeveloped land in
Plano, Texas, 1,448 acres of undeveloped land in Austin, Texas, 129.6 acres of
undeveloped land in Collin County, Texas, 811.8 acres of undeveloped land in
Tarrant County, Texas, 182.5 acres of undeveloped land in Collin County, Texas,
645.5 acres of undeveloped land in Collin County, Texas, 10.4 acres of
undeveloped land in Dallas, Texas, and 6 additional parcels of land totaling
approximately 74.5 acres.

-47-
60

A summary of the activity in ART's owned real estate portfolio during
1996 and through September 30, 1997 is as follows:

Owned properties in real estate portfolio at January 1, 1996.. 15*
Properties acquired through purchase.......................... 29
Property obtained through foreclosure......................... 1
Properties sold............................................... (1)
--

Owned properties in real estate portfolio at
September 30, 1997.......................................... 42*

- ---------------------

* Includes one residential subdivision with 22 developed residential lots at
January 1, 1996, and one developed residential lot at September 30, 1997.

Properties Held for Investment. Set forth below are ART's properties
held for investment and the average annual rental rate per square foot for
commercial properties and the average daily room rate for hotels and occupancy
at December 31, 1996, 1995, 1994, 1993 and 1992 for commercial properties and
average occupancy during 1996, 1995, 1994, 1993 and 1992 for hotels:

- ------------------------------------------------------------------------------------------------------------------
Average Annual Rental Per Square Foot
or Average Room Rate
-----------------------------------
- ------------------------------------------------------------------------------------------------------------------
Square
Property Location Footage/Rooms 1996 1995 1994 1993 1992
-------- -------- ------------- ---- ---- ---- ---- ----

Office Building:
Rosedale Towers Minneapolis, MN 84,798 Sq. Ft. $ 14.88 $ 13.16 $ 14.46 $14.00 $14.43
- ------------------------------------------------------------------------------------------------------------------
Shopping Centers:
Oak Tree Village Lubbock, TX 45,623 Sq. Ft. 7.98 7.34 * * *
Park Plaza Manitowoc, WI 105,507 Sq. Ft. 5.61 5.72 5.65 5.65 5.25
- ------------------------------------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart Denver, CO 509,008 Sq. Ft. 15.33 14.53 14.18 * *
- ------------------------------------------------------------------------------------------------------------------
Hotels:
Best Western Virginia Beach, VA 110 Rooms 41.11 * * * *
Oceanside
Inn at the Mart Denver, CO 156 Rooms 46.66 44.69 42.38 * *
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 66.46 61.66 52.47 * *
- ------------------------------------------------------------------------------------------------------------------

* Property was acquired in 1995 or 1996

- ------------------------------------------------------------------------------------
Occupancy
-----------------------------
Property 1996 1995 1994 1993 1992
-------- ---- ---- ---- ---- ----
- ------------------------------------------------------------------------------------

Office Building:
Rosedale Towers 91% 90% 94% 92% 89%
- ------------------------------------------------------------------------------------
Shopping Centers:
Oak Tree Village 89% 91% * * *
Park Plaza 100% 93% 93% 86% 52%
- ------------------------------------------------------------------------------------
Merchandise Mart:
Denver Mart 95% 96% 97% * *
- ------------------------------------------------------------------------------------
Hotels:
Best Western 42% * * * *
Oceanside
Inn at the Mart 36% 40% 42% * *
Kansas City
Holiday Inn 79% 75% 75% * *
- ------------------------------------------------------------------------------------

-48-
61

* Property was acquired in 1995 or 1996.

Occupancy presented above is without reference to whether leases in effect are
at, below or above market rates.

Denver Merchandise Mart. The Denver Merchandise Mart is a wholesale
trade mart located in Denver, Colorado. No tenant occupies ten percent or more
of the rentable square footage of the Denver Merchandise Mart. The principal
business carried on in or from the Denver Merchandise Mart is wholesale sales of
goods. At September 30, 1997, significant capital improvements were in process
at the Denver Merchandise Mart.

-49-
62

The following table shows lease expiration information for the tenants
of the Denver Merchandise Mart at September 30, 1997:

% of
Gross 1997 Aggregate 1997
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------- --------------

Month to Month -- -- $ -- --%
1997 14 17,856 225,828 4.62%
1998 131 73,774 1,150,524 23.54%
1999 143 103,318 1,634,016 33.43%
2000 117 92,823 1,564,260 32.00%
2001 26 18,711 313,464 6.41%
2002 -- -- -- --%
2003 -- -- -- --%
2004 -- -- -- --%
2005 -- -- -- --%
2006 and thereafter 1 2,278 1 --%
--- ----- ------------ -----
TOTAL 432 308,760 $ 4,888,093 100.00%
=== ======= ========= ======
- ----------------

(a) Assumes no renewal options will be exercised in order to show the
earliest termination of the leases.

In April 1996, ART refinanced the $5.1 million of mortgage debt secured
by the Denver Merchandise Mart for $15.0 million. The loan was secured by a
mortgage against the Denver Merchandise Mart and a pledge of 632,000 newly
issued shares of ART's Common Stock. ART received net refinancing proceeds of
$7.8 million after the payoff of the existing mortgage debt, purchasing the
ground lease on the Denver Merchandise Mart for $678,000 and payment of various
closing costs associated with the refinancing. In October 1997, ART again
refinanced the mortgage debt secured by the Denver Merchandise Mart for $23.0
million. The new loan is secured primarily by a mortgage against the Denver
Merchandise Mart. ART received net refinancing proceeds of $5.4 million after
the payoff of $14.8 million in existing mortgage debt that was scheduled to
mature in October 1997. The new loan bears interest at 8.3% per annum, requires
monthly principal and interest payments of $198,000 and matures in October,
2012.

Real estate taxes are levied against the Denver Merchandise Mart for
county and township, and school tax purposes. Denver Merchandise Mart paid
$312,175 in real estate taxes in 1996. The 1996 millage rate was 8.8055/100. ART
estimates that Denver Merchandise Mart will owe approximately $300,000 in real
estate taxes in 1997. Real estate taxes are substantially reimbursed by the
tenants through real estate tax recovery billings.

-50-
63

As of December 31, 1996, for Federal income tax purposes, ART
depreciates the Denver Merchandise Mart under the Modified Accelerated Cost
Recovery System ("MACRS") as follows:

Buildings:

Gross Federal Income Tax Basis $ 4,938,057
Accumulated Depreciation $ 118,308
Depreciation Method MACRS - Straight Line ("SL")
Depreciable Life 40 years

Land Improvements:

Gross Federal Income Tax Basis $ 2,932,033
Accumulated Depreciation $ 136,637
Depreciation Method MACRS - SL
Depreciable Life 40 years

Personal Property:

Not applicable.

Oak Tree Village. Oak Tree Village is a retail shopping center located
in Lubbock, Texas. One tenant, American Home Patient, occupies ten percent or
more of the rentable square footage of Oak Tree Village and the principal nature
of business of such tenant is the sale of home healthcare equipment. The
principal business carried on in or from the Oak Tree Village is the retail sale
of goods and professional services. ART currently has no plans to renovate or
improve Oak Tree Village.

The principal tenants of Oak Tree Village are American Home Patient,
Dr. Martinez and Uniform Today. The principal tenants of Oak Tree Village lease
their space and the underlying land pursuant to leases which are summarized
below.

Principal Tenant Area Minimum Expiration Renewal
---------------- (Sq. Ft.) Annual Rent Date Options
--------- ----------- ---------- -------

American Home Patient 4,931 $29,900 3/31/99 No
Dr. Martinez 4,437 $28,841 11/30/98 No
Uniform Today 3,973 $40,723 2/28/02 No

-51-
64

The following table shows lease expiration information for the tenants
of Oak Tree Village at September 30, 1997:

% of
Gross 1997 Aggregate 1997
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------ --------------

Month to Month -- -- $ -- --%
1997 -- -- -- --%
1998 3 7,973 54,971 16.12%
1999 6 9,769 77,165 22.63%
2000 7 13,198 119,043 34.91%
2001 2 4,925 36,431 10.68%
2002 2 5,922 53,392 15.66%
2003 -- -- -- --%
2004 -- -- -- --%
2005 -- -- -- --%
2006 and thereafter -- -- -- --%
--- -------------- -------------- -------
TOTAL 20 41,787 $ 341,002 100.00%
=== ============== ============== =======

- -----------------

(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

In October 1997, ART refinanced, at maturity, the $1.4 million mortgage
debt secured by the Oak Tree Village for $1.5 million. ART received no net
financing proceeds after the payoff of the existing mortgage and the payment of
various closing costs associated with the refinancing. The new loan bears
interest at a rate of 8.48% per annum, requires monthly principal and interest
payments of $13,344 and matures in October 2007.

Real estate taxes are levied against Oak Tree Village for county and
township, and school tax purposes. Oak Tree Village paid $52,200 in real estate
taxes in 1996. The 1996 millage rate was 2.3536/100. ART estimates that Oak Tree
Village will owe approximately $54,863 in real estate taxes in 1997. Real estate
taxes are substantially reimbursed by the tenants through real estate tax
recovery billings.

As of December 31, 1996, for Federal income tax purposes, ART depreciates
Oak Tree Village under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 1,430,781
Accumulated Depreciation $ 40,241
Depreciation Method MACRS - Straight Line ("SL")
Depreciable Life 40 years

-52-
65

Land Improvements:

Not Applicable.

Personal Property:

Not applicable.

Park Plaza. Park Plaza is a retail shopping center located in
Manitowoc, Wisconsin. Sentry Foods, a grocery store, and Big Lots, a discount
department store, occupy ten percent or more of the rentable square footage of
Park Plaza. The principal business carried on in or from the Park Plaza is
retail sales of goods. ART currently has no plans to renovate or improve Park
Plaza.

The principal tenants of Park Plaza lease their space and the
underlying land pursuant to leases which are summarized below.

Principal Tenant Area Minimum Expiration Renewal
---------------- (Sq. Ft.) Annual Rent Date Options
--------- ------------ ---------- -------

Sentry Foods 45,000 $242,100 2/28/06 No
Big Lots 29,063 $100,000 11/30/98 No

The following table shows lease expiration information for the tenants
of Park Plaza at September 30, 1997:

% of
Gross 1997 Aggregate 1997
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------ -----

Month to Month -- -- $ -- --%
1997 -- -- -- --%
1998 3 33,641 141,474 23.89%
1999 3 11,006 50,581 8.54%
2000 1 4,224 28,512 4.81%
2001 -- -- -- --%
2002 -- -- -- --%
2003 1 7,837 79,932 13.50%
2004 1 3,533 26,749 4.52%
2005 -- -- -- --%
2006 and thereafter 2 45,000 264,999 44.74%
---- -------------- -------------- -------
TOTAL 11 105,241 $ 592,247 100.00%
==== ============== ============== =======

- ----------------

(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

-53-
66

At November 1, 1997, the property secured a mortgage with a principle
balance of $3.1 million. The mortgage less interest at 7.5% per annum, requires
monthly principal and interest payments of $38,804 and matures in May 2003.

Real estate taxes are levied against Park Plaza for county and
township, and school tax purposes. Park Plaza paid $74,553 in real estate taxes
in 1996. The 1996 millage rate was 2.184/100. ART estimates that Park Plaza will
owe approximately $95,173 in real estate taxes in 1997. Real estate taxes are
substantially reimbursed by the tenants through real estate tax recovery
billings.

As of December 31, 1996, for Federal income tax purposes, ART
depreciates Park Plaza under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 3,583,779
Accumulated Depreciation $ 414,373
Depreciation Method MACRS - SL
Depreciable Life 40 years

Land Improvements:

Gross Federal Income Tax Basis $ 1,058,435
Accumulated Depreciation $ 83,715
Depreciation Method MACRS - SL
Depreciable Life 40 years

Personal Property:

Not applicable.

Rosedale Towers. Rosedale Towers is a commercial office building
located in Minneapolis, Minnesota. One tenant, Guasman & Moore, occupies ten
percent or more of the rentable square footage of the Rosedale Towers and the
principal nature of business of such tenant is engineering. The other principal
businesses carried on in or from the Rosedale Towers are financial services and
insurance. ART currently has no plans to renovate or improve Rosedale Towers.

The principal tenants of Rosedale Towers are Guasman & Moore, FBS
Mortgage and Frank & Riach. The principal tenants of Rosedale Towers lease their
space and the underlying land pursuant to leases which are summarized below.

Principal Tenant Area Minimum Expiration Renewal
---------------- (Sq. Ft.) Annual Rent Date Options
--------- ----------- ----------- -------

Guasman & Moore 11,143 $161,574 3/31/03 No
FBS Mortgage 4,806 $ 73,292 6/30/98 No
Frank & Riach 4,432 $ 68,696 10/31/97 No

-54-
67

The following table shows lease expiration information for the tenants
of the Rosedale Towers at September 30, 1997:

% of
Gross 1997 Aggregate 1997
Number of Leased Minimum Minimum
Leases Area Annual Annual
Year Expiring (a) (Sq. Ft.) Rent Rent
---- ------------ --------- ------- --------------

Month to Month 1 400 6,804 0.61%
1997 8 10,354 161,914 14.62%
1998 9 16,423 252,404 22.80%
1999 9 18,088 271,374 24.51%
2000 7 10,852 168,880 15.25%
2001 4 7,214 84,307 7.61%
2002 -- -- -- --%
2003 1 11,143 161,574 14.60%
2004 -- -- -- --%
2005 -- -- -- --%
2006 and thereafter -- -- -- --%
---- ----------- ---------- ------
TOTAL 39 74,474 1,107,257 100.00%
==== =========== ========== ======

- ----------------

(a) Assumes no renewal options will be exercised in order to show the
earliest termination of the leases.

In August 1996, ART refinanced the $2.4 million of mortgage debt
secured by the Rosedale Towers for $2.8 million. The loan bears interest at
9.05% per annum, requires monthly principal and interest payments of $24,000 and
matures in August 2006. The current principal balance of the loan as of November
1, 1997 is $2.7 million.

Real estate taxes are levied against Rosedale Towers for county and
township, and school tax purposes. Rosedale Towers paid $216,045 in real estate
taxes in 1996. The 1996 millage rate was 6.5468/100. ART estimates that Rosedale
Towers will owe approximately $220,000 in real estate taxes in 1997. Real estate
taxes are substantially reimbursed by the tenants through real estate tax
recovery billings.

As of December 31, 1996, for Federal income tax purposes, ART
depreciates Rosedale Towers under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $1,893,482
Accumulated Depreciation $ 279,151
Depreciation Method MACRS - SL
Depreciable Life 40 years

Land Improvements:

Gross Federal Income Tax Basis $ 865,784
Accumulated Depreciation $ 45,778
Depreciation Method MACRS - SL
Depreciable Life 40 years

Personal Property:

Not applicable.

-55-
68

Inn at the Mart. The Inn at the Mart is a 156 room hotel located in
Denver, Colorado.

In August 1996, ART financed the previously unencumbered Inn at the
Mart for $2.0 million to facilitate renovation of the property. The loan bears
interest at a variable rate, currently 10.50% per annum and requires monthly
interest only payments through February 1, 1998. Commencing March 1, 1998,
monthly payments of interest plus a $3,000 principal paydown are required until
maturity on September 1, 2001. The current principal balance on the loan as of
November 1, 1997 is $2.0 million.

Real estate taxes are levied against Inn at the Mart for county and
township, and school tax purposes. Inn at the Mart paid $47,304 in real estate
taxes in 1996. The 1996 millage rate was 0.087871/100. ART estimates that Inn at
the Mart will owe approximately $47,403 in real estate taxes in 1997.

As of December 31, 1996, for Federal income tax purposes, ART
depreciates Inn at the Mart under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 402,916
Accumulated Depreciation $ 33,996
Depreciation Method MACRS - SL
Depreciable Life 40 years

Land Improvements:

Gross Federal Income Tax Basis $ 49,347
Accumulated Depreciation $ 4,165
Depreciation Method MACRS - SL
Depreciable Life 40 years

Personal Property:

Gross Federal Income Tax Basis $ 279,285
Accumulated Depreciation $ 80,164
Depreciation Method MACRS - SL
Depreciable Life 10 years

Best Western Oceanside. The Best Western Oceanside is a 110 room hotel
located in Virginia Beach, Virginia. In December 1996, ART purchased the Best
Western Oceanside for $6.8 million. ART acquired the property through Ocean
Beach Partners, L.P. ("Ocean, LP"), a newly formed partnership of which a
wholly-owned subsidiary of ART is the 1% general partner and ART is the 99%
Class B limited partner. In conjunction with the acquisition, Ocean, LP issued
1,813,660 Class A limited partner units in Ocean, LP having an agreed value of
$1.00 per partnership unit to the former owners of the property. The Class A
limited partner units are entitled to a $.095 per unit annual preferred return.
The Class A limited partners do not otherwise participate in the income, loss or
cash flow of the partnership. The Class A limited partner units may be exchanged
for Series D Cumulative Preferred Stock of ART at a rate of 20 units per share.
ART obtained new mortgage financing for the remaining $5.0 million of the
purchase price. The loan bears interest at 9.94% per annum, requires monthly
payments of principal and interest of $49,000 and matures in January 2007. The

-56-
69

current principal balance on the loan as of November 1, 1997 is $5.0 million.
ART currently has no plans to renovate or improve the Best Western Oceanside.

Real estate taxes are levied against Best Western Oceanside for county
and township, and school tax purposes. Best Western Oceanside paid $62,634 in
real estate taxes in 1996. The 1996 millage rate was 1.18/100. ART estimates
that Best Western Oceanside will owe approximately $71,126 in real estate taxes
in 1997.

As of December 31, 1996, for Federal income tax purposes, ART
depreciates Best Western Oceanside under the Accelerated Cost Recovery System
("ACRS") and the Straight Line or Declining Balance method ("DB") as follows:

Buildings:

Gross Federal Income Tax Basis $3,849,069
Accumulated Depreciation $2,748,157
Depreciation Method ACRS - SL
Depreciable Life 15 years

Land Improvements:

Gross Federal Income Tax Basis $ 51,189
Accumulated Depreciation $ 43,528
Depreciation Method ACRS - SL
Depreciable Life 15 years

Personal Property:

Gross Federal Income Tax Basis $ 472,741
Accumulated Depreciation $ 271,794
Depreciation Method 200% DB
Depreciable Life 7 years

Kansas City Holiday Inn. The Kansas City Holiday Inn is a 196 room
hotel located in Kansas City, Missouri. In December 1996, ART obtained second
lien financing on the Kansas City Holiday Inn of $3.2 million. ART received net
financing proceeds of $3.0 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at 15% per annum,
requires monthly interest payments of $41,000 and matures in February 1999. The
current principal balance on the second lien loan as of November 1, 1997 is $3.2
million. In April and October 1994, ART refinanced the first lien mortgage debt
in the amount of $6.0 million. ART received net cash of $2.8 million after the
payoff of $2.9 million of the existing first lien mortgage debt and various
closing costs associated with the refinancing. The first lien mortgage bears
interest at 9.45% per annum, requires monthly principal and interest payments of
$45,000 and matures in November 2005. The current principal balance of the first
lien loan as of November 1, 1997 is $5.8 million. ART currently has no plans to
renovate or improve the Kansas City Holiday Inn.

Real estate taxes are levied against the Kansas City Holiday Inn for
county and township, and school tax purposes. The Kansas City Holiday Inn paid
$99,783 in real estate taxes in 1996. The 1996 millage rate was 7.08/100. ART
estimates that the Kansas City Holiday Inn will owe approximately $102,776 in
real estate taxes in 1997.

-57-
70

As of December 31, 1996, for Federal income tax purposes, ART
depreciates the Kansas City Holiday Inn under the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 5,905,794
Accumulated Depreciation $ 436,783
Depreciation Method MACRS - SL
Depreciable Life 40 years

Land Improvements:

Gross Federal Income Tax Basis $ 2,025,540
Accumulated Depreciation $ 114,243
Depreciation Method MACRS - SL
Depreciable Life 40 years

Personal Property:

Not applicable

In July 1997, ART purchased an additional 9% interest in Campbell
Center Joint Venture for $868,000 in cash, increasing to 36% ART's interest in
the Campbell Center Joint Venture.

In September 1997, ART foreclosed on its $14.6 million junior mortgage
note receivable secured by the Williamsburg Hospitality House, a 297 room hotel
in Williamsburg, Virginia. ART acquired the property at foreclosure subject to a
first lien mortgage of $11.9 million.

In September 1997, ART purchased the Collection, a 206,048 square foot
retail and commercial center in Denver, Colorado, for $19.5 million. ART paid
$791,000 in cash and assumed existing mortgages totaling $14.7 million, and
issued 400,000 ART Preferred Shares having a liquidation value of $10.00 per
share or a total of $4.0 million. The first lien mortgage in the amount of $14.2
million bears interest at 8.64% per annum, requires monthly principal and
interest payments of $116,000 and matures in May 2017. The second lien mortgage
in the amount of $580,000 bears interest at 7% per annum from April 1995 to
April 2001, 7.5% per annum from May 2001 to April 2006, and 8% per annum from
May 2006 to May 2010, requires monthly principal and interest payments of $3,000
and matures in May 2010.

In October 1997, ART purchased, in a single transaction, four hotels in
Fresno, California, for $33.0 million, consisting of (i) Piccadilly Inn Shaw
(194 rooms), (ii) Piccadilly Inn University (190 rooms), (iii) Piccadilly Inn
Airport (185 rooms) and (iv) Chateau Inn (78 rooms). ART issued 1.6 million ART
Preferred Shares having a liquidation value of $10.00 per share or a total of
$16.0 million and obtained mortgage financing of $19.8 million. ART received net
financing proceeds of $2.2 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at 8.40% per annum,
requires monthly principal and interest payments of $158,000 and matures in
October 2013.

Properties Held for Sale. Set forth below are ART's properties held for
sale, primarily undeveloped, partially developed and undeveloped land:

-58-
71

Land
- ----

Atlanta Atlanta, GA 3.5 Acres
Las Colinas I Las Colinas, TX 68.0 Acres
BP Las Colinas Las Colinas, TX 60.3 Acres
Rivertrails I Ft. Worth, TX 10.0 Lots
Parkfield Denver, CO 442.7 Acres
Pin Oak Houston, TX 567.7 Acres
Valwood Dallas, TX 280.0 Acres
Lewisville Lewisville, TX 78.5 Acres
Valley Ranch Irving, TX 452.0 Acres
Jeffries Ranch Oceanside, CA 82.4 Acres
Bad Lands Duchense, Utah 420.0 Acres
Other
(6 properties) Various 74.5 Acres

In October 1995, ART purchased BP Las Colinas, a 92.6 acre parcel of
partially developed land in Las Colinas, Texas. In February 1996, ART entered
into a contract to sell 72.5 acres of such parcel for $12.9 million. The
contract called for the sale to close in two phases. In July 1996, ART completed
the first phase sale of 32.3 acres for $4.9 million in cash. In accordance with
the terms of the term loan secured by such property, ART applied the net
proceeds of the sale, $4.7 million, to pay down the term loan, in exchange for
that lenders' release of its collateral interest in the 32.3 acres sold. ART
recognized a gain of $2.0 million on such sale. In February 1997, ART completed
the second phase sale of 40.2 acres for $8.0 million, of which $7.2 million was
paid in cash. Of the net sales proceeds of $6.9 million, $1.5 million was used
to payoff the underlying debt secured by the BP Las Colinas parcel, pay a
$500,000 maturity fee to the lender, make a $1.5 million principal paydown on a
note secured by Parkfield land in Denver, Colorado with the same lender, and
$1.0 million was applied as a principal paydown on the term loan secured by the
Las Colinas I land parcel. In conjunction with the sale ART provided $800,000 in
purchase money financing in the form of a six month unsecured loan. The loan has
been paid in full.

In March 1996, ART sold 2.3 acres of the Las Colinas I land parcel for
$961,000 in cash. In accordance with the provisions of the term loan secured by
such parcel, ART applied the net proceeds of the sale, $891,000, to pay down the
term loan. ART recognized a gain of $538,000 on the sale. In May 1996, ART sold
an additional 2.3 acres of the Las Colinas I land parcel for $941,000 in cash.
In accordance with the provisions of the term loan secured by such parcel, ART
applied the net proceeds of the sale of $864,000 to pay down the term loan. ART
recognized a gain of $534,000 on the sale.

In June 1996, ART purchased Parkfield land, 442.7 acres of partially
developed land in Denver, Colorado, for $8.5 million. In connection with the
acquisition, ART obtained mortgage financing of $7.5 million and issued to the
seller 15,000 shares of ART's Series C Cumulative Convertible Preferred Stock
with an aggregate liquidation preference of $1.5 million. The excess financing
proceeds of $500,000 were applied to the payment of various closing costs
associated with the acquisition. The loan bears interest at 15% per annum,
requires monthly interest only payments at a rate of 12% per annum, with the
remaining 3% being deferred and added to the principal balance of the loan. The
principal balance, accrued and unpaid interest and a $600,000 "maturity fee" is
due at the loan's maturity in June 1998.

Also in June 1996, ART sold for $120,000 in cash a parcel of land in
Midland, Michigan that was leased under a long-term ground lease. ART recognized
a gain of $44,000 on the sale.

In July 1996, ART purchased Pin Oak land, 567.7 acres of partially
developed land in Houston, Texas, for $6.2 million. ART paid $451,000 in cash
and obtained seller mortgage financing for the remaining $5.7 million of the
purchase price. The loan bears interest at 9% per annum, required a $500,000
principal and interest payment on November 1, 1996 and requires quarterly
principal and interest payments of $145,000, thereafter. The loan matures in
August 1998. In September 1996, ART entered into a contract to sell the land for
a price in excess of the land's purchase

-59-
72

price and carrying and estimated selling costs. The sale, should it be
consummated, would close on or about December 31, 1997.

In August 1996, ART purchased a pool of assets for $3.1 million from
Southmark, consisting of a total of 151.5 acres of unimproved land in
California, Indiana and Idaho, various percentage interests, ranging from 15% to
45%, in five partnerships and trusts that hold an unsecured note receivable with
a principal balance of $3.4 million and Southmark's 19.2% limited partner
interest in SAMLP, as more fully discussed in "--Investments in Real Estate
Investment Trusts and Real Estate Partnerships," below. To complete the
acquisition, ART borrowed an additional $3.0 million from the lender whose term
loan is secured by the Las Colinas I land in Las Colinas, Texas. The term loan
was amended to increase the loan amount from $10.9 million to $13.9 million. The
$3.0 million advance is secured by the 82.4 acres of unimproved land acquired
from Southmark in Oceanside, California and the 19.2% limited partner interest
in SAMLP.

Also in August 1996, ART purchased Valwood land, 280 acres of partially
developed land in Dallas County, Texas, for $13.5 million. ART paid $3.8 million
in cash and obtained new mortgage financing for the remaining $9.7 million of
the purchase price as a third advance under the term loan from the Las Colinas I
lender discussed above. The term loan was again amended increasing the term loan
amount from $13.9 million to $19.5 million with an additional $4.0 million being
loaned on an overline advance note. The amendment also changed the principal
reduction payments to $2.0 million in November 1996 and $3.0 million on the last
day of March 1997, June 1997, September 1997 and January 1998, and added 240
acres of the Valwood land as additional collateral on the term loan. All other
terms of the term loan remained unchanged. The $4.0 million overline advance
note was repaid in full in December 1996.

In November 1996, ART sold an additional 2.2 acres of the Las Colinas I
land parcel for $899,000 in cash. ART used the net proceeds of the sale of
$749,000 to pay down the term loan secured by such parcel in accordance with
provisions of the loan. ART recognized a gain of $505,000 on the sale. At
December 31, 1996, 68 acres of the Las Colinas I land remained to be sold.

Also in November 1996, ART purchased Lewisville land, 78.5 acres of
undeveloped land in Lewisville, Texas, for $3.6 million. ART paid $1.1 million
in cash and obtained mortgage financing for the remaining $2.5 million of the
purchase price. The mortgage bears interest at 10% per annum, requires an annual
interest payment of $250,000 on November 9, 1997, and quarterly interest
payments of $62,500 thereafter. The loan matures in October 1999.

Also in December 1996, ART purchased Valley Ranch land, 452 acres of
partially developed land in Irving, Texas, for $15.5 million. In conjunction
with the acquisition, a wholly owned subsidiary of ART became the 1% general
partner and ART became the 99% Class B limited partner in Valley Ranch Limited
Partnership ("VRLP"). VRLP ,in turn issued 8,000,000 Class A limited partner
units having an agreed value of $1.00 per partnership unit to the former VRLP
limited partners. The Class A limited partner units are entitled to a $.10 per
unit preferred annual return for 36- months and $.11 per unit preferred annual
return thereafter. The Class A limited partners do not otherwise participate in
the income, loss or cash flow of the partnership. The Class A limited partner
units may be exchanged for Series E Cumulative Convertible Preferred Stock of
ART at a rate of 100 units per share of preferred stock. VRLP obtained new
mortgage financing for the remaining $7.7 million of the purchase price. The
mortgage bears interest at a variable rate currently 10.25% per annum, requires
monthly interest payments of $70,000, and matures in December 1999.

In January 1997, ART sold 3.0 acres of the Las Colinas I land in Las
Colinas, Texas, for $1.2 million in cash. ART recognized a gain of $697,000 on
the sale.

Also in January 1997, ART purchased Scout land, 546 acres of
undeveloped land in Tarrant County, Texas, for $2.2 million. ART paid $725,000
in cash and obtained mortgage financing for the remaining $1.5 million of the
purchase price. The mortgage bears interest at 16% per annum, requires quarterly
interest payments of $61,000 beginning on April 15, 1997, and matures in January
2000.

In March 1997, ART purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas, for $5.6 million. ART paid $1.6 million in cash
and obtained seller financing for the remaining $4.0 million of the purchase
price. The mortgage bears interest at 9% per annum, requires quarterly
interest-only payments of $92,000, and matures in March 2000.

In April 1997, ART purchased McKinney Corners I, 30.4 acres of
undeveloped land in Collin County, Texas for $3.5 million. ART paid $1.0 million
in cash and obtained mortgage financing for the remaining $2.5 million of the

-60-
73

purchase price. The loan bears interest at 14% per annum, requires monthly
interest-only payments of $29,000 and matures in April 1998.

Also in April 1997, ART purchased McKinney Corners II, 173.9 acres of
undeveloped land in Collin County, Texas, for $5.7 million. ART paid $700,000 in
cash and obtained mortgage financing for the remaining $5.0 million of the
purchase price as a fourth advance under the term loan from the Las Colinas I
lender. The term loan was amended increasing the term loan amount from $19.5
million to $24.5 million. The amendment also changed the required principal
reduction payments to $500,000 in June, July, September and October 1997 and
$1.0 million in August and November 1997. The McKinney Corners II land was added
as additional collateral on the term loan.

Also, in April 1997, ART sold 3.115 acres of the Las Colinas I land for
$1.3 million in cash. ART used $1.0 million of the sales proceeds as a
collateral escrow deposit in accordance with the provision of the Valley Ranch
land loan. ART recognized a gain of $648,000 on the sale.

In May 1997, ART purchased McKinney Corners III land, 15.5 acres
undeveloped land in Collin County, Texas, for $896,000 in cash.

Also in May 1997, ART purchased Lacy Longhorn land, 17.1 acres of
undeveloped land in Farmers Branch, Texas, for $1.8 million. ART paid $200,000
in cash and obtained seller financing of the remaining $1.6 million of the
purchase price. The loan bears interest at 10% per annum, requires monthly
principal and interest payments of $400,000 and matures in October 1997.

Also in May 1997, ART purchased Chase Oaks land, 60.5 acres of
undeveloped land in Plano, Texas, for $4.2 million. ART paid $200,000 in cash
and obtained seller financing of the remaining $4.0 million of the purchase
price. The note bears interest at 18% per annum, requires monthly interest only
payments of $60,000 and matures May 2000.

Also in May 1997, ART purchased Pioneer Crossing land, 1,448 acres of
undeveloped land in Austin, Texas, for $21.5 million. ART paid $5.4 million in
cash and obtained seller financing of the remaining $16.1 million of the
purchase price. The notes bear interest at 9.5% per annum, requires monthly
interest only payments of $127,000 and matures in May 2001.

In June 1997, ART purchased Kamperman land, 129.6 acres of undeveloped
land in Collin County, Texas, for $5.0 million in cash. ART simultaneously
closed on a sale of 99.7 acres for $4.5 million in cash. ART recognized a
$215,000 gain on the sale.

Also in June 1997, ART purchased Keller land, 811.8 acres of
undeveloped land in Tarrant County, Texas, for $6.3 million. ART paid $2.3
million in cash and obtained mortgage financing for the remaining $4.0 million
of the purchase price. The loan bears interest at 12.95% per annum, requires
monthly interest only payments of $43,000 and matures in June 1998.

Also in June 1997, ART purchased McKinney Corners IV land, 31.3 acres
of undeveloped land in Collin County, Texas, for $2.4 million. ART paid $400,000
in cash and obtained mortgage financing for the remaining $2.0 million of the
purchase price, as a fifth advance under the term loan from the Las Colinas I
lender. The McKinney Corners IV land was added as additional collateral on the
term loan.

Also in June 1997, ART purchased Pantex land, 182.5 acres of
undeveloped land in Collin County, Texas, for $5.4 million. ART paid $900,000 in
cash and obtained seller financing of the remaining $4.5 million of the purchase
price. The note bears interest at 10.5% per annum, requires semiannual interest
only payments of $239,000 and matures in December 2000.

In July 1997, ART sold 3.9 acres of the Las Colinas I land in Las
Colinas, Texas, for $1.6 million in cash. In accordance with the provisions of
the term loan secured by such parcel, ART applied the net sales proceeds of $1.4
million, to paydown the term loan in exchange for that lender's release of its
collateral interest in such land. ART will record a gain of approximately
$750,000 on such sale.

Also in July 1997, ART purchased Dowdy and McKinney Corners V land,
which parcels are adjacent to ART's other McKinney Corners land, and consists of
a total of 175 acres of undeveloped land in Collin County, Texas, for $2.9
million. ART obtained mortgage financing of $3.3 million as a sixth advance
under the term loan from the Las Colinas

-61-
74

I lender. The Dowdy land, McKinney Corners V land and McKinney Corners III land
were added as additional collateral on the term loan.

Also in July 1997, ART purchased Perkins land, 645.4 acres of
undeveloped land in Collin County, Texas, for $5.8 million. ART paid $3.3
million in cash and assumed the existing mortgage of $2.5 million. The loan
bears interest at 8.5% per annum, requires quarterly interest only payments of
$53,000 and matures in March 2002.

Also in July 1997, ART obtained a third mortgage loan of $2.0 million
from the second mortgage lender on the Pin Oak land. The loan bears interest at
12% per annum compounded monthly and matures in December 1997.

Also in July 1997, ART purchased LBJ land, 10.4 acres of undeveloped
land in Dallas County, Texas, for $2.3 million. ART paid $300,000 in cash and
obtained seller financing of the remaining $2.0 million of the purchase price.
The loan bears interest at 13% per annum, with interest and principal payable at
maturity in October 1997.

In September 1997, ART sold the Mopac Building in St. Louis, Missouri,
for $1.0 million in cash. In accordance with the provisions of the Las Colinas I
term loan, ART applied $350,000 of the sales proceeds to paydown the term loan
in exchange for the lender's release of its collateral interest in such
property. ART recognized a gain of $481,000 on the sale.

Also in September 1997, ART sold a 2.6 acre parcel of the Las Colinas I
land in Las Colinas, Texas, for $1.2 million in cash. In accordance with the
provisions of the term loan secured by such parcel, ART applied the net sales
proceeds of $1.0 million, to paydown the term loan in exchange for the lender's
release of its collateral interest in such land. ART recognized a gain of
$578,000 on the sale.

Also in September 1997, ART sold three tracts of Valley Ranch land
totaling 24.0 acres for $1.6 million in cash. The net sales proceeds of $1.2
million were put into a certificate of deposit for the benefit of the lender, in
accordance with the terms of the term loan secured by such land. ART recognized
a gain of $567,000 on the sale.

Also in September 1997, ART refinanced the Las Colinas I land Double O
tract for $7.3 million. ART received net refinancing proceeds of $2.1 million,
after the payoff of existing mortgage debt of $4.0 million. The note bears
interest at the prime rate plus 4.5% per annum, currently 13%, requires monthly
interest only payments of $77,000 and matures in October 1998.

In 1991, ART purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December 31,
1996, 188 of the residential lots had been sold. Through September 30, 1997,
nine additional lots were sold for an aggregate gain of $17,000, and at such
date one lot remained to be sold.

In November 1991, ART transferred the Porticos Apartments to IORI in
satisfaction, at the time, of ART's $3.6 million obligation to IORI. ART
recorded a deferred gain of $3.0 million on the transfer. In June 1997, IORI
sold the property, and accordingly ART recognized such previously deferred gain.

In October 1997, ART purchased Palm Desert land, a 315.2 acre parcel of
undeveloped land in Palm Desert, California, for $11.2 million. ART paid $3.8
million in cash and assumed the existing mortgage of $7.4 million. The mortgage
bears interest at 9% per annum, requires monthly principal and interest payments
of $76,000 and matures in February 2002.

Also in October 1997, ART purchased Thompson land, a 4.0 acre parcel of
undeveloped land in Dallas County, Texas, for $869,000 in cash.

Also in October 1997, ART purchased Santa Clarita land, a 20.6 acre
parcel of undeveloped land, in Santa Clarita, California, for $1.3 million in
cash.

Also in October 1997, ART purchased Tomlin land, a 9.2 acre parcel of
undeveloped land in Dallas County, Texas, for $1.7 million in cash.

Also in October 1997, ART purchased Rasor land, a 378.2 acre parcel of
undeveloped land in Plano, Texas, for $14.4 million. ART paid $1.5 million in
cash, obtained mortgage financing from the Las Colinas I lender of $3.5 million,
applied the net proceeds of $3.5 million from the simultaneous $3.8 million sale
of an 86.5 acre tract, and

-62-
75

exchanged the Perkins land, a 645.4 acre parcel of undeveloped land in Collin
County, Texas, for the remainder of the purchase price. ART will recognize a
gain of approximately $200,000 on the sale of the 86.5 acre tract.

Also in October 1997, a newly formed partnership, of which ART is the
1% general partner and 99% Class B limited partner, purchased a 15.8 acre parcel
of undeveloped land in Tarrant County, Texas, for $4.5 million. The partnership
paid $800,000 in cash, assumed $2.5 million of existing mortgage debt and issued
1.1 million Class A limited partner units with an agreed value of $1.00 per
unit. The Class A limited partner is entitled to a $.10 per unit annual
preferred return paid quarterly. The Class A units may be exchanged for either
shares of ART's Series G Preferred Stock on or after the second anniversary of
the closing date at a rate of one share of Series G Preferred Stock for each 100
Class A units exchanged or ART Common Shares only on or after the third
anniversary of the closing date. The Class A units are exchangeable for ART
Common Shares at a rate of $1.00 per unit plus any outstanding preferred return
divided by 0.9 times the simple average of the daily closing price of the ART
Common Shares for the 20 business days preceding the date of conversion. The
assumed mortgage bears interest at 12.95% per annum requires quarterly interest
only payments of $81,000 and matures in June 1998.

Competition. Identifying, completing and realizing on real estate
investments has from time to time been highly competitive, and involves a high
degree of uncertainty. ART competes for investments with many public and private
real estate investment vehicles, including financial institutions (such as
mortgage banks, pension funds and REITs) and other institutional investors, as
well as individuals. Many of those with whom ART competes for investments and
its services are far larger than ART, may have greater financial resources than
ART and may have management personnel with more experience than the officers of
ART.

MORTGAGE LOANS

In addition to real estate, a substantial portion of ART's assets have
been and are expected to continue to be invested in mortgage notes receivable,
principally those secured by income-producing real estate. ART's mortgage notes
receivable consist of first, wraparound, and junior mortgage loans.

Types of Mortgage Activity. In addition to originating its own mortgage
loans, ART has acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services ART's mortgage notes receivable.

Types of Properties Subject to Mortgages. The types of properties
securing ART's mortgage notes receivable portfolio at September 30, 1997
consisted of office buildings, apartment complexes, shopping centers,
single-family residences, hotels and developed land. The ART Board may alter the
types of properties subject to mortgages in which ART invests without a vote of
ART's stockholders.

At September 30, 1997, the obligors on $1.3 million or 5.6% of ART's
mortgage notes receivable portfolio were affiliates of ART. Also at that date,
$19.0 million or 89.7% of ART's mortgage notes receivable portfolio was in
default.

The following table sets forth the percentages (based on the
outstanding mortgage note balance at September 30, 1997), by both property type
and geographic region, of the properties that serve as collateral for ART's
mortgage notes receivable at September 30, 1997.

Commercial
Region Apartments Properties Total
------ ---------- ---------- -------

Mountain............ -- 84.53% 84.53%
Southeast........... .28 .05 .33
Southwest........... 5.10 -- 5.10
Midwest............. -- .07 .07
Northeast........... -- 9.97 9.97
------- --------- -------
5.38% 94.62% 100.0%

-63-
76

A summary of the activity in ART's mortgage notes receivable portfolio during
1996 and through September 30, 1997 is as follows:

Loans in mortgage notes receivable portfolio
at January 1, 1996.................. 10*
Loans funded........................... 6
Loan paid in full...................... (4)
Loan foreclosed........................ (1)
----
Loans in mortgage notes receivable portfolio
at September 30, 1997.............. 11

- ---------------

* Includes a mortgage note receivable collateralized by three condominium
mortgage loans.

During 1996, ART collected $4.3 million in interest and $1.5 million in
principal on its mortgage notes receivable. During the first nine months of
1997, ART collected $2.6 million in interest and $22.9 million in principal
payments or sales proceeds on its mortgage notes receivable. ART plans, for the
foreseeable future, to hold, to the extent its liquidity permits, rather than to
sell in the secondary market, the mortgage notes in its portfolio.

First Mortgage Loans. ART may invest in first mortgage loans, with
either short-, medium- or long-term maturities. First mortgage loans generally
provide for level periodic payments of principal and interest sufficient to
substantially repay the loan prior to maturity, but may involve interest-only
payments or moderate or negative amortization of principal and a "balloon"
principal payment at maturity. With respect to first mortgage loans, it is ART's
general policy to require that the borrower provide a mortgagee's title policy
or an acceptable legal opinion of title as to the validity and the priority of
the mortgage lien over all other obligations, except liens arising from unpaid
property taxes and other exceptions normally allowed by first mortgage lenders
in the relevant area. ART may grant to other lenders participations in first
mortgage loans originated by ART.

The following discussion briefly describes the events that affected
previously funded first mortgage loans during 1996 and through September 30,
1997.

The borrower on a $1.7 million mortgage note receivable secured by land
in Osceola, Florida, failed to pay the note on its November 1, 1993 maturity.
ART instituted foreclosure proceedings and was awarded summary judgment in
January 1994. During 1994 and 1995, the borrower paid ART a total of $270,000 in
nonrefundable fees to delay foreclosure of the property until April 24, 1995. On
April 21, 1995, the borrower filed for bankruptcy protection. On August 24,
1996, the bankruptcy court's stay was lifted allowing ART to proceed with
foreclosure. The note had a principal balance of $1.6 million at December 31,
1996. On February 21, 1997, ART sold its note for $1.8 million in cash. ART
recognized a gain of approximately $171,000 on the sale.

Wraparound Mortgage Loans. ART may invest in wraparound mortgage loans,
sometimes called all-inclusive loans, made on real estate subject to prior
mortgage indebtedness. A wraparound mortgage note is a mortgage note having an
original principal amount equal to the outstanding balance under the prior
existing mortgage loan plus the amount actually advanced under the wraparound
mortgage loan.

Wraparound mortgage loans may provide for full, partial or no
amortization of principal. ART's policy is to make wraparound mortgage loans in
amounts and on properties as to which it would otherwise make a first mortgage
loan. The following discussion briefly describes events that affected previously
funded wraparound mortgage loans during 1996 and through September 30, 1997.

In February 1996, ART refinanced the $7.8 million of debt
collateralized by a mortgage note receivable with a principal balance of $18.2
million at December 31, 1996, which is secured by a shopping center in Las
Vegas, Nevada, for $12.0 million. ART received net refinancing proceeds of $2.3
million after the payoff of the existing debt, payment of various closing costs
associated with the refinancing and making a $1.5 million paydown on the term
loan secured by the Las Colinas I land in Las Colinas, Texas, in exchange for
that lender's release of its participation in the note receivable. In September
1997, ART sold its wraparound mortgage note receivable secured by the Las Vegas
Plaza

-64-
77

Shopping Center for $15.0 million. ART received net cash of $5.5 million after
the payoff of the loan in the amount of $9.2 million secured by such note
receivable. ART incurred no loss on the sale beyond the reserve previously
established.

In August 1990, ART foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. ART acquired
the hotel and casino through foreclosure subject to first and second lien
mortgages totaling $10.0 million. In June 1992, ART sold the hotel and casino
for a $22.0 million wraparound mortgage note receivable, a $500,000 unsecured
note receivable, which was collected in full, and $100,000 in cash. The $22.0
million note bears interest at 11% and was scheduled to mature in July 1995. ART
recorded a deferred gain of $4.6 million in connection with the sale of the
hotel and casino resulting from a disputed third lien mortgage being
subordinated to ART's wraparound mortgage note receivable. ART and the borrower
agreed to extend ART's wraparound mortgage note receivable to December 31, 1995.
A one percent extension fee was added to the principal balance of the wraparound
mortgage note. The monthly payments on the note remained at $175,000 per month
as did the other terms of the note. At the note's extended maturity, ART and the
borrower again agreed to extend ART's wraparound mortgage note to July 1, 1996.
A one percent extension fee was again added to the principal balance of ART's
wraparound mortgage note. The monthly payments on the wraparound mortgage note
remained at $175,000 per month as did the other terms of the note. ART's
modified wraparound note continued to accrue interest at 11% per annum with any
unpaid interest being added monthly to the principal balance. In March 1997, the
wraparound note was again modified and extended in exchange for, among other
things, the borrower's commitment to invest $2.0 million in improvements to the
hotel and casino within four months of the March 1997 modification and an
additional $2.0 million prior to December 1997. The borrower has not made the
required mortgage payments since April 1997, nor the required improvements . ART
is in negotiations with the borrower, but has also begun foreclosure
proceedings. If the negotiations are not successful and ART forecloses on the
property it does not expect to incur a loss as the fair value of the property
exceeds the carrying value of ART's note receivable. ART's wraparound mortgage
note receivable had a principal balance of $27.6 million at December 31, 1996
and $28.1 million at September 30, 1997. ART recognizes interest income on this
wraparound mortgage note only to the extent interest is collected.

In April 1996, the underlying liens relating to this wraparound
mortgage note receivable were refinanced for $16.8 million. ART received net
cash of $11.2 million after the payoff of the underlying liens then totaling
$2.9 million, the payment of various closing costs associated with the
refinancing and making a $1.4 million paydown on the term loan secured by the
Las Colinas I land in Las Colinas, Texas, in exchange for that lender's release
of its participation in the wraparound note receivable. The new underlying lien
bears interest at 16.5% per annum, requires monthly interest only payments of
$180,000, at a rate of 12.5% per annum, with the remaining 4% being deferred and
added to the loan's principal balance. The loan matures in April 1998.

Junior Mortgage Loans. ART may invest in junior mortgage loans. Such
notes are 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 notes
ordinarily includes the real estate which secures the note, other collateral and
personal guarantees of the borrower.

The following discussion briefly describes the junior mortgage loans
funded in 1996 and during the first nine months of 1997 and the events that
affected previously funded junior mortgage notes during 1996 and the first nine
months of 1997.

In May 1996, ART funded a $100,000 second lien mortgage secured by a
single family residence in Oklahoma City, Oklahoma. The mortgage note receivable
bears interest at 10% per annum, with the principal and all accrued but unpaid
interest being payable in a single installment on demand or the note's June 1,
1998 maturity.

At December 31, 1996, ART held a mortgage note receivable secured by a
third lien mortgage secured by a commercial property in South Carolina and
personal guaranties of several individuals. The note had an extended maturity
date of September 1, 1996. ART and the borrower have again agreed to extend the
mortgage note receivable's maturity date to September 1, 1997. The extension
required an additional $90,000 principal reduction payment payable in three
equal monthly installments beginning November 1, 1996. ART received $85,000 of
the required principal reduction payments in 1996 and the remaining $5,000 in
1997. The monthly interest, quarterly principal reduction payments of $25,000
and all other terms remained the same. The principal balance of the note was
$93,000 at December 31, 1996 and the note is performing in accordance with its
modified terms.

ART held a junior mortgage note receivable secured by the Williamsburg
Hospitality House in Williamsburg, Virginia, that is subject to a first

-65-
78

lien mortgage of $12.0 million at December 31, 1996. In October 1993, the then
first lien debt was restructured and split into three pieces. During 1995, ART
advanced the borrower $3.3 million to payoff the then second lien, allowing the
borrower to receive a $2.4 million discount offered by the lender for early
payoff of such lien. In conjunction with such advance, ART extended the maturity
date of its note to April 1, 1996. All other terms of the note remained
unchanged. In December 1996, the underlying lien debt was refinanced for $12.0
million. Of the loan proceeds, $9.0 million was used to payoff the existing
underlying lien, $700,000 was applied to the principal and interest due ART with
the remainder of the loan proceeds being used to fund a repair escrow and pay
various closing costs associated with the refinancing. The new first mortgage
bears interest at 9.85% per annum, requires monthly payments of principal and
interest of $120,000 and matures in December 2001. ART is the 1% general partner
in the partnership owning the property. The partnership paid a mortgage
brokerage and equity refinancing fee of $128,000 to BCM based on the $12.0
million purchase price. In September 1997, ART foreclosed on its $14.6 million
junior mortgage note receivable secured by the Williamsburg Hospitality House.
ART obtained the property at foreclosure subject to a first lien mortgage of
$11.9 million. ART incurred no loss on foreclosure as the fair value of the
property exceeded the carrying value of its mortgage note receivable.

At December 31, 1996, ART held a mortgage note receivable secured by an
apartment complex in Merrillville, Indiana, with a principal balance of $3.5
million. The property is owned by a subsidiary of Davister Corp. ("Davister"), a
general partner in a partnership that owns approximately 13.7% of ART's
outstanding shares of Common Stock. The note matured in December 1996. ART and
borrower agreed to extend the note's maturity date from December 1996 to
December 2000. In May 1997, the note, including accrued and unpaid interest
thereon, was paid in full.

INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS AND REAL ESTATE PARTNERSHIPS

ART's investment in real estate entities at September 30, 1997 includes
(i) equity securities of three publicly traded real estate investment trusts
(collectively the "REITs"), CMET, IORI and TCI, (ii) units of limited partner
interest of NRLP, (iii) a general partner interest in NRLP and NOLP, through its
96% limited partner interest in SAMLP, the general partner of NRLP and NOLP, and
(iv) interests in real estate joint venture partnerships. Gene E. Phillips,
Chairman of the Board and a Director of ART until November 16, 1992, served
until May 15, 1996 as a director and Chief Executive Officer of SAMI, a company
owned by BCM that serves as SAMLP's managing general partner. Randall M.
Paulson, Executive Vice President of ART, serves as the sole director and as
President of SAMI. Gene E. Phillips is also a general partner of SAMLP. BCM,
ART's advisor, serves as advisor to the REITs, and performs certain
administrative and management functions for NRLP and NOLP on behalf of SAMLP.

Since acquiring its initial investments in the equity securities of the
REITs and NRLP in 1989, ART has made additional investments in the equity
securities of these entities through private and open market purchases. ART's
cost with respect to shares of the REITs at September 30, 1997 totaled $27.0
million, and its cost with respect to units of limited partner interest in NRLP
totaled $29.9 million. The aggregate carrying value (cost plus or minus equity
in income or losses and less distributions received) of such equity securities
of the REITs and NRLP was $40.0 million at September 30, 1997 and the aggregate
market value of such equity securities was $138.0 million. The aggregate
investee book value of the equity securities of the REITs based upon the
September 30, 1997 financial statements of each such entity was $65.7 million
and ART's share of NRLP's revaluation equity at December 31, 1996 was $188.5
million.

The ART Board has authorized the expenditure by ART of up to an
aggregate of $35.0 million to acquire, in open market purchases, units of NRLP
and shares of the REITs, excluding private purchase transactions which were
separately authorized. As of September 30, 1997, ART had expended $4.0 million
to acquire units of NRLP and an aggregate of $5.6 million to acquire shares of
the REITs, in open market purchases, in accordance with these authorizations.
ART expects to make additional investments in the equity securities of the REITs
and NRLP.

At September 30, 1997, SAMLP, the general partner of NRLP and NOLP,
owned 26,475 shares of TCI. ART owns a 96% limited partnership interest in SAMLP
which ART consolidates for financial statement purposes.

The purchases of the equity securities of the REITs and NRLP were made
for the purpose of investment and were based principally on the opinion of ART's
management that the equity securities of each were and are currently
undervalued. The determination by ART to purchase additional equity securities
of the REITs and NRLP is made on an entity-by-entity basis and depends on the
market price of each entity's equity securities relative to the value of its
assets, the availability of sufficient funds and the judgment of ART's
management regarding the relative attractiveness of alternative investment
opportunities. Substantially all of the equity securities of the REITs and NRLP
owned by ART

-66-
79

are pledged as collateral for borrowings. Pertinent information regarding ART's
investment in the equity securities of the REITs and NRLP, at September 30,
1997, is summarized below (dollars in thousands):

Percentage Carrying Equivalent
of ART's Value of Investee Market Value
Ownership at Investment at Book Value at of Investment at
Investee September 30, 1997 September 30, 1997 September 30, 1997 September 30, 1997
- -------- ------------------ ------------------ ------------------ ------------------

NRLP....... 54.4% 16,516 $ * $76,996
CMET....... 40.6 14,888 35,387 32,674
IORI....... 29.6 3,457 7,342 5,626
TCI........ 30.6 5,162 22,941 22,682
------ -------

$40,023 $137,978

- ---------------
* At September 30, 1997, NRLP reported a deficit partners' capital. ART's
share of NRLP's revaluation equity at December 31, 1996, however, was
$188.5 million. Revaluation equity is defined as the difference between
the appraised value of the partnership's real estate, adjusted to
reflect the partnership's estimate of disposition costs, and the amount
of the mortgage notes payable and accrued interest encumbering such
property as reported in NRLP's Annual Report on Form 10-K for the year
ended December 31, 1996.

Each of the REITs and NRLP own a considerable amount of real estate,
much of which, particularly in the case of NRLP, has been held for many years.
Because of depreciation, these entities may earn substantial amounts in periods
in which they sell real estate and will probably incur losses in periods in
which they do not. ART's reported income or loss attributable to these entities
will differ materially from its cash flow attributable to them. ART does not
have a controlling equity interest in any of the REITs and therefore it cannot,
acting by itself, determine either the individual investments or the overall
investment policies of such investees. However, due to ART's equity investments
in, and the existence of common officers with, each of the REITs, and that the
REITs have the same advisor as ART and that Mr. Randall M. Paulson, an Executive
Vice President of ART, is also the President of the REITs and BCM, ART's
advisor, and is the President and sole director of SAMI, a company owned by BCM,
that is the managing general partner of SAMLP, ART may be considered to have the
ability to exercise significant influence over the operating and investing
policies of these entities. ART accounts for its investment in these entities
using the equity method. Under the equity method, ART recognizes its
proportionate share of the income or loss from the operations of these entities
currently, rather than when realized through dividends or on sale. ART continues
to account for its investment in NRLP under the equity method due to the pending
resignation of SAMLP as general partner of NRLP and NOLP, as more fully
discussed in "NRLP" below. The carrying value of ART's investment in these
entities, as set forth in the table above, is the original cost of each such
investment adjusted for ART's proportionate share of each entity's income or
loss and distributions received.

The following is a summary description of each of NRLP and the REITs,
based upon information publicly reported by such entities.

NRLP. NRLP is a publicly traded master limited partnership which was
formed under the Delaware Uniform Limited Partnership Act on January 29, 1987.
It commenced operations on September 18, 1987 when, through NOLP, it acquired
all of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships sponsored by or otherwise related to Southmark. NRLP is the
sole limited partner of NOLP and owns 99% of the beneficial interest in NOLP.
NRLP and NOLP operate as an economic unit and, unless the context otherwise
requires, all references herein to the Partnership shall constitute references
to NRLP and NOLP as a unit. The general partner and owner of 1% of the
beneficial interest in each of NRLP and NOLP is SAMLP, a Delaware limited
partnership.

SAMI, a company owned by BCM, is the managing general partner of SAMLP.
In November 1992, NOLP transferred 52 apartment complexes and a wraparound
mortgage note receivable to Garden Capital, L.P. ("GCLP"), a Delaware limited
partnership in which NOLP owns a 99.3% limited partner interest. Concurrent with
such transfer, GCLP refinanced all of the mortgage debt associated with the
transferred properties and the wraparound mortgage note under a new first
mortgage in the amount of $223.0 million.

-67-
80

ART is a limited partner in SAMLP, holding a 96% limited partner
interest therein, which ART consolidates for financial statement purposes. As
discussed in more detail under "Real Estate" above, in August 1996, ART
purchased Southmark's 19.2% limited partner interest in SAMLP. Gene E. Phillips
and SAMI are the general partners of SAMLP.

SAMI, as the managing general partner of SAMLP, has discretion in
determining methods of obtaining funds for the Partnership's operations, and the
acquisition and disposition of its assets. The Partnership's governing documents
place no limitation on the amount of leverage that the Partnership may incur
either in the aggregate or with respect to any particular property or other
investment. At December 31, 1996, the aggregate loan-to-value ratio of the
Partnership's real estate portfolio was 44.6% computed on the basis of the ratio
of total property-related debt to aggregate appraised values. As of December 31,
1996 NRLP owned 83 properties located in 22 states. These properties consisted
of 67 apartment complexes comprising 16,848 units, seven office buildings with
an aggregate 495,594 square feet and nine shopping centers with an aggregate of
1.1 million square feet.

For the year ended December 31, 1996, the Partnership reported a net
loss of $375,000 compared to net income of $3.8 million for the year ended
December 31, 1995. The Partnership's net income in 1995 was attributable to a
$7.7 million gain on the sale of two apartment complexes. The Partnership's loss
from operations of $436,000 in 1996 was a 89% decrease when compared to its $3.9
million loss from operations in 1995. The improvement in the Partnership's 1996
operating results is due to a 1.2% increase in rents due to increased rental
rates at the Partnership's apartments and commercial properties coupled with
1.5% decrease in operating expenses, primarily interest.

For the nine months ended September 30, 1997, NRLP reported net income
of $5.3 million as compared with a net loss of $1.5 million for the nine months
ended September 30, 1996. NRLP's net income in 1997, is attributable to $5.7
million of gains on sale of real estate. NRLP's loss from operations improved to
a loss of $361,000 in the first nine months of 1997 as compared to a loss of
$1.5 million in 1996. The improvement is due to increased rental rates at NRLP's
apartment and commercial properties. NRLP's cash flow from property operations
(rents collected less payments for property operating expenses) increased to
$34.9 million for the nine months ended September 30, 1997 as compared to $30.9
million for the nine months ended September 30, 1996. At September 30, 1997,
NRLP had total assets of $281.5 million which consisted of $21.5 million of
mortgage notes and interest receivable (net of allowance for estimated losses),
$216.4 million of real estate held for investment, $25.1 million in investments
and other assets and $18.5 million in cash.

The Partnership has paid quarterly distributions to unitholders since
the fourth quarter of 1993. In 1996 and during the first nine months of 1997,
ART received a total of $6.9 million and $1.0 million in distributions from the
NRLP, respectively.

The Partnership, SAMLP, Mr. Phillips and William S. Friedman, a general
partner of SAMLP until March 4, 1994, were among the defendants in a class
action lawsuit arising out of the transactions discussed above whereby the
Partnership was formed. An agreement settling such lawsuit as to the defendants,
the Partnership, SAMLP and Messrs. Phillips and Friedman (the "Moorman
Settlement Agreement"), became effective on July 5, 1990. The Moorman Settlement
Agreement provided for, among other things, the appointment of an oversight
committee for NRLP (the "NRLP Oversight Committee"); the establishment of
specified annually increasing targets for a five-year period relating to the
price of NRLP units; a limitation and deferral or waiver of NRLP's reimbursement
to SAMLP of certain future salary costs; and a deferral or waiver of certain
future compensation to SAMLP; the required distribution to unitholders of all of
the Partnership's cash from operations in excess of certain renovation costs
unless the NRLP oversight committee approves alternative uses for such cash from
operations; the issuance of unit purchase warrants to members of the plaintiff
class; the contribution by certain co-defendants of cash and notes payable to
the Partnership aggregating $5.5 million including a $2.5 million contributed by
SAMLP. The Partnership also agreed to pay certain settlement costs, including
plaintiffs' attorneys' fees in the amount of $3.4 million. The settlement plan
remains in effect until the withdrawal of SAMLP as general partner of NRLP and
NOLP.

The Moorman Settlement Agreement provides for the resignation and
replacement of SAMLP as general partner if the price targets are not met for two
consecutive anniversary dates. The Partnership did not meet the unit price
targets for the first and second anniversary dates. On July 8, 1992, SAMLP
notified the NRLP Oversight Committee of the failure to meet the unit price
targets for two successive years and that it expects to resign as general
partner of NRLP and NOLP.

-68-
81

The withdrawal of SAMLP as general partner would require the
Partnership to purchase SAMLP's general partner interest (the "Redeemable
General Partner Interest") at its then fair value, and to pay certain fees and
other compensation as provided in the partnership agreement. SAMI, the managing
general partner of SAMLP, has calculated the fair value of such Redeemable
General Partner Interest to be $40.2 million at September 30, 1997 before
reduction for the principal balance ($4.2 million at September 30, 1997) and
accrued interest ($6.7 million at September 30, 1997) on the note receivable
from SAMLP for its original capital contribution to the Partnership.

In January 1995, NRLP, SAMLP, the NRLP Oversight Committee and William
H. Elliott executed an Implementation Agreement which provided for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the Moorman Settlement
Agreement. On February 20, 1996, the parties to the Implementation Agreement
executed an Amended and Restated Implementation Agreement.

In September 1996, the Judge supervising the implementation of the
Moorman Settlement Agreement (the "Supervising Judge") entered an order granting
tentative approval of the Amended and Restated Implementation Agreement and the
form of notice to be sent to the original class members. On April 7, 1997, the
Supervising Judge issued an order granting final approval of the notice and
scheduled a hearing on June 27, 1997 for final approval of the Amended and
Restated Implementation Agreement. A notice was sent to all class members and
unitholders in April 1997 and the hearing was held on June 27, 1997. On
September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Amended and Restated Implementation Agreement.

As a result of the Statement of Decision, the original class action
settlement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement have been voided. On December
15, 1997 SAMLP and the NRLP Oversight Committee executed a new agreement to
implement the election of a successor general partner as required under the
original class action settlement. The new agreement will be submitted to the
Supervising Judge for approval.

On September 26, 1997, one of the original class action defendants,
Robert A. McNeil filed motions to (i) be installed as receiver for the
Partnership, and (ii) disband the NRLP Oversight Committee. A hearing on the
motions has been set for January 23, 1998.

CMET. CMET is a California business trust which was organized on August
27, 1980 and commenced operations on December 3, 1980. CMET's primary business
is investing in real estate through direct equity investments and partnerships
and financing real estate and real estate related activities through investments
in mortgage notes. CMET holds equity investments in apartment complexes and
commercial properties (office buildings, industrial warehouses and shopping
centers) throughout the continental United States. CMET's apartment complexes
and commercial properties are concentrated in the Southeast, Southwest and
Midwest regions of the continental United States. CMET also holds mortgage notes
receivable secured by real estate located in the Southeast, Southwest and
Midwest regions of the continental United States, with a concentration in the
Southeast and Southwest regions.

For the year ended December 31, 1996, CMET reported a net income of
$8.7 million as compared with a net loss of $1.4 million for the year ended
December 31, 1995. CMET's 1996 net income includes gains on the sale of real
estate and marketable equity securities of $10.1 million and an extraordinary
gain of $812,000, whereas CMET's net loss for 1995 included no such gains.
CMET's cash flow from property operations (rents collected less payments for
property operating expenses) improved to $19.8 million in 1996 compared to $15.1
million in 1995. At December 31, 1996 CMET had total assets of $250 million
which consisted of $7.4 million in mortgage notes and interest receivable (net
of allowance for estimated losses), $214.5 million in real estate held for
investment, $5.4 million in real estate held for sale, $19.8 million in
investments in partnerships and other assets and $3.0 million in cash and cash
equivalents.

For the nine months ended September 30, 1997, CMET reported net income
of $3.5 million as compared with net income of $9.6 million in the corresponding
period of 1996. Included in CMET's net income are gains on the sale of real
estate of $6.6 million in the nine months ended September 30, 1997 and $9.4
million in the nine months ended September 30, 1996. CMET's loss from operations
increased from $763,000 in the nine months ended September 30, 1996 to $3.1
million in 1997. The increase in loss from operations is primarily due to
increased interest expense resulting from CMET acquiring ten properties in 1996
and nine properties in 1997, encumbered by debt. CMET's cash flow from property
operations (rents collected less payments for property operating expenses)
improved to $18.9 million in the first nine months of 1997 as compared to $14.3
million during the corresponding period in 1996. At September 30, 1997 CMET had
total assets of $296.6 million which consisted of $4.6 million in mortgage notes
and interest receivable (net of allowance for estimated losses), $247.2 million
in real estate held for investment, $14.7 million in real

-69-
82

estate held for sale, $29.2 million in investments in partnerships and other
assets and $918,000 in cash and cash equivalents.

CMET has paid regular quarterly distributions since the first quarter
of 1993. ART received a total of $1.5 million and $544,000 in distributions from
CMET in 1996 and during the first nine months of 1997, respectively.

IORI. IORI is a Nevada corporation which was originally organized on
December 14, 1984 as a California business trust and commenced operations on
April 10, 1985. Like CMET, IORI's primary business is investing in real estate
through direct equity investments and partnerships and financing real estate and
real estate related activities through investments in mortgage notes. IORI holds
equity investments in apartment complexes and commercial properties (office
buildings) in the Pacific, Southeast, Southwest, and Midwest regions of the
continental United States. IORI holds one mortgage note receivable which is
secured by a shopping center in the Midwest region.

For the year ended December 31, 1996, IORI reported a net loss of
$568,000 as compared with a net loss of $906,000 for the year ended December 31,
1995. The decrease in IORI's net loss is due to a decrease in equity losses of
partnerships which improved from a loss of $744,000 in 1995 to income of $85,000
in 1996. The equity loss in 1995 was primarily due to the writedown of a
wraparound mortgage note receivable by a partnership in which IORI has a 40%
general partner interest. IORI's cash flow from property operations decreased to
$3.5 million in 1996 from $3.9 million in 1995. At December 31, 1996, IORI had
total assets of $63.6 million which consisted of $46.7 million in real estate
held for investment, $6.6 million of real estate held for sale, $2.0 million in
notes and interest receivable, $5.1 million in investments in partnerships and
other assets and $3.2 million in cash and cash equivalents.

For the nine months ended September 30, 1997, IORI reported a net
income of $2.8 million as compared with a net loss of $587,000 for the nine
months ended September 30, 1996. The increase in IORI's net income is due to
$3.3 million of gains on the sale of real estate. IORI's cash flow from property
operations increased to $4.9 million in the nine months ended September 30, 1997
from $3.4 million in the corresponding period of 1996. At September 30, 1997,
IORI had total assets of $76.3 million which consisted of $67.9 million in real
estate held for investment, $1.0 million of real estate held for sale, $2.0
million in notes and interest receivable, $4.3 million in investments in
partnerships and other assets and $1.1 million in cash and cash equivalents.

IORI has paid regular quarterly dividends since the first quarter of
1993. ART received a total of $186,000 and $115,000 in dividends from IORI in
1996 and during the first nine months of 1997, respectively.

TCI. TCI is a Nevada corporation which was originally organized on
September 6, 1983, as a California business trust, and commenced operations on
January 31, 1984. TCI also has investment policies similar to those of CMET and
IORI. TCI holds equity investments in a hotel, apartment complexes and
commercial properties (office buildings, industrial warehouses and shopping
centers) throughout the continental United States with a concentration in the
Northeast, Southeast and Southwest regions. TCI also holds mortgage notes
receivable secured by real estate located in the Northeast, Midwest, Southeast
and Southwest regions of the continental United States, with a concentration in
the Northeast and Southeast regions.

For the year ended December 31, 1996, TCI reported a net loss of $7.8
million as compared with a net loss of $3.7 million for the year ended December
31, 1995. TCI's net loss for 1996 includes gains on the sale of real estate of
$1.6 million and extraordinary gains of $256,000, whereas TCI's 1995 net loss
included gains on the sale of real estate of $5.8 million and an extraordinary
gain of $1.4 million. TCI's cash flow from property operations decreased to
$12.6 million in 1996 as compared to $15.3 million in 1995. At December 31,
1996, TCI had total assets of $245.4 million, which consisted of $8.6 million in
notes and interest receivable (net of allowance for estimated losses), $216.4
million in real estate held for investment, $4.0 million in real estate held for
sale, $15.4 million in investments in real estate entities and other assets and
$1.0 million in cash and cash equivalents. At December 31, 1996, TCI owned
341,500 shares of IORI's common stock, approximately 22.5% of IORI's shares then
outstanding.

For the nine months ended September 30, 1997, TCI reported a net loss
of $3.3 million as compared with a net loss of $7.2 million for the nine months
ended September 30, 1996. The decrease in TCI's net loss is primarily due to
TCI's acquisition of eight properties subsequent to September 30, 1996. 1996
results also include a $1.6 million provision for loss. No such provision was
recorded in 1997. TCI's cash flow from property operations increased to $11.9
million in the first nine months of 1997 as compared to $11.6 million in the
corresponding period of 1996. At September 30, 1997, TCI had total assets of
$280.2 million, which consisted of $4.0 million in notes and interest receivable
(net of allowance for estimated losses), $256.6 million in real estate held for
investment, $281,000 in real

-70-
83

estate held for sale, $14.9 million in investments in real estate entities and
other assets and $4.4 million in cash and cash equivalents. At September 30,
1997, TCI owned 341,500 shares of IORI's common stock, approximately 22.5% of
IORI's shares then outstanding.

TCI resumed the payment of quarterly dividends in the fourth quarter of
1995. ART received $373,000 and $211,000 in dividends from TCI in 1996 and
during the first nine months of 1997, respectively.

SAMLP. As discussed in more detail under "Real Estate" above, in August
1996, ART purchased a pool of assets from Southmark for $3.1 million. Included
in the asset pool was Southmark's 19.2% limited partner interest in SAMLP. Such
purchase increased ART's limited partner interest in SAMLP from 76.8% to 96%.
SAMLP is the 1% general partner of and holder of a 1% interest in each of NRLP
and NOLP. Gene E. Phillips, a Director and Chairman of the Board of ART until
November 16, 1992, is a general partner of SAMLP, and until March 4, 1994,
William S. Friedman, a Director and President of ART until December 31, 1992,
was also general Partner of SAMLP.

ART consolidates SAMLP for financial statement purposes and accordingly
SAMLP's accounts and operations are included in the accompanying Consolidated
Financial Statements. As a limited partner, ART has no role in the management of
the business affairs of SAMLP. Rather, SAMI, the managing general partner of
SAMLP, has full and complete authority to manage SAMLP.

River Trails II. In January 1992, ART entered into a partnership
agreement with an entity affiliated with the owner of, at the time, in excess of
14% of ART's outstanding shares of Common Stock, to acquire 287 developed
residential lots adjacent to ART's other residential lots in Fort Worth, Texas.
The partnership agreement designates ART as managing general partner. The
partnership agreement also provides each of the partners with a guaranteed 10%
return on their respective investments. Through December 31, 1996, 184
residential lots had been sold. In the first nine months of 1997, an additional
13 lots were sold . At September 30, 1997, 90 lots remained to be sold. During
the first nine months of 1997, each partner received $21,000 in return of
capital distributions from the partnership.

R. G. Bond, Ltd. In June 1995, ART purchased the corporate general
partner of a limited partnership which owns apartment complexes in Illinois,
Florida and Minnesota, with a total of 900 units. The corporate general partner
has a 1% interest in the partnership which is subordinated to a priority return
of the limited partner.

Campbell Center Associates, Ltd. In April 1996, ART purchased a 28%
general partner interest in Campbell Center Associates, Ltd. which in turn has a
56.25% interest in Campbell Centre Joint Venture, which owns a 413,175 square
foot office building in Dallas, Texas. The purchase price of the general partner
interest was $550,000 in cash and a $500,000 note, which bears interest at 8%
per annum, requires monthly interest only payments commencing in April 1997 and
matures April 2000. In January 1997, ART exercised its option to purchase an
additional 28% general partner interest in Campbell Center Associates, Ltd. The
purchase price was $300,000 in cash and a $750,000 note, which bears interest at
8% per annum, requires monthly interest only payments commencing in April 1997
and matures in April 2000. In addition, in July 1997, ART exercised its option
to purchase an additional 9% general partner interest in Campbell Center
Associates, Ltd. for $868,000 in cash.

Highway 380/Preston Partners, Ltd. In June 1996, a newly formed limited
partnership, of which ART is 1% general partner, purchased 580 acres of
undeveloped land in Collin County, Texas for $5.7 million in cash. ART
contributed $100,000 in cash to the partnership with the remaining $5.6 million
being contributed by the limited partner. The partnership agreement designates
ART as the managing general partner. In September 1996, the partnership obtained
financing of $2.8 million secured by the 580 acres of land and personal
guarantees of the limited partner. The loan bears interest at a variable rate
currently 9.75% per annum, requires monthly interest only payments of $23,000
and matures in September 1998. The partnership agreement also provides that the
limited partner receive a 12% preferred cumulative return on his investment
before any sharing of partnership profits occurs. In April 1997, the partnership
sold 35.0 acre tract for $1.3 million in cash. The net proceeds of $1.2 million
were distributed to the limited partners in accordance with the partnership
agreement. The partnership recognized a gain of $884,000 on the sale. In July
1997, the Partnership sold an additional 24.6 acres for $800,000 in cash. In
accordance with the terms of the term loan secured by such property, $197,000 of
the net sales proceeds were used to paydown such term loan. The remaining
$545,000 was distributed to the limited partners in accordance with the
partnership agreement. The partnership recognized a gain of approximately
$497,000 on the sale. In September 1997, the partnership sold a 77.19 acre tract
for $1.5 million in cash. In accordance with the terms of the term loan secured
by such property, the net proceeds were used to paydown such loan. The
partnership recognized a gain of $704,000 on the sale. In October 1997, the
partnership sold a 96.53 acre tract for $1.7 million in cash. In accordance with
the terms of the term loan secured by

-71-
84

such property $548,000 of the net sales proceeds were used to payoff such loan.
The remaining $1.1 million was distributed to the limited partners in accordance
with the partnership agreement. The partnership will recognize a gain of
approximately $691,000 on the sale. ART has received no distributions from the
partnership in 1997.

Elm Fork Branch Partners, Ltd. In September 1997, a newly formed
limited partnership of which ART is a 1% general partner and 21.5% limited
partner, purchased a 422.4 acre parcel of undeveloped land in Denton County,
Texas, for $16.0 million in cash. ART contributed $3.6 million in cash
to the partnership with the remaining $12.4 million being contributed by the
other limited partners. The partnership agreement designates ART as the managing
general partner. In September 1997, the partnership obtained financing of $6.5
million secured by the 422.4 acres of land. The loan bears interest at 10% per
annum, requires monthly interest only payments of $54,000 and matures in
September 2001. The net financing proceeds were distributed to the partners, ART
receiving repayment of $2.9 million of its initial investment. The partnership
agreement also provides that the limited partners receive a 12% preferred
cumulative return on their investment before any sharing of partnership profits
occurs.

OTHER EQUITY INVESTMENTS

Pizza World Supreme, Inc. In April 1996, a wholly-owned subsidiary of
ART purchased for $10.7 million in cash 80% of the common stock of Pizza World
Supreme, Inc. ("PWSI") which in turn had acquired 26 operating pizza parlors in
various communities in California's San Joaquin Valley. Concurrent with the
purchase, ART granted to an individual an option to purchase 36.25% of such ART
subsidiary at any time for 36.25% of ART's net investment in such subsidiary.
Additionally, ART held negotiations with underwriters regarding a public
offering of such subsidiary's stock. ART believed that such option will be
exercised and, further, that the subsidiary would become publicly held
approximately one year from the date of its acquisition. Accordingly, ART
believed its control of such entity was temporary and accounted for such entity
under the equity method through April 1997. In May 1997, ART acquired
the remaining 20% of PWSI and discontinued equity accounting.

[Remainder of Page Intentionally Left Blank]

-72-
85

SELECTED FINANCIAL DATA OF ART

For the Years Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------------ ------------------ ------------
(dollars in thousands, except per share)

EARNINGS DATA
Revenue ................... $ 26,979 $ 22,952 $ 23,070 $ 13,427 $ 11,481
Expense ................... 38,577 28,314 26,490 18,128 18,243
------------ ------------ ------------ ------------ ------------
(Loss) from operations .... (11,598) (5,362) (3,420) (4,701) (6,762)
Equity in income (losses)
of investees .......... 2,004 (851) 292 (4,014) (3,388)
Gain on sale of real estate 3,659 2,594 379 481 566
------------ ------------ ------------ ------------ ------------
(Loss) before extraordinary
gain .................. (5,935) (3,619) (2,749) (8,234) (9,584)
Extraordinary gain ........ 381 783 323 3,807 --
------------ ------------ ------------ ------------ ------------
Net (loss) ................ (5,554) (2,836) (2,426) (4,427) (9,584)
Preferred Dividend
Requirement ........... (113) -- -- -- --
Redeemable Common Stock,
accretion of discount.. -- -- -- (129) (258)
------------ ------------ ------------ ------------ ------------
(Loss) applicable to
Common Shares ......... $ (5,667) $ (2,836) $ (2,426) $ (4,556) $ (9,842)
============ ============ ============ ============ ============
PER SHARE DATA
(Loss) before extraordinary
gain .................. $ (.46) $ (.31) $ (.23) $ (.68) $ (.98)
Extraordinary Gain ........ .03 .07 .03 .31 --
------------ ------------ ------------ ------------ ------------
Net (loss) ................ (.43) (.24) (.20) (.37) (.98)
Redeemable Common Stock,
accretion of discount.. -- -- -- (.01) (.03)
------------ ------------ ------------ ------------ ------------
(Loss) applicable to
Common shares ......... $ (.43) $ (.24) $ (.20) $ (.38) $ (1.01)
============ ============ ============ ============ ============
Dividends per share ....... $ .15 $ -- $ -- $ -- $ --
Weighted average shares
outstanding ........... 12,765,082 11,716,656 12,208,876 12,101,100 9,813,168

-73-
86

December 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except per share)

BALANCE SHEET DATA
Notes and interest
receivable, net............ $ 48,485 $ 49,741 $ 45,664 $ 51,769 $ 72,808
Real estate, net................ 119,035 59,424 47,526 52,437 45,317
Total assets.................... 235,037 162,033 137,362 139,861 151,010
Notes and interest
payable.................... 127,863 61,163 45,695 53,693 63,698
Margin borrowings............... 40,044 34,017 26,391 16,147 9,681
Stockholders'
equity..................... 47,786 53,058 55,894 56,120 60,476
Book value per
share...................... $ 3.74 $ 4.53 $ 4.77 $ 5.56 $ 5.94

Shares and per share data have been adjusted for the 2 for 1 forward Common
Stock splits effected January 2, 1996 and February 17, 1997.

-74-
87

For the Three For the Three For the Nine For the Nine
------------- ------------- ------------ ------------
Months Ended Months Ended Months Ended Months Ended
------------- ------------- ------------- -------------
September 30, September 30, September 30, September 30,
------------ ------------- ------------- --------------
1997 1996 1997 1996
------------ ------------- ------------- --------------

EARNINGS DATA (dollars in thousands, except per share)

Revenues ................... $ 15,039 $ 7,306 $ 32,205 $ 19,442
Expenses ................... 24,296 9,279 52,051 26,089
------------ ------------ ------------ ------------
(Loss) from operations ..... (9,257) (1,973) (19,846) (6,647)
Equity in income (losses)
of investees .......... (145) 604 5,106 1,544
Gain on sale of real
estate ................ 3,205 2,018 11,354 3,133
------------ ------------ ------------ ------------
Income (loss) before
extraordinary gain .... (6,197) 649 (3,386) (1,970)
Extraordinary gain ......... -- 121 -- 381
------------ ------------ ------------ ------------
Net income (loss) .......... (6,197) 770 (3,386) (1,589)
Preferred dividend
requirement ........... (49) (48) (151) (65)
------------ ------------ ------------ ------------
Net Income (loss) applicable
to Common shares ...... $ (6,246) $ 722 $ (3,537) $ (1,654)
============ ============ ============ ============
PER SHARE DATA
Income (loss) before extra-
ordinary gain ......... $ (.52) $ .05 $ (.29) $ (.16)
Extraordinary Gain ......... -- .01 -- .03
------------ ------------ ------------ ------------
Net income (loss) applicable
to Common Shares ...... $ (.52) $ .06 $ (.29) $ (.13)
============ ============ ============ ============
Dividends per share ........ $ .05 $ .05 $ .15 $ .10
Weighted average Common
shares used in computing
earnings per share .... 11,975,921 13,192,148 12,041,252 12,714,894

-75-
88

September 30, 1997
------------------
BALANCE SHEET DATA (dollars in thousands, except per share)

Note and interest receivable,
net............................... $ 20,738
Real Estate, net.................. 234,025
Total Assets...................... 354,618
Notes and interest payable........ 213,293
Margin Borrowings................. 52,071
Stockholder's equity.............. 47,056
Book Value per share.............. $ 3.42

ART MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ART

INTRODUCTION

ART was organized in 1961 to provide investors with a professionally
managed, diversified portfolio of real estate and mortgage loan investments
selected to provide opportunities for capital appreciation as well as current
income.

LIQUIDITY AND CAPITAL RESOURCES

General. Cash and cash equivalents at September 30, 1997 aggregated
$2.0 million, compared with $1.3 million at December 31, 1996. Although ART
anticipates that during 1997 it will generate excess cash from operations, as
discussed below, such excess cash is not sufficient to discharge all of ART's
debt obligations as they mature. ART will therefore continue to rely on
externally generated funds, including borrowings against its investments in
various real estate entities, mortgage notes receivable, the sale or refinancing
of properties and, to the extent available or necessary, borrowings from BCM,
which totaled $23.2 million at September 30, 1997, to meet its debt service
obligations, pay taxes, interest and other non-property related expenses.

At December 31, 1996, notes payable totaling $36.0 million had either
scheduled maturities or required principal reduction payments during 1997.
Through September 30, 1997, ART has paid off a total of $11.5 million of such
debt and has refinanced an additional $18.9 million. ART intends to either pay
off, extend the maturity dates or obtain alternate financing for the remaining
$5.6 million of debt obligations that mature during the remainder of 1997. There
can be no assurance, however, that these efforts to obtain alternative financing
or debt extensions will be successful.

ART expects an increase in cash flow from property operations during
the remainder of 1997. Such increase is expected to be derived from operations
of the Inn at the Mart and the Kansas City Holiday Inn as well as the recently
purchased Piccadilly Inns and Collection retail and commercial center. ART also
expects continued sales of its Las Colinas I land, Pin Oak land and Valley Ranch
land to generate additional cash flow.

On June 12, 1996, the ART Board announced the resumption of dividend
payments on ART's Common Stock at the initial rate of $.05 per share. ART paid
dividends totaling $1.5 million or $.15 per share in 1996.

Also on June 12, 1996, ART announced the redemption of its share
purchase rights for $.01 per right. The redemption price, totaling $101,000, was
paid on July 8, 1996 to stockholders of record on June 21, 1996.

-76-
89

In 1996, ART sold a total of 39.1 acres of land in Las Colinas, Texas
in four separate transactions for a total of $6.8 million. ART applied the $6.5
million net sales proceeds to paydown the term loans secured by such land. In
January 1997, ART sold an additional 3.0 acres of land in Las Colinas, Texas for
$1.2 million in cash.

In 1996, ART purchased a total of 1,368.5 acres of land in Denver,
Colorado, Houston, Texas, Dallas County, Texas and Lewisville, Texas, for a
total of $32.1 million. ART paid $5.4 million in cash, obtained new or seller
financing of $25.4 million and issued 15,000 shares of ART's Series C 10%
Cumulative Preferred Stock with an aggregate liquidation value of $1.5 million.

In April 1996, ART purchased for $10.7 million in cash 80% of the
common stock of an entity that had acquired 26 operating pizza parlors in
various communities in California's San Joaquin Valley. Also in April 1996, ART
purchased a 28% general partner interest in a partnership which has an interest
in an office building in Dallas, Texas, for $550,000 in cash and a $500,000
note.

In May 1996, ART purchased a 2,271 square foot single family residence
in Dallas, Texas, for $266,000 in cash. In August 1996, ART financed the
residence for $173,000. ART received net financing proceeds of $168,000 after
the payment of various closing costs associated with the financing.

In June 1996, ART sold a tract of land that had been leased under a
long-term ground lease for $120,000 in cash.

In July 1996, a newly formed limited partnership of which ART is the 1%
general partner acquired 580 acres of land in Collin County, Texas, for $5.7
million in cash. ART contributed $100,000 in cash to the partnership.

In August 1996, ART purchased a pool of assets for $3.1 million, from
Southmark consisting of undeveloped land totaling 151.5 acres in California,
Indiana and Idaho, various percentage interests, ranging from 15% to 45%, in
five partnerships and trusts that hold an unsecured note receivable with a
principal balance of $3.4 million and Southmark's 19.2% limited partnership
interest in SAMLP. In connection with the acquisition, ART borrowed $3.0
million.

In December 1996, a newly formed partnership, of which ART is the
general partner and Class B limited partner, acquired the Best Western Oceanside
Hotel in Virginia Beach, Virginia for $6.8 million. In conjunction with the
acquisition, the partnership issued 1,813,660 Class A limited partner units
having an agreed value of $1.00 per unit, with the remaining $5.0 million of the
purchase price being obtained through a mortgage financing.

Also in December 1996, ART acquired 452 acres of partially developed
land in Irving, Texas, for $15.5 million. In conjunction with the acquisition,
ART became the general partner and Class B limited partner in the partnership
that owned the land. Of the purchase price $7.7 million was financed with a
mortgage loan and the remainder of the purchase price by the issuance of
8,000,000 Class A limited partner units with an agreed value of $1.00 per
partner unit.

In January 1997, ART sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. ART recognized a gain of $697,000 on
the sale.

Also in January 1997, ART purchased Scout land, a 546 acre parcel of
undeveloped land in Tarrant County, Texas, for $2.2 million. ART paid
$725,000 in cash and obtained mortgage financing for the remaining $1.5 million
of the purchase price.

In October 1995, ART purchased BP Las Colinas, a 92.6 acre parcel of
partially developed land in Las Colinas, Texas. In February 1996, ART entered
into a contract to sell 72.5 acres of such parcel for $12.9 million. The
contract called for the sale to close in two phases. In July 1996, ART completed
the first phase sale of 32.3 acres for $4.9 million in cash. In February 1997,
ART completed the second phase sale of 40.2 acres for $8.0 million, of which
$7.2 million was paid in cash. Of the net sales proceeds of $6.9 million, $1.5
million was used to payoff the underlying debt secured by the BP Las Colinas
parcel, pay a $500,000 maturity fee to the lender, make a $1.5 million principal
paydown on the note secured by Parkfield land in Denver, Colorado with the same
lender, and $1.0 million was applied as a principal paydown on the term loan
secured by the Las Colinas I land parcel. In conjunction with the sale, ART
provided $800,000 in purchase money financing in the form of a six month
unsecured loan. ART recognized a gain of $3.4

-77-
90

million on such sale, deferring an additional $800,000 of gain until the
unsecured loan was paid in full. In August 1997, the loan was paid in full and
the deferred gain recognized.

In March 1997, ART purchased Katy Road land, a 130.6 acre parcel of
undeveloped land in Harris County, Texas, for $5.6 million. ART paid $1.6
million in cash with the seller providing purchase money financing of the
remaining $4.0 million of the purchase price.

In April 1997, ART purchased McKinney Corners I, 30.4 acres of
undeveloped land in Collin County, Texas, for $3.5 million. ART paid $1.0
million in cash and obtained mortgage financing for the remaining $2.5 million
of the purchase price.

Also in April 1997, ART purchased McKinney Corners II, 173.9 acres of
undeveloped land in Collin County, Texas, for $5.7 million. ART paid $700,000 in
cash and obtained mortgage financing for the remaining $5.0 million of the
purchase price as a fourth advance under the term loan from the Las Colinas I
lender. The term loan was amended, changing the required principal reduction
payments to $500,000 in June, July, September and October 1997 and $1.0 million
in August and November 1997.

Also in April 1997, ART sold a 3.1 acre tract of the Las Colinas I land
for $1.3 million in cash. ART used $1.0 million of the net sales proceeds as a
collateral escrow deposit in accordance with the provisions of the Valley Ranch
land loan. ART recognized a gain of $648,000 on the sale.

In May 1997, ART purchased McKinney Corners III land, a 15.5 acre
parcel of undeveloped land in Collin County, Texas, for $896,000 in cash.

Also in May 1997, ART purchased Lacy Longhorn land, a 17.1 acre parcel
of undeveloped land in Farmers Branch, Texas, for $1.8 million. ART paid
$200,000 in cash and the seller provided short-term purchase money financing of
the remaining $1.6 million of the purchase price. The loan was paid off at its
October 15, 1997 maturity.

Also in May 1997, ART purchased Chase Oaks land, a 60.5 acre parcel of
undeveloped land in Plano, Texas, for $4.2 million. ART paid $200,000 in cash
and the seller provided purchase money financing of the remaining $4.0 million
of the purchase price.

Also in May 1997, ART purchased the remaining 20% of PWSI that it did
not already own, for $5.0 million in unsecured promissory notes.

Also in May 1997, ART purchased Pioneer Crossing land, a 1,448 acre
parcel of undeveloped land in Austin, Texas, for $21.5 million. ART paid $5.4
million in cash and the seller provided purchase money financing of the
remaining $16.1 million of the purchase price.

In June 1997, ART purchased Kamperman land, a 129.6 acre parcel of
undeveloped land in Collin County, Texas, for $5.0 million in cash. ART
simultaneously closed on a sale of 99.7 acres for $4.5 million in cash. ART
recognized a $215,000 gain on the sale.

Also in June 1997, ART purchased Keller land, a 811.8 acre parcel of
undeveloped land in Tarrant County, Texas, for $6.3 million. ART paid $2.3
million in cash and obtained mortgage financing for the remaining $4.0 million
of the purchase price.

Also in June 1997, ART purchased McKinney Corners IV land, a 31.3 acre
parcel of undeveloped land in Collin County, Texas, for $2.4 million. ART paid
$400,000 in cash and obtained mortgage financing for the remaining $2.0 million
of the purchase price, as a fifth advance under the term loan from the Las
Colinas I lender.

Also in June 1997, ART purchased Pantex land, a 182.5 acre parcel of
undeveloped land in Collin County, Texas, for $5.4 million. ART paid $900,000 in
cash and the seller provided purchase money financing of the remaining $4.5
million of the purchase price.

In July 1997, ART sold 3.9 acres of the Las Colinas I land in Las
Colinas, Texas for $1.6 million in cash. In accordance with the provisions of
the term loan secured by such parcel, ART applied the net proceeds of the sale,
$1.4

-78-
91

million, to paydown the term loan in exchange for that lender's release of its
collateral interest in such land. ART recognized a gain of $771,000 on such
sale.

Also in July 1997, ART purchased Perkins land, a 645.4 acre parcel of
undeveloped land in Collin County, Texas, for $5.8 million. ART paid $3.3
million in cash and assumed the existing mortgage of $2.5 million.

Also in July 1997, ART purchased LBJ land, a 10.4 acre parcel of
undeveloped land in Dallas County, Texas, for $2.3 million. ART paid $300,000 in
cash and the seller provided purchase money financing of the remaining $2.0
million of the purchase price.

In September 1997, ART sold the Mopac Building in St. Louis, Missouri,
for $1.0 million in cash. In accordance with the provisions of the Las Colinas I
term loan, ART applied $350,000 of the net sales proceeds to paydown the term
loan in exchange for the lender's release of its collateral interest in such
property. ART recognized a gain of $481,000 on the sale.

Also in September 1997, ART sold a 2.6 acre tract of the Las Colinas I
land in Las Colinas, Texas, for $1.2 million in cash. In accordance with the
provisions of the term loan secured by such parcel, ART applied the net sales
proceeds of $1.0 million, to paydown the term loan in exchange for the lender's
release of its collateral interest in such land. ART recognized a gain of
$578,000 on the sale.

Also in September 1997, ART sold three tracts of Valley Ranch land
totaling 24.0 acres for $1.6 million in cash. The net sales proceeds of $1.2
million were put into a certificate of deposit for the benefit of the lender, in
accordance with the term loan secured by such land. ART recognized a gain of
$567,000 on the sale.

Also in September 1997, ART purchased the Collection, a retail and
commercial center in Denver, Colorado for $19.5 million. ART paid
$791,000 in cash, assumed existing mortgages totaling $14.7 million and issued
400,000 ART Preferred Shares with a liquidation value of $4.0 million.

In 1991, ART purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December 31,
1996, 188 of the residential lots had been sold. During 1997, 9 additional lots
were sold for an aggregate gain of $17,000. At September 30, 1997, one lot
remained to be sold.

In October 1997, ART contributed its Pioneer Crossing land, a 1,448
acre parcel of undeveloped land in Austin, Texas to a limited partnership in
exchange for $3.4 million in cash, a 1% managing general partner interest, all
of the Class B limited partner units in the partnership and the partnership's
assumption of the $16.1 million mortgage debt secured by the property. The
existing partners converted their general and limited partner interests into
Class A limited partner units. The Class A units are entitled to a fixed
preferred return of 10% per annum, paid quarterly. The Class A Partnership units
have an agreed value of $1.00 per unit. The Class A limited partner units may be
converted into ART Preferred Shares at any time after the first anniversary of
the closing but no later than the sixth anniversary of the closing date.

Also in October 1997, ART refinanced the mortgage debt secured by the
Denver Merchandise Mart in Denver, Colorado for $23.0 million. ART received net
refinancing proceeds of $5.4 million after the payoff of $14.8 million in
existing mortgage debt and the payment of various closing costs associated with
the refinancing.

Also in October 1997, ART contributed its Denver Merchandise Mart, a
509,000 square foot merchandise mart in Denver, Colorado, to a limited
partnership in exchange for $6.0 million in cash, a 1% managing general partner
interest, all of the Class B limited partner units in the partnership and the
partnership's assumption of the $23.0 million in mortgage debt secured by the
property. The existing general and limited partners converted their interests
into Class A limited partner units. The Class A units have an agreed value of
$1.00 per unit. The Class A units are entitled to a fixed preferred return of
10% per annum, paid quarterly. The Class A units may be converted into ART
Preferred Shares at any time after the first anniversary of the closing but not
later than the sixth anniversary of the closing date.

-79-
92

Also in October 1997, ART purchased Palm Desert land, a 315.2 acre
parcel of undeveloped land in Palm Desert, California, for $11.2 million. ART
paid $3.8 million in cash and assumed the existing mortgage of $7.4 million.

Also in October 1997, ART purchased Thompson land, a 4.0 acre parcel of
undeveloped land in Dallas County, Texas, for $869,000 in cash.

Also in October 1997, ART purchased Santa Clarita land, a 20.6 acre
parcel of undeveloped residential lots in Santa Clarita, California, for $1.3
million in cash.

Also in October 1997, ART purchased Tomlin land, a 9.2 acre parcel of
undeveloped land in Dallas County, Texas, for $1.7 million in cash.

Also in October 1997, ART purchased Rasor land, a 378.2 acre parcel of
undeveloped land in Plano, Texas, for $14.4 million. ART paid $1.6 million in
cash, obtained additional mortgage financing from the Las Colinas I lender of
$3.5 million applied the net proceeds of $3.5 million from the simultaneous $3.8
million sale of an 86.5 acre tract, and exchanged the Perkins land, a 645.4 acre
parcel of undeveloped land in Collin County, Texas for the remainder of the
purchase price. ART will recognize a gain of approximately $200,000 on the sale
of the 86.5 acre tract.

Also in October 1997, ART purchased the Piccadilly Inns, four hotels in
Fresno, California, for $33.0 million. ART issued 1.6 million ART Preferred
Shares having liquidation value of $10.00 per share or total of $16.0 million
and obtained mortgage financing of $19.8 million. ART received net financing
proceeds of $2.2 million after the payment of various closing costs associated
with the financing.

ART expects that funds from existing cash resources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowings against its investments in marketable equity
securities, mortgage notes receivable and to the extent necessary, borrowings
from ART's advisor, will be sufficient to meet the cash requirements associated
with ART's current and anticipated level of operations, maturing debt
obligations and existing commitments. To the extent that financing sources are
available, ART will continue to make investments in real estate, primarily
investments in partially developed and/or undeveloped land, continue making
additional investments in real estate entities and marketable equity securities
and fund or acquire mortgage notes.

Notes Receivable. ART has received $22.9 million in principal payments
or sales proceeds on its notes receivable in the nine months ended September 30,
1997. Scheduled principal maturities of $20.4 million are due in 1997 of which
$1.9 million is due on nonperforming notes receivable. In February 1997, ART
sold one of the nonperforming notes with a principal balance at December 31,
1996 of $1.6 million for $1.8 million in cash. The balance of ART's mortgage
notes receivable are due over the next one to ten years and provide for
"balloon" principal payments. It may be necessary for ART to consider extending
certain notes if the borrowers do not have the resources to repay the loans, are
unable to sell the property securing such loans, or are unable to refinance the
debt owed.

-80-
93

The borrower on a $1.7 million mortgage note receivable secured by land
in Osceola, Florida failed to pay the note on its November 1, 1993 maturity. ART
instituted foreclosure proceedings and was awarded a summary judgment in January
1994. During 1994 and 1995, the borrower paid ART a total of $270,000 in
nonrefundable fees to delay foreclosure of the property until April 24, 1995. On
April 25, 1995, the borrower filed for bankruptcy protection. On August 26,
1996, the bankruptcy court's stay was lifted allowing ART to proceed with
foreclosure. In February 1997, ART sold its mortgage note receivable for $1.8
million in cash. ART recognized a gain of $171,000 on the sale.

In December 1996, ART and the borrower on a $3.7 million note
receivable secured by an apartment complex in Merrillville, Indiana agreed to an
extension of the note's maturity to December 2000. In May 1997, ART received
$3.7 million plus accrued but unpaid interest in full payment of the loan.

In September 1997, ART sold its $16.3 million wraparound mortgage note
receivable secured by the Las Vegas Plaza Shopping Center in Las Vegas, Nevada,
for $15.0 million in cash. ART received net cash of $6.0 million after the
payoff of the loan in the amount of $9.2 million secured by such note
receivable.

Also in September 1997, ART foreclosed on its $14.6 million junior
mortgage note receivable secured by the Williamsburg Hospitality House in
Williamsburg, Virginia. ART acquired the property at foreclosure subject to a
first lien mortgage of $11.9 million. ART incurred no loss on the foreclosure.

ART anticipates a continued improvement in the operations of the
properties securing its mortgage notes receivable in certain regions of the
continental United States. In spite of this perceived improvement in the real
estate market in general, ART can give no assurance that it will not continue to
experience deterioration in cash flow from notes receivable due to new problem
loans.

Loans Payable. ART has margin arrangements with various brokerage firms
which provide for borrowings up to 50% of the market value of marketable equity
securities. The borrowing under such margin arrangements are secured by equity
securities of the REITs, NRLP and ART's trading portfolio and bear interest
rates ranging from 7.0% to 9.0%. Margin borrowing totaled $28.1 million at
September 30, 1997.

In August 1996, ART consolidated its existing NRLP margin debt held by
the various brokerage firms into a single loan of $20.3 million. The loan is
secured by ART's NRLP units with a market value of at least 50% of the principal
balance of the loan. As of September 30, 1997, 3,349,169 NRLP units with a
market value of $74.9 million were pledged as security for such loan. In July
1997, the lender advanced an additional $3.7 million, increasing the loan
balance to $24.0 million.

Also in August 1996, ART obtained a $2.0 million loan from a financial
institution secured by a pledge of equity securities of the REITs and Common
Stock of ART owned by BCM, ART's advisor, with a market value of $4.0 million.
ART received $2.0 million in net cash after the payment of closing costs
associated with the loan.

In September 1996, the same lender made a second $2.0 million loan. The
second loan is also secured by a pledge of equity securities of the REITs owned
by ART and Common Stock of ART owned by BCM with a market value of $5.0 million.
ART received $2.0 million in net cash after the payment of closing costs
associated with the loan.

In February 1996, ART refinanced $7.8 million of underlying debt
collateralized by a mortgage note receivable with a balance of $18.4 million
which is secured by the Las Vegas Shopping Center in Las Vegas, Nevada, for
$12.0 million. ART received net cash of $2.3 million after the payoff of the
existing debt, payment of closing costs associated with the refinancing and
making a $1.5 million paydown on the term loan secured by the Las Colinas I land
in Las Colinas, Texas in exchange for that lender's release of its participation
in the note receivable.

In April 1996, ART refinanced the first and second lien mortgage debt
underlying its $22.0 million wraparound mortgage note receivable secured by the
Continental Hotel and Casino in Las Vegas, Nevada, for $16.8 million. ART
received net cash of $11.2 million after the payoff of the two underlying liens
totaling $2.9 million, various closing costs associated with the refinancing and
making a $1.4 million paydown on the term loan secured by the Las Colinas I land
in Las Colinas, Texas in exchange for that lender's release of its participation
in the note receivable.

Also in April 1996, ART refinanced $5.1 million of first and second
lien mortgage debt secured by the Denver Merchandise Mart for $15.0 million. ART
received net refinancing proceeds of $7.8 million after the payoff of the first

-81-
94

and second lien debt, purchasing the ground lease on Denver Merchandise Mart for
$678,000 and payment of various closing costs associated with the refinancing.

In August 1996, ART refinanced the $2.4 million existing mortgage debt
secured by the Rosedale Towers Office Building in Roseville, Minnesota for $2.8
million. ART received net refinancing proceeds of $154,000 after the payoff of
the existing debt and payment of various closing costs associated with the
refinancing.

Also in August 1996, ART financed the previously unencumbered Inn at
the Mart in Denver, Colorado for $2.0 million to facilitate renovating the
property. ART received net financing proceeds of $890,000 after the payment of
various closing costs associated with the financing and a $1.1 million
renovation holdback. The lender advanced the $1.1 million renovation holdback in
December 1996.

In October 1996, ART completed the sale of $1.1 million in 11- 1/2%
senior subordinated notes in a private placement.

In December 1996, ART obtained second lien mortgage financing of $3.2
million on the Kansas City Holiday Inn in Kansas City, Missouri. ART received
net financing proceeds of $3.0 million after the payment of various closing
costs associated with the financing.

In May 1997, ART financed 10.6 acres of the BP Las Colinas land for
$3.1 million. The note matured in November 1997.

Also in May 1997, ART obtained a second mortgage of $3.0 million on
the Pin Oak land. The note matures in December 1997.

In June 1997, ART obtained second lien financing of $3.0 million
secured by the Lewisville land. The loan matures in February 1998.

Also in June 1997, ART refinanced the Valwood land for $15.8 million.
ART received net cash of $4.9 million after the payoff of the existing $6.2
million Valwood land loan, an additional $3.0 million being applied to payoff
the Jefferies land loan and $1.4 million being applied to paydown the Las
Colinas land loan. The new loan matures in June 1998.

In July 1997, ART obtained a third lien financing of $2.0 million
secured by the Pin Oak land. The note matures in February 1998.

In September 1997, ART refinanced the Las Colinas I land Double O tract
for $7.3 million. ART received net cash of $2.0 million after the payoff of $5.0
million in existing mortgage debt. The note matures in October 1998.

Equity Investments. During the fourth quarter of 1988, ART began
purchasing shares of the REITs, which have the same advisor as ART, and units of
limited partner interest in NRLP. It is anticipated that additional equity
securities of NRLP and the REITs will be acquired in the future through
open-market and negotiated transactions to the extent ART's liquidity permits.

Equity securities of the REITs and NRLP held by ART may be deemed to be
"restricted securities" under Rule 144 of the Securities Act. Accordingly, ART
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 period of
one year after they are acquired. Such restrictions may reduce ART's ability to
realize the full fair market value of such investments if ART attempted to
dispose of such securities in a short period of time.

ART's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. CMET and IORI have paid regular
quarterly distributions since the first quarter of 1993, NRLP since the fourth
quarter of 1993 and TCI since the fourth quarter of 1995. In 1996, ART received
total distributions from the REITs of $2.1 million and $6.9 million from NRLP.
ART accrued $3.3 million in distributions from NRLP at December 31, 1995 which
were paid January 2, 1996. ART received distributions totaling $1.9 million
during the first nine months of 1997 from the REITs and NRLP.

-82-
95

In July 1997, ART purchased an additional 9% interest in Campbell
Centre Joint Venture, for $868,000 in cash, increasing to 36% ART's interest in
the Campbell Centre Joint Venture.

Policies Regarding Impairment. ART's management reviews the carrying
values of ART's properties and mortgage note receivables 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. In those instances where impairment is found to exist, a
provision for loss is recorded by a charge against earnings. ART's mortgage note
receivable review includes an evaluation of the collateral property securing
such note. The property review generally includes selective property
inspections, a review of the property's current rents compared to market rents,
a review of the property's expenses, a review of maintenance requirements, a
review of the property's cash flow, discussions with the manager of the property
and a review of properties in the surrounding area.

RESULTS OF OPERATIONS

Nine months ended September 30, 1997. For the three months ended
September 30, 1997, ART reported a net loss of $6.2 million, compared to net
income of $770,000 for the three months ended September 30, 1996. For the nine
months ended September 30, 1997, ART reported a net loss of $3.4 million
compared with a net loss of $1.6 million for the nine months ended September 30,
1996. The primary factors contributing to ART's operating results are discussed
in the following paragraphs. Sales and cost of sales for the three and nine
months ended September 30, 1997 relate to the operations of PWSI.

Rents increased from $5.3 million and $14.7 million for the three and
nine months ended September 30, 1996 to $7.8 million and $18.7 million for the
three and nine months ended September 30, 1997. The increases are principally
due to increased rents at ART's commercial properties and increased rents and
occupancy at ART's hotels. One of ART's hotels, the Best Western Oceanside, was
purchased in December 1996.

Interest income from mortgage notes receivable decreased from $1.1
million and $3.4 million for the three and nine months ended September 30, 1996
to $471,000 and $2.7 million for the three and nine months ended September 30,
1997. The decreases are due to the collection of $6.0 million in principal
payments on mortgage notes receivable, in the nine months ended September 30,
1997, the sale of the $1.7 million note receivable secured by land in Osceola,
Florida, the $16.3 million mortgage note receivable secured by the Las Vegas
Plaza Shopping Center in Las Vegas, Nevada and the foreclosure of the $14.6
million mortgage note receivable secured by the Williamsburg Hospitality House
in Williamsburg, Virginia. Interest income for the remainder of 1997 is expected
to approximate that of the third quarter of 1997.

Other income decreased from income of $824,000 for the three months
ended September 30, 1996 to a loss of $1.8 million for the three months ended
September 30, 1997 and decreased from income of $1.3 million for the nine months
ended September 30, 1996 to a loss of $117,000 for the nine months ended
September 30, 1997. The decreases are primarily due to a $2.1 million and a $1.6
million increase in unrealized losses offset by on trading portfolio securities
and decreases of $688,000 and $133,000 in realized losses incurred on the sale
of trading portfolio securities.

Property operating expenses increased from $3.6 million and $11.2
million for the three and nine months ended September 30, 1996 to $5.0 million
and $13.5 million for the three and nine months ended September 30, 1997. The
increases are primarily due to the acquisition of the Best Western Oceanside
Hotel in 1996 and taxes and property maintenance costs associated with ART's
land parcels. These costs are expected to continue to increase as ART acquires
additional properties.

Interest expense increased from $4.2 million and $10.7 million for the
three and nine months ended September 30, 1996 to $5.0 million and $13.5 million
for the three and nine months ended September 30, 1997. The increases are
primarily due to the debt incurred related to the acquisition of 14 parcels of
land and the Best Western Oceanside Hotel subsequent to September 1996. These
increases were offset in part by a decrease of $969,000 due to the sale of 40.2
acres of the BP Las Colinas land parcels in February 1997. Interest expense is
expected to increase as ART continues to acquire properties on a leveraged
basis.

Advisory and mortgage servicing fees increased from $392,000 and $1.1
million for the three and nine months ended September 30, 1996 to $630,000 and
$1.6 million for the three and nine months ended September 30, 1997.

-83-
96

These increases are primarily attributable to the increase in ART's gross
assets, the basis for such fee. Such fee is expected to increase as ART
continues to acquire additional properties.

General and administrative expenses increased from $618,000 and $1.9
million for the three and nine months ended September 30, 1996 to $2.3 million
and $4.7 million for the three and nine months ended September 30, 1997. The
increase is primarily attributable to legal fees and travel expenses incurred in
1997 relating to pending acquisitions and refinancings, increases in advisor
cost reimbursements, and the inclusion of the general and administrative
expenses of PWSI.

Depreciation and amortization expense increased from $429,000 and $1.1
million for the three and nine months ended September 30, 1996 to the $755,000
and $1.9 million for the three and nine months ended September 30, 1997. These
increases are primarily due to the purchase of Best Western Oceanside Hotel in
December 1996. Depreciation and amortization for the remainder of 1997 is
expected to be higher than in the third quarter of 1997 due to the recent
purchase of the Piccadilly Inns and the Collection retail and commercial center.

Incentive compensation for the nine months ended September 30, 1997 was
$299,000. Incentive compensation relates to the deferred gain recognition on the
sale of Porticos Apartments.

Equity in income of investees was income of $604,000 and $1.5 million
for the three and nine months ended September 30, 1996 compared to a loss of
$145,000 and income of $5.0 million for the three and nine months ended
September 30, 1997. The nine month improvement in equity income is attributable
in part to an increase in the combined operating income of REITs and NRLP. Such
improvement is generally attributable to improved occupancy and increased rental
rates. The remainder of the improvement is due to gains on sale of real estate.

Gains on sale of real estate were $3.3 million and $11.4 million for
the three and nine months ended September 30, 1997 compared to $2.0 million and
$3.1 million for the three and nine months ended September 30, 1996. In June
1997, ART recognized a previously deferred gain of $3.0 million on the sale of
Porticos Apartments and a $216,000 gain on the sale of the Kamperman land. In
April 1997, a gain of $668,000 was recognized on the sale of a 3.1 acre tract of
Las Colinas I land. In February 1997, a gain of $3.4 million was recognized on
the sale of a 40.2 acre tract of BP Las Colinas land, a gain of $171,000 on the
sale of Osceola mortgage note receivable and a gain of $676,000 on the sale of a
3.0 acre tract of Las Colinas I land. In September 1997, a gain of $578,000 was
recognized on the sale of a 2.6 acre tract of Las Colinas I land, a $481,000
gain on the sale of the Mopac Building and a $771,000 gain on the sale of a 3.9
acre tract of Las Colinas I land. For the three months ended September 30, 1996,
ART recognized a $2.0 million gain on the sale of a 32.3 acre parcel of the Las
Colinas I land, and a $13,000 gain on the sale of four residential lots. The
first nine months of 1996 includes an additional $1.1 million gain on the sale
of a 4.6 acre parcel in Las Colinas I land, a $44,000 gain on the sale of a
parcel of land in Midland, Michigan and an $11,000 gain on the sale of eight
residential lots.

ART reported extraordinary gains of $121,000 and $381,000 for the three
and nine months ended September 30, 1996. The extraordinary gain for the three
months ended September 30, 1996 represents ART's share of its equity investees'
extraordinary gain from the early payoff of debt. The first nine months of 1996
includes an additional extraordinary gain of $13,000 which represents ART's
share of an equity investee's extraordinary gain from the early payoff of debt
and $247,000 represents ART's share of an equity investee's extraordinary gain
relating to an insurance settlement from a fire loss.

1996 Compared to 1995. ART reported a net loss of $5.6 million in 1996
as compared to a net loss of $2.8 million in 1995. The primary factors
contributing to the increase in ART's net loss are discussed in the following
paragraphs.

Net rental income (rents less property operating expenses) increased
from $4.6 million in 1995 to $4.8 million in 1996. This increase is primarily
attributable to increased rents at the Denver Merchandise Mart and increased
room rates and occupancy at the Kansas City Holiday Inn. Net rental income is
expected to increase in 1997 from continued improvement at the Kansas City
Holiday Inn and from a full years operations of the Best Western Oceanside Hotel
which was acquired in December 1996.

Interest income decreased from $4.9 million in 1995 to $4.7 million in
1996. This decrease is primarily attributable to a note receivable being paid
off in 1995. Interest income in 1997 is expected to approximate that of 1996.

-84-
97

Other income increased from $154,000 in 1995 to $1.6 million in 1996.
This increase is due to recognizing an unrealized gain of $486,000 on ART's
trading portfolio of equity securities in 1996 compared to recognizing an
unrealized loss of $1.4 million in 1995. This increase was offset in part by
dividend income and gain on marketable equity securities decreasing by $689,000
and $292,500 respectively.

Interest expense increased from $8.9 million in 1995 to $16.5 million
in 1996. The increase is primarily attributable to debt refinancings and the
debt incurred related to the purchase of six parcels of land in 1995 and 1996
and the Oaktree Shopping Center obtained in November 1995. Offsetting the
increase was a $161,000 decrease in interest expense due to the sale of an
apartment complex in February 1995. Interest expense for 1997 is expected to
increase from the continued acquisition of properties on a leveraged basis.

Advisory and mortgage servicing fees increased from $1.2 million in
1995 to $1.5 million in 1996. The increase is primarily attributable to ART's
increase in gross assets, the basis for such fee. Such fee will continue to
increase as ART's gross assets increase.

Depreciation increased from $1.7 million in 1995 to $2.0 million in
1996 due to $2.9 million in property improvements made in 1996.

Equity in income of investees improved from a loss of $851,000 in 1995
to income of $2.0 million in 1996. The increase in equity income is primarily
attributable to an improvement in income from property operations for both CMET
and NRLP, from increased rental rates and a decrease in operating expenses. The
1995 gains are attributable to ART's equity share ($1.8 million) of NRLP's
fourth quarter gain on the sale of two apartment complexes, ART's equity share
($2.5 million) of TCI's gain on the sale of land in the third quarter and an
apartment complex in the fourth quarter of 1995, a $4.6 million gain
representing ART's equity share of the REIT's gain on sale of real estate.

Gains on the sale of real estate increased from $2.6 million in 1995 to
$3.7 million in 1996. In 1996, ART recognized a $2.0 million gain on the sale of
32.3 acres of the BP Las Colinas land in Las Colinas, Texas, and a $1.1 million
gain on the sale of 4.6 acres of the Las Colinas I land also in Las Colinas,
Texas. The 1995 gains are attributable to a $1.6 million gain recognized on the
sale of 6.9 acres of Las Colinas I land and a $924,000 gain recognized on the
sale of the Boulevard Villas Apartments in February 1995.

ART reported $783,000 in extraordinary gains in 1995 compared to
$381,000 in extraordinary gains in 1996. The 1996 extraordinary gain is ART's
share of TCI's extraordinary gain from the early payoff of debt and CMET's
extraordinary gain from an insurance settlement. The 1995 extraordinary gain is
ART's equity share of TCI's extraordinary gain from the early payoff of mortgage
debt.

1995 Compared to 1994. ART reported a net loss of $2.8 million in 1995
as compared to a net loss of $2.4 million in 1994. The primary factors
contributing to the decrease in ART's net loss are discussed in the following
paragraphs.

Net rental income (rents less property operating expenses) decreased
from $5.0 million in 1994 to $4.6 million in 1995. This decrease is primarily
attributable to the sale of four apartment complexes in November 1994 and the
sale of an additional apartment complex in February 1995 contributing a combined
$2.4 million to the decrease. Offsetting the decrease in part, is a $1.2 million
increase in net rental income from the Denver Merchandise Mart and Inn at the
Mart, acquired in the second quarter of 1994 and a $529,000 increase at the
Kansas City Holiday Inn due to increased room rates directly attributable to the
capital improvements made to the property in 1994.

Interest income increased from $4.0 million in 1994 to $4.9 million in
1995. This increase is primarily attributable to the Continental Hotel
wraparound mortgage note receivable performing throughout 1995.

Other income decreased from $1.1 million in 1994 to $154,000 in 1995.
This decrease is primarily attributable to the fourth quarter write down of
ART's marketable equity securities trading portfolio by $998,000 due to a
decline in market value.

Interest expense increased from $7.9 million in 1994 to $8.9 million in
1995. This increase is primarily due to a $1.2 million increase in margin
interest due to a $7.6 million increase in margin debt from December 1994 to
December 1995 and a $2.0 million increase due to the debt incurred in connection
with ART's two land purchases in Las Colinas, Texas, during 1995. These
increases are offset by a $1.5 million decrease due to a reduction in debt as a

-85-
98

result of the sale of four apartment complexes in November 1994 and an
additional apartment complex in February 1995 and reductions in loan principal
balances.

Advisory and mortgage servicing fees were comparable in 1995 and 1994
at $1.2 million as were general and administrative expense at $2.6 million in
1995 and 1994.

Depreciation increased from $1.6 million in 1994 to $1.7 million in
1995. This increase is primarily attributable to the 1994 acquisitions of the
Denver Merchandise Mart and the Inn at the Mart offset by the sale of four
apartment complexes in November 1994 and the sale of an additional apartment
complex in February 1995.

Equity in income of investees decreased from a income of $292,000 in
1994 to a loss of $851,000 in 1995. This decrease in equity income is primarily
attributable to an increase in net loss of both IORI and TCI, resulting from a
$1.5 million writedown of a wraparound mortgage note receivable to the balance
of the underlying first lien mortgage by a partnership in which IORI and TCI are
the sole partners. Offsetting such losses in part, is ART's equity share ($1.8
million) of NRLP's fourth quarter gain on the sale of two apartment complexes,
ART's equity share ($2.5 million) of TCI's gain on the sale of land in the third
quarter and an apartment complex in the fourth quarter of 1995.

Gains on the sale of real estate increased from $292,000 in 1994 to
$2.6 million in 1995. The 1995 gains are attributable to a $1.6 million gain
recognized on the sale of 6.9 acres of Las Colinas I land in Las Colinas, Texas,
acquired by ART in May 1995 and a $924,000 gain recognized by ART on the sale of
the Boulevard Villas Apartments in February 1995.

ART reported $323,000 in extraordinary gains in 1994 compared to
$783,000 in extraordinary gains in 1995. The 1995 extraordinary gain is ART's
equity share of TCI's extraordinary gain from the early payoff of mortgage debt.
In 1994, $273,000 of the extraordinary gain is ART's equity share of TCI's
settlement of litigation with a lender and the remaining $50,000 is due to a
lender's forgiveness of a portion of a first mortgage, due to ART's early payoff
of the second lien mortgage secured by the same property.

COMMITMENTS AND CONTINGENCIES

In January 1995, NRLP, SAMLP and the NRLP oversight committee and
William H. Elliott executed an Implementation Agreement which provided for the
nomination of a successor general partner to succeed SAMLP as general partner of
NRLP and NOLP, the operating partnership of NRLP and for the resolution of all
related matters under the 1990 settlement of a class action lawsuit. On February
20, 1996, the parties to the Implementation Agreement executed an Amended and
Restated Implementation Agreement.

If the successor general partner had been elected pursuant to the terms
of the Amended and Restated Implementation Agreement, SAMLP would have received
$12.5 million from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which SAMLP and its affiliates may
owe to the Partnership. This amount would have been paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.

In September 1996, the Judge appointed to supervise the class action
settlement (the "Supervising Judge") entered an order granting tentative
approval of the Amended and Restated Implementation Agreement and the form of
notice to be sent to the original class members. A notice was sent to all class
members and unitholders in April 1997 and a hearing was held on June 27, 1997.
On September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Amended and Restated Implementation Agreement.

As a result of the Statement of Decision, the original class action
settlement shall remain in full force and effect and all of the provisions of
the Amended and Restated Implementation Agreement have been voided. SAMLP and
the NRLP oversight committee executed a new agreement to implement the election
of a successor general partner as required under the original class action
settlement. The new agreement will be submitted to the Supervising Judge for
approval.

On September 26, 1997, one of the original class action defendants,
Robert A. McNeil, filed motions to (i) be installed as receiver for NRLP and
(ii) disband the NRLP oversight committee. A hearing on the motion has been set
for January 23, 1998.

-86-
99

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, ordinances
and regulations, ART 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 from ART for personal injury associated with
such materials.

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

INFLATION

The effects of inflation on ART's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of inflation
also affect the sales values of properties and, correspondingly, the ultimate
gains to be realized by ART from property sales.

DESCRIPTION OF THE CAPITAL STOCK OF ART

GENERAL

ART is authorized by its Articles of Incorporation, as amended, to
issue up to 16,666,667 ART Common Shares and 20,000,000 shares of a special
class of stock, $2.00 par value per share (the "Special Stock"), which may be
designated by the ART Board from time to time. The ART Preferred Shares are a
series of the Special Stock.

ART PREFERRED SHARES

On August 13, 1997, the ART Board designated and authorized the
issuance of a total of 7,500,000 ART Preferred Shares with a par value of $2.00
per share and a preference on liquidation of $10.00 per share plus payment of
accrued and unpaid dividends. The ART Preferred Shares are non-voting except (i)
as provided by law and (ii) at any time or times when all or any portion of the
dividends on the ART Preferred Shares for any six quarterly dividends, whether
or not consecutive, shall be in arrears and unpaid. In the latter event, the
number of directors constituting the board of directors of ART shall be
increased by two and the holders of ART Preferred Shares, voting separately as a
class, shall be entitled to elect two directors to fill such newly created
directorships with each holder being entitled to one vote in such election for
each share of ART Preferred Shares held. ART is not obligated to maintain a
sinking fund with respect to the ART Preferred Shares.

The ART Preferred Shares are convertible, at the option of the holder,
into ART Common Shares at any time and from time to time, in whole or in part,
after the earliest to occur of (i) August 15, 2003; (ii) the first business day,
if any, occurring after a Quarterly Dividend Payment Date (as defined below), on
which an amount equal to or in excess of 5% of the $10.00 liquidation value
(i.e., $.50 per ART Preferred Share) is accrued and unpaid, or (iii) when ART
becomes obligated to mail a statement, signed by an officer of ART, to the
holders of record of each of the ART Preferred Shares because of a proposal by
ART at any time before all of the ART Preferred Shares have been redeemed by or
converted into ART Common Shares, to merge or consolidate with or into any other
corporation (unless ART is the surviving entity and holders of ART Common Shares
continue to hold such ART Common Shares without modification and without receipt
of any additional consideration), or to sell, lease, or convey all or
substantially all its property or business, or to liquidate, dissolve or wind
up. The ART Preferred Shares are convertible into that number of shares of ART
Common Shares obtained by multiplying the number of shares being converted by
$10.00, then adding all accrued and unpaid dividends, then dividing such sums by
(in most instances) 90% of the simple average of the daily closing price of the
ART Common Shares for the 20 business days ending on the last business day of
the calendar week immediately preceding the date of conversion on the principal
stock exchange on which such ART Common Shares are then listed (the "Conversion
Price"). Notwithstanding the foregoing, ART, at its option, may elect to redeem
any ART Preferred Shares sought to be so converted by paying the holder of such
ART Preferred Shares cash in an amount equal to the Conversion Price.

-87-
100

The ART Preferred Shares bear a cumulative, compounded dividend per
share equal to 10% per annum of the Adjusted Liquidation Value, payable
quarterly on the 15th day of the month following the end of each calendar
quarter (each, a "Quarterly Dividend Payment Date"), and commencing accrual on
August 16, 1998 to and including the date on which the redemption price of such
shares is paid, whether or not such dividends have been declared and whether or
not there are profits, surplus or other funds of ART legally available for the
payment of such dividends. Dividends on the ART Preferred Shares are in
preference to and with priority over dividends upon the ART Common Shares.
Except as provided in the following sentence, the ART Preferred Shares rank on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other Special Stock issued by ART. ART will not issue any shares of Special
Stock of any series which are superior to the ART Preferred Shares as to
dividends or rights upon liquidation, dissolution or winding up of the
Corporation as long as any ART Preferred Shares are issued and outstanding,
without the prior written consent of the holders of at least 662/3 of such
shares of the ART Preferred Shares then outstanding voting separately as a
class. As of November 1, 1997, the outstanding Special Stock of ART consisted of
2,000,000 ART Preferred Shares, 4,000 shares of its Series B 10% Cumulative
Preferred Stock (as described below) and 16,681 shares of its Series C 10%
Cumulative Preferred Stock (as described below).

In addition to ART's redemption right in connection with conversions of
ART Preferred Shares as described above, ART may redeem any or all of the ART
Preferred Shares at any time and from time to time, at its option, for cash upon
no less than 20 days nor more than 30 days prior notice thereof. The redemption
price of the ART Preferred Shares shall be an amount per share equal to (i) 105%
of the Adjusted Liquidation Value during the period from August 15, 1997 through
August 15, 1998; (ii) 104% of the Adjusted Liquidation Value during the period
from August 16, 1998 through August 15, 1999; and (iii) 103% of the Adjusted
Liquidation Value at any time on or after August 16, 1999. Each ART Preferred
Share will be convertible, at the option of the holder, into fully paid and
nonassessable ART Common Shares.

The ART Preferred Shares constitute a new issue of securities with no
established trading market. While ART intends to apply for listing of the ART
Preferred Shares on the NYSE, there can be no assurance that an active market
for the ART Preferred Shares will develop or be sustained in the future on the
NYSE. Moreover, to the extent that EQK Shares are tendered and accepted in the
Merger, the liquidity and trading market for the EQK Shares could be adversely
affected. See "Risk Factors -- Risks Relating to ART Preferred Shares -- Risks
Associated with Listing and Trading of ART Preferred Shares and the EQK Shares."

ART COMMON SHARES

All of the ART Common Shares are entitled to share equally in dividends
from funds legally available therefor, when declared by the ART Board, and upon
liquidation or dissolution of ART, whether voluntary or involuntary (subject to
any prior rights of holders of the Special Stock), and to share equally in the
assets of ART available for distributions to shareholders. Each holder of ART
Common Shares is entitled to one vote for each share held on all matters
submitted to the shareholders. There is no cumulative voting, redemption right,
sinking fund provision or right of conversion with respect to the ART Common
Shares. The holders of ART Common Shares do not have any preemptive rights to
acquire additional ART Common Shares when issued. All outstanding ART Common
Shares are fully paid and nonassessable. As of October 31, 1997, 13,479,348 ART
Common Shares were issued and 10,711,921 ART Common Shares were outstanding.

SPECIAL STOCK

The following is a description of certain general terms and provisions
of the Special Stock, including the ART Preferred Shares, the Series B Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock and the Series G Preferred Stock.

Article 5 of the Articles of Incorporation of ART, as amended,
authorizes the issuance of up to 20,000,000 shares of Special Stock in one or
more series with such preferences, limitations and rights as the ART Board
determines. In particular, the ART Board may fix and determine, among other
things, the dividend payable with respect to such shares of Special Stock
(including whether and in what manner such dividend shall be accumulated);
whether such shares shall be redeemable, and if so, the prices, terms and
conditions of such redemption; the amount payable on such shares in the event of
voluntary or involuntary liquidation; the nature of any purchase, retirement or
sinking fund provisions; the nature of any conversion rights with respect to
such shares; and the extent of the voting rights, if any, of such shares.
Certain provisions of the Special Stock may, under certain circumstances,
adversely affect the rights or interests of holders of ART Common Shares. For
example, the ART Board could, without shareholder approval,

-88-
101

issue a series of Special Stock with voting and conversion rights which could
adversely affect the voting power of the common shareholders. In addition, the
Special Stock may be issued under certain circumstances as a defensive device to
thwart an attempted hostile takeover of ART.

Through the date of this Prospectus/Proxy Statement, ART has amended
its Articles of Incorporation to designate six series of the Special Stock as
explained below. Each series of Special Stock now outstanding ranks on a parity
as to dividends and upon liquidation, dissolution or winding up with all other
shares of Special Stock.

Series A Preferred Stock; Terminated Rights Plan. On April 11, 1990,
the ART Board designated 500,000 shares of the Series A Cumulative Participating
Preferred Stock (the "Series A Preferred Stock"), adopted a preferred share
purchase rights plan and approved the distribution to shareholders of a dividend
of one preferred share purchase right on each outstanding ART Common Share (the
"Rights"). The rights plan provided that one Right would be distributed to all
shareholders of ART for each ART Common Share owned of record by them as of
April 23, 1990. In addition, the rights plan required that ART issue one Right
with each ART Common Share that became outstanding thereafter so that all ART
Common Shares would carry a Right. The Rights were primarily designed to assure
that all holders of ART Common Shares receive fair and equal treatment in the
event of any attempt to acquire ART and to guard the interest of such
shareholders against partial tender offers, inadequate offers, open market
accumulations and other abusive or coercive tactics. The rights plan was not
adopted in response to any effort to acquire ART, and ART has remained unaware
of any such effort. On June 12, 1996, the ART Board resolved to redeem the
Rights held by the shareholders of record as of June 21, 1996 at the redemption
price of $.01 per Right. The redemption price was paid on July 8, 1996. The
decision by the ART Board was based on a determination that the rights plan was
no longer necessary to protect ART and its shareholders from coercive tender
offers.

On February 27, 1997, the ART Board deleted the designation of the
Series A Preferred Stock from the Articles of Incorporation and none will be
issued in the future.

Series B Preferred Stock. On April 3, 1996, the ART Board designated
4,000 shares of Series B Preferred Stock with a par value of $2.00 per share and
a preference on liquidation of $100 per share plus payment of accrued and unpaid
dividends. The Series B Preferred Stock is non-voting except as required by law,
and ART is not required to maintain a sinking fund for such stock.

The Series B Preferred Stock is convertible, but only during a 30-day
period beginning May 8, 1998, into that number of ART Common Shares obtained by
multiplying the number of shares of Series B Preferred Stock being converted by
$100 and then dividing such sum by (in most instances) 90% of the simple average
of the daily closing price of the ART Common Shares for the 30 trading days
immediately preceding the conversion period on the market where the ART Common
Shares are then regularly traded. The right of conversion shall terminate at the
close of business on the second full business day prior to the date fixed for
redemption and on the commencement of any liquidation, dissolution or winding up
of ART.

The Series B Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends on
the Series B Preferred Stock are in preference to and with priority over
dividends upon the ART Common Shares. The Series B Preferred Stock rank on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other shares of Special Stock, including the ART Preferred Shares.

ART may from time to time redeem any or all of the Series B Preferred
Stock upon payment of the liquidation value of $100 per share plus all accrued
and unpaid dividends. There is no restriction on the repurchase or redemption of
the Series B Preferred Stock by ART while there is any arrearage in payment of
dividends except that at the time of such repurchase or redemption ART must pay
all accrued and unpaid dividends on the shares being redeemed. As of November 1,
1997, there were 4,000 shares of Series B Preferred Stock issued and
outstanding.

Series C Preferred Stock. On May 23, 1996, the ART Board designated
16,681 shares of Series C Preferred Stock with a par value of $2.00 per share
and a preference on liquidation of $100 per share plus all accrued and unpaid
dividends. The Series C Preferred Stock is non-voting except as required by law.
ART is not required to maintain a sinking fund for such stock.

Each share of Series C Preferred Stock is convertible, but only during
a 90-day period beginning on November 25, 1998, into the number of ART Common
Shares obtained by multiplying the number of shares of Series C Preferred

-89-
102

Stock being converted by $100 and dividing the result by (in most instances) 90%
of the then-recent average trading price for the ART Common Shares.

The Series C Preferred Stock bears a cumulative dividend per share of
$10.00 per annum, payable quarterly in equal installments of $2.50. Dividends on
the Series C Preferred Stock are in preference to and with priority over
dividends upon the ART Common Shares. The Series C Preferred Stock ranks on a
parity as to dividends and upon liquidation, dissolution or winding up with all
other shares of Special Stock, including the ART Preferred Shares. The dividends
for the first twelve months are to be paid in additional shares of Series C
Preferred Stock.

ART may from time to time redeem any or all of the Series C Preferred
Stock upon payment of the liquidation value of $100 per share plus all accrued
and unpaid dividends. There is no restriction on the repurchase or redemption of
the Series C Preferred Stock by ART while there is any arrearage in payment of
dividends except that at the time of such repurchase or redemption ART must pay
all accrued and unpaid dividends on the shares being redeemed. As of November 1,
1997, there were 16,681 shares of Series C Preferred Stock issued and
outstanding.

Series D Preferred Stock. The ART Board designated 91,000 shares of
Series D Cumulative Preferred Stock (the "Series D Preferred Stock") on August
2, 1996, with a par value of $2.00 per share and a preference on liquidation of
$20.00 per share plus payment of accrued and unpaid dividends. The Series D
Preferred Stock is non-voting except as required by law and are not convertible.
ART is not required to maintain a sinking fund for such stock.

Each Share of Series D Preferred Stock has a cumulative dividend per
share of 9.5% per annum of the $20.00 liquidation preference, payable quarterly
in equal installments of $0.475. Dividends on the Series D Preferred Stock are
in preference to and with priority over dividends upon the ART Common Shares.
The Series D Preferred Stock ranks on a parity as to dividends and upon
liquidation, dissolution or winding up with all other shares of Special Stock.

ART may from time to time after June 1, 2001 redeem any or all of the
Series D Preferred Stock upon payment of the liquidation value of $20.00 per
share plus all accrued and unpaid dividends. There is no restriction on the
repurchase or redemption of the Series D Preferred Stock by ART while there is
any arrearage in payment of dividends except that at the time of such repurchase
or redemption ART must pay all accrued and unpaid dividends on the shares being
redeemed. As of November 1, 1997, there were no shares of Series D Preferred
Stock issued or outstanding.

The Series D Preferred Stock is reserved for issuance upon the
conversion Class A units held by the limited partners of Ocean Beach Partners
L.P.

Series E Preferred Stock. On December 3, 1996, the ART Board designated
80,000 shares of Series E Cumulative Convertible Preferred Stock (the "Series E
Preferred Stock") with a par value of $2.00 per share and a preference on
liquidation of $100 per share plus payment of all accrued and unpaid dividends.
The Series E Preferred Stock is non-voting except as required by law. ART is not
required to maintain a sinking fund for such stock.

Each share of Series E Preferred Stock is convertible into that number
of ART Common Shares obtained by multiplying the number of shares being
converted by $100, then adding all accrued and unpaid dividends on such shares,
then dividing such sum by (in most instances) 80% of the ART Common Share's
then-recent average trading price for the 20 business days ending on the last
business day of the calendar week immediately preceding the date of conversion
on the principal stock exchange on which such ART Common Shares are then listed
or admitted to trading as determined by ART. The schedule pursuant to which
shares of Series E Preferred Stock may be so converted is as follows: up to
30,000 shares of the Series E Preferred Stock may be converted beginning as of
November 4, 1998 and thereafter; up to an additional 10,000 shares of the Series
E Preferred Stock may be converted beginning as of November 4, 1999; and up to
an additional 40,000 shares of the Series E Preferred Stock may be converted
beginning as of November 4, 2001.

The Series E Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable quarterly in equal installments of $2.50 for
the period from date of issuance to November 4, 1999, and $11.00 per annum
($2.75 per quarter) thereafter. Dividends on the Series E Preferred Stock are in
preference to and with priority over dividends upon the ART Common Shares. The
Series E Preferred Stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of Special Stock.

ART may redeem any or all of the shares of Series E Preferred Stock
from time to time upon payment of $100.00 per share plus all accrued and unpaid
dividends. There is no restriction on the repurchase or redemption of the Series
E Preferred Stock by ART while there is any arrearage in payment of dividends
except that at the time of such

-90-
103

repurchase or redemption ART must pay all accrued and unpaid dividends on the
shares being redeemed. As of November 1, 1997, there were no shares of Series E
Preferred Stock issued and outstanding.

The Series E Preferred Stock is reserved for issuance upon the
conversion of Class A units held by the limited partners in the Valley Ranch
Limited Partnership.

Series G Preferred Stock. On September 18, 1997, the ART Board
designated 11,000 shares of Series G Cumulative Convertible Preferred Stock (the
"Series G Preferred Stock") with a par value of $2.00 per share and a preference
on liquidation of $100 per share plus all accrued and unpaid dividends. The
Series G Preferred Stock is non-voting except as required by law. ART is not
required to maintain a sinking fund for such stock.

Each share of Series G Preferred Stock is convertible, but only after
October 6, 2000, into that number of ART Common Shares obtained by multiplying
the number of shares of Series B Preferred Stock being converted by $100 and
then dividing such sum by (in most instances) 90% of the simple average of the
daily closing price of the ART Common Shares for the 20 trading days ending on
the last trading day of the calendar week immediately preceding the conversion
on the market where the ART Common Shares are then regularly traded. The right
of conversion shall terminate upon receipt of the notice of redemption from ART
and on the earlier of (i) the commencement of any liquidation, dissolution or
winding up of ART or (ii) the adoption of any resolution authorizing the
commencement thereof. ART may elect to redeem the shares of Series G Preferred
Stock sought to be converted instead of issuing shares of ART Common Stock.

The Series G Preferred Stock bears a cumulative dividend per share
equal to $10.00 per annum, payable in arrears in quarterly equal installments of
$2.50 on each Quarterly Dividend Payment Date, and commencing accrual on the
date of issuance to and including the date on which the redemption price of such
shares is paid. Dividends on the Series E Preferred Stock are in preference to
and with priority over dividends upon the ART Common Shares. The Series G
Preferred Stock ranks on a parity as to dividends and upon liquidation,
dissolution or winding up with all other shares of Special Stock.

ART may redeem any or all of the shares of the Series G Preferred Stock
at any time and from time to time, at its option, for cash upon no less than
twenty (20) days nor more than thirty (30) days prior notice thereof. The
redemption price of the shares of the Series G Preferred Stock shall be an
amount per share equal to the $100 liquidation value plus all accrued and unpaid
dividends on such shares through the redemption date. The right of ART to redeem
shares of Series G Preferred Stock remains effective notwithstanding prior
receipt by ART of notice by any holder of Series G Preferred Stock of such
holder's intent to convert shares of Series G Preferred Stock. As of November 1,
1997 there were no issued or outstanding shares of Series G Preferred Stock.

The description of the foregoing provisions of each series of the
Special Stock does not purport to be complete and is subject to and qualified in
its entirety by reference to the definitive Articles of Amendment of the
Articles of Incorporation relating to such series of Special Stock.

DESCRIPTION OF EQK

EQK (sometimes referred to herein as the "Trust") was formed pursuant
to the Declaration of Trust. ERPM, (successor in interest to EQK Partners),
currently acts as the "Advisor" to EQK. ERPM is a wholly owned subsidiary of
ERE, itself an indirect wholly owned subsidiary of Equitable. Upon consummation
of the Merger, BCM will assume the role of New Advisor to EQK. See "The New
Advisory Agreement Proposal" herein.

EQK has transacted its affairs so as to qualify as, and has elected to
be treated as, a REIT under applicable provisions of the Code. Under the Code, a
REIT that meets applicable requirements is not subject to Federal income tax on
that portion of its taxable income that is distributed to its shareholders. EQK
is currently a closed-end trust (i.e., it may not issue any additional EQK
Shares without the approval of holders of three-quarters of the outstanding EQK
Shares), and, except in limited circumstances, it may not make any additional
real estate investments and is required to distribute to its shareholders the
net proceeds from each sale and financing of any investment. Consequently, EQK
is currently a self-liquidating trust. However, upon consummation of the Merger,
subject to the Requisite Shareholder Approval, the Declaration of Trust will be
amended to extend the term of EQK for an additional 20 years. See "The
Declaration Amendment Proposal" herein.

-91-
104

The principal executive offices of EQK and of the Advisor are located
at 5775 Peachtree Dunwoody Road, Suite 200D, Atlanta, Georgia, 30342, and their
telephone number is (404) 303-6100.

THE BUSINESS OF EQK

GENERAL

EQK was formed for the purpose of acquiring for a finite holding period
a specified portfolio of substantially unleveraged, institutional quality real
estate in order to maximize current distributions of cash flow from operations,
to realize long-term capital appreciation for distribution and to protect its
shareholders' capital. None of EQK's policies may be amended without the
approval of holders of three-quarters of the outstanding EQK Shares. See "The
Declaration Amendment Proposal" herein.

EQK consummated the public offering of its EQK Shares on March 12,
1985. Certain of the net proceeds to EQK from such offering were expended to
acquire certain properties on March 13, 1985 (which were comprised of the Center
as described below, as well as two properties subsequently sold: Castleton Park
or "Castleton," an office park in Indianapolis, Indiana, which was sold in
transactions in 1991 and 1995, and Peachtree Dunwoody Pavilion, or "Peachtree,"
an office complex in Atlanta, Georgia, which was sold in transactions in 1992
and 1993).

The Declaration of Trust currently provides that actual disposition of
the remaining property, the Center, may occur at any time prior to March 1999.
The precise timing of this disposition or an alternative strategic transaction
will be at the discretion of EQK's Board of Trustees, depending on both the
prevailing conditions in the relevant real estate market and the ability of EQK
to extend or refinance its debt maturing in June 1998 (see Note 2 to EQK's
financial statements). For a description of the Center and certain proposed
amendments to the Declaration of Trust, see "Description of the Center" and "The
Declaration Amendment Proposal" herein.

Since December 15, 1992, EQK has had in place a mortgage note (the
"Mortgage Note") with Prudential, which had an initial balance of $75,689,000,
and an original maturity date of December 15, 1995. The interest rates on the
Mortgage Note averaged 9.79% over its initial three year term. However, the
Mortgage Note agreement required monthly payments of interest only at the rate
of 8.54% per annum. The additional interest charges were accrued and added to
principal over this initial term of the Mortgage Note. Absent any prepayments of
debt arising from property dispositions, the amount of principal due on the
original maturity date of December 15, 1995 would have been $78,928,000. Under
the terms of the Mortgage Note, Prudential received the Prudential Warrants.
None of the Prudential Warrants have been exercised as of the date of this
Prospectus/Proxy Statement.

EQK has also had a term loan (the "Term Loan") in place since December
15, 1992 with PNC Bank Corp. ("PNC"). The Term Loan bears interest at 8.33% per
annum and requires payments at the same annual rate of 8.54% as was required
under the Mortgage Note agreement. The payments made in excess of the interest
rate were applied to the principal balance of the loan such that the original
principal balance of $2,859,000 would have been reduced over its three year term
to $2,839,000, absent any prepayments arising from property dispositions.

On December 8, 1995, EQK completed the sale of Castleton, its 44
building office park located in Indianapolis, Indiana. The net proceeds of
$35,990,000 (reduced by customary prorations of $2,517,000) were used to retire
$34,738,000 of the Mortgage Note and $1,252,000 of the Term Loan. At the
original expiration of the Mortgage Note and Term Loan on December 15, 1995, the
remaining balances of $44,125,000 and $1,587,000, respectively, were extended
for one year to December 15, 1996 under terms substantially comparable to those
previously in effect.

The principal balances outstanding under the Mortgage Note and the Term
Loan at December 15, 1996, $43,794,000 and $1,585,000, respectively, were
extended for 18 months through June 15, 1998. The Mortgage Note remains
collateralized by a first mortgage lien on the Center, an assignment of leases
and rents, and certain cash balances. The Term Loan is collateralized by a
subordinate lien on the Center. The Mortgage Note requires payments of interest
only at the rate of 8.88% per annum. The Term Loan reflects the same pay rate of
8.88% that is applicable to the Mortgage Note, but also bears interest at an
accrual rate that re-sets periodically and is computed at EQK's discretion at
either 2 5/8% above the Euro-Rate (as defined in the Term Loan) or 1 1/8% above
the Prime Rate (as defined in the Term Loan). The accrual rate in effect through
May 18, 1997 averaged 8.12%. The difference between the accrual rate and the pay
rate will be subtracted from the principal balance due at maturity.

-92-
105

In consideration for the fixed annual interest accrual rate on the
Mortgage Note, EQK paid an up-front application fee of $165,000 and agreed to
pay a back end fee of $272,900, plus interest thereon at the contract rate of
8.88%, at the maturity date of June 15, 1998, or the date at which all or any
part of the original principal amount is prepaid.

In connection with the December 15, 1992 debt financings, EQK issued
1,675,000 previously repurchased EQK Shares to the Advisor for consideration of
$6,700,000, or $4.00 per share. EQK may, at its discretion, reissue the
remaining 791,211 EQK Shares previously repurchased. Any issuance of EQK Shares
in excess of the EQK Shares previously repurchased would require shareholder
approval.

Subject to certain restrictions, EQK is permitted to make additional
real estate investments involving the expansion of its existing properties. EQK
has no intentions of acquiring additional real estate interests, but will make
certain capital expenditures required to maintain or enhance the value of the
Center, including tenant allowances associated with leasing activity.

EQK may make secured or unsecured borrowings to make distributions to
its shareholders and for normal working capital needs, including tenant
alterations and/or allowances and the repair and maintenance of properties in
which it has invested. The Declaration of Trust currently prohibits EQK's
aggregate borrowings from exceeding 75% of its total asset value, as defined
therein. See "The Declaration Amendment Proposal."

EQK will not engage in any business not related to its real estate
investments and, as described below, the Declaration of Trust currently imposes
certain prohibitions and investment restrictions on various investment practices
or activities of EQK. See "The Declaration Amendment Proposal."

SUMMARY OF THE EXISTING DECLARATION OF TRUST

The following is a brief summary of provisions of the Declaration of
Trust not described elsewhere in this Prospectus/Proxy Statement. EQK's
Declaration of Trust provides that each person who becomes an EQK Shareholder
shall as a result thereof be deemed to have agreed to and be bound by the
provisions of the Declaration of Trust. Reference is made to the Declaration of
Trust.

Trustees. The Declaration of Trust provides that the number of Trustees
may be fixed from time to time by the Trustees or by the holders of EQK Shares,
with a minimum of five and a maximum of 12 Trustees, a majority of whom must be
unaffiliated with EQK or ERPM (each, an "Unaffiliated Trustee"). There are
currently seven Trustees, including four Unaffiliated Trustees. Trustees
continue in office until the next annual meeting of shareholders and until their
successors are duly elected and qualified. Vacancies may be filled by a majority
of the remaining Trustees, except that a vacancy among the Unaffiliated Trustees
shall be filled by a majority of the remaining Unaffiliated Trustees, or by the
holders of EQK Shares. Any Trustee may be removed with cause by all the
remaining Trustees, or with or without cause by holders of a majority of the
outstanding EQK Shares.

The Declaration of Trust provides that no Trustee or officer of EQK,
shall be liable to any party (including EQK and its holders of EQK Shares),
except for liability arising from his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties. The Declaration of Trust also
provides for indemnification of the Trustees and officers against expense or
liability in any action arising out of such person's activities on behalf of
EQK, except with respect to conduct of the types described above. Therefore, EQK
Shareholders may be entitled to more limited rights of action than those to
which they otherwise would have been entitled absent the limitation on the
Trustees' and officers' liability set forth in the Declaration of Trust.

Shareholder Liability. The Declaration of Trust provides that the EQK
Shareholders shall not be subject to any liability for the acts or obligations
of EQK and that, as far as practicable, each written agreement of EQK is to
contain a provision to that effect. With respect to all types of claims in such
jurisdictions and with respect to tort claims, contract claims whereas the
shareholder liability is not disavowed as described above, claims for taxes and
certain statutory liabilities in other jurisdictions, an EQK Shareholder may be
held personally liable to the extent that claims are not satisfied by EQK.
However, the Declaration of Trust provides that, upon payment of any such
liability, the EQK Shareholder will be entitled to reimbursement from EQK's
general assets. The Trustees intend to continue to maintain appropriate
insurance and to conduct the operations of EQK, with the advice of counsel, in
such a way as to avoid, as far as practicable, the ultimate liability of the EQK
Shareholders.

-93-
106

Redemption and Prohibition of Transfer of Shares. For EQK to continue
to qualify as a REIT under the Code in any taxable year, not more than 50% of
its outstanding EQK Shares may be owned by five or fewer individuals at any time
during the last half of the taxable year, and the EQK Shares must be owned by
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. In order to meet these
requirements, the Trustees have power to redeem or prohibit the transfer of a
sufficient number of EQK Shares selected in a manner deemed appropriate to
maintain or bring the ownership of the EQK Shares into conformity with such
requirements. The price to be paid in the event of the redemption of the EQK
Shares will be the last reported sale price of the EQK Shares on the last
business day prior to the redemption date on the NYSE.

Duration and Termination of the Trust. If the Merger-Related Proposals
do not receive the Requisite Shareholder Approval, the duration of the Trust
will terminate in March of 1999. The Declaration of Trust also permits the
holders of a majority of the outstanding EQK Shares to terminate the Trust at
any time. Termination by the Trustees may be effected without any action or
consent of the shareholders, except that any plan for the termination of the
Trust which contemplates the distribution to shareholders of securities or other
property in kind, other than the right to receive cash, also requires the
affirmative vote of the holders of three-quarters of the outstanding EQK Shares.
See "The Declaration Amendment Proposal."

Transactions with Affiliates. Affiliates of the Advisor may perform
leasing, property management, or other similar services for EQK, provided that
any such transactions are approved by a majority of the Unaffiliated Trustees
who determine that the compensation is not in excess of any compensation paid to
such affiliates by nonaffiliates for comparable services in the same geographic
area and that the compensation paid is not greater than that generally charged
by competent nonaffiliates for comparable services in the same geographic area.
No properties will be sold to affiliates of the Advisor unless the transaction
is approved by a majority of the Unaffiliated Trustees and of the holders of a
majority of the outstanding EQK Shares. In addition, no such sale is permitted
unless the sale price is equal to or greater than the independently appraised
value of the property being sold.

Amendment of Declaration of Trust; Merger. The Declaration of Trust may
be amended, or EQK may be merged into a successor entity, by the majority vote
of the Trustees (including a majority vote of the Unaffiliated Trustees in the
case of a merger) and by vote of the holders of a majority of the outstanding
EQK Shares, except that the holders of three-quarters of the outstanding EQK
Shares must approve any amendment that would alter any of EQK's investment or
operational policies. In addition, two-thirds of the Trustees may, without the
approval or consent of the shareholders, adopt any amendment which they in good
faith determine to be necessary to permit EQK to continue to qualify as a REIT
under the Code, or to comply with other Federal laws or regulations or to comply
with state securities laws or the requirements of administrative agencies
thereunder. The Trustees may also, without the vote or consent of the
shareholders, change the name of EQK to a name that does not include any name
similar to that of ERPM or any affiliate thereof.

Prohibited Activities and Investments. EQK may not currently engage in
any business not related to its real estate investments and, in that regard, the
Declaration of Trust currently imposes certain prohibitions and investment
restrictions on various investment practices or activities of EQK, including a
prohibition against investing in any mortgage, other than purchase money
mortgages designed to facilitate the sale of EQK's real estate investments,
provided that the term of any such purchase money mortgage does not exceed the
remaining term of the Trust as described above under "--Duration and Termination
of the Trust."

PROPERTY MANAGEMENT AGREEMENT

EQK has also entered into a property management agreement with Compass,
which operates as a business unit of ERE Yarmouth, for the on-site management of
the Center. Management fees paid to Compass are generally based upon a
percentage of rents and certain other charges. EQK believes that such fees are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1996, 1995 and
1994, management fees to Compass were $297,000, $291,000, and $314,000,
respectively. For the nine months ended September 30, 1997, management fee
expense attributable to services rendered by Compass was $220,000. Compass is an
affiliate of ERE Yarmouth and its management portfolio currently includes 39
properties, totaling over 31,000,000 square feet. The majority of the portfolio
consists of enclosed regional shopping malls.

In 1995, Compass received a $150,000 development fee in connection with
the redevelopment of the Center's outparcel building.

-94-
107

Compass has agreed to continue to act as on-site property manager for
the Center after the consummation of the Merger and shall continue to earn the
same property management fee as it currently earns.

SELECTED FINANCIAL DATA OF EQK

The selected historical financial data of EQK set forth below has been
derived from the financial statements of EQK as they appeared in EQK's Forms
10-K filed with the Commission for each of the five fiscal years in the period
ended December 31, 1996.

As of and for the YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----

Revenues from rental
operations ................... $ 6,174 $ 15,761 $ 16,512 $ 18,458 $ 20,900
Write down of investments
in real estate (a) ........... -- (3,200) -- -- (4,001)
Loss before gain on sales
of real estate and
extraordinary loss ........... (1,488) (6,575) (3,459) (2,351) (9,993)
Gain on sales of
real estate (b) .............. -- 229 -- 282 1,143
Loss before extraordinary
gain ......................... (1,488) (6,346) (3,459) (2,069) (8,850)
Extraordinary loss from
early retirement
of debt (c)................... -- -- -- (1,711) --
Net loss .......................... (1,488) (6,346) (3,459) (3,780) (8,850)
Per share data (d) Loss per share:
Loss before gain on
sales of real estate and
extraordinary loss ........ $ (0.16) $ (0.71) $ (0.37) $ (0.25) $ (1.31)
Loss before
extraordinary loss ....... $ (0.16) $ (0.68) $ (0.37) $ (0.22) $ (1.16)
Net loss ................... $ (0.16) $ (0.68) $ (0.37) $ (0.41) $ (1.16)
Dividends declared ......... -- -- -- -- --
Total assets ...................... 46,603 48,209 90,258 93,163 103,690

Long-term obligations:
Mortgage notes payable,
net of imputed interest
and discount ................. 45,379 45,712 80,032 78,727 86,713
Shareholders' equity
(deficit) .................... (3,021) (1,533) 4,813 8,176 11,559

- ---------------

-95-
108

(a) To the extent that the net cost investment in any property exceeds its
current market value, an allowance is recorded to adjust the net
investment to management's estimate of net realizable value. The
write-downs in 1992 and 1995 related to EQK's investment in Castleton,
a commercial office complex located in Indianapolis, Indiana.

(b) In 1995, EQK sold its remaining interest in Castleton and recognized a
gain on the sale of $229,000. In 1993, EQK sold its remaining two
buildings at Peachtree Dunwoody Pavilion, a commercial office complex
in Atlanta, Georgia, and recognized a gain on the sale of $282,000. In
1992, EQK sold five buildings at Peachtree Dunwoody Pavilion and
recognized a gain on the sale of $1,143,000.

(c) In 1993 EQK retired mortgage notes assumed in connection with its
purchase of the Center and recognized an extraordinary charge to
earnings of $1,711,000.

(d) Calculation is based on 9,264,344 weighted average shares outstanding
during all periods presented except 1992, during which 7,653,415
weighted average shares were outstanding.

-96-
109

For the Three For the Three For the Nine For the Nine
------------- ------------- ------------ ------------
Months Ended Months Ended Months Ended Months Ended
------------ ------------ ------------ ------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
EARNINGS DATA (dollars in thousands, except per share)

Revenues from rental
operations ................ $ 1,545 $ 1,576 $ 4,515 $ 4,705
Write down of investments
in real estate (a) ........ -- -- -- --
Loss before gain on sales
of real estate and
extraordinary loss ........ (565) (261) (1,418) (929)
Gain on sales of
real estate ............... -- -- -- --
Loss before extraordinary
gain ...................... (565) (261) (1,418) (929)
Extraordinary loss from
early retirement
of debt ................... -- -- -- --
Net loss ....................... (565) (261) (1,418) (929)
Total assets ................... $ 44,908 $ 46,502 $ 44,908 $ 46,502

Long-term obligations:
Mortgage notes payable,
net of imputed interest
and discount .............. 45,379 45,466 45,379 45,466
Shareholders' equity
(deficit) ................. (4,439) (2,462) (4,439) (2,462)
Per share data (b)
Loss per share:
Loss before gain on
sales of real estate and
extraordinary loss .... ($ 0.06) ($ 0.03) ($ 0.15) ($ 0.10)
Loss before
extraordinary loss .... ($ 0.06) ($ 0.03) ($ 0.15) ($ 0.10)
Net loss ................ ($ 0.06) ($ 0.03) ($ 0.15) ($ 0.10)
Dividends declared ...... -- -- -- --

(b) Calculation is based on 9,264,344 weighted average shares
outstanding during all periods presented.

-97-
110

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF EQK

Over the past several years, the retail industry has experienced a large
number of retail store mergers and bankruptcies. Consolidations within the
retail industry and the financial difficulties experienced by individual
retailers have, in turn, led to a high level of unanticipated store closings and
requests for rent relief within regional shopping malls.

At the Center, the current state of the retail industry has impacted both
its department stores and its smaller specialty stores. Two of the department
stores operating in 1994 have since closed, Hess's (November 1994) and John
Wanamaker (October 1995). These department store spaces remained "dark" for
substantial periods of time pending the opening of their replacements, Hecht's
(October 1995) and Lord & Taylor (March 1997).

The temporary closure of these department stores permitted certain tenants
to exercise co-tenancy provisions pursuant to their leases, which allowed them
to pay a lower amount of rent based on a percentage of sales volumes in lieu of
fixed minimum rents. Additionally, certain other tenants experienced financial
difficulties which led to requests for rent relief and unanticipated store
closings. As a result of these matters, the aggregate decline in rental revenues
from amounts otherwise provided for under the related lease agreements amounted
to approximately $600,000, in total, for 1995 and 1996, and $80,000 for the
first quarter of 1997.

Upon the opening of Lord & Taylor on March 10, 1997, substantially all of
the in-line tenants' co-tenancy provisions ceased being operable, and such
tenants' rent structures reverted back to fixed minimum rents. However, certain
other tenants have either closed or remained on rent relief. Tenants on rent
relief have led to a decline in rental revenues of approximately $55,000 per
quarter in 1997 from amounts otherwise contractually due. EQK's management will
continue to seek new tenants to fill existing vacancies and to replace such
under-performing tenants. No assurances can be given, however, that EQK's
management will succeed with such efforts, or that such adverse effects will not
continue beyond 1997 or increase in amount. These factors, as well as
competitive pressures within the retail industry, have adversely affected the
value and marketability of regional shopping malls in general and of the Center
in particular, and there is no assurance that such adverse effects will not
continue or increase in the future.

Mortgage Debt Extensions. On December 15, 1996 EQK extended the maturity
dates on its Mortgage Note (remaining balance, $43,794,000) and its Term Loan
(remaining balance, $1,585,000) for a period of 18 months (extended maturity
date, June 15, 1998). The terms of such debt facilities pursuant to the
extensions are substantially comparable to the terms in effect since the
original issuance date, December 15, 1992, except as described below. The
Mortgage Note and Term Loan were previously extended from their original
maturity date on December 15, 1995 to December 15, 1996. The Mortgage Note
remains collateralized by a first mortgage lien on the Center, an assignment of
leases and rents, and certain cash balances. The Term Loan is collateralized by
a subordinate lien on the Center.

The Mortgage Note agreement has been amended to provide for monthly
payments of interest only accruing at the rate of 8.88% per annum ($324,000 per
month). This interest rate reflects an increase from the 8.54% interest rate in
effect during the previous extension period (December 16, 1995 to December 15,
1996). The average rate in effect during the initial three year term of the debt
was 9.79% per annum.

In consideration for the fixed annual interest accrual rate on the Mortgage
Note agreement, EQK paid an up-front application fee of $165,000 and agreed to
pay a back end fee of $272,900, plus interest thereon at the contract rate of
8.88%, at the maturity date of June 15, 1998, or the date at which all or any
part of the original principal amount is prepaid.

The Term Loan reflects the same pay rate of 8.88% that is applicable to the
Mortgage Note, but accrues interest at a rate that re-sets periodically. The
accrual rate is computed at EQK's discretion at either 2 5/8% above the
Euro-rate or 1 1/8% above the prime rate. The accrual rate in effect through May
18, 1997 averaged 8.12%. The difference between the accrual rate and the pay
rate will be reflected in the principal balance due at maturity.

In the event that EQK does not sell the Center before the Mortgage Note and
Term Loan mature on June 15, 1998, Management will explore its external
financing alternatives, including the refinancing of its debt with the existing
lenders. However, if EQK is unable to refinance or replace the existing debt at
commercially reasonable terms or at all, Management's plans with respect to
liquidating the Center will be accelerated to satisfy its debt obligations.

-98-
111

The Center. On May 13, 1996, EQK and May Department Stores Company ("May
Company") executed a lease agreement that provides for the opening of a Lord &
Taylor department store (a division of May Company) in the anchor space
previously occupied by John Wanamaker. The John Wanamaker location at the Center
has been closed since October 1995 following Woodward & Lothrop's (the owner of
John Wanamaker) sale of certain department stores in this retail chain to May
Company pursuant to an August 1995 bankruptcy court auction. Given its existing
presence at the Center through its recently opened Hecht's department store, May
Company initially pursued an assignment of this leasehold interest to other
retail operators before deciding instead to open a Lord & Taylor department
store in this location. The execution of such lease agreement has resulted in,
among other things, the termination of the legal proceedings initiated by EQK
against May Company in March 1996 following May Company's failure to open or
cause another retail operator to open for business once the John Wanamaker store
closed, which was a violation of a continuous operating covenant contained in
its lease agreement.

The new lease agreement with May Company has an initial term of nine years
(October 31, 2005), with three renewal options of ten years each. The new lease
agreement has a longer committed lease term than the John Wanamaker lease
agreement, which stipulated an initial lease term expiration date of October 31,
1999. The financial terms are comparable to those contained in the John
Wanamaker lease, although minimum rent payments during the first three years of
the lease are anticipated to be approximately $75,000 less per annum. Due to
certain rent offsets that John Wanamaker would have otherwise been entitled to,
the revenue stream after the third lease year is anticipated to be more
favorable to EQK. In connection with the execution of this lease agreement, EQK
received approval from May Company, on behalf of its Hecht's and Lord & Taylor
stores, to certain modifications to the Center's site plan which will give EQK
flexibility in future development planning. The opening of a Lord & Taylor store
is expected to have a positive impact on EQK's ability to lease space to new
tenants and to renew leases with existing tenants.

Lord & Taylor opened its newly renovated store on March 10, 1997.
Initially, Lord & Taylor had projected an opening prior to the 1996 Holiday
shopping season. However, issues affecting construction scheduling delayed the
opening date. Prior to the opening of the Lord & Taylor store, certain tenants
were permitted to pay, pursuant to co-tenancy provisions in their leases,
percentage rent in lieu of fixed minimum rentals. With the opening of the Lord &
Taylor store, substantially all of the in-line tenants' co-tenancy provisions
ceased being operable, and such tenants' rent structures reverted back to fixed
minimum rents.

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by the lender. The cash balance of
EQK's capital reserve account at September 30, 1997 was $1,865,000. Management
believes the current cash balance in this account will be sufficient to fund the
Center's capital expenditure requirements discussed below.

Liquidity. The comparability of the Statements of Cash Flows during 1994 to
1996 is affected by the property dispositions and debt repayments that occurred
during this time period.

EQK's cash flows provided by operating activities decreased by $721,000
during the nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996. This decrease in operating cash flows is principally
the result of decreases in the Center's 1997 revenues ($190,000) coupled with
the non-recurrence of accelerated accounts receivable collections in the prior
year ($300,000), as well as increases in both real estate taxes ($100,000) and
interest ($94,000) paid in 1997. Operating cash flows were also impacted by two
1996 non-recurring events which essentially offset one another, the refund of
previously paid real estate taxes at Peachtree Dunwoody Pavilion ($264,000) and
the repayment of a $300,000 obligation to the Advisor in 1996.

During 1996, EQK generated cash flows from operating activities of
$1,217,000, an increase of $94,000 from the prior year's operating cash flows of
$1,123,000. This increase in operating cash flows was primarily attributable to
a decline in cash paid for interest following the December 1995 partial
repayment of mortgage debt ($2,816,000), an increase in the Center's cash flows
from operations related to the receipt of lease termination fees ($451,000) and
to accelerated collections of real estate tax recoveries ($150,000), and the
receipt of a $268,000 refund of previously paid real estate taxes related to
reductions in the 1991 and 1992 assessed values of Peachtree. These increases
were partially offset by the loss of Castleton's operating cash flow following
the sale in December 1995 (which amounted to $3,656,000 in 1995).

During 1995, the cash flow provided by operating activities declined by
$1,061,000 compared to 1994. The decline was primarily attributable to the
accelerated payment of $1,425,000 for Castleton's real estate taxes in
connection with sale of the property in December, and a $619,000 decrease in
rental revenues for the Center as described below. This

-99-
112

decline was partially offset by a $400,000 real estate tax refund and a
reduction in operating expenses of $433,000 for Castleton and the Center which
are also described below.

Cash flows used in investing and financing activities during 1996 were for
routine capital expenditures ($195,000) and scheduled repayments of debt
($333,000). Cash flows used in investing activities during the nine months ended
September 30, 1997 and 1996 amounted to $505,000 and $190,000, respectively. The
1997 results reflect a parking lot repaving project and the payment of certain
tenant allowances at the Center. The 1996 results also reflect the payment of
certain tenant allowances at the Center. The Trust anticipates capital
expenditure requirements of approximately $350,000 for the remainder of 1997,
which include projected tenant allowances of $315,000. During the nine months
ended September 30, 1996, cash flows used in financing activities were limited
to scheduled principal payments on the Trust's debt. Pursuant to the mortgage
debt extension effective December 15, 1996, the Mortgage Note and Term Loan
generally require monthly payments of interest only. Accordingly, there were no
cash flows used in financing activities during the first nine months of 1997.

With respect to 1995, cash flows generated from investing activities and
cash flows used in financing activities were largely a function of the sale of
Castleton and the resulting repayment of mortgage debt in December 1995. Net
cash provided by investing activities in 1995, $33,145,000, was due to the
receipt of proceeds from the sale of Castleton, $38,507,000, partially offset by
additional investments in real estate, including $3,440,000 related to the
redevelopment of the Center outparcel building. Net cash used in financing
activities in 1995, $35,997,000 primarily related to the application of sales
proceeds of $35,990,000 (net of customary prorations) to retire a portion of
EQK's mortgage indebtedness.

During 1994, EQK used $3,192,000 in investing activities and $7,000 in
financing activities. Cash used in investing activities in 1994 primarily
related to routine capital additions at the properties, while cash used in
financing activities was for scheduled principal payments on EQK's term loan.

EQK will make certain capital expenditures to maintain or enhance the value
of the property, including tenant allowances associated with leasing activity.
EQK anticipates making 1997 capital expenditures of up to $1,200,000, which
include budgeted tenant allowances of $670,000. Certain of these expenditures
are discretionary in nature and therefore may be deferred into future periods.

In addition to capital expenditure requirements described above, EQK's
liquidity requirements for the remaining quarter of 1997 will also include
principal and interest payments of $1,005,000 pursuant to existing loan
agreements. These loan agreements mature on June 15, 1998; the principal balance
at maturity will be approximately $45,379,000.

EQK's cash management agreement stipulates that all rental payments from
tenants are to be made directly to a third party escrow agent that also funds
monthly operating expenses in accordance with a budget approved by the lender.
EQK believes that its cash flow for 1997 will be sufficient to fund its various
operating requirements, including budgeted capital expenditures and monthly
principal and interest payments, although its discretion with respect to cash
flow management will be limited by the terms of the cash management agreement.
Management believes that EQK's current cash reserves, coupled with additional
cash flow projected to be generated from operations, will permit EQK to meet its
operating, capital and debt service requirements. As of September 30, 1997, a
balance of $498,000 was held by a third-party escrow agent in accordance with
EQK's cash management agreement. The cash management agreement also provides for
the establishment of a capital reserve account, which is maintained by the
escrow agent. Disbursements from this account, which is funded each month with
any excess operating cash flow, are limited to capital expenditures approved by
the lender. As of September 30, 1997 the balance of the capital reserve account
was $1,865,000.

As discussed above, EQK records its investments in real estate in
accordance with the historical cost accounting convention. Accordingly, EQK has
not written up the cost basis of its investment in the Center to its
substantially higher net realizable value. Therefore, EQK management does not
believe that the deficit in shareholders' equity of $4,439,000 at September 30,
1997 is indicative of its current liquidity or its current net equity value.

Results of Operations. For the nine months ended September 30, 1997, EQK
reported a net loss of $1,418,000 ($.15 per EQK Share) compared to a net loss of
$929,000 ($.10 per EQK Share) for the nine months ended September 30, 1996. For
the third quarter of 1997, a net loss of $565,000 ($.06 per EQK Share) was
reported compared to a net loss of $261,000 ($.03 per EQK Share) for the third
quarter of 1996.

-100-
113

For the year ended December 31, 1996, EQK reported a net loss of $1,488,000
($.16 per EQK Share) compared to net losses of $6,346,000 ($.68 per EQK Share)
and $3,459,000 ($.37 per EQK Share) for the years ended December 31, 1995 and
1994, respectively. The year ended December 31, 1995 includes a write-down of
the investment in Castleton of $3,200,000 ($.35 per EQK Share) and the gain on
the sale of Castleton of $229,000 ($0.03 per EQK Share). The 1994 period was
impacted by a write-off of $429,000 of capitalized pre-development costs.

EQK's revenues for the three and nine months ended September 30, 1997 were
$1,545,000 and $4,515,000, respectively, representing decreases of $31,000 and
$190,000 over the comparable 1996 periods. The decrease for the nine month
period was primarily due to non-recurring lease cancellation fees received in
1996 which are partially offset by the cessation of co-tenancy provisions and a
corresponding increase in tenant rent obligations.

EQK's revenues for the year ended December 31, 1996 were $6,174,000, which
represented a $9,587,000 decrease from the 1995 amount of $15,761,000. This
decline was primarily due to the sale of Castleton, which accounted for revenues
of $9,554,000 for the year ended December 31, 1995. At the Center, rental
revenues declined from amounts recognized in 1995 due to the effects of tenant
bankruptcies and short-term rent relief agreements ($216,000), lower percentage
rent due to decreases in certain tenants' sales volumes ($90,000) and a non-cash
adjustment to the calculation of minimum rents recognized on a straight-line
basis over the terms of tenant leases ($300,000). However, such decreases were
substantially offset by collections of lease termination fees of $450,000 and an
increase of $135,000 in temporary tenant rental revenues.

Given the opening of Lord & Taylor on March 10, 1997, it is anticipated
that revenues will increase by approximately $350,000 over 1996. Such increase
is expected to result from increased rent payments from certain tenants whose
payment obligations had been reduced pursuant to the exercise of co-tenancy
provisions and short-term rent relief agreements associated with anchor store
vacancies. With the opening of Lord & Taylor, such provisions and agreements
will expire and these tenants will revert to paying fixed minimum rent.

Revenue from rental operations of $15,761,000 during 1995 declined from
$16,512,000 during 1994, primarily due to a decrease in rental revenue of
$584,000 from the Center. This decline is primarily the result of rental
reductions pursuant to cotenancy provisions of certain tenant leases which first
became applicable upon the closure of Hess's Department Store in November 1994
until its replacement, Hecht's, re-opened in October 1995. These cotenancy
provisions continued to be operable upon the October 1995 closure of John
Wanamaker. The decrease in the Center rental revenues is also attributable to
the partial year vacancy of the outparcel building during its 1995 renovation,
and to lower net utility income due to increased maintenance expenses.

EQK's expenses (net of tenant reimbursements) for the three and nine months
ended September 30, 1997 and 1996 were $283,000 and $642,000, respectively,
representing an increase of $160,000 for the third quarter and a decline of
$12,000 for the nine month period. The increase of net expenses for the third
quarter was primarily attributable to a $78,000 decrease in the Center's common
area maintenance expense recoveries due to a 4% decline in average occupancy
levels in 1997, and to other miscellaneous variances, none of which are
individually significant.

In March 1996, EQK was notified by the Fulton County (Georgia) Tax
Commissioner's office of a reduction in the assessed value of the real estate
underlying Peachtree Dunwoody Pavilion for tax years 1991 and 1992. As
previously discussed, EQK completed the sale of Peachtree Dunwoody Pavilion
during the period 1992-1993. Such reduction in assessed value resulted in a
refund of previously paid real estate taxes in the amount of $192,000 which EQK
recognized as other income during the first quarter of 1996. In June 1996, EQK
was notified by the Fulton County Tax Commissioner's office of an additional tax
refund of $72,000, which EQK received in July 1996 and recognized as other
income in the second quarter of 1996. There were no such similar events during
the nine months ended September 30, 1997.

Interest expense for the three and nine months ended September 30, 1997
increased by $40,000 and $109,000, respectively, over the comparable 1996
periods. The increase is primarily the result of an increase in the mortgage
note interest rate to 8.88% from 8.54% effective with the December 15, 1996
mortgage note extension agreement.

Operating expenses for the year ended December 31, 1996 were $887,000,
which declined from the related 1995 amounts of $5,403,000. The decline is
primarily due to the sale of Castleton, which accounted for expenses of
$4,600,000 for the year ended December 31, 1995. This decline in annual expenses
was offset by a net increase in the Center operating expenses of $77,000. The
annual increase was due to an increase in bad debt expenses of $151,000 due to
tenant bankruptcies in 1996 and an increase in administrative expenses of
$50,000. These increases were offset

-101-
114

by decreases in advertising expenses of $94,000 and sales tax expenses of
$53,000 attributable to non-recurring items in 1995.

Operating expenses for the year ended December 31, 1995 were $5,403,000,
which declined from the related 1994 amounts of $5,836,000. The annual declines
were attributable to lower operating expenses for both the Center and Castleton.
At Castleton, operating expenses decreased due to a reduction in repairs and
maintenance expenses and a reduction in real estate tax expense resulting from
both a valuation reassessment and the expense proration effective with the 1995
sale. These declines were partially offset by an increase in security costs. The
Center's operating expenses decreased in 1995 due to unexpected recoveries of
previously recognized bad debts and reductions in legal and consulting costs.

Interest expense for the years ended December 31, 1996, 1995, and 1994 was
$3,896,000, $8,302,000 and $8,132,000, respectively. The decrease in interest
expense in 1996 as compared to 1995 is primarily attributable to the lower
average debt balances outstanding in 1996 following the mortgage debt repayment
in December 1995, as well as decreases in the interest accrual rates for both
the Mortgage Note and Term Loan. The increase in interest expense in 1995 as
compared to 1994 is due to an increase in the Mortgage Note principal balance
from accrued but not currently payable interest and the amortization of non-cash
expense arising from the issuance of warrants to the lender.

Other expenses consist of portfolio management fees, other costs related to
the operation of EQK, and interest income earned on cash balances. The decrease
in other expenses of $174,000 for the nine months ended September 30, 1997 is
primarily attributable to the recognition of imputed interest on deferred
advisory fees in 1996. The imputed interest, which was fully amortized as of
December 31, 1996, relates to the 1989 amendment to the Advisory Agreement.
Partially offsetting this decline is the recognition of certain administrative
costs related to management's efforts to wind down EQK's business affairs

Other expenses decreased $227,000 in 1996 from 1995 balances. The decrease
is primarily attributable to a decrease in portfolio management and other
professional fees. There was no significant fluctuation in other expenses
between 1995 and 1994.

As discussed in the liquidity section above, EQK management believes that
the existing cash reserves and its anticipated cash flow generated from
operations will be sufficient to meet its capital and debt service requirements.
However, due to the effects of non-cash accounting adjustments (principally
depreciation and amortization), EQK management anticipates that EQK will
continue to incur net losses.

DESCRIPTION OF THE EQK SHARES

EQK is currently authorized to issue 10,055,555 EQK Shares, and the EQK
Board may not currently issue any additional EQK Shares unless such issuance is
approved by the holders of three-quarters of the outstanding EQK Shares. Upon
consummation of the Merger, the Declaration of Trust will be amended to remove
all limitations on the number of EQK Shares that EQK shall have the authority to
issue. See "The Declaration Amendment Proposal." The EQK Shareholders are
entitled to receive and to participate ratably in dividends, when and as
declared by the EQK Board out of any funds legally available for such purpose,
and, in the event of termination of the trust or upon the distribution of its
net assets, to receive and to participate ratably in payments and distributions.
All EQK Shares have equal voting rights. The EQK Shares do not have any
preference, appraisal, conversion, exchange or preemptive rights. Outstanding
EQK Shares are freely transferable, except that in certain limited circumstances
the EQK Board may refuse to transfer EQK Shares or may compel redemption of EQK
Shares. See "The Business of EQK -- Summary of the Existing Declaration of Trust
- -- Redemption and Prohibition of Transfer of Shares." The outstanding EQK Shares
have been legally issued and are fully paid and nonassessable, except to the
extent of any personal liability of the EQK Shareholders as described herein
under "The Business of EQK -- Summary of the Existing Declaration of Trust --
Shareholder Liability." At any meeting of the holders of EQK Shares, each EQK
Shareholder is entitled to one vote for each EQK Share owned without cumulative
voting with respect to the election of Trustees and with respect to all other
matters as to which the vote of the EQK Shareholders may from time to time be
required or permitted under the Declaration of Trust. The EQK Shareholders may
vote by proxy provided that proxies are placed on file with EQK before the time
of voting.

According to EQK's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997, there were, as of November 12, 1997, 9,264,344
outstanding EQK Shares and 367,868 Prudential Warrants for EQK Shares and, as
described below, it is a condition of the Merger that all of such EQK Shares
plus any EQK Shares issued

-102-
115

pursuant to the exercise of the Prudential Warrants are outstanding immediately
prior to the consummation of the Merger. In addition, according to EQK's 1996
Form 10-K, as of February 28, 1997, there were 271 holders of record of EQK
Shares. Although EQK does not know the exact number of beneficial holders of its
shares, EQK estimates that the number exceeds 1,500.

EQK has appointed Chase Mellon Shareholder Services as its registrar and
transfer agent.

The EQK Shares are listed for trading on the NYSE.

COMPARISON OF EQK SHARES TO ART PREFERRED SHARES

The following is a brief summary comparison of certain of the principal
terms of the EQK Shares and the ART Preferred Shares.

EQK Shares ART Preferred Shares
---------- ---------------------

Interest/Dividend Rate......... No stated rate. Each EQK Share 10% per annum, payable
is entitled to receive quarterly quarterly, on a cumulative,
distributions of cash flow compounded basis, and
generated from operations in commencing accrual August 16,
excess of operating expenses, 1998.
capital expenditures, debt service,
working capital and reasonable
reserves. No dividends have been
paid in respect of the EQK Shares
since 1994.

Optional Redemption............ Not applicable, except that the ART may redeem any or all of
EQK Board has the power to the ART Preferred Shares at any
redeem or prohibit the transfer of time and from time to time, at its
a sufficient number of EQK option, for cash upon no less than
Shares selected in a manner 20 days nor more than 30 days
deemed appropriate to maintain prior notice thereof. The
or bring the ownership of the redemption price of the ART
EQK Shares into conformity with Preferred Shares shall be an
the real estate investment trust amount per share equal to
requirements of the Code. (i)105% of the Adjusted
Liquidation Value during the
period from August 15, 1997
through August 15, 1998; (ii)
104% of the Adjusted Liquidation
Value during the period from
August 16, 1998 through August
15, 1999; and (iii) 103% of the
Adjusted Liquidation Value at
any time on or after August 16,
1999.

Ranking........................ The EQK Shares are the only Shall rank on a parity as to
class of shares currently dividends and upon liquidation,
authorized by the Declaration of dissolution or winding up with
Trust. However, upon all other shares of Special Stock
completion of the Merger, the issued by ART and shall be senior
Declaration of Trust may be to ART Common Shares. ART shall
amended to provide for the not issue any shares of Special
issuance of Additional EQK Stock of any series which are
Shares or other types of superior to the ART Preferred

-103-
116

EQK Shares ART Preferred Shares
---------- --------------------

securities, certain of which may Shares as to dividends or rights
have preferences senior to the upon liquidation, dissolution or
EQK Shares. winding up of ART as long as
any shares of the ART Preferred
Shares are issued and
outstanding, without the prior
written consent of the holders of
662/3% of such ART Preferred
Shares then outstanding and
voting separately as a class.

Voting Rights.................. One vote per EQK Share. Non-voting except (i) as provided
by law and (ii) at any time or
times when all or any portion of
the dividends on the ART
Preferred Shares for any six
quarterly dividends, whether or
not consecutive, shall be in
arrears and unpaid. In the latter
event, the number of directors
constituting the ART Board shall
be increased by two and the
holders of ART Preferred Shares,
voting separately as a class, shall
be entitled to elect two directors
to fill such newly created
directorships with each holder
being entitled to one vote in such
election for each share of ART
Preferred Shares held.
New York Stock Exchange
Listing...................... Authorized for listing on the Application will be made to list
NYSE. the ART Preferred Shares on the
NYSE.

Dividends Received
Deductions................... Distributions on the EQK Shares Dividends on the ART Preferred
are not eligible for the dividends Shares are eligible for the
received deduction for corporate dividends received deduction for
holders. corporate holders. The dividends
received deduction is not
applicable to individual, non-
corporate holders.

Conversion..................... Not Applicable. Convertible into ART Common
Shares at the option of the holder
after the earliest to occur of
(i) the August 15, 2003; (ii) the
first business day, if any,
occurring after a Quarterly
Dividend Payment Date on which
dividends equal to or in excess of

-104-
117

EQK Shares ART Preferred Shares
---------- --------------------

5% of the Liquidation
Value is accrued and
unpaid, or (iii) ART
becomes obligated to mail
a statement to the
holders of record of each
of the ART Preferred
Shares because of a
proposal by ART to merge
or consolidate with or
into any other
corporation (unless ART
is the surviving entity),
or to sell, lease, or
convey all or
substantially all its
property or business, or
to liquidate, dissolve or
wind up. Each ART
Preferred Share is
convertible (in most
instances) into that
number of ART Common
Shares obtained by
dividing (i) the sum of
the Adjusted Liquidation
Value of such ART
Preferred Share plus all
accrued and unpaid
dividends on such ART
Preferred Share to the
date of conversion by
(ii) the Conversion
Price. The Conversion
Price will be the amount
(rounded upward to the
nearest cent) equal to
90% of the simple average
of the daily closing
price of the ART Common
Shares for the twenty
business days ending on
the last business day of
the calendar week
immediately preceding the
date of conversion on the
principal stock exchange
on which such ART Common
Shares are then listed.
ART may elect to redeem
ART Preferred Shares that
are submitted for
conversion as described
herein.

-105-
118

DESCRIPTION OF THE HARRISBURG EAST MALL

GENERAL

The Center is a two-level enclosed regional mall shopping center
located approximately three miles from the central business district of
Harrisburg, Pennsylvania, the state capital. The Center opened for business in
1969 and is currently anchored by three major department stores, Hecht's (187,
280 sq. ft.), J.C. Penney (153,770 sq. ft.) and Lord & Taylor (173,515 sq. ft.).
Currently, Center mall tenants occupy 227,031 square feet of space and there is
an additional 45,950 square feet of space currently occupied by Toys 'R' Us in
the annex. The Center is located on a site of approximately 61.5 acres with
paved surface parking for approximately 4,727 automobiles (5.3 spaces per 1,000
gross leasable square feet). Compass currently manages the Center.

The total area of the Center is allocated as shown in the table below.

Approximate
Number of Gross
Store Spaces at Leasable Area % of Total Occupancy
Sept.30, 1997 (Sq. Ft.) Building Area % at 9/30/97
--------------- ------------- ------------- ------------

Gross Leasable area
Anchor stores ........................ 3 514,565 51.6% 100.0%
Mall stores .......................... 106 284,026 28.5 79.9
Other stores in free-standing
building .......................... 3 52,345 5.2 87.8
------- ---------- ----- -----
Total Stores .............................. 112
=======
Total Gross leasable area ................. 850,936 85.30 92.5%
---------- ----- =====
Common area ............................... 146,371 14.70
---------- -----
Total building area ....................... 997,307 100.0%
========== =====

LOCATION AND TRADE AREA OVERVIEW

The Center is located in Dauphin County, Pennsylvania, near the
intersection of Paxton Street (U.S. Route 322) and Interstate 83. The Center is
adjacent to Pennsylvania Route 441, approximately five miles from the
Pennsylvania Turnpike and three miles from the central business district of
Harrisburg. Access to the site from Interstate 83, the major north-south traffic
corridor serving Harrisburg, is provided by the Paxton Street interchange.
Access from the Pennsylvania Turnpike, the major east-west traffic corridor
serving Harrisburg, is provided by the Interstate 283 interchange.

The primary trade area for the Center encompasses the populated section of
Dauphin County, Pennsylvania, and along with small adjacent portions of
Cumberland and Perry Counties, Pennsylvania, comprises the Harrisburg
Metropolitan Statistical Area (the "Harrisburg M.S.A."). In total, the
Harrisburg M.S.A. encompasses 1,991 square miles.

Harrisburg, the capital of the Commonwealth of Pennsylvania, is situated in
south-central Pennsylvania on the banks of the Susquehanna River, between
Philadelphia and Pittsburgh. The Harrisburg M.S.A. is ranked 85th in regard to
size among metropolitan areas in the United States. The Harrisburg M.S.A. is an
area which has experienced moderate economic and demographic growth in the
recent past. Historically a center for agriculture and manufacturing, the area's
economy has become increasingly more diversified with strong job growth
experienced in services-related employment. In addition, as the state capital,
the area is a center for government and government related employment. Similar
to many areas nationally, demographic growth in the Harrisburg M.S.A. is
projected to occur at a more moderate rate relative to past levels. However, the
Harrisburg M.S.A. remains economically vital.

ANCHOR TENANTS

The Center has three department stores, two of which are currently occupied
by J.C. Penney and Hecht's, a division of May Department Stores Co. ("May
Company"), which replaced Hess' in November 1995. The third department store
space was formerly occupied by John Wanamaker, which closed in October 1995
following Woodward & Lothrop's (the owner of John Wanamaker) sale of certain
department stores in this retail chain to May Company pursuant to an August 1995
bankruptcy court auction. Given its existing presence at the Center through its
recently-

-106-
119

opened Hecht's department store, May Company initially pursued an assignment of
this leasehold interest to other retail operators before deciding in May 1996 to
instead open a Lord & Taylor (a division of May Company) department store in
this location. The execution of such lease agreement has resulted in, among
other things, the termination of the legal proceedings initiated by EQK against
May Company in March 1996 following May Company's failure to open or cause
another retail operator to open for business once the John Wanamaker store
closed, which was a violation of a continuous operating covenant contained in
its lease agreement.

Lord & Taylor opened its newly renovated store on March 10,
1997. Initially, Lord & Taylor had projected an opening prior to the 1996
holiday shopping season. However, issues affecting construction scheduling
delayed the opening date.

The three anchor tenants lease their stores and the underlying land
pursuant to leases which are summarized below.

Anchor Tenant Area Minimum Expiration Renewal
------------- (Sq. Ft.) Annual Rent Date Options
--------- ----------- ---------- ----------------

Hecht's 187,280 $200,000 1/31/2007 3-10 yr. options
J.C. Penney 153,770 $300,000 3/31/2001 6-5 yr. options
Lord & Taylor (a) 173,515 $150,000 10/31/2005 3-10 yr. options

(a) During 1996, May Company paid rent of $201,080 in accordance with the terms
of the John Wanamaker lease and the terms of the new Lord & Taylor lease
executed on May 13, 1996. Due to certain rent offsets that John Wanamaker
would have otherwise been entitled to, the revenue stream of the Lord &
Taylor lease is anticipated to be more favorable to EQK than the old John
Wanamaker lease beginning in the fourth lease year. In connection with the
execution of this lease agreement, EQK received approval from May Company,
on behalf of its Hecht's and Lord & Taylor stores, to certain modifications
to the Mall's site plan which will give EQK flexibility in future
development planning.

MALL AND OTHER TENANTS

At September 30, 1997, there were approximately 77 retail tenants,
exclusive of the anchor stores, occupying approximately 272,981 square feet of
gross leasable area in the mall and free-standing building, representing an
occupancy percentage of 81%, and approximately 63,390 square feet were vacant.
The gross leasable area of the mall is divided evenly between national and
regional/local tenants. Exclusive of the anchor stores, no tenant occupies more
than 10% of the gross leasable area of the Center.

[Remainder of Page Intentionally Left Blank]

-107-
120

LEASE EXPIRATIONS

The following table shows selected vacancy and lease expiration information
for the tenants of the mall and outparcel stores at December 31, 1996:

% of
Gross 1996 Aggregate 1996
Number of Leased Minimum Minimum
Leases Area Annual annual
Year Expiring (a) (Sq. Ft.) Rent Rent
-------------- ----------- --------- ------- --------------

Month to Month 4 6,587 172,414 4.1%
1997 7 12,752 213,509 5.0%
1998 14 14,788 405,506 9.6%
1999 4 5,637 148,558 3.5%
2000 10 36,166 490,863 11.6%
2001 8 17,034 399,846 9.4%
2002 5 17,926 180,432 4.3%
2003 8 23,109 176,141 4.2%
2004 5 8,794 218,416 5.2%
2005 7 59,271 393,554 9.3%
2006 and thereafter 7 77,791 672,684 15.9%
-- -------------- -------------- ----
TOTAL 79 279,855 3,471,923 81.9%
== ============== ============== ====

- ---------------
(a) Assumes no renewal options will be exercised in order to show the earliest
termination of the leases.

CAPITAL REQUIREMENTS

EQK will make certain capital expenditures to maintain or enhance the value
of The Center, including tenant allowances associated with leasing activity. EQK
anticipates making 1997 capital expenditures of up to $1,200,000, which include
budgeted tenant allowances of $670,000. Certain of these expenditures are
discretionary in nature and therefore may be deferred into future periods.

One of the conditions of the Mortgage Note was the establishment of a
capital reserve account, which is maintained by a third-party escrow agent and
from which expenditures must be approved by Prudential. The balance of this
account at December 31, 1996 was $1,886,000. Management of EQK believes the
current cash balance in this account will be sufficient to fund Harrisburg East
Mall's capital expenditures requirements.

-108-
121

OCCUPANCY DATA AND AVERAGE EFFECTIVE ANNUAL RENT

Information regarding occupancy rates and average effective annual rent for
the property, including anchor and outparcel tenants, is set forth below:

1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------

Occupancy Rate (a) 93.7% 73.6% 94.3% 96.9% 97.5%
============= ============= ============= ============= =============
Total Annual Minimum Rent (b) $ 4,902,122 $ 5,110,162 $ 5,973,828 $ 5,943,748 $ 5,591,915
Total Percentage Rent 225,419 269,558 294,591 154,039 262,870
------------- ------------- ------------- ------------- -------------
Total Annual Effective Rent $ 5,127,541 $ 5,379,720 $ 6,268,419 $ 6,097,787 $ 5,854,785
============= ============= ============= ============= =============
Average Annual Rent
Per Square Foot (c)
Mall Anchor Tenants $ 1.37 $ 1.32(d) $ 1.67 $ 1.71 $ 1.71
Outparcel Stores $ 7.44 $ 6.91 $ 5.69 $ 6.30 $ 6.27
Mall Tenants $ 17.08 $ 16.46 $ 16.55 $ 15.48 $ 14.76
All Tenants $ 6.26 $ 6.44(d) $ 7.49 $ 7.16 $ 6.88

- -----------------------

(a) Occupancy rate at December 31, 1995 reflects vacancy of the former John
Wanamaker anchor space. Excluding the effect of the vacancy, the occupancy rate
on a pro forma basis at December 31, 1995 was 95.8%. On May 13, 1996, EQK and
May Company executed a lease agreement that provides for the opening of a Lord &
Taylor department store. The December 31, 1996 occupancy rate includes the
occupancy of Lord & Taylor, which opened for business on March 10, 1997.

(b) Total minimum annual rent and percentage rent represents actual tenant
rental income for each calendar year, and does not include adjustments for
stipulated rent increases in accordance with Generally Accepted Accounting
Principles.

(c) Anchor and outparcel rent per square foot data is based on actual leased
square footage during each calendar year presented. Mall tenant rent per square
foot data is based on leased square footage at December 31 on each year
presented.

(d) The decrease in mall anchor tenant average rent per square foot in 1995 and
average rent per square foot for all tenants is principally due to the
replacement of the Hess department store with Hecht's in November 1994, and
Hecht's expansion into an adjacent basement space. Hecht's now occupies 187,280
square feet at $1.07 per square foot, whereas Hess formerly occupied 139,656
square feet at $2.18 per square foot.

[Remainder of Page Intentionally Left Blank]

-109-
122

COMPETITION

The following table provides selected information with respect to certain
existing competitors of the Center. Each property is located within eight miles
of the Mall. Additional information with respect to Colonial Park Plaza, Capital
City Mall and Camp Hill Shopping Center, the primary competitors of the Center,
is set forth below.

Gross Leasable
Shopping Center Type of Center Area (Sq. Ft.) Anchor Stores
--------------- -------------- -------------- -------------

Colonial Park Plaza Enclosed one level 762,000 Sears, The Bon Ton, Boscov's
regional mall

Capital City Mall Enclosed one level 722,000 Sears, Hecht's, JC Penney
regional mall

Camp Hill Shopping Center Enclosed one level mall 505,000 Boscov's, Montgomery Ward

Union Square Power Center 289,000 Dunham Sports, Gabriel Bros.
Weiss, Office Max

Colonial Commons Power Center 429,000 Giant, RX Place Service
Merchandise, Montgomery
Wards, TJ Maxx

Point Shopping Center Strip Center 300,000 U.S. Factory Outlet,
Burlington Coat Factory

The boundaries of the trade area for the Center are influenced by the
existence of natural boundaries, competing developments, and demographic
characteristics. The Susquehanna River splits the Harrisburg market in two,
creating the East and West shores. The Center is located in Dauphin County in
the East shore area. The Mall's primary trade area consists of all of Dauphin
County, while the secondary trade area includes sections of Lebanon and
Lancaster counties on the East shore and sections of Perry and Cumberland
counties on the West shore.

Primary competition for the Center consists of three regional centers
located in the Harrisburg trade area: Colonial Park Plaza, Capital City Mall,
and Camp Hill Shopping Center.

Colonial Park Plaza, which opened in 1960, is located approximately five
miles north of the Center in the primary trade area, and contains 762,000 square
feet of gross leasable area. It is anchored by The Bon-Ton, Sears, and Boscov's,
contains 90 in-line specialty retailers and as of December 31, 1996 had an
occupancy percentage of 90%. In 1990, this one- level center was renovated and
expanded to include a food court and additional specialty shops. Colonial Center
continues to be Harrisburg East's primary competitor due to the strength of
Boscov's and its tenant mix, which is very similar to that found at Harrisburg.

Capital City Mall, a one-level center which opened in 1974, is located
eight miles west of the Center in the secondary trade area. The center contains
approximately 722,000 square feet of gross leasable area and is anchored by
Hecht's, JC Penney, and Sears. As of December 31, 1996 it was 97.7% occupied,
with a strong concentration of boutique style retailers, and with the addition
of Hecht's and JC Penney in 1995, offers the same anchor appeal as the Center.

Camp Hill Shopping Center, a former community center originally constructed
in 1959, was completely enclosed and renovated in 1987. Camp Hill is located
approximately eight miles west of the Center in the secondary trade area, and
contains approximately 505,700 square feet. The center is anchored by Boscov's
and Montgomery Ward, and also contains a 42,000 square foot Pathmark Superstore.
The tenant mix is mostly comprised of local retailers and occupancy at 95.0% at
December 31, 1996.

-110-
123

DEBT

As described herein under "The Business of EQK," EQK completed an 18 month
extension of its existing mortgage debt aggregating $45,379,000 effective
December 1996 (maturity date of June 15, 1998). The following table sets forth
certain information regarding the outstanding debt. Both the Mortgage Note and
the Term Loan may be prepaid in full without penalty.

Principal
Principal Annual Debt Balance at
Balance as of Service Maturity Maturity
Lender Annual Rate 1996 (000's) (000's) Date (000's)
------ ----------- ------------ --------- -------- ----------

Prudential 8.88%(a) $43,794 $3,888 6/15/98 $43,794
PNC 8.88%(b) 1585 132 6/15/98 1,585(2)

- ---------------
(a) The extended Mortgage Note Agreement with Prudential requires monthly
interest only payments of $324,000, at 8.88%. In consideration for the fixed
annual interest accrual rate, EQK paid an up-front application fee of $165,000
and agreed to pay a back end fee of $272,900, plus interest thereon at the
contract rate of 8.88%, at the maturity date of June 15, 1998, or the date at
which all or any part of the original principal amount is prepaid.

(b) The extended Term Loan Agreement with PNC provides for the accrual interest
rate to be re-set periodically, and is computed at EQK's discretion at either 2
5/8% above the Euro-Rate (as defined in the Term Loan Agreement) or 1 1/8% above
the Prime Rate (as defined in the Term Loan Agreement). The accrual rate in
effect through May 18, 1997 averages 8.12%. The differential between the accrual
rate and the pay rate of 8.88% will be added or subtracted to the principal
balance due at maturity.

PHYSICAL DESCRIPTION OF BUILDINGS

The enclosed shopping mall and the anchor stores are two-level buildings of
steel frame and masonry construction with reinforced concrete foundations and
four-ply built-up roofs. The free-standing building is a one-level building of
similar construction, containing convenience-type shops. The exterior of the
mall consists of stone and brick walls and the anchor stores are of
complimentary finishes. The mall's two levels are connected by two escalators
and two stairways. All mall tenants and the anchor stores have their own air
handling units which are supplied with chilled and hot water from a central
plant. The free-standing building is served by roof-top cooling units which are
predominantly of the packaged, self-contained type with gas heating sections.

PHYSICAL IMPROVEMENTS

Since acquiring the Mall in 1985, EQK has undertaken several physical
improvement programs. In 1987, EQK converted approximately 51,400 square feet of
space in the basement of the former Hess's department store space into mall
tenant space, at which time it was leased to Toys 'R' Us. During 1988, a new
food court with approximately 13,000 square feet of gross leasable area was
added. In 1991, EQK completed the conversion of 47,960 square feet of space
previously occupied by JC Penney into approximately 31,500 square feet of new
leasable area leased at substantially higher rates.

In conjunction with the JC Penney conversion, the remaining area of the JC
Penney store was remodeled. In addition, the terms of the amended JC Penney
lease required EQK to renovate the common areas and the exterior facade of the
Mall. This renovation was completed in 1993 for a cost of approximately
$4,000,000. The project included a complete refurbishment of the property's
interior common area, with new floors, finishes, and lighting throughout.

Upon the expansion of Hecht's into the basement space previously occupied
by Toys 'R' Us (approximately 51,400 square feet), EQK renovated Harrisburg East
Mall's outparcel building (approximately 51,000 square feet) to accommodate the
relocation of Toys 'R' Us for a cost of approximately $3,440,000. In addition to
the expansion of the anchor tenant space, Hecht's performed an interior
renovation of its new department store space.

-111-
124

In anticipation of the opening of Lord & Taylor in the former John
Wanamaker anchor space, May Company (Lord & Taylor's parent company) completed a
major renovation of this anchor store location. Management believes that May
Company has spent approximately $10,000,000 on renovations and improvements.

APPRAISAL OF THE CENTER

EQK has received an appraisal from an unaffiliated third-party appraiser
(the "Independent Appraiser") with respect to the market value of the Center.
Based upon the analysis set forth in such appraisal, the Independent Appraiser
estimates that the market value of the leasehold interest (subject to occupancy
leases) of the Center, on a free and clear basis as of December 31, 1996, was
$61,500,000.00. In arriving at its appraised value for the Center, the
Independent Appraiser considered relevant economic and market factors, including
population, employment and other demographic factors and the impact of
competition from other shopping centers in the Harrisburg M.S.A.

REAL ESTATE TAXES

Real estate taxes are levied against the Center for county and township,
and school tax purposes. Harrisburg paid $914,000 in real estate taxes in 1996.
The 1996 millage rate was 26.886. The county lowered the assessed value of
Harrisburg East in 1997. However, the decrease in tax expense associated with
the lower assessed value will be substantially offset by a rate increase
announced by the county of approximately 2 millage points. Real estate taxes are
substantially reimbursed by the tenants through real estate tax recovery
billings.

DEPRECIATION

As of December 31, 1996, for Federal income tax purposes, EQK depreciates
its assets under the ACRS and the MACRS as follows:

Buildings:

Gross Federal Income Tax Basis $ 49,953,000
Accumulated Depreciation $ 14,151,000
Depreciation Method Straight Line
Depreciable Life 40 Years

Land Improvements:

Gross Federal Income Tax Basis $ 2,363,000
Accumulated Depreciation $ 187,000
Depreciation Method Straight Line
Depreciable Life 40 Years

Personal Property:

Gross Federal Income Tax Basis $ 185,000
Accumulated Depreciation $ 102,000
Depreciation Method Straight Line*
Depreciable Life 10 Years*

*Except for automobiles which are depreciated over a range of 3 to 7 years using
the double declining balance method.

ADDITIONAL INFORMATION

For additional information concerning the Center, see EQK's 1996 Form 10-K,
as amended by EQK's Form 10K-A, filed with the Commission on April 30, 1997,
each of which is incorporated by reference herein.

-112-
125

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF ART AND EQK

The following unaudited pro forma combined financial information of ART
and EQK presents the historical consolidated balance sheets and statements of
income of ART and EQK after giving effect to the Merger. The unaudited pro forma
combined balance sheet data at September 30, 1997 and December 31, 1996 gives
effect to the Merger as if it had occurred on either September 30, 1997 or
December 31, 1996. The unaudited pro forma combined statements of income for the
nine months ended September 30, 1997 and the fiscal year ended December 31, 1996
give effect to the Merger as if it had occurred on January 1 of each year. These
statements have been prepared on the basis of accounting for the Merger as a
purchase of an investment in an equity method investee and are based on the
assumptions set forth in the notes thereto.

The following unaudited pro forma combined financial information has been
prepared from, and should be read in conjunction with, the consolidated
financial statements and related notes thereto of ART as set forth herein and
the consolidated financial statements and related notes thereto of EQK included
elsewhere in this Prospectus/Proxy Statement. The following information is not
necessarily indicative of the financial position or operating results that would
have occurred had the Merger been consummated on the date as of which, or at the
beginning of the periods for which, the Merger is being given effect, nor is it
necessarily indicative of future operating results or financial position.
See "Incorporation of Certain Documents by Reference."

[Remainder of Page Intentionally Left Blank]

-113-
126

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997

Proforma Proforma
Historical Adjustments Combined
---------- ----------- --------
Assets (dollars in thousands, except per share)
------

Notes and interest receivable, net of allowances
for estimated losses..................... $ 20,738 $ 20,738
Real estate held for sale, net of accumulated
depreciation............................. 149,127 149,127
Real estate held for investment, net of
accumulated depreciation................. 84,898 84,898
Plant and equipment, net of accumulated
depreciation............................. 5,809 5,809
Marketable equity securities at market
value.................................... 7,425 7,425
Cash and cash equivalents...................... 2,031 {$(1,888) (3)} 2,031
{ (216) (4)}
{ (400) (6)}
{ 2,504 (7)}
Investments in equity investees................ 46,266 { 3,118 (1)} 60,780
{ 1,024 (2)}
{ 6,421 (3)}
{ 216 (4)}
{ 3,335 (5)}
{ 400 (6)}

Intangibles, net of accumulated
amortization............................. 15,309 15,309
Other assets................................... 23,015 ______ 23,015
-------- --------

$354,618 $14,514 $369,132
======== ======= ========

-114-
127

Proforma Proforma
Historical Adjustments Combined
---------- ----------- --------
(dollars in thousands, except per share)
Liabilities and Stockholders' Equity
------------------------------------

Liabilities
Notes and interest payable..................... $213,293 $ 213,293
Margin borrowings.............................. 52,071 52,071
{$1,360 (5)}
Accounts payable and other liabilities......... 31,456 { 2,504 (7)} 35,320
--------- --------- ---------
296,820 3,864 300,684
Minority interest.............................. 10,742 10,742
Stockholders' Equity
Preferred Stock, $2.00 par value,
authorized 20,000,000 shares, issued
and outstanding

4,000 shares Series B................ 8 8

16,681 shares Series C............... 33 33

1,470,623 shares Series F............ 800 { 624 (1)} 2,931
{ 205 (2)}
{ 907 (3)}
{ 395 (5)}
{ 123 (6)}
Common Stock, $.01 par value, authorized
16,666,667 shares, issued 13,479,348
shares................................... 120 120

Paid-in capital................................ 72,147 { 2,494 (1)} 80,711
{ 819 (2)}
{ 3,626 (3)}
{ 1,580 (5)}

Accumulated (deficit).......................... (26,037) (26,037)
Treasury stock at cost, 1,503,427 shares....... (15) (15)
--------- --------- ---------
47,056 10,650 57,706
--------- --------- ---------
$ 354,618 $ 14,514 $ 369,132
========= ========= =========

-115-
128

AMERICAN REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997

NOTE 1. Purchase of 1,685,556 EQK Shares from ERPM for $1.85 per EQK
Share, paid in ART Preferred Shares valued for this purpose at
the liquidation value of $10.00 per ART Preferred Share.

NOTE 2. Purchase of 553,800 EQK Shares from Greenspring for $1.85 per
EQK Share paid in ART Preferred Shares valued for this purpose
at the liquidation value of $10.00 per ART Preferred Share.

NOTE 3. Purchase of 4,804,761 newly issued EQK Shares for
consideration of $0.3929 per EQK Share in cash and $0.9435 per
share in ART Preferred Shares valued for this purpose at the
liquidation value of $10.00 per ART Preferred Share.

NOTE 4. Cash payment of $0.10 per EQK Share held by 5% Holders in
consideration for their execution of Standstill Agreement.

NOTE 5. Payment to ERPM in connection with the termination of the Advisory
Agreement of $3,335,000 valued for this purpose at the
liquidation value of $10.00 per ART Preferred Share in ART
Preferred Shares at the closing of the merger transaction and
$1,360,000 in ART Preferred Shares three years thereafter.

NOTE 6. Payment of closing costs related to stock purchase/merger
transaction.

NOTE 7. Cash advance from BCM, ART's advisor, for the cash required
to complete the cash portions of the transactions detailed
above.

-116-
129

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996

Proforma Proforma
Historical Adjustments Combined
------------- ------------------ ------------
Assets (dollars in thousands, except per share)
------

Notes and interest receivable, net of allowances
for estimated losses..................... $ 48,485 $ 48,485
Real estate held for sale, net of accumulated
depreciation............................. 77,688 77,688
Real estate held for investment, net of
accumulated depreciation................. 41,347 41,347
Marketable equity securities at market
value.................................... 2,186 2,186
Cash and cash equivalents...................... 1,254 {$ (1,888) (3)} 1,254
{ (216) (4)}
{ (400) (6)}
{ 2,504 (7)}
Investments in equity investees................ 55,880 {$ 3,118 (1)} 70,394
{ 1,024 (2)}
{ 6,421 (3)}
{ 216 (4)}
{ 3,335 (5)}
{ }
{ 400 (6)}
Other assets................................... 8,197 8,197
------------ ----------- ------------
$ 235,037 $ 14,514 $ 249,551
============ =========== ============

-117-
130

Proforma Proforma
Historical Adjustments Combined
------------- ------------------ -------------
(dollars in thousands, except per share)
Liabilities and Stockholders' Equity
------------------------------------

Liabilities
Notes and interest payable..................... $ 127,863 $ 127,863
Margin borrowings.............................. 40,044 40,044
{$ 1,360 (5)}
Accounts payable and other liabilities......... 8,433 { 2,504 (8)} 12,297
------------ ----------- ------------

176,340 3,864 180,204
Minority interest.............................. 10,911 10,911

Stockholders' Equity

Preferred Stock, $2.00 par value,
authorized 20,000,000 shares, issued
and outstanding
4,000 shares Series B................ 8 8

15,877 shares Series C............... 32 32

1,070,623 Series F................... - { 624 (1)} 2,142
{ 216 (2)}
{ 907 (3)}
{ 272 (5)}
{ 123 (6)}
Common Stock, $.01 par value, authorized
16,666,667 shares, issued 13,479,348
shares................................... 129 129

Paid-in capital................................ 68,601 { 2,494 (1)} 77,165
{ 864 (2)}
{ 3,626 (3)}
{ 1,088 (5)}
{ 492 (6)}
Accumulated (deficit).......................... (20,978) (20,978)
Treasury stock at cost, 564,704 shares......... (6) (6)
------------ ----------- ------------
47,786 10,706 58,492
------------ ----------- ------------
$ 235,037 $ 14,570 $ 249,607
============ =========== ============

-118-
131

AMERICAN REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996

NOTE 1. Purchase of 1,685,556 EQK Shares from ERPM for $1.85 per EQK
Share, paid in ART Preferred Shares valued for this purpose
at the liquidation value of $10.00 per ART Preferred Share.

NOTE 2. Purchase of 553,800 EQK Shares from Corbyn for $1.85 per EQK
Share paid in ART Preferred Shares valued for this purpose
at the liquidation value of $10.00 per ART Preferred Share.

NOTE 3. Purchase of 4,804,761 newly issued EQK Shares for
consideration of $0.3929 per share in cash and $0.9435 per
share in ART Preferred Shares valued for this purpose at the
liquidation value of $10.00 per ART Preferred Share.

NOTE 4. Cash payment of $0.10 per EQK Share held by 5% Holders in
consideration for their execution of Standstill Agreement.

NOTE 5. Payment to ERPM in connection with the termination of the Advisory
Agreement of $3,335,000 valued for this purpose at the
liquidation value of $10.00 per ART Preferred Share, with
$1,975,000 payable in ART Preferred Shares at the closing
of the merger the transaction and $1,360,000 in ART
Preferred Shares three years thereafter.

NOTE 6. Payment of closing costs related to stock purchase/merger
transaction.

NOTE 7. Cash advance from BCM, ART's advisor, for the cash required to
complete the cash portions of the transactions described
above.

-119-
132

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

Proforma Proforma
Historical Adjustments Combined
---------- ----------- --------
(dollars in thousands, except per share)
Revenues

Sales.................................... $ 10,828 $ 10,828
Rents.................................... 18,725 18,725
Interests................................ 2,769 2,765
Other.................................... (117) (117)
---------- -----------
32,205 32,205
Expenses
Cost of sales............................ 8,672 8,672
Property operations...................... 13,501 13,501
Interest................................. 20,425 20,425
Advisory and servicing fees.............. 1,938 1,938
General and administrative............... 4,654 4,654
Depreciation and amortization............ 1,902 1,902
Minority interest........................ 959 959
----------- -----------
52,051 52,051
----------- -----------

(Loss) from operations......................... (19,846) (19,846)
Equity in income (losses) of investees......... 5,106 { $ 638 (1)} 5,166
{ (578) (2)}
Gain on sale of real estate.................... 11,354 11,354
----------- ---------- -----------
Net loss ...................................... (3,386) (60) (3,326)
Preferred dividend requirement................. (151) (803) (954)
----------- ---------- -----------
Net (loss) applicable to
Common shares.................................. $ (3,537) $ (743) $ (4,280)
=========== ========== ===========
Earnings per share
Net(loss) applicable to
Common shares.................................. $ (.29) $ (.06) $ (.35)
=========== ========== ===========
Weighted average Common shares used in
computing earnings per share............. 12,041,252 12,041,252 12,041,252
=========== ========== ===========

-120-
133

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

NOTE 1. Equity in net loss of EQK for the nine months ended
September 30, 1997 (net loss of ($1,418,000) adjusted for
obligation for deferred advisor fee of $2,720,000 assumed by
ART equals adjusted net income of $1,302,000 times ART's
ownership percentage of 49%).

NOTE 2. Amortization of cost in excess of net book value of EQK
Shares acquired (net book value at September 30, 1997 of
(4,439,000), adjusted for obligation for deferred advisory
assumed by ART of $(2,720,000) times ART's 49% ownership
equals ($842,000) add purchase price assigned to EQK
investment of $14,570,000 equals $15,412,000 or ART's excess
of cost over net book value of EQK Shares amortized over 20
years, estimated remaining useful life of the Center).

NOTE 3. Dividend requirement on ART Preferred Shares (1,070,623 shares
times $.75 per share).

-121-
134

AMERICAN REALTY TRUST, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

Proforma Proforma
Historical Adjustments Combined
------------- ----------- ------------
(dollars in thousands, except per share)

Income
Rents.................................... $ 20,658 $ 20,658
Interests................................ 4,724 4,724
Other.................................... 1,597 1,597
------------ ------------
26,979 26,979
Expenses
Property operations...................... 15,874 15,874
Interest................................. 16,450 16,450
Advisory and servicing fees.............. 1,539 1,539
General and administrative............... 2,712 2,712
Depreciation and amortization............ 2,002 2,002
Minority interest........................ - -
------------ ------------
38,577 38,577
------------ ------------
(Loss) from operations......................... (11,598) (11,598)
Equity in income (losses) of investees......... 2,004 {$ 604 (1)} 1,872
{ (736) (2)}
Gain on sale of real estate.................... 3,659 3,659
------------ ----------- ------------
(Loss) before extraordinary gain............... (5,935) (132) (6,067)
Extraordinary gain............................. 381 - 381
------------ ----------- ------------
Net (loss) (5,554) (132) (5,686)
Preferred dividend requirement................. (113) (1,071) (1,184)
------------ ----------- -------------
Net (loss) applicable to Common shares......... $ (5,667) $ (1,203) $ (6,870)
------------- =========== -------------

Earnings per share
(Loss) before extraordinary gain............... $ (.46) $ (.08) $ (.54)
Extraordinary gain............................. .03 - .03
------------ ----------- ------------
Net (loss) applicable to Common shares......... $ (.43) $ (.08) $ (.51)
============ =========== ============
Weighted average Common shares used in
computing earnings per share............. 12,765,082 12,765,082 12,765,082
============ =========== ============

-122-
135

AMERICAN REALTY TRUST, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

NOTE 1. Equity in net loss of EQK for the year needed December 31,
1996 (net loss of ($1,488,000) adjusted for obligation for
deferred advisor fee of $2,720,000 assumed by ART equals
adjusted net income of $1,232,000 times ART's ownership
percentage of 49%).

NOTE 2. Amortization of cost in excess of net book value of EQK
Shares acquired (net book value at December 31, 1996 of
$(3,021,000) adjusted for obligation for deferred advisory
assumed by ART of $2,720,000 times ART's 49% ownership equals
($147,000) add purchase price assigned to EQK investment of
$14,570,000 equals $14,717,000 or ART's excess of cost over
net book value of EQK Shares amortized over 20 years,
estimated remaining useful life of the Center).

NOTE 3. Dividend requirement on ART Preferred Shares (1,070,623 shares
times $1.00 per share).

-123-
136

EQK REALTY INVESTORS I
UNAUDITED PRO FORMA BALANCE SHEET
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

Historical
9/30/97 Pro Forma Pro Forma
Per Form 10-Q Adjustments 9/30/97
------------- ----------- -------
Assets (dollars in thousands)
-----

Investment in Harrisburg East Mall, at cost..... $ 52,733 $ 52,733
Less accumulated depreciation............. 16,753 16,753
--------- ---------
35,980 35,980
Cash and cash equivalents:
Cash Management Agreement ................ 2,363 2,363
Other .................................... 642 642

Deferred leasing costs (net of accumulated
amortization of $1,865)................... 3,827 3,827

Accounts receivable and other assets............ 2,096 2,096
--------- ---------
TOTAL ASSETS.................................... $ 44,908 $ 44,908
========= =========

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY

Liabilities:
Mortgage note payable .................... $ 43,794 $ 43,794
Term loan payable to bank ................ 1,585 1,585
Accounts payable and other liabilities
including amounts due affiliates of
$3,053 in the historical presentation and
$333 in the pro forma presentation)..... 3,968 (2,720) (a) 1,248
--------- ---------

49,347 46,627
Deficit in Shareholders' Equity:

Shares of beneficial interest, without par
value: 10,055,555 shares authorized, 9,264,344
shares issued and outstanding in the historical
presentation and an unlimited number of shares
authorized, 13,772,367 shares issued and
outstanding in the pro forma
presentation ........................... 135,875 2,720 (a)(b) 138,695

Accumulated deficit ...................... (140,314) (140,314)
----------- ------------

(4,439) (1,719)
----------- ------------
TOTAL LIABILITIES AND DEFICIT
IN SHAREHOLDERS' EQUITY .................. $ 44,908 $ 44,908
=========== ============

-124-
137

EQK REALTY INVESTORS I
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

Historical Nine Pro Forma
Months Ended Nine Months
9/30/97 Pro Forma Ended
Per Form 10-Q Adjustments 9/30/97
------------- ----------- -----------
(dollars in thousands)

Revenues from rental operations ................ $ 4,515 $ 4,515

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $220) ................. 642 642

Depreciation and amortization .................. 1,893 1,893
----------- -----------

Income from rental operations .................. 1,980 1,980

Interest expense ............................... 3,033 3,033

Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $183) .......... 365 365
----------- -----------

Net loss ....................................... ($ 1,418) ($ 1,418)
=========== ===========

Weighted Average shares outstanding ............ 9,264,344 4,508,023 (b) 13,772,367
=========== ===========

Net loss per share ............................. ($0.15) ($ 0.10)
=========== ===========

-125-
138

EQK REALTY INVESTORS I
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

Historical
Year Ended Pro Forma
12/31/96 Pro Forma Year Ended
Per Form 10-K Adjustments 12/31/96
------------- ----------- --------
(dollars in thousands)

Revenues from rental operations................. $ 6,174 $ 6,174

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $297)........................ 887 887

Depreciation and amortization......................... 2,391 2,391

Other income.......................................... (268) (268)
--------- ----------

Income from rental operations......................... 3,164 3,164

Interest expense...................................... 3,896 3,896

Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $250)................. 756 756
---------- -----------

Net loss.............................................. ($1,488) ($1,488)
========= ==========

Weighted Average shares outstanding................... 9,264,344 4,508,023 (b) 13,772,367
========= ==========

Net loss per share.................................... ($0.16) ($0.11)
========= ==========

-126-
139

EQK REALTY INVESTORS I
NOTES TO PRO FORMA FINANCIAL INFORMATION
(Unaudited)

The Unaudited Pro Forma Statement of Operations for the year ended December 31,
1996 is derived form the historical Statement of Operations included herein and
in the Annual Report on Form 10-K for the year ended December 31, 1996. The
Unaudited Pro Forma Balance Sheet as of September 30, 1997 and the Unaudited Pro
Forma Statement of Unaudited Operations for the nine months ended September 30,
1997 are derived from the historical statements included herein and in the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

The pro forma financial information should be read in conjunction with the
Trust's historical Financial Statements and Notes thereto contained herein and
in the Annual Report on Form 10-K for the year ended December 31, 1996 and the
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. The pro
forma financial information does not purport to be indicative of the results of
operations or the financial position which would have actually resulted if the
sale transaction had been consummated on the date indicated. In addition, the
pro forma financial information does not purport to be indicative of the
results of operations or financial position which may be obtained in the
future.

The Unaudited Pro Forma Adjustments are comprised of the following:

(a) Payments by ART to ERPM on account of the termination of the Advisory
Agreement in the amount of $2,720,000. One-half of the obligation
will be paid at closing in the form of ART Preferred Shares valued at
the Liquidation Value and the remaining half will be paid within
three years after the consummation of the merger also in the form of
ART Preferred Shares valued at the Liquidation Value.

(b) The issuance of 4,804,761 shares to ART as consideration for the
merger, which in addition to the shares acquired from ERPM and
Greenspring, will give ART a total 49% interest in EQK. The adjustment
further reflects the issuance of 367,868 EQK Shares to Prudential at an
exercise price of $0.0001 per share pursuant to the Prudential Warrant
Agreement. (In this regard, EQK has the right to require Prudential to
exercise this warrant in advance of the Merger, and based on the
below-market value exercise price, EQK's management anticipates that
Prudential will exercise this warrant.)

-127-
140

PLAN OF DISTRIBUTION

The Dealer Manager will distribute the EQK Merger Consideration to EQK
Shareholders residing in the states of Florida, Kansas, Missouri, New Jersey,
North Carolina, North Dakota and Vermont on ART's behalf. The Merger Agent will
distribute the EQK Merger Consideration to all other EQK Shareholders on ART's
behalf.

The Dealer Manager and the Merger Agent will be entitled to
indemnifications by ART against certain civil liabilities, including liabilities
under the Securities Act, or to contribution by ART to payments they may be
required to make in respect thereof. The Dealer Manager is an affiliate of ART
and may engage in transactions with, or perform services for ART in the ordinary
course of business.

LEGAL MATTERS

The validity of the shares of ART Preferred Shares offered hereby has been
passed upon for ART by Holt Ney Zatcoff & Wasserman, LLP, Atlanta, Georgia.
Certain matters in connection with the Merger will be passed upon for EQK by its
special Massachusetts counsel, Palmer & Dodge, Boston, Massachusetts. The
federal income tax consequences of the Merger have been passed upon by Andrews &
Kurth L.L.P., Dallas, Texas.

EXPERTS

The financial statements and schedules of ART included and incorporated by
reference in this Prospectus/Proxy Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the period
set forth in their reports appearing elsewhere herein and in the Registration
Statement, and such reports are included herein in reliance upon the authority
of said firm as experts in auditing and accounting.

The financial statements and the related financial statement schedule of
EQK included and incorporated by reference in this Prospectus/Proxy Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included and incorporated by reference herein, and have
been so included and incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

-128-
141

APPENDIX A

Index of Terms

"5% Holder".......................................................................................-4-
"ACMs"...........................................................................................-17-
"ADA" ...........................................................................................-17-
"Adjusted Liquidation Value"......................................................................-7-
"Advisory Agreement"...........................................................................3, -1-
"Advisor".............................................................................-2-, -37-, -86-
"Amended Declaration of Trust"....................................................................-5-
"ARB"...............................................................................................6
"ART Affiliated Trustees"........................................................................-21-
"ART Board".......................................................................................-2-
"ART Designated Trustees"........................................................................-21-
"ART Form 10-K"...................................................................................-9-
"ART Independent Trustee"........................................................................-21-
"ART Merger Consideration"..........................................................................4
"ART Newco"......................................................................................2, 4
"ART Preferred Consideration"....................................................................-30-
"ART Preferred Shares"..............................................................................4
"ART" .....................................................................................2, 4, F-10
"BCM" .................................................................................-1-, -2-, F-24
"Block Purchase"....................................................................................4
"Board Election Proposal"......................................................................2, -1-
"Carmel Realty"............................................................................-39-, F-27
"Carmel, Ltd.".............................................................................-39-, F-27
"Center" .........................................................................................-2-
"CMET" ............................................................................7, -2-, F-17, F-53
"Code" ...........................................................................................-1-
"Commission".....................................................................................4, 6
"Company"........................................................................................F-38
"Compass".........................................................................................-2-
"Conversion Price"..........................................................................-7-, -82-
"Davister".................................................................................-60-, F-14
"Dealer Manager"..................................................................................-8-
"Declaration Amendment Proposal"...............................................................2, -1-
"Declaration of Trust"............................................................................-1-
"Description of Capital Stock of ART".............................................................-7-
"EBITDA" ........................................................................................-29-
"Effective Time"..................................................................................-5-
"EKR" ..............................................................................................6
"Eldercare"......................................................................................-22-
"EQK Annual Meeting"................................................................................4
"EQK Board".........................................................................................4
"EQK Form 10-K"...................................................................................-9-
"EQK Merger Consideration".......................................................................2, 4
"EQK Record Date"...................................................................................4
"EQK Shareholders"..................................................................................4
"EQK Shares"........................................................................................4
"EQK Share".........................................................................................4
"EQK"............................................................................................2, 4
"Equitable".......................................................................................-2-
"ERE".............................................................................................-2-
"ERPM/ART Stock Purchase Agreement"..............................................................-10-
"ERPM/Greenspring Shares"........................................................................-33-
"ERPM"......................................................................................2, 4, -1-
"Exchange Act"......................................................................................6
"Expense Sharing Agreement"......................................................................-35-
"FFO" ...........................................................................................-29-
"First Equity"...................................................................................-39-
"Free Cash Flows"................................................................................-32-
"GCLP"...........................................................................................-61-
"Greenspring".......................................................................................4
"Harrisburg M.S.A.".............................................................................-101-
"Initial Board Change"...........................................................................-21-
"IORI".............................................................................8, -2-, F-17, F-53
"Landauer"........................................................................................-3-
"Legg Mason Opinion".......................................................................-26-, -28-
"Legg Mason"......................................................................................-3-
"Liquidation Value"............................................................................4, -7-
"May Company"....................................................................................-94-
"Meeting"........................................................................................2, 3
"Merger Agent"...................................................................................-24-
"Merger Agreement"............................................................................2, 3, 4
"Merger Consideration"..............................................................................4

-129-
142

"Merger Proposal"..............................................................................2, -1-
"Merger" .....................................................................................2, 3, 4
"Moorman Settlement Agreement"...................................................................-62-
"Mortgage Note"..................................................................................-87-
"Nasdaq" ........................................................................................-13-
"Negative Determination"..........................................................................-5-
"Net Assets".....................................................................................-31-
"New Advisory Agreement Proposal"..............................................................2, -1-
"New Advisory Agreement".......................................................................3, -1-
"New Advisor".....................................................................................-2-
"New EQK Board"..................................................................................-21-
"NOLP"...................................................................-38-, -81-, F-11, F-38, F-53
"NOLs"..........................................................................-4-, -18-, -26-, -31-
"Non-ART Affiliated Trustees"....................................................................-21-
"Non-ART Designated Trustees"....................................................................-21-
"Non-ART Independent Trustee"....................................................................-21-
"NRLP Oversight Committee".......................................................................-62-
"NRLP".......................................................................8, -2-, -61-, F-10, F-53
"NYSE Rules"......................................................................................-4-
"NYSE"..............................................................................................6
"Ownership Limit".................................................................................-5-
"PNC" ...........................................................................................-87-
"Post Merger Components Equity Value per EQK Share"..............................................-32-
"Post Merger Components Investment Value per EQK Share"..........................................-33-
"Post Merger Multiples Equity Value per EQK Share"...............................................-31-
"Post Merger Multiples Investment Value per Continuing EQK Share"................................-31-
"Post Merger Public Market Equity Value per EQK Share"...........................................-30-
"Post Merger Public Market Investment Value per EQK Share".......................................-30-
"Pre Merger Components Equity value per EQK Share"...............................................-32-
"Pre Merger Multiples Equity Value per EQK Share"................................................-31-
"Pre Merger Public Market Equity value per EQK Share"............................................-30-
"Property Management Agreement"..................................................................-10-
"Proposals".........................................................................................2
"Proxy Solicitor"................................................................................-20-
"Prudential"......................................................................................-4-
"Public EQK Shareholders"...........................................................................4
"PWSI"...........................................................................................-66-
"PWS" ...........................................................................................F-10
"Quarterly Dividend Payment Date"...........................................................-7-, -82-
"Redeemable General Partner Interest"......................................................-62-, F-12
"Reform Act"........................................................................................6
"Registration Statement".........................................................................4, 6
"REIT Transactions"..............................................................................-30-
"REITs"....................................................................................-60-, F-17
"REIT"............................................................................................-1-
"Requisite Shareholder Approval"..................................................................-1-
"Retail REITs"...................................................................................-30-
"Retail Transactions"............................................................................-31-
"Rights" ........................................................................................-83-
"SAMI".....................................................................................-21-, F-12
"SAMLP"..............................................................................-38-, F-11, F-53
"San Jacinto"....................................................................................-13-
"Securities Act"...........................................................................4, 6, -77-
"Selling Costs"..................................................................................-31-
"Series A Preferred Stock".......................................................................-83-
"Series D Preferred Stock".......................................................................-85-
"Series E Preferred Stock".......................................................................-85-
"Series G Preferred Stock".......................................................................-85-
"Southmark"....................................................................-13-, -54-, F-11, F-15
"Special Stock"..................................................................................-82-
"Standstill Agreement"............................................................................-4-
"Supervising Judge"..................................................................-63-, F-12, F-38
"SWI"............................................................................................F-27
"Target Companies"...............................................................................-30-
"Target Properties"..............................................................................-31-
"Tax Counsel".....................................................................................-7-
"TCI"..............................................................................8, -2-, F-17, F-53
"Term Loan"......................................................................................-87-
"Trust"..........................................................................................-86-
"Trustee".........................................................................................-3-
"Unaffiliated Trustee"...........................................................................-88-
"VRLP".....................................................................................-54-, F-16

-130-
143

INDEX TO FINANCIAL STATEMENTS

Page
----

FINANCIAL STATEMENTS OF AMERICAN REALTY TRUST, INC.:

Report of Independent Certified Public Accountants..............................................................F-3

Consolidated Balance Sheets -
December 31, 1996 and 1995...................................................................................F-4

Consolidated Statements of Operations -
Years Ended December 31, 1996, 1995 and 1994................................................................F-6

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1996, 1995 and 1994.................................................................F-7

Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994.................................................................F-8

Notes to Consolidated Financial Statements.....................................................................F-11

Interim Financial Statements (Unaudited):

Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996....................................................................F-32

Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and 1996.....................................................F-34

Consolidated Statements of Stockholders' Equity -
Nine Months Ended September 30, 1997........................................................................F-35

Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996...............................................................F-36

Notes to Consolidated Interim Financial Statements.............................................................F-39

FINANCIAL STATEMENTS OF EQK REALTY INVESTORS I:

Report of Independent Certified Public Accountants.............................................................F-50

Balance Sheets at December 31, 1996 and 1995...................................................................F-51

Statements of Operations -
Years Ended December 31, 1996, 1995 and 1994................................................................F-52

Statements of Shareholders' Equity -
Years Ended December 31, 1996 1995 and 1994.................................................................F-53

F-1

144

Statements of Cash Flows -
Years Ended December 31, 1996, 1995 and 1994................................................................F-54

Notes to Financial Statements, including
Supplementary Data..........................................................................................F-55

Financial Statement Schedule...................................................................................F-62

Interim Financial Statements (Unaudited)

Balance Sheets at September 30, 1997 and
December 31, 1996...........................................................................................F-63

Statements of Operations -
for three and nine months ended
September 30, 1997 and September 30, 1996...................................................................F-64

Statements of Cash Flow-
for nine months ended September 30, 1997
and September 30, 1996......................................................................................F-65

Notes to Financial Statements..................................................................................F-66

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

F-2

145

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors of
American Realty Trust, Inc.

We have audited the accompanying consolidated balance sheets of American Realty
Trust, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of ART's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules 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 presentation of
the financial statements. We believe our audits provide a reasonable basis for
our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Realty Trust, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

BDO Seidman, LLP

Dallas, Texas
March 26, 1997

F-3

146

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS

December 31,
------------
1996 1995
-------- --------
(dollars in thousands)

Assets
Notes and interest receivable
Performing (including $13,563 in 1996 and
$14,657 in 1995 from affiliate) ............. $ 50,784 $ 51,840
Nonperforming, nonaccruing ......................... 1,627 1,827
-------- --------
52,411 53,667

Less - allowance for estimated losses ................ (3,926) (3,926)
-------- --------
48,485 49,741
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1996 and 1995) ............. 77,688 32,627

Less - allowance for estimated losses ................ -- (3,328)
-------- --------
77,688 29,299
Real estate held for investment net of accumu-
lated depreciation ($4,234 in 1996 and $2,646
in 1995) ........................................... 41,347 30,125

Marketable equity securities, at market value ........ 2,186 2,093
Cash and cash equivalents ............................ 1,254 1,054
Investments in equity investees ...................... 55,880 41,072
Other assets (including $3,336 in 1995 from
affiliate) ......................................... 8,197 8,649
-------- --------
$235,037 $162,033
======== ========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-4

147

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - CONTINUED

December 31,
------------
1996 1995
--------- ---------
(dollars in thousands)

Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable (including $8,973 in
1996 and $8,556 in 1995 to affiliates) ........... $ 127,863 $ 61,163
Margin borrowings .................................. 40,044 34,017
Accounts payable and other liabilities
(including $4,584 in 1995 to affiliate) .......... 8,433 12,698
--------- ---------
176,340 107,878

Minority interest .................................. 10,911 1,097

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares; issued and outstanding
4,000 shares Series B ............................ 8 --
15,877 shares Series C ........................... 32 --
Common Stock, $.01 par value, authorized
16,666,667 shares; issued 13,479,348 shares in
1996 and 11,716,656 shares in 1995 ............... 129 117
Paid-in capital .................................... 68,601 66,661
Accumulated (deficit) .............................. (20,978) (13,720)
Treasury stock at cost, 564,704 shares ............. (6) --
--------- ---------
47,786 53,058
--------- ---------

$ 235,037 $ 162,033
========= =========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-5

148

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
1996 1995 1994
------------ ------------ ------------
(dollars in thousands, except per share)

Income
Rents ......................................................... $ 20,658 $ 17,869 $ 18,013
Interest (including $539 in 1996, $506 in 1995 and $366 in
1994 from affiliates) ....................................... 4,724 4,929 3,959
Other ......................................................... 1,597 154 1,098
------------ ------------ ------------
26,979 22,952 23,070

Expenses
Property operations (including $892 in 1996, $1,200 in 1995
and $899 in 1994 to affiliates) ............................. 15,874 13,260 13,013
Interest (including $418 in 1996, $437 in 1995 and $589
in 1994 to affiliates) ...................................... 16,450 8,941 7,875
Advisory and servicing fees to affiliate ...................... 1,539 1,195 1,242
General and administrative (including $691 in 1996, $516 in
1995 and $434 in 1994 to affiliate) ......................... 2,712 2,554 2,562
Depreciation and amortization ................................. 2,002 1,691 1,620
Minority interest ............................................. -- 671 169
------------ ------------ ------------
38,577 28,312 26,481
------------ ------------ ------------

(Loss) from operations .......................................... (11,598) (5,360) (3,411)
Equity in income (losses) of investees .......................... 2,004 (851) 292
Gain on sale of real estate ..................................... 3,659 2,594 379
------------ ------------ ------------

(Loss) before income taxes ...................................... (5,935) (3,617) (2,740)
Income tax expense .............................................. -- 2 9
------------ ------------ ------------

(Loss) before extraordinary gain ................................ (5,935) (3,619) (2,749)

Extraordinary gain .............................................. 381 783 323
------------ ------------ ------------

Net (loss) ...................................................... (5,554) (2,836) (2,426)

Preferred dividend requirement .................................. (113) -- --
------------ ------------ ------------

Net (loss) applicable to Common shares .......................... $ (5,667) $ (2,836) $ (2,426)
============ ============ ============

Earnings per share
(Loss) before extraordinary gain ................................ $ (.46) $ (.31) $ (.23)
Extraordinary gain .............................................. .03 .07 .03
------------ ------------ ------------

Net (loss) applicable to Common shares .......................... $ (.43) $ (.24) $ (.20)
============ ============ ============

Weighted average Common shares used in computing
earnings per share ........................................... 12,765,082 11,716,656 12,208,876
============ ============ ============

The accompanying notes are an integral part of these
Consolidated Financial Statements.

F-6

149
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Series B Series C Accumulated
Preferred Preferred Common Treasury Paid-in Earnings Stockholders
Stock Stock Stock Stock Capital (Deficit) Equity
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)

Balance
January 1, 1994 ............ $ -- $ -- $ 102 $ -- $ 64,476 $ (8,458) $ 56,120
Reclassification of
Redeemable Common
Stock ...................... -- -- 14 -- 2,186 -- 2,200
Common Stock
Issued ..................... -- -- 9 -- (9) -- --
Common Stock
retired .................... -- -- (8) -- 8 -- --
Net (loss) ................... -- -- -- -- -- (2,426) (2,426)
-------- -------- -------- -------- -------- -------- --------
Balance
December 31, 1994 .......... -- -- 117 -- 66,661 (10,884) 55,894
Net (loss) ................... -- -- -- -- -- (2,836) (2,836)
-------- -------- -------- -------- -------- -------- --------
Balance
December 31, 1995 .......... -- -- 117 -- 66,661 (13,720) 53,058
Common Stock issued .......... -- -- 12 -- (12) -- --
Series B Preferred Stock
issued ................... 8 -- -- -- 392 -- 400
Series C Preferred Stock
issued ................... -- 30 -- -- 1,469 -- 1,499
Common stock cash
dividend ($.15 per
share) ................... -- -- -- -- -- (1,491) (1,491)
Redemption of share
purchase rights ($.01
per right) ............... -- -- -- -- -- (101) (101)
Series B Preferred Stock
cash dividends ($6.46
per share) ............... -- -- -- -- -- (25) (25)
Series C Preferred Stock
stock dividend ($5.74
per share) ............... -- 2 -- -- 85 (87) --
Treasury stock, at cost ...... -- -- -- (6) 6 -- --
Net (loss) ................... -- -- -- -- -- (5,554) (5,554)
-------- -------- -------- -------- -------- -------- --------
Balance
December 31, 1996 .......... $ 8 $ 32 $ 129 $ (6) $ 68,601 $(20,978) $ 47,786
======== ======== ======== ======== ======== ======== ========

The accompanying notes are an integral part of these
Consolidated Financial Statements.

F-7

150

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)

Cash Flows From Operating Activities
Rents collected ................................................... $ 19,013 $ 18,473 $ 17,130
Interest collected ($385 in 1996, $399 in
1995 and $366 in 1994 from affiliates) ..................... 4,304 4,845 3,829
Distributions from equity investees' operating activities ......... 9,054 1,464 1,642
Interest paid (including $19 in 1995 and $213 in 1994 to
affiliate) .................................................. (9,601) (8,296) (4,286)
Payments for property operations
(including $892 in 1996, $1,200 in 1995
and $899 in 1994 to affiliate) .............................. (15,034) (13,442) (13,162)
Advisory fee paid to affiliate .................................... (1,539) (1,195) (1,242)
General and administrative expenses paid
(including $691 in 1996, $516 in 1995 and
$434 in 1994 to affiliate) .................................. (3,095) (2,448) (2,384)
Litigation settlement ............................................. -- (100) (750)
Other ............................................................. (1,084) 500 235
-------- -------- --------

Net cash provided by (used in) operating
activities ............................................... 2,018 (199) 1,012

Cash Flows From Investing Activities
Collections on notes receivable
(including $1,166 in 1996 and $394
in 1995 from affiliates) ......................................... 1,495 1,604 2,757
Purchase of marketable equity securities .......................... (22,613) (19,394) (16,518)
Proceeds from sale of marketable equity securities ................ 23,557 18,374 15,123
Notes receivable funded ........................................... (250) (3,295) (700)
Proceeds from sale of real estate ................................. 3,129 11,992 4,058
Return of capital distributions ................................... -- -- 514
Acquisitions of real estate ....................................... (6,698) (21,394) --
Real estate improvements .......................................... (2,862) (1,802) (2,168)
Investment in equity investees .................................... (15,471) (7,169) (6,884)
-------- -------- --------

Net cash (used in) investing activities ..................... (19,713) (21,084) (3,818)

F-8

151

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For The Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)

Cash Flows From Financing Activities
Proceeds from notes payable .................................. $ 58,520 $ 36,211 $ 710
Margin borrowings, net ....................................... 2,981 7,626 8,598
Proceeds from issuance of Preferred Stock .................... 400 -- --
Payments on notes payable (including $990 in 1995,
$1,320 in 1994 to affiliate) ........................... (32,382) (22,268) (5,151)
Southmark settlement payments ................................ -- -- (435)
Deferred borrowing costs ..................................... (5,028) (2,475) --
Net advances (payments) to/from affiliates ................... (4,979) 3,050 (1,566)
Dividends paid ............................................... (1,617) -- --
-------- -------- --------
Net cash provided by financing activities .............. 17,895 22,144 2,156
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ......... 200 861 (650)
Cash and cash equivalents, beginning of year ................. 1,054 193 843
-------- -------- --------
Cash and cash equivalents, end of year ....................... $ 1,254 $ 1,054 $ 193
======== ======== ========
Reconciliation of net (loss) to net cash provided
by (used in) operating activities
Net (loss) ................................................... $ (5,554) $ (2,836) $ (2,426)

Adjustments to reconcile net (loss) to net cash provided
by (used in) operating activities
Extraordinary gain ..................................... (381) (783) (323)
Gain on sale of real estate ............................ (3,659) (2,594) (379)
Depreciation and amortization .......................... 2,002 1,691 1,620
Equity in (income) losses of investees ................. (2,004) 851 (292)
Distributions from equity investees' operating
activities ........................................ 9,054 1,464 1,642
(Increase) decrease in accrued interest receivable ... (117) 79 (18)
Decrease in other assets ............................. 452 1,439 228
Increase (decrease) in accrued interest payable ...... 1,417 (5) 575
Increase in accounts payable and other liabilities ... 733 495 150
Other ................................................ 75 -- 235
-------- -------- --------
Net cash provided by (used in) operating
activities ....................................... $ 2,018 $ (199) $ 1,012
======== ======== ========

F-9

152

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

For The Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)

Schedule of noncash investing and financing activities

Acquisition of real estate financed by debt ..................... $ 9,099 $ 21,394 $ 6,800

Stock dividends on Series C Preferred Stock ..................... 87 -- --

Real estate sales financed by purchase money mortgages .......... -- -- 1,400

Carrying value of real estate securities acquired through
assumption of debt with carrying value of
$6,080 in 1994 ............................................... -- -- 9,810

Sale of real estate subject to debt ............................. -- (5,878) --

Carrying value of real estate obtained in satisfaction
of a receivable with a carrying value of $125 ................ -- -- 125

Settlement with insurance company
Carrying value of real estate received ....................... -- 1,619 --

Carrying value of notes receivable
participation received ................................. -- -- --

Carrying value of notes receivable
returned ............................................... -- (32) --

Carrying value of real estate returned ....................... -- (2,183) --

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-10

153

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying Consolidated Financial Statements of American Realty
Trust, Inc. and consolidated entities ("ART") have been prepared in conformity
with generally accepted accounting principles, the most significant of which are
described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These, along
with the remainder of 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 1994 and 1995 have been reclassified to conform to
the 1996 presentation. Shares and per share data have been restated for the 2
for 1 forward Common Stock splits effected February 17, 1997 and January 2,
1996.

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and company business. American Realty Trust, Inc. ("ART"),
a Georgia corporation, is successor to a District of Columbia business trust,
that primarily invests in real estate and real estate-related entities and
purchases and originates mortgage loans.

Basis of consolidation. The Consolidated Financial Statements include
the accounts of ART, and all majority- owned subsidiaries and partnerships other
than National Realty, L.P. ("NRLP") and Pizza World Supreme, Inc. ("PWS"). ART
uses the equity method to account for its investment in NRLP and PWS as control
is considered to be temporary. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P." and
NOTE 6. "INVESTMENTS IN EQUITY INVESTEES." All significant intercompany
transactions and balances have been eliminated.

Accounting estimates. In the preparation of ART's Consolidated
Financial Statements in conformity with generally accepted accounting principles
it was necessary for ART's 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 then
ended. Actual results could differ from these estimates.

Interest recognition on notes receivable. It is ART's policy to cease
recognizing interest income on notes receivable that have been delinquent for 60
days or more. In addition, accrued but unpaid interest income is only recognized
to the extent that the net realizable value of the underlying collateral exceeds
the carrying value of the receivable.

Allowance for estimated losses. Valuation allowances are provided for
estimated losses on notes receivable considered to be impaired. Impairment is
considered to exist when it is probable that all amounts due under the terms of
the note will not be collected. Valuation allowances are provided for estimated
losses on notes receivable to the extent that ART's investment in the note
exceeds ART's estimate of net realizable value of the collateral securing such
note, or fair value of the collateral if foreclosure is probable.

Real Estate Held for Investment and Depreciation. Real estate held for
investment is carried at cost. Statement of Financial Accounting Standards No.
121 ("SFAS No. 121") requires that a property be considered impaired, if the sum
of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the property. If impairment exists, an
impairment loss is recognized by a charge against earnings, equal to the amount
by which the carrying amount of the property exceeds the fair value of the
property. If impairment of a property is recognized, the carrying amount of the
property is reduced by the amount of the impairment, and a new cost for the
property is established. Such new cost is depreciated over the property's
remaining useful life. Depreciation is provided by the straight-line method over
estimated useful lives, which range from 10 to 40 years.

Real Estate Held for Sale. Foreclosed real estate is initially recorded
at new cost, defined as the lower of original cost or fair value minus estimated
costs of sale. SFAS No. 121 also requires that properties held for sale be
reported at the lower of carrying amount or fair value less costs of sale. If a
reduction in a held for sale property's carrying amount to fair value less costs
of sale is required, a provision for loss shall be recognized by a charge
against

F-11

154

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

earnings. Subsequent revisions, either upward or downward, to a held for sale
property's estimated fair value less costs of sale is recorded as an adjustment
to the property's carrying amount, but not in excess of the property's carrying
amount when originally classified as held for sale. A corresponding charge
against or credit to earnings is recognized. Properties held for sale are not to
be depreciated.

Investments in equity investees. Because ART may be considered to have
the ability to exercise significant influence over the operating and investment
policies of certain of its investees, ART accounts for such investments by the
equity method. Under the equity method, ART's initial investment, recorded at
cost, is increased by ART's proportionate share of the investee's operating
income and any additional investment and decreased by ART's proportionate share
of the investee's operating losses and distributions received.

Present value premiums/discounts. ART provides for present value
premiums and discounts on notes receivable or payable that have interest rates
that differ substantially from prevailing market rates and amortizes such
premiums and discounts by the interest method over the lives of the related
notes. The factors considered in determining a market rate for notes receivable
include the borrower's credit standing, nature of the collateral and payment
terms of the note.

Revenue recognition on the sale of real estate. Sales of real estate
are recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.

Fair value of financial instruments. ART used the following assumptions
in estimating the fair value of its notes receivable, marketable equity
securities and notes payable. For performing notes receivable, the fair value
was estimated by discounting future cash flows using current interest rates for
similar loans. For nonperforming notes receivable the estimated fair value of
ART's interest in the collateral property was used. For marketable equity
securities fair value was based on the year end closing market price of each
security. For notes payable the fair value was estimated using current rates for
mortgages with similar terms and maturities.

Cash equivalents. For purposes of the Consolidated Statements of Cash
Flows, ART considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Earnings per share. Loss per share is computed based upon the weighted
average number of shares of Common Stock and redeemable Common Stock outstanding
during each year, adjusted for the two for one forward Common Stock splits
effected February 17, 1997 and January 2, 1996.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

In August 1996, ART purchased a pool of assets from Southmark
Corporation ("Southmark") for $3.1 million. Included in the asset pool was
Southmark's 19.2% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). Such purchase increased ART's limited partner interest in SAMLP from
76.8% to 96%. SAMLP is the general partner of NRLP and National Operating, L.P.
("NOLP"), the operating partnership of NRLP. Gene E. Phillips, a Director and
Chairman of the Board of ART until November 16, 1992, is a general partner of
SAMLP, and until March 4, 1994, William S. Friedman, a Director and President of
ART until December 31, 1992, was also a general partner of SAMLP.

NRLP, SAMLP and Messrs. Phillips and Friedman were among the defendants
in a class action lawsuit arising from the formation of NRLP. An agreement
settling such lawsuit for the above mentioned defendants became effective on
July 5, 1990. The settlement agreement provided for, among other things, the
appointment of an NRLP oversight committee; the establishment of specified
annually increasing targets for five years relating to the price of NRLP's units
of limited partner interest; a limitation and deferral or waiver of NRLP's
reimbursement to SAMLP of certain future salary costs; a deferral or waiver of
certain future compensation to SAMLP; the required distribution to unitholders
of all of NRLP's cash from operations in excess of certain renovation costs
unless the NRLP oversight committee approves alternative uses for such cash from
operations; the issuance of unit purchase warrants to members of the plaintiff
class; and the contribution by the then individual general partners of $2.5
million to NRLP over a four-year period. In

F-12

155

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

accordance with the indemnification provisions of SAMLP's agreement of limited
partnership, SAMLP agreed to indemnify Messrs. Phillips and Friedman, the
individual general partners, at the time, of SAMLP, for the $2.5 million payment
to NRLP. The final annual installment of principal and interest was paid by
SAMLP in May 1994.

The settlement agreement provides for the resignation and replacement
of SAMLP as general partner if the unit price targets are not met for two
consecutive anniversary dates. NRLP did not meet the unit price targets for the
first and second anniversary dates. On July 8, 1992, SAMLP notified the NRLP
oversight committee of the failure of NRLP to meet the unit price targets for
two successive years and that it expects to resign as general partner of NRLP
and NOLP.

The withdrawal of SAMLP as general partner would require NRLP to
purchase SAMLP's general partner interest (The "Redeemable General Partner
Interest") at its then fair value, and to pay certain fees and other
compensation as provided in the partnership agreement. Syntek Asset Management,
Inc. ("SAMI"), the managing general partner of SAMLP, has calculated the fair
value of such Redeemable General Partner Interest to be $40.2 million at
December 31, 1996, before reduction for the principal balance ($4.2 million at
December 31, 1996) and accrued interest ($6.2 million at December 31, 1996) on
the note receivable from SAMLP for its original capital contribution to the
Partnership.

In January 1995, NRLP, SAMLP, the NRLP oversight committee and William
H. Elliott executed an Implementation Agreement which provides for the
nomination of an entity controlled by Mr. Elliott as successor general partner
and for the resolution of all related matters under the class action settlement.
On February 20, 1996, the parties to the Implementation Agreement executed an
Amended and Restated Implementation Agreement.

Provided that the successor general partner is elected pursuant to the
terms of the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the NRLP. This amount represents a compromise settlement of the
net amounts owed by NRLP to SAMLP upon SAMLP's withdrawal as general partner and
any amounts which SAMLP and its affiliates may owe to NRLP. This amount shall be
paid to SAMLP pursuant to a promissory note in accordance with the terms set
forth in the Amended and Restated Implementation Agreement.

In September 1996, the Judge appointed to supervise the class action
settlement (The "Supervising Judge") entered an order granting tentative
approval of the Amended and Restate Implementation Agreement and the form of
notice to be sent to the original class members. However, the order reserved
jurisdiction to determine other matters which must be resolved prior to final
approval. Upon final approval by the Supervising Judge, the proposal to elect
the successor general partner will be submitted to the NRLP unitholders for a
vote. In addition, the unitholders will vote upon amendments to NRLP's
partnership agreement which relate to the proposed compensation of the successor
general partner and other related matters.

Upon approval by NRLP's unitholders, SAMLP shall resign as general
partner of NRLP and NOLP and the successor general partner shall take office. If
the required approvals are obtained, it is anticipated that the successor
general partner may be elected and take office during the third quarter of 1997.

The Amended and Restated Implementation Agreement provides that SAMLP,
and its affiliates owning units in NRLP, shall not vote to remove the successor
general partner, except for removal with cause, for a period of 36 months from
the date the successor general partner takes office.

Upon the election and taking office of the successor general partner,
the class action settlement and the NRLP oversight committee shall be
terminated. If the successor general partner nominee is not elected, the
existing settlement shall remain in full force and effect and all of the
provisions of the Amended and Restated Implementation Agreement shall be voided,
including the compromise settlement referred to above.

On September 3, 1996, Joseph B. Moorman filed a Motion for Orders
Compelling Enforcement of the existing settlement agreement, appointment of a
receiver and collateral relief with the court. The motion alleges that the
settling defendants had failed or refused to perform their obligations under the
existing settlement agreements. The motion requested that SAMLP be removed as
general partner and a receiver be appointed to manage the Partnership. The

F-13

156
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

motion also requested that ART be ordered to deliver to the court all NRLP units
which had been purchased by ART since August 7, 1991. A hearing was held on this
motion on October 4, 1996, and the Court took the matter under submission. On
January 2, 1997, the Supervising Judge entered an order denying the motion.

On January 27, 1997, Joseph B. Moorman filed motions to (i) discharge
the NRLP Oversight Committee and (ii) vacate the Court's orders and renewed his
prior motions to compel enforcement of the Moorman Settlement Agreement, appoint
a receiver over the Partnership, and for collateral relief against ART. Also on
January 27, 1997, Robert A. McNeil filed motions to (i) be installed as receiver
for the Partnership, (ii) vacate the Court's orders, and (iii) disband the NRLP
Oversight Committee.

A hearing on the motions to discharge or disband the Oversight
Committee and to vacate the Court's orders was held on March 21, 1997, and the
Supervising Judge ruled that neither Mr. McNeil nor Mr. Moorman had standing to
bring the motions. The Supervising Judge also set June 27, 1997 as the hearing
date for final approval of the Amended and Restated Implementation Agreement.

In April 1995, ART's Board of Directors approved ART's entering into a
comfort and indemnification letter whereby ART would agree to indemnify Mr.
Elliott and any entity controlled by Mr. Elliott which is elected to serve as
the successor general partner of NRLP and NOLP. Such indemnification will stand
behind any indemnification to which Mr. Elliott or any entity controlled by Mr.
Elliott may be entitled to under the NRLP partnership agreement.

NOTE 3. NOTES AND INTEREST RECEIVABLE

1996 1995
--------------------- ---------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- -------- --------- --------

Notes Receivable
Performing (including $13,563
in 1996 and $14,657 in 1995
from affiliates) .............. $ 52,939 $ 55,161 $ 60,121 $ 56,335
Nonperforming, nonaccruing ...... 1,884 1,584 1,784 1,784
-------- -------- -------- --------
$ 54,823 $ 56,745 $ 61,905 58,119
======== ========

Interest receivable ............. 445 267
Unamortized premiums/
(discounts) .................. (162) (102)
Deferred gains .................. (4,617) (4,617)
-------- --------
$ 52,411 $ 53,667
======== ========

ART recognizes interest income on nonperforming notes receivable on a
cash basis. For the years 1996, 1995 and 1994 unrecognized interest income on
such nonperforming notes receivable totaled $1.6 million, $1.2 million and $2.0
million, respectively.

Notes receivable at December 31, 1996, mature from 1997 to 2014 with
interest rates ranging from 6.0% to 12.9% and a weighted average rate of 9.84%.
A small percentage of these notes receivable carry a variable interest rate.
Notes receivable include notes generated from property sales which have interest
rates adjusted at the time of sale to yield rates ranging from 6% to 14%. Notes
receivable are generally nonrecourse and are generally collateralized by real
estate. Scheduled principal maturities of $20.4 million are due in 1997 of which
$1.9 million is due on nonperforming notes receivable. See NOTE 21. "SUBSEQUENT
EVENTS."

F-14

157

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Nonrecourse participations totaling $1.6 million and $1.1 million at
December 31, 1996 and 1995, respectively, have been deducted from notes
receivable.

In August 1990, ART foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. ART acquired
the hotel and casino through foreclosure subject to first and second lien
mortgages totaling $10.0 million. In June 1992, ART sold the hotel and casino
accepting as partial payment a $22.0 million wraparound mortgage note
receivable. The $22.0 million note bears interest at 11% and was scheduled to
mature in July 1995. ART recorded a deferred gain of $4.6 million in connection
with the sale of the hotel and casino resulting from a disputed third lien
mortgage being subordinated to ART's wraparound mortgage note receivable. ART
and the borrower agreed to extend ART's wraparound mortgage note receivable to
December 31, 1995. A one percent extension fee was added to the principal
balance of the wraparound mortgage note. The monthly payments on the note
remained at $175,000 per month as did the other terms of the note. At the note's
extended maturity, ART and the borrower again agreed to extend ART's wraparound
mortgage note to July 1, 1996. A one percent extension fee was again added to
the principal balance of ART's wraparound mortgage note. The monthly payments on
the wraparound mortgage note remained at $175,000 per month as did the other
terms of the note. ART's modified wraparound note continued to accrue interest
at 11% per annum with any unpaid interest being added monthly to the principal
balance. In March 1997, the wraparound note was again modified and extended. The
wraparound note now matures in June 1999 with the borrower having two one year
extension options. The modified wraparound note bears interest at 10.5% per
annum the first year, 11.5% per annum the second year and $12.5% per annum the
third year and in any extension periods, and requires an annual $500,000
principal paydown. The borrower is also required to invest $2.0 million in
improvements to the hotel and casino within four months of the March 1997
modification and an additional $2.0 million prior to December 1997. The borrower
has also pledged 1,500,000 shares of common stock in Crowne Ventures, Inc., as
additional collateral. The borrower is making payments in accordance with the
terms of the modified note. ART's wraparound mortgage note receivable had a
principal balance of $27.6 million at December 31, 1996. Prior to the
modification and extension, ART recognized interest income on this wraparound
mortgage note only to the extent interest was collected.

At December 31, 1996, ART held a mortgage note receivable secured by a
third lien on a commercial property in South Carolina and personal guaranties of
several individuals. The note had an extended maturity date of September 1,
1996. ART and the borrower have again agreed to extend the mortgage note
receivable's maturity date to September 1, 1997. The extension required an
additional $90,000 principal reduction payment payable in three equal monthly
installments beginning November 1, 1996. ART received $85,000 of the required
principal reduction payments in 1996 and the remaining $5,000 in 1997. The
monthly interest, quarterly principal reduction payments of $25,000 and all
other terms remained the same. The principal balance of the note was $93,000 at
December 31, 1996 and the note is now performing in accordance with its modified
terms.

In May 1996, ART funded a $100,000 second lien mortgage secured by a
single family residence in Oklahoma City, Oklahoma. The mortgage note receivable
bears interest at 10% per annum with the principal and accrued but unpaid
interest being payable in a single installment on demand. The mortgage note
receivable matures June 1, 1998.

The borrower on a $1.7 million mortgage note receivable secured by land
in Osceola, Florida failed, to pay the note on its November 1, 1993 maturity.
ART instituted foreclosure proceedings and was awarded a summary judgment in
January 1994. During 1994 and 1995, the borrower paid ART a total of $270,000 in
nonrefundable fees to delay foreclosure of the property until April 24, 1995. On
April 25, 1995, the borrower filed for bankruptcy protection. On August 24,
1996, the bankruptcy court's stay was lifted allowing ART to proceed with
foreclosure. The note had a principal balance of $1.6 million at December 31,
1996. On February 2, 1997, ART sold its note for $1.8 million in cash. See NOTE
21. "SUBSEQUENT EVENTS."

Related Party. ART holds a junior mortgage note receivable secured by
the Williamsburg Hospitality House in Williamsburg, Virginia, that is subject to
a first lien mortgage of $12.0 million at December 31, 1996. In October 1993,
the then first lien debt was restructured and split into three pieces. During
1995, ART advanced the borrower $3.3 million to payoff the then second lien,
allowing the borrower to receive a $2.4 million discount offered by the lender
for early payoff of such lien. In conjunction with such advance, ART extended
the maturity date of its note to April 1, 1996. All other terms of the note
remained unchanged. In December 1996, the underlying lien debt was refinanced
for $12.0 million. Of the loan proceeds, $9.0 million was used to payoff the
existing underlying lien, $700,000 was applied

F-15

158

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

to the principal and interest due ART with the remainder of the loan proceeds
being used to fund a repair escrow and pay various closing costs associated with
the refinancing. ART is the 1% general partner of the partnership owning the
property.

At December 31, 1996, ART held a mortgage note receivable secured by an
apartment complex in Merriville, Indiana, with a principal balance of $3.5
million. The property is owned by a subsidiary of Davister Corp. ("Davister"), a
general partner in a partnership that owns approximately 5.2% of ART's
outstanding shares of Common Stock. The note matured in December 1996. ART and
borrower have agreed to a modification and extension of the note. The modified
note receivable continues to bear interest at 10% per annum, requires monthly
payments of principal and interest of $42,000 and has an extended maturity date
of December 2000. As additional collateral for this loan, ART has received a
second lien on another property owned by Davister as well as Davister's
guarantee of the loan.

NOTE 4. REAL ESTATE

In May 1996, ART sold an additional 2.3 acres of the Las Colinas I land
parcel for $941,000 in cash. In accordance with the provisions of the term loan
secured by such parcel, ART applied the net proceeds of the sale of $864,000 to
paydown the term loan. ART recognized a gain of $534,000 on the sale.

Also in May 1996, ART purchased a 2,271 square foot single family
residence in Dallas, Texas, for $266,000 in cash. In August 1996, ART financed
the residence for $173,000. ART received net financing proceeds of $168,000
after the payment of various closing costs associated with the financing. The
loan bears interest at a variable rate, currently 9.25% per annum, requires
monthly principal and interest payments of $2,000 and matures in August 2008.
The residence is currently being leased.

In June 1996, ART purchased Parkfield land, 442.7 acres of partially
developed land in Denver, Colorado, for $8.5 million. In connection with the
acquisition, ART obtained mortgage financing of $7.5 million and issued to the
seller 15,000 shares of ART's Series C Cumulative Convertible Preferred Stock
with an aggregate liquidation preference of $1.5 million. See NOTE 9. "PREFERRED
STOCK." The excess financing proceeds of $500,000 were applied to the payment of
various closing costs associated with the acquisition. The loan bears interest
at 15% per annum, requires monthly interest only payments at a rate of 12% per
annum, with the remaining 3% being deferred and added to the principal balance
of the loan. The principal balance, accrued and unpaid interest and a $600,000
"maturity fee" are due at the loan's maturity in June 1998.

Also in June 1996, ART sold for $120,000 in cash a parcel of land in
Midland, Michigan that was leased under a long-term ground land lease. ART
recognized a gain of $44,000 on the sale.

In July 1996, ART purchased Pin Oak land, 567.7 acres of partially
developed land in Houston, Texas for $6.2 million. ART paid $451,000 in cash and
obtained seller mortgage financing for the remaining $5.7 million of the
purchase price. The loan bears interest at 9% per annum, required a $500,000
principal and interest payment on November 1, 1996 and requires quarterly
principal and interest payments of $145,000, thereafter. The loan matures in
August 1998. In September 1996, ART entered into a contract to sell the land for
a price in excess of the land's purchase

F-16

159

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

price and carrying and estimated selling costs. The sale, should it be
consummated, would close on or about December 1, 1997.

In August 1996, ART purchased a pool of assets for $3.1 million from
Southmark Corporation ("Southmark"), consisting of a total of 151.5 acres of
unimproved land in California, Indiana and Idaho, various percentage interests,
ranging from 15% to 45%, in five partnerships and trusts that hold an unsecured
note receivable with a principal balance of $3.4 million and Southmark's 19.2%
limited partner interest in SAMLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."
To complete the acquisition, ART borrowed an additional $3.0 million from the
lender whose term loan is secured by ART's Las Colinas I land in Las Colinas,
Texas. The term loan was amended to increase the loan amount from $10.9 million
to $13.9 million. The $3.0 million advance is secured by the 82.4 acres of
unimproved land acquired from Southmark in Oceanside, California and the 19.2%
limited partner interest in SAMLP.

Also in August 1996, ART purchased Valwood land, 280 acres of partially
developed land in Dallas County, Texas for $13.5 million. ART paid $3.8 million
in cash and obtained new mortgage financing for the remaining $9.7 million of
the purchase price, as a third advance under the term loan from the lender
discussed above. The term loan was again amended increasing the term loan amount
from $13.9 million to $19.5 million with an additional $4.0 million being loaned
on an overline advance note. The amendment also changed the principal reduction
payments to $3.0 million on the last day of March 1997, June 1997, September
1997 and January 1998, and added 240 acres of the 280 acres of the Valwood land
as additional collateral on the term loan. All other terms of the term loan
remained unchanged. The $4.0 million overline advance was repaid in full in
December 1996.

In November 1996, ART sold an additional 2.2 acres of the 74.9 acre Las
Colinas I land parcel for $899,000 in cash. ART used the net proceeds of the
sale of $749,000 to pay down the term loan secured by such parcel in accordance
with provisions of the loan. ART recognized a gain of $505,000 on the sale.

Also in November 1996, ART purchased Lewisville land, 78.5 acres of
undeveloped land in Lewisville, Texas for $3.6 million. ART paid $1.1 million in
cash and financed the remaining $2.5 million of the purchase price. The mortgage
bears interest at 10% per annum, requires an annual interest payment of $250,000
on November 9, 1997, and quarterly interest payments of $62,500 thereafter and
matures in October 1999.

In December 1996, ART purchased the Best Western Oceanside Hotel in
Virginia Beach, Virginia, for $6.8 million. ART acquired the property through
Ocean Beach Partners, L.P. ("Ocean L.P."), a newly formed partnership of which a
wholly-owned subsidiary of ART, is the 1% general partner and ART is the 99%
Class B limited partner. In conjunction with the acquisition, Ocean L.P. issued
1,813,660 Class A limited partner units in Ocean L.P. having an agreed value of
$1.00 per partnership unit to the former owners of the property. The Class A
limited partner units are entitled to a $.095 per unit preferred annual return.
The Class A limited partners do not otherwise participate in the income, loss or
cash flow of the partnership. The Class A limited partner units may be exchanged
for Series D Cumulative Preferred Stock in ART at a rate of 20 units per share
of Preferred Stock. ART obtained new mortgage financing for the remaining $5.0
million of the purchase price. The mortgage bears interest at 9.94% per annum,
requires monthly payments of principal and interest of $49,000 and matures in
January 2007.

Also in December 1996, ART purchased Valley Ranch land, 452 acres of
partially developed land in Irving, Texas, for $15.5 million. In conjunction
with the acquisition, a wholly-owned subsidiary of ART became the 1% general
partner and ART became the 99% Class B limited partner in Valley Ranch Limited
Partnership ("VRLP"). VRLP issued 8,000,000 Class A limited partner units in
VRLP having an agreed value of $1.00 per partnership unit to the former VRLP
limited partners. The Class A limited partner units are entitled to a $.10 per
unit preferred annual return for the first 36-month period, $.11 per unit
thereafter. The Class A limited partners do not otherwise participate in the
income, loss or cash flow of the partnership. The Class A limited partner units
may be exchanged for Series E Preferred Cumulative Convertible Stock of ART at a
rate of 100 units per share of Preferred Stock. ART obtained new mortgage
financing for the remaining $7.7 million of the purchase price. The mortgage
bears interest at a variable rate, currently 10.25% per annum, requires monthly
interest only payments of $70,000 and matures in December 1999.

F-17

160

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In 1991, ART purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December 31,
1995, 176 of the residential lots had been sold. During 1996, 12 additional lots
have been sold for an aggregate gain of $24,000. At December 31, 1996, 10 lots
remained to be sold.

In February 1995, ART sold the Boulevard Villas Apartments in Las
Vegas, Nevada, for $9.6 million. ART received net cash of $3.4 million, after
the payoff of $5.9 million in existing mortgage debt and the payment of various
closing costs associated with the sale. ART recognized a gain of $924,000 on the
sale.

In May 1995, ART purchased Las Colinas I, a 74.9 acre parcel of
partially developed land in Las Colinas, Texas, for $13.5 million. In connection
with the acquisition, ART borrowed $15.0 million under a term loan. In September
1995, ART sold 6.9 acres of the Las Colinas I land parcel, for $2.9 million in
cash. In accordance with the provisions of the term loan, ART applied the net
proceeds of the sale, $2.6 million, to pay down the term loan.

In October 1995, ART purchased BP Las Colinas land, a 92.6 acre parcel
of partially developed land in Las Colinas, Texas, for $7.1 million. ART paid
$959,000 in cash and borrowed the remaining $6.1 million of the purchase price.
ART also pledged to the lender, as additional collateral for the loan, $2.0
million of newly issued shares of ART's Common Stock.

NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES

Activity in the allowance for estimated losses was as follows:

1996 1995 1994
------- ------- -------

Balance January 1, ........... $ 7,254 $ 8,201 $ 9,913
Amounts charged off .......... -- (947) (1,712)
Writedown of property ........ (3,328) -- --
------- ------- -------

Balance December 31, ......... $ 3,926 $ 7,254 $ 8,201
======= ======= =======

NOTE 6. INVESTMENTS IN EQUITY INVESTEES

Real estate entities. ART's investment in real estate entities at
December 31, 1996, includes (i) equity securities of three publicly traded real
estate investment trusts Continental Mortgage and Equity Trust ("CMET"), Income
Opportunity Realty Investors, Inc. ("IORI"), and Transcontinental Realty
Investors, Inc. ("TCI") (Collectively the "REITs"), (ii) units of limited
partner interest of NRLP, (iii) a general partner interest in NRLP and NOLP, the
operating partnership of NRLP, through its 96% limited partner interest in SAMLP
and (iv) interests in real estate joint venture partnerships. Gene E. Phillips,
the Chairman of the Board and a Director of ART until November 16, 1992, is a
general partner of SAMLP, the general partner of NRLP and NOLP and was a
director and Chief Executive Officer of SAMI until May 15, 1996. Randall M.
Paulson, an Executive Vice President of ART, serves as the sole director of SAMI
and as President of the REITs, SAMI and BCM. In addition, BCM serves as advisor
to the REITs, and performs certain administrative and management functions for
NRLP and NOLP on behalf of SAMLP.

ART accounts for its investment in the REITs, NRLP and the joint
venture partnerships using the equity method as more fully described in NOTE 1.
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investments in equity investees."
ART continues to account for its investment in NRLP under the equity method due
to the pending resignation of SAMLP as general partner of NRLP. See NOTE 2.
"SYNTEK ASSET MANAGEMENT, L.P."

Substantially all of ART's equity securities of the REITs and NRLP are
pledged as collateral for borrowings. See NOTE 9. "MARGIN BORROWINGS."

F-18

161

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

ART's investment in real estate entities, accounted for using the
equity method, at December 31, 1996 was as follows:

Equivalent
Percentage Carrying Investee
of ART's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1996 December 31, 1996 December 31, 1996 December 31, 1996
- -------- ----------------- ----------------- ----------------- -----------------

NRLP 54.5% $ 14,421 $ * $ 44,997
CMET 40.6 14,141 32,148 18,789
IORI 29.6 2,719 6,625 4,838
TCI 30.5 6,318 24,204 13,131
----- ------- --------
$ 81,755
========

General partner
interest in NRLP and NOLP 6,607
Other (2,234)
--------
$ 41,972
========

- ------------

* At December 31, 1996, NRLP reported a deficit partners' capital. ART's
share of NRLP's revaluation equity, however, was $188.5 million.
Revaluation equity is defined as the difference between the appraised
value of the partnership's real estate, adjusted to reflect the
partnership's estimate of disposition costs, and the amount of the
mortgage notes payable and accrued interest encumbering such property
as reported in NRLP's Annual Report on Form 10-K for the year ended
December 31, 1996.

F-19

162

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

ART's investment in real estate entities, accounted for using the equity method,
at December 31, 1995 was as follows:

NRLP 51.1% $ 12,712 $ * $ 38,020
CMET 37.2 12,116 28,297 15,757
IORI 25.9 2,752 6,271 4,065
TCI 28.2 9,162 25,195 11,335
---------- -------- --------
36,742 $ 69,177
========

General partner
interest in NRLP and NOLP 7,726
Other (3,396)
--------
$ 41,072
========

- ------------

* At December 31, 1995, NRLP reported a deficit partners' capital. ART's
share of NRLP's revaluation equity, however, was $161.5 million.
Revaluation equity is defined as the difference between the appraised
value of the partnership's real estate, adjusted to reflect the
partnership's estimate of disposition costs, and the amount of the
mortgage notes payable and accrued interest encumbering such property
as reported in NRLP's Annual Report on Form 10-K for the year ended
December 31, 1995.

ART's management continues to believe that the market value of each of
the REITs and NRLP undervalues their assets and ART has, therefore, continued to
increase its ownership in these entities in 1996, as its liquidity has
permitted.

In April 1996, ART purchased a 28% general partner interest in Campbell
Center Associates, Ltd. Which in turn has a 56.25% interest in Campbell Centre
Joint Venture, which owns a 413,175 square foot office building in Dallas,
Texas. The purchase price of the general partner interest was $550,000 in cash
and a $500,000 note, which bears interest at 8% per annum, requires monthly
interest only payments commencing in April 1997 and matures April 2000. In
January 1997, ART exercised its option to purchase an additional 28% general
partner interest in Campbell Center Associates, Ltd. The purchase price was
$300,000 in cash and a $750,000 note, which bears interest at 8% per annum,
requires monthly interest only payments commencing in April 1997 and matures in
April 2000.

In July 1996, a newly formed limited partnership, of which ART is 1%
general partner, purchased 580 acres of undeveloped land in Collin County, Texas
for $5.7 million in cash. ART contributed $100,000 in cash to the partnership
with the remaining $5.6 million being contributed by the limited partner. The
partnership agreement designates ART as the managing general partner. In
September 1996, the Partnership obtained financing of $2.8 million secured by
the 580 acres of land and personal guarantees of the limited partners. The
Partnership agreement also provides that the limited partner receive a 12%
preferred cumulative return on its investment before any sharing of partnership
profits occurs.

In June 1995, ART purchased the corporate general partner of a limited
partnership which owns apartment complexes in Illinois, Florida and Minnesota,
with a total of 900 units. The purchase price of the corporate general partner
was $628,000 in cash. The corporate general partner has a 1% interest in the
partnership which is subordinated to a priority return of the limited partner.

F-20

163

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In November 1994, ART sold four apartment complexes to a newly formed
limited partnership in exchange for cash, a 27% limited partner interest in the
partnership and two mortgage notes receivable, secured by one of the properties
sold by ART. In conjunction with the exchange transaction ART recorded a
deferred gain of $5.6 million which is offset against ART's investment in the
partnership.

In January 1992, ART entered into a partnership which acquired 287
developed residential lots adjacent to ART's other residential lots in Fort
Worth, Texas. The partnership agreement designates ART as managing general
partner. The partnership agreement also provides each of the partners with a
guaranteed 10% return on their respective investments. Through December 31,
1995, 132 of the residential lots owned by the partnership were sold. During
1996, an additional 52 lots were sold with 103 lots remaining to be sold at
December 31, 1996. Through December 31, 1996, each partner had received $172,000
in return of capital distributions and $181,000 in profit distributions from the
partnership.

Other equity investees. In April 1996, a wholly-owned subsidiary of ART
purchased for $10.7 million in cash 80% of the common stock of an entity which
in turn had acquired 26 operating pizza parlors in various communities in
California's San Joaquin Valley. Concurrent with the purchase, ART granted to an
individual an option to purchase 36.25% of ART's subsidiary at any time for
ART's net investment in such subsidiary. ART anticipates taking such entity
public during 1997. Accordingly, ART believes its control of such entity is
temporary and accounts for such entity under the equity method.

F-21

164

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Set forth below are summary financial data for equity investees owned over 50%:

1996 1995
--------- ---------

Property and notes
receivable, net .......................... $ 240,552 $ 239,728
Other assets ................................ 59,409 53,202
Notes payable ............................... (352,441) (338,534)
Other liabilities ........................... (19,294) (53,663)
--------- ---------
Equity ...................................... $ (71,774) $ (99,267)
========= =========

1996 1995 1994
--------- --------- ---------

Revenues .................................... $ 124,044 $ 110,892 $ 107,546
Depreciation ................................ (11,148) (10,268) (10,034)
Interest .................................... (34,640) (34,956) (34,145)
Operating expenses .......................... (78,043) (69,572) (66,602)
--------- --------- ---------

Income (loss) before gains on sale of
real estate .............................. 213 (3,904) (3,235)
Gains on sale of real estate ................ 61 7,701 8,252
--------- --------- ---------
Net income .................................. $ 274 $ 3,797 $ 5,017
========= ========= =========

The difference between the carrying value of ART's investment and the equivalent
investee book value is being amortized over the life of the properties held by
each investee.

ART's equity share of:

1996 1995 1994
------- ------- -------

Income (loss) before gains on sale of
real estate .............................. $ 270 $(1,767) $(1,279)
Gains on sale of real estate ................ -- 1,884 1,923
------- ------- -------
Net income .................................. $ 270 $ 117 $ 644
======= ======= =======

Set forth below are summary financial data for equity investees owned less than
50%:

1996 1995
--------- ---------

Property and notes
receivable, net .......................... $ 501,097 $ 466,220
Other assets ................................ 57,877 61,697
Notes payable ............................... (358,203) (318,161)
Other liabilities ........................... (19,849) (20,396)
--------- ---------
Equity ...................................... $ 180,922 $ 189,360
========= =========

F-22

165

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

1996 1995 1994
--------- --------- ---------

Revenues .................................... $ 101,246 $ 94,730 $ 74,093
Depreciation ................................ (14,408) (13,950) (10,276)
Provision for losses ........................ 844 (541) (1,429)
Interest .................................... (30,401) (28,102) (20,264)
Operating expenses .......................... (69,698) (65,471) (54,213)
--------- --------- ---------
(Loss) before gains on sale of
real estate and extraordinary
gains .................................... (12,417) (13,334) (12,089)
Gains on sale of real estate ................ 11,701 5,822 6,375
Extraordinary gains ......................... 1,068 1,437 1,189
--------- --------- ---------
Net income (loss) ........................... $ 352 $ (6,075) $ (4,525)
========= ========= =========

ART's equity share of:

1996 1995 1994
------- ------- -------

(Loss) before gains on sale of
real estate and extraordinary
gains .................................... (2,911) (3,356) (1,250)
Gains on sale of real estate ................ 4,645 2,463 895
Extraordinary gains ......................... 381 783 273
------- ------- -------
Net income (loss) ........................... $ 2,115 $ (110) $ (82)
======= ======= =======

ART's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. CMET and IORI have been making
regular quarterly distributions since the first quarter of 1993, NRLP since the
fourth quarter of 1993 and TCI since the fourth quarter of 1995. In 1996, ART
received distributions from the REITs totaling $ 2.1 million and $6.9 million
from NRLP. At December 31, 1995, ART accrued $3.3 million in NRLP distributions
which were paid January 2, 1996. In 1995, ART received total distributions from
the REITs of $641,000 and $719,000 from NRLP.

ART's investments in the REITs and NRLP were initially acquired in
1989. In 1996, ART purchased an additional $2.2 million of equity securities of
the REITs and NRLP.

NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In 1994, ART began purchasing equity securities of entities other than
those of the REITs and NRLP to diversify and increase the liquidity of its
margin accounts. In 1996, ART purchased $22.6 million and sold $23.6 million of
such securities. These equity securities are considered a trading portfolio and
are carried at market value. At December 31, 1996, ART recognized an unrealized
decline in the market value of the equity securities in its trading portfolio of
$486,000. In 1996, ART realized a net gain of $29,000 from the sale of trading
portfolio securities and received $163,000 in dividends. At December 31, 1995,
ART recognized an unrealized decline in the market value of the equity
securities in its trading portfolio of $998,000. In 1995, ART realized a net
gain of $349,000 from the sale of trading portfolio securities and received
$852,000 in dividends and $238,000 in return of capital distributions on such
securities. At December 31, 1994, ART recognized an unrealized decline in the
market value of the equity securities in its trading portfolio of $24,000. In
1994, ART realized a net loss of $101,000 from the sale of trading portfolio
securities and received $274,000 in dividends on such securities. Unrealized and
realized gains and losses in the trading portfolio are included in other income
in the accompanying Consolidated Statements of Operations.

F-23

166

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 8. NOTES AND INTEREST PAYABLE

Notes and interest payable consisted of the following:

1996 1995
--------------------- ---------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
--------- -------- --------- --------

Notes payable
Mortgage Loans ......................... $ 40,680 $ 68,385 $ 18,376 $ 22,086
Borrowings from financial
institutions ........................ 78,812 48,929 27,052 29,945
Notes payable to affiliates ............ 1,658 4,176 1,554 4,176
-------- -------- -------- --------
$121,150 121,490 $ 46,982 56,207
======== ========

Interest payable (including
$4,798 in 1996 and $4,380
in 1995 to affiliate) ....................... 6,373 4,956
-------- --------
$127,863 $ 61,163
======== ========

Scheduled principal payments on notes payable are due as follows:

1997........................................ $ 36,022
1998........................................ 47,552
1999........................................ 15,387
2000........................................ 1,108
2001........................................ 2,538
Thereafter.................................. 18,883
---------
$ 121,490
=========

Stated interest rates on notes payable ranged from 6.0% to 14% at
December 31, 1996, and mature in varying installments between 1997 and 2007. At
December 31, 1996, notes payable were collateralized by mortgage notes
receivable with a net carrying value of $18.2 million and by deeds of trust on
real estate with a net carrying value of $122.2 million.

In February 1996, ART refinanced the $7.8 million of debt
collateralized by a mortgage note receivable with a principal balance of $18.2
million at December 31, 1996, which is secured by a shopping center in Las
Vegas, Nevada, for $12.0 million. ART received net refinancing proceeds of $2.3
million after the payoff of the existing debt, payment of various closing costs
associated with the refinancing and making a $1.5 million paydown on the term
loan secured by the Las Colinas I land in Las Colinas, Texas, in exchange for
that lender's release of its participation in the note receivable. The new loan
bears interest at 15% per annum, requires monthly principal and interest
payments of $152,000 and matures in February 1998.

In April 1996, ART refinanced the $2.9 million of underlying debt
collateralized by a wraparound mortgage note receivable with a principal balance
of $27.6 million at December 31, 1996, which is secured by a hotel and casino in
Las Vegas, Nevada for $16.8 million. ART received net cash of $11.2 million
after the payoff of the underlying liens, the payment of various closing costs
associated with the refinancing and making a $1.4 million paydown on the term
loan secured by the Las Colinas I land in Las Colinas, Texas, in exchange for
that lender's release of its participation in the wraparound note receivable.
The new loan bears interest at 16.5% per annum, requires monthly interest only
payments at a rate of 12.5% with the remaining 4% being deferred and added to
principal. The loan matures in April 1998.

F-24

167

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Also in April 1996, ART refinanced the $5.1 million mortgage debt
secured by the Denver Merchandise Mart in Denver, Colorado, for $15.0 million.
ART pledged 1,264,000 newly issued shares of ART's common stock as additional
collateral for such loan. See NOTE 10. "COMMON STOCK." ART received net
refinancing proceeds of $7.8 million after the payoff of the existing mortgage
debt, purchasing the ground lease on Denver Merchandise Mart for $678,000 and
payment of various closing costs associated with the refinancing. The new loan
bears interest at a variable rate, currently 10.5% per annum, requires monthly
principal and interest payments of $142,000 and matures in October 1997.

In August 1996, ART refinanced the $2.4 million mortgage debt secured
by the Rosedale Towers Office Building in Roseville, Minnesota for $2.8 million.
ART received net refinancing proceeds of $154,000 after the payoff of the
existing mortgage debt and payment of various closing costs associated with the
refinancing. ART also received 564,704 shares of Common Stock of ART that it had
pledged as additional collateral on the refinanced mortgage debt. Such shares
are held as treasury stock by ART. The new loan bears interest at 9.05% per
annum, requires monthly principal and interest payments of $24,000 and matures
in August 2006.

Also in August 1996, ART financed the previously unencumbered Inn at
the Mart in Denver, Colorado for $2.0 million to facilitate renovation of the
property. ART received net financing proceeds of $890,000 after the payment of
various closing costs associated with the financing and a $1.1 million
renovation holdback. Upon completion of the renovations, the lender advanced the
$1.1 million renovation holdback in December 1996. The loan bears interest a
variable rate, currently 10.50% per annum and requires monthly interest only
payments through February 1, 1998. Commencing March 1, 1998, monthly payments of
interest plus a $3,000 principal paydown are required until the loan's maturity
in September 2001.

In October 1996, ART completed the sale of $1.1 million in 11-1/2%
senior subordinated notes in a private placement. Interest on the notes is
payable semi-annually on March 31 and September 30 of each year commencing March
31, 1997. The notes mature September 30, 1999, and are subject to the right of
ART to call the notes for early redemption at no penalty or premium to ART.

In December 1996, ART obtained second lien financing on the Kansas City
Holiday Inn in Kansas City, Missouri, of $3.2 million. ART received net
financing proceeds of $3.0 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at 15% per annum,
requires monthly payments of $41,000 and matures in February 1999.

Notes payable to affiliates at December 31, 1996 and 1995 include a
$4.2 million note due to NRLP as payment for SAMLP's general partner interest in
NRLP. The note bears interest at 10% per annum compounded semi-annually and is
due at the earlier of September 2007, the liquidation of NRLP or the withdrawal
of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."

NOTE 9. MARGIN BORROWINGS

ART has margin arrangements with various brokerage firms which provide
for borrowings of up to 50% of the market value of ART's marketable equity
securities. The borrowings under such margin arrangements are secured by equity
securities of the REITs, NRLP and ART's trading portfolio and bear interest
rates ranging from 7.0% to 11.0%. Margin borrowings were $40.0 million at
December 31, 1996, and $34.0 million at December 31, 1995, 34.5% and 47%,
respectively, of the market values of such equity securities at such dates.

In August 1996, ART consolidated its existing NRLP margin debt held by
the various brokerage firms into a single loan of $20.3 million. The loan is
secured by ART's NRLP units with a market value of at least 50% of the principal
balance of the loan. As of December 31, 1996, 3,418,319 NRLP units with a market
value of $44.9 million were pledged as security for such loan.

Also in August 1996, ART obtained a $2.0 million loan from a financial
institution secured by a pledge of equity securities of REITs owned by ART and
Common Stock of ART owned by Basic Capital Management, Inc.

F-25

168

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

("BCM"), ART's Advisor, with a market value of $4.0 million. ART received $2.0
million in net cash after the payment of closing costs associated with the loan.

NOTE 10. COMMON STOCK

In April 1996, ART issued 500,000 newly issued shares of Common Stock
to ND Investments, Inc., a wholly-owned subsidiary of ART, which in turn pledged
such shares as additional collateral for the loan secured by the BP Las Colinas
land in Las Colinas, Texas. See NOTE 4. "REAL ESTATE."

Also in April 1996, ART issued 1,264,000 newly issued shares of Common
Stock to Garden Capital Merchandise Mart, Inc., a wholly-owned subsidiary of
ART, which pledged such shares as additional collateral for the loan secured by
Denver Merchandise Mart, in Denver, Colorado. See NOTE 8. "NOTES AND INTEREST
PAYABLE."

NOTE 11. DIVIDENDS

In June 1996, ART's Board of Directors resumed the payment of dividends
on ART's Common Stock with the declaration of a second quarter dividend of $.05
per share. ART had last paid dividends on May 15, 1990. ART paid common
dividends totaling $1.5 million or $.15 per share in 1996. ART reported to the
Internal Revenue Service that 100% of the dividends paid in 1996 represented a
return of capital.

NOTE 12. PREFERRED STOCK

In April 1996, ART filed Articles of Amendment to its Articles of
Incorporation creating and designating a Series B 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, with a liquidation preference of
$100.00 per share. The Series B Preferred Stock consists of a maximum of 4,000
shares, all of which were sold April 4, 1996 for $400,000 in cash in a private
transaction. Dividends are payable at the rate of $10.00 per year or $2.50 per
quarter to stockholders of record on the 15th day of each March, June, September
and December when and as declared by the ART Board. The Series B Preferred Stock
may be converted to Common Stock of ART at 90% of the average closing price of
ART's Common Stock on the prior 20 trading days.

In June 1996, ART filed Articles of Amendment to its Articles of
Incorporation creating and designating a Series C 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, with a liquidation preference of
$100.00 per share. The Series C Preferred Stock consists of a maximum of 16,500
shares, of which 15,000 were issued on June 4, 1996 in connection with the
purchase of Parkfield land in Denver, Colorado. See NOTE 4. "REAL ESTATE."
Dividends are payable at a rate of $10.00 per year or $2.50 per quarter to
stockholders of record on the 15th day of each March, June, September and
December when and as declared by the ART Board. The dividends for the first four
quarters are to be paid in shares of Series C Preferred Stock. In 1996, ART
issued a total of 877 shares of Series C Preferred Stock to the Series C
Preferred Stock stockholders in lieu of cash dividends. The Series C Preferred
Stock may be converted to Common Stock of ART at 90% of the average closing
price of ART's Common Stock on the prior 20 trading days. At December 31, 1996,
15,877 shares of Series C Preferred Stock was issued and outstanding.

In December 1996, ART filed Articles of Amendment to its Articles of
Incorporation, creating and designating a Series D 9.50% Cumulative Preferred
Stock, par value of $2.00 per share, with a liquidation preference of $20.00 per
share. The Series D Preferred Stock consists of a maximum of 91,000 shares.
Dividends are payable at a rate of $1.90 per year of $.475 per quarter to
stockholders of record on the 15th day of each March, June, September and
December when and as declared by the ART Board. The Class A limited partner
units of Ocean L.P. may be exchanged for Series D Preferred Stock at a rate of
20 units per share of Series D Preferred Stock. No more than one-third of the
Class A units held may be exchanged between January 1, 1997 and May 31, 2001.
Between June 1, 2001 and May 31, 2006 all unexchanged Class A units are
exchangeable. At December 31, 1996, none of the Series D Preferred Stock was
issued. See NOTE 4. "REAL ESTATE."

F-26

169

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Also in December 1996 ART filed Articles of Amendment to its Articles
of Incorporation, creating and designating a Series E 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, with a liquidation preference of
$100.00 per share. The Series E Preferred Stock consists of a maximum of 80,000
shares. Dividends are payable at a rate of 10.00 per year or $2.50 per quarter
to Stockholders of record on the 15th day of each March, June, September and
December when and as declared by the Board of Directors of ART, for the period
from November 4, 1996 to November 4, 1999 and $11.00 per year, $2.75 per quarter
thereafter. The Class A limited partner units of VRLP may be exchanged for
Series E Preferred Stock at a rate of 100 Class A units per share of Preferred
Stock. No more than one-half of the Class A units may be exchanged prior to May
4, 1997, thereafter all unexchanged Class A units are exchangeable. Beginning
November 4, 1998, the Series E Preferred Stock may be converted to Common Stock
of ART at 80% of the average closing price of ART's Common Stock on the prior 20
trading days. Up to 37.50% of the preferred shares may be converted between
November 4, 1998 and November 3, 1999. Between November 4, 1999 and November 3,
2001 an additional 12.50% of the original preferred shares may be converted, and
the remaining can be converted as of November 4, 2001 and thereafter. At
December 31, 1996, none of the Series E Preferred Stock was issued. See NOTE 4.
"REAL ESTATE."

NOTE 13. ADVISORY AGREEMENT

Although ART's Board of Directors is directly responsible for managing
the affairs of ART and for setting the policies which guide it, the day-to-day
operations of ART are performed by BCM, a contractual advisor under the
supervision of ART's Board of Directors. 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 for ART. BCM as advisor also serves as a consultant in
connection with ART's business plan and investment policy decisions made by
ART's Board of Directors.

BCM has been providing advisory services to ART since February 6, 1989.
BCM is a company owned by a trust for the benefit of the children of Gene E.
Phillips. Mr. Phillips served as Chairman of the Board and as a Director of ART
until November 16, 1992. Mr. Phillips also served as a director of BCM until
December 22, 1989, and as Chief Executive Officer of BCM until September 1,
1992. Mr. Phillips serves as a representative of the trust for the benefit of
his children that owns BCM and, in such capacity, has substantial contact with
the management of BCM and input with respect to BCM's performance of advisory
services to ART. Ryan T. Phillips, a Director of ART until June 6, 1996, is a
director of BCM and a trustee of the trust that owns BCM. Oscar W. Cashwell, a
Director of ART, served as Executive Vice President of BCM until January 10,
1997.

The Advisory Agreement provides that BCM shall receive base
compensation at the rate of 0.125% per month (1.5% on an annualized basis) of
ART's Average Invested Assets. On October 23, 1991, based on the recommendation
of BCM, ART's advisor, ART's Board of Directors approved a reduction in BCM's
base advisory fee by 50% effective October 1, 1991. This reduction remains in
effect until ART's earnings for the four preceding quarters equals or exceeds
$.50 per share.

In addition to base compensation, the Advisory Agreement provides that
BCM, or an affiliate of BCM, receive an acquisition fee for locating, leasing or
purchasing real estate for ART; a disposition fee for the sale of each equity
investment in real estate; a loan arrangement fee; an incentive fee equal to 10%
of net income for the year in excess of a 10% return on stockholders' equity,
and 10% of the excess of net capital gains over net capital losses, if any; and
a mortgage placement fee, on mortgage loans originated or purchased.

The Advisory Agreement further provides that BCM shall bear the cost of
certain expenses of its employees not directly identifiable to ART's assets,
liabilities, operations, business or financial affairs; and miscellaneous
administrative expenses relating to the performance by BCM of its duties under
the Advisory Agreement.

If and to the extent that ART shall request BCM, or any director,
officer, partner or employee of BCM, to render services to ART other than those
required to be rendered by BCM under the Advisory Agreement, such additional
services, if performed, will be compensated separately on terms agreed upon
between such party and ART from time to time. ART has requested that BCM perform
loan administration functions, and ART and BCM have entered into a separate
agreement, as described below.

F-27

170

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

Since October 4, 1989, BCM has acted as loan administration/servicing
agent for ART, under an agreement terminable by either party upon thirty days'
notice, under which BCM services ART's mortgage notes and receives as
compensation a monthly fee of .125% of the month-end outstanding principal
balances of the mortgage notes serviced.

NOTE 14. PROPERTY MANAGEMENT

Since February 1, 1990, affiliates of BCM have provided property
management services to ART. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under its management. Carmel,
Ltd. subcontracts with other entities for the property-level management
services to ART at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI"), of which
Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a trust for
the benefit of the children of Mr. Phillips. Carmel, Ltd. subcontracts the
property- level management of ART's hotels, shopping centers, one of its office
buildings and the Denver Merchandise Mart to Carmel Realty, Inc. ("Carmel
Realty"), which is a company owned by SWI. Carmel Realty is entitled to receive
property and construction management fees and leasing commissions in accordance
with the terms of its property-level management agreement with Carmel, Ltd.

NOTE 15. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.

Fees and cost reimbursements to BCM and its affiliates were as follows:

1996 1995 1994
------ ------ ------

Fees
Advisory and mortgage
servicing .................. $1,539 $1,195 $1,242
Brokerage commissions ......... 1,889 905 497
Property and construction
management and leasing
commissions* ............... 892 1,200 899
Loan arrangement .............. 806 95 25
------ ------ ------
$5,126 $3,395 $2,663
====== ====== ======

Cost reimbursements ............... $ 691 $ 516 $ 434
====== ====== ======

- -----------

* Net of property management fees paid to subcontractors, other than
Carmel Realty.

NOTE 16. INCOME TAXES

Financial statement income varies from taxable income, principally due
to the accounting for income and losses of investees, gains and losses from
asset sales, depreciation on owned properties, amortization of discounts on
notes receivable and payable and the difference in the allowance for estimated
losses. At December 31, 1996, ART had a tax net operating loss carryforward of
$17.7 million expiring through 2010.

At December 31, 1996, ART has a deferred tax benefit of $5.2 million
due to tax deductions available to it in future years. However, due to, among
other factors, ART's inconsistent earnings history, ART was unable to conclude
that the future realization of such deferred tax benefit, which requires the
generation of taxable income, was more likely than not. Accordingly, a valuation
allowance for the entire amount of the deferred tax benefit has been recorded.

F-28

171

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The components of tax expense are as follows:

1996 1995 1994
---- ---- ----

Income tax provision
Current .................... $ -- $ 2 $ 9
========= ======= ======

NOTE 17. EXTRAORDINARY GAIN

In 1996, ART recognized an extraordinary gain of $381,000 representing
its equity share of TCI's extraordinary gain from the early payoff of debt and
CMET's extraordinary gain from an insurance settlement.

In 1995, ART recognized an extraordinary gain of $783,000 representing
its equity share of TCI's extraordinary gain from the early payoff of debt.

In 1994, ART recognized an extraordinary gain of $273,000 representing
its equity share of TCI's extraordinary gain from settlement of claims against
it by a lender. ART also recognized $50,000 from forgiveness of a portion of a
first mortgage due to the early payoff of the second mortgage.

NOTE 18. RENTS UNDER OPERATING LEASES

ART's operations include the leasing of an office building, a
merchandise mart and shopping centers. The leases thereon expire at various
dates through 2006. The following is a schedule of minimum future rents on
non-cancelable operating leases as of December 31, 1996:

1997 ................................... $1,899
1998 ................................... 1,555
1999 ................................... 1,075
2000 ................................... 740
2001 ................................... 599
Thereafter ............................. 1,444
------
$7,302
======

NOTE 19. COMMITMENTS AND CONTINGENCIES

ART is involved in various lawsuits arising in the ordinary course of
business. In the opinion of ART's management the outcome of these lawsuits will
not have a material impact on ART's financial condition, results of operations
or liquidity.

F-29

172

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 20. QUARTERLY RESULTS OF OPERATIONS

The following is a tabulation of ART's quarterly results of operations
for the years 1996 and 1995:

Three Months Ended
--------------------------------------------------
1996 March 31, June 30, September 30, December 31,
- ---- -------- -------- ------------- ------------

Revenue ........................... $ 6,790 $ 5,346 $ 7,306 $ 7,537
Expense ........................... 8,255 8,555 9,279 12,488
-------- -------- -------- --------
(Loss) from operations ............ (1,465) (3,209) (1,973) (4,951)
Equity in income of
investees .................... 678 271 661 394
Gain on sale of
real estate .................. 559 547 1,961 592
Extraordinary gain ................ 13 247 121 --
-------- -------- -------- --------
Net income (loss) ................. (215) (2,144) 770 (3,965)

Preferred dividend
requirement .................. -- (17) (48) (48)
-------- -------- -------- --------
Net income (loss)
applicable to
common shares ................ $ (215) $ (2,161) $ 722 $ (4,013)
======== ======== ======== ========

Earnings per share
Income (loss) before extra-
ordinary gain ................ $ (.02) $ (.19) $ .05 $ (.28)
Extraordinary gain ................ -- .02 .01 --
-------- -------- -------- --------
Net income (loss) ................. $ (.02) $ (.17) $ .06 $ (.28)
======== ======== ======== ========

Three Months Ended
------------------------------------------------
1995 March 31, June 30, September 30, December 31,
- ---- -------- -------- ------------- ------------

Revenue ........................... $ 6,080 $ 5,552 $ 7,066 $ 4,254
Expense ........................... 6,940 7,311 6,523 7,540
------- ------- ------- -------
Income (loss) from
operations ................... (860) (1,759) 543 (3,286)
Equity in income (losses)
of investees ................. (1,260) (1,699) (1,410) 3,518
Gains on sale of real estate ...... 924 24 1,596 50
Extraordinary gain ................ 315 12 431 25
------- ------- ------- -------
Net income (loss) ................. $ (881) $(3,422) $ 1,160 $ 307
======= ======= ======= =======

Earnings per share
Income (loss) before extra-
ordinary gain ................ $ (.20) $ (.59) $ .13 $ .05
Extraordinary gain ................ .05 -- .07 .01
------- ------- ------- -------
Net income (loss) ................. $ (.15) $ (.59) $ .20 $ .06
======= ======= ======= =======

F-30

173

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE 21. SUBSEQUENT EVENTS

In February 1997, ART completed the second phase of the BP Las Colinas
land sale of 40.2 acres for $8.0 million, of which $7.2 million was in cash. In
conjunction with the sale, ART provided $800,000 of purchase money financing in
the form of a six month unsecured loan. The loan bears interest at 12% per
annum, with all accrued but unpaid interest and principal due at maturity. Of
the net sales proceeds of $6.9 million, $1.5 million was used to payoff the
underlying debt secured by the land in Las Colinas, pay a $500,000 maturity fee
to the lender, make a $1.5 million principal paydown on the note secured by the
Parkfield land in Denver, Colorado with the same lender, and $1.0 million was
applied as a principal paydown on the term loan secured by the Las Colinas I
land parcel. ART will recognize a gain of $3.4 million on the sale, deferring
the gain associated with the $800,000 loan until it is paid in full.

In February 1997, ART sold its mortgage note receivable secured by land
in Osceola, Florida for $1.8 million in cash. The note receivable had a
principal balance of $1.6 million at December 31, 1996 and had been in default
since November 1993. See NOTE 3. "NOTES AND INTEREST RECEIVABLE." ART will
recognize a gain of approximately $150,000 on the sale.

In January 1997, ART sold 3.0 acres of the Las Colinas I Land in Las
Colinas, Texas, for $1.2 million in cash. ART recognized a gain of $697,000 on
the sale.

In January 1997, ART purchased Scout land, 546 acres of undeveloped
land in Tarrant County, Texas, for $2.2 million. ART paid $725,000 in cash and
obtained mortgage financing for the remaining $1.5 million of the purchase
price. The mortgage bears interest at 16% per annum, requires quarterly interest
payments of $61,000 beginning in April 1997, and matures in January 2000.

In March 1997, ART purchased Katy Road land, 130.6 acres of undeveloped
land in Harris County, Texas for $5.0 million. ART paid $958,000 in cash and
obtained seller financing for the remaining $4.0 million of the purchase price.
The mortgage bears interest at 9% per annum, requires quarterly interest
payments of $92,000 and matures in March 2000.

F-31

174

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

September 30, December 31,
1997 1996
------------ ------------
(dollars in thousands)

Assets

Notes and interest receivable
Performing ............................................... $ 4,182 $ 50,784
Nonperforming ............................................ 18,954 1,627
--------- ---------
23,136 52,411

Less - allowance for estimated losses ...................... (2,398) (3,926)
--------- ---------
20,738 48,485

Real estate held for sale, net of accumulated
depreciation ($5,098 in 1996) ............................ 149,127 77,688

Real estate held for investment, net of accumulated
depreciation ($5,636 in 1997 and $4,234 in 1996) ......... 84,898 41,347

Plant and equipment, net of accumulated depreciation
($669 in 1997) ........................................... 5,809 --

Marketable equity securities, at market value .............. 7,425 2,186
Cash and cash equivalents .................................. 2,031 1,254
Investments in equity investees ............................ 46,266 55,880
Intangibles, net of accumulated amortization ($580
in 1997) ................................................. 15,309 --
Other assets ............................................... 23,015 8,197
--------- ---------

$ 354,618 $ 235,037
========= =========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-32

175

AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) - CONTINUED

September 30, December 31,
1997 1996
------------ -----------
(dollars in thousands)

Liabilities and Stockholders' Equity

Liabilities
Notes and interest payable ($9,293 in 1997
and $8,973 in 1996 to affiliates) ................... $ 213,293 $ 127,863
Margin borrowings ..................................... 52,071 40,044
Accounts payable and other liabilities (including
$23,227 in 1997 to affiliate) ....................... 31,456 8,433
--------- ---------

296,820 176,340

Minority interest ..................................... 10,742 10,911

Commitments and contingencies

Stockholders' equity
Preferred Stock, $2.00 par value, authorized
20,000,000 shares, issued and outstanding
4,000 shares Series B ............................. 8 8
16,681 shares Series C ............................ 33 32
400,000 shares Series F ........................... 800 --
Common stock, $.01 par value; authorized
16,667,667 shares, issued 13,479,348 shares in
1997 and 1996 ....................................... 120 129
Paid-in capital ....................................... 72,147 68,601
Accumulated (deficit) ................................. (26,037) (20,978)
Treasury stock at cost, 1,503,427 shares in 1997
and 564,704 shares in 1996 .......................... (15) (6)
--------- ---------

47,056 47,786
--------- ---------

$ 354,618 $ 235,037
========= =========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-33

176

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(dollars in thousands, except per share)

Revenues
Sales ................................ $ 8,647 $ -- $ 10,828 $ --
Rents ................................ 7,804 5,339 18,725 14,733
Interest ............................. 471 1,143 2,769 3,416
Other ................................ (1,883) 824 (117) 1,293
------------ ------------ ------------ ------------
15,039 7,306 32,205 19,442
Expenses
Cost of sales ........................ 6,984 -- 8,672 --
Property operations .................. 5,030 3,600 13,501 11,166
Interest ............................. 8,351 4,240 20,425 10,656
Advisory and servicing fees
to affiliate ...................... 630 392 1,639 1,093
Incentive compensation to
affiliate ......................... -- -- 299 --
General and administrative ........... 2,303 618 4,654 1,855
Depreciation and
amortization ...................... 755 429 1,902 1,319
Minority interest .................... 243 -- 959 --
------------ ------------ ------------ ------------
24,296 9,279 52,051 26,089
------------ ------------ ------------ ------------

(Loss) from operations ................. (9,257) (1,973) (19,846) (6,647)
Equity in income (losses) of
investees ............................ (145) 604 5,106 1,544
Gain on sale of real estate ............ 3,205 2,018 11,354 3,133
------------ ------------ ------------ ------------

Income (loss) before
extraordinary gain ................... (6,197) 649 (3,386) (1,970)
Extraordinary gain ..................... -- 121 -- 381
------------ ------------ ------------ ------------
Net income (loss) ...................... (6,197) 770 (3,386) (1,589)

Preferred dividend requirement ......... (49) (48) (151) (65)
Net income (loss) applicable
to Common shares ..................... $ (6,246) $ 722 $ (3,537) $ (1,654)
============ ============ ============ ============

Earnings per share
Income (loss) before
extraordinary gain ................... $ (.52) $ .05 $ (.29) $ (.16)
Extraordinary gain ................... -- .01 -- .03
------------ ------------ ------------ ------------
Net income (loss) applicable
to Common shares .................. $ (.52) $ .06 $ (.29) $ (.13)
============ ============ ============ ============

Weighted average Common shares
used in computing earnings
per share ............................ 11,975,921 13,192,148 12,041,252 12,714,894
============ ============ ============ ============

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-34

177

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

Series B Series C Series F
Preferred Preferred Preferred Common Treasury Paid-in Accumulated Stockholders'
Stock Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- --------- -------- -------- -------- ----------- -------------
(dollars in thousands, except per share)

Balance, January
1, 1997 .............. $ 8 $ 32 $ -- $ 129 $ (6) $ 68,601 $(20,978) $ 47,786

Dividends
Common Stock ($.15
per share) ........ -- -- -- -- -- -- (1,520) (1,520)
Series B Preferred
Stock ($7.50 per
share) ............ -- -- -- -- -- -- (30) (30)
Series C Preferred
Stock ($7.50 per
share) ............ -- 1 -- -- -- 79 (123) (43)

Series F Preferred
Stock issued ......... -- -- 800 -- -- 3,200 -- 4,000

Sale of Common Stock .... -- -- -- -- -- 249 -- 249

Treasury stock, at
cost ................. -- -- -- (9) (9) 18 -- --

Net income .............. -- -- -- -- -- -- (3,386) (3,386)
-------- -------- -------- -------- -------- -------- -------- --------

Balance, September
30, 1997 ............. $ 8 $ 33 $ 800 $ 120 $ (15) $ 72,147 $(26,037) $ 47,056
======== ======== ======== ======== ======== ======== ======== ========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-35

178

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months
Ended September 30,
---------------------
1997 1996
-------- --------
(dollars in thousands)

Cash Flows From Operating Activities
Revenues collected ................................. $ 27,800 $ 14,760
Interest collected ................................. 2,624 3,197
Distributions received from equity investees'
operating cash flow ............................ 1,905 8,626
Payments for property operations and cost of
products sold .................................. (17,697) (11,628)
Interest paid ...................................... (12,723) (5,881)
Advisory and servicing fees paid to affiliate ...... (1,938) (1,093)
Distributions to minority interest holders ......... (1,128) --
General and administrative expenses paid ........... (4,765) (2,169)
Other .............................................. (717) 417
-------- --------
Net cash provided by (used in) operating
activities .................................. (6,639) 6,229

Cash Flows From Investing Activities
Collections on notes receivable .................... 3,062 640
Notes receivable funded ............................ (3,688) (100)
Proceeds from sale of real estate .................. 18,567 6,740
Proceeds from sale of marketable equity
securities ..................................... 6,019 22,564
Proceeds from sale of notes receivable ............. 18,342 --
Purchases of marketable equity securities .......... (11,779) (21,271)
Investment in real estate entities ................. (3,523) (14,219)
Acquisition of real estate ......................... (67,620) (5,658)
Deposits ........................................... (12,277) (526)
Real estate improvements ........................... (5,505) (1,901)
Fixed asset purchased .............................. (5,809) --
-------- --------
Net cash (used in) investing activities ........ (64,211) (13,731)

Cash Flows From Financing Activities
Proceeds from notes payable ........................ 91,141 48,153
Payments on notes payable .......................... (47,150) (29,486)
Deferred borrowing costs ........................... (3,294) (3,019)
Net advances (payments) from/to affiliates ......... 23,632 (7,530)
Margin borrowings, net ............................. 8,890 464
Proceeds from issuance of Series B preferred
stock .......................................... -- 400
Dividends on Common Stock .......................... (1,520) (1,437)
Dividends on Preferred Stock ....................... (72) --
-------- --------
Net cash provided by financing activities ...... 71,627 7,545

Net increase in cash and cash equivalents ...... 777 43

Cash and cash equivalents, beginning of period ........ 1,254 1,054
-------- --------

Cash and cash equivalents, end of period .............. $ 2,031 $ 1,097
======== ========

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-36

179

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) - CONTINUED

For the Nine Months
Ended September 30,
---------------------
1997 1996
-------- --------
(dollars in thousands)

Reconciliation of net (loss) to net cash provided
by (used in) operating activities
Net (loss) .............................................. $ (3,386) $ (1,589)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities
Extraordinary gain .................................. -- (381)
Depreciation and amortization ....................... 1,570 1,319
Amortization of deferred borrowing cost ............. 332 --
Gain on sale of real estate ......................... (11,434) (3,133)
Distributions from equity investees' operating
cash flow ........................................ 1,905 8,626
Equity in (income) of investees ..................... (5,106) (1,544)
Unrealized (gain) loss on marketable equity
securities ....................................... 470 (598)
(Increase) decrease in interest receivable .......... 3 (93)
(Increase) decrease in other assets ................. 8,553 2,151
Increase in interest payable ........................ 520 844
(Decrease) in accounts payable and
other liabilities ................................ (205) (131)
Other ............................................... 139 758
-------- --------

Net cash provided by (used in) operating
activities ..................................... $ (6,639) $ 6,229
======== ========

Schedule of noncash investing and financing
activities

Issuance of 16,681 shares of Series C Preferred
Stock with a liquidation value of $1,667 ................ $ -- $ 31

Stock dividends on Series C Preferred Stock ................ 82 --

Issuance of 400,000 shares of Series F Preferred
Stock with a liquidation value of $4,000 ................ 800 --

Current value of property acquired through
foreclosure on $14,485 note receivable .................. 20,226 --

Notes payable from property acquired through
foreclosure ............................................. 11,867 --

Notes payable from acquisition of real estate .............. 33,746 --

Notes payable from acquisition of minority
interest in subsidiary .................................. 5,000 --

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-37

180

AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) - CONTINUED

For the Nine Months
Ended September 30,
-------------------
1997 1996
------- --------
(dollars in thousands)

Acquisition of Pizza World Supreme, Inc.

Carrying value of intangibles ...................... $15,641 $ --

Carrying value of plant and equipment .............. 3,998 --

Carrying value of note receivable retired .......... 13,387 --

Carrying value of accounts payable and other
liabilities .................................... 1,314 --

The accompanying notes are an integral part of these Consolidated Financial
Statements.

F-38

181

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. and consolidated entities (the "Company") have been prepared in conformity
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the Consolidated Financial
Statements and Notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "1996 Form 10-K").

Certain balances for 1996 have been reclassified to conform to the 1997
presentation. Shares and per share data have been restated for the two for one
forward share split effected February 17, 1997.

NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.

The Company owns a 96% limited partner interest in Syntek Asset Management, L.P.
("SAMLP"). SAMLP is the general partner of National Realty, L.P. ("NRLP") and
National Operating, L.P. ("NOLP"), the operating partnership of NRLP. Gene E.
Phillips, a Director and Chairman of the Board of the Company until November 16,
1992, is also a general partner of SAMLP. As of September 30, 1997, the Company
owned approximately 54% of the outstanding limited partner units of NRLP.

NRLP, SAMLP and Mr. Phillips were among the defendants in a class action lawsuit
arising from the formation of NRLP. An agreement settling such lawsuit for the
above mentioned defendants became effective on July 5, 1990. The settlement
agreement provided for, among other things, the appointment of an NRLP oversight
committee; the establishment of specified annually increasing targets for five
years relating to the price of NRLP's units of limited partner interest; a
limitation and deferral or waiver of NRLP's reimbursement to SAMLP of certain
future salary costs; a deferral or waiver of certain future compensation to
SAMLP; the required distribution to unitholders of all of NRLP's cash from
operations in excess of certain renovation costs unless the NRLP oversight
committee approves alternative uses for such cash from operations; the issuance
of unit purchase warrants to members of the plaintiff class; and the
contribution by the then individual general partners of $2.5 million to NRLP
over a four-year period. In accordance with the indemnification provisions of
SAMLP's agreement of limited partnership, SAMLP agreed to indemnify Mr.
Phillips, the individual general partners, at the time, of SAMLP, for the $2.5
million payment to NRLP. The final annual installment of principal and interest
was paid by SAMLP in May 1994.

The settlement agreement provides for the resignation and replacement of SAMLP
as general partner if the unit price targets are not met for two consecutive
anniversary dates. NRLP did not meet the unit price targets for the first and
second anniversary dates. On July 8, 1992, SAMLP notified the NRLP oversight
committee of the failure of NRLP to meet the unit price targets for two
successive years and that it expects to resign as general partner of NRLP and
NOLP.

The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement. Syntek Asset Management, L.P. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $40.2 million at September 30, 1997,
before reduction for the principal balance ($4.2 million at September 30, 1997)
and accrued interest ($6.9 million at September 30, 1997) on the note receivable
from SAMLP for its original capital contribution to the partnership.

In January 1995, NRLP, SAMLP, William H. Elliott and the NRLP oversight
committee executed an Implementation Agreement which provided for the nomination
of an entity controlled by Mr. Elliott as successor general partner and for the
resolution of all related matters under the class action settlement. On February
20, 1996, the parties to the Implementation Agreement executed an Amended and
Restated Implementation Agreement.

F-39

182

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

approving the formal notice and setting a hearing on the Amended and Restated
Implementation Agreement for June 27, 1997. A notice was sent to all class
members and unitholders in April 1997 and the hearing was held on June 27, 1997.
On September 8, 1997, the Supervising Judge rendered a Statement of Decision in
which he declined to approve the Amended and Restated Implementation Agreement.

As a result of the Statement of Decision, the original class action settlement
shall remain in full force and effect and all of the provisions of the Amended
and Restated Implementation Agreement have been voided. SAMLP and the NRLP
oversight committee are considering alternative methods to implement the
election of a successor general partner as required under the original class
action settlement.

On September 26, 1997, one of the original class action defendants, Robert A.
McNeil, filed motions to (i) be installed as receiver for NRLP and (ii) disband
the NRLP oversight committee. As of November 10, 1997, a hearing on the motions
had not been set.

NOTE 3. NOTES AND INTEREST RECEIVABLE

The borrower on a $1.7 million mortgage note receivable secured by land in
Osceola, Florida failed to pay the note on its November 1, 1993 maturity. The
Company instituted foreclosure proceedings and was awarded a summary judgment in
January 1994. During 1994 and 1995, the borrower paid the Company a total of
$270,000 in nonrefundable fees to delay foreclosure of the property until April
24, 1995. On April 25, 1995, the borrower filed for bankruptcy protection. On
August 26, 1996, the bankruptcy court's stay was lifted allowing the Company to
proceed with foreclosure. In February 1997, the Company sold its mortgage note
receivable for $1.8 million in cash. The Company recognized a gain of $171,000
on the sale.

In September 1997, the Company sold its $16.3 million wraparound mortgage note
receivable secured by the Las Vegas Plaza Shopping Center in Las Vegas, Nevada,
for $15.0 million. The Company secured net cash of $5.5 million after the payoff
of the loan in the amount of $9.2 million secured by such note receivable. The
Company incurred no loss on the sale beyond the reserve previously established.

In September 1997, the Company foreclosed on its $14.6 million junior mortgage
note receivable secured by the Williamsburg Hospitality House in Williamsburg,
Virginia. The Company acquired the property at foreclosure subject to a first
lien mortgage of $11.9 million. The Company incurred no loss on foreclosure as
the fair value of the property exceeded the carrying value of the Company's
mortgage note receivable. The property is included in real estate held for
investment in the accompanying Consolidated Balance Sheet.

In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino through foreclosure subject to first and second
lien mortgages totaling $10.0 million. In June 1992, the Company sold the hotel
and casino for a $22.0 million wraparound mortgage note receivable, a $500,000
unsecured note receivable, which was collected in full, and $100,000 in cash. In
March 1997, the wraparound note was modified and extended in exchange for, among
other things, the borrower's commitment to invest $2.0 million in improvements
to the hotel and casino within four months of the March 1997 modification and an
additional $2.0 million prior to December 1997. The borrower has not made the
required payments since April 1997, nor the required improvements and the
Company is in negotiations with the borrower, but has also begun foreclosure
proceedings. If the negotiations are not successful and the Company forecloses
on the property it does not expect to incur a loss as the fair value of the
property exceeds the carrying value of the Company's note receivable.

Related Party. In December 1996, the Company and the borrower on a $3.7 million
note receivable secured by an apartment complex in Merrillville, Indiana agreed
to an extension of the notes December 1996 maturity date to December 2000. The
property is owned by a subsidiary of Davister Corp. ("Davister"), a general
partner in a partnership that owns approximately 14.6% of the Company's
outstanding shares of Common Stock. In May 1997, the note plus accrued but
unpaid interest was paid in full. See NOTE 10. "CERTAIN RELATIONSHIPS AND
TRANSACTIONS."

F-40

183

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

NOTE 4. REAL ESTATE

In January 1997, the Company sold a 3.0 acre tract of the Las Colinas I land
parcel in Las Colinas, Texas, for $1.2 million in cash. The Company recognized a
gain of $697,000 on the sale.

In January 1997, the Company purchased Scout land, a 546 acre parcel of
undeveloped land in Tarrant County, Texas, for $2.2 million. The Company paid
$725,000 in cash and obtained mortgage financing for the remaining $1.5 million
of the purchase price. The mortgage bears interest at 16% per annum, requires
quarterly interest only payments of $61,000, and matures in January 2000. The
Company paid a real estate brokerage commission of $135,000 to Carmel Realty,
Inc. ("Carmel Realty"), an affiliate of Basic Capital Management, Inc. ("BCM"),
the Company's advisor, based on the $2.2 million purchase price of the property.

In October 1995, the Company purchased BP Las Colinas land, a 92.6 acre parcel
of partially developed land in Las Colinas, Texas. In February 1996, the Company
entered into a contract to sell 72.5 acres of such parcel for $12.9 million. The
contract called for the sale to close in two phases. In July 1996, the Company
completed the first phase sale of 32.3 acres for $4.9 million in cash. In
February 1997, the Company completed the second phase sale of 40.2 acres for
$8.0 million, of which $7.2 million was paid in cash. Of the net sales proceeds
of $6.9 million, $1.5 million was used to payoff the underlying debt secured by
the BP Las Colinas parcel, pay a $500,000 maturity fee to the lender, make a
$1.5 million principal paydown on note secured by Parkfield land in Denver,
Colorado with the same lender, and $1.0 million was applied as a principal
paydown on the term loan secured by the Las Colinas I land parcel. In
conjunction with the sale the Company provided $800,000 in purchase money
financing in the form of a six month unsecured loan. The loan bears interest at
12% per annum, with all accrued but unpaid interest and principal due at
maturity in August 1997. The Company recognized a gain of $3.4 million on such
sale, deferring an additional $800,000 of gain until the unsecured loan is paid
in full. The loan was paid in full August 1997 and the $800,000 gain was
recognized. The Company paid a real estate brokerage commission of $239,000 to
Carmel Realty based on the $8.0 million sales price of the property.

In March 1997, the Company purchased Katy Road land, a 130.6 acre parcel of
undeveloped land in Harris County, Texas, for $5.6 million. The Company paid
$1.6 million in cash with the seller providing purchase money financing for the
remaining $4.0 million of the purchase price. The mortgage bears interest at 9%
per annum, requires quarterly interest only payments of $92,000 and matures in
March 2000. The Company paid a real estate brokerage commission of $209,000 to
Carmel Realty based on the $5.6 million purchase price of the property.

In April 1997, the Company purchased McKinney Corners I land, a 30.4 acre parcel
of undeveloped land in Collin County, Texas, for $3.5 million. The Company paid
$1.0 million in cash and obtained mortgage financing for the remaining $2.5
million of the purchase price. The loan bears interest at 14% per annum,
requires monthly interest only payments of $29,000 and matures in April 1998.
The Company paid a real estate brokerage commission of $208,000 to Carmel Realty
based on the $3.5 million purchase price of the property.

In April 1997, the Company purchased McKinney Corners II land, a 173.9 acre
parcel of undeveloped land in Collin County, Texas, for $5.7 million. The
Company paid $700,000 in cash and obtained mortgage financing for the remaining
$5.0 million of the purchase price as a fourth advance under the term loan from
the Las Colinas I lender. The term loan was amended increasing the term loan
amount from $19.5 million to $24.5 million. The amendment also changed the
required principal reduction payments to $500,000 in June, July, September and
October 1997 and $1.0 million in August and November 1997. The McKinney Corners
II land was added as additional collateral on the term loan. The Company paid a
real estate brokerage commission of $343,000 to Carmel Realty based on the $5.7
million purchase price of the property.

In April 1997, the Company sold a 3.1 acre parcel of the Las Colinas I land for
$1.3 million in cash. The Company used $1.0 million of the sales proceeds as a
collateral escrow deposit in accordance with the provision of the Valley Ranch
land loan. In September 1997, such collateral escrow was released to the
Company. The Company recognized a gain of $648,000 on the sale. The Company paid
a real estate brokerage commission of $38,000 to Carmel Realty based on the $1.3
million sales price of the property.

F-41

184

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

In May 1997, the Company purchased McKinney Corners III land, a 15.5 acre parcel
of undeveloped land in Collin County, Texas, for $896,000 in cash. The Company
paid a real estate brokerage commission of $54,000 to Carmel Realty based on the
$896,000 purchase price of the property.

Also in May 1997, the Company purchased Lacy Longhorn land, a 17.1 acre parcel
of undeveloped land in Farmers Branch, Texas, for $1.8 million. The Company paid
$200,000 in cash and obtained seller financing of the remaining $1.6 million of
the purchase price. The loan bore interest at 10% per annum, required monthly
principal and interest payments of $400,000 and matured in

October 1997. The loan was paid off at maturity. The Company paid a real estate
brokerage commission of $105,000 to Carmel Realty based on the $1.8 million
purchase price of the property.

In May 1997, the Company purchased Chase Oaks land, a 60.5 acre parcel of
undeveloped land in Plano, Texas, for $4.2 million. The Company paid $200,000 in
cash and obtained seller financing of the remaining $4.0 million of the purchase
price. The note bears interest at 18% per annum, requires monthly interest only
payments of $60,000 and matures May 2000. The Company paid a real estate
brokerage commission of $250,000 to Carmel Realty based on the $4.2 million
purchase price of the property.

Also in May 1997, the Company purchased Pioneer Crossing land, a 1,448 acre
parcel of undeveloped land in Austin, Texas, for $21.5 million. The Company paid
$5.4 million in cash and obtained seller financing of the remaining $16.1
million of the purchase price. The note bears interest at 9.5% per annum,
requires monthly interest only payments of $127,000 and matures in May 2001. The
Company paid a real estate brokerage commission of $675,000 to Carmel Realty
based on the $21.5 million purchase price of the property.

In June 1997, the Company purchased Kamperman land, a 129.6 acre parcel of
undeveloped land in Collin County, Texas, for $5.0 million in cash. The Company
simultaneously closed on a sale of a 99.7 acre parcel for $4.5 million in cash.
The Company recognized a $215,000 gain on the sale. The Company paid a real
estate brokerage commission of $152,000 to Carmel Realty based on the $5.0
million purchase price of the property and $135,000 to Carmel Realty based on
the $4.5 million sales price of the tract sold.

Also in June 1997, the Company purchased Keller land, a 811.8 acre parcel of
undeveloped land in Tarrant County, Texas, for $6.3 million. The Company paid
$2.3 million in cash and obtained mortgage financing for the remaining $4.0
million of the purchase price. The loan bears interest at 12.95% per annum,
requires monthly interest only payments of $43,000 and matures in June 1998. The
Company paid a real estate brokerage commission of $280,000 to Carmel Realty
based on the $6.3 million purchase price of the property.

In June 1997, the Company purchased McKinney Corners IV land, a 31.3 acre parcel
of undeveloped land in Collin County, Texas, for $2.4 million. The Company paid
$400,000 in cash and obtained mortgage financing for the remaining $2.0 million
of the purchase price, as a fifth advance under the term loan from the Las
Colinas I lender. The McKinney Corners IV land was added as additional
collateral on the term loan. The Company paid a real estate brokerage commission
of $151,000 to Carmel Realty based on the $2.4 million purchase price of the
property.

Also in June 1997, the Company purchased Pantex land, a 182.5 acre parcel of
undeveloped land in Collin County, Texas, for $5.4 million. The Company paid
$900,000 in cash and obtained seller financing of the remaining $4.5 million of
the purchase price. The note bears interest at 10.5% per annum, requires
semiannual interest only payments of $239,000 and matures in December 2000. The
Company paid a real estate brokerage commission of $321,000 to Carmel Realty
based on the $5.4 million purchase price of the property.

In July 1997, the Company sold a 3.9 acre tract of the Las Colinas I land in Las
Colinas, Texas, for $1.6 million in cash. In accordance with the provisions of
the term loan secured by such parcel, the Company applied the net sales proceeds
of $1.4 million, to paydown the term loan in exchange for that lender's release
of its collateral interest in such land. The Company recognized a gain of
$771,000 on the sale. The Company paid a real estate brokerage commission of
$48,000 to Carmel Realty based on the $1.6 million sales price of the property.

F-42

185

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

Also in July 1997, the Company purchased Dowdy and McKinney Corners V land,
which parcels are adjacent to the Company's other McKinney Corners land,
consisting of a total of 175 acres of undeveloped land in Collin County, Texas,
for $2.9 million. The Company obtained mortgage financing of $3.3 million as a
sixth advance under the term loan from the Las Colinas I lender. The Dowdy land,
McKinney Corners V land and McKinney Corners III land were added as additional
collateral on the term loan. The Company paid a real estate brokerage commission
of $173,000 to Carmel Realty based on the $2.9 million purchase price of the
properties.

In July 1997, the Company purchased Perkins land, a 645.4 acre parcel of
undeveloped land in Collin County, Texas, for $5.8 million. The Company paid
$3.3 million in cash and assumed the existing mortgage of $2.5 million. The
mortgage bears interest at 8.5% per annum, requires quarterly interest only
payments of $53,000 and matures March 2002. The Company paid a real estate
brokerage commission of $224,000 to Carmel Realty based on the $5.8 million
purchase price of the property.

Also in July 1997, the Company purchased LBJ land, a 10.4 acre parcel of
undeveloped land in Dallas County, Texas, for $2.3 million. The Company paid
$300,000 in cash and obtained seller financing of the remaining $2.0 million of
the purchasing price. The loan bears interest at 18% per annum, with interest
payable quarterly and matures in January 1998. The Company paid a real estate
brokerage commission of $141,000 to Carmel Realty based on the $2.3 million
purchase price.

In September 1997, the Company sold the Mopac Building in St. Louis, Missouri,
for $1.0 million in cash. In accordance with the provisions of the Las Colinas I
term loan, the Company applied $350,000 of the sales proceeds to paydown the
term loan in exchange for the lender's release of its collateral interest in
such property. The Company recognized a gain of $481,000 on the sale.

Also in September 1997, the Company sold a 2.6 acre parcel of the Las Colinas I
land in Las Colinas, Texas, for $1.2 million in cash. In accordance with the
provisions of the term loan secured by such parcel, the Company applied the net
sales proceeds of $1.0 million, to paydown the term loan in exchange for the
lender's release of its collateral interest in such land. The Company recognized
a gain of $578,000 on the sale. The Company paid a real estate brokerage
commission of $35,000 to Carmel Realty based on the $1.2 million sales price of
the property.

In September 1997, the Company sold three tracts of Valley Ranch land totaling
24.0 acres for $1.6 million in cash. The net sales proceeds of $1.2 million were
put into a certificate of deposit for the benefit of the lender, in accordance
with the term loan secured by such land. The Company recognized a gain of
$567,000 on the sale. The Company paid a real estate brokerage commission of
$46,000 to Carmel Realty based on the $1.6 million sales price of the property.

Also in September 1997, the Company purchased the Collection, a retail and
commercial center totaling 206,048 square feet in Denver, Colorado, for $19.5
million. The Company paid $791,000 in cash and assumed existing mortgages
totaling $14.7 million, and issued 400,000 shares of the Company's Series F
Cumulative Convertible Preferred Stock. See NOTE 11. "PREFERRED STOCK." The
first lien mortgage in the amount of $14.2 million bears interest at 8.64% per
annum, requires monthly principal and interest payments of $116,000 and matures
in May 2017. The second lien mortgage in the amount of $580,000 bears interest
at 7% per annum from April 1996 to April 2001, 7.5% per annum from May 2001 to
April 2006, and 8% per annum from May 2006 to May 2010, requires monthly
principal and interest payments of $3,000 and matures in May 2010. The Company
paid a real estate brokerage commission of $646,000 to Carmel Realty based on
the $19.5 million purchase price of the property.

In 1991, the Company purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December 31,
1996, 188 of the residential lots had been sold. During 1997, 9 additional lots
were sold for an aggregate gain of $17,000. At September 30, 1997, one lot
remained to be sold.

In November 1991, the Company transferred the Porticos Apartments to Income
Opportunity Realty Investors, Inc. ("IORI"), an equity investee, in
satisfaction, at the time, of the Company's $3.6 million obligation to IORI. The
Company recorded a deferred gain of $3.0 million on the transfer. In June 1997,
IORI sold the property, and accordingly the Company recognized such previously
deferred gain. See NOTE 5. INVESTMENT IN EQUITY INVESTEES."

F-43

186

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

NOTE 5. INVESTMENT IN EQUITY INVESTEES

Real estate entities. The Company's investment in real estate entities at
September 30, 1997, includes (i) equity securities of three publicly traded Real
Estate Investment Trusts (collectively the "REITs"), Continental Mortgage and
Equity Trust ("CMET"), IORI and Transcontinental Realty Investors, Inc. ("TCI"),
(ii) units of limited partner interest of NRLP, (iii) a general partnership
interest in NRLP and NOLP, the operating partnership of NRLP, through the
Company's 96% limited partner interest in SAMLP and (iv) interests in real
estate joint venture partnerships. BCM, the Company's advisor, serves as advisor
to the REITs, and performs certain administrative and management functions for
NRLP and NOLP on behalf of SAMLP.

The Company accounts for its investment in the REITs, NRLP and the joint venture
partnerships under the equity method. The Company continues to account for its
investment in NRLP under the equity method due to the pending resignation of
SAMLP as general partner of NRLP and NOLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT,
L.P." Substantially all of the Company's equity securities of the REITs and NRLP
are pledged as collateral for borrowings. See NOTE 7. "NOTES AND INTEREST
PAYABLE."

The Company's investment in real estate entities, accounted for using the equity
method, at September 30, 1997 was as follows:

Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee September 30, 1997 September 30, 1997 September 30, 1997 September 30, 1997
- -------- ------------------ ------------------ ------------------ ------------------

NRLP 54.4% $ 16,516 $ * $ 76,996
CMET 40.6 14,888 35,387 32,674
IORI 29.6 3,457 7,342 5,626
TCI 30.6 5,162 22,941 22,682
------------ ------------ -------------
40,023 $ 137,978
=============
General partner interest in
NRLP and NOLP 6,324
Other equity investees (81)
------------
$ 46,266
============

- --------------

* At September 30, 1997, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity at December 31, 1996, was
$188.5 million. Revaluation equity is defined as the difference between the
appraised value of the partnership's real estate, adjusted to reflect the
partnership's estimate of disposition costs, and the amount of the mortgage
notes payable and accrued interest encumbering such property as reported in
NRLP's Annual Report on Form 10-K for the year ended December 31, 1996.

The difference between the carrying value of the Company's investment and the
equivalent investee book value is being amortized over the life of the
properties held by each investee.

The Company's management continues to believe that the market value of each of
the REITs and NRLP undervalues their assets and the Company may, therefore,
continue to increase its ownership in these entities in 1997.

Other equity investees. In April 1996, a newly formed subsidiary of the Company
purchased, for $10.7 million in cash, 80% of the common stock of Pizza World
Supreme, Inc. ("PWSI"), which in turn had acquired 26 operating pizza parlors in
various communities in California's San Joaquin Valley. Concurrent with the
purchase, the Company granted to an individual an option to purchase 36.25% of
the Company's subsidiary at any time for the Company's net investment in such
subsidiary. Additionally, the Company held negotiations with underwriters to
take such subsidiary public. The Company believes that such option will be
exercised and further, that the subsidiary would become publicly held
approximately one year from its date of acquisition.

F-44

187

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

Accordingly, the Company believed its control of such subsidiary was temporary
and therefore accounted for such subsidiary under the equity method through
April 1997. In May 1997, the Company acquired the remaining 20% of PWSI and
discontinued equity accounting. See NOTE 8. "ACQUISITION OF PIZZA WORLD SUPREME,
INC."

Set forth below is summarized results of operations for the Company's equity
investees for the nine months ended September 30, 1997:

Equity investees owned over 50%:

Revenues .................................... $ 94,320
Property operating expenses ................. 61,189
Depreciation ................................ 7,806
Interest expense ............................ 25,727
--------
(Loss) from operations ...................... (402)
Gain on sale of real estate ................. 5,654
--------
Net income .................................. $ 5,252
========

The Company's share of over 50% owned equity investees' operations was income of
$900,000 for the nine months ended September 30, 1997. The Company's share of
equity investees gains on sale of real estate was $3.0 million for the nine
months ended September 30, 1997.

Equity investees owned less than 50%:

Revenues .................................... $ 90,546
Equity in income (loss) of partnerships ..... 751
Property operating expenses ................. 60,132
Depreciation ................................ 12,740
Interest expense ............................ 27,100
Provision for loss .......................... 225
--------
(Loss) from operations ...................... (8,900)
Gain on sale of real estate ................. 11,835
--------
Net income .................................. $ 2,935
========

The Company's share of less than 50% owned equity investees' loss from
operations was $2.8 million for the nine months ended September 30, 1997. The
Company's share of equity investees gains on sale of real estate was $4.0
million for the nine months ended September 30, 1997.

The Company's cash flow from the REITs and NRLP is dependent on the ability of
each of the entities to make distributions. CMET and IORI have paid regular
quarterly distributions since the first quarter of 1993, NRLP since the fourth
quarter of 1993 and TCI since the fourth quarter of 1995. In the first nine
months of 1997, the Company received aggregate distributions of $1.9 million
from the REITs and NRLP.

In the first nine months of 1997, the Company purchased a total of $173,000 of
equity securities of the REITs and NRLP.

In January 1992, the Company entered into a partnership agreement with an entity
affiliated with the owner, at the time, of in excess of 14% of the Company's
outstanding shares of Common Stock, to acquire 287 developed residential lots
adjacent to the Company's other residential lots in Fort Worth, Texas. The
partnership agreement designates the Company as managing general partner. The
partnership agreement also provides each of the partners with a guaranteed 10%
return on their respective investments. Through December 31, 1996, 184
residential lots had been sold. In the first nine months of 1997 an additional
13 lots were sold. At September 30, 1997, 90 lots remained to be sold. In 1997,
each partner has received $21,000 in return of capital distributions.

F-45

188

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

In June 1996, a newly formed limited partnership, of which the Company is a 1%
general partner, purchased a 580 acre parcel of undeveloped land in Collin
County, Texas. In April 1997, the partnership sold a 35.0 acre tract for $1.3
million in cash. The net proceeds of $1.2 million were distributed to the
limited partners in accordance with the partnership agreement. The partnership
recognized a gain of $884,000 on the sale. In July 1997, the Partnership sold a
24.6 acre tract for $800,000 in cash. In accordance with the terms of the term
loan secured by such property, $197,000 of the net sales proceeds were used to
paydown such term loan. The remaining $545,000 was distributed to the limited
partners in accordance with the partnership agreement. The partnership
recognized a gain of $497,000 on the sale. In September 1997, the partnership
sold a 77.19 acre tract for $1.5 million in cash. In accordance with the terms
of the term loan secured by such property, the net proceeds were used to paydown
such loan. The partnership recognized a gain of $704,000 on the sale. In October
1997, the partnership sold a 96.53 acre tract for $1.7 million in cash. In
accordance with the terms of the term loan secured by such property $548,000 of
the net sales proceeds were used to payoff such loan. The remaining $1.1 million
was distributed to the limited partners in accordance with the partnership
agreement. The partnership will recognize a gain of approximately $691,000 on
the sale. The Company has received no distributions from the partnership.

In September 1997, a newly formed limited partnership, of which the Company is a
1% general partner and 21.5% limited partner, purchased a 422.4 acre parcel of
undeveloped land in Denton County, Texas, for $16.0 million in cash. The Company
contributed $3.6 million in cash to the partnership with the remaining $12.4
million being contributed by the other limited partners. The partnership
agreement designates the Company as the managing general partner. In September
1997, the partnership obtained financing of $6.5 million secured by the 422.4
acres of land. The loan bears interest at 10% per annum, requires monthly
interest only payments of $54,000 and matures in September 2001. The net
financing proceeds were distributed to the partners, the Company receiving
repayment of $2.9 million of its initial investment. The partnership agreement
also provides that the limited partners receive a 12% preferred cumulative
return on their investment before any sharing of partnership profits occurs. See
NOTE 10. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."

NOTE 6. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO

In the first quarter of 1994, the Company began purchasing equity securities of
entities other than the REITs and NRLP to diversify and increase the liquidity
of its margin accounts. In the first nine months of 1997, the Company purchased
$11.8 million and sold $5.7 million of such securities. These equity securities
are considered a trading portfolio and are carried at market value. At September
30, 1997, the Company recognized an unrealized decrease in the market value of
its trading portfolio securities of $782,000. Also in the first nine months of
1997, the Company realized a net gain of $128,000 from the sale of trading
portfolio securities and received $87,000 in dividends. Unrealized and realized
gains and losses on trading portfolio securities are included in other revenues
in the accompanying Consolidated Statements of Operations.

NOTE 7. NOTES AND INTEREST PAYABLE

In May 1997, the Company financed a 10.6 acre parcel of the BP Las Colinas land
for $3.1 million. The note bears interest at 9.5% per annum, requires monthly
interest only payments of $24,000 and matures in November 1997.

In May 1997, the Company obtained a second mortgage of $3.0 million secured by
the Pin Oak land. The note bears interest at 12.5% per annum compounded monthly,
and matures in December 1997. See NOTE 10. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

In June 1997, the Company obtained a second mortgage of $3.0 million secured by
the Lewisville land. The note bears interest at 12.5% per annum, compounded
monthly and matures in February 1998. See NOTE 10. "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."

In June 1997, the Company refinanced the Valwood land for $15.8 million. The
note bears interest at the prime rate plus 4.5% per annum, currently 13%,
requires monthly interest only payments of $176,000 and matures in June 1998.
The Company received net refinancing proceeds of $4.9 million, after the payoff
of $6.2 million in existing mortgage debt secured by the

F-46

189

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

property, $3.0 million being applied to payoff the Jefferies land loan and $1.4
million being applied to paydown the Las Colinas I land loan.

In July 1997, the Company obtained a third mortgage of $2.0 million secured by
the Pin Oak land. The note bears interest at 12.5% per annum, compounded monthly
and matures in February 1998. See NOTE 10. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

In September 1997, the Company refinanced the Las Colinas I land Double O tract
for $7.3 million. The Company received net refinancing proceeds of $2.1 million,
after the payoff of existing mortgage debt of $5.0 million. The note bears
interest at the prime rate plus 4.5% per annum, currently 13%, requires monthly
interest only payments of $77,000 and matures October 1998. The Company paid a
mortgage brokerage and equity refinancing fee of $73,000 to BCM based upon the
new mortgage of $7.3 million.

The Company has margin arrangements with various brokerage firms which provide
for borrowing of up to 50% of the market value of the Company's marketable
equity securities. The borrowings under such margin arrangements are secured by
equity securities of the REITs, NRLP and the Company's trading portfolio and
bear interest rates ranging from 7.0% to 9.0%. Margin borrowings totaled $28.1
million at September 30, 1997.

In August 1996, the Company consolidated its existing NRLP margin debt held by
various brokerage firms into a single loan of $20.3 million. The loan is secured
by the Company's NRLP units with a market value of at least 50% of the principal
balance of the loan. As of September 30, 1997, 3,349,169 NRLP units with a
market value of $74.9 million were pledged as security for such loan. In July,
the lender advanced an additional $3.7 million, increasing the loan balance to
$24.0 million.

NOTE 8. ACQUISITION OF PIZZA WORLD SUPREME, INC.

In April 1996, a newly formed subsidiary of the Company purchased, for $10.7
million in cash, 80% of the common stock of PWSI, an entity which had acquired
26 operating pizza parlors in various communities in California's San Joaquin
Valley. The Company accounted for such subsidiary under the equity method. See
NOTE 5. "INVESTMENT IN EQUITY INVESTEES."

In May 1997, the Company purchased the remaining 20% of the common stock of PWSI
for $5.0 million in unsecured promissory notes. The notes bear interest at 8%
per annum, for three years and 10% per annum thereafter, require quarterly
interest only payments of $100,000 and mature in May 2007. The Company now
consolidates PWSI's operations.

NOTE 9. INCOME TAXES

Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated losses.
The Company had no taxable income or provision for income taxes in the nine
months ended September 30, 1997, due to operating loss carryforwards.

NOTE 10. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In May, June and July 1997, the Company obtained a total of $8.0 million in
mortgage loans from entities and trusts affiliated with the limited partner in a
partnership that owns approximately 14% of the Company's outstanding shares of
Common Stock. See NOTE 7. "NOTES AND INTEREST PAYABLE."

In September 1997, the limited partner in a partnership that owns approximately
14.6% of the Company's outstanding shares of Common Stock became a 22.50%
limited partner in a newly formed limited partnership of which the Company is a
1% general partner and a 21.50% limited partner. See NOTE 5. "INVESTMENT IN
EQUITY INVESTEES."

F-47

190

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

NOTE 11. PREFERRED STOCK

In August 1997, the Company filed Articles of Amendment to its Articles of
Incorporation creating and designating a Series F 10% Cumulative Convertible
Preferred Stock, par value $2.00 per share, and a liquidation value of $10.00
per share out of the 7,500,000 shares authorized. Dividends are payable at a
rate of $1.00 per year or $.25 per quarter to stockholders of record on the
15th day of each March, June, September and December when and as declared by the
Board of Directors of the Company accruing cumulatively from August 16, 1998 and
commencing on October 15, 1998. The Series F Preferred Stock may be converted
into Common Stock of the Company at 90% of the market value of the Company's
Common Stock after August 15, 2003.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Litigation. The Company is involved in various lawsuits arising in the ordinary
course of business. In the opinion of the Company's management, the outcome of
these lawsuits will not have a material impact on the Company's financial
condition, results of operations or liquidity.

NOTE 13. SUBSEQUENT EVENTS

In October 1997, the Company contributed its Pioneer Crossing land, a 1,448 acre
tract of undeveloped land in Austin, Texas to a limited partnership in exchange
for $3.4 million in cash, a 1% managing general partner interest, all of the
Class B limited partner units in the partnership and the partnership's
assumption of the $16.1 million mortgage debt secured by the property. The
existing partners converted their general and limited partner interests into
Class A limited partner units. The Class A limited partner units have an agreed
value of $1.00 per unit. The Class A units are entitled to a fixed preferred
return of 10% per annum, paid quarterly. The Class A units may be converted into
a total of 360,000 shares of the Company's Series F Cumulative Convertible
Preferred Stock at any time after the first anniversary of the closing but no
later than the sixth anniversary, on a basis of one Series F Cumulative
Convertible Preferred share per ten Class A units. See NOTE 11. "PREFERRED
STOCK."

In October 1997, the Company refinanced the mortgage debt secured by the Denver
Merchandise Mart in Denver, Colorado for $23.0 million. The Company received net
refinancing proceeds of $5.4 million after the payoff of $14.8 million in
existing mortgage debt and the payment of various closing costs associated with
the refinancing. The new mortgage bears interest at 8.3% per annum requires
monthly principal and interest payments of $198,000 and matures in October 2012.

Also in October 1997, the Company contributed its Denver Merchandise Mart, a
509,000 square foot merchandise mart in Denver, Colorado, to a limited
partnership in exchange for $6.0 million in cash, a 1% managing general partner
interest, all of the Class B limited partner units in the partnership and the
partnership's assumption of the $23.0 million in mortgage debt secured by the
property. The existing general and limited partners converted their general and
limited partner interests into Class A limited partner units. The Class A units
have an agreed value of $1.00 per unit. The Class A units are entitled to a
fixed preferred return of 10% per annum, paid quarterly. The Class A units may
be converted into a total of 529,000 shares of the Company's Series F Cumulative
Convertible Preferred Stock at any time after the first anniversary of the
closing but not later than the sixth anniversary, on the basis of one Series F
Cumulative Convertible Preferred share per ten Class A units. See NOTE 11.
"PREFERRED STOCK."

In October 1997, the Company purchased Palm Desert land, a 315.2 acre parcel of
undeveloped land in Palm Desert, California, for $11.2 million. The Company paid
$3.8 million in cash and assumed the existing mortgage of $7.4 million. The
mortgage bears interest at 9% per annum, requires monthly principal and interest
payments of $76,000 and matures in February 2002. The Company paid a real estate
brokerage commission of $396,000 to Carmel Realty based on the $11.2 million
purchase price of the property.

F-48

191

AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED

Also in October 1997, the Company purchased Thompson land, a 4.0 acre parcel of
undeveloped land in Dallas County, Texas, for $869,000 in cash. The Company paid
a real estate brokerage commission of $52,000 to Carmel Realty based on the
$869,000 purchase price of the property.

In October 1997, the Company purchased Santa Clarita land, a 20.6 acre parcel of
undeveloped land, in Santa Clarita, California, for $1.3 million in cash. The
Company paid a real estate brokerage commission of $78,000 to Carmel Realty
based on the $1.3 million purchase price of the property.

Also in October 1997, the Company purchased Tomlin land, a 9.2 acre parcel of
undeveloped land in Dallas County, Texas, for $1.7 million in cash. The Company
paid a real estate brokerage commission of $100,000 to Carmel Realty based on
the $1.7 million purchase price of the property.

In October 1997, the Company purchased Rasor land, a 378.2 acre parcel of
undeveloped land in Plano, Texas, for $14.4 million. The Company paid $1.6
million in cash, obtained mortgage financing from the Las Colinas I lender of
$3.5 million, applied the net proceeds of $3.5 million from the simultaneous
$3.8 million sale of an 86.5 acre tract, and exchanged the Perkins land, a 645.4
acre parcel of undeveloped land in Collin County, Texas, for the remainder of
the purchase price. The Company paid a real estate brokerage commission of
$268,000 to Carmel Realty based on the $14.4 million purchase price of the
property. The Company will recognize a gain of approximately $200,000 on the
sale of the 86.5 acre tract. The Company paid a real estate brokerage commission
of $115,000 to Carmel Realty based on the $3.8 million sales price of the tract.

In October 1997, the Company purchased the Piccadilly Inns, four hotels in
Fresno, California, for $33.0 million. The Company issued 1.6 million shares of
Series F Cumulative Convertible Preferred Stock having a liquidation value of
$10.00 per share or a total of $16.0 million and obtained mortgage financing of
$19.8 million. See NOTE 11. "PREFERRED STOCK." The Company received net
financing proceeds of $2.2 million after the payment of various closing costs
associated with the financing. The mortgage bears interest at 8.40% per annum,
requires monthly principal and interest payments of $158,000 and matures in
October 2013. The Company paid a real estate brokerage commission of $1.1
million to Carmel Realty based on the $33.0 million purchase price of the
property.

In October 1997, a newly formed partnership, of which the Company is the 1%
general partner and 99% Class B limited partner, purchased a 15.8 acre parcel of
undeveloped land in Tarrant County, Texas, for $4.5 million. The partnership
paid $800,000 in cash, assumed $2.5 million of mortgage debt and issued 1.1
million Class A limited partner units with an agreed value of $1.00 per unit.
The Class A limited partner is entitled to a $.10 per unit annual preferred
return paid quarterly. The Class A units may be exchanged for either shares of
the Company's Series G Cumulative Convertible Preferred Stock on or after the
second anniversary of the closing date at a rate of one share of Series G
Cumulative Preferred Stock for each 100 Class A units exchanged or shares of the
Company's Common Stock only on or after the third anniversary of the closing
date. The Class A units are exchangeable for shares of Common Stock at a rate of
$1.00 per unit plus any outstanding preferred return divided by .9 times the
simple average of the daily closing price of the Common Stock for the 20 days
preceding the date of conversion. The assumed mortgage bears interest at 12.95%
per annum requires quarterly interest only payments of $81,000 and matures in
June 1998.

______________

F-49

192

INDEPENDENT AUDITORS' REPORT

Board of Trustees and Shareholders
EQK Realty Investors I:

We have audited the accompanying balance sheets of EQK Realty Investors I (a
Massachusetts business trust) as of December 31, 1996 and 1995 and the related
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. Our audits also included the
financial statement schedule appearing on page F-62. These financial statements
and the financial statement schedule are the responsibility of the Trust's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of EQK Realty Investors I as of December 31,
1996 and 1995 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information set forth
therein.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Atlanta, Georgia
March 14, 1997

F-50

193

EQK REALTY INVESTORS I
BALANCE SHEETS

December 31, December 31,
1996 1995
------------ ------------
(dollars in thousands, except share data)
Assets:

Investment in Harrisburg East Mall, at cost ................ $ 52,228 $ 52,033
Less accumulated depreciation ........................ 15,338 13,446
--------- ---------
36,890 38,587
Cash and cash equivalents:
Cash Management Agreement ............................ 2,667 2,360
Other ................................................ 994 612

Deferred leasing costs (net of accumulated
amortization of $1,629 and $1,361
respectively) ........................................ 4,041 4,331
Accounts receivable and other assets ....................... 2,011 2,319
--------- ---------
TOTAL ASSETS ............................................... $ 46,603 $ 48,209
========= =========

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY:

Liabilities:
Mortgage note payable ................................ $ 43,794 $ 44,125
Term loan payable to bank ............................ 1,585 1,587
Accounts payable and other liabilities
including amounts due affiliates of
$2,940 and $2,765, respectively) ................... 4,245 4,030
--------- ---------

49,624 49,742
Deficit in Shareholders' Equity:

Shares of beneficial interest, without par
value: 10,055,555 shares authorized,
9,264,344 shares issued and outstanding ............ 135,875 135,875

Accumulated deficit .................................. (138,896) (137,408)
--------- ---------
(3,021) (1,533)
--------- ---------
TOTAL LIABILITIES AND DEFICIT
IN SHAREHOLDERS' EQUITY .............................. $ 46,603 $ 48,209
========= =========

See accompanying Notes to Financial Statements.

F-51

194

EQK REALTY INVESTORS I
STATEMENT OF OPERATIONS

Years ended December 31,
1996 1995 1994
-------- -------- --------
(dollars in thousands, except per share amount)
- -----------------------------------------------------------------------------------------------------

Revenues from rental operations ....................... $ 6,174 $ 15,761 $ 16,512

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $297, $291 and
$314, respectively) ............................. 887 5,403 5,836

Depreciation and amortization ......................... 2,391 4,848 4,612

Other income .......................................... (268) (400) --

Write-off of capitalized predevelopment costs ......... -- -- 429

Write-down of investment in real estate ............... -- 3,200 --
-------- -------- --------

Income from rental operations ......................... 3,164 2,710 5,635

Interest expense ...................................... 3,896 8,302 8,132

Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $250,
$403 and $430, respectively) .................... 756 983 962
-------- -------- --------

Loss before gain on sale of real estate ............... (1,488) (6,575) (3,459)

Gain on sale of real estate ........................... -- 229 --
-------- -------- --------

Net loss .............................................. ($ 1,488) ($ 6,346) ($ 3,459)
======== ======== ========
Loss per share:
Loss before gain on sale of real estate ......... ($ 0.16) ($ 0.71) ($ 0.37)

Gain on sale of real estate ..................... -- $ 0.03 --

Net loss .............................................. ($ 0.16) ($ 0.68) ($ 0.37)
======== ======== ========

See accompanying Notes to Financial Statements.

F-52

195

EQK REALTY INVESTORS I
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)

Shares of
Beneficial Accumulated
Interest Deficit Total
--------- --------- ---------
(dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------

Balance, December 31, 1993 .................. $ 135,779 ($127,603) $ 8,176

Net Loss .................................... -- (3,459) (3,459)

Issuance of 51,226 warrants in
connection with financing ............. 96 -- 96
--------- --------- ---------

Balance, December 31, 1994 .................. 135,875 (131,062) 4,813
--------- --------- ---------

Net loss .................................... -- (6,346) (6,346)

Balance, December 31, 1995 .................. 135,875 (137,408) (1,533)
--------- --------- ---------

Net Loss .................................... -- (1,488) (1,488)

BALANCE, DECEMBER 31, 1996 .................. $ 135,875 ($138,896) ($ 3,021)
========= ========= =========

See accompanying Notes to Financial Statements.

F-53

196

EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS

For The Years Ended December 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(dollars in thousands)

Cash Flows From Operating Activities
Net loss ........................................... ($ 1,488) ($ 6,346) ($ 3,459)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Write-down of investment in real estate ........ -- 3,200 --
Depreciation and amortization .................. 2,391 4,848 4,612
Amortization of debt discount .................. -- 460 334
Imputed and deferred interest .................. 302 1,494 1,320
Gain on sale of real estate .................... -- (229) --
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities .............. (87) (1,661) (388)
(Increase) decrease in accounts receivable
and other assets ........................... 99 (643) (235)
-------- -------- --------
Net cash provided by operating activities ............. 1,217 1,123 2,184
-------- -------- --------
Cash Flows from investing activities:
Proceeds from sale of real estate .................. -- 38,507 --
Additions to real estate investments ............... (195) (5,362) (2,976)
Payment of real estate disposition fee ............. -- -- (216)
-------- -------- --------
Net cash provided by (used in)
investing activities ............................... (195) 33,145 (3,192)
-------- -------- --------
Cash flows from financing activities:
Scheduled repayments of debt ....................... (333) (7) (7)
Repayments of debt due to sale of property ......... -- (35,990) --
-------- -------- --------
Net cash used in financing activities ................. (333) (35,997) (7)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ...... 689 (1,729) (1,015)
Cash and cash equivalents
beginning of year .................................. 2,972 4,701 5,716
-------- -------- --------
Cash and cash equivalents
end of year ........................................ $ 3,661 $ 2,972 $ 4,701
======== ======== ========

See accompanying Notes to Financial Statements.

F-54

197

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS:

EQK Realty Investors I, a Massachusetts business trust (the "Trust"), was
formed pursuant to a Declaration of Trust dated October 8, 1984 to acquire
certain income-producing real estate investments. Commencing with the period
beginning April 1, 1985, the Trust qualified for and elected real estate
investment trust ("REIT") status under the provisions of the Internal Revenue
Code.

At December 31, 1996, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center in
Harrisburg, Pennsylvania. On December 8, 1995, the Trust sold its interest in
Castleton Park ("Castleton"), an office park in Indianapolis, Indiana (see Note
3). During 1993, the Trust sold its two remaining office buildings within its
office complex located in Atlanta, Georgia, formerly known as Peachtree-
Dunwoody Pavilion or "Peachtree" (see Note 3). Prior to 1993, the Trust
completed the sale of two office buildings at Castleton (1991) and five office
buildings at Peachtree (1992).

The Declaration of Trust currently provides that actual disposition of the
remaining property, Harrisburg, may occur at any time prior to March 1999. The
precise timing of this disposition or an alternative strategic transaction will
be at the discretion of the Trustees, depending on both the prevailing
conditions in the relevant real estate market and the ability of the Trust to
extend or refinance its debt maturing in June 1998 (see Note 2 to the financial
statements).

CAPITALIZATION, DEPRECIATION AND AMORTIZATION:

Property additions are recorded at cost. Costs directly associated with
major renovations and improvements, including interest on funds borrowed to
finance construction, are capitalized to the point of substantial completion.

Depreciation of real estate investments is provided on a straight-line
basis over the estimated useful lives of the related assets, ranging generally
from 5 to 40 years. Tenant improvements are amortized over their estimated
useful lives, which do not exceed the terms of the respective tenant leases.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives.

VALUATION OF REAL ESTATE:

In accordance with SFAS 121, the Company reviews for impairment, on a quarterly
basis, real estate investments whenever events or changes in circumstances
indicate that the carrying amount may not be reasonable based on estimates of
future undiscounted cash flows without interest expense. In the event of an
impairment, the real estate investment is written down to its fair market value.
Real estate investments to be disposed of are recorded at the lower of net book
value or fair market value less cost to sell at the date management commits to a
plan of disposal.

DEFERRED LEASING COSTS:

Costs incurred in connection with the execution of a new lease including
leasing commissions, costs associated with the acquisition or buyout of existing
leases, and legal fees are deferred and amortized over the term of the new
lease. Included in deferred leasing costs is the unamortized portion of a 1990
payment of $5,500,000 made to an anchor tenant at Harrisburg in exchange for the
tenant relinquishing space that was subsequently converted into leasable area
for mall shops.

F-55

198

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

REVENUE RECOGNITION:

Minimum rents are recognized on a straight-line basis over the term of the
related leases. Percentage rents are recognized on an accrual basis.

NET LOSS PER SHARE:

The net loss per share calculation is based on the weighted average number
of shares outstanding during the year, which was 9,264,344 for all years
presented.

Share warrants issued in connection with the Trust's 1992 debt
restructuring (see Note 2) are considered common share equivalents. However, the
warrants have not been included in the net loss per share calculation since the
effect on such calculation would be anti-dilutive.

INCOME TAXES:

The Trust has complied with all applicable provisions established by the
Internal Revenue Code for maintaining its REIT status. Accordingly, no income
tax provision or benefit has been recognized in the accompanying financial
statements.

STATEMENTS OF CASH FLOWS:

Cash equivalents include short-term investments with an original maturity
of three months or less. Included in the statements of cash flows are cash
payments for interest of $3,886,000, $6,703,000, and $6,746,000 in 1996, 1995
and 1994, respectively. Such amounts are net of interest costs of $69,000
capitalized in 1995.

As of December 31, 1993, the Trust accrued additions to investments in real
estate and a real estate disposition fee payable to the Advisor in the amounts
of $489,000 and $216,000, respectively. Such amounts were paid in 1994.

As a condition of the Trust's debt restructuring (see Note 2), the Trust
issued a total of 367,868 share warrants to its primary mortgage lender during
1992 to 1994. The value of the warrants at the time of issuance was recorded as
a debt discount and an increase in Shareholders' Equity.

FAS 107:

The Trust values its financial instruments as required by FAS No. 107,
"Disclosures about Fair Values of Financial Instruments". Based on rates
currently available to the Trust for comparable financial instruments, the Trust
believes, the carrying amounts of cash and cash equivalents, the Mortgage Note,
and the Term Loan approximate fair value.

RECLASSIFICATIONS:

Certain amounts in the prior year have been reclassified from previously
issued financial statements to conform with the 1996 presentation.

MANAGEMENT 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 assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-56

199

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2: MORTGAGE DEBT AND RESTRUCTURING ACTIVITIES

On December 15, 1992, the Trust completed a restructuring of its existing
mortgage debt through the issuance of a "Mortgage Note" and a "Term Loan", both
due December 15, 1995, with original principal balances of $75,689,000 and
$2,859,000, respectively. The Mortgage Note bore interest at an average rate of
9.79% per annum during its three year term, although interest was payable at
8.54% per annum. The Term Loan bore interest at 8.33% and was subject to the
same pay rate of 8.54%. The differences between the accrual and pay rates of
interest under both debt instruments were reflected in the principal balances
due at maturity. Absent prepayments due to property dispositions, the scheduled
amount of principal due under the Mortgage Note and the Term Loan on the
original maturities date would have been $78,928,000 and $2,839,000,
respectively. However, on December 8, 1995, the Trust completed the sale of
Castleton Park (see Note 3) and used the net proceeds of $35,990,000 (reflecting
reductions of $2,517,000 for customary prorations) to prepay such debt
obligations in the amounts of $34,738,000 and $1,252,000, respectively. These
debt instruments were subsequently extended for a period of one year to December
15, 1996, and again for a period of eighteen months to June 15, 1998 as
described below.

Pursuant to its Mortgage Note agreement, the Trust issued the lender
warrants to purchase 367,868 of its shares of beneficial interest at $.0001 per
share. As of December 31, 1996, all such warrants remain outstanding and
exercisable.

As part of the 1992 restructuring, the Trust entered into a Cash Management
Agreement with the mortgage lender and assigned all lease and rent receipts to
the lender as additional collateral. Pursuant to this agreement, a third-party
escrow agent has been appointed to receive all rental payments from tenants and
to fund monthly operating expenses in accordance with a budget approved by the
lender. As of December 31, 1996, a balance of $781,000 was held by the
third-party escrow agent in accordance with the Cash Management Agreement. The
agreement also provides for the establishment of a capital reserve account,
which is maintained by the escrow agent. Disbursements from this account, which
is funded each month with any excess operating cash flow, are limited to capital
expenditures approved by the lender. As of December 31, 1996 the balance of the
capital reserve account was $1,886,000.

EXTENSIONS OF DEBT

The remaining principal balances outstanding under the Mortgage Note and
the Term Loan at December 15, 1996, $43,794,000 and $1,585,000, respectively,
were extended for eighteen months through June 15, 1998, under terms
substantially comparable from those previously in effect, except as described
below. Previously, principal balances of $44,125,000 and $1,587,000,
respectively, were extended from their original maturity date of December 15,
1995 to December 15, 1996. The Mortgage Note remains collateralized by a first
mortgage lien on Harrisburg, an assignment of leases and rents, and certain cash
balances. The Term Loan remains collateralized by a subordinate lien on
Harrisburg.

The Mortgage Note agreement has been amended to provide for monthly
payments of interest only accruing at the rate of 8.88% per annum ($324,000 per
month). Previously, in connection with the December 15, 1995 extension, the
Mortgage Note agreement was amended to provide for monthly payments of principal
(assuming a 30 year amortization) and interest (at an accrual rate equal to the
former pay rate of 8.54%) in the aggregate amount of $341,000. The Term Loan
agreement was amended to provide for an accrual rate that resets periodically
and is computed at the Trust's discretion at either 2 5/8% above the Euro-Rate
(as defined) or 1 1/8% above the Prime Rate (as defined). The accrual rate in
effect through May 18, 1997 averages 8.12%.

In consideration for the fixed annual interest accrual rate on the Mortgage
Note agreement, the Trust paid an upfront application fee of $165,000 and agreed
to pay a back end fee of $272,900, plus interest thereon at the contract rate of
8.88%, at the maturity date of June 15, 1998, or the date at which all or any
part of the original principal amount is prepaid. At December 31, 1996, the
$272,900 application fee is included in accounts payable and other liabilities
on the balance sheet.

NOTE 3: SALES OF REAL ESTATE

During 1995, Management recorded a write-down of its investment in
Castleton of $3,200,000 in order to reflect its then current estimate of net
realizable value. In December 1995, the Trust completed the sale of its
remaining forty-four buildings at Castleton. The Trust received net sales
proceeds of $38,507,000 before reduction for customary prorations of $2,517,000,
and recognized a gain on sale of $229,000. The net proceeds were used to repay a
portion of outstanding mortgage indebtedness (see Note 2).

F-57

200

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 4: LEASING ARRANGEMENTS

The Trust leases shopping center space generally under noncancelable
operating leases, some of which contain renewal options. The shopping center
leases generally provide for minimum rentals, plus percentage rentals based upon
the retail stores' sales volume. Percentage rentals amounted to $179,000,
$270,000 and $295,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. In addition, the tenants pay certain utility charges to the Trust
and, in most leases, reimburse their proportionate share of real estate taxes
and common area expenses. Recoveries of common area and real estate tax expenses
amounted to $2,313,000, $2,355,000 and $2,311,000 for the years ended December
31, 1996, 1995, and 1994, respectively.

Future minimum rentals under existing, non-cancelable leases at December
31, 1996 are as follows:

Years ending December 31, Amount
------------------------- ------

1997 $ 4,485,000
1998 4,536,000
1999 4,234,000
2000 4,023,000
2001 3,306,000
Thereafter 12,842,000
-----------

$33,426,000
===========

Due to a department store vacancy discussed in Note 8, certain tenants at
Harrisburg have exercised the right, as provided for under cotenancy provisions
set forth in their respective leases, to pay percentage rent in lieu of fixed
minimum rents which amounted to $663,000, $702,000, and $209,000 for the years
ended December 31, 1996, 1995, and 1994, respectively. Future minimum rentals
for these tenants have been included in the above schedule beginning in March
1997, the month in which the rental payment obligations of these tenants reverts
to fixed minimum rent due to the March 10, 1997 opening of Lord & Taylor in the
vacant department store location.

NOTE 5: INVESTMENTS IN REAL ESTATE

The Trust's investments in real estate at December 31, 1996 and 1995
consisted of the following:

1996 1995
---- ----

Land $ 4,700,000 $ 4,700,000
Buildings and improvements 45,033,000 44,975,000
Tenant improvements 2,332,000 2,195,000
Personal property 163,000 163,000
----------- -----------

$52,228,000 $52,033,000
=========== ===========

During 1995, the Trust renovated Harrisburg's outparcel building to
accommodate the relocation of Toys'R'Us. The final cost of the renovation
project was approximately $3,440,000. Additional real estate investments in 1996
consisted of minor building and tenant improvements to Harrisburg.

F-58

201

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 6: ADVISORY AND MANAGEMENT AGREEMENTS

ADVISORY AGREEMENT

The Trust has entered into an agreement with Equitable Realty Portfolio
Management, Inc. (successor in interest to EQK Partners), a wholly owned
subsidiary of Equitable Real Estate Investment Management, Inc. ("Equitable Real
Estate"), to act as its "Advisor". The Advisor makes recommendations to the
Trust concerning investments, administration and day-to-day operations.

Under the terms of the advisory agreement, as amended in December 1989, the
Advisor receives a management fee that is based upon the average daily per share
price of the Trust's shares plus the average daily balance of outstanding
mortgage indebtedness. Such fee is calculated using a factor of 42.5 basis
points (0.425%) and generally has been payable monthly without subordination.
Commencing with the December 1995 extension of debt and continuing with the
December 1996 debt extension (see Note 2), the Mortgage Note lender has
requested, and the Advisor has agreed to, a partial deferral of payment of its
fee. Whereas the fee continues to be computed as described above, payments to
the Advisor are limited to $37,500 per quarter. Accrued but unpaid amounts will
be eligible for payment upon the repayment of the Mortgage Note. For the years
ended December 31, 1996, 1995 and 1994, portfolio management fees were $250,000,
$403,000, and $430,000, respectively. The balance of accrued but unpaid advisory
fees at December 31, 1996 was $125,000.

As of December 31, 1989, portfolio management fees of $5,440,000 payable to
the Advisor were deferred in accordance with subordination provisions contained
in the original advisory agreement. Pursuant to the amended advisory agreement,
the Advisor forgave one-half, or $2,720,000, of the deferred balance. The
remaining deferred fees are to be paid upon the disposition of the Trust's
properties. As of December 31, 1996, the liability for deferred management fees
was $2,720,000.

Upon the sale of all or any portion of any real estate investment of the
Trust, the Advisor will receive a disposition fee equal to 2% of the gross sale
price (including outstanding indebtedness taken subject to or assumed by the
buyer and any purchase money indebtedness taken back by the Trust). The
disposition fee will be reduced by the amount of any brokerage commissions and
legal expenses incurred by the Trust in connection with such sales. During 1995,
disposition fees earned by the Advisor were $788,000.

In connection with the December 15, 1996 extension of debt (see Note 2),
the Advisor will receive a refinancing fee of $50,000, which will be paid upon
the retirement of the debt.

PROPERTY MANAGEMENT AGREEMENTS

The Trust has also entered into agreements for the on-site management of
each of its properties. Harrisburg East Mall is managed by Compass Retail, Inc.
("Compass"), an affiliate of Equitable Real Estate. Castleton Park was managed
by an unaffiliated third-party management company up until the time of its sale.

Management fees paid to Compass are generally based upon a percentage of
rents and certain other charges. The Trust believes that such fees are
comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the years ended December 31, 1996, 1995 and
1994, management fees to Compass were $297,000, $291,000, and $314,000,
respectively.

In connection with the redevelopment of Harrisburg's outparcel building as
described in Note 5, Compass received a $150,000 development fee in 1995.

F-59

202

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

SHARE OWNERSHIP

In connection with a debt restructuring in December 1992, the Trust issued
1,675,000 previously repurchased shares to its Advisor for $6,700,000, or $4.00
per share. In total, the Advisor owns 1,685,556 shares, or 18.2% of the total
shares outstanding. The Advisor earned a $500,000 fee in connection with this
refinancing, which was paid in 1993-1994.

NOTE 7: RELATED PARTY TRANSACTIONS

As a condition of the Term Loan issuance in December 1992 (Note 2), an
escrow deposit of $300,000 was required as additional collateral. The Trust
borrowed this amount from its Advisor. In connection with the December 15, 1995
extension of this debt, the escrow deposit was released and the Advisor was
repaid in 1996.

NOTE 8: COMMITMENTS AND CONTINGENCIES

ANCHOR DEPARTMENT STORE VACANCY

On March 10, 1997, May Department Stores Company ("May Company") opened a
Lord & Taylor department store at Harrisburg, pursuant to a lease agreement with
the Trust dated May 16, 1996. The new Lord & Taylor store is located in the
anchor space previously occupied by John Wanamaker. The John Wanamaker location
at Harrisburg had been closed since October 1995 following Woodward & Lothrop's
(the owner of John Wanamaker) sale of certain department stores in this retail
chain to May Company pursuant to an August 1995 bankruptcy court auction. Given
its existing presence at Harrisburg through its recently-opened Hecht's
department store, May Company initially pursued an assignment of this leasehold
interest to other retail operators before deciding instead to open a Lord &
Taylor department store in this location. The execution of such lease agreement
has resulted in, among other things, the termination of the legal proceedings
initiated by the Trust against May Company in March 1996 following May Company's
failure to open or cause another retail operator to open for business once the
John Wanamaker store closed, which was a violation of a continuous operating
covenant contained in its lease agreement.

The new lease agreement with May Company has an initial term of nine years
(October 31, 2005), with three renewal options of ten years each. The new lease
agreement has a longer committed lease term than the John Wanamaker lease
agreement, which stipulated an initial lease term expiration date of October 31,
1999. The financial terms are comparable to those contained in the John
Wanamaker lease, although minimum rent payments during the first three years of
the lease are anticipated to be approximately $75,000 less per annum. Due to
certain rent offsets that John Wanamaker would have otherwise been entitled to,
the revenue stream after the third lease year is anticipated to be more
favorable to the Trust. In connection with the execution of this lease
agreement, the Trust received approval from May Company, on behalf of its
Hecht's and Lord & Taylor stores, of certain modifications to the Mall's site
plan which will give the Trust flexibility in future development planning. The
opening of a Lord & Taylor store is expected to have a positive impact on the
Trust's ability to lease space to new tenants and to renew leases with existing
tenants.

NOTE 9: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of selected quarterly financial data for the
years ended December 31, 1996 and 1995:

(in thousands, except per share amounts)
Quarter Ended
-----------------------------------------------
1996 March 31 June 30 Sept. 30 Dec. 31

Revenues from rental operations $ 1,714 $ 1,412 $ 1,576 $ 1,472
Income from rental operations 968 695 868 633
Net loss (193) (475) (261) (559)
Net loss per share (.02) (.05) (.03) (.06)

F-60

203

EQK REALTY INVESTORS I
NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands, except per share amounts)
Quarter Ended
-----------------------------------------------
1995 March 31 June 30 Sept. 30 Dec. 31

Revenues from rental operations $ 3,966 $ 4,113 $ 3,990 $ 3,692
Write down of investment in real estate -- -- (3,200) --
Income (loss) from rental operations 1,286 1,487 (1,388) 1,325
Loss before gain on sale of real estate (1,128) (890) (3,802) (755)
Gain on sale of real estate -- -- -- 229
Net loss (1,128) (890) (3,802) (526)
Net loss per share before gain on sale
of real estate (.12) (.10) (.06) (.08)
Net loss per share (.12) (.10) (.41) (.06)

During the first and second quarters of 1996, the Trust was notified by the
Fulton County (Georgia) Tax Commissioner's office of a reduction in the assessed
value of the real estate underlying Peachtree Dunwoody Pavilion for tax years
prior to the Trust's sale of this property. Such reduction in assessed value
resulted in a refund of previously paid real estate taxes in the amount of
$268,000, which the Trust recognized as other income.

During the third quarter of 1995, as a result of a successful valuation
appeal, the Trust received and recognized a $400,000 refund of Castleton real
estate taxes relating to years 1989 to 1994. Also in the third quarter of 1995,
in contemplation of completing the sale of Castleton, Management wrote down its
investment in Castleton by $3,200,000 to its estimate of net realizable value.
In the fourth quarter of 1995, the Trust completed the sale of Castleton and
recognized a gain on the sale of $229,000 (see Note 3). The sum of the net loss
per share for the four quarters in 1995 does not equal net loss per share due to
rounding differences.

F-61

204

FINANCIAL STATEMENT SCHEDULE
DECEMBER 31, 1996
(IN THOUSANDS)

SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION

Cost Capitalized Gross Amount
Subsequent to at which Carried
Initial Cost Acquisition at Close of Period
------------------- ------------ ---------------------------------
Bldg. & Bldg. & Accum.
Description Encumbrance Land Improv. Improvements Land Improvements Total Deprec.
========================================================================================================================

Harrisburg East Mall... $45,379(1) $4,700(2) $31,287(2) $16,241 $4,700(2) $47,528(2) $52,228 $15,338
Harrisburg, PA
- ------------------------------------------------------------------------------------------------------------------------
$45,379 $4,700 $31,287 $16,241 $4,700 $47,528 $52,228 $15,338
========================================================================================================================

Life on which
Depreciation
in Latest
Date of Date Income Stmt.
Description Construction Acquired is Computed
==============================================================

Harrisburg East Mall... 1969(4) 3/13/85 30 yrs
Harrisburg, PA
- --------------------------------------------------------------

==============================================================

(1) Encumbrance is a mortgage note payable constituting first lien on the
Harrisburg real estate and a term loan payable to a bank constituting
subordinated lien on the property.

(2) Initial cost is net of imputed interest of $5,280 at date of acquisition.

(3) The aggregate tax basis of the Trust's property is $53 million as of
December 31, 1996.

(4) Renovation of Harrisburg was completed in 1993.

RECONCILIATION OF GROSS CARRYING AMOUNT OF REAL ESTATE: RECONCILIATION OF ACCUMULATED DEPRECIATION:

Balance, December 31, 1993 $107,082 Balance, December 31, 1993 $28,118

Improvements and Additions 2,487 Depreciation expense 3,719

Deductions -- Reversal of net book value of Deductions -- Reversal of net book value

fully depreciated assets (44) of fully depreciated assets (44)
-------- --------

Balance, December 31, 1994 109,525 Balance, December 31, 1994 31,793

Improvements and Additions 2,823 Depreciation Expense 4,016

Deductions--Sale of Castleton Commercial Park (60,315) Deductions--Sale of Castleton Commercial Park (22,363)
-------- --------

Balance, December 31, 1995 52,033 Balance, December 31, 1995 13,446

Improvements and Additions 195 Depreciation Expense 1,892
-------- --------

Balance, December 31, 1996 $ 52,228 Balance, December 31, 1996 $ 15,338
======== ========

F-62

205

EQK REALTY INVESTORS I
BALANCE SHEETS

September 30, December 31,
1997 1996
--------- ---------
(Unaudited)
(dollars in thousands, except share data)

Assets:

Investment in Harrisburg East Mall, at cost $ 52,733 $ 52,228

Less accumulated depreciation 16,753 15,338
--------- ---------

35,980 36,890
Cash and cash equivalents:
Cash Management Agreement 2,363 2,667
Other 642 994
Deferred leasing costs (net of accumulated
amortization of $1,865 and $1,629
respectively) 3,827 4,041
Accounts receivable and other assets 2,096 2,011
--------- ---------

TOTAL ASSETS $ 44,908 $ 46,603
========= =========

LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY

Liabilities:
Mortgage note payable $ 43,794 $ 43,794
Term loan payable to bank 1,585 1,585
Accounts payable and other liabilities

including amounts due affiliates of 3,968 4,245
--------- ---------

$3,053 and $2,940, respectively) 49,347 49,624

Deficit in Shareholders' Equity:

Shares of beneficial interest, without par
value: 10,055,555 shares authorized,
9,264,344 shares issued and
outstanding 135,875 135,875
Accumulated deficit (140,314) (138,896)
--------- ---------
(4,439) (3,021)
--------- ---------
TOTAL LIABILITIES AND DEFICIT
IN SHAREHOLDERS' EQUITY $ 44,908 $ 46,603
========= =========

See accompanying Notes to Financial Statements.

F-63

206

EQK REALTY INVESTORS I
STATEMENT OF OPERATIONS
(UNAUDITED)

Three months ended Nine Months ended
September 30, September 30,
------------------- --------------------
(in thousands, except per share amounts)
1997 1996 1997 1996
------- ------- ------- -------

Revenues from rental operations ....................... $ 1,545 $ 1,576 $ 4,515 $ 4,705

Operating Expenses, net of tenant reimbursements
(including property management fees earned
by an affiliate of $72, $77, 220 and
$229, respectively) ............................. 283 123 642 654

Other income .......................................... -- -- -- 264

Depreciation and amortization ......................... 637 585 1,893 1,781
------- ------- ------- -------

Income from rental operations ......................... 625 868 1,980 2,534

Interest expense ...................................... 1,011 971 3,033 2,924

Other expenses, net of interest income
(including portfolio management fees
earned by an affiliate of $59,
$65, $183 and $188, respectively) ............... 179 158 365 539
------- ------- ------- -------

Net loss .............................................. ($ 565) ($ 261) ($1,418) ($ 929)
======= ======= ======= =======
Net loss per share: ................................... ($ 0.06) ($ 0.03) ($ 0.15) ($ 0.10)
======= ======= ======= =======

See accompanying Notes to Financial Statements.

F-64

207

EQK REALTY INVESTORS I
STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine months ended September 30,
(in thousands)
1997 1996
------- -------

Cash Flows From Operating Activities
Net loss .......................................... ($1,418) ($ 929)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ................. 1,893 1,781
Imputed and deferred interest ................. -- 236
Changes in assets and liabilities:
Decrease in accounts
payable and other liabilities ............. (277) (767)
(Increase) decrease in accounts receivable
and other assets .......................... (349) 249
------- -------

Net cash provided by operating activities ............ (151) 570
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments .............. (505) (190)
------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of mortgage debt ....................... -- (246)

Increase (decrease) in cash and cash equivalents ..... (656) 134
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD ............................... 3,661 2,972
------- -------
CASH AND CASH EQUIVALENTS
END OF PERIOD ..................................... $ 3,005 $ 3,106
======= =======
Supplemental disclosure of cash flow information:
Interest paid ..................................... $ 3,015 $ 2,921
======= =======

See accompanying Notes to Financial Statements.

F-65

208

EQK REALTY INVESTORS I

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: DESCRIPTION OF BUSINESS

At September 30, 1997, the Trust's remaining real estate investment is
Harrisburg East Mall ("Harrisburg" or the "Mall"), a regional shopping center
located in Harrisburg, Pennsylvania. During 1995, the Trust sold its remaining
interest in Castleton Park ("Castleton") an office park located in Indianapolis,
Indiana. During 1993, the Trust sold its two remaining office buildings within
its office complex located in Atlanta, Georgia, formerly known as
Peachtree-Dunwoody Pavilion ("Peachtree"). Prior to 1993, the Trust sold two
office buildings at Castleton (1991) and five office buildings at Peachtree
(1992). The Declaration of Trust currently provides that actual disposition of
the remaining property, Harrisburg, may occur at any time prior to March 1999.
The precise timing of this disposition or an alternative strategic transaction
will be at the discretion of the Trustees, depending on both the prevailing
conditions in the relevant real estate market and the ability of the Trust to
extend or refinance its debt maturing in June 1998.

NOTE 2: BASIS OF PRESENTATION

The financial statements have been prepared by the Trust, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Trust believes that the disclosures are adequate to make the information
presented not misleading. The financial statements should be read in conjunction
with the audited financial statements and related notes thereto included in the
Annual Report on Form 10-K and Amendment No. 1 to Form 10-K for the year ended
December 31, 1996.

In the opinion of the Trust, all adjustments, which include only normal
recurring adjustments necessary to present fairly its financial position as of
September 30, 1997, its results of operations for the three and nine months
ended September 30, 1997 and 1996 and its cash flows for the nine months ended
September 30, 1997 and 1996, have been included in the accompanying unaudited
financial statements.

Net loss per share for the three and nine months ended September 30, 1997
and 1996 have been computed on the basis of the 9,264,344 shares outstanding
during the periods. Stock warrants held by the Trust's mortgage lender are
considered common stock equivalents for purposes of the calculation of net loss
per share. However, the warrants have not been included in the calculation of
net loss per share for the periods presented since the effect of such
calculation would be anti-dilutive.

NOTE 3: CASH MANAGEMENT AGREEMENT

In connection with the Trust's mortgage agreement (as amended and
extended), the Trust entered into a Cash Management Agreement with the mortgage
lender and assigned all lease and rent receipts to the lender as additional
collateral. Pursuant to this agreement, a third-party escrow agent has been
appointed to receive all rental payments from tenants and to fund monthly
operating expenses in accordance with a budget approved by the lender. As of
September 30, 1997, a balance of $498,000 was held by the third-party escrow
agent in accordance with the Cash Management Agreement. The agreement also
provides for the establishment of a capital reserve account, which is maintained
by the escrow agent. Disbursements from this account, which is funded each month
with any excess operating cash flow, are limited to capital expenditures
approved by the lender. As of September 30, 1997 the balance of the capital
reserve account was $1,865,000.

F-66
209

NOTE 4: ADVISORY AND MANAGEMENT AGREEMENTS

The Trust has entered into an agreement with Equitable Realty Portfolio
Management, Inc., a wholly owned subsidiary of Equitable Real Estate Investment
Management, Inc. ("Equitable Real Estate"), to act as its "Advisor". Equitable
Real Estate was formerly a wholly owned subsidiary of the Equitable Life
Assurance Society of the United States ("Equitable"). Effective June 10, 1997,
Equitable sold its interest in Equitable Real Estate to Lend Lease Corporation,
a real estate and financial services company based in Australia. Going forward,
Equitable Real Estate and certain of its business units, including the Advisor,
will operate under the name ERE Yarmouth. The Advisor makes recommendations to
the Trust concerning investments, administration and day-to-day operations.

Under the terms of the advisory agreement, as amended in December 1989,
the Advisor receives a management fee that is based upon the average daily per
share price of the Trust's shares plus the average daily balance of outstanding
mortgage indebtedness. Such fee is calculated using a factor of 42.5 basis
points (0.425%) and generally has been payable monthly without subordination.
Commencing with the December 1995 debt extension and continuing with the
December 1996 debt extension, the Mortgage Note lender has requested, and the
Advisor has agreed to, a partial deferral of payment of its fee. Whereas the fee
will continue to be computed as described, payments to the Advisor will be
limited to $37,500 per quarter. Deferred fees, which amounted to $195,500 as of
September 30, 1997, will be eligible for payment upon the repayment of the
Mortgage Note. For the nine months ended September 30, 1997 and 1996, portfolio
management fees amounted to $183,000 and $188,000, respectively.

As part of the 1989 amendment to the advisory agreement, the Advisor
forgave one-half, or $2,720,000, of the total amount of fees previously deferred
pursuant to subordination provisions of the original advisory agreement. The
remaining deferred fees are to be paid upon the disposition of Harrisburg.

The Trust has also entered into an agreement with Compass Retail, Inc.
("Compass"), which operates as a business unit of ERE Yarmouth, for the on-site
management of Harrisburg. Management fees paid to Compass are generally based
upon a percentage of rents and certain other charges. Such fees and commissions
are comparable to those charged by unaffiliated third-party management companies
providing comparable services. For the nine months ended September 30, 1997 and
1996, management fee expense attributable to services rendered by Compass was
$220,000 and $229,000, respectively.

NOTE 5: DEBT MATURITIES

The Trust's debt instruments mature on June 15, 1998 in the aggregate
principal amount of $45,379,000. In the event that the Trust does not sell
Harrisburg before the Mortgage Note and Term Loan mature, Management will
explore its external financing alternatives, including the refinancing of the
debt with its existing lenders. However, if the Trust is unable to refinance or
replace the existing debt at commercially reasonable terms or at all,
Management's plans with respect to liquidating Harrisburg will be accelerated to
satisfy its debt obligations.

NOTE 6: OTHER INCOME

In March 1996, the Trust was notified by the Fulton County (Georgia) Tax
Commissioner's office of a reduction in the assessed value of the real estate
underlying Peachtree Dunwoody Pavilion for tax years 1991 and 1992. As
previously disclosed in Note 1, the Trust completed the sale of Peachtree
Dunwoody Pavilion during the period 1992-1993. Such reduction in assessed value
resulted in a refund of previously paid real estate taxes in the amount of
$192,000 which the Trust recognized as other income during the first quarter of
1996. In June 1996, the Trust was notified by the Fulton County Tax
Commissioner's office of an additional tax refund of $72,000, which the Trust
received in July 1996 and recognized as other income in the second quarter of
1996.

F-67

210
PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article Thirteen of ART's Articles of Incorporation provides that, to the
fullest extent permitted by Georgia law, as the same exists or may be hereafter
be amended, no director of ART shall be personally liable to ART or the
shareholders of ART for monetary damages for breach of the duty of care as a
director, provided that Article Thirteen does not limit or eliminate liability
for (i) a breach of duty involving an appropriation of a business opportunity of
ART; (ii) an act or omission not in good faith or involving intentional
misconduct or a knowing violation of law; or (iii) a transaction from which the
director derived an improper personal benefit. In addition, a director's
liability will not be limited as to any payment of a dividend or approval of a
stock repurchase that is illegal under Section 14-2-640 of the Georgia Business
Corporation Code.

Article Thirteen applies only to claims against a director arising out of
his or her role as a director and not, if he or she is also an officer, his or
her role as an officer or in any other capacity. In addition, Article Thirteen
does not reduce the exposure of directors to liability under Federal securities
laws.

The Bylaws of ART require ART to indemnify any person who, by reason of
the fact that he is or was a director of ART, is made or is threatened to be
made a party to an action, including an action brought by ART or its
shareholders. The Bylaws provide that ART will indemnify such person against
reasonably incurred expenses (including, but not limited to, attorneys' fees and
disbursements, court costs, and expert witness fees), and against any judgments,
fines and amounts paid in settlement, provided that ART shall not indemnify such
person under circumstances in which the Georgia Business Corporation Code, as in
effect from time to time, would not allow indemnification.

The Bylaws of ART give the ART Board the power to cause ART to provide to
officers, employees, and agents of ART all or any part of the right to
indemnification afforded to directors of ART as set forth in the Bylaws, subject
to the conditions, limitations and obligations therein, upon a resolution to
that effect identifying such officer, employee or agent and specifying the
particular rights provided.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of ART
pursuant to the foregoing provisions, ART has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

II-1
211

*3.8 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated as of August 2, 1996
*3.9 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
December 3, 1996
*3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of February 28,
1997
*3.11 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series F Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
August 13, 1997
#3.12 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series G Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
September 18, 1997
*4.1 -- Instruments defining the rights of security holders (included in Exhibit 3.11)
#8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters
*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of
the Preferred Stock being offered
**11.1 -- Statement re: computation of per share earnings
**12.1 -- Statement re: computation of ratios
**15.1 -- Letter re: unaudited interim financial information
*21.1 -- Subsidiaries of the registrant
#23.1 -- Consent of BDO Seidman, LLP (American Realty Trust, Inc.)
#23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity Trust)
#23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty Investors, Inc.)
#23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty Investors, Inc.)
#23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)
#23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP
#23.7 -- Consent of Deloitte & Touche LLP (EQK Realty Investors I)
##23.8 -- Consent of Legg Mason Wood Walker, Inc. (included in Exhibit 99.4)
#24.1 -- Power of Attorney
*29.1 -- Financial Data Schedule
#99.1 -- Agreement and Plan of Merger By and Among American Realty Trust, Inc., ART
Newco LLC, Basic Capital Management, Inc., EQK Realty Investors I,
Equitable Realty Portfolio Management, Inc., and Compass Retail, Inc.
#99.2 -- Stock Purchase Agreement by and between Equitable Realty Portfolio Management,
Inc. and American Realty Trust, Inc., dated December 22, 1997.
#99.3 -- Stock Purchase Agreement by and between Greenspring Fund, Incorporated and American
Realty Trust, Inc., dated December 22, 1997.
##99.4 -- Fairness Opinion of Legg Mason Wood Walker, Inc.
#99.5 -- Second Amended and Restated Declaration of Trust of EQK (included as Exhibit "A" to Exhibit 99.1)
#99.6 -- Form of Proxy Card

II-2
212
- ----------

* Incorporated by reference to the Registrant's Registration Statement No.
333-21583 filed with the Commission on February 11, 1997.
** Incorporated by reference to Amendment No. 1. to the Registrant's
Registration Statement No. 333-21583 filed with the Commission on April 29,
1997.
*** Incorporated by reference to Exhibit 27.0 to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1997, as filed with
the Commission on November 14, 1997.
+ Incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement No. 333-21583 filed with the
Commission on September 8, 1997.
++ Not Applicable
# Filed as an Exhibit to the Registrant's Registration Statement on Form S-4
(No. 333-43777), filed with the Commission on January 6, 1998 and
incorporated by reference therein.
## To be filed by Amendment.

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.

(b) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4 within one business day of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes any information contained in any documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.

(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
ART pursuant to Item 20, above, or otherwise, ART has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by ART of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, ART will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-3
213

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on the 21st day of January,
1998.

AMERICAN REALTY TRUST, INC.

By: /s/ KARL L. BLAHA
------------------------------------------
Karl L. Blaha
President (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date

/S/ KARL L. BLAHA
----------------------------- President (Principal Executive January 21, 1998
Karl L. Blaha Officer) and Director

*
----------------------------- Director January 21, 1998
Roy E. Bode

*
----------------------------- Director January 21, 1998
Oscar W. Cashwell

*
----------------------------- Director January 21, 1998
Al Gonzalez

*
----------------------------- Director January 21, 1998
Dale A. Crenwelge

*
----------------------------- Director January 21, 1998
Cliff Harris

*
----------------------------- Executive Vice President and January 21, 1998
Thomas A. Holland Chief Financial Officer
(Principal Financial and
Accounting Officer)

*By: /s/ KARL L. BLAHA
-----------------------------
Karl L. Blaha
Attorney-in-Fact

II-4
214

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
------ -----------

*3.1 -- Articles of Incorporation
*3.2 -- Amendment to Articles of Incorporation dated September 15, 1989
*3.3 -- Articles of Amendment setting forth Certificate of Designation of Series A
Cumulative Participating Preferred Stock dated as of April 11, 1990
*3.4 -- Articles of Amendment dated December 10, 1990 to Articles of Incorporation
*3.5 -- Amended By-laws of American Realty Trust, Inc., dated December 11, 1991
*3.6 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Special Stock of American Realty
Trust, Inc. (Series B 10% Cumulative Preferred Stock) dated as of
April 4, 1996
*3.7 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and Qualifications,
Limitations on Restrictions thereof of Special Stock of American Realty
Trust, Inc. (Series C 10% Cumulative Preferred Stock) dated as of
June 4, 1996
*3.8 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series D Cumulative
Preferred Stock of American Realty Trust, Inc. dated as of August 2, 1996
*3.9 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series E Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
December 3, 1996
*3.10 -- Articles of Amendment of the Articles of Incorporation
deleting Certificate of Designation of Series A Cumulative
Participating Preferred Stock, dated as of February 28,
1997
*3.11 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series F Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
August 13, 1997
#3.12 -- Articles of Amendment of the Articles of Incorporation of American Realty
Trust, Inc. setting forth the Certificate of Designations, Preferences and
Relative Participating or Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions thereof of Series G Cumulative
Convertible Preferred Stock of American Realty Trust, Inc. dated as of
September 18, 1997
*4.1 -- Instruments defining the rights of security holders (included in Exhibit 3.11)
#8.1 -- Opinion of Andrews & Kurth L.L.P. regarding tax matters
*5.1 -- Opinion of Holt Ney Zatcoff & Wasserman, LLP as to the legality of
the Preferred Stock being offered
**11.1 -- Statement re: computation of per share earnings
**12.1 -- Statement re: computation of ratios
**15.1 -- Letter re: unaudited interim financial information
*21.1 -- Subsidiaries of the registrant
#23.1 -- Consent of BDO Seidman, LLP (American Realty Trust, Inc.)
#23.2 -- Consent of BDO Seidman, LLP (Continental Mortgage and Equity Trust)
#23.3 -- Consent of BDO Seidman, LLP (Income Opportunity Realty Investors, Inc.)
#23.4 -- Consent of BDO Seidman, LLP (Transcontinental Realty Investors, Inc.)
#23.5 -- Consent of BDO Seidman, LLP (National Realty, L.P.)
#23.6 -- Consent of Holt Ney Zatcoff & Wasserman, LLP
#23.7 -- Consent of Deloitte & Touche LLP (EQK Realty Investors I)
##23.8 -- Consent of Legg Mason Wood Walker, Inc. (included in Exhibit 99.4)
#24.1 -- Power of Attorney
*29.1 -- Financial Data Schedule
#99.1 -- Agreement and Plan of Merger By and Among American Realty Trust, Inc., ART
Newco LLC, Basic Capital Management, Inc., EQK Realty Investors I,
Equitable Realty Portfolio Management, Inc., and Compass Retail, Inc.
#99.2 -- Stock Purchase Agreement by and between Equitable Realty Portfolio Management,
Inc. and American Realty Trust, Inc., dated December 22, 1997.
#99.3 -- Stock Purchase Agreement by and between Greenspring Fund, Incorporated and American
Realty Trust, Inc., dated December 22, 1997.
##99.4 -- Fairness Opinion of Legg Mason Wood Walker, Inc.
#99.5 -- Second Amended and Restated Declaration of Trust of EQK (included as Exhibit "A" to Exhibit 99.1)
#99.6 -- Form of Proxy Card

- ----------